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tralac’s Daily News Selection
The 2nd edition of the One-Stop Border Post Sourcebook was launched yesterday in Sandton. The launch was hosted by @NEPAD_Agency, @_AfricanUnion & JICA. NEPAD is taking the OSBP Sourcebook into custody and establishing an OSBP network to learn from each other and to regularly update the Sourcebook (@NEPAD_Agency).
Rwanda approves draft law on new tax for financing AU (The East African)
Rwanda has introduced a new law enabling the levying of a tax on imported goods, with proceeds going to the financing of the African Union. A Cabinet meeting chaired by President Paul Kagame passed the draft law to establish the 0.2% tax on imported goods. The levy, if passed by parliament, will be charged from July this year. Mr Gatete added that Kenya, Chad, Ethiopia and the Congo Republic were at various stages of coming up with a law to implement the Kigali Declaration. Goods originating from East African Community countries with a certificate of origin, as well as tax-exempt goods including industrial equipment, agricultural inputs and others already exempted by the EAC member states will not be taxed.
South African trade policy: wide-ranging update from Rob Davies, Minister of Trade and Industry (ANC)
Not only does global trade growth continue to underperform even the insipid levels of global GDP growth, but a tsunami has struck the dominant paradigm that has shaped international trade negotiations over the past quarter century. In my contribution to this debate, I want to suggest what this might mean in terms of re-aligning our trade policy to the objectives of radical economic transformation. So how then should South Africa respond?
As a small open economy, accounting for only 0,5% of world trade, if we become overly protectionist, we risk being denied access to other markets on whom jobs and productive sectors in our country depend. If we break trade rules there will be consequences and we risk retaliation. But within those constraints, the emerging new circumstances call on us to be more resolute, and indeed smart, in advancing and defending our own national interests. This will include defending our right to take tariff decisions based on our own needs and to deploy appropriate trade remedies. It will also mean paying attention to detail so that we clearly understand the implications of proposals emanating from others and have the courage to say no to those that would decommission or restrict important policy tools. At a time when others are becoming more resolute in defending or advancing their interests, we cannot afford to be less resolute in defending ours. But as a relatively small player we need to redouble our efforts to build and strengthen the influence of the groupings we are part of starting with the African group in the WTO.
While we have been involved in the TFTA for rather longer than initially expected, I am pleased to be able to indicate that significant progress has been made. The framework agreement is in place and will be presented to Parliament in the second half of this year. The more commercially meaningful tariff negotiations between the SACU and the EAC are quite advanced and we aim to conclude these before the end of the year. Progress has also been achieved in the tariff negotiations with Egypt. The TFTA is a building block for the Continental FTA, it is envisaged that the key deliverable of the CFTA this year will be the legal framework.
US Chamber of Commerce hosts Nigerian trade minister
This comes in the context of a telephone call between President Muhammadu Buhari and President Donald Trump Monday, where both Presidents discussed security and economic issues. It is seen as suggesting the US consideration of Nigeria as a strategic partner. "The US has historically been one of Nigeria’s top trading partners; it was the biggest importer of Nigeria’s crude oil at some point. In the last five years, however, the sharp decline in U.S. imports of our crude, on account of rising domestic production of shale, has altered the trade balance between our two countries. This development presents Nigeria with a good opportunity for diversification and to explore and increase non-oil export – especially in agricultural products, services and the digital economy," said Minister Enelamah.
Madagascar: trade policy and performance profile (tralac)
This paper examines the trade profile and performance of Madagascar, focusing on the period since 2001. According to the WTO, Madagascar is slowly recovering from the socio-political crisis which broke out in 2009 and was brought to an end by the December 2013 presidential elections. The upturn is due to a strong performance in rice farming, the recent extraction and subsequent exportation of nickel, cobalt and titanium, and agrifood exports having become more diversified, reflecting the immense wealth of Madagascar’s land and of Malagasy know-how. Services exports, mostly tourism, have also grown and clothing exports, which declined drastically when the US withheld African Growth and Opportunity Act preferences in 2009, have recovered after these preferences were reinstated in June 2014. [The analyst: Ron Sandrey]
2017 Zimbabwe Monetary Policy Statement (pdf, Reserve Bank of Zimbabwe)
The purpose of the following measures is to promote monetary and financial sector stability, bolster confidence within the economy and to stimulate production and productivity across various sectors of the national economy. These measures are necessary as the country needs to pursue a new economic development model that is anchored on an export- led growth strategy to balance exports and imports whilst simultaneously addressing the structural rigidities besetting the economy in order to expand output. It is against this productivity mantra or conviction that these measures are being put in place to sustain the national economy under the New Normal:
Rwanda: Parliament summons agric, trade ministers over ‘poor’ dairy sector (New Times)
Parliament will summon heads of two ministries to explain poor practices leading to low milk production, and transportation and processing difficulties. Officials from the Ministry of Agriculture and Animal Resources and that of Trade, Industry and EAC Affairs will have to appear in Parliament to explain the dairy sector’s poor performance. The plenary was convened on Tuesday to hear and discuss a report from the Standing Committee on Agriculture, Livestock and Environment. The report assessed the progress of the cattle stocking programme, Girinka, among others.
Kenya: Banks unveil own mobile money platform (Business Daily)
Kenyan banks Thursday morning launched a mobile money platform that will allow customers to transfer up to about Sh1 million in a single transaction. PesaLink is jointly owned and operated by banks through Integrated Payment Services Limited (IPSL), a subsidiary of the Kenya Bankers’ Association. This is widely seen as the industry’s answer to M-Pesa’s dominance given that transactions carried out via PesaLink will bypass traditional telecom operators. In addition to mobile money platforms, PesaLink will also be accessible to customers via ATMs, internet banking platforms as well as bank branches and agencies.
Tanzania: ‘EAC Transport corridors vital’ (Daily News)
Presenting the working paper on ‘Dynamism and future prospects of economic corridors in the East African Region’, Chairperson for DAIMA Associates Limited, Prof Samuel Wangwe, said in the recent years new economic movements have emerged. “Growth poles which are an agglomeration of production, logistics and consumption centres have also emerged. Those growth poles have been connected more deeply through transport corridors and by so doing those corridors have been transformed from simple transport corridors to economic corridors,” he noted. JICA Senior Representative, Mr Amatsu Kuniaki, said they commissioned DAIMA Associates to produce the working paper with an interest in looking at the new features of those transformations in the EAC region.
IGAD: AfDB funds IGAD Regional Infrastructure Master Plan
The eight-nation Intergovernmental Agency on Development has secured a $3.5m grant from the African Development Fund, the concessional window of the AfDB Group, to finance the agency’s Infrastructure Master Plan. The IRIMP, to be completed in 38 months, is one of the deliverables under the “IGAD Minimum Integration Plan/Road Map” towards creating a Free Trade Area in the region approved in Nairobi in 2010 and the wider “Horn of Africa Initiative". [IGAD, International Alert MOU includes cross-border trade issues]
ECOWAS Ministers for Women and Gender Affairs: update
Following the meeting, the ECOWAS Commission and the Council of Ministers have been asked to take the necessary steps to enable the Minister in charge of Women and Gender Affairs from the country chairing the regional organisation to present a report on gender issues in the ECOWAS region, at ordinary summits of West African leaders. In that regard, the Commission was encouraged to develop a system to annually review progress, obstacles and challenges to gender equality in Member States. [ECOWAS Conflict Prevention Framework Committee meets today in Abuja]
Africa Gender Report: update, consultancy opportunity (AfDB)
East Africa’s capital markets: harnessing the buy side’s potential (Milken Institute)
The share of residents in EAC countries (Kenya, Rwanda, Tanzania, and Uganda) who access pension and insurance products is still small, although growing. Savings managed by local institutional investors in these countries nearly doubled in just four years, to about $19bn by early 2016. We recently surveyed buy-side institutions in these four countries to ask how they are managing savings across asset classes and EAC countries. How do national regulations affect how these investors manage their portfolios? [Download, pdf]
Tax Base Erosion and Profit Shifting in Africa – Part 2: a critique of some priority OECD actions from an African perspective
This analysis is based on the premise that as much as African countries are encouraged to associate themselves with the OECD recommendations to curtail BEPS, their approach should be one of coming up with customised solutions to protect their tax bases. Since African countries’ tax systems are not homogenous and since their levels of economic development as well as their levels of administrative capacity to deal with the challenges associated with BEPS vary immensely, each country must evaluate its own situation to identify its particular issues and determine the most appropriate techniques to ensure a sound tax base. [The analyst: Annet Wanyana Oguttu]
CCSI submission: State obligations under the ICESCR in the context of business activities (Columbia University)
In January, CCSI made a submission to the Committee on Economic, Social and Cultural Rights, regarding its draft General Comment on “State obligations under the International Covenant on Economic, Social and Cultural Rights in the Context of Business Activities.” CCSI’s submission focused on: (1) host and home states’ obligations as they relate to international investment agreements (IIAs); (2) extraterritorial obligations in the context of outward investment; and (3) state obligations related to corruption issues. [David Collins: Investment contracts are not a substitute for investment treaties]
Simon Maxwell: DFID’s Economic Development Strategy reviewed
The strategy is wide-ranging, focused on poverty reduction, inclusive, environmentally sensitive, and results-oriented. Good. There are questions of emphasis to debate, however, and some choices to make about future work. I identify five issues:
Today’s Quick Links:
Zimbabwe missing out of Mapungubwe TFCA
Economic rationale for cooperation on international waters in Africa: a review
World Bank’s Makhtar Diop on how to accelerate economic growth in Africa: a Devex Q&A
Chad P Brown: What is NAFTA, and what would happen to US trade without it?
OECD: Sovereign Borrowing Outlook 2017 (pdf)
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World Bank scores sustainable energy policies in 111 countries
An increasing number of developing countries – Mexico, China, Turkey, India, Vietnam, Brazil, and South Africa – are emerging as leaders in sustainable energy, with robust policies to support energy access, renewables and energy efficiency, according to a new World Bank Report.
But there is huge room for improvement across every region in the world and particularly in Sub-Saharan Africa, says the report, entitled RISE: Regulatory Indicators for Sustainable Energy.
RISE is the first global policy scorecard of its kind, grading 111 countries in three areas: energy access, energy efficiency and renewable energy. The report is aimed at helping governments assess if they have a policy and regulatory framework in place to drive progress on sustainable energy and pinpoints where more can be done to attract private investments. RISE also enables countries to measure their performance against others, and will allow them to track progress over time.
“RISE will be an invaluable tool for policymakers, helping them to identify and bolster policies and regulations that spur the kind of investments needed to extend access to modern, affordable and reliable energy for all,” said Riccardo Puliti, Senior Director and Head of Energy and Extractives at the World Bank.
The report was produced as a contribution to Sustainable Energy for All Rachel Kyte, CEO and Special Representative to the UN Secretary-General on Sustainable Energy for All, said: “The world is in a race to secure a clean energy transition – one that will deliver energy services for everyone, create jobs, ensure health care and education, and allow economies to grow. Increased use of renewable energy is a key element in that transition.”
She added: “RISE offers policymakers and investors the most detailed country-level insight yet into how we can level the playing field for renewable energy worldwide. Smart policy can accelerate this transition.”
While many of the countries surveyed in RISE have embraced the sustainable energy agenda, the report identifies important policy gaps across all regions, and highlights opportunities for rapid progress. Sub-Saharan Africa is the world’s least electrified continent, where 600 million people still live without electricity. As many as 40 percent of Sub-Saharan African countries surveyed by RISE have barely taken any of the policy measures needed to accelerate energy access, compared to less than 10 percent of Asian countries. Exceptions include Kenya, Tanzania, and Uganda which have strong policy frameworks.
RISE assesses where additional efforts are most needed – both developed and developing countries need to pull their weight. Among the top 10 high-impact countries for renewable energy and energy efficiency, all have relatively robust policy frameworks in place. The same cannot be said for the top 10 high-impact countries for access – both Nigeria and Ethiopia still need to make much progress in policies and regulations. The report notes that in order to improve electricity access, there must be a better balance between making power both affordable for customers without undermining the financial viability of the utilities that need to invest to provide service.
With the plummeting costs of solar panels, there is now an opportunity to bring electricity to customers beyond the reach of utility networks. But many countries, have done little to create a regulatory environment favorable to accelerate the diffusion of solar home systems.
The report highlights that, in many countries, policymakers are not paying nearly as much attention to energy efficiency as to renewable energy, particularly in the developing world. Energy efficiency measures are usually the most cost-effective way of greening the energy sector. Examples like Vietnam that prioritized energy efficiency in its sector planning in response to high demand growth in the 1990s, show how much progress can be made in this area. Yet the majority of countries still need to adopt basic regulatory measures like appliance labeling, building codes, and equipment performance standards.
RISE finds that measures to promote renewable energy – such as targets, incentives and institutions – are widespread. The challenge is no longer how to build renewable power plants, but how to ensure that RISE data is freely available on an online platform that enables users to customize the information they need on each country’s power sector and policy framework. The report has 27 indicators and 80 subindicators and examines over 3,000 laws, regulations and policy documents.
RISE – Regulatory Indicators for Sustainable Energy
Energy is a cornerstone of the world’s development agenda. Reliable, affordable access to modern energy services results in better jobs, health care and education. Women can walk home under the safety of streetlights and opportunities abound for entrepreneurs and small businesses.
Very simply, access to energy can help end extreme poverty and boost shared prosperity. That’s why the world committed to Sustainable Development Goal 7 (SDG7) to ensure access to affordable, reliable, sustainable and modern energy for all as one of 17 goals for 2030, and to dramatically increase energy efficiency and the use of renewable energy sources. The historic Paris climate change agreement in 2015 underscored the need to adopt as much clean energy as possible in order to limit global warming to under a 2°C increase. Energy targets also feature prominently in many countries’ Nationally Determined Contributions.
Achieving these energy goals calls for more than a trillion dollars of investment annually, which in turn requires an unprecedented scale-up of both public and private finance.
Investment in sustainable energy is affected by many factors, including market size, country risk, and financial markets, to name but a few. But a country’s policies and regulations also matter, and they are directly under the control of government.
But how can one find out if policymakers around the world truly rising to the challenge posed by the new global sustainable energy agenda? And where is further action needed urgently?
This is where the global sustainable energy scorecard RISE comes in.
RISE – Regulatory Indicators for Sustainable Energy – assesses countries’ policy and regulatory support for each of the three pillars of sustainable energy – access to modern energy, energy efficiency, and renewable energy.
RISE 2016 finds that:
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Numerous countries are emerging as sustainable energy leaders across the developing world, but while progress is encouraging, there remain significant gaps in policy and regulatory frameworks.
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Sub-Saharan Africa – the least electrified continent and home to about 600 million people without electricity – has one of the least developed policy environments to support energy access.
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Policy frameworks for grid densification and expansion, which are the mainstay of electrification efforts, lag substantially and still need to make progress.
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Too many countries are missing out on using solar power for universal electrification by neglecting enabling policies for stand-alone solar home systems.
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It is critical to find ways to make electricity access affordable for consumers but make it financially viable for the utilities that provide the service at the same time.
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Energy efficiency is often overlooked in the policy agenda, and many countries that have worked on energy efficiency measures have tended to do so on a relatively superficial level. Critical aspects of energy efficiency, including the role of utilities, remain in their infancy.
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Efficient administrative procedures, such as hoe long consumers wait to get electricity connections or how long it takes a developer to start up a mini-grid are essential to accelerate progress on sustainable energy goals.
With 27 indicators covering 111 countries and representing 96 percent of the world population, RISE provides a reference point to help policymakers benchmark their sector policy and regulatory framework against those of regional and global peers, and to develop policies and regulations that advance sustainable energy goals.
Each RISE indicator targets an element of the policy or regulatory regime important to mobilizing investment, such as establishing planning processes and institutions, introducing dedicated incentives or support programs, and ensuring financially sound utilities.
Together, they provide a comprehensive picture of the strength and breadth of government support for sustainable energy and the actions they have taken to turn that support into reality.
RISE classifies countries into a green zone of strong performers in the top third, a yellow zone of middling performers, and a red zone of weaker performers in the bottom third. It will be updated every two years and an upcoming, complementary World Bank report – Global Tracking Framework – will track how countries are performing on sustainable energy goals. The Framework will be released at the Sustainable Energy for All Forumfrom April 3-5, 2017.
Download: Regulatory Indicators for Sustainable Energy: A Global Scorecard for Policy Makers (PDF, 6.28 MB)
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Debate of the State of the Nation Address: Contribution from Rob Davies, Minister of Trade and Industry
Mr President, in the SONA you referred to continued uncertainty in the global economy. Nowhere is that more evident than in the arena of international trade.
Not only does global trade growth continue to underperform even the insipid levels of global GDP growth, but a tsunami has struck the dominant paradigm that has shaped international trade negotiations over the past quarter century. In my contribution to this debate, I want to suggest what this might mean in terms of re-aligning our trade policy to the objectives of radical economic transformation.
There is by now a significant body of writing from the school of what are called heterodox economists that has established the point that all countries that have become industrialised, without exception, have passed through a phase where they have nurtured, supported, defended and protected emerging industries.
Later as these industries became more competitive, the same countries moved to adopt a more free trade stance, even to the point of wanting to deny to other late comers access to the very same policy tools they themselves used to get to where they are. This phenomenon was first described by the nineteenth century German economist, Friederich List, as “kicking away the ladder”.
We have seen much of that in the last quarter century. But it is important to recognise that historically those who had the courage to say “thanks, but no thanks” when receiving such advice, were the ones that advanced.
I recall reading about how a U.S. Congressman in the first phase of US industrialisation at the end of the 19th century responded to the call from Britain for the U.S. to liberalise by saying that the U.S. would do what Britain did, not what Britain said.
The rhetoric of free trade, moreover, is constantly at odds with the reality that all governments regularly deny liberalisation to protect vulnerable sectors, or for a variety of legitimate or vested interest driven public policy reasons.
Take the reality of highly protected and subsidised agricultural sectors in the developed world, defended fiercely by governments that preach free trade to others. Or contrast the push for freer trade in industrial goods with ongoing efforts to strengthen protection against technology flows or the movement of labour.
For the past quarter century, global trade has operated within a rules based framework developed through a system that can be styled hegemonic multilateralism. At the pinnacle of this has been the World Trade Organisation established by the 1994 Marrakech agreement and replacing the previous GATT.
Many countries, including ours, have accepted that a multilateral rules based system is desirable. It creates space for all of us, developed and developing countries alike, to participate in negotiating binding and enforceable rules.
But the reality in the WTO as in other multi-lateral bodies is that the outcomes and ideas that became hegemonic have been shaped by the power relations existing within them, meaning that the dominant industrialised economies have called the shots, even if perhaps to a lesser extent than they were able to in the past.
Informed by an ideology variously described as neo liberalism or the Washington consensus, this system drove an ambitious and unprecedented tariff reduction in the 1990s which became an important feature of the most recent phase of globalisation.
One element of this was a “one size fits all” narrative suggesting that ambitious trade liberalisation was as good for the poorer and weaker as it was for the richer and stronger, resulting in a compression of differentiated obligations between rich and poor countries and a reduction of policy space for developing countries.
Driven by new digitised technologies, global trade expanded as global value chains emerged albeit in an uneven manner and concentrated in a few regions and sectors.
While some developing countries with robust and decidedly non-orthodox industrial policies, like China, were able to take advantage of greater market openings in the developed world, many others, including ourselves, were persuaded or cajoled to cut tariffs and open up markets to an extent that, with the benefit of hindsight, moved too rapidly beyond our capacities as developing countries.
South Africa was further disadvantaged by the fact that the apartheid regime declared in the GATT that ours was a developed country. In the implementation of the Uruguay Round in the 1990s, we were accordingly victims of an historical injustice that required us to cut industrial tariffs deeper and faster than many peer developing countries
The new era we seem to be entering is being shaped by a major backlash against the paradigm that became hegemonic in the 1990s. Contrary to the expectations of some, the most visible form this has taken to date has been a right wing nationalistic populism in the developed world positing itself as anti globalisation, and anti free trade.
The social base of this is strata of what are called the middle class that have seen their jobs, economic security and living standards under threat. A number of studies have shown that these fears are indeed not unfounded. Many other what Stiglitz has called “discontents” have been evident for years in both the developed and developing world, again with real concerns.
A rearguard action from defenders of the status quo has sought to shift the blame for the evident economic insecurity and widening inequality on to the technological changes of the 4th industrial revolution: the emergence of digitised technologies like robotics, three d printing, the Internet of Things etc, that are predicted to lead to disruptive changes in the organisation of production across entire value chains.
But the real issue is that both the technological changes and trade liberalisation have occurred in context of a visible absence of inclusive growth. Rather than seeing a widespread sharing of the benefits of technological advances, we have witnessed a mushrooming of winner takes all markets with winners reaping huge rewards while others get little or nothing. Globalisation has meant that this phenomenon is increasingly defined on a world rather than national scale.
All of this has widened inequality with the numbers of people at the top who own as much wealth as the bottom half now being recorded in a smaller double digit numbers year by year. Make no mistake, globalisation and the 4th industrial revolution are realities that could in other social contexts deliver significant opportunities for improvements in the human condition.
But, in the words of Nobel economics laureate Joseph Stiglitz, up to now we have had “a globalisation that works for a few but not for everybody”.
To be sure there are many voices arguing that this crisis of the dominant neo-liberal paradigm needs to be a signal for an advance towards a more inclusive progressive multilateralism: a multilateralism characterised by real cooperation and solidarity, a multilateralism that is sensitive to the needs of the poorest, which recognises their need for policy space, and cooperates to prioritise the developmental challenges that continue to confront much of the world.
Certainly that continues to be our vision and we will continue to do what we can to advance it.
At the same time, however, we need to be acutely aware that the political trends that are most likely in the immediate future to shape the trade landscape are something else. What is emerging in the developed world is a backlash with the potential to propel us from the hegemonic multilateralism, I have described, into a new era of outright mercantilism.
At its worst this could see trade wars between major economies whose repercussions will without doubt impact on us and every other smaller economy.
At its most benign, we will almost inevitably see a more blatant pursuit by powerful economies of an openly partisan agenda seeking to prioritise the addressing of perceived disadvantages to themselves in multinational, regional and bilateral trade arrangements.
So how then should South Africa respond? As a small open economy, accounting for only 0, 5 per cent of world trade, if we become overly protectionist, we risk being denied access to other markets on whom jobs and productive sectors in our country depend. If we break trade rules there will be consequences and we risk retaliation. But within those constraints, the emerging new circumstances call on us to be more resolute, and indeed smart, in advancing and defending our own national interests.
This will include defending our right to take tariff decisions based on our own needs and to deploy appropriate trade remedies. It will also mean paying attention to detail so that we clearly understand the implications of proposals emanating from others and have the courage to say no to those that would decommission or restrict important policy tools.
At a time when others are becoming more resolute in defending or advancing their interests, we cannot afford to be less resolute in defending ours. But as a relatively small player we need to redouble our efforts to build and strengthen the influence of the groupings we are part of starting with the African group in the WTO.
Fortunately under your leadership, Mr President, we have adopted a policy framework that has begun to move us in this direction. The Trade Policy adopted in 2012 identified tariffs as tools of industrial development. It said trade policy is subordinate to industrial policy and must be informed by the needs of industrial development.
It said we must utilise and defend Policy space that allows us to localise and pursue transformation. It says we must not hesitate to defend and use trade remedies and access dispute bodies when we are being unfairly treated.
The resoluteness and vigilance I was talking about earlier means, to give a current example, recognising that when trade partners, or domestic importers, tell us that problems in our poultry industry are due to competitiveness challenges, their point of departure is not a desire to improve performance of our industry but to persuade us not to take steps to reduce their imports.
In this case, yes, there are issues of competitiveness and inclusion and it is for that reason that we have established a government-industry task team to address a wide range of matters in the sector. But we must also recognise that if we don’t act against the surge of imports we might not have an industry to raise the competitiveness of.
The fact is there are serious structural distortions in the global market for poultry products. Consumers in the developed world eat more white meat. This means that poultry producing developed countries have a surplus of brown meat, or bone in portions, that they cannot sell in their own markets.
Their best option is to sell them at a price just above marginal cost in the developing world. We need to learn the lessons from the experience of other countries like Ghana, Cameroon and Ivory Coast that were required to open up to these imports through structural adjustment programmes. Cameroon lost 92 per cent of its poultry industry and 110.000 rural jobs between 1999 and 2004, while 1500 enterprises employing15.000 workers closed shop in the Ivory Coast.
We also need to be clear as a country that localisation is an imperative. Everyone is using this policy tool, in one form or another, even those that preach against it. We must therefore remain steadfast in not signing the WTO’s “Optional Protocol on Transparency in Government Procurement”.
If we did, we would have to open up government procurement to all other state signatories on a non-discriminatory basis and disable procurement as the tool of local development and radical economic transformation which the President referred to in SONA.
Likewise we must politely but firmly say no, as we have done, when proposals are put forward for further WTO disciplines on procurement. For similar reasons we must resist the entreaties of our friends to sign the Environmental Goods Agreement. If we did we would hobble the local industrial development potential of the roll out of renewable energy.
In a context where the International Settlement of Investor Disputes system is facing a crisis of legitimacy, we must be vigilant in the face of proposals that would allow the recreation in another form of a system that would allow investors to challenge governments’ legitimate rights to regulate in the interests of environmental responsibility, consumer protection and also of industrial development.
Trade negotiations have to be recognised now more than ever as being what they have always been, a process of giving and taking driven by competing interests.
That requires a constant and serious assessment of the balance of gains against the payment required for them. Above all, we must be wary of signing away policy tools that are either important now or which may be so in the future.
In the SONA, the President outlined a number of the trade arrangements we are working on or are in place. Our overriding priority is to work to promote African regional integration.
More precisely it is to pursue a broadening of integration across existing regional communities within a development integration framework. Practically, this means taking steps to enlarge the free trade areas existing in SADC and other regional economic communities into larger more expansive FTAs, but also to complement this with active cooperation to address infrastructure deficiencies.
The aim of this is to promote more intra African trade and support industrialisation through the creation of large regional markets that can support the development of regional value chains. This approach is wholly compatible with trends in successful emerging economies.
Countries like India and China are now turning to building their domestic markets as the basis to expand their productive capabilities and move up the value chain. The problem we have in emulating them is that colonialism divided Africa into 54 separate countries, none of which on its own has a population or market to support deep industrialisation. However, as large groupings we do begin to reach the numbers that can support the growth of new regional value chains.
The Tripartite SADC-Comesa-East African community FTA once concluded, will create a market of 26 countries with a population of 625m and a combined GDP of US$1.6 trillion. The Continental Free Trade Area negotiations that are underway will create a market of over 1 billion people and a combined GDP of over US$2 trillion.
These integration processes will put the African continent on a sustainable development trajectory.
While we have been involved in the TFTA for rather longer than initially expected, I am pleased to be able to indicate that significant progress has been made. The framework agreement is in place and will be presented to Parliament in the second half of this year.
The more commercially meaningful tariff negotiations between the SACU and the EAC are quite advanced and we aim to conclude these before the end of the year. Progress has also been achieved in the tariff negotiations with Egypt. The TFTA is a building block for the Continental FTA, it is envisaged that the key deliverable of the CFTA this year will be the legal framework.
Next month, as you mentioned Mr President, SADC will hold a Special Summit to consider and hopefully adopt its regional industrial strategy, building on the framework adopted at an earlier special summit last year.
We as South Africa have put a lot of effort into ensuring that we have a credible, implementable action plan that can give real meaning to the third pillar of our developmental regional integration agenda - cooperating to promote real regional industrial development.
The primary orientation of the strategy is the necessity for the structural transformation of the SADC region by way of industrialisation, modernisation, upgrading and leveraging the FTA to lock-in regional value-chains. The regional industrial work programme is a priority so as to reduce regional economies vulnerability to global shocks due to heavy reliance on exports of commodities.
The African market is very important for South African producers, particularly for those producing value added products. Almost 29% of South Africa’s merchandise exports in 2015 were sold in other African countries.
We are also involved across the continent as investors and providers of services. While we need to continue to pursue all opportunities for mutually beneficial trade and investment with other countries on the continent, we need also to prepare to move into other new places in regional value chains, particularly as other countries industrialise and seek to enter space currently occupied by our products.
We have established a new division in the dti called Invest and trade Africa, which will look at ways in which investment led trade can move us into new supplier arrangements as we cooperate with other countries to promote developmental integration.
There is also now a voluntary Code of Conduct for South African companies operating elsewhere on the continent, to assist in positioning ourselves as a real partner in development. That code I can report was extremely well received at the AU trade week held in Addis Ababa late last year and I would encourage companies operating elsewhere on the continent to seriously consider integrating it into their value proposition.
Beyond our priority in promoting African regional integration, we have been judicious in our pursuit of trade agreements elsewhere, whilst actively looking to promote concrete trade and investment opportunities in a large number of emerging and fast growing economies across the world.
The SACU-Mercosul Preferential Trade Agreement is now in force opening up over 1000 tariff lines for preferential trade with the most important regional grouping in Latin America.
We have agreed to revive and speed up the PTA negotiations with India. Within BRICS we are pursuing an agenda of cooperation on a number of important issues, and seek to coordinate positions on many multilateral issues. Under our presidency, South Africa tabled a study on the promotion of complementary trade in value added products, that was adopted by trade ministers.
We participated along with our partners in SACU in the EPA negotiations with the EU because they held out the prospect of harmonising our relations with our largest trading partner with other Members of the customs union, and also offered the prospect of improving the terms of access to the EU market for some agricultural products over that available in the bilateral Trade, Development and Cooperation Agreement in force since 2000.
The SADC EPA (involving 6 SADC member states) came into force last year and provides us with an increased quota allowing the duty free entry of 150 million litres of wine and 50 million tons of sugar as well as improvements in access for several other product lines. Significantly, also, the EPA has allowed the recovery of some of the policy tools we had, perhaps inadvertently, renounced in the TDCA.
We engaged actively to preserve our access to The U.S. Africa Growth and Opportunity Act in the run up to the U.S. Congress’ decision to renew that arrangement for ten years in September 2015. AGOA is not a trade agreement as such, but a unilateral set of preferences granted to a list of African countries.
While we had to pay a price, in the form of a limited opening of the South African market for U.S. meat products for as long as we remain in AGOA, our inclusion until 2025 is enshrined in an Act of Congress.
That Act does provide for reviews by the Executive, but any recommendations have to be approved by Congress. We look forward to participating in the next AGOA ministerial forum in Togo later this year, and will report back to Parliament and the country on any further developments.
As the UK Government prepares to trigger exit negotiations from the EU, we need to prepare for a new trade arrangement with the UK. We have engaged with the UK government and reached an in principle understanding that there will be no damage to existing trade and investment relations that must be preserved.
We also agree that the legal commitments under the EPA with the EU, including the UK, will continue to be the basis for our bilateral trade in the immediate future and that those commitments would be carried over into any new arrangement in future.
We will have to pay particular attention to questions of how quotas, notably on agricultural products will be dealt with to avoid any damage to current trade.
In the WTO we have seen the promise held out at the 2001 Doha Ministerial of a developmental round fading as frankly too much was sought by the strong as payment for too little offered to the poor. The last ministerial held in Nairobi in December 2015, saw a number of developed countries distancing themselves from the Doha Development Agenda.
The compromise in the final text reflected the reality, that while many developing country Members seek to pursue negotiations on the basis of that mandate, others seek to introduce new approaches and new issues into the negotiations.
The larger dominant economies are clearly now seeking to prioritise a set of so called 21st century trade issues. There is a big push now for the eleventh ministerial conference that will be held in Buenos Aires at the end of the year, to mandate text based negotiations on electronic commerce.
While we don’t deny the significance of e-commerce, and while we remain open to partnerships that will assist in harnessing it to the benefit of our own and broader African development, agreeing to negotiate binding rules at the WTO would be premature precisely because e-commerce is intrinsic to the wider digital transformation that is rapidly evolving and for which the implications are not well understood.
It would be shortsighted to agree to negotiate rules that could entrench the dominance of existing major players and/or disable the very policy tools needed - now and in the future - to benefit from these developments, particularly in the absence of any developmental framework or programme.
According to a 2015 UNCTAD report, the unevenness in digital trade is striking. In business-to-business e-commerce, by far the largest form of e-trade, four countries account for 80% of e-commerce.
While Business to Consumer e-commerce is much smaller, it appears to be growing faster but, again, the regional shares vary considerably with the Middle East and Africa together accounting for only 2.5%. If these figures approximate reality, they underscore the scope and depth of the digital divide.
The South Centre has also done valuable work on this topic which is assisting to inform us as we work with other governments on these and other matters.
As multilateral negotiations falter, we have witnessed a steady increase in legal cases being brought to the WTO to resolve trade disputes.
The proliferation of disputes is challenging the capacity of the institution to keep pace and bring into focus questions of whether rulings will always be respected particularly where issues of core national interests are at stake. Again this is an area that must be closely monitored.
Madam Speaker, Honourable Members, I have tried to indicate some of the challenges, principles and concrete work that we have been engaged in on the trade policy front.
Our approach has been guided by a strong sense of national interest, by the need to defend nascent industries as part of our efforts to industrialise, diversify and create a supportive environment for radical economic transformation, by the need to preserve policy space, to prioritise developmental regional integration in Africa, and our commitment to a fairer more development orientated global sales rules based system.
I have suggested that we are likely to face new and more difficult challenges in the new environment we are entering.
But at the same time we need to recognise that it is one that could create new opportunities to build our own more development orientated domestic and regional frameworks if we reaffirm a strong stance on those principles and have the courage to say no to unfair demands and proposals that we may encounter.
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Rwanda approves draft law on new tax for financing AU
Rwanda has introduced a new law enabling the levying of a tax on imported goods, with proceeds going to the financing of the African Union.
A Cabinet meeting chaired by President Paul Kagame passed the draft law to establish the 0.2 per cent tax on imported goods.
At the 27th African Union Summit held in Kigali in July 2016, African governments unanimously adopted a formula known as the Kigali Declaration proposed by a review team led by the former African Development Bank president Dr Donald Kaberuka, that would see AU member states finance the continental body.
“We had given ourselves a period of one year for all countries to implement the decision. Member states are currently working on implementing the Kigali Resolution but the pace is not the same,” Rwandan Minister of Finance and Economic Planning Claver Gatete said.
The levy, if passed by parliament, will be charged from July this year. Mr Gatete added that Kenya, Chad, Ethiopia and the Congo Republic were at various stages of coming up with a law to implement the Kigali Declaration.
It is estimated that if all AU members execute the plan, $1.2 billion will be raised annually. That would make the AU, which has an annual budget of $782 million, self-sustaining and end dependence on donors.
At least 74 per cent of the AU’s funding comes from donors who will this year provide $576 million compared with $205 million from member states.
Implementation of the financing mechanism was supposed to begin immediately with member states putting in place national legislation.
However, when AU leaders convened in Addis Ababa last month, there were concerns that some member countries were dragging their feet on coming up with domestic legislation and figuring out how it will be effected.
The AU funding mechanism was spearheaded by President Kagame, who led a team of experts to come up with reforms of the African Union Commission and the AU in general, key among them the urgent need for member states to finance activities of the AU and end dependence on foreign aid.
Explaining how the law will work, Mr Gatete said that Rwanda was among at least five countries that have moved forward on implementing the Kigali Declaration.
“We have made some good progress on the initial work of opening an account and putting in place the necessary mechanisms and laws that will give us a go ahead on this. The draft law will be sent to parliament immediately for us to have the right legal instruments to raise this money,” Mr Gatete said.
He also said that Rwanda will be among the first countries to put in place domestic instruments to raise funds for the AU. The money will be channelled through an account in the National Bank of Rwanda before it is remitted to the AU.
Goods originating from East African Community countries with a certificate of origin, as well as tax-exempt goods including industrial equipment, agricultural inputs and others already exempted by the EAC member states will not be taxed.
Rwanda’s imports are higher that its exports. In the first half of 2016, formal imports recorded an increase of 3.3 per cent in value, amounting to $1,171.25 million from $1,134.10 million, after a decrease of 5.1 per cent in the same period of 2015, while it decreased by 5.1 per cent in volume, according to the Central bank figures.
Much needed reforms
Experts say that if member states show commitment, a big chunk, if not the entire budget of the continental body can be raised from member states. The AU has in recent years been ridiculed by African citizens for depending on aid while member states default on membership fees.
“On average, 67 per cent of the assessed contribution is collected annually from member states. About 30 member states default either partially or completely annually, creating a significant funding gap between planned budget and actual funding, which hinders effective delivery of the African Union’s agenda,” says an AU report.
Ahead of the January summit, the incumbent AUC Commissioner for Economic Affairs Anthony Mothae Maruping expressed concern that countries are already showing signs of slowing down on their commitments as their bureaucracies delays processes of putting in place domestic legislation to implement the decision.
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Harnessing the buy side’s potential to develop East Africa’s capital markets
A key step in developing a local capital market is to develop the “buy side” – to encourage greater participation of local institutional investors such as pension funds and insurance firms. If managed well, these pools of savings can become important sources of long-term financing, including for infrastructure, which can drive socioeconomic growth.
The share of residents in East African Community (EAC) countries Kenya, Rwanda, Tanzania, and Uganda who access pension and insurance products is still small, although growing. Savings managed by local institutional investors in these countries nearly doubled in just four years, to about $19 billion by early 2016. We recently surveyed buy-side institutions in these four countries to ask how they are managing savings across asset classes and EAC countries.
We found that most of these investors want to further diversify their portfolios, but they are impeded largely by a lack of investable securities and risk-management products that allow them to invest in a way that meets their aims. This points to a need in these markets for more long-term investment vehicles, in particular – as well as market participants. For example, a large majority of surveyed investors showed strong interest in new vehicles such as a regional “fund of funds” that could pool their resources and manage risk by investing across diverse infrastructure projects by sector and country.
There already are clear signs that pension funds, in particular, have been diversifying their portfolios over the past decade – shifting further away from the most liquid asset classes. Surveyed pension funds hold an average of just 1 percent in cash and demand deposits across the EAC focus countries. And pension fund and insurer investments in short-term government securities typically fall well below national and even internal ceilings. Survey findings show pension funds generally hold much more in longer-term than short-term government securities. But very limited corporate bond holdings, even for pension funds, is at least partly the result of small market size and lack of product.
Our findings also show that tiny allocations so far to private equity and venture capital (PE/VC) reflect limited experience and capacity evaluating these new asset classes – more so than lack of demand or investment limits. In fact, national regulatory approaches are still evolving. Greater clarity on how regulators will treat these new asset classes may encourage more investment. While certainly not risk-free, some investment in PE/VC as part of a well-managed portfolio could help generate returns. At the same time, it will be important to boost risk-evaluation capacity among regulators, investors, and financial intermediaries.
How do national regulations affect how these investors manage their portfolios? We found that in most cases, national regulatory investment limits are not the binding constraint preventing local institutional investors in the EAC from further diversifying their portfolios. Their actual allocations to public equities and corporate bonds generally fall well below national regulatory caps. And internally set targets tend to fall well below national ceilings – as does actual investment in these securities.
Around half of investors said they invest some of their portfolio assets outside their home countries – typically in other EAC countries. How can these EAC markets draw on regional ties to attract institutional investors? Roughly half of survey participants said access to better strategies and instruments for managing foreign exchange risk would make them more likely to invest in assets across EAC borders.
We found that some investors may not be clear on the intraregional restrictions by asset class they actually face. Regulators should step up communications with investors to ensure they clearly understand both the limits and opportunities in how they invest within the EAC and across asset classes. A well-functioning buy side can reduce an economy’s reliance on foreign portfolio investors, increasing its resilience to sudden capital inflows and outflows. Further progress on intraregional integration within the EAC may help mitigate some of the risks associated with cross-border investment. Limited investable securities in local capital markets strengthens the case for easing or harmonizing restrictions intraregionally. This, in turn, could improve market liquidity, deepen the EAC’s capital markets, and make it easier for local institutional investors to diversify their portfolios.
Jim Woodsome is a Senior Research Analyst at the Milken Institute’s Center for Financial Markets.
See the findings from this research below or on the Milken Institute website.
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tralac’s Daily News Selection
President Alpha Condé: Powering Africa’s Future (Project Syndicate)
Having spent the last year coordinating energy policy within the African Union, I have sensed a growing mood of impatience from Africa’s political leaders on the topic, a sentiment that is shared by many of our people. But African leaders are demonstrating a new determination to improve younger generations’ prospects, not least by electrifying our economies. Never in my lifetime have I seen Africa’s political leaders so focused on overcoming some of the challenges that have held back our continent for so long. Working with international partners in the public and private sector, we can chart a new and prosperous path for Africa and a hopeful future for our youth. And if African leaders pair their determination with the G20’s pledge to invest in infrastructure partnerships, the future for Africa’s people will be bright in more ways than one.
Afreximbank and Ecobank agree on African trade and investment promotion
Under the agreement, Afreximbank and Ecobank will design joint innovative and tailor-made financial instruments and solutions to support private sector corporates and select strategic public sector institutions, as well as small and medium enterprises or “SMEs.” This will enable them to participate effectively in the production of value added goods and services in national, regional and continental value chains. The initiatives envisaged include the creation of a $500m programme dedicated to financing trade among Afreximbank member countries where Ecobank conducts banking business.
African Medicines Agency: consultations on draft legal and institutional frameworks, business plan (AU)
Extract from the Business Plan (pdf):The AMA is a Specialized Agency of the AU, legally mandated by Member States to improve their capabilities to regulate medical products. This will be achieved through coordinating and strengthening continental initiatives to harmonize medical products regulation, providing guidance, complementing and enhancing the efforts of the AU-recognized Regional Economic Communities and Member States, and contributing to improving access to medical products on the continent. AMA will serve as a catalyst for stronger regulatory oversight to curtail medical products that are SSFFCs, enable competitiveness of locally produced medicines particularly of those for diseases that disproportionately affect Africa. AMA will achieve these desired results through the following strategies: (i) regional integration and harmonization, (ii) policy, legal and regulatory reforms at national and regional level, (iii) regulatory capacity building, (iv) advocacy and knowledge management.
ICGLR: Declaration on Section 1502 of the US Dodd Frank Act
Based on the above, the ICGLR Secretariat believes that the repeal of Section 1502 of the Dodd Frank Act will weaken the ICGLR RCM. Therefore, the ICGLR is highly concerned that this might contribute to the resurgence of armed groups controlling and exploiting minerals. This might ultimately lead to a generalized proliferation of terrorist groups, trans-boundary money laundry and illicit financial flows in the region. The ICGLR wishes to reiterate its determination to implement the RINR, with particular focus on the RCM. Thus, the ICGLR calls for all its existing and new partners to support the fight against negative forces in Africa’s Great Lakes Region. [Note: Extracted from press statement circulated earlier today]
Egypt heads project to connect 10 African countries through Nile shipping line (Egyptian Streets)
By 2024, a 4,000 kilometers waterway will connect ten African countries, stretching between Lake Victoria and the Mediterranean Sea. An Egypt-led project, the navigational shipping line is to be established along the Nile River for small and medium-size commercial vessels to boost bilateral trade. Egyptian Minister of Water and Irrigation Moahmed Abdel Aty announced the completion of an annual report which highlights the results of the early stages of the feasibility studies. Egypt signed a feasibility studies contract with a German-Belgian international consultancy office, using $650,000 in funding from the African Development Bank, after having completed a pre-feasibility study in May 2015, which cost $500,000.
Ethiopia-Sudan border development conference (Sudan Tribune)
The two-day conference, 16-17 February, held alternately between Sudan and Ethiopian regions, will discuss issues pertaining to farming in the joint borders, trade exchange and smuggling. Governor of Gadaref State, Mirghani Salih Sid Ahmed said his state has completed its arrangements to participate in the conference, saying they would seek to retrieve the agricultural lands confiscated by Ethiopian farmers. According to the governor, Gadaref state delegation will focus on issues to promote bilateral ties between the two countries besides ways to enhance trade exchange particularly after establishing the free-trade zone at Al-Galabat border area.
Kagitumba-Mirama Hills one-stop border post easing trade, says TMEA (New Times)
The recently inaugurated OSBP facility at Kagitumba at the Rwanda-Uganda border has reduced clearing time from five to 3.45 hours. In a statement, TMEA said time reductions are estimated to hit 30 per cent by June and that various initiatives are being undertaken to popularise the border crossing to attract 60 per cent of the Northern Corridor traffic.
Tanzania’s Southern Agricultural Growth Corridor: SAGCOT says it does not use GMO technology, Mechanised potato farming starts in southern corridor
Tanzania, Zambia, DR Congo to build $85m bridge (The Citizen)
DRC’s Katanga Province governor Jean-Claude Kazembe said here yesterday that the bridge to be constructed at Kasenga on the border between Congo and Zambia will cost $85m (about Sh190 billion on the prevailing exchange rate). Upon constructing the bridge it will easy to cross the Luapula River, which is a section of the River Congo. “So far, we have already held talks with the relevant ministry in Tanzania (the Ministry of Works, Communication and Transport) and they have shown a positive interest in the implementation of the bridge,” Mr Kazembe told journalists yesterday. According to him, the bridge will ease transportation of people and cargo across the three countries. He said a Chinese company had completed the first phase of the project’s feasibility study. "As soon as we finalise talks with Zambia, actual construction will start soon,” he said.
Sierra Leone: Trade Policy Review (WTO)
The second review of the trade policies and practices of Sierra Leone takes place on 14 and 16 February 2017. The basis for the review is a report by the WTO Secretariat and a report by the Government of Sierra Leone (both available for download).
Nigeria ranks low on emerging markets manufacturing (BusinessDay)
Nigeria currently ranks low among major emerging markets manufacturing attractiveness, which is a baseline to drive industrial revolution for any nation, according to a recent report presented Monday at the 13th Nigeria Economic Summit Group. The report states that Nigeria’s manufacturing sector, which currently contributes 9% to GDP, has the potential to contribute up to 30% of GDP, as the country can prioritise its agricultural value chain development. The document urged the government to set up a committee which should be headed by the minister of Trade and Industry to own the Made in Nigeria Initiative and develop an integrated strategic plan on made in Nigeria.
Madagascar: new study finds timber harvesting is out of control (TRAFFIC)
A combination of political instability, government mismanagement, a lack of forest operation controls and a failure to impose punitive penalties on well-known traffickers contributed to what was effectively zero control over the management of precious timber resources in Madagascar between March 2010 and March 2015, according to a new TRAFFIC study (pdf). At least 350,000 trees were illegally felled inside protected areas and at least 150,000 tonnes of logs illegally exported to destinations including China, Malaysia and Mauritius over the five-year period, according to the study.
The Sunken Billions Revisited: progress and challenges in global marine fisheries (World Bank)
The bio-economic model used in The Sunken Billions Revisited – developed by Ragnar Arnason, professor in the Faculty of Economics at the University of Iceland – treats the world’s marine fisheries as one large fishery. It examines the mismatch between the increasingly high level of effort put into fishing and stagnant or even declining fish catches, and calculates the incremental benefits that could be derived from global fisheries reform.
Regional Smallholder Women’s Farmer Conference: conference report (ESAFF/Southern Africa Trust)
In broader terms the conference had the following objectives: (i) enhance awareness of women smallholder farmers on the implementation and monitoring of the SADC RAP, SADC RAP Result Framework and SADC Investment Plan, (ii) provide gender perspectives to the SADC RAP Investment and Implementation Plan as it kicks off this year to 2021, (iii) identify and map roles of women smallholder farmers in influencing the SADC RAP Investment and Implementation plan at regional and national level. The main issues, presentations and discussions:
Drought is pushing food prices up sharply in East Africa (FAO)
In Mogadishu, prices of maize increased by 23% in January, and. the increase was even sharper in the main maize producing region of Lower Shabelle. Overall, in key market towns of central and southern Somalia, coarse grain prices in January have doubled from a year earlier. With an earlier than usual depletion of household stocks during the coming lean season and preliminary weather forecasts raising concerns for the performance of the next rainy season, prices are likely to further escalate in the coming months. Maize prices in Arusha, United Republic of Tanzania, have almost doubled since early 2016, while they are 25% higher than 12 months earlier in the country’s largest city, Dar Es Salaam. In South Sudan, food prices are now two to four times above their levels of a year earlier, exacerbated by ongoing insecurity and the significant depreciation of the local currency.
The role of development banks in promoting growth and sustainable development in the South (UNCTAD)
The time is ripe to promote development banks. At the national level, the global financial crisis in 2008 has opened space for national policymakers to selectively break with the Washington Consensus policy package and an opportunity to support pro-development finance initiatives. At the regional and South–South levels, there is a new momentum of initiatives for the creation of Southern banks, which could tap into global savings, especially those that originate in the South. Taking advantage of such opportunities is fundamental to supporting future development in the South.
This report first details the rationale for national development banks and developing country experiences with such banks in the past. It then discusses regional and subregional banks, which can play a critical role, especially in supporting smaller countries that may face greater obstacles in setting up development banks at the national level. Finally, it discusses the recently created Southern banks, both regional and cross-regional. The report concludes by noting that the new development banks are greatly needed and should not be seen as a threat to long-established international financial institutions.
World Trade Outlook Indicator: first quarter 2017 (pdf, WTO)
The World Trade Outlook Indicator is designed to provide "real time" information on the trajectory of world trade relative to recent trends. The latest value of 102.0 is up from the previous reading of 100.9 published last November, pointing to a strengthening trade growth into the first quarter of 2017. Most component indices are moving in a positive direction, with air freight, automobile sales, export orders and container shipping all above trend and rising. Data on international freight tonne kilometres from IATA have risen sharply as European carriers posted strong growth. Meanwhile, container port throughput of major ports has largely recovered from its recent slump. The automobile index has also rebounded, but electronics and agricultural raw materials trade are both slightly below trend.
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World Trade Outlook Indicator suggests moderate trade momentum in first quarter of 2017
The WTO’s latest World Trade Outlook Indicator (WTOI) suggests that global trade growth will continue to build moderately in the first quarter of 2017 after having strengthened in the final quarter of last year.
Trade-related indicators including air freight, automobile sales, export orders and container shipping have all registered solid gains in recent months, auguring for faster growth in merchandise trade volumes in the first few months of the year.
The WTOI is a leading indicator of world trade, designed to provide “real time” information on the trajectory of merchandise trade three to four months ahead of trade volume statistics. It combines several trade-related indices into a single composite indicator to measure short-run performance against medium-run trends. A reading of 100 indicates trade growth in line with trend, while readings greater or less than 100 suggest above or below trend growth.
With a current reading of 102.0 for the month of November, the WTOI points to above-trend trade growth in February-March. The WTOI has risen further above trend since the last release three months ago, when the indicator stood at 100.9.
Four of the six component indices of the latest WTOI are more positive than the reading for August. Air freight, automobile sales, export orders and container shipping are all moving in a positive direction above trend and rising. Data on international freight tonne kilometres from the International Air Transport Association (IATA) have risen sharply as European air carriers posted strong growth. Container port throughput of major ports has largely recovered from its recent slump while the automobile index has also rebounded after dipping in the middle of last year. On the other hand, indices for electronics and agricultural raw materials trade are both below trend.
The WTO trade forecast issued on 27 September last year foresaw world merchandise trade growth of 1.7% in 2016 and growth between 1.8% and 3.1% in 2017.The WTOI currently suggests that trade volume may begin to recover in the fourth quarter once data become available. Any such rebound would have to be fairly strong for trade growth in 2016 to match the 1.7% increase forecast by the WTO last September.
The WTOI is not intended as a short-term forecast, although it does provide an indication of trade growth in the near future. Its main contribution is to identify turning points and gauge momentum in global trade growth. As such, it complements trade statistics and forecasts from the WTO and other organizations.
Further details on the methodology are contained in the technical note here.
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The role of development banks in promoting growth and sustainable development in the South
In an era of excess global liquidity and savings on the one hand, and an acute shortage of financing for development on the other, this report argues that development banks at all levels – national, regional, multilateral – can play a critical bridging role between savings and financing needs and thereby contribute significantly towards the achievement of the Sustainable Development Goals.
Unlike commercial financial institutions, geared towards short-term projects and returns, development banks are by design providers of long-term finance. Their funding is predominantly in the form of long-term liabilities, they have technical expertise to take a leading role in the design and execution of development projects and they have the financial means to attract other players to co-financing. Historically, they have played such a role regarding early as well as late industrializers. In future, they should continue to be a key feature in the development finance landscape.
The time is ripe to promote development banks
At the national level, the global financial crisis in 2008 has opened space for national policymakers to selectively break with the Washington Consensus policy package and an opportunity to support pro-development finance initiatives.
At the regional and South-South levels, there is a new momentum of initiatives for the creation of Southern banks, which could tap into global savings, especially those that originate in the South. Taking advantage of such opportunities is fundamental to supporting future development in the South.
About this report
This report first details the rationale for national development banks and developing country experiences with such banks in the past. It then discusses regional and subregional banks, which can play a critical role, especially in supporting smaller countries that may face greater obstacles in setting up development banks at the national level. Finally, it discusses the recently created Southern banks, both regional and cross-regional.
The report concludes by noting that the new development banks are greatly needed and should not be seen as a threat to long-established international financial institutions. In fact, they have already started operations in collaboration with established institutions, as new partners for development. In the process, they are helping to form a strong network of development banks in which different institutions collaborate with each other through co-financing but also in various other forms, creating important synergies and achieving, collectively, greater effectiveness.
This report was prepared by the Unit on Economic Cooperation and Integration among Developing Countries, Division on Globalization and Development Strategies, UNCTAD. The report team consisted of Ricardo Gottschalk (lead contributor), Daniel Poon and Matias Mednik, and consultants CP Chandrasekhar and Stephany Griffith-Jones.
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African Corridor Management Alliance to strengthen economic corridors
The Economic Commission for Africa, through the African Trade Policy Centre (ATPC) is holding a meeting in collaboration with the Walvis Bay Corridor Group and other Corridor management Institutions (CMIs) to establish the African Corridor Management Alliance.
The Alliance is expected to coordinate the sharing of best practices and other strategies in support of the development and management of economic corridors on the Continent.
Held against the backdrop of promoting corridors as vehicles for economic transformation and boosting intra-African trade, the inaugural meeting in Walvis Bay, Namibia will also map out a strategy for the new organization.
In his welcoming address, Willem Goeiemann, Permanent Secretary of Works and Transport of Namibia said, “The process of establishing ACMA is a major milestone in defining Corridor Management Institutions’ performance and prospects in the integrated management of economic corridors through enhanced investment in infrastructure. 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 chain.”
Stephen Karingi, Director of the Capacity Development Division of ECA, in his opening statement highlighted the potential for ACMA to contribute to regional integration and intra-African trade particularly in the area of trade facilitation. He stressed that the establishment of ACMA is timely in view of the 2017 deadline for the conclusion of negotiations to establish the Continental Free Trade Area (CFTA).
David Luke, Coordinator of the African Trade Policy Centre (ATPC) drew attention to ECA’s historic role in helping to create specialized institutions to enhance economic integration on the Continent. “The African Regional Standards Organization and the African Alliance for Electronic Commerce are examples of ECA’s contribution to institution building in this regard,” he said. He expressed the hope that the establishment of ACMA as an umbrella organization can become a channel through which ECA’s engagement with the CMIs can be further strengthened.
For his part, Johny Smith, Chief Executive Officer of the Walvis Bay Corridor Group and interim chairperson of ACMA noted that through ACMA, CMIs would identify the necessary conditions that should be realized for corridor development initiatives to play a catalytic role in bringing together trade, infrastructure, spatial initiatives, industrial development and other economic activities to foster market integration in the Continent.
The meeting, which is hosted by the Walvis Corridor Group, brought together Heads of several CMIs, representatives from the 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.
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Giving oceans a break could generate US$83 billion in additional benefits for fisheries
Billions of dollars are lost at sea but different paths to fisheries reform show promising results
Fishing less, and better, could generate an additional $83 billion each year for the fisheries sector, creating a much-needed revenue stream in developing countries and improving global food security, according to a new World Bank Group report.
The Sunken Billions Revisited: Progress and Challenges in Global Marine Fisheries, an update on a 2009 study, shows that reducing the global fishing effort would allow fish stocks to recover from overexploitation and lead to increases in the weight, value and price of fish landed, boosting the profitability of the fisheries sector from an estimated $3 billion a year to $86 billion. It would also lead to more fish being caught and landed, because stocks would have recovered to healthier levels, thus helping meet growing global demand for seafood and improving food security in many countries around the world.
“This study confirms what we have seen in different country contexts: Giving the oceans a break pays off,” said Laura Tuck, World Bank Vice President for Sustainable Development. “Moving toward more sustainable fisheries management, through approaches that are tailored to local conditions, can yield significant benefits for food security, poverty reduction and long-term growth.”
The bio-economic model used in The Sunken Billions Revisited – developed by Ragnar Arnason, professor in the Faculty of Economics at the University of Iceland – treats the world’s marine fisheries as one large fishery. It examines the mismatch between the increasingly high level of effort put into fishing and stagnant or even declining fish catches, and calculates the incremental benefits that could be derived from global fisheries reform.
The analysis reveals foregone economic benefits of about $83 billion in 2012, compared with what could be generated under the optimal scenario. This result is not statistically different from the sunken billions estimated for 2004, which were revised from an estimated $50 billion in the 2009 study to $88 billion in The Sunken Billions Revisited, based on improvements in the model, better data, and adjustment to 2012 dollars. Both figures emphasize the urgent need for reform and the important economic gains that could be made through a more sustainable management of the world’s fisheries.
While the report makes a strong case for investing in the recovery of fish stocks, it does not prescribe a particular reform path. Reform experiences in countries and regions as diverse as Peru, Morocco, the Pacific Islands and West Africa show it is possible to reduce overfishing through locally appropriate reforms that ultimately improve the livelihoods and job security of coastal populations.
Reducing the global fishing effort would allow biological processes to reverse the long-term decline in fish stocks seen in many parts of the world. About 90 percent of marine fisheries monitored by the Food and Agriculture Organization (FAO) are fully fished or overfished, up from about 75 percent in 2005. Fish stocks are also under pressure from pollution, coastal development, and the impacts of climate change.
The World Bank helps countries improve the management of their fisheries, invest in sustainable aquaculture, and manage competing pressures on coasts and oceans, to improve the livelihoods of coastal communities and put growth on a more sustainable and resilient footing.
Global Fisheries’ Sunken Billions: Snapshots
Morocco: Tracking vessels for improved compliance with fishing regulations
At a time when many economies are exhausting their natural resources and face constraints exacerbated by climate change, Morocco is setting an example by embracing green growth strategies across sectors, including energy, waste, agriculture and fisheries.
The World Bank has supported Morocco’s vision by providing financing in the form of Development Policy Loans, investment projects, and technical assistance. Although the impacts of climate change on fisheries loom large on the horizon, at present the main threat to growth in the sector lies in the illegal, unreported and unregulated fishing practices that threaten fish population renewal and the livelihoods of about half a million Moroccans.
To address this threat, Morocco has invested in a number of measures including a satellite-based Vessel Monitoring System, which requires all fishing boats above a certain size to be fitted with tracking beacons, and allows them to be followed in real time. Fishing boats must also respect closed areas where stocks are given a chance to recover, and abide by restrictions on allowable fishing gear and minimum size requirements.
Fishers understand the importance of new rules. “If everyone respects the rules…my children will be able to keep fishing here,” said Abdelkrim Bouziane, a fishing boat captain in Casablanca.
West Africa: Empowering small-scale fishers to fight illegal fishing
Fishing represents a culture and a critical source of livelihoods and nutrition in West Africa, yet many fishing communities live in poverty. The World Bank’s West Africa Regional Fisheries Program (WARFP), launched in 2010, aims to increase the economic contribution of marine resources through strengthened fisheries management and governance, reduced illegal fishing, and increased local value added to fish products.
The governments of Sierra Leone and Liberia created 6 mile zones dedicated to small-scale fishing communities where trawlers and other large-scale boats would not be allowed to fish, and formed multi-agency monitoring centers to improve the enforcement of rules. In Liberia, fishers were also equipped with GPS-enabled cameras to take photos of illegal trawlers. As a result, illegal fishing declined and nearshore fish stocks recovered to the benefit of local artisanal fishers.
According to a study published by the Overseas Development Institute, Senegal lost about 2 percent of its GDP to illegal, unreported and unregulated fishing in 2012. With support from WARFP, Senegal enacted new laws for a sensible and sustainable utilization of fisheries resources, including community-led fisheries management. Co-management of marine resources by artisanal fishers in 12 areas is allowing rare species to return, fish stocks to rebuild and revenues to increase, as is the case in Ngaparou (pictured above), a coastal village south of Dakar.
The country also launched a campaign to register and maintain an updated database of its fishing boats – some 19,000 boats in a first phase – as a step toward better control and management of access in the artisanal fishing sector.
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ICGLR Declaration on Section 1502 of the US Dodd Frank Act
The Conference Secretariat of the International Conference on the Great Lakes Region (ICGLR) has been following the debate on Section 1502 of the Dodd Frank Act with greatest attention and would like to express its position on the recent developments related to repealing the Section.
After the US Government enacted the Dodd Frank Act in 2010 targeting the Democratic Republic of Congo (DRC) and its adjoining countries, a de facto embargo was imposed on the mineral sector of Africa’s Great Lakes Region. This de facto embargo which was due to a lack of accompanying measures to the Dodd Frank Act by the US Government disrupted local economies in the DRC. The national economy of the country was also seriously affected as mining activities had to be suspended awaiting arrangement to comply with the US Dodd Frank Act. Consequences are still noticeable in the Eastern DRC.
Since the 1990’s, natural resources constituted one of the root causes of instability and poverty in the Great Lakes Region. Consequently, Heads of States and Governments of ICGLR Member States adopted the Regional Initiative on the fight against illegal exploitation of Natural Resources (RINR) in 2010. The key element of the RINR is the Regional Certification Mechanism (RCM). Putting the Dodd Frank Act Section 1502 into action, the RCM serves producers, buyers and consumers of mineral produced in the Great Lakes Region as a proof of conflict free production and trade of so called conflict minerals.
As a result of implementing the RCM which is harmonized with the OECD Due Diligence Guidance for Responsible Mineral Supply Chains for Conflict-Affected and High-Risk Areas, DRC and Rwanda have been able to sell their minerals at the US market. More ICGLR countries have made important steps towards effective implementation of the RCM.
Based on the above, the ICGLR Secretariat believes that the repeal of Section 1502 of the Dodd Frank Act will weaken the ICGLR RCM. Therefore, the ICGLR is highly concerned that this might contribute to the resurgence of armed groups controlling and exploiting minerals. This might ultimately lead to a generalized proliferation of terrorist groups, trans-boundary money laundry and illicit financial flows in the region.
The ICGLR wishes to reiterate its determination to implement the RINR, with particular focus on the RCM. Thus, the ICGLR calls for all its existing and new partners to support the fight against negative forces in Africa’s Great Lakes Region.
An Executive Order suspending the US conflict minerals law would be a ‘gift to warlords and corrupt businesses’, says Global Witness
In response to reports that the President Trump is planning to issue an executive order targeting the US conflict minerals provision (also known as Section 1502 of Dodd-Frank) Carly Oboth, Policy Adviser at Global Witness, said:
“Any executive action suspending the US conflict minerals rule would be a gift to predatory armed groups seeking to profit from Congo’s minerals as well as a gift to companies wanting to do business with the criminal and the corrupt.
“This law helps stop US companies funding conflict and human rights abuses in the Democratic Republic of Congo and surrounding countries. Suspending it will benefit secretive and corrupt business practices. Responsible business practices are starting to spread in eastern Congo. This action could reverse that progress.
“It is an abuse of power that the Trump Administration is claiming that the law should be suspended through a national security exemption intended for emergency purposes. Suspending this provision could actually undermine US national security.”
The conflict minerals law, known as Section 1502 of the Dodd Frank Act, aims to help stop mineral trading fuelling conflict in Central Africa by requiring companies to check whether they are funding conflict or human rights abuses through their purchases of minerals, including tin, tantalum, tungsten and gold. These minerals are crucial parts of many products manufactured and sold in the US, from jewelry and airplanes to laptops and mobile phones.
For over a decade, Global Witness has exposed the role of minerals in fuelling conflict and human rights abuses in eastern Congo and played a leading role in securing passage of the conflict minerals provision.
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Trade Policy Review: Sierra Leone
The second review of the trade policies and practices of Sierra Leone takes place on 14 and 16 February 2017. The basis for the review is a report by the WTO Secretariat and a report by the Government of Sierra Leone.
Report by the Secretariat: Summary
Sierra Leone is a least developed country (LDC) with a relatively young population: 42.4% of its 7.1 million inhabitants are aged less than 15 years. The country is in a fragile post-conflict and post-ebola virus disease (EVD) situation. Agriculture is the backbone of the economy; its contribution to the GDP declined sharply in 2012 because of a boom in the mining sector, before bouncing back as minerals exports collapsed. Sierra Leone is rich in minerals such as gold, diamond, bauxite, rutile, and iron ore. The manufacturing sector is marginal and is limited to first-stage processing of local raw materials and to light industries. Like the other sectors of the economy, it is plagued by weak infrastructure, high production costs, unreliable supply of energy at high prices, and limited access to financing.
Since its last Trade Policy Review (TPR) in 2005, Sierra Leone has pursued its reconstruction efforts, supported by a substantial inflow of external aid. The business environment improved as a result of structural reforms and progress in governance and human development. Sierra Leone has expanded its mining sector through the production and export of iron ore, boosting the real GDP growth to 20.7% in 2013. However, the outbreak of EVD, and the closing of the national borders to contain its spread, jeopardized the recovery process. This was further exacerbated by the decline in world prices of iron ore, which contributed to the closure of the major mines. The economy contracted by 20.6% in 2015. A recovery started towards the end of 2015 as EVD receded. New investment in agriculture, the resumption of iron ore mining, and reforms in the energy sector are expected to support the economic recovery in the medium term.
During the review period, Sierra Leone’s exports diversified away from diamonds, and also consist of iron-ore, rutile, bauxite, and agricultural products (cocoa and coffee). In 2012, iron ore overtook diamonds as the major export product, and accounted for 69.7% of total exports the following year. China is the main market for the country’s iron ore. The share of exports to the European Union, a long-standing top market, declined from 87.4% in 2005 to 24.2% in 2013 before bouncing back to 48.4% in 2014. Exports to the other ECOWAS partners are generally low.
Sierra Leone is a founding member of the Economic Community of West African States (ECOWAS) and the Mano River union. It joined the Community of Sahel-Saharan States (CEN-SAD) in 2008. Sierra Leone is eligible for preferences granted by the EU under the Everything But Arms Initiative, and the United States under the African Growth and Opportunity Act. It also benefits from unilateral trade preferences granted by many other developed countries.
Sierra Leone established a Mission to the WTO in 2005. It continues to face difficulties in fulfilling its notification obligations. Sierra Leone benefited from two projects (on trade information and tourism) under the Enhanced Integrated Framework. Sierra Leone has not yet ratified the WTO Trade Facilitation Agreement, nor has it notified its list of category A commitments.
In 2010, Sierra Leone replaced its manual customs clearance system with the Automated System for Customs Data (ASYCUDA), leading to a substantial decline in average processing and clearance times. However, the day-to-day operation of the system remains frequently affected by the unreliability of Internet connectivity and electricity supply.
Sierra Leone gradually replaced its pre-shipment inspection with a destination inspection programme operated by two companies: Africa Link Inspection Company (for shipments arriving by sea) and Sierra Inspection Company (for shipments arriving by air or through terrestrial borders). The inspection applies to all consignments and is subject to a fee of 1% of their f.o.b. value.
New customs legislation was enacted in 2011, incorporating, inter alia, some provisions of the WTO Customs Valuation Agreement (CVA). However, the country is facing challenges in implementing the CVA provisions, one of the reasons for maintaining the inspection programme.
The 2016 applied MFN tariff has six bands with rates varying between zero and 30%. Most products fall in the 5% or 20% bands (86% of total tariff lines); the zero rate applies only to a few tariff lines (0.3%). The simple average rate is 12% (down from 13.9% in 2004). The tariff shows mixed escalation with semi-processed products subject to a lower average rate than raw materials, while fully processed products attract a higher average rate. As a member of the ECOWAS, Sierra Leone was to implement the new common external tariff (CET) as from 1 January 2015. The implementation of the CET by Sierra Leone has been delayed several times, and is now expected for 1 January 2017.
At the WTO, Sierra Leone bound all its tariffs lines at ceiling rates between 30% and 80%, with an average rate of 47.5%. Many of the bound rates are considerably higher than applied duties. Other duties and charges (ODC) were bound on all tariff lines at rates varying between zero and 50%. In practice, Sierra Leone is collecting the ECOWAS Community Levy and a customs processing fee. These ODCs apply to all products, including those bound at zero.
In 2010, Sierra Leone reformed its internal taxation system by replacing a host of taxes with the goods and services tax (GST). The GST is levied at a standard rate of 15% and constitutes an important source of government revenue: it accounted for about a quarter of government tax revenue in 2015, the bulk of which is levied on imports. Other import charges include the excise tax and the stamp duty.
Various duty and tax concession programmes, including duty drawbacks, are in place. However, some of the incentives are subject to local-content requirements. Sierra Leone has no legislative or institutional framework for anti-dumping, countervailing or safeguards measures, and has not taken any such actions.
Sierra Leone collects a tax on its major exports. According to the authorities, the purpose of the export tax is to encourage value addition and support the development of local communities. The tax is applied at 2.5% on agricultural products (cocoa, coffee, and palm oil), 3% on diamond, and 5% on gold (except gold produced by artisanal miners which attracts 3%). In addition, some mineral exports are subject to the GST and a valuation fee.
Export licensing applies mainly to diamonds and gold. A permit is required for the export of traditional commodities such as cocoa, coffee, and rubber. Due to environmental regulations, a permit is required for the exportation of plants and charcoal. A ban on the exportation of raw logs has been in place since 2008.
Sierra Leone has not notified any technical regulations, or its national enquiry point under the WTO Agreement on Technical Barriers to Trade (TBT). The Sierra Leone Bureau of Standards (SLBS) is the national statutory body in charge of technical regulations, standards, certification, and accreditation. It generally follows ISO and IEC directives in the development of national standards. There are currently 33 technical regulations in force, and 100 standards. At the borders, the SLBS inspects products for conformity and labelling requirements. It may perform field tests if needed. Substandard goods are, in principle, confiscated and destroyed.
Sierra Leone has not notified the WTO of its sanitary and phytosanitary legislation. In general, a phytosanitary certificate is required for the international movement of any plant material or product. The authorities indicated that no SPS-related restrictions or prohibitions are currently in place.
There is no domestic legislation on competition or anti-competitive practices. There are policies on competition and consumer protection, but related laws are yet to be enacted.
Sierra Leone has not notified to the WTO any state-trading enterprise. In 2013, the Produce Marketing Board was replaced by the Sierra Leone Produce Marketing Company, established as the primary exporter of agricultural produce. However, it does not have a monopoly over the export of agricultural produce.
New public procurement legislation was enacted in 2016. It requires the use of open bid proceedings for all public purchases, but provides for a price preference for domestic contractors, suppliers, and domestically produced goods. National competitive bidding procedures are allowed under specified circumstances.
Sierra Leone is a member of the African Regional Intellectual Property Organization, and has ratified the Harare Protocol on Patents and Industrial Designs. Since its last TPR, Sierra Leone has adopted new legislation on patents, industrial design, trademarks, and copyrights. Copyrights and trademarks are more frequently subject to infringement. The authorities view their limited capacity as the main challenge in this regard.
The agriculture sector employs about 75% of the labour force. Over recent years, the production of major crops such as rice paddy, cassava, and cocoa has increased substantially, owing to the implementation of policies geared toward increasing productivity and extending cultivated areas. Cocoa and coffee, the two major cash crops, are a non-negligible source of foreign exchange earnings. Tariff protection in the sector is relatively high, irrespective of the stage of processing. At 15.6% in 2016, the average applied MFN tariff for agricultural products (WTO categories) is more than 3 percentage points above the overall average.
The mining and quarrying sector accounts for about 90% of Sierra Leone’s annual export revenues. During the review period, the legal framework was amended to review royalty rates and various licensing fees. Sierra Leone endorsed the Extractive Industries Transparency Initiative (EITI) in 2006 and was granted EITI compliant status in April 2014. With an average applied MFN rate of 5.4%, mineral products benefit from relatively lower tariff protection.
Sierra Leone undertook few GATS commitments, and its actual regime on trade in services is relatively open. During the period under review, Sierra Leone strengthened its legal framework on the banking and insurance industries through higher capital and reserves requirements. In the telecommunication subsector, the state-owned operator still has a de jure monopoly over fixed-line communications. However, the international gateway was liberalized in 2015.
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tralac’s Daily News Selection
Applications close on 6 March for tralac’s online course ‘Trade in the 21st Century: legal and policy considerations for Africa’.
Profiled appointment: Paul Noumba Um is the World Bank’s new country director for seven southern African countries, based in Pretoria. He replaces Guangzhe Chen who was appointed as senior director for the water global practice within sustainable development vice-presidency at the World Bank Group in October 2016. A dual Cameroonian and French national, Um holds a PhD in Economics from Rennes University, and Master’s Degrees in Engineering and Economics from France, and a BA in Engineering from the Cameroonian National Post and Telecom School.
Tweets from the ACMA launch: @heiniesuo: #ACMA meeting continues today with presentations from #corridors. Transportation cost is 45% of food cost in Dar es Salaam. #SAGCOT; @snkaringi: #Africa Corridor Management Institutions bringing it all together. @ECA_OFFICIAL advancing #Africa #integration, #development.
Botswana: Investment Policy Review implementation report (pdf, UNCTAD)
Summary of main findings: Significant progress in implementing the recommendations of the IPR of 2003 was recorded, in particular in the following areas: (i) FDI entry, (ii) Investment promotion agency, (iii) Competition, (iv) Tax regime. In other areas, significant reforms are underway or but are incomplete or their implementation is lagging. In several cases, the recommendations proposed in the IPR of 2003 remain relevant and, in some cases, have become more urgent. Among them are the following: (i) Company licensing and permits, (ii) Access to land, (iii) Human resources development, (iv) Entrepreneurship development, (v) Fostering business linkages, (vi) Privatisation. The following section provides more details on the implementation status of each IPR recommendation. [Related: Rapport de suivi sur la mise en oeuvre de l’examen de la politique d’investissement du Benin (pdf)]
The expansion of regional supermarket chains: implications on suppliers in Botswana, South Africa (UNU-WIDER)
This paper explores the effect of the spread of supermarkets on the participation of suppliers in supermarket value chains in Botswana and South Africa. Using secondary data and in-depth interviews with key players in the value chain, the paper evaluates the buyer power of supermarkets evidenced in the negotiation of trading terms. It further assesses the capabilities and investments required by suppliers to access shelf space and remain competitive. Finally, the paper looks at the role of supermarkets and governments in developing local supplier capabilities and the importance of harmonizing policies across borders. [The analysts: Reena das Nair, Shingie Chisoro]
South Africa: International Cooperation, Trade and Security Cluster media briefing (GCIS)
South Africa’s exports of agricultural, forestry and fishery products increased by 18% last year, making the country a net exporter. The level of investment in agriculture increased by 9.6% in 2016. We are also focusing on increasing market access for smallholders through the implementation of the South African Good Agricultural Practice and intra-African trade. Furthermore, trade with our traditional partners in the west remains a significant contributor to our economy. The Economic Partnership agreement with the EU came into force in September 2016, thus providing new market access opportunities for South African products. Almost all SA products (about 99%) will have preferential market access in the EU, compared to about 95% under the Trade Development Cooperation Agreement (TDCA). About 96% of the products will enter the EU market without being subjected to customs duties or quantitative restrictions. The other 3% will still have access, albeit partial, that is similar or improved compared to the TDCA. SACU as a group has granted EU lower market access of 86%, in line with the developmental nature of the agreement. [South African Chamber of Commerce and Industry: trade conditions survey]
Lesotho: Water Evaluation and Planning Manual (World Bank)
The analysis quantifies a range of possible future conditions to demonstrate the benefits that can be realized over a broad range of possible future outcomes. The analysis concludes the following: (i) Climate change has important determinants for the future, long-term sustainable macroeconomic development of Lesotho, (ii) Domestic and industrial water security is highly vulnerable under historical and current climate conditions, as well as under the full range of climate future scenarios, (iii) Agriculture production will remain vulnerable to inter-annual variability over the coming decades, particularly with continued reliance on rain fed agriculture; and (iv) The Lesotho Highlands Water Project will continue to reliably meet transfers to South Africa over the coming decades unless climate conditions are about 5% drier or more than the historical record.
Zambia: Agribusiness and Trade Project (World Bank)
The development objective of the Agribusiness and Trade Project for Zambia is to contribute to increased market linkages and firm growth in agribusiness. There are three components to the project, the first component being market linkages in agribusiness. This component aims to develop market linkages in agribusiness, focusing on two sets of beneficiaries: ‘emerging and poor farmers and growth-oriented agribusiness SMEs. The second component is the strengthening the regulatory and institutional framework for agribusiness and trade. The third component is the project management and monitoring and evaluation. [Downloads: project documentation]
Namibia Trade Forum Media Brief: Provisional payment of 13.9% duty implemented as a safeguard measure on imported frozen bone-in chicken from the EU
EAC team to review taxes on key goods (The EastAfrican)
The East African Community has formed a 25-member taskforce to revise the region’s Common External Tariff and fine-tune the existing rules of origin to boost intra-regional trade and attract new investments to the bloc. The taskforce comprises four experts on tariffs, fiscal policy, trade and statistics from each of the five member countries – Kenya, Uganda, Tanzania, Rwanda and Burundi – plus one representative from the private sector, notably associations of manufacturers or chambers of commerce from each of the member states. The timelines for the completion of the exercise have also been revised from July to September 2017. The EAC Council of Ministers agreed that the 12-year-old CET has failed to live up to the expectations of the changing business environment with some member states and manufacturers blaming the three-band tariff structure for loss of revenue and a drop in intra-regional trade.
Tanzania China Mining Association urges government to fast-track reforms at Dar port (IPPMedia)
“The country’s growth and development projections could remain as distant dreams if the government fails to step up bold and ambitious measures to improve efficiency and general performance of the Dar port,” noted Andrew Huang, a business expert and the Superintendent of Tanzania China Mining Association. He called on the government to put up strategic and focused steps to overhaul systems at the port, widely viewed as a potential pillar of the country’s trade and business development. “As a country, we need to open up the gates at the Dar es Salaam port, restructure and install business-friendly cargo handling procedures and systems, if we really want to benefit from the facility,” said Huang, who also doubles as coordinator of the Chinese business community in Tanzania.
SGR: First batch of cargo wagons land in Kenya (Daily Nation)
COMESA Court to revise its current arbitration rules (COMESA)
The COMESA Court of Justice will revise its current Arbitration Rules to promote Alternative Dispute Resolution mechanisms and ensure it keeps pace with the best international practices. Judge President of the Court Justice Lombe Chibesakunda says the current rules were out of date as they were formulated in 2003 when the court had only one division. Currently the Court has two divisions; the Court of First Instance and the Appellate. She was speaking during a three day training workshop on “Arbitration as an Alternative Dispute Resolution mechanism” in Khartoum. The workshop was targeted at the entire Bench of the Court that comprise of 12 Judges. It was facilitated by the Chartered Institute of Arbitrators (Kenya Chapter) with the objective of exploring the role that the COMESA Court can play in enhancing access to justice through arbitration and Alternative Dispute Resolution (ADR) mechanisms.
Bernard Hoekman: ‘Trade in services: opening markets to create opportunities’ (UNU-WIDER)
This paper reviews the role of services in development and growth, the potential role of trade in services as a driver of the productivity performance of sectors that use services as inputs, and the links between services policies and domestic trade costs. Barriers to trade in services have direct as well as indirect effects on cross-border trade and investment, but research suggests that the extent to which countries will benefit from open services regimes and regional integration of services markets depends on complementary efforts to improve economic governance and regulatory regimes.
India: Commerce Department special arm may drive foreign trade policy (The Hindu)
India’s future trade (policy) model should have the Commerce Department at the helm, supported by ministries including External Affairs and Finance, while a ‘transformed’ Directorate General of Foreign Trade (DGFT) should be the apex body for all trade promotion activities for the country, according to a government-commissioned report. India’s foreign trade strategy and policy is currently being piloted predominantly by the Prime Minister’s Office and External Affairs Ministry. The report — prepared by the global consultancy firm Frost & Sullivan and submitted on 23 December 2016, to the commerce & industry ministry — also makes a strong case for a higher profile for the Indian Trade Service (ITS) in matters of trade policies & systems. At present, the officials belonging to the Indian Administrative Service, Foreign Service and Revenue Service evidently have a relatively superior role over ITS cadre regarding decisions on crucial trade policy matters.
Today’s Quick Links:
Chinese cooperation starts arriving in Sao Tome and Principe
Making renewable energy more accessible in sub-Saharan Africa
IMF: Pan-African banking finding its stride
Assessing the fragility of global trade: the impact of localized supply shocks using network analysis (IMF)
UN and partners launch multi-year appeal for DR Congo, South Sudan
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Report on the Implementation of the Investment Policy Review of Botswana
The UNCTAD Investment Policy Review (IPR) of Botswana, published in 2003, analysed the legal and institutional framework for investment.
It made concrete policy recommendations to improve the general business environment and maximize the benefits from foreign direct investment (FDI), in line with Botswana’s national development objectives.
The IPR also proposed concrete elements for a coherent FDI strategy rooted in the investment attractiveness of the country. These included encouraging the development of a competitive local private sector, strengthening human resources and ensuring a proactive and targeted approach to investment promotion to support economic diversification and sustainable development.
In 2015, the Government requested UNCTAD assistance in preparing a report on the implementation of the IPR recommendations. A fact-finding mission took place in April 2016 to complement desk research undertaken in Geneva, Switzerland.
Key economic and foreign direct investment trends
More than 10 years after the publication of the IPR, Botswana maintains its reputation as a development success story, with robust gross domestic product (GDP) growth averaging 6.6 percent between 2010 and 2014, solid governance, sound macroeconomic and fiscal management, a generally positive and open investment climate, and a strong track record in attracting FDI. Major reforms have been undertaken in line with the IPR recommendations, including the establishment of a well-functioning competition authority and fully-fledged investment promotion agency – the Botswana Trade and Investment Centre (BITC). Other landmark reforms, including streamlining business permits or reforming the land administration, are ongoing, as discussed in more detail in this report.
Diversification remains a primary economic development objective, as reflected in the Government’s short- to long-term strategies between 2010 and 2016. Since the IPR, progress has been achieved towards that goal, and FDI has played a key in it. For instance, the share of mining in GDP decreased from over one third of GDP in 2003 to about 18 percent in 2015. The contribution of the services sector to GDP has increased, particularly in those activities led by FDI, such as trade, hotel and restaurants as well as banks, insurance and business services.
The country’s impressive economic accomplishments, however, contrast with its key social and economic development indicators, which continue to lag behind other countries in the same income group. Also, the external aspect of diversification, i.e. seeking new sources of sustainable foreign exchange earnings beyond diamonds, has proven difficult to achieve. Since 2003, Botswana has had the third highest export product concentration in Africa, behind Angola and Guinea-Bissau. The contribution of diamonds to exports stood at over 85 percent at the end of 2014, slightly higher than the 80 percent registered in 2000, a figure largely unchanged since 1990. The country’s over-reliance on the mining was revealed again in 2015, when GDP contracted by 0.3 percent, in response to a lower demand for diamonds.
In terms of FDI attraction, inflows have increased by almost tenfold from an average of $72 million per year in 1996-2000 to $633 million in 2011-2015. FDI stock has more than doubled since the completion of the IPR, reaching $4.8 billion in 2015. This, however, is largely the result of improved demand and prices of diamonds in two peak years (2010 and 2011). Since then, volatility has increased, due to global economic weakness and depressed diamond prices.
Botswana’s strong track record in attracting FDI is particularly evident in comparative terms. Since 2006, FDI inflows per capita, as well as relative to GDP and gross fixed capital formation (GFCF), have consistently stood above the average for the countries in the Southern African Development Community or for the group of high-income developing countries. They were also well above the average of the Group of 20 countries in 2011-2015.
The composition of FDI has, however, not changed significantly since the completion of the IPR. Over 70 percent of total inflows target mining activities, and just a few source countries dominate both in terms of inflows and stock, including Australia, Canada, Luxembourg and South Africa. Nevertheless, other activities have become more attractive to investors since the IPR, including finance as well as communication, real estate, and hotels and tourism.
Summary of main findings
Significant progress in implementing the recommendations of the IPR was recorded, in particular in the following areas:
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FDI entry. An investment code, which would have represented a significant tightening of the FDI regime, was scheduled for adoption at the time of the IPR. The proposed code sought to introduce several new general restrictions on the entry of FDI, including prohibiting projects below a certain size. The Government’s objectives behind the code were to attract only serious and bona fide foreign investors, curb the entry of economic refugees who may take away jobs from citizens and protect small local investors and, at the same time, open investment opportunities for them. The IPR assessed that the adoption of the code would be counterproductive to achieving the stated objectives and detrimental to the diversification of the economy. The code was abandoned and a negative list approach, including those activities reserved for nationals of Botswana was retained, as recommended in the IPR.
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Investment promotion agency. BITC was established with a mandate that encompasses investment attraction, export promotion and development, including the management of the national brand – Go Botswana. As recommended in the IPR, it engages in proactive and selective investor targeting based on research aimed at identifying growth sectors in the economy. In 2014, it set up the Business Facilitation Services Centre, which offers a range of services to investors and undertakes investor aftercare activities. BITC has representations abroad and works closely with the country’s foreign diplomatic missions. It has developed an advocacy framework to push forward key recommendations to improve the investment climate. The work of BITC is regularly evaluated on the basis of performance targets. Its latest annual report states that the BITC was responsible for the attraction of over $135 million of FDI, the generation of over $126 million in business expansion and the creation of 3,000 jobs in 2014-15.
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Competition. The Competition Authority of Botswana has been operative for several years. It monitors, controls and prohibits anticompetitive trade or business practices in the economy. In 2014-2015, it investigated over 30 merger and acquisition cases, many in the mining and retail sectors. Its latest annual report estimated that the Authority facilitated the injection of over $13 million into existing businesses.
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Tax regime. Botswana maintained a competitive tax regime across all sectors, as recommended in the IPR. The general company tax rate was revised from 25 percent to 22 percent. The tax regime remains transparent and relatively easy to comply with. A proliferation of special tax regimes has so far been avoided, with only two special regimes aimed at stimulating activities in finance and manufacturing having been established.
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Making renewable energy more accessible in sub-Saharan Africa
In Africa today, more than 500 million people live without electricity. In fact, fewer than one in five Africans was connected to the power grid in 2012, and despite a modest increase from 32 % to 35% between 2010 and 2012, the rate of electrification continues to be too slow to keep pace with the rapid population growth on the continent.
For Paul Noumba Um, World Bank Country Director for Mali, these findings merit a call for a ‘solar revolution’, which he proposed at a round-table discussion on renewable energy during the Economic Forum held in the margins of the XXVII Africa-France Summit.
In their remarks, various speakers assessed the current status of renewable energies. The conclusion that emerged from the discussion was that development in Sub-Saharan Africa is stymied by the way electricity is currently distributed: that is, following the traditional format of weak and intermittent supply of hydrocarbon-based electricity.
Malick Alhousseini, Mali’s Minister of Energy and Water, and a succession of economic actors, all referred to the difficulties prevailing in the sector, notably the obstacles faced by African entrepreneurs in developing their projects. In addition to highlighting the noteworthy achievements in the field of renewable sources of energy, such as the Lighting Africa project, the panelists proposed a variety of solutions and brainstormed with the participants.
In an economic climate characterized by sputtering economic growth in large economies like those of Nigeria, Angola, and South Africa, Paul Noumba Um stressed the need to act urgently to speed up the implementation of a stable system of energy. “We are currently witnessing a paradigm shift and we must use new technologies to promote renewable energies, especially in rural areas,” he stated, emphasizing that this would also contribute to reducing poverty.
How can this be done? Governments should propose viable projects and transparent procedures while seeking to consolidate their gains to increase the production capacity of companies, whose present rate of increase in output is only between 1 and 2 gigawatts (GW) per year. Demand is growing at an annual rate of more than 6 or 7 GW.
To reduce this deficit, governments are being called upon to integrate solar technologies into their national electrification strategies, in order to put in motion a “solar revolution” by 2023, and to produce 1 GW of photovoltaic electricity connected to the national grid. This will also make it possible to supply off-grid solar energy to 56 million new users.
Solar Energy Improves the Lives of Rural Malians
The World Bank Group is already implementing electrification projects in the rural areas in Mali, in conjunction with the Malian Agency for the Development of Household Energy and Rural Electrification (AMADER).
As part of the Global Partnership of Output-Based Aid (GPOBA), the World Bank has also provided financing for projects to install new electricity meters in the commune of Sébékoro, in the Kayes region, to the west of Bamako. These meters are more affordable than those generally available on the market. The supply of electricity to the commune was also extended to run between 6 pm and midnight.
This means that children can now do their homework and study at home, and households can charge their telephones, listen to the radio, or watch television. It also allows owners of small restaurants to stay open longer through the use of refrigerators and freezers.
Through the Domestic Energy and Rural Access to Basic Sources Project (PEDASB), it was possible to install a 52 kilowatt peak (kWc) plant in Zantiébougou, in the Sikasso region to the south of Bamako. Some 765 people now have electricity connections and the commune has been able to empower women by developing a unit for processing local produce grown by the women of Zantiébougou. Other economic activities have also flourished such as trade, carpentry, welding, while teachers have noted an increase in the success rate of their pupils.
In Niena, also in the Sikasso region, 538 people are being supplied by a hybrid system (solar photovoltaic/diesel). Apart from the advantages similar to those observed in Zantiébougou, access to electricity has improved the security and quality of health centers and clinics. Teachers have also reported a marked improvement in their pupils’ performance.
The energy sector plays a critical role in contributing to growth in Sub-Saharan Africa. The World Bank is committed to providing financial support to African governments for their reforms aimed at improving the energy sector and expanding access to users living in the most remote areas. It also actively advocating the use of renewable energies, which make up the main pillar in the Africa Climate Business Plan, launched by the Bank during COP21 in Paris in 2015 to mobilize $16 billion by 2018.
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Use technology to improve lives – Bawumia urges African leaders
Vice President, Dr Mahamadu Bawumia, has challenged African leaders to take advantage advancements in technology to better the lives of their citizens.
According to Dr Bawumia, the application of basic technology like the mobile phone should allow people to bypass pre-existing technology and infrastructure which have had some negative effects on the world.
Taking part in a special session of the ongoing 5th World Government Summit in Dubai, United Arab Emirates, on the theme “Leapfrogging Development: The African Story,” Dr Bawumia said leveraging the many uses of technology would speed up the achievement of the Sustainable Development Goals (SDGs) so crucial to Africa’s development.
The concept of Leapfrogging is usually used in the context of sustainable development for developing countries, as a theory of development which may accelerate development by skipping inferior, less efficient, more expensive or more polluting technologies and industries and move directly to more advanced ones.
“The SDGs, these are targets that we all subscribe to (ending hunger and poverty, improving education and health, etc) and we have to try to achieve all of these by 2030, within the UN framework. It is something that you see countries working towards. For many countries, going towards the attainment of these targets is an area where you could leverage technology to leapfrog”, Dr Bawumia said.
“In Agriculture, education and health, we can leverage technology, so I see this decade for Africa as one where we’re going to move towards the attainment of these Sustainable Development Goals. There is so much technology available, even via the mobile phone.”
Dr Bawumia also emphasized that the decision to seize the many opportunities offered by technology to develop the continent would have to be made by Africans.
“Africa is a huge continent with huge resources. What we have not done over the years is to leverage all these resources to develop the continent. But increasingly you’re seeing some transformation taking place in many countries.
“What we’re realizing, and what many countries are understanding, is that if you’re going to leapfrog you really have to lead that charge yourself. Nobody else is going to come and say ‘hey, you have to leapfrog’ because you’re competing with everybody else. You’re in a globally competitive environment. You have to do it yourself.”
The fifth annual World Government Summit currently underway in Dubai, under the theme “Shaping Future Governments”, is exploring the future of government in the coming decades.
The World Government Summit is a global platform dedicated to the enhancement of government around the world. This year, it will bring together over 3,000 government leaders and policy makers, private sector executives and renowned experts from worldwide.
» Download a key report produced for the World Government Summit in collaboration with the OECD: Embracing Innovation in Government: Global Trends (PDF, 6.26 MB)
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Pan-African banking finding its stride
In the years since the global financial crisis, Africa has witnessed a rapid expansion of cross-border banking, led by banking groups based in Africa that are spurring financial and economic integration and transforming the continent’s financial landscape. These institutions are occupying a space created by the retreat of several global bank groups from Africa in the wake of the crisis.
The expansion is evident across the region. African banks headquartered from Morocco to South Africa have each established business operations in at least 10 countries. Ecobank, headquartered in Togo – is present in more than 30 countries on the continent.
The banks have facilitated many positive changes – providing customers with new and better products and services, operating improved IT and management systems, and observing more advanced regulatory and accounting standards. But these groups also pose new challenges for African regulators and supervisors, with potential implications for economic and financial stability. Many of these challenges have been felt worldwide, particularly in Europe, necessitating a strengthening of banking regulation and a tightening of oversight.
It falls to African financial sector regulators and supervisors to rapidly address these new challenges. They are moving to upgrade supervisory procedures and practices by embarking upon unprecedented cooperation with peers across Africa – and with international supervisors, who are facing the same issues.
This complicated set of challenges was the topic of a conference on Cross-Border Banking and Regulatory Reforms: Implications for Africa from International Experience, held in Mauritius on February 1-2. The conference brought together more than 80 officials from Africa and Europe – including 12 African central bank governors – and bank chief executives, along with an IMF team led by Managing Director Christine Lagarde.
In opening remarks, the Managing Director spoke of the key need to ensure that supervision of bank holding companies takes place on a consolidated basis. This places an important burden on supervisors. It is also essential that supervisors in countries hosting systemically important bank subsidiaries are involved in the process by attending meetings of supervisory colleges and exchanging information.
“You face a delicate balancing act,” Lagarde said. “You need to enhance regulation and supervision but, in implementing global standards, you also must take into account local circumstances. Fortunately, you are not alone. The IMF and other bodies recognize the challenges you face and are committed to drawing on our global experience to assist you.”
The closed-door conference addressed the supervisory challenges of pan-African banking in detail, particularly the task of coordinating among economies that are at widely varying stages of financial sector development – and where bank subsidiaries are much more important – even highly systemic – to the local economies where they operate.
It is clear that these issues are not unique to Africa. In fact, many of the challenges – ranging from data-sharing to cross-border bank resolution – are common to advanced and emerging market economies.
So an important feature of the Mauritius conference was the participation of European supervisors who are grappling with the same challenges. The group was led by Stefan Ingves, Governor of the Swedish Central Bank and Chairman of the Basel Committee on Banking Supervision. In his speech on cross-border bank resolution, Ingves spoke to the issues that supervisors in the Nordic and Baltic countries have faced, particularly during and after the global financial crisis.
The IMF has played an important role in providing technical expertise to assist the efforts to develop effective cross-border regulation and supervision, including through the Fund’s capacity development work. The conference was held at the Africa Training Institute, which along with the Mauritius-based AFRITAC South regional technical assistance center and other regional centers, is deeply involved in this effort.
In his remarks, Ingves spoke to another role for the IMF in the cross-border banking work. “Besides being able to bring its expertise, let alone its financial muscles, to the table, the Fund often also plays an important role as a neutral third party,” he said.
Managing Director Lagarde, in her speech, spoke of the broader purpose of a stronger financial sector in Africa. “At the end of the day, a strong regulatory and supervisory setting can help ensure that healthy banks are able to provide the lifeblood of Africa’s economic resurgence. This will be a long-term effort, and we will be with you every step of the way,” Lagarde said.
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EAC team to review taxes on key goods
The East African Community has formed a 25-member taskforce to revise the region’s Common External Tariff (CET) and fine-tune the existing rules of origin to boost intra-regional trade and attract new investments to the bloc.
The taskforce comprises four experts on tariffs, fiscal policy, trade and statistics from each of the five member countries – Kenya, Uganda, Tanzania, Rwanda and Burundi – plus one representatives from the private sector, notably associations of manufacturers or chambers of commerce from each of the member states.
The timelines for the completion of the exercise have also been revised from July to September 2017.
The EAC Council of Ministers agreed that the 12-year-old CET has failed to live up to the expectations of the changing business environment with some member states and manufacturers blaming the three-band tariff structure for loss of revenue and a drop in intra-regional trade.
The current CET is based on three bands of 25 per cent for finished goods, 10 per cent for intermediate goods and 0 per cent for raw materials and capital goods, with a limited number of products under the sensitive list that attract rates above the maximum rate of 25 per cent.
Kenya hopes to rally other EAC member states to increase the tariff bands from three to four to be responsive of the needs of industries that import industrial inputs.
“The dynamics in the region have changed and therefore there is a need for the CET to be reviewed to reflect the current realities,” said Chris Kiptoo, Principal Secretary in Kenya’s Department of Trade.
The taskforce will review the list of sensitive goods and rates applicable to them, and come up with a way of classifying goods such as maize, wheat, sugar, textiles and rice that need to be protected from imports.
It is understood that some items will be dropped from the list of sensitive goods and opened up for competition from imports outside the EAC, while a uniform duty will be applied on the remaining sensitive goods to eliminate the frequent applications for preferential treatment of these products by member states.
“The implementation of the EAC Customs Union is largely dependent on the stability of the CET and the existence of rules of origin. It is therefore imperative that the proposed review takes care of the sensitivities in the business environment,” say the EAC Secretariat’s concept note and terms of reference for the comprehensive review of the CET and rules of origin.
The EastAfrican has learnt that the taskforce held its first meeting with stakeholders via a video conference last week to validate the process they have adopted to review the CET and rules of origin. Another meeting is scheduled for February 27, to finalise the process before negotiations begin.
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Drought is pushing food prices up sharply in East Africa
Soaring cost of basic staples is an extra challenge for pastoralists as livestock prices fall
Drought throughout East Africa has sharply curbed harvests and pushed the prices of cereals and other staple foods to unusually high levels, posing a heavy burden to households and special risks for pastoralists in the region.
Local prices of maize, sorghum and other cereals are near or at record levels in swathes of Ethiopia, Kenya, Somalia, South Sudan, Uganda and the United Republic of Tanzania, according to the latest Food Price Monitoring and Analysis Bulletin (FPMA).
Inadequate rainfall in most areas of the sub-region has put enormous strain on livestock and their keepers. Poor livestock body conditions due to pasture and water shortages and forcible culls mean animals command lower prices, leaving pastoralists with even less income to purchase basic foodstuffs.
“Sharply increasing prices are severely constraining food access for large numbers of households with alarming consequences in terms of food insecurity,” said Mario Zappacosta, FAO senior economist and coordinator of the Global Information and Early Warning System.
The trends in East Africa, where prices of staple cereals have doubled in some town markets, stand in marked contrast to the stable trend of FAO’s Food Price Index, which measures the monthly change in international prices of a basket of traded food commodities.
The difference is due to the drought that is hammering the sub-region, where food stocks were already depleted by the strong El Niño weather event that ended only last year. Poor and erratic rainfall in recent months, crucial for local growing seasons, are denting farm output.
Somalia’s maize and sorghum harvests are estimated to be 75 percent down from their usual level, and some 6.2 million people, more than half of the country’s total population, now face acute food insecurity, with the majority of those most affected living in rural areas.
Soaring prices
The FPMA Bulletin tracks food price trends on a granular level and in local terms, with an eye to flagging instances where the prices of essential food commodities increase sharply or are abnormally high.
In Mogadishu, prices of maize increased by 23 percent in January, and. the increase was even sharper in the main maize producing region of Lower Shabelle. Overall, in key market towns of central and southern Somalia, coarse grain prices in January have doubled from a year earlier. With an earlier than usual depletion of household stocks during the coming lean season and preliminary weather forecasts raising concerns for the performance of the next rainy season, prices are likely to further escalate in the coming months.
Maize prices in Arusha, United Republic of Tanzania, have almost doubled since early 2016, while they are 25 percent higher than 12 months earlier in the country’s largest city, Dar Es Salaam.
In South Sudan, food prices are now two to four times above their levels of a year earlier, exacerbated by ongoing insecurity and the significant depreciation of the local currency.
In Kenya, where eastern and coastal lowlands as well as some western areas of the Rift Valley all suffered below-average rainfall, maize prices are up by around 30 percent, with the increase somewhat contained somewhat thanks to sustained imports from Uganda.
Cereal prices aren’t the only ones rising. Beans now cost 40 percent more in Kenya than a year earlier, while in Uganda – where maize prices are now up to 75 percent higher than a year earlier – and increasing around the key border trading hub of Busia, the prices of beans and cassava flour are both about 25 percent higher than a year ago in the capital city, Kampala.
Double jeopardy for pastoralists
Drought-affected pastoral areas in the region face even harsher conditions.
In Somalia, goat prices are up to 60 percent lower than a year ago, while in pastoralist areas of Kenya the prices of goats declined by up to 30 percent over the last twelve months.
Shortages of pasture and water caused livestock deaths and reduced body mass, prompting herders to sell animals while they can, as is also occurring in drought-wracked southern Ethiopia. This also pushes up the prices of milk, which is, for instance, up 40 percent on the year in Somalia’s Gedo region.
Lower income from livestock collides with higher prices for cereals and other staple foods in a wrenching shock to terms of trade for pastoralist households. A medium-sized goat in Somalia’s Buale market was worth 114 kilograms of maize in January 2016, but at today’s prices can be traded for only 30 kilograms of the grain.
FAO uses its proprietary FPMA Tool, accessible to the public online, to monitor local markets and gather data for more than 1350 domestic price series in 91 countries around the globe in order to produce its Indicator of Food Price Anomalies.
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FAO Director-General urges more support to help small farmers adapt to a changing climate
Failure to act now will compromise future food production, sabotage 2030 development agenda
Failure to act now to make our food systems more resilient to climate change will “seriously compromise” food production in many regions and could doom to failure international efforts to end hunger and extreme poverty by 2030, FAO Director-General José Graziano da Silva warned on Monday.
“Agriculture holds the key to solving two of the greatest problems now facing humanity: eradicating poverty and hunger, and contributing to maintaining the stable climatic conditions in which civilization can thrive,” he told participants at a roundtable on climate change during the World Government Summit in Dubai.
The FAO Director-General stressed in particular the need to support smallholder farmers in the developing world adapt to climate change.
“The vast majority of the extremely poor and hungry depend on agriculture for their livelihoods, he said, adding: “They are the most vulnerable to the impacts of global warming and an unstable climate.”
Innovative approaches exist that can help them improve yields and build their resilience, he said, such as green manuring, greater use of nitrogen-fixing cover crops, improving sustainable soil management, agroforestry techniques, and integrating animal production into cropping systems.
“But farmers face major barriers, such as the lack of access to credit and markets, lack of knowledge and information, insecurity about land tenure, and high transaction costs of moving away from existing practices,” the Director-General noted.
He pointed to the fact that 70 countries do not have established meteorological services as an example. FAO is working with the World Meteorological Organization to develop low-cost, farmer friendly services to address this need.
To withstand the vagaries of a harsher, less predictable climate, small farmers will also need better access to other sorts of technologies and to markets, information and finance – as well as better land tenure and improved agriculture infrastructure, added Graziano da Silva.
Ultimately, an ounce of prevention is worth a pound of cure, he argued.
“Adaptation to climate change makes economic sense: the benefits of adaptation are much bigger than the costs,” the FAO Director-General said, while underlining the importance of national efforts like the UAE’s strategy on food diversification, security and climate change.
Coping with the water crunch
One critical front for action is water management, according to Graziano da Silva. Millions of the world’s small-scale farmers are already wrestling with water scarcity, which will likely intensify as a result of climate change, he said.
This is why at the last UN climate change conference FAO and partners launched a global framework on water scarcity in agriculture that aims to support developing countries in bringing stronger policies and programmes for the sustainable use of water in agriculture online.
Participating in the panel discussion “Climate in Action: Feeding the Future” along with Graziano da Silva were Tshering Tobgay, Prime Minister of Bhutan, Thani Al Zeyoudi, Minister of Climate Change and Environment of the United Arab Emirates, and Patricia Espinosa, Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC).
The World Government Summit (WGS) is a platform that brings together leaders and policy makers to showcase future trends in government services, leadership, innovation and economic policies.