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EU trade: Defining talks for East Africa presidents for late January
The East African Community Heads of State Summit, which was to be held in the first week of this month, has been pushed to next month, after the regional ministers of trade and East African affairs failed to agree on some of the issues to be ratified, top among them being the Economic Partnership Agreement (EPA) with the European Union.
This has caused anxiety in Kenya, which is now banking on the EAC Council of Ministers who will convene in a fortnight to persuade its regional partners to finalise discussions on the ratification of the EPA by the February 2 deadline.
“The ministers have been having back-and-forth discussions over these issues since November. Had the ministers agreed on the issues, then we would have seen a Heads of State Summit later this month, at which the EPA signing would have been timely because of the European Union deadline,” a source said.
“However, this wasn’t the case, and the Ministers will now meet in the week of January 23.”
East African Community Affairs Principal Secretary Betty Maina confirmed that the summit will take place in February, because the council did not finish its business last year and has therefore not formulated any proposals to be adopted, a prerequisite for any EAC summit.
“The leaders couldn’t meet as the business of the Council of the Ministers hadn’t been fully accomplished. We have sent out proposals that, if adopted, will be ratified by the summit,” Ms Maina said.
Kenya’s Trade Principal Secretary Dr Chris Kiptoo said that he is not yet privy to the discussions of the January meeting.
“I am yet to see the agenda, but I expect the EPA to be a part of it. It will come up and we will deal with it, despite its now being a delicate matter,” Dr Kiptoo told The EastAfrican.
Delicate matter
It is understood that since the last Heads of State Summit, Kenya has made several diplomatic overtures, especially to Tanzania, which has indicated it will not sign the agreement, as it considers it of no benefit to the country.
“Kenya understands that Tanzania is an important trade partner, especially for its exports and would not want to do anything that would jeopardise this intra-country trade. That has made it tread very softly in pushing for the EPA, but when the two heads of states met in November, there was an understanding that this issue would be dealt with,” The EastAfrican was told.
Dr Kiptoo said that they would not want a scenario where the impasse on the EPA and negotiations would rock the gains the intra-regional trade bloc has made so far.
“For us, this is a delicate matter as it involves one of our biggest local trading partners. It requires work for a mutual balance to be found and that’s what we are working on. I am hoping that in the next few weeks, from the scheduled meetings, we will get directions on how to proceed,” Dr Kiptoo said.
Tanzania is Kenya’s second largest importer of goods, with statistics from the Kenya National Bureau of Statistics showing that Kenya exported $67.5 million worth of goods to Dar es Salaam in the third quarter of 2015, a drop from $78.2 million in the same period in 2014.
Kenya is also looking at the variable geometry option for unlocking the impasse, which will see imports from European Union enter its market through its borders, but which will subsequently be subject to rules of origin in markets like Tanzania.
“Unless the heads of state agree, then we could consider the variable geometry option, but this will see some countries impose the rules of origin conditions, which could also now be a new challenge and self-defeating,” Dr Kiptoo said.
All must sign
Under Article 7(1)(e) of the Treaty establishing the EAC, variable geometry grants flexibility, which allows for progress in co-operation among a sub-group of members within the larger integration scheme, provided this is done within the ambit of the overall integration process of the bloc.
So far, it is only Kenya and Rwanda that have signed and ratified the EPA deal with the EU in October last year. This variable geometry option will allow them to proceed without the other members.
EAC being a Single Customs Territory, the other EAC members – Tanzania, Uganda and Burundi – must also sign the pact to make it enforceable.
Tanzania has since argued that signing the trade deal in its current form will have potential negative implications for the country’s industrialisation strategy, while Burundi has tied the resumption of EU aid to Bujumbura as a precondition for it appending its signature.
At the September 8 extra-ordinary summit, Tanzanian President John Magufuli had alluded to an agreement at the start of this year, after extensive consultations and discussions among the partner states.
“We have agreed to further the discussions on EPA’s over the next three months,” President Magufuli then said.
Last month, president of the European parliament Louis Michel said that if the regional ratification failed to meet the February deadline, then Kenya could sign a bilateral trade agreement with the EU, fashioned on that which South Africa, a member of the Southern Africa Development Community, did with the EU.
“Looking at the economic benefits Kenya stands to lose, we would urge the EU to be flexible and allow it to sign an independent agreement to safeguard its products, if regional blocs frustrate the collective approval,” Mr Gomes said.
In June last year, the EU signed EPAs with five Southern Africa nations out of the 15 members of SADC – Botswana, Lesotho, Mozambique, Namibia and Swaziland guaranteed them duty-free, quota-free access to the European market.
South Africa negotiated an enhanced agreement for itself, to benefit from enhanced market access, going beyond the existing bilateral arrangements with the other five countries.
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How creating new markets can change the future of development finance
As recently as two decades ago, it was nearly impossible to find a home with a telephone in sub-Saharan Africa. Just one person in a hundred owned a fixed line; for everyone else, the chances of getting one were slim.
Africa is deep into the digital age. Around 750 million Africans have mobile service and access to the lifeline it can provide – linking distant communities, creating jobs, providing basic financial services and real-time crop information. For most people in Africa today, the first phone they ever used was a mobile phone.
How was Africa able to so quickly embrace – and benefit from – the mobile revolution? By mixing smart regulatory reforms that encouraged opening up the telecom sector to competition with private investment. This powerful combination created a new market from scratch and changed lives for the better.
In a world where billions of people lack access to electricity, sanitation or even a simple bank account, the lessons of Africa’s mobile experience are clear. Creating markets generates jobs and sustainable economic growth, builds thriving companies and lifts people out of poverty. This must be at the foundation of development finance, especially in today’s global economic environment.
Without this foundation, official development assistance simply cannot address the massive financing needs facing emerging economies – support needed for infrastructure, tackling climate change, agriculture, small businesses, health, education and employment. Aid alone will not close the $1.5 trillion annual gap in infrastructure investment in developing countries or provide good jobs for Africa and South Asia’s rapidly growing youth population. The solution lies in markets that allow competition to flourish and productivity gains to grow.
Large pools of private sector capital remain untapped or not channeled where they are needed most. Right now, a big share of the private resources invested in developing countries goes into investments with relatively less risk and does not finance long-term development. In the most fragile environments, private sector involvement is even more limited because markets are non-existent or nascent and regulatory risks are high. Supply chains are fragmented and monopolies hamper critical sectors, like power and transport. Underdeveloped capital markets, meanwhile, are unable to efficiently connect savings to investment.
Development institutions are designing new tools to address these shortcomings and make creating markets a priority. In December 2016, a coalition of developed and developing countries pledged $75 billion in financing over the next three years to the International Development Association (IDA), the World Bank Group’s fund for the poorest nations. This is a clear recognition from donors of the growing role that private enterprise must play in fighting poverty in the world’s poorest and most conflict-affected countries.
The market-creation toolbox now includes a $2.5 billion “private sector window” in IDA designed to tackle fundamental constraints, such as the high counterparty risks of large infrastructure projects and the limited availability of local currency loans. This tool will bring new solutions for dealing with high risk to projects that can have a big impact, but are currently commercially marginal. A separate ”creating markets advisory window”, financed out of IFC profits, will address the rising demand for advisory services and capacity building in the poor and fragile areas.
The drive to create new markets will also require new guarantee instruments and a sharp focus on programmes that can be scaled for maximum impact. The World Bank Group’s Scaling Solar is one example. Through simplified government processes and low pricing, it allows governments to procure privately-funded solar power stations quickly, transparently, and at the lowest tariffs possible. The programme’s first auction, in Zambia in 2016, resulted in the lowest-priced solar power to date in Africa, just above six cents per kilowatt hour. A country where only one fifth of the population has access to electricity will now have a new source of affordable, renewable energy, without subsidies and hence without public outlays.
The focus on creating markets requires a new mindset, one that recognizes the trade-offs between public and private solutions. In addressing the toughest challenges, development institutions should first ask themselves if private solutions are viable. If they are not, the solution should prioritize regulatory reform, upstream project development or blended – public and private – finance. Only when all of these possibilities are exhausted, should we seek to use the limited sources of public finance.
This kind of thinking has worked before. Take Turkey’s energy sector: over the past 15 years, consistent reform has led to market liberalization, billions in private sector investment and, finally, a fully competitive market.
It’s time to take a fresh look at how the world should confront its toughest development challenges. In conversations from Washington to London to Nairobi, there’s a growing recognition that markets – building them and helping them thrive – are essential to a world free of poverty. Using the tools now at our disposal and designing more creative new ones will help get us there.
Philippe Le Houérou is Executive Vice-President and CEO, International Finance Corporation. The views expressed in this article are those of the author alone and not the World Economic Forum.
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New ‘Aspiring Africa’ narrative fuelled by technology growth
The ‘Africa Rising’ narrative is increasingly giving way to that of ‘Aspiring Africa’, as the Base of the Pyramid (BoP) shrinks and the new middle class burgeons.
Central to this new narrative is inclusive growth: the idea that economic growth must come with equitable opportunities for all participants, with benefits enjoyed by every section of society.
As Africa develops, it is pivotal to ensure that the currently underserved majority feels the benefits. This is not only about poverty reduction, but about creating opportunities for lower-income segments to generate wealth. It is a virtuous cycle; inclusive growth equals faster and better economic growth.
If we can ensure that Africa’s economic development happens in a more equitable and sustainable way, the macroeconomic positives are myriad. Offering young, aspiring Africans the opportunity to create wealth, has the effect of turning this demographic into producers and consumers of additional products and services.
Role of technology
Africa’s mobile revolution has offered entrepreneurs an opportunity unlike any other to disseminate products and services that can contribute to inclusive growth on the continent. It enables digital innovation that allows African entrepreneurs and developers to leapfrog technologies, creating access to previously unavailable services for the majority.
Finance is a key enabler of growth, which is why the provision of accessible and affordable financial services to the majority of Africans is a prerequisite for faster and more sustainable development. Access to financial services increases access to other opportunities, hence fintech becoming central to Africa’s inclusive growth story.
For example, South Africa’s Nomanini, is allowing informal merchants to improve their income generation capacity by selling airtime and other digital services through their point of sale (PoS) devices. This creates a ripple effect. By increasing the wealth-generation capability of the majority, it allows them to access additional products and services and contribute to economic growth.
The trend goes beyond financial services, however. In healthcare, diagnostic apps such as Vula Mobile are making world-class diagnostics available to lower-income segments in a more affordable way.
Companies in the education space are making digital content available to young Africans, while in agriculture, mobile is being used by companies like Kenya’s WeFarm to disseminate crucial information for farmers, having a direct impact on their productivity and wealth-generation abilities.
Africa is seeing the same technology innovations that are emerging in developed countries, however, they are used in a unique manner.
In Africa, technology is not replacing or assisting existing infrastructure; it is creating the infrastructure where there is none. Brick-and-mortar clinics, schools and grid-powered electricity are not in place across vast swathes of the continent. And they will not reach every rural village or urban slum in the future. Instead, these services will be provided more and more through innovative mobile technologies, reducing the need for expensive physical infrastructure.
In its ability to democratise and increase access to more affordable services that have, until now, remained inaccessible to the majority of Africans, technology has the potential to play a huge role in ensuring inclusive growth on the continent, opening up new opportunities for aspiring Africans.
Inclusive growth through technology
It is evident that from financial services to education, healthcare to transport, technology can be a key enabler in ensuring the benefits of Africa’s economic development are felt by all. There are four factors that are critical in enabling the growth in of the inclusive digital economy: the first is improved access to the internet.
Without access to mobile internet connectivity, the digital innovation that makes products and services more affordable to the majority remains out of reach. Approximately only one-third of Africans currently have access to the internet.
This issue is, fortunately, being addressed. Internet penetration in Africa has grown to almost 30% from just 11% five years ago. Internet bandwidth on the continent increased by 41% between 2014 and 2015, according to research from TeleGeography, with the growth being driven by the increasing prevalence of 3G and 4G connectivity.
The second prerequisite for enabling inclusive growth through digital innovation is increasing access to smart devices. Getting the right devices into the hands of Africans is crucial to ensuring access to opportunities. Here too we are seeing significant progress. The number of smartphones across Africa has almost doubled to 226 million over the last two years, according to the GSMA, as entry level prices are falling rapidly.
Another key factor for inclusive growth is reducing the cost of communication. The majority of Africans will remain unable to access digital services if they cannot afford data bundles or voice calls. But with data prices falling across the board and OTT services such as WeChat and WhatsApp enabling cheaper communication, this issue too is being addressed.
The fourth factor is reducing the cost of creating technology solutions. Whereas in the past the development costs of a mobile or web application would have been unaffordable to many digital entrepreneurs in majority markets, thanks to lean methodologies and open source platforms like GitHub the process is now simpler and cheaper. This drop in the cost of technology has created opportunities for the development of more innovative applications to meet African needs.
Africa’s inclusive digital future
There are many reasons to be positive about ‘Aspiring Africa’ and the impact of the digital economy.
The continent is brimming with the energy and passion of a young generation of ambitious innovators and entrepreneurs. And Africa is the youngest continent populated by digitally savvy and creative Africans that are keen to grab the opportunities that the digital economy creates for them as economically included citizens. The widespread emergence of tech ecosystems across the continent is supporting a rapidly growing number of increasingly impressive startups and innovative solutions. The increased accessibility and falling cost of relevant services through internet-enabled smart devices, is putting these innovations in the hands of the young and aspiring African mass markets.
These innovations are changing the lives of the average African byte by byte, day by day. As the majority of Africans enter the digital economy, technology innovations are playing a pivotal role in creating the inclusive growth story that is changing the face of the continent. Our firm invests in many technology innovators. Working with these passionate young entrepreneurs on the ground on a daily basis, it is hard not to be optimistic about the inclusive digital economy that is taking shape in Africa as we speak.
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ILO: Global unemployment expected to rise by 3.4 million in 2017
Economic growth continues to disappoint and deficits in decent work remain widespread.
The global unemployment rate is expected to rise modestly from 5.7 to 5.8 per cent in 2017 representing an increase of 3.4 million in the number of jobless people, a new ILO report shows (table 1).
The number of unemployed persons globally in 2017 is forecast to stand at just over 201 million – with an additional rise of 2.7 million expected in 2018 – as the pace of labour force growth outstrips job creation, according to the ILO’s World Employment and Social Outlook – Trends 2017 (WESO).
“We are facing the twin challenge of repairing the damage caused by the global economic and social crisis and creating quality jobs for the tens of millions of new labour market entrants every year,” said ILO Director-General, Guy Ryder.
“Economic growth continues to disappoint and underperform – both in terms of levels and the degree of inclusion. This paints a worrisome picture for the global economy and its ability to generate enough jobs. Let alone quality jobs. Persistent high levels of vulnerable forms of employment combined with clear lack of progress in job quality – even in countries where aggregate figures are improving – are alarming. We need to ensure that the gains of growth are shared in an inclusive manner,” he added.
The report shows that vulnerable forms of employment – i.e. contributing family workers and own account workers – are expected to stay above 42 per cent of total employment, accounting for 1.4 billion people worldwide in 2017.
“In fact, almost one in two workers in emerging countries are in vulnerable forms of employment, rising to more than four in five workers in developing countries,” said Steven Tobin, ILO Senior Economist and lead author of the report.
As a result, the number of workers in vulnerable employment is projected to grow by 11 million per year, with Southern Asia and sub-Saharan Africa being the most affected.
Contrasting regional trends
The authors also warn that unemployment challenges are particularly acute in Latin America and the Caribbean where the scars of the recent recession will have an important carry-over effect in 2017, as well as in Sub-Saharan Africa which is also in the midst of its lowest level of growth in over two decades. Both regions are confronted with strong growth in the numbers of individuals entering working age.
By contrast, unemployment should fall in 2017 among developed countries bringing their rate down to 6.2 per cent (from 6.3 per cent). But the pace of improvement is slowing and there are signs of structural unemployment. In both Europe and North America, long-term unemployment remains stubbornly high compared to pre-crisis levels, and in the case of Europe, it continues to climb despite the receding unemployment rates.
Decent work deficits underpin social discontent and willingness to migrate
Another key trend highlighted in the report is that the reductions in working poverty are slowing which endangers the prospects of eradicating poverty as set out in the United Nations Sustainable Development Goals. The number of workers earning less than $3.10 per day is even expected to increase by more than 5 million over the next two years in developing countries.
At the same time, it warns that global uncertainty and the lack of decent jobs are, among other factors, underpinning social unrest and migration in many parts of the world.
Between 2009 and 2016, the share of the working age population willing to migrate abroad has increased in almost every region of the world, except for Southern Asia, South-Eastern Asia and the Pacific. The largest rise took place in Latin America, the Caribbean and the Arab States.
A call for international cooperation
Turning to policy recommendations, the authors estimate that a coordinated effort to provide fiscal stimulus and an increase in public investment that takes into account each country’s fiscal space, would provide an immediate jump-start to the global economy and reduce global unemployment in 2018 by close to 2 million compared to our baseline forecasts.
However, such efforts should be accompanied by international cooperation.
“Boosting economic growth in an equitable and inclusive manner requires a multi-facetted policy approach that addresses the underlying causes of secular stagnation, such as income inequality, while taking into account country specificities,” Tobin said.
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WEF chief: Globalisation ‘easy scapegoat’ for global angst
The man behind the annual Davos forum that for decades has been singing the praises of global trade insists that globalisation is only one factor in dramatic shifts provoking angst and anger.
Klaus Schwab, the 78-year-old founder and executive chairman of the World Economic Forum, told AFP in an interview this week he understood that rapid changes in our societies were provoking anxiety, but stressed that globalised trade was not the sole culprit.
“It’s not just a backlash against globalisation,” he said, adding that “what we are witnessing is a time of enormous change.”
Rapid shifts in technology, economies and social structures have fuelled “a certain anxiety of the people, (who) are looking for an identity in this new world,” he said.
This year’s Davos meetings take place next week, and Schwab’s comments come after a wave of anti-establishment populism over the past year which saw Britain vote to leave the European Union and maverick billionaire businessman Donald Trump elected as US president.
Other populists have also been gaining ground in many Western democracies, largely by stoking fears about globalisation, immigration and refugee flows.
Schwab said the world appeared to be in “emotional turmoil” but said the turbulence was rooted in a range of factors, including deep concerns over how new technologies are threatening jobs.
Globalisation, he insisted, is simply “a very easy scapegoat”.
A more fragile world
But while globalisation is easy to blame, there are no good alternatives to it, he suggested, warning of the dangers of growing isolationism.
A more isolationist world would be “different from today’s world,” he said, including a likely return of borders and border controls in Europe “with all the inconvenience for business but also for people that borders represent”.
“But what I’m much more concerned with is the fact that countries become much more egotistical under the pressure of the national electorate,” he said.
An isolationist world would be one that is no longer “based on shared values, but a world which will be characterised by interests,” he warned, saying that if global cooperation happened at all it would be based on shared interest alone.
“But a global cooperation which is based just on sharing interests will be very unstable because values remain the same, but interests move over time,” he said.
“We will be in a much more fragile world,” he said.
WEF, which for the past 47 years has been organising the Davos forum of political and business elites, pointed out this week that Schwab had been sounding the alarm on this issue for decades.
The organisation pointed to an opinion piece in the New York Times that he co-authored in 1996, in which he warned that the “mounting backlash against (globalisation’s) effects… is threatening a very disruptive impact on economic activity and social stability in many countries.”
Schwab said Davos is the perfect place to begin addressing the problem, with its strong focus on “the need for responsive and responsible leaders.”
“Responsive means that if you are a good leader, you have to listen to the people who have entrusted you with leadership,” he said.
“But in the end, it’s not enough just to listen. You have to solve the issues. You have to address… the root causes.”
“Why the people are angry, and why they are not satisfied. That’s responsibility which needs courage and which needs decision-making and which needs action orientation,” Schwab said.
But Davos is not just about political leaders, he said, insisting that the forum offered a unique platform for cooperation across politics, business, civil society and experts.
“The big issues in the world cannot be solved by governments alone or by businesses alone,” Schwab said.
“I think in a world which is disintegrating and which is polarising, you need a clue, and you need a mechanism for interaction, you need a mechanism for dialogue,” he said.
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Roads to stronger growth in low-income countries
Low-income countries should build more infrastructure to strengthen growth. A new IMF analysis looks at ways to overcome obstacles.
The clock is now ticking on the 2030 Agenda for Sustainable Development, and while investment – critical to this agenda – has been rising in recent years among low-income countries, weak infrastructure is still hampering growth. Governments need to make significant improvements to lay foundations for flourishing economies: roads to connect people to markets, electricity to keep factories running, sanitation to stave off disease, and pipelines to deliver safe water.
For that reason, upgrading and expanding transport, telecommunications and utilities is a key pillar in many countries’ national development strategies.
What are the challenges, and what needs to be done to achieve the goals in low-income states? A chapter in a recent report by the IMF delves into these questions.
High debt, insufficient resources and capacity constraints
In many low-income countries, public debt levels have risen and external financing conditions have tightened, which has made taking out loans to invest in infrastructure projects increasingly difficult and risky. During 2015 alone, the ratio of public debt to GDP rose from 34 to 42 percent.
A survey reveals that the availability of external financing and administrative capacity constraints are key obstacles to scaling up public infrastructure investment in the most vulnerable countries. However, for low-income countries better connected to global capital markets, it is the sufficiency of domestic financial resources that is the most important concern.
Bridging the gap on multiple fronts
Given their limited resources, poorer countries can benefit substantially from improving the efficiency of their public investment. As documented in the IMF’s recent analysis, value for money in public investment varies considerably among low-income countries, and is generally lower than in other states. While the broad principles for improving public investment efficiency – for example, that capital expenditure should go to most productive projects – are well understood, institutional mechanisms to achieve this (effective cost-benefit analysis; transparent procurement) are not always in place.
More domestic resources from taxes can create more space for priority spending areas such as infrastructure. However, despite some progress, tax revenues still remain lower in poorer countries than elsewhere, partly due to lower collection efficiency. Therefore, improving tax administration, broadening the tax base, closing unjustified loopholes, streamlining expenditures, and, in some cases, raising tax rates will help generate the budgetary resources to fund infrastructure provision.
Concessional financing will need to continue to play an important role in funding development in low-income countries. Increasing the capital of multilateral development banks and adjusting the way they deploy their capital could generate more resources for the poorest countries.
The rise of new bilateral donors, particularly China, and new institutions, such as the Asian Infrastructure Investment Bank, has brought additional funds for development.
That said, many potential donor countries are faced with their own fiscal challenges, limiting the prospects for a large increase in multilateral and bilateral donor financing. In any case, there is an overall agreement that even scaled up official development assistance is insufficient to meet the investment requirements of the Sustainable Development Goals by 2030.
Get the private sector involved
There is little purely private infrastructure in low-income countries outside the mobile telecommunications sector – but that notable exception demonstrates that the model is potentially viable. Small-scale applications in other sectors, such as solar micro-grids, reinforce this notion.
Alternatively, public and private capital can be combined in a public-private partnership, which is a relatively frequent model in electricity generation. Of course, a strong institutional framework and sound public-private partnership management are critical to avoid such structures unduly increasing fiscal risks.
How to attract private investment in infrastructure?
A favorable business environment, including stable macroeconomic conditions and predictable policies and regulations, tops the list. But it may not be sufficient. Numerous obstacles get in the way of connecting private investors to viable projects, even though large institutional pools of capital (close to $100 trillion in advanced economies) are looking for decent returns. In particular, there is limited expertise in low-income countries in structuring projects to ensure an acceptable risk-return combination for private investors.
Multilateral development banks help developing countries address many of these issues. Numerous project preparation facilities help structure viable projects – for example, the recently established Global Infrastructure Facility with an initial capitalization of $100 million.
In addition, development banks seek to catalyze private investment by providing risk mitigation through political risk insurance, credit guarantees, subordinated debt, and other instruments. This is a very promising direction, although progress has been limited so far.
The IMF has tools to help
The IMF assists its members interested in scaling up infrastructure investment. Its Infrastructure Policy Support Initiative is a suite of tools that help countries evaluate the macroeconomic and financial implications of alternative investment programs and financing strategies and bolster institutional capacity in managing public investment.
These tools have already been applied in a large number of countries, including Cambodia, Honduras, the Kyrgyz Republic, and Togo. The IMF also allocates one-fifth of its support for national capacity building to assistance in the areas of tax policy and administration, which are key to domestic revenue mobilization.
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Harnessing automation for a future that works
Automation is happening, and it will bring substantial benefits to businesses and economies worldwide, but it won’t arrive overnight. A new McKinsey Global Institute report finds realizing automation’s full potential requires people and technology to work hand in hand.
Recent developments in robotics, artificial intelligence, and machine learning have put us on the cusp of a new automation age. Robots and computers can not only perform a range of routine physical work activities better and more cheaply than humans, but they are also increasingly capable of accomplishing activities that include cognitive capabilities once considered too difficult to automate successfully, such as making tacit judgments, sensing emotion, or even driving.
Automation will change the daily work activities of everyone, from miners and landscapers to commercial bankers, fashion designers, welders, and CEOs. But how quickly will these automation technologies become a reality in the workplace? And what will their impact be on employment and productivity in the global economy?
The McKinsey Global Institute has been conducting an ongoing research program on automation technologies and their potential effects. A new MGI report, A future that works: Automation, employment, and productivity, highlights several key findings.
The automation of activities can enable businesses to improve performance by reducing errors and improving quality and speed, and in some cases achieving outcomes that go beyond human capabilities. Automation also contributes to productivity, as it has done historically. At a time of lackluster productivity growth, this would give a needed boost to economic growth and prosperity. It would also help offset the impact of a declining share of the working-age population in many countries. Based on our scenario modeling, we estimate automation could raise productivity growth globally by 0.8 to 1.4 percent annually (see animation below).
The right level of detail at which to analyze the potential impact of automation is that of individual activities rather than entire occupations. Every occupation includes multiple types of activity, each of which has different requirements for automation. Given currently demonstrated technologies, very few occupations – less than 5 percent – are candidates for full automation. However, almost every occupation has partial automation potential, as a proportion of its activities could be automated. We estimate that about half of all the activities people are paid to do in the world’s workforce could potentially be automated by adapting currently demonstrated technologies. That amounts to almost $16 trillion in wages.
The activities most susceptible to automation are physical ones in highly structured and predictable environments, as well as data collection and processing. In the United States, these activities make up 51 percent of activities in the economy, accounting for almost $2.7 trillion in wages. They are most prevalent in manufacturing, accommodation and food service, and retail trade. And it’s not just low-skill, low-wage work that could be automated; middle-skill and high-paying, high-skill occupations, too, have a degree of automation potential. As processes are transformed by the automation of individual activities, people will perform activities that complement the work that machines do, and vice versa.
Still, automation will not happen overnight. Even when the technical potential exists, we estimate it will take years for automation’s effect on current work activities to play out fully. The pace of automation, and thus its impact on workers, will vary across different activities, occupations, and wage and skill levels. Factors that will determine the pace and extent of automation include the ongoing development of technological capabilities, the cost of technology, competition with labor including skills and supply and demand dynamics, performance benefits including and beyond labor cost savings, and social and regulatory acceptance. Our scenarios suggest that half of today’s work activities could be automated by 2055, but this could happen up to 20 years earlier or later depending on various factors, in addition to other economic conditions.
The effects of automation might be slow at a macro level, within entire sectors or economies, for example, but they could be quite fast at a micro level, for individual workers whose activities are automated or for companies whose industries are disrupted by competitors using automation.
While much of the current debate about automation has focused on the potential for mass unemployment, people will need to continue working alongside machines to produce the growth in per capita GDP to which countries around the world aspire. Thus, our productivity estimates assume that people displaced by automation will find other employment. Many workers will have to change, and we expect business processes to be transformed. However, the scale of shifts in the labor force over many decades that automation technologies can unleash is not without precedent. It is of a similar order of magnitude to the long-term technology-enabled shifts away from agriculture in developed countries’ workforces in the 20th century. Those shifts did not result in long-term mass unemployment, because they were accompanied by the creation of new types of work.
We cannot definitively say whether things will be different this time. But our analysis shows that humans will still be needed in the workforce: the total productivity gains we estimate will only come about if people work alongside machines. That in turn will fundamentally alter the workplace, requiring a new degree of cooperation between workers and technology.
James Manyika and Jacques Bughin are directors of the McKinsey Global Institute, and Michael Chui is an MGI partner; Mehdi Miremadi is a partner in McKinsey’s Chicago office, Katy George is a senior partner in the New Jersey office, and Paul Willmott and Martin Dewhurst are senior partners in the London office.
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The 2017 schedule of Trade Policy Reviews (including Mozambique, Nigeria, Sierra Leone, The Gambia, WAEMU states)
Business conditions of Japanese-affiliated companies in Africa: 2016 survey (JETRO)
Between September and November 2016, the Japan External Trade Organization conducted its latest survey on business operations of Japanese-affiliated companies in Africa. The survey, conducted immediately after TICAD VI, highlighted Japanese-affiliated companies’ high expectations for African markets. Of respondents, 52.4% expect their business to expand in the next 1-2 years: high response rates can be seen in Ghana (75%), Kenya (68.6%) and Morocco (65%). Among the reasons behind expanding business, the highest was "increased sales" (69.7%), followed by "a high growth potential of the local market" (59.2%). Companies maintain high expectations for Kenya, Nigeria and South Africa - ranked the top three investment destinations, since last year. Respondents highly praised Kenya’s increasing business opportunities in the infrastructure industry, Nigeria’s market size and growth potential and South Africa’s well-developed function as a regional business hub of Africa.
DRC: Minutes of the Second Trade Policy Review (WTO)
The second Trade Policy Review of the Democratic Republic of the Congo was held on 25 and 27 October 2016. Taking the opportunity of this TPR, Members asked many questions about the DRC’s long term economic and development strategies, including how it planned to improve the business environment for traders and investors, and how it would diversify its economic activities.
Botswana: Government tweaks exchange rate to boost exports (Mmegi)
In a bid to get more value from diamond exports as well as contain the country’s import bill, government has made adjustments to the crawling peg exchange rate regime by reducing the weight of the South African rand in the basket of currencies that determine the value of the pula. Acting permanent secretary in the Ministry of Finance and Economic Development, Cornelius Dekop said effective from January 01, 2017, the weight of the rand in the pula basket of currencies has been reduced to 45% from 50%.
Nigeria: FG to review trade policy to improve confidence in economy (Leadership)
The federal government will soon review her trade policies this year in order to revamp the nation’s economy with a focus on creating an enabling business environment and improve confidence in the economy. The government has also started identifying the countries with which it will negotiate Free Trade Areas in 2017. According to reports, Nigeria has not reviewed her trade policies since 2002. “In June this year, the WTO will hold Nigeria’s fifth trade policy review. We are working hard at ensure its success because it improves confidence in the Nigerian economy, Trade adviser to minister of Industry, Trade and Investment and Chief negotiator, Ambassador Chiedu Osakwe said yesterday in Abuja, adding that the minister, Dr Enelamah Okechukwu and his top management are moving aggressively on the implementation of the government’s initiative on an enabling business environment. Osakwe said the ministry is working on a domestic law for trade remedies, safeguards anti-dumping, and counter-failing duties for the imported goods that have been distorted, heavily subsidised by those who push them into the Nigerian market.
Taiwan protests Nigeria order to move trade mission from capital (The Jakarta Post)
Taiwan accused China of interference after the Nigerian government ordered the island to move its trade mission from the capital Abuja to Lagos. Nigerian Minister of Foreign Affairs Geoffrey Onyeama announced the move Wednesday after meeting with Chinese counterpart, Wang Yi, China’s official Xinhua News Agency said. Onyeama said Taiwan would stop enjoying privileges because it wasn’t a country recognized under international law, Xinhua said. During the talks, Onyeama also reaffirmed his country’s commitment to the “One-China” policy. Taiwan’s foreign ministry protested the decision in a statement Thursday.
Zimbabwe: CZI warns of doom over foreign payments delays (NewsDay)
The Confederation of Zimbabwe Industries says foreign payment delays have “adversely” affected local producers amid fears that some companies would close down due to losses in revenue. The effect of delays on foreign payments has led companies to struggle to meet production deadlines slowing production and in turn affecting revenue streams, the body said yesterday. Briefing journalists on the upcoming 2017 Economic Outlook Symposium to be held in Harare on 26 January, CZI president Busisa Moyo said the situation was very dire with local producers potentially facing closures over the delays.
Zambia: Report on the state of parastatal companies to be ready in March (Lusaka Times)
The Industrial Development Corporation board is by March expected to receive a report on the situational analysis being conducted on state-owned enterprises to determine whether to maintain 100% government shareholding, or invite private equity. He also said IDC will not take over operations of SOEs but will transform the parastatals into viable and profitable entities that must start declaring dividends to the treasury.
Congo to receive $250m Afreximbank support for oil fields strategic plan (Afreximbank)
Afreximbank President Dr Benedict Oramah, who signed on behalf of the Bank, said the facility was part of a $1bn syndicated loan commitment which the government had mandated Afreximbank to raise for the country to enable it cater for capital investment financing requirements for oil production increases and to also finance trade-related investments in the oil and gas sector. Dr Oramah, who noted that the current low oil prices continued to put “unimaginable pressures on governments of oil exporting countries in Africa, including the Republic of Congo”, stated that the Bank had stepped in with innovative programmes to mitigate the adverse impact of those economic shocks on its member states.
Kenya plans tax cuts to kill black market mineral trade (Business Daily)
Kenya is moving to curb illegal mineral trade fuelled by smuggling syndicates through roping in key agencies including the central bank and Kenya Revenue Authority (KRA) as well as granting generous tax incentives to traders. Mining secretary Dan Kazungu said his ministry would push for a change in the law during the next budget to rein in the black market. “The plan is to advocate zero-rating mineral inflows and fast tracking entry of mineral inflows at border points by working closely with the taxman. We want to make the black market an unattractive option.”
Morocco flexes muscles as it seeks AU reinstatement (Africa Renewal)
Over the 10-year period starting in 2004, Morocco’s trade with the rest of the continent grew by an annual average of 13% ($3.7bn) in 2014, 42% of which was with sub-Saharan Africa. This represented just 6.4% of the kingdom’s overall trade globally during the same period, according to a government report titled Morocco-Africa Relationship: ambition for a New Frontier. Yet the most remarkable change was Morocco’s direct investments in the continent. In 2015 it invested $600m, with neighbouring Mali getting the lion’s share, followed by Côte d’Ivoire, Burkina Faso, Senegal and Gabon, according to the World Investment Report 2016, a publication of UNCTAD. Over the decade ending in 2016, Morocco’s investment in sub-Saharan Africa represented 85% of its overall foreign direct investment stocks, according to data from the country’s finance ministry and the African Development Bank.
One-third of EU firms face export obstacles, joint ITC-EU study finds (ITC)
More than one-third of European Union companies face obstacles in the form of non-tariff measures when they export their goods, according to a report published by the International Trade Centre and the European Commission. The report, Navigating Non-Tariff Measures: insights from a business survey in the EU, is an unprecedented business survey carried out by ITC in 2015 and 2016 covering more than 8,000 companies across the 28 EU member states, mostly small and medium-sized enterprises.
The Global Risks Report 2017 (WEF)
This year’s Global Risks Report (pdf) takes as its starting point the societal and political polarization that besets an increasing number of countries and that looks set to be a determining feature of the political landscape not just for the next few years but for the next few electoral cycles. In Part 1, the Report draws on the trends and risks highlighted in the latest GRPS to outline the key challenges that the world now faces: reviving economic growth; reforming market capitalism; facing up to the importance of identity and community; managing technological change; protecting and strengthening our systems of global cooperation; and deepening our efforts to protect the environment. Part 2 explores three social and political risks in greater depth. Part 3 turns towards technology, which is at once a source of disruption and polarization and an inevitable part of whatever responses to these trends we choose to pursue.
Follow the moving carbon: a strategy to mitigate emissions from transport (World Bank)
The share of each mode in overall transport emissions also differs depending on which part of the world you’re looking at: while 2/3 of emissions in OECD countries are from cars, freight and particularly trucking is currently more important in the context of emerging markets. Trucks actually generate over 40% of transport emissions in China, India, Latin America and Africa. To us, this suggests that focusing on improving the fuel efficiency of the trucking sector becomes critical. In practice, this would translate into interventions that lead to fuller and more fuel-efficient vehicles. Data suggest that empty backhauls account for over 40% of truck miles in India and about 36% in China – significantly higher than the estimates of 13-26% for the US and EU. Getting carriers to invest in optimal truck fleets across the world so that they perform as efficiently as those in the US and EU markets could more than half freight sector emissions. And since fuel represents at least 40% of carriers’ direct operating costs, increased fuel efficiency in the trucking industry would also lead to a leaner, more cost-efficient and competitive logistics sector.
Wanted: affordable medicines for all (Africa Renewal)
The report notes that in a market-driven research and development environment, research into new technologies is incentivised by the prospect of high returns to the developers, while rare diseases affecting comparatively small numbers of people fail to spur innovation. “With no market incentives, there is an innovation gap in diseases that predominantly affect neglected populations,” said Malebona Precious Matsoso, the director-general of the National Department of Health of South Africa, one of the 15 members of the UN panel. Ruth Dreifuss, former president of the Swiss Confederation, and Festus Mogae, former president of Botswana, co-chaired the high-level panel. The report calls for new approaches to health research and development to make sure that the benefits of health technology are extended to all. [Donald Trump: Pharma industry is getting away with murder]
The economics of tobacco and tobacco control (WHO)
This monograph, a collaboration between the National Cancer Institute and WHO, examines the current research and evidence base surrounding the economics of tobacco control - including tobacco use, tobacco growing, manufacturing and trade, tobacco product taxes and prices, and tobacco control policies and other interventions to reduce tobacco use and its consequences. Why is a global economics of tobacco and tobacco control monograph needed today? There are several reasons, including: (i) extensive new evidence from low- and middle-income countries, much of it derived from research supported by international agencies (ii) new questions raised by emerging political, supply-side, and health concerns (iii) new infrastructure issues ranging from privatization to trade liberalization (iv) new global economic concerns about tobacco use and tobacco control.
Egypt: Chronic dollar pains
Importers pile pressure on East African currencies
Uganda: Economy expands by Shs162b in first quarter of 2016/17
AfCoP COMESA Region Peer review consultant: EOI (pdf, AfDB)
North Africa: The role of nascent entrepreneurship in driving inclusive economic growth in North Africa, Measuring inclusive growth: from theory to applications in North Africa (pdf)
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Addis Ababa-Djibouti railway officially completed, creating high speed link between Djibouti and Ethiopia
The completion of the Addis Ababa-Djibouti Railway, a new 752km track linking Ethiopia’s capital with the Port of Djibouti, was officially marked on 10 January at a ceremony at Nagad Railway Station in Djibouti.
In the presence of Djibouti’s President, His Excellency Ismail Omar Guelleh, and Ethiopia’s Prime Minister, His Excellency Hailemariam Desalegn, and senior officials from across the region, the new railway linking Djibouti to Ethiopia was officially inaugurated.
The new railway can reach speeds of 160 km/h for passenger trains and 120 km/h for cargo trains. It will cut cargo journey times between the Port of Djibouti and Addis Ababa from three days by road to just 12 hours. Trial services for the new US$4.2 billion railway began in October 2016, with regular services transporting goods and passengers expected to begin early this year.
The railway is a major milestone for trade in the region. Currently, more than 90% of Ethiopia’s trade passes through Djibouti, accounting for 70% of the overall activity at Djibouti’s ports. With Africa’s GDP predicted to double by 2035, and the population expected to reach 2.5 billion over the next 30 years, the continent is in need of major new infrastructure links.
In addition to building links with Djibouti’s port facilities, the railway will support the development of Djibouti’s International Free Trade Zone (DIFTZ), which will help spur the nation’s manufacturing industry and provide employment opportunities for its citizens. The railway project has been coupled with a US$15 billion expansion programme to improve Djibouti’s port facilities, and build new highways and airports in the country.
Aboubaker Omar Hadi, Chairman of the Djibouti Ports and Free Zones Authority (DPFZA), states: “This railway marks a new dawn for Africa’s integration into the global economy. From today, millions more Africans are now linked to Djibouti’s world-class port facilities. Connecting Africa, Asia and Europe, Djibouti is at the heart of the world’s trade routes, and we are proud to play a vital role in developing the region and wider continent.”
The railway was previously inaugurated from Ethiopia’s side on 5 October 2016. With journeys now also possible from Djibouti, the new railway represents the next step in plans for a 2000km long track that will also connect Djibouti and Ethiopia to South Sudan. The vision is that this could one day evolve into a Trans-African railway crossing the continent from the Red Sea to the Atlantic Ocean, a journey which by sea currently takes eight weeks.
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Importers pile pressure on East African currencies
The New Year pressure from importers seeking to firm up their dollar positions in a bid to meet their requirements has seen all the regional currencies come under pressure, losing to the dollar.
The Kenyan shilling recorded the biggest loss, touching a 15-month low of 103.60/80 against the dollar on Thursday, mainly due to a surge in demand by importers.
The shilling last hit such lows in August 2015, when it traded at 103.90. The Central Bank of Kenya has recently been under pressure, spending $337 million in December alone to prop up the currency.
Analysts from Cytonn Investments say that despite the Kenya shilling remaining stable despite the 25 bps hike in the Federal Funds Rate last month, there has been a reduction in the country’s reserves, an indication the CBK has been using the funds to keep the currency stable.
“On a year-to-date basis, the shilling is flat against the dollar. However, in recent weeks, we have seen the forex reserves reduce to $7 billion in December, from $7.8 in October 2016, which has led to the decline in the months of import cover below the one-year average of 4.9 months, and is currently at 4.60 months. This is worrying as the rate of decrease in the reserves could be an indication that the CBK is using a lot of reserves to support the shilling, and may continue to do so in the near-term given the global strengthening of the dollar,” the Cytonn analysts said.
Currently, the reserves stand at $6.97 billion, an equivalent of 4.56 months of import cover, while the CBK was in the market this week with an unspecified amount of dollar sale in a bid to cushion the shilling, which is still expected to remain under pressure.
On a year-to-date basis, the shilling, as at the end of 2016 had gained 1.01 per cent against the dollar, according to data from Bloomberg Markets Index.
“We are seeing a lot of demand from importers, especially from the energy sector. The higher prices of oil at the start of the year are also at play,” Gerishon Kinori, a treasury dealer at Bank of Africa said.
On December 10, major oil producers under OPEC persuaded eleven non members to cut production by 558,000 barrels per day. This came on the backdrop of OPEC countries reducing their production by 1.2 million barrels a day. This has since seen the price per barrel rise to $56.86 as at Friday, up from a low of $34, which it traded at the start of last year.
Weakening currency
In Uganda, the shilling has also come under pressure from importers, which has seen commercial banks pick up dollars in anticipation of a surge in demand from importers.
At the end of the week, commercial banks quoted the shilling at 3,623/3,620 units against the dollar, from mid-December trading of 3,565/3561, according to data from Bloomberg Markets Index. On a year-to-date returns, the currency has appreciated by 0.75 against the dollar.
“We are expecting the currency to experience some slow and gradual depreciation against the dollar spurred by some demand from importers and banks, which are seeking to defend their positions in the market,” Benon Okwenje, trader at Stanbic Bank Uganda said.
Uganda has also seen a drop in its foreign direct investments last year to $776 million from $946 million the previous year, on the account of delayed issuance of oil production licences, which has also partly contributed to the weak dollar inflows.
Stephen Kaboyo, the chief executive of Alpha Capital Partners said that poor inflows from diaspora remittances in the past two months has also contributed to the weakening of the currency.
No forex inflows
“The Uganda shilling was on the back foot in the first full trading session of the year, inching lower as both global and domestic market dynamics weighed in. The dollar flows were scanty as exports were expected to underperform while the end of year diaspora inflows were not significant. We have also seen a spike in dollar demand from importers and commercial banks, with the latter seeking to cover short positions. This explains the depreciation,” Mr Kaboyo said, adding that the shilling will remain vulnerable to the domestic macro-economic imbalances and the global dollar strength, as these two factors will continue to place the currency at risk of weakening further.
In Tanzania, the strong demand of dollars from the energy and manufacturing sectors out to make payments for imports is expected to put pressure on its currency throughout the month.
Already, the Tanzanian unit has seen its position weaken this week to trade at 2191/2186 units, down from last week’s position of 2,178/2,183. The depreciation has been blamed on importers seeking to firm up their positions after a lull over the holidays.
“We are seeing a slow ease of the liquidity tightness of the shilling but this is negated by a subdued inflow of dollars into the market yet we are seeing robust growth in the construction and infrastructure sectors, whose demands for the greenback is growing,” Mohamed Laseko, a dealer at CRDB Bank said.
Bank of Tanzania director of financial markets, Alexander Ng’winamila said that they would be ready to step in and take steps to stabilise the shilling from further depreciation if the need arises.
“We will be expecting foreign exchange inflows in the second quarter so our dollar positions should improve then,” he said.
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Under-employed, under-inclusive and under threat: the World in 2017
Trends such as rising income inequality and societal polarization triggered political change in 2016 and could exacerbate global risks in 2017 if urgent action is not taken, according to the Global Risks Report 2017
Economic inequality, societal polarization and intensifying environmental dangers are the top three trends that will shape global developments over the next 10 years, the World Economic Forum’s Global Risks Report 2017 found. Collaborative action by world leaders will be urgently needed to avert further hardship and volatility in the coming decade.
In this year’s annual survey, some 750 experts assessed 30 global risks, as well as 13 underlying trends that could amplify them or alter the interconnections between them. Against a backdrop of mounting political disaffection and disruption across the world, three key findings emerged from the survey:
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Patterns persist. Rising income and wealth disparity and increasing polarization of societies were ranked first and third, respectively, among the underlying trends that will determine global developments in the next ten years. Similarly, the most interconnected pairing of risks in this year’s survey is between high structural unemployment or underemployment and profound social instability.
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The environment dominates the global risks landscape. Climate change was the number two underlying trend this year. And for the first time, all five environmental risks in the survey were ranked both high-risk and high-likelihood, with extreme weather events emerging as the single most prominent global risk.
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Society is not keeping pace with technological change. Of the 12 emerging technologies examined in the report, experts found artificial intelligence and robotics to have the greatest potential benefits, but also the greatest potential negative effects and the greatest need for better governance.
While the world can point to significant progress in the area of climate change in 2016, with a number of countries, including the US and China, ratifying the Paris Agreement, political change in Europe and North America puts this progress at risk. It also highlights the difficulty that leaders will face to agree on a course of action at the international level to tackle the most pressing economic and societal risks.
“Urgent action is needed among leaders to identify ways to overcome political or ideological differences and work together to solve critical challenges. The momentum of 2016 towards addressing climate change shows this is possible, and offers hope that collective action at the international level aimed at resetting other risks could also be achieved,” said Margareta Drzeniek-Hanouz, Head of Global Competitiveness and Risks, World Economic Forum.
How to address the world’s most pressing risks will be the subject of discussions at the World Economic Forum Annual Meeting 2017, which convenes 17-20 January under the theme Responsive and Responsible Leadership.
Although 2016 will be remembered for dramatic political results that broke with consensus expectations, warning signs that a persistent cluster of societal and economic risks could spill over into real-world disruption have been reported in the Global Risks Report regularly during the past decade.
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In 2006, Global Risks warned that the elimination of privacy reduces social cohesion – at the time, this was classified as a worst-case scenario, with a likelihood of below 1%.
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In 2013, long before “post-truth” became the 2016 word of the year, Global Risks highlighted the rapid spread of misinformation, observing that trust was being eroded and that better incentives were needed to protect quality-control systems.
The complex transitions that the world is currently going through, from preparing for a low-carbon future and unprecedented technological change to adjusting to new global economic and geopolitical realities, places even greater emphasis on leaders to practice long-term thinking, investment and international cooperation.
“We live in disruptive times where technological progress also creates challenges. Without proper governance and re-skilling of workers, technology will eliminate jobs faster than it creates them. Governments can no longer provide historical levels of social protection and an anti-establishment narrative has gained traction, with new political leaders blaming globalisation for society’s challenges, creating a vicious cycle in which lower economic growth will only amplify inequality. Cooperation is essential to avoid the further deterioration of government finances and the exacerbation of social unrest,” said Cecilia Reyes, Chief Risk Officer of Zurich Insurance Group.
The propensity of the Fourth Industrial Revolution to exacerbate global risks also came under scrutiny in the Report’s Global Risks Perception Survey. Basing their analysis on 12 distinct emerging technologies, experts clearly identified artificial intelligence (AI) and robotics as having both the highest potential for negative consequences and also the greatest need for better governance. Notwithstanding its potential to drive economic growth and solve complex challenges, experts also named it as the top driver of economic, geopolitical and technological risks among the 12 technologies.
John Drzik, President of Global Risk & Specialties, Marsh said: “Artificial intelligence will enable us to address some of the great issues of our age, such as climate change and population growth, much more effectively. With investment into AI now ten times higher than it was five years ago, rapid advances are already being made. However, increased reliance on AI will dramatically exacerbate existing risks, such as cyber, making the development of mitigation measures just as crucial.”
For the third year, the Global Risks Report also provides country-level data on how businesses perceive global risks in their countries.
The Global Risks Report 2017 has been developed with the support of Strategic Partners Marsh & McLennan Companies and Zurich Insurance Group. The report also benefited from the collaboration of its academic advisers: the Oxford Martin School (University of Oxford), the National University of Singapore, the Wharton Risk Management and Decision Processes Center (University of Pennsylvania), and the Advisory Board of the Global Risks Report 2017.
Four key areas for global risks in 2017
The 2017 Global Risks Report comes at a critical moment for the world as we know it. Unprecedented forces are reshaping society, economics, politics and our planet itself in ways some might not have predicted when the first risks report was launched a decade ago.
These tumultuous times can present us with ground-breaking opportunities for changing how we see the world, and how we operate within it. Such change, however, brings with it significant globally interconnected risks, risks which must be factored into modern life.
1. Environmental
The most pressing of these risks relates to our environment. Even though the risk will play out over the long term, actions have to be immediate and long-lasting to have any hope of reversing the trajectory of climate change.
The environment dominates the 2017 global risk landscape in terms of impact and likelihood, with extreme weather events, large natural disasters as well as failure of mitigation and adaptation to climate change as the most prominent global risks. Climate change ranks as one of the top three trends to shape global developments over the next 10 years, and remains one of the truly existential risks to our world. Unlike the threat of nuclear weapons or pandemic disease, however, climate change ranks among the highest in terms of likelihood as well as impact.
Here, cooperation is fundamental to any response to the challenges faced from climate change, from managing “global commons” such as oceans and our atmosphere to enacting international accords like The Paris Agreement and statements that emerged from COP 22. Further progress was made during 2016 in addressing climate and other environmental risks. The pace of change, however, is not fast enough.
2. Socio-economic
Beyond the state of the planet we inhabit, socio-economic considerations have also been high on the collective agenda over the past 12 months, and will continue in importance throughout 2017. These include rising income inequality and the polarization of our society along ethnic, religious and cultural lines. This coming-together of circumstance contributed to profound political change in 2016, and has the potential to exacerbate global risks in 2017.
Beyond geopolitics, social protection systems have suffered from a “perfect storm” of threats since the 2008 financial crisis – and we expect this trend to continue through 2017. Underfunded state social systems, the rise in “non-traditional” employment models from gig economies to zero-hour contracts, prolonged periods of low interest rates that increases the burden of saving for retirement, and demographic pressures like ageing populations and mass migration all place great strain on social protection systems. This means a larger share of the cost and risks for the individual, which can inhibit business growth and harm economies.
We need social protection options that are flexible enough to adapt to new realities in 2017 and beyond. The best social protection solutions will be highly interconnected. Collaboration among state, business and the individual will be crucial. Fail to act and we risk threatening government finances and increasing social unrest.
3. Technological
Technology, in particular, may be where we can turn for innovative solutions to today’s risks and challenges. It may also produce additional risks which must be assessed and factored in to thinking at business, government, and international levels. New and sometimes revolutionary structures such as Artificial Intelligence systems represent such opportunities for streamlining our everyday lives, but also bring with them many potential dangers. These include mismanagement, design vulnerabilities, accidents, unforeseen occurrences and malicious use that post risks to security and safety of individuals.
Furthermore, disruption to labour markets will intensify as jobs seen traditionally as falling under the “skilled labour” category are replaced by machines. The subsequent unemployment or underemployment exacerbates social instability.
Cyber-attacks, software glitches – and even heavy cloud and solar storms – can all have damaging impacts on our new infrastructure, which in 2017 can cover fields as diverse as transport, energy, communications, and water.
4. Cooperative
Finally, we must consider how best to respond to these challenges. Across all five sectors that the Global Risks Report covers this year, we must work together and stand as one as we face up to the global risks of the coming year. Individual responses on topics like climate change, globalization and regulation of the “4th Industrial Revolution” can only achieve so much. In an increasingly interconnected world, it’s clear that collaboration between different countries, sectors and societies will be more important for managing risk than ever before. For companies, responding to global risks will require a truly holistic risk management approach taking inter-dependencies between risks into account.
This article was written by Cecilia Reyes, Group Chief Risk Officer, Zurich Insurance Group. The views expressed here are those of the author alone and not the World Economic Forum.
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Morocco flexes muscles as it seeks AU reinstatement
The North African country seeks to leverage its economic weight in sub-Saharan Africa
Slowly and steadily, Morocco has been establishing itself as a major economic force in sub-Saharan Africa, even as it eyes gaining readmission into the African Union (AU), which it left decades ago.
Last July, King Mohammed VI of Morocco informed African leaders attending the AU summit in Kigali, Rwanda, of his country’s wish to return to the fold, saying, “Morocco should not remain outside its African institutional family, and it should regain its natural, rightful place within the AU.”
Two months later the kingdom formally submitted a request to re-join the continental body, thus starting a process that may lead to its readmission at the next AU summit in Addis Ababa in January 2017.
Morocco left the former Organisation of African Unity (AU’s predecessor) in 1984, to protest the seating of the Polisario Front as representatives of the Sahrawi Arab Democratic Republic (SADR), a former Spanish colony west of the Sahara that Morocco considers part of its territory. SADR disputes Morocco’s position, and 30 years later the dispute remains unresolved.
In explaining Morocco’s current decision to join the AU, the king said, “When a body is sick, it is treated more effectively from the inside than from the outside.”
The kingdom has expanded its economic ties with many countries on the continent, mainly through trade and investments since it left the AU. It now seeks to return to the fold, boost these ties and settle the unresolved Western Sahara matter.
Continental ambition
“We are Arabs, but we are also Berbers and Maghrebi,” Brahim Fassi Fihri, the president and founder of Institut Amadeus, a Morocco-based think tank, told Africa Renewal.
He was referring to the multicultural identity of his country, which is made up of mostly Berber and Maghrebi ethnic groups. He maintains that the decision by Morocco to leave the regional body three decades ago was a “strategic mistake.” Still, “Africa is our natural home,” he said. “We may have left an organization, but we could never have left the continent.”
As a sign of its political solidarity with Africa, Morocco’s national carrier, Royal Air Maroc, maintained its regular schedule to West Africa at the height of the Ebola epidemic two years ago, when all international air carriers, with the exception of Belgium-based SN Brussels, suspended flights to the affected countries of Guinea, Liberia and Sierra Leone over contagion fears.
The decision was based on humanitarian grounds, not commercial – out of brotherly solidarity “reflecting the kingdom's constant commitment to Africa,” the airline’s spokesman told Agence France-presse (AFP) at that time.
The airline has expanded its network across the continent. Over the past decade, it has increased its flights to African destinations from 14 in 2007 to 32 in 2016.
To some extent the story of the national carrier is a telling testament to its expansive economic ambition on the continent.
Over the 10-year period starting in 2004, Morocco’s trade with the rest of the continent grew by an annual average of 13% ($3.7 billion) in 2014, 42% of which was with sub-Saharan Africa. This represented just 6.4% of the kingdom’s overall trade globally during the same period, according to a government report titled Morocco-Africa Relationship: Ambition for a New Frontier.
First investor in West Africa
Yet the most remarkable change was Morocco’s direct investments in the continent. In 2015 it invested $600 million, with neighbouring Mali getting the lion’s share, followed by Côte d’Ivoire, Burkina Faso, Senegal and Gabon, according to the World Investment Report 2016, a publication of the United Nations Conference on Trade and Development (UNCTAD).
Over the decade ending in 2016, Morocco’s investment in sub-Saharan Africa represented 85% of its overall foreign direct investment (FDI) stocks, according to data from the country’s finance ministry and the African Development Bank.
“Moroccans became a more prominent investor on the continent, initiating 13 intra-African investments – its highest in over a decade,” reckoned a 2015 survey report by Ernst & Young, a global financial consultancy firm.
The reason behind the growing interest in sub-Saharan Africa, says Ernst & Young, was that “Moroccan companies are looking towards sub-Saharan Africa as their country becomes a platform for exporting to other African countries.”
Morocco’s investments are mostly concentrated in banking and telecommunications sectors, which in 2013 accounted for 88% of its FDI stocks in sub-Saharan Africa.
The country’s leading bank, the Attijariwafa Bank Group, and part of the kingdom’s holding company Société nationale d’investissement (SNI), with 7.4 million customers and more than 16,000 employees, operates in 10 sub-Saharan African countries: Cameroon, Republic of Congo, Côte d’Ivoire, Gabon, Guinea-Bissau, Mali, Mauritania, Niger, Senegal, and Togo.
The Banque Marocaine du Commerce Extérieur (BMCE) group has a network of 18 country operations, mostly in West, Central and East Africa through Bank of Africa, its subsidiary. Maroc Telecom, the leading national telephone company, operates in 11 African countries, such as Burkina Faso and Mali, under different names, including Moov in francophone West Africa.
Preferred destination
Beyond these traditional sectors, Moroccan companies have also ventured into insurance. The Saham Insurance Group, for one, began operations in 10 African countries in 2010, and continues to expand across the continent, most recently with the acquisition in 2015 of Continental Reinsurance Plc of Nigeria.
For many years West African countries and to some extent Central African countries were the preferred destinations of Morocco’s investment in sub-Saharan Africa. In his letter to the AU, the king explained that “the important involvement of Moroccan operators and their strong engagement in the areas of banking, insurance, air transport, telecommunications and housing are such that the kingdom is now the number one investor in West Africa.” He added, “My country is already the second largest investor on the continent and our ambition is to be ranked first.”
Last October the king travelled to East Africa and Ethiopia, as Rwanda and Tanzania prepared to sign business deals. “The Moroccans’ current visit to East Africa marks a serious intent to enter the region and widen their interests in Africa,” The New Times in Rwanda reckoned.
To some observers the reasons behind Morocco’s foray into the continent are purely economic. “Several Moroccan companies are betting their growth on sub-Saharan Africa,” says Mr. Fihri. He told Africa Renewal that Moroccans, just like Americans, Europeans and Asians, are interested in Africa because it is “a continent with huge growth potential.”
In September 2015, Abdelmalek Alaoui, a Moroccan editorialist and political analyst, wrote in La Tribune, a French weekly financial newspaper, “Well ahead of other investors [before the latest rush on the continent], Morocco was able to see potential where others could only think of risks.”
Political leverage
However, other analysts like Amine Dafir argue that Morocco’s growing economic interest on the continent was designed to shore up influence it may have lost by withdrawing from the AU.
Supporting Morocco in its application to rejoin the AU is a group of 28 African countries, representing more than the half of the votes (27) required for admission. The pro-admission countries penned a letter to the AU requesting the suspension of SADR’s membership until issues surrounding the legality of its existence are resolved by the United Nations Security Council. “Our demand is grounded in international laws,” says Macky Sall, the Senegalese president, whose country is one of the signatories.
Over the last three years, the king of Morocco, often travelling with a large entourage of businessmen, has visited several African countries, including Côte d’Ivoire, Gabon, Guinea-Bissau, Mali and Senegal. Besides being the most vocal supporters of the kingdom, these countries are also the top five destinations of Morocco’s FDI in sub-Saharan Africa.
In November, the king hosted a gathering of 30 African leaders in the margins of the climate change summit in the Moroccan city of Marrakesh, to “coordinate [African countries’] positions and speak with one voice to defend them,” a senior Moroccan diplomat told the AFP, a French news agency. The AFP pointed out that hosting the summit was a diplomatic coup for the kingdom as it sought to reassert its influence in Africa.
As Morocco pursues moves to have its AU membership reinstated, Jawad Kerdoudi, the head of the Moroccan Institute of International Relations, sees these efforts as a “diplomatic victory born out of a deliberate and actions-driven strategy”.
This article appears in the December 2016 edition of Africa Renewal, published by the United Nations.
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Wanted: affordable medicines for all
UN panel calls for new global accords to make drugs cheaper
Pneumonia, an acute infection of the lungs, is the biggest killer of children worldwide even though it is treatable and easily preventable with vaccines.
The disease remains prevalent in some of the poorest regions in South Asia and sub-Saharan Africa in part because of the high price of the vaccines necessary to prevent it. One dose of pneumonia vaccine costs about $68, and it is $204 for the three doses needed to vaccinate one child, although humanitarian organizations may get the vaccines at a lower price.
In 2015 the disease killed nearly 1 million children under the age of 5, accounting for 15% of all worldwide deaths of children of that age group, according to the World Health Organization (WHO).
Health care providers and other groups, such as Médecins sans Frontières (MSF) or Doctors Without Borders, an international medical group that provides assistance to populations in emergency situations, have long complained about what they claim are “artificially high prices” of pneumonia vaccines, among other medicines. They are concerned about not being able to afford these drugs to help prevent the disease in poor countries.
Yet last October, MSF turned down a donation of 1 million free doses of pneumonia vaccine from a New York–based drug company. The group maintained that ad hoc donations are not the solution to the need for affordable medicines and appealed to manufacturers to make drugs more affordable.
In the words of MSF USA director Jason Cone, “free is not always better”, and the conditions that come with such donations can delay vaccination campaigns and “undermine long-term efforts to increase access.”
In November the drug company finally agreed to lower the price of the vaccine, but only for children in humanitarian emergencies. Still, civil society organizations, including MSF, believe that the price reduction should be extended to all developing countries.
Report on access
MSF’s stance was not widely reported in the media, but coming on the heels of recommendations by a high-level panel of the United Nations Secretary-General on ways to improve access to medicines, it echoed the need to address obstacles in the way of extending to all the benefits of ever-improving health technologies, including drugs, and highlighted the role played by companies in search of huge profits.
Released in September 2016, the Report of the United Nations Secretary-General’s High-Level Panel on Access to Medicines: Promoting Innovation and Access to Health Technologies calls on governments to negotiate global agreements to reduce the cost of health technologies for rich and poor countries alike. For UN Secretary-General, Ban Ki-moon, the report’s message is “simple yet powerful: no one should suffer because they cannot afford medicines, diagnostics, medical devices or vaccines”.
The report notes that in a market-driven research and development environment, research into new technologies is incentivised by the prospect of high returns to the developers, while rare diseases affecting comparatively small numbers of people fail to spur innovation.
“With no market incentives, there is an innovation gap in diseases that predominantly affect neglected populations,” said Malebona Precious Matsoso, the director-general of the National Department of Health of South Africa, one of the 15 members of the UN panel.
Ruth Dreifuss, former president of the Swiss Confederation, and Festus Mogae, former president of Botswana, co-chaired the high-level panel.
The report calls for new approaches to health research and development to make sure that the benefits of health technology are extended to all.
“Our report calls on governments to negotiate global agreements on the coordination, financing and development of health technologies to complement existing innovation models, including a binding research and development convention that delinks the costs of R & D from end prices,” Ms. Matsoso added.
Sky-high prices of medicine and health technologies are of grave concern to developing countries, a situation that gained global attention at the height of the HIV/AIDS epidemic.
Currently the cost of a year’s supply of first-line HIV drugs in Africa is less than $100 per person compared to $10,000 in the year 2000, according to UNAIDS.
Back in 2000, only patent-holding drug companies could manufacture antiretroviral (ARV) drugs, but prices started falling when developing countries started producing generic versions and exporting them to other developing countries exempt from the patents.
This was possible thanks to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), negotiated among members of the World Trade Organisation on public health.
Gradually, though, the flexibility afforded by TRIPS, the report indicated, is being threatened, including through bilateral trade agreements, which is a violation of the integrity and legitimation of the Doha declaration on intellectual property rights and public health.
The report calls on countries to continue making full use of TRIPS and report undue economic and political pressure.
This article appears in the December 2016 edition of Africa Renewal, published by the United Nations.
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Second Trade Policy Review of the Democratic Republic of the Congo: Minutes of the meeting
The second Trade Policy Review of the Democratic Republic of the Congo (DRC) was held on 25 and 27 October 2016. This meeting was a good opportunity for Members to discuss in greater detail issues of interest to them and to the DRC, and of importance to the multilateral trading system.
At the previous TPR meeting in 2010, Members had commended the DRC on its macroeconomic and structural reforms, including trade reforms. These efforts had not only contributed to the country’s overall positive economic performance and its recovery from socio-political crises, but had also helped reduce its debt, through the Heavily Indebted Poor Countries initiative. However, at that time, Members had also noted a number of factors which had been undermining the competitiveness of the economy and its growth prospects. These included poor infrastructure; inaccessible and expensive financial services; inefficient state-owned enterprises; a large number of duties and disproportionate fees charged by several non-coordinated institutions; and poor governance. Members had encouraged the DRC to pursue reforms which could strengthen the fundamentals of its economy, and create a business environment conducive to foreign direct investment, so that the country could exploit its potentials, diversify its economy, and alleviate poverty.
Members were pleased to know that, since its last TPR, the DRC had recorded strong macroeconomic performance: it had consolidated its fiscal position, had achieved a small surplus, and had brought inflation down to a record low level of around 1%. GDP growth, mainly driven by copper production and the emerging services sector, had reached around 8% per year. However, economic growth had been non-inclusive, and poverty remained pervasive. The country’s potentials, in terms of land and human resources, were still largely untapped, and its competitiveness remained hampered by structural bottlenecks such as a challenging business climate, electricity shortages and corruption. The financial position of the Central Bank of Congo was also fragile.
Taking the opportunity of this TPR, Members asked many questions about the DRC’s long term economic and development strategies, including how it planned to improve the business environment for traders and investors, and how it would diversify its economic activities.
It was encouraging to know that the TPRM had served as a catalyst in the DRC’s reform process. Following the TPR in 2010 and the follow-up workshop in Kinshasa a year later, the DRC had implemented various reforms to address concerns raised by Members. One example was the structural reform aimed at reducing state intervention in the economy, which had resulted in the liquidation or privatization of several state-owned enterprises. The country had also taken steps to modernize obsolete trade-related legislation, such as that governing public procurement. Meanwhile, it had adopted a new customs code, introduced a VAT system, and simplified the tax system.
All this was going in the right direction, but in some areas, significant progress was yet to be seen. It was clear from Members’ advance questions that they still had concerns about the country’s customs valuation and clearance procedures, its tax system, its SPS and technical regulations, etc., and they would appreciate further information on the planned reforms, including the trade facilitation programme.
As in the last TPR, Members noted DRC’s overlapping membership in different trade agreements and the possibility of conflicting commitments. It would be useful for the delegation of the DRC to share with Members how this was being managed.
Statement by Ms Eugénie Salebongo Basoy (Secretary General for Trade)
The Democratic Republic of Congo is honoured to belong to an important institution such as the World Trade Organization. In accordance with the rules and principles governing the WTO, my country has established guidelines on economic and trade policy, including contained liberalization of the domestic market, gradual opening up of the different economic sectors, freedom of enterprise, and promotion of a favourable economic environment.
In order to transform these policy choices into specific action, my country has firmly undertaken reforms through the implementation of a series of measures and initiatives that have benefited almost all sectors, with the objective of improving the business climate, increasing the effectiveness of its economic and trade policies as a driving force that will enable the DRC to become an emerging economy by 2030.
The recent economic reforms were promoted and driven by the national authorities, in parallel with measures at the political level which have led to democratic progress, stability and the consolidation of social peace.
In practice, the economic reforms sometimes received support from international partners, and were based on the recommendations of the first trade policy review, as well as on other evaluation mechanisms such as the “Doing Business” index.
I will therefore make a point of sharing with Members the results that bear witness to the progress made in terms of the strengthening of the macroeconomic situation, the review of sectoral policies, and the status of trade negotiations and regional processes in which my country is participating. I will then turn to the economic outlook for the DRC.
As a result of sustained commitment and a package of measures, the DRC’s economic situation has significantly improved since its first trade policy review in 2010. For example, in the period 2010-2016, gross domestic product (GDP), expressed in real terms, made a strong recovery, rising from US$15.67 billion to US$22.78 billion, which represents a gross increase of 45.4%, while annual GDP growth was around 7.6%, with a peak of 9.5% in 2014. These levels are higher than the average in sub Saharan Africa.
The strengthening of the domestic economy can also be seen in the control over inflation. The Government succeeded in lowering the inflation rate to below 2% as from 2013, more specifically to 1.16% in 2013, 1.21% in 2014 and 1.81% in 2015, which represents a significant change compared with 2010 when the inflation rate was 23.5%. This was a major challenge for the Government, which was under great pressure to avoid the disastrous consequences of uncontrolled inflation on the national economic community, particularly on consumers and the general population.
Regarding debt, the DRC reached the completion point under the Heavily Indebted Poor Countries (HIPC) Initiative at the end of June 2010. The country therefore benefited from a significant reduction of its debts, which amounted to around US$12.5 billion, thus lowering the external debt to GDP ratio from 67% in 2009 to 22.5% at end December 2011. In addition to the HIPC Initiative, other reductions were granted, particularly by multilateral and Paris Club creditors, enabling the country to move from a high to a moderate debt risk.
Furthermore, our country’s foreign trade was able to recover after the major turmoil of 2009 caused by both the financial crisis and the fall in the country’s raw material export prices. Both exports and imports experienced upward trends, and the total value of trade in goods between the DRC and the rest of the world has continued to increase, with a trade surplus during the period under review.
Regarding exchange rate policy, the DRC has adopted new exchange regulations, which were published in March 2014, replacing those issued in 2003 with the aim of better regulating foreign exchange transactions and adapting to changes in the economic and national, regional and international financial environment.
Generally speaking, the economic growth referred to above was mainly driven by the primary sector, with the mining sector playing a prominent role. Copper and gold production in particular recorded the highest growth for the period under review, with an increase from 497,000 tonnes to over 1 million tonnes for copper, and from 1.78 tonnes to around 23 tonnes for gold.
Nevertheless, the other production sectors did not lag behind. The agricultural, manufacturing, energy and services sectors also saw growth compared with six years ago. For example, the volume of communications in the telephony subsector experienced a twofold increase.
All these results were achieved thanks the measures taken by the Government to improve the economic environment, and by the vigorous reforms undertaken in the different sectors.
The Government’s actions have resulted in, among other things, the simplification of procedures, the elimination of certain documents, the streamlining and even the removal of some taxes and levies, the adoption of a nomenclature of taxes to be collected at central and provincial levels, and the limitation of the number of entities present at the borders.
These measures also served to lay the foundations for the establishment of an integrated single window for foreign trade, which is now operational, although it has not yet been fully rolled out.
Moreover, during this period the DRC launched a process to strengthen the operational capacities of its control agencies, mainly the Congolese Control Office (OCC) and the Border Health Services, with the objective of protecting consumers and facilitating cross border trade.
Legal and judicial security for businesses was also strengthened through the establishment of new commercial courts, the accession of the DRC to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958), and the effective implementation of the Treaty on the Harmonization of Business Law in Africa (OHADA Treaty), to which our country became party in 2010.
The Government has also addressed the matter of business startup formalities, and on 1 November 2012, established the Single Window for Business Startups in order to centralize these formalities. The results are now visible in the form of simplified procedures, shorter deadlines and lower costs.
In the financial sector, the liberalization of insurance in March 2015 is regarded as the key reform of the review period, given that, until then, insurance was a State monopoly held by the National Insurance Company (SONAS).
Furthermore, the Government’s actions in the financial sector have led to the streamlining of banking institutions, now reduced to 18, compared with several dozen a few years ago. Nevertheless, banking remains open to competition and investment. The focus is on increasing the viability of banking institutions and use of the country’s banking services, an objective that is closer to being achieved thanks to the rapid development of the mobile banking sub branch of the telecommunications sector.
The momentum of liberalization during the period 2010 2016 has also had an impact on strategic sectors such as electricity, water and hydrocarbons, which have now been opened up through the adoption of new sectoral laws, and have thus been added to the list of liberalized sectors that already included telecommunications, tourism, banking, construction and industry.
Government procurement has also been modernized through the entry into force of a new Government Procurement Code, which is based on international standards and confers autonomy on management, supervisory and regulatory bodies. The Directorate General for the Control of Government Procurement (DGCMP) was established as a result.
In order to sustain this momentum in the long term, the country has also adopted several policy documents and sectoral strategies. The Trade Strategy Paper, which was published in April 2016, aims to make the DRC’s economy more competitive at national, regional and international level, and to improve the country’s integration in international trade. Ultimately, this means creating the basic conditions needed to ensure the availability and quality of products on the domestic market, promoting the development of exports, and boosting economic growth and development.
Several priority actions were identified, which include strengthening the institutional framework for trade and sectoral policies; enhancing supply capacity and competitiveness; increasing market access; improving the functioning of the domestic market; and, of course, pursuing efforts to improve the business and investment climate.
The country also adopted the Strategic Plan for the Reform of Government Finances 2010-2015, with a view to strengthening the management of State resources. This Plan has resulted in several measures to increase the efficiency of the State services responsible for collecting revenue, programming, and implementing expenditure.
Value added tax (VAT) was introduced in 2012, and a nomenclature of taxes to be levied by central government and the provinces was adopted. The new Customs Code and Excise Code entered into force in 2011 and 2012, respectively. The Customs Code establishes rules and guidelines in line with the revised Kyoto Convention and takes into account, in many of its provisions, the customs measures provided for in the Trade Facilitation Agreement.
Tariffs have not varied, and the 0%, 5%, 10% and 20% bands remain in force. However, it should be noted that, as required under the COMESA Treaty, the DRC adopted a law in December 2015 to bring its tariffs into line with those of COMESA, with a view implementing this subregional organization’s free trade area.
The public finance services’ technical and operational capacities have been strengthened, particularly through the adoption of computerized management systems for the services responsible for customs, taxes, authorization of expenditure, as well as payroll services.
The reform of State ownership continued during the period under review, leading to the withdrawal of the State from some economic sectors, the restructuring of enterprises remaining in the hands of the State and the improvement of their management methods, and the establishment of public private partnerships.
With regard to agriculture, livestock farming, fishing and rural development, the Government’s policy has aimed to revitalize this key sector in order to ensure food security, improve production, diversify exports, reduce poverty and precariousness in rural areas, and increase the contribution of agriculture to economic growth, in keeping with the country’s rich potential.
In this regard, the Government’s first initiatives included the adoption of an agricultural law in 2011 and the implementation of incentives such as exemptions for imports of agricultural inputs, equipment and new materials.
In May 2013, the DRC adopted the National Agricultural Investment Plan (PNIA 2013-2020), the main aim of which is to gradually establish some 20 agribusiness parks throughout the national territory. This Plan is now the national framework for the planning of domestic and external resources in the agricultural and other related sectors. Its objective is to promote sustained growth of 6% in the sector. The PNIA takes into account not only national agricultural policy objectives, but also other aspects such as the development of agricultural and agro industrial areas, research, training, governance and climate change adaptation.
The financing arrangements for the PNIA involve the allocation of a substantial part of the national budget for agriculture, in addition to the mobilization of private resources. These arrangements thus offer opportunities for national and foreign direct investment, and for the development of public private partnerships. In 2014, such a partnership enabled operations to begin at the first agro industrial park, that of Bukanga Lonzo.
Regarding the industrial sector, the Government intends to establish economic and industrial growth poles on the basis of comparative and competitive advantages in the different provinces. These objectives are also in line with those of the DRC’s new industrial policy set out in the Industrial Policy and Strategies Paper (DPSI), which was adopted in 2011 and focuses on the promotion of four priority areas, namely: agro industry with an emphasis on agri food; mining and metallurgy; building materials; and packaging. One of the principal means of achieving these objectives is the implementation of a special economic zones (ZES) regime.
Another central element is the promotion of small and medium sized enterprises (SMEs), for which accompanying measures have been implemented, including the creation of incubation centres, tax relief under the Investment Code, support for the identification of opportunities, and the enactment of a leasing law that provides additional means of financing for SMEs/SMIs.
The policy option with regard to transport services remains the opening up of traffic in the various subsectors and the promotion of private investment with a view to expanding the delivery of services. In order to facilitate the movement of goods and individuals, which is a major challenge because of the size of the country, the Government has rehabilitated road, rail and air transport infrastructure. In 2015, it also launched a new national airline, Congo Airways, which, for the moment, only operates domestic flights.
I would like to end this review of sectoral policies with a few encouraging words about tourism in the DRC. The sector is fully open and our country has a vast, rich and diverse potential for tourism, owing to its biodiversity, exceptional parks and reserves, terrain, and culture, with a thousand different sites to visit.
Today, this sector, which has been seriously affected by the crises in our country, is undoubtedly one of the DRC’s most promising areas for business investment and development in the years to come. The DRC therefore welcomes you as both tourists and investors in tourism.
I would now like to turn to the trade negotiations and regional integration processes in which our country is participating. It should be noted that the DRC is involved in the negotiations for the Economic Partnership Agreement (EPA) between the European Union and Central Africa.
The discussions with the European Union have come to a standstill, but Central Africa, on its part, has completed its preparations over the course of several meetings of the Regional Ministerial Committee.
The DRC is also taking part in the work of the COMESA-EAC-SADC Tripartite to establish a free trade area comprising the States from these three regional economic communities, and therefore is following with genuine interest the preparations for the creation of a continental free trade area within the African Union.
In the same context, the DRC will shortly become a participant in the implementation of the COMESA free trade area, as I mentioned earlier. The DRC is also involved in the process of establishing the Economic Community of Central African States (ECCAS) free trade area, which was initiated in 2004.
Furthermore, our country is actively participating in the negotiations on services liberalization in the SADC and COMESA, which aim to gradually liberalize the identified sectors in order to create a more integrated, more competitive and more attractive regional services market.
Our country is preparing to implement the Agreement on Trade Facilitation. In this regard, we have launched an information campaign for national stakeholders and carried out the exercise of categorizing the measures under the Agreement. We are making every effort with a view to their notification, the creation of a national trade facilitation committee, and the ratification of the Agreement, and these processes have already been initiated at national level.
However, it should be noted that, in spite of the significant progress recorded, our economy still faces challenges. It remains highly exposed to the external shocks that often affect economic indicators, as has been the case in 2016.
This state of affairs requires us to ensure the economic transformation of our country by becoming more involved in global value chains, reducing our dependency on mining commodities, speeding up the industrialization of the country, strengthening export performance, bolstering the domestic market, and increasing the contribution of the services sector to the creation of wealth. The underlying aim is to reduce poverty and precariousness among the population, create jobs and boost economic and social development as a whole.
In order to address these challenges, the Government has undertaken to implement the National Development Strategy as a new framework to guide government action over the period 2017-2021.
The Government thus intends to pursue and deepen its reforms. It will continue to pay serious attention to promoting public and private investment, will encourage public private partnerships and will step up its action to improve the business climate. It has also planned to adopt a specific law on public private partnerships and a law on competition and consumer protection.
Furthermore, the law on intellectual property will be amended, with a view to expanding its scope and strengthening protection in this area, and to fostering its economic role in industrial promotion and entrepreneurship. The Government is also planning to adopt a law on standardization and metrology in order to give the country a framework for the promotion of production activities, while ensuring greater protection of the population’s right to health and security.
Regarding SMEs and traditional crafts, the Government has approved a national SME strategy and is preparing to adopt a Code of Traditional Crafts and Artisanal Activities and a law on entrepreneurship in the DRC, with the aim of making SMEs one of the main drivers of the country’s economy. This will require enhanced resources in terms of support and finance for local business people, especially young people and women.
Concerning forestry and the environment, the Government intends to implement the National Programme on the Environment, Forestry, Water Resources and Biodiversity (PNEFEB), which is a single strategic framework for action incorporating the commitments undertaken by the DRC Government to fight climate change and promote sustainable development. For example, the Government plans to reduce the use of firewood by 25-30% and lower its greenhouse gas emissions by 17% by 2030.
It also intends to prepare and implement the Strategic Mining Development Plan (2016-2021), which aims to improve the business climate and find a lasting solution to the difficulties in the sector, as well as enhance its potential for our country’s economic development.
As regards the postal and new ICTs sector, the national strategy will seek to optimize its contribution to growth, strengthen its role in the interconnection and integration of production factors at domestic economic level, and capitalize on the opportunities available, particularly in terms of employment.
As can be observed, technical and financial assistance from partners and donors would be welcome, in order to speed up the implementation of these plans, extend their scope and ensure maximum success.
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Food commodity prices fall for fifth year in a row in 2016
Food Price Index remained stable in December amid sharp fall in sugar prices
Prices of major food commodities declined for the fifth year in a row in 2016, averaging 161.6 points for the year as a whole, some 1.5 percent below their 2015 levels.
Bumper harvests and prospects for staple cereals offset upward pressure on FAO’s Food Price Index from tropical commodities such as sugar and palm oil, where production was impacted by El Nino.
In December, the Index averaged nearly 172 points, unchanged from November.
The FAO Food Price Index is a trade-weighted index tracking international market prices for five key food commodity groups: major cereals, vegetable oils, dairy, meat and sugar.
2016 was marked by a steady decline in cereal prices, which fell 9.6 percent from 2015 and were down 39 percent from their 2011 peak. At the same time, sugar and vegetable oil prices rose over the year by 34.2 percent and 11.4 percent, respectively.
“Economic uncertainties, including movements in exchange rates, are likely to influence food markets even more so this year,” said FAO senior economist Abdolreza Abbassian.
Cereals steady in December as dairy and vegetable oils rise
FAO’s Cereal Price Index, largely stable since September, increased 0.5 percent in the month of December, with rice and maize quotations firming up while larger-than-expected production estimates in Australia, Canada and the Russian Federation led to lower wheat prices.
FAO’s Vegetable Oil Price Index rose 4.2 percent from November, capping a double-digit annual gain to reach its highest level since July 2014. Both palm oil and soy oil quotations rose, the former due to low global inventory levels and tight supplies, the latter on the prospect of rising use in the biodiesel sectors in North and South America.
The FAO Dairy Price Index also rose, by 3.3 percent, from November, due primarily to higher prices for butter, cheese and whole milk powder and restrained output in the European Union and Oceania.
The FAO Sugar Price Index, while up almost a third over the year, declined 8.6 percent in the last month of 2016. The sharp fall was mainly driven by an ongoing weakening of the Brazilian Real against the U.S. dollar, along with a reported 18 percent jump in expected production in the Centre South, Brazil’s main sugarcane-growing region.
The FAO Meat Price Index declined 1.1 percent from its revised November level. Its average value in 2016 was 7 percent below that of 2015, due mainly to falls in the international prices of bovine and poultry meats.
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tralac’s Daily News Selection
Later this month: UNCTAD, in cooperation with other international organizations, will host the first International Forum for National Trade Facilitation Committees (23-27 January, Geneva)
Global Economic Prospects: Sub-Saharan Africa (World Bank)
Sub-Saharan African growth is expected to pick up modestly to 2.9% in 2017 as the region continues to adjust to lower commodity prices. Growth in South Africa and oil exporters is anticipated to be weaker, while growth in economies that are not natural-resource intensive should remain robust. Growth in South Africa is expected to edge up to a 1.1% pace this year. South African output will be held back by tight fiscal policy and high unemployment that is weighing on consumer spending. Nigeria is forecast to rebound from recession and grow at a 1.0% pace, as an anticipated modest improvement in oil prices, coupled with an increase in oil production, boost domestic revenues. Angola is projected to expand at a moderate 1.2% pace as high inflation and tight policy continue to weigh on consumption and investment.
In other mineral and energy exporters, the outlook is generally favourable. Ghana is forecast to surge to 7.5% growth pace as improving fiscal and external positions help boost investor confidence. Progress in developing Mozambique’s energy sector will help spur investment in that country’s natural gas production and contribute to an accelerated 5.2 percent growth rate. The post-Ebola recovery is anticipated to help Guinea grow by 4.6%, Liberia by 5.8%, and Sierra Leone by 6.9%.
Large infrastructure investment programs will continue to support robust growth among agricultural exporters, with Côte d’Ivoire and Ethiopia growing at or above 8%. However, political fragility will exert a drag on growth in countries such as Burundi and The Gambia. Among commodity importers, Cabo Verde is expected to grow at a 3.3% rate, Mauritius to rise moderately to 3.5%, and Seychelles to slow to a 3.5% clip as uncertainty in Europe weighs on tourism, investment, and trade flows. Lesotho, which is forecast to pick up to a 3.7% pace, and Swaziland, which should exit recession and resume growing at a 1.9% rate, are anticipated to benefit from regional trade and infrastructure investment.
Foresight Africa: top priorities for the continent in 2017 (Brookings)
In this year’s Foresight Africa, the Brookings Africa Growth Initiative scholars and outside experts explore six overarching themes that provide opportunities for Africa to overcome its obstacles to spur fruitful and inclusive growth. These six interconnected, crossing-cutting themes demonstrate the prospects for Africa’s success for its policymakers, businessmen and women, and all its citizens. [Africa Research Institute: 10 things to watch in 2017]
On the structural transformation of rural Africa (World Bank)
This paper describes the key undercurrents necessary for structural transformation to occur, with a focus on the role of agriculture, the current state of agricultural labour productivity growth in rural SSA, and the structural impediments currently slowing the rate of progress. The aim is to update contemporary African policy makers as they attempt to stimulate agricultural and rural transformation to foster sustained and inclusive economic growth that will accelerate poverty reduction in the region. Section 2 provides stylized facts on the path of structural transformation in agriculture with a brief review of the current state in SSA. Deep-seated factors impeding structural change in Africa’s agriculture and food systems are discussed in section 3, after which section 4 turns to nascent positive developments that merit monitoring. Section 5 outlines key policy priority areas, while the last section concludes. [The analysts: Christopher B. Barrett, Luc Christiaensen, Megan Sheahan, Abebe Shimeles]
Dr Akinwumi A. Adesina: ‘Building a partnership for resilience’ (pdf, First Africa Resilience Forum, AfDB)
Fourth, regional integration. We know that you cannot integrate fragile countries, but only resilient countries. Many African countries with fragile situations are landlocked with small internal markets, such as CAR, Burundi, South Sudan and Mali and depend for their access to regional markets on neighbors. As these countries build resilience, they will be able to harness the benefits of regional integration.
Rajiv Bhatia: ‘Reaching out to Africa’ (The Hindu)
Building on the path forged by its predecessor, the Modi government has already achieved much: holding the India-Africa Forum Summit in 2015 and an unprecedented political outreach to Africa through visits by the President, Vice-President and Prime Minister to a dozen countries in 2016. The time is ripe to implement the agreements that have been signed. India’s Africa experts have been disappointed with the decision to put off the next summit with Africa to 2020 instead of 2018 as was expected. South Block should consider convening a ministerial review meeting in early 2018. Nairobi, with its excellent location and conference facilities, could be an ideal choice and Mr. Kenyatta a willing partner.
Rwanda is ready for business, Kagame tells Indian investors (New Times)
While positioning itself for business, Kagame noted that Rwanda was part of a wider vibrant region, the East African Community and is involved in regional infrastructure development that have seen it become more appealing to the private sector. Kenyan President Uhuru Kenyatta, who also attended the forum, echoed Kagame’s remarks on the region’s attractiveness for business, saying the East African Community creates win-win situation for both the investors and the citizens of the East African region. On his part, their host, Indian Prime Minister Narendra Modi, said that they were keen to continue doing business with the rest of the world for mutual benefit. He noted particularly the focus on formalising the informal economy and the role of e-governance in developing economies. [Related: India-Rwanda Joint Statement, Declaration on Strategic Partnership]
Uhuru markets Kenya to Indian investors during tour (Daily Nation)
“President Kenyatta is expected to drum up support for Kenya as an attractive destination for Indian investors especially in the area of healthcare, a sector in which India is known for and an industry in which Kenya is keen to attract partners,” a statement from the Presidential Strategic Communications Unit said on Tuesday. President Kenyatta is also scheduled to attend the Kenya-India Business Forum, meet with Kenyans in India and hold a joint Press conference with Mr Modi. The visit is also expected to see the signing of a line of credit agreement between India’s government and the Kenyan Treasury of about $100 million (Sh1 billion) for agriculture mechanisation.
One-stop border posts praised for making EAC a leading trading bloc in Africa (Daily Nation)
Nine Kenyan members of the EALA visited a post in Moyale, Marsabit County, on the Kenya-Ethiopia border on Monday while on their sensitisation mission on the importance of the assembly. “Instead of stamping goods and paying taxes [at] every border point in EAC countries, we have ensured they are inspected at one border point,” said Ms Pareno. Although Ethiopia is not a member of the EAC, it enjoys the benefits of trade owing to its border with Kenya. The EALA members regretted that in the 27 counties they had visited, many Kenyans they met did not seem to know much about the regional assembly.
India to trade partners: Sign new bilateral investment treaties by 31 March (LiveMint)
India is looking at a situation where it may not have a bilateral investment treaty with a large number of countries including those in the European Union (EU) on 1 April 2017. Commerce and industry minister Nirmala Sitharaman on Tuesday said India would unilaterally terminate all such existing treaties on 31 March, having given one year’s time to countries to renegotiate the treaties based on the model Bilateral Investment Treaty (BIT) passed by the cabinet. Sitharaman said India has written to all the countries with which it has investment treaties to come forward and negotiate based on the draft BIT. The model BIT approved by the cabinet excludes matters relating to taxation. Controversial clauses such as most favoured nation (MFN) have been dropped while the scope of national treatment, and fair and equitable treatment clauses, has been considerably narrowed down.
Ambassador Michael Froman: address at the Washington International Trade Association (USTR)
We have just witnessed a remarkable period in trade politics, a period in which the gap between perception and reality was wider than ever before. Poll after poll show that Americans understand that we live in a global economy, that we cannot wall ourselves off from the forces of integration, and that as a whole, the opportunity to engage internationally, to open other markets to our goods and services, to raise standards around the world, has been good for America. In fact, long-term surveys suggest that support for trade is higher now than at almost any time since the 1970s – and it is highest among young people who have grown up as global citizens in the Internet era. But, as the most recent campaign demonstrates, while public support for trade is high and widespread, it is largely passive, while opposition to trade – though perhaps held by only a minority -- is often vocal and passionate. This is not solely a US phenomenon. [Related: Roshan Kishore: Why obituaries to globalization are premature, Roselyn Hsueh: What will Trump change about trade relations with China? Here’s what you need to know.]
“Asian Davos” to advocate inclusive globalization (LAHT)
The Boao Forum, one of the main global economic conferences held in Asia every year, will have as its main theme for 2017 the defense of globalization amid protectionist trends that have emerged in the world, the organizers of the event said on Monday. ‘Globalization and free trade: the Asian perspectives’ will be the theme of the 9th edition of the forum, dubbed the “Asian Davos”, to be held in the southern Chinese city of Boao on Hainan Island, 23-27 March. “Asia and emerging economies are one of the biggest beneficiaries of globalization,” acknowledged Secretary General Zhou Wenzhong during the presentation of the forum.
African Export-Import Bank ratifications: Djibouti, Chad
Uganda-Rwanda: AfDB signs loan agreements to finance Busega-Mpigi express highway project
Zimbabwe: Govt to sign concession agreement for roads dualisation
Tanzania, Uganda launch designs for 1,450km Hoima-Tanga pipeline
Australia to tax all digital transactions (The Hindu)
Annabelle Gawer: ‘Big data: bringing competition policy to the digital era’ (pdf, OECD)
Tax systems in developing countries: Joel Slemrod’s keynote lecture (pdf, Zurich Centre for Economic Development)
Professor Robert Shiller (Yale University): ‘Narrative economics’ (Presidential Address to the American Economic Association)
12th AU-EU human rights dialogue: joint communiqué
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Africa Resilience Forum: AfDB President lays out blueprint for dealing with fragility
Bank calls for innovative partnerships needed to deal with fragility
African countries will need innovative partnerships and a mix of small-scale and big transformational projects to build resilience and overcome fragility, African Development Bank President Akinwumi Adesina told the Africa Resilience Forum on Tuesday in Abidjan.
Adesina announced that the Bank has created a bottom-up initiative to deliver the Bank’s development priorities – the High 5s – in 10,000 communities in fragile situations in 1,000 days. “It requires innovative partnerships to scale up existing technologies in these environments. One such technology is present with us here in the room: Abze develops low-cost solar lighting that could be brought to rural communities in fragile situations through a concerted partnership effort,” he told the audience.
The Africa Resilience Forum aims to strengthen partnerships that go beyond aid coordination to effectively build resilience at community, country and regional levels. The Bank’s understanding of fragility has evolved to a universal risk concept where it is considered “a condition of elevated risk of institutional breakdown, societal collapse or violent conflict.”
“Fragility is neither constrained by any geographical setting, nor is it bound by time,” said Adesina. “Countries, therefore, experience varying intensities of fragility and duration, in some cases manifesting as pockets of fragility.”
The Bank’s commitment to building resilience is also reflected in its resource allocation. Since its inception in 2008, the Transition Support Facility has mobilized more than US $3.63 billion (UA 2.7 billion*) in additional resources. The share of these additional concessional resources for fragile situations has steadily increased, most recently from 13% (US $888.60 million or UA 661 million) under the 13th Replenishment of the African Development Fund (ADF-13) to 17% (US $955.82 million or UA 711 million) under the Fund’s 14th Replenishment (ADF-14)th Replenishment (ADF-14).
The High 5s are part of the AfDB’s resilience agenda for Africa. Energy remains a critical part of the agenda. It helps fight fragility in the context of large-scale and uncontrolled urbanization. For instance, since 2010, the Kenyan Government has improved the electricity supply in Kibera, the largest slum in Nairobi, as part of a programme that targets the areas of greatest social inequality. “Providing electricity and modern fuels in marginalized areas lowers the risk of internal unrest and reduces the movement of people across borders. This is why the Bank will be investing US $12 billion in the energy sector over the next ten years,” Adesina said.
Agriculture is also part of the solution. Developing agricultural value chains means strengthening relationships between different groups of the society, critically important in fragile situations where trust and social cohesion are low, while overcoming inequalities by connecting different geographical parts of a country. “We know that agricultural value chains work even in the absence of a functioning state, diversifying economies, raising incomes, increasing food security and thereby contributing to mitigating conflict,” he noted. He cited examples of successful value chain projects in fragile situations, ranging from Northern Uganda (cotton), South Sudan (shea nut), Rwanda (coffee) to Somalia (livestock). The Bank will be investing US $24 billion in this sector
The private sector will be one of the key players to drive this agenda. For instance, in spite of Somalia’s central government vacuum, domestic and foreign private sector have found ways to prosper in Somaliland by developing their own business environment, identifying and responding to market needs and gaps. The private sector role becomes ever more important, once countries transition out of fragility, stabilizing the economy and society and creating much-needed jobs, as can be seen in Cote d’Ivoire.
Adesina noted that of Africa’s nearly 420 million youth, one-third are unemployed and discouraged, another third are vulnerably employed, and only one in six is in meaningful wage employment. “It is not possible to imagine a resilient Africa with hundreds of millions of youth unemployed,” he said. “This is why we have launched the Jobs for Youth in Africa Strategy that will create 25 million jobs and reach over 50 million Africans by 2025 with a special focus on those in fragile situations.”
“Building a Partnership for Resilience”
Remarks by Dr. Akinwumi A. Adesina, President of the African Development Bank, at the First Africa Resilience Forum – 10 January 2017, Abidjan, Cote d’Ivoire
Africa has come a long way. Prior to 1990, Africa experienced very low levels of economic development. Poverty was rampant. Economies were faltering. Investments in infrastructure were low; political and economic governance were weak. Africa as a continent was fragile.
Things have changed since then and Africa has been on the rise. Africa has witnessed rapid growth and development over the past two decades. Extreme poverty in Sub-Saharan Africa declined by 28% between 1990 and 2015. Economic policies, the business and investment environment, and political stability all improved across the region. Africa became a significant target for foreign direct investment, which rose from $42.8 billion in 2004-2008 to $66.5 billion in 2015. But not all countries were able to participate in this positive development.
As an African institution that has worked for over 50 years in this area, we know that development is not a linear process. Internal and external factors can reverse gains made in the past. As we look deeper at progress at country, regional and sub-national levels, we can recognize the variations and differences. We started to label those countries that were struggling to make progress as “fragile states”, recognizing their weak institutions and their inability to deliver basic services.
Out of 26 countries considered fragile in the 1990s, only 11 countries are considered to have built resilience; nine did not make progress and six countries even deteriorated. Other countries have made more progress in building resilience.
These countries, two of which have benefited from a natural resource windfall, have been able to adopt more inclusive political arrangements, strengthen their institutions, and foster investment. They have also been able to maintain macroeconomic stability and increase domestic revenues to support higher levels of public investment and improved social services.
However, a closer look below the national level reveals continuing challenges in these countries which suggest that the binary labels we adopted in those years are no longer useful.
This is why we are here today. The importance of building resilience in Africa responds to our evolving understanding of what constitutes fragility.
After some gains after the 1990s, the number of fragile situations has been steadily increasing over recent years and developing a regional dimension. The impact of fragility includes lives lost through conflict, rural poverty, and no employment for youth, increasing intra-societal divisions, and deteriorating infrastructure and natural resources, threatening to create a triangle of disaster.
On current trends, poverty is becoming increasingly and disproportionally entrenched in fragile situations. It is not possible to avoid existing risks. They need to be identified and mitigated. The nature of the risk varies from political instability, institutional weakness, poor governance and security concerns, to structural challenges of undiversified economies, urbanization and climate change.
Underlying the fragility pressures are patterns of exclusion and poverty, unemployment, high migration, rapid urbanization, climate change and poor management of natural resources. Fragile situations therefore emerge when such pressures overwhelm countries’ existing institutional capacities to handle them.
To this extent, the AfDB’s understanding of fragility has evolved to a universal risk concept where it is considered as a condition of elevated risk of institutional breakdown, societal collapse or violent conflict – it is neither constrained by any geographical setting nor is it bound by time. Countries therefore experience varying intensities of fragility and duration, in some cases manifesting as pockets of fragility.
Fragility should therefore be considered in the context of the triangle of disaster, the vicious cycle of rural poverty, youth unemployment and climate change. Without any intervention, such pressures could easily explode. This has inspired the AfDB to put the $24 billion Agricultural Transformation Program into place to ensure that the most vulnerable are reached with life-changing opportunities, thereby contributing to building resilient communities.
More than 65% of rural communities depend on agriculture for their livelihoods. Enhancing opportunities in agriculture therefore create jobs and allow the emergence of SMEs through value adding activities, if the appropriate infrastructure is provided. This promotes inclusive development, which is the ultimate objective.
As an institution, the AfDB has demonstrated its own resilience. In 2003, it was forced from its headquarters in Côte d’Ivoire to Tunisia, following an intensification in violence. Within three months, almost all the staff arrived and settled in Tunis for what was then considered to be for a short period.
However, it took 11 years, until August 2014, when the President and the Boards of Directors returned to Côte d’Ivoire, marking the end of the exile. Côte d’Ivoire was still classified as a “fragile state”.
To date, a move of this magnitude remains a unique event in the history of a multilateral development bank. Understanding these particular historical events is essential to appreciate the Bank’s approach to fragility and resilience. It is an approach based on real life experience.
Despite the relocation, its activities have continued without major hiccups. In fact the value of the AfDB’s operations have more than doubled.
During this period, we have enhanced our knowledge and experience of fragility and resilience and we have built mechanisms for resilience. It therefore puts us in an excellent position to be able to assist our regional member countries. We are ready now to promote partnerships for resilience.
Similar experiences have been observed elsewhere. Between 2003 and 2014, the Sierra Leonean economy grew an average of 8 percent per year, while inflation fell below 10 percent. Between 2010 and 2014, Sierra Leone’s economy outperformed both the West African and pan-African averages year-on-year, placing it among the world’s top 20 economies by growth during that period.
In 2013, annual GDP growth reached 20%. The country was making social progress as well; the poverty head count had dropped from nearly 70% in 2003 to 52%. A combination of improved macroeconomic policies, targeted social measures, the discovery of iron ore, and a favorable external environment were major factors underlying this success.
External shocks can create excessive pressures too.
In 2014, the fragility of Sierra Leone’s economy was exposed by a twin shock: the outbreak of the Ebola Virus Disease (EVD) and a sharp drop in iron ore prices. As the EVD spread, private sector activity came to a halt as businesses closed and people lost their jobs.
Agricultural exports and manufacturing output declined by 30 and 60 percent, respectively. In view of depressed commodity prices, iron ore production came to a halt in early 2015. As a result, growth of Sierra Leone’s economy is estimated to have declined from 4.6 percent in 2014 to -21.1 percent in 2015.
The outbreak of the Ebola epidemic brought to the fore the persistent institutional and health system weaknesses in a region that has been plagued by long periods of civil strife and war. Whilst the region was making headway towards economic recovery, institutions remained weak.
The Ebola virus exposed both the lack of capacity, authority and legitimacy of the affected states as they struggled to contain the outbreak, as well as the deficiencies of the international community in mounting a swift and well-coordinated response.
Recognising this situation, the Bank adopted a four-pronged approach: (i) working with the international community, in particular the World Health Organisation; (ii) supporting national Ministries (health, agriculture, social affairs); (iii) encouraging African peer support by coordinating with the African Union and the West African Health Organization (WAHO) and helping send medical doctors from other African countries to the affected areas; and (iv) engaging and mobilizing the private sector and African philanthropists to support the national, regional and global efforts to combat the virus.
Working in partnership with the country leadership, what appeared an insurmountable challenge has been reversed although the impact of the shocks will be felt by the affected communities for a long time.
This was complemented by forward-looking recovery efforts for the post-Ebola period, notably the joint effort with the AU to set up an African Centre for Disease Control. The centre will create an opportunity for Africa to focus on building its own diagnostics, research, professional and technical capacity in the health sector.
There is a need to chart our way forward in making the lives of the most vulnerable communities in Africa valuable, productive and meaningful. We must not leave anyone behind in our transformation of transformation of Africa
This first Africa Resilience Forum aims to strengthen partnerships that go beyond aid coordination to effectively build resilience at community, country and regional levels. Weak institutional capacity is a key feature of fragile situations and significantly impairs the state’s ability to deliver public goods and services.
Building effective institutions and reaching millions instead of thousands of households goes far beyond a project cycle and this is why development partners need to give greater attention towards co-developing their interventions, adopting a scaling up approach and planning for sequenced engagement – partnerships for resilience.
Our commitment to building resilience is also reflected in our resource allocation. Since its inception in 2008, more than UA 2.7 billion have been mobilized in additional resources through the Transition Support Facility. The share of these additional concessional resources for fragile situations has steadily increased, most recently from 13% (UA 661 million) under ADF-13 to 17% (UA 711 million) under ADF-14.
We are starting to build partnerships for resilience, and the High 5s are part of the AfDB’s resilience agenda for Africa
In line with our mandate and comparative advantage as a regional development bank, we are scaling up support in five critical areas.
First, for energy, taking people out of darkness brings hope, security and economic opportunities, while strengthening the state-society relationship. Providing electricity has an important function in fragile situations, signaling a new start and a turning point. This is why President Johnson Sirleaf had made it a priority to light up Liberia in the aftermath of the devastating conflict.
But it is also critical in preventing fragility in the context of large-scale and uncontrolled urbanization. For instance, since 2010, the Kenyan Government has improved the electricity supply in Kibera, the largest slum in Nairobi, as part of a programme that targets the areas of greatest social inequality.
Providing electricity and modern fuels in marginalized areas lowers the risk of internal unrest and reduces the movement of people across borders. This is why the Bank will be investing USD 12 billion in the energy sector over the next ten years.
Second, agriculture communities are the most marginalized in Africa. The actual or perceived marginalization of important segments of society often provides a pretext for recourse to violence. It is not a coincidence that violence is mostly concentrated in marginalized, rural areas.
Developing agricultural value chains means strengthening relationships between different groups of the society, critically important in fragile situations where trust and social cohesion are low, while overcoming inequalities by connecting different geographical parts of a country. We know that agricultural value chains work even in the absence of a functioning state, diversifying economies, raising incomes, increasing food security and thereby contributing to mitigating conflict.
Examples of successful value chain projects in fragile situations range from Northern Uganda (cotton), South Sudan (shea nut), Rwanda (coffee) to Somalia (livestock). The Bank will be investing USD 24 billion in this sector.
Third, I am delighted to see so many representatives from the private sector in the room. Your role is crucial and we are committed to working more closely with you and support you grow your businesses and create jobs in these environments through industrialization.
Not only is the private sector a core contributor to growth and economic production, but its opportunistic and enterprising character enables it to exist and even prosper in situations where government institutions have collapsed.
For instance, in spite of Somalia’s central government vacuum, both the domestic and foreign private sector have found ways to prosper in Somaliland by developing their own business environment, identifying and responding to market needs and gaps. The private sector role becomes ever more important, once countries transition out of fragility, stabilizing the economy and society and creating much needed jobs, as can be seen in Cote d’Ivoire.
Fourth, regional integration. We know that you cannot integrate fragile countries, but only resilient countries. Many African countries with fragile situations are landlocked with small internal markets, such as CAR, Burundi, South Sudan and Mali and depend for their access to regional markets on neighbors. As these countries build resilience, they will be able to harness the benefits of regional integration.
Fifth, quality of life. The cost of fragility is mainly borne by the people living in fragile situations or being displaced as a consequence of fragility. This in turn creates the condition for a vicious cycle and a fragility-trap. Youth are Africa’s greatest asset. But, young people without confidence and hope in their own future present also an enormous risk. Of Africa’s nearly 420 million youth, one-third are unemployed and discouraged, another third are vulnerably employed, and only one in six is in meaningful wage employment. Creating jobs for youth, and particularly women, is therefore of utmost priority. It is not possible to imagine a resilient Africa with hundreds of millions of youth unemployed. This is why we have launched the Jobs for Youth in Africa Strategy that will create 25 million jobs and reach over 50 million Africans by 2025 with a special focus on those in fragile situations.
A mix of small-scale and big transformational projects
To have success, we need a mix of small-scale and big transformational projects. This is why we have created a bottom-up initiative to deliver the High 5s in 10,000 communities in fragile situations in 1,000 days. It requires innovative partnerships to scale up existing technologies in these environments. One such technology is present with us here in the room: Abze develops low-cost solar lighting that could be brought to rural communities in fragile situations through a concerted partnership effort.
The issue of fragility remains one of the most challenging situation of our time. It threatens to tear apart the very fabric that holds communities together. I therefore challenge you to think creatively and develop solutions that are urgently needed.
I trust, you, the participants to this Forum will help us with solutions that will help us to create the essential conditions for Africa’s transformation through the High 5s and in forging new partnerships for resilience.
I thank you all and wish you fruitful deliberations.
» Download: AfDB Strategy for Addressing Fragility and Building Resilience in Africa 2014-2019 (PDF, 8.18 MB)
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Foresight Africa: Top priorities for the continent in 2017
2017 holds promise for Africa. Despite the troubles of 2016 – political turmoil in the Gambia and the Democratic Republic of the Congo, continuing violence in South Sudan and Nigeria, drought in southern Africa, low commodity prices, and lowered growth outlooks – I enter 2017 with a positive attitude.
So many of these serious challenges are those which Africa has weathered before and come out stronger for it. Peaceful transitions, such as in Ghana, provide examples of good governance and respect for the rule of law. Regional actors are creating African solutions to African problems in both the security and infrastructure realms, among others. Commodity-reliant countries are looking to diversify while the others are taking advantage of low oil prices.
In this year’s Foresight Africa, the Brookings Africa Growth Initiative scholars and outside experts explore six overarching themes that provide opportunities for Africa to overcome its obstacles to spur fruitful and inclusive growth. These six interconnected, crossing-cutting themes demonstrate the prospects for Africa’s success for its policymakers, businessmen and women, and all its citizens. By examining such closely intertwined issues, we hope to bring a holistic view of the continent, emphasizing that with each challenge there is a solution, though it might not be found where we expect it to be.
Sub-Saharan Africa – especially its oil-exporting economies – has seen many credit downgrades and lowered growth outlooks in 2016, raising the importance of financing for development even higher. In Chapter 1, our authors explore several different mechanisms for financing development agendas as well as arguments for increased domestic revenue mobilization and economic diversification.
Growth will not be possible in Africa without jobs. Given the looming population boom, Africa must adapt not only through job creation, but also through skills development and support in both forgotten and frontier sectors. In the second chapter, our authors discuss not only the job prospects for Africans going into 2017, but new ways to think about job creation.
Essential to any modern economy is technology. In many ways, especially when it comes to financial inclusion, Africa is at the forefront.
In addition, innovations are creating opportunities unheard of in other parts of the world – though accessibility to many advancements remains somewhat limited. In this chapter, our authors discuss how obstacles to innovation can be overcome in order for Africa to reach its full potential.
For the second year in a row, our contributors cover the increasingly important topic of urbanization. In the follow up from Habitat III and the New Urban Agenda, policymakers agree that smart urban planning is a requirement for successful development. This type of planning is challenging, though, as it requires an awareness of energy needs, transportation possibilities, pollution potential, safety, informal settlements, and affordability, among many other aspects.
In no other area of global governance has Africa shown a more united front than in the fight against climate change. Africa is expected to bear the brunt of the destructive effects, and the region’s high poverty rate means that the poor will suffer the most. In this chapter, our authors offer thoughts to both the national and international communities on policies for combating climate change in light of Africa’s unique circumstances.
To tie everything together, of course, are the policymakers, who have the power to create incentives for job creation, enact laws to combat climate change, create appropriate regulatory environments for innovation, and stabilize the macroeconomic environment. However, as our authors argue, without good governance and respect for the rule of law, countries and their citizens must fight an even-more uphill battle towards inclusive growth.
With this iteration of Foresight Africa, we aim to capture the top priorities for Africa in 2017, offering recommendations for African and international stakeholders for creating and supporting a strong, sustainable, and successful Africa. In doing so, we hope that Foresight Africa 2017 will promote a dialogue on the key issues influencing economic development in Africa in 2017 and ultimately provide sound strategies for sustaining and expanding the benefits of economic growth to all people of Africa in the years ahead.
Over the course of the year, we will incorporate the feedback we will receive from our readers and continue the debate on Africa’s priorities through a series of events, research reports, and blog posts.
The Foresight Africa project is a series of reports, commentaries and events that aim to help policymakers and Africa watchers stay ahead of the trends and developments impacting the continent. Since 2011, the Brookings Africa Growth Initiative has used the occasion of the new year to assess Africa’s top priorities for the year.
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Global growth edges up to 2.7 percent despite weak investment
Public investment can bring private investment off the sidelines
Global economic growth is forecast to accelerate moderately to 2.7 percent in 2017 after a post-crisis low last year as obstacles to activity recede among emerging market and developing economy commodity exporters, while domestic demand remains solid among emerging and developing commodity importers, the World Bank said in a report released on Tuesday.
Growth in advanced economies is expected to edge up to 1.8 percent in 2017, the World Bank’s January 2017 Global Economic Prospects report said. Fiscal stimulus in major economies – particularly in the United States – could generate faster domestic and global growth than projected, although rising trade protection could have adverse effects. Growth in emerging market and developing economies as a whole should pick up to 4.2 percent this year from 3.4 percent in the year just ended amid modestly rising commodity prices.
Nevertheless, the outlook is clouded by uncertainty about policy direction in major economies. A protracted period of uncertainty could prolong the slow growth in investment that is holding back low, middle, and high income countries.
“After years of disappointing global growth, we are encouraged to see stronger economic prospects on the horizon,” World Bank Group President Jim Yong Kim said. “Now is the time to take advantage of this momentum and increase investments in infrastructure and people. This is vital to accelerating the sustainable and inclusive economic growth required to end extreme poverty.”
The report analyzes the worrisome recent weakening of investment growth in emerging market and developing economies, which account for one-third of global GDP and about three-quarters of the world’s population and the world’s poor. Investment growth fell to 3.4 percent in 2015 from 10 percent on average in 2010, and likely declined another half percentage point last year.
Slowing investment growth is partly a correction from high pre-crisis levels, but also reflects obstacles to growth that emerging and developing economies have faced, including low oil prices (for oil exporters), slowing foreign direct investment (for commodity importers), and more broadly, private debt burdens and political risk.
“We can help governments offer the private sector more opportunities to invest with confidence that the new capital it produces can plug into the infrastructure of global connectivity,” said World Bank Chief Economist Paul Romer. “Without new streets, the private sector has no incentive to invest in the physical capital of new buildings. Without new work space connected to new living space, the billions of people who want to join the modern economy will lose the chance to invest in the human capital that comes from learning on the job.”
Emerging market and developing economy commodity exporters are expected to expand by 2.3 percent in 2017 after an almost negligible 0.3 percent pace in 2016, as commodity prices gradually recover and as Russia and Brazil resume growing after recessions.
Commodity-importing emerging market and developing economies, in contrast, should grow at 5.6 percent this year, unchanged from 2016. China is projected to continue an orderly growth slowdown to a 6.5 percent rate. However, overall prospects for emerging market and developing economies are dampened by tepid international trade, subdued investment, and weak productivity growth.
Among advanced economies, growth in the United States is expected to pick up to 2.2 percent, as manufacturing and investment growth gain traction after a weak 2016. The report looks at how proposed fiscal stimulus and other policy initiatives in the United States could spill over to the global economy.
“Because of the outsize role the United States plays in the world economy, changes in policy direction may have global ripple effects. More expansionary U.S. fiscal policies could lead to stronger growth in the United States and abroad over the near-term, but changes to trade or other policies could offset those gains,” said World Bank Development Economics Prospects Director Ayhan Kose. “Elevated policy uncertainty in major economies could also have adverse impacts on global growth.”
» Download: Global Economic Prospects: Weak Investment in Uncertain Times, January 2017 (PDF, 5.03 MB)
Regional Outlooks
Sub-Saharan Africa
Sub-Saharan African growth is expected to pick up modestly to 2.9 percent in 2017 as the region continues to adjust to lower commodity prices. Growth in South Africa and oil exporters is expected to be weaker, while growth in economies that are not natural-resource intensive should remain robust. Growth in South Africa is expected to edge up to a 1.1 percent pace this year. Nigeria is forecast to rebound from recession and grow at a 1 percent pace. Angola is projected to expand at a 1.2 percent pace.
East Asia and Pacific
Growth in the East Asia and Pacific region is projected to ease to 6.2 percent in 2017 as slowing growth in China is moderated by a pickup in the rest of the region. Output in China is anticipated to slow to 6.5 percent in the year. Macroeconomic policies are expected to support domestic drivers of growth despite soft external demand, weak private investment, and overcapacity in some sectors. Excluding China, growth in the region is seen advancing at a more rapid 5 percent rate in 2017. This largely reflects a recovery of growth in commodity exporters to its long-term average. Growth in commodity importers excluding China is projected to remain broadly stable, with the exception of Thailand where growth is expected to accelerate, helped by improved confidence and accommodative policies. Indonesia is anticipated to pick up to 5.3 percent in 2017 thanks to a rise in private investment. Malaysia is expected to accelerate to 4.3 percent in 2017 as adjustment to lower commodity prices eases and commodity prices stabilize.
Europe and Central Asia
Growth in the region is projected to pick up to 2.4 percent in 2017, driven by a recovery in commodity-exporting economies and recovery in Turkey. The forecast depends on a recovery in commodity prices and an easing of political uncertainty. Russia is expected to grow at a 1.5 percent pace in the year, as the adjustment to low oil prices is completed. Azerbaijan is expected to expand 1.2 percent and Kazakhstan is anticipated to grow by 2.2 percent as commodity prices stabilize and as economic imbalances narrow. Growth in Ukraine is projected to accelerate to a 2 percent rate.
Latin America and Caribbean
The region is projected to return to positive growth in 2017 and expand by 1.2 percent. Brazil is projected to expand at a 0.5 percent pace on easing domestic constraints. Weakening investment in Mexico, on policy uncertainty in the United States, is anticipated to result in a modest deceleration of growth this year, to 1.8 percent. A rolling back of fiscal consolidation and strengthening investment is expected to support growth in Argentina, which is forecast to grow at a 2.7 percent pace in 2017, while República Bolivariana de Venezuela continues to suffer from severe economic imbalances and is forecast to shrink by 4.3 percent this year. Growth in Caribbean countries is expected to be broadly stable, at 3.1 percent.
Middle East and North Africa
Growth in the region is forecast to recover modestly to a 3.1 percent pace this year, with oil importers registering the strongest gains. Among oil exporters, Saudi Arabia is forecast to accelerate modestly to a 1.6 percent growth rate in 2017, while continued gains in oil production and expanding foreign investment are expected to push up growth in the Islamic Republic of Iran to 5.2 percent. The forecast is based on an expected rise in oil prices to an average of $55 per barrel for the year.
South Asia
Regional growth is expected to pick up modestly to 7.1 percent in 2017 with continued support from strong growth in India. Excluding India, growth is expected to edge up to 5.5 percent in 2017, lifted by robust private and public consumption, infrastructure investment, and a rebound in private investment. India is expected to post a 7.6 percent growth rate in FY2018 as reforms loosen domestic supply bottlenecks and increase productivity. Pakistan’s growth is projected to accelerate to 5.5 percent, at factor cost, in FY2018, reflecting improvements in agriculture and infrastructure spending.
Sub-Saharan Africa
Recent developments
Growth in the Sub-Saharan Africa region is estimated to have slowed to a 1.5 percent rate in 2016, the weakest pace in over two decades, as commodity exporting economies adjusted to low prices. On a per capita basis, regional GDP contracted by an estimated 1.1 percent. South Africa and oil exporters, which contribute two-thirds of regional output, accounted for most of the slowdown, while activity in non-resource intensive economies generally remained robust.
In South Africa, growth slowed to 0.4 percent in 2016, reflecting the effects of low commodity prices and heightened governance concerns. The region’s two largest oil exporters – Angola, where growth slowed to a 0.4 percent rate, and Nigeria, which contracted by 1.7 percent – faced severe economic and financial strains. Other oil exporters were also hit hard by low oil prices, with Chad contracting by 3.5 percent and Equatorial Guinea shrinking by 5.7 percent.
Metals exporters struggled with low prices as well. Growth slowed to 2.7 percent in the Democratic Republic of Congo and to 3.6 percent in Mozambique, where a surge in government debt weighed on investor sentiment. The post-Ebola recovery in Guinea, which accelerated to 5.2 percent, Liberia, which picked up to 2.5 percent, and Sierra Leone, which expanded by 3.9 percent, was hampered by low prices for iron ore.
Many agricultural exporters, such as Côte d’Ivoire, which expanded by 7.8 percent, and Ethiopia, which grew by 8.4 percent, registered strong output on the back of infrastructure investment. Among commodity importers, growth increased to 3.0 percent in Cabo Verde, and softened to 3.2 percent in Mauritius thanks to tourism.
Outlook
Sub-Saharan African growth is expected to pick up modestly to 2.9 percent in 2017 as the region continues to adjust to lower commodity prices. Growth in South Africa and oil exporters is anticipated to be weaker, while growth in economies that are not natural-resource intensive should remain robust.
Growth in South Africa is expected to edge up to a 1.1 percent pace this year. South African output will be held back by tight fiscal policy and high unemployment that is weighing on consumer spending. Nigeria is forecast to rebound from recession and grow at a 1.0 percent pace, as an anticipated modest improvement in oil prices, coupled with an increase in oil production, boost domestic revenues. Angola is projected to expand at a moderate 1.2 percent pace as high inflation and tight policy continue to weigh on consumption and investment.
In other mineral and energy exporters, the outlook is generally favorable. Ghana is forecast to surge to 7.5 percent growth pace as improving fiscal and external positions help boost investor confidence. Progress in developing Mozambique’s energy sector will help spur investment in that country’s natural gas production and contribute to an accelerated 5.2 percent growth rate. The post-Ebola recovery is anticipated to help Guinea grow by 4.6 percent, Liberia by 5.8 percent, and Sierra Leone by 6.9 percent.
Large infrastructure investment programs will continue to support robust growth among agricultural exporters, with Côte d’Ivoire and Ethiopia growing at or above 8 percent. However, political fragility will exert a drag on growth in countries such as Burundi and The Gambia.
Among commodity importers, Cabo Verde is expected to grow at a 3.3 percent rate, Mauritius to rise moderately to 3.5 percent, and Seychelles to slow to a 3.5 percent clip as uncertainty in Europe weighs on tourism, investment, and trade flows. Lesotho, which is forecast to pick up to a 3.7 percent pace, and Swaziland, which should exit recession and resume growing at a 1.9 percent rate, are anticipated to benefit from regional trade and infrastructure investment.
Risks
Risks to the outlook are heavily tilted to the downside. Externally, heightened policy uncertainty in the United States and Europe could lead to financial market volatility and higher borrowing costs or cut off capital flows to emerging and frontier markets. A reversal of flows to the region would hit heavily traded currencies, like the South African rand, hard. A sharper-than-expected slowdown in China could weigh on demand for export commodities and undermine prices. Continued weakness in commodity prices would strain fiscal and current account balances, forcing spending cuts that could weaken recovery and investment.
Domestic risks include the failure to adjust to low commodity prices and weak global demand. Populist pressures may deter authorities from taking the necessary measures to contain fiscal deficits and rebuild policy buffers. A further deterioration of security conditions in some countries could put strains on public finances.
Policy challenges
The sustained decline in commodity prices has dealt a major setback to the region, threatening recent progress on poverty and revealing sizable macroeconomic imbalances in some countries. Regional per capita output contracted in 2016, with growth and employment slowing sharply in the large commodity exporters. A significant number of Sub-Saharan Africa’s poor live in countries where per capita income growth was negative in 2016. Unless growth is restored, poverty rates will rise. This implies a dual challenge: developing new sources of growth while ensuring macroeconomic stability.
Improvements in agricultural sectors. About two-thirds of the poor in the region live in rural households, for which agriculture is the dominant source of income and food security. Expansion of smallholder agricultural output growth is therefore essential for balanced income growth. For many countries in the region, raising productivity growth in smallholder agriculture, and making smallholder farmers competitive, are central to improving the lives of the people.
Although agricultural output growth in Sub-Saharan Africa has improved over the last two decades, it has largely been the result of expanding the area under cultivation rather than productivity gains, which have remained limited. Unleashing productivity improvements will require significant public investments in rural public goods to strengthen markets, and to develop and disseminate improved technologies. While progress has been made in these areas, investment in agriculture R&D remains insufficient. Governments will need international support to finance these investments. To make smallholder farmers more competitive, governments need to take steps to improve the business environment. Attention is particularly needed on upgrading power and trade logistics infrastructure, strengthening the skills base, and expanding markets through deeper regional integration.
Countries in the region will also need to attract FDI to help develop agro-businesses with capital and skills that can be integrated into global value chains. Countries that have made the largest strides into global value chains – Ethiopia, Kenya, and South Africa – have benefitted from this integration.
Macroeconomic stability. Governments need to rebuild their policy buffers. Adjustment to low commodity revenues has started in some countries; however, it has relied on measures such as reserve drawdowns or deep cuts in capital expenditures. More sustainable sources of revenue are needed, including better tax collection. Tax collection has been held back by limited data on potential taxpayers, ineffective tracking tools, gaps in capabilities and resources, and complex tax processes. Appropriate measures to improve tax collection vary across countries. Oil exporters, such as Angola and Nigeria, need to diversify their tax sources, upgrade IT infrastructure, and ensure compliance. For smaller economies, standardizing and simplifying internal processes, and improving collection procedures, will help boost revenues.
Fiscal adjustment through reduced and more efficient government expenditure is also critical. This implies rationalizing current expenditures, and improving the quality of public investment through more effective financial management. Within a credible medium-term framework, expenditure should be maintained on health and education, to promote learning and build human capital, and on investment in strategic infrastructure. Such a public expenditure program should form part of a broader strategy to make the most of the promising economic potential of the young and growing population in the region.
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India: Reaching out to Africa
Kenyan President Uhuru Kenyatta could be a willing partner for India to deepen relations
Kenyan President Uhuru Kenyatta, one of India’s most important African partners, is here in India. He has participated in the Vibrant Gujarat Global Summit as a special guest and will hold discussions with leaders in Delhi beginning January 11. When a foreign leader reciprocates a visit by the Indian Prime Minister to his country with a trip within six months, it sends a clear signal that something significant is under way.
Prime Minister Narendra Modi’s African safari in July 2016 took him to South Africa, Mozambique, Tanzania and Kenya. He received a warm welcome everywhere, but he built an instant rapport with the Kenyan president who is committed to development, counterterrorism and peace in East Africa. In an unusual gesture, in the joint communiqué issued after the visit, Mr. Modi congratulated Mr. Kenyatta for his initiatives and achievements under his “strong and forceful leadership”. Mr. Kenyatta, in turn, acknowledged the important role Mr. Modi was playing “both nationally and internationally”.
Kenya hungry for more
At the summit-level dialogue in Delhi, the two leaders may give momentum to deepening bilateral ties, with the focus most likely to be on strengthening economic cooperation. Bilateral trade, valued at $4.23 billion in 2014-15, has the potential for rapid growth if Indian companies are willing to be active in a competitive market. Kenya, the earliest home to Indian investments, is hungry for more. Diverse sectors in Kenya, such as energy, pharmaceuticals, textiles, agriculture and financial services, will welcome greater involvement of India Inc. Some major Indian corporates, including the Tatas, Reliance, Essar, Kirloskars and Dr. Reddy’s, are flourishing in Kenya. The government must approve additional Lines of Credit in strategic areas to secure mutual interests. Education and health are other promising fields.
Strategic and economic interests coalesce as India tries to leverage the intense competition among Asian nations for Kenya’s affections. Mr. Kenyatta, following his ‘Look East’ policy, has developed close relations with China but he needs other partners too. He scored a major victory when he persuaded Japan to hold the sixth Tokyo International Conference on African Development Summit in August 2016 in Nairobi. This was the first TICAD summit held in Africa. Japan and India are committed, especially after Mr. Modi’s visit to Tokyo, to enhance long-term collaboration in Africa. By participating jointly in key infrastructure development projects in Kenya and the surrounding region, Indian and Japanese companies can offer an innovative model.
Future of East African Community
The East African Community (EAC), comprising Kenya, Tanzania, Uganda, Rwanda, Burundi and South Sudan, has emerged as one of the most successful of Africa’s Regional Economic Communities. Having established a customs union, it is building a single market and wants to set up a monetary union. While progress is slow, it remains set on its path to grow as a market of 168 million consumers and a combined GDP of $161 billion. Intra-EAC trade increased from $1.85 billion in 2005 to $5.63 billion in 2014, while the flow of foreign direct investment declined from $7.8 billion in 2006 to $3.8 billion in 2012. The bulk of foreign investment now comes from China. Andrew Othieno, an expert on EAC affairs, says that despite its complex challenges, “the EAC has fared admirably well”.
The Indian government and India Inc. need to devise a trade and industrial cooperation strategy to upgrade existing links with the EAC. But India has to tread with caution as the traditional rivalry between Kenya, the regional economic powerhouse, and Tanzania, the largest member-state, has been renewed. To Tanzania’s chagrin, President Kenyatta has established closer ties with Uganda, Rwanda and Burundi under the umbrella of “the coalition of the willing”. However, India enjoys friendly and cooperative relations with all EAC members and is in a position to enhance its engagement with the region. The presence of Paul Kagame, president of Rwanda, at the Vibrant Gujarat Global Summit, has offered India an opportunity to discuss expansion of economic ties.
Africa in Trump era
As U.S. president-elect Donald Trump prepares to enter the White House, what will be Africa’s place in the international agenda? In the current debate on the likely impact of Mr. Trump’s entry on to the world’s stage, Europe and Asia are under the scanner, but there is hardly any mention of Africa. The apprehension is that Africa may be sidelined in the first two years of the new administration. This makes it imperative for India to take a keener interest in Africa if it is serious about playing a global role.
India’s Africa policy is broadly in line with Agenda 2063, promoted by the African Union. However, some recalibration in New Delhi’s approach may be needed because issues such as UN reform, counterterrorism, climate change and international solar alliance will inevitably take longer to show results. Meanwhile, India must concentrate on actions that strengthen its economic cooperation with select African countries.
Building on the path forged by its predecessor, the Modi government has already achieved much: holding the India-Africa Forum Summit in 2015 and an unprecedented political outreach to Africa through visits by the President, Vice-President and Prime Minister to a dozen countries in 2016. The time is ripe to implement the agreements that have been signed.
India’s Africa experts have been disappointed with the decision to put off the next summit with Africa to 2020 instead of 2018 as was expected. South Block should consider convening a ministerial review meeting in early 2018. Nairobi, with its excellent location and conference facilities, could be an ideal choice and Mr. Kenyatta a willing partner.
Rajiv Bhatia is Distinguished Fellow, Gateway House, and a former high commissioner to Kenya, South Africa and Lesotho.