Search News Results
New UN report reveals barriers to inclusive development and highlights key steps to progress
The United Nations Department of Economic and Social Affairs has just released its 2016 Report on the World Social Situation, which includes important new findings about persisting inequalities in education and economic opportunity and, challenges the international community to work harder to break down barriers to participation.
While there has been unprecedented global social progress, it has not been evenly experienced. Some 40 per cent of the world’s population does not have access to education in a language they understand. Children of ethnic minorities and those who are disabled are much less likely to finish their primary and secondary educations. Even among those who are educated, youth, migrants, and indigenous peoples continue to be underpaid and unpaid. In some cases, social and economic inequalities have actually worsened.
The theme of this year’s report is ‘Leaving No One Behind – The Imperative of Inclusive Development.’ It examines key causes of social exclusion and identifies social, economic and political disadvantages that some groups face as a result. The report concludes with concrete policy recommendations that are central to the 2030 Sustainable Development Agenda.
“The Sustainable Development Goals recognize that development will only be sustainable if it is inclusive,” said Wu Hongbo, the UN Under-Secretary-General for Economic and Social Development, adding: “Pursuing development grounded in social justice will be fundamental to achieving a socially, economically and environmentally sustainable future for everyone.”
A central pledge of that Agenda is to ensure that ‘no one is left behind;’ inclusiveness and shared prosperity are at the core of sustainable development. The report argues that in order to promote social inclusion, barriers to participation must be broken down by revising laws, policies, institutional practices, discriminatory attitudes and behaviours, and taking steps to ensure that participation is easier.
The report’s analysis focuses on three sets of indicators: those measuring access to opportunities – such as education and health; access to employment and income; and those measuring participation in political, civic, and cultural life.
Of course, many of these indicators overlap – lower levels of health and education tend to correlate with high levels of poverty and unemployment, for example.
Such inequalities tend to persist even after the structural conditions that created them change. That is, formal barriers may disappear, but discrimination can operate in less overt ways to perpetuate inequality.
For example, labour markets continue to reflect socially driven distinctions based on race, age, gender and other personal attributes, even after the effects of educational attainment and other sociodemographic traits are taken into account.
“Not only are these differences in life chances fundamentally unfair, they also lead to loss of human potential and development opportunities,” said Assistant Secretary-General for Economic and Social Development Lenni Montiel.
Such trends extend to participation in political, civic, and cultural life as well, such as in voting patterns and engagement in political activities. It is perhaps unsurprising, then, that the data reveals lower levels of trust and confidence in policing and justice systems among ethnic and racial minorities.
It is not enough for countries to remove discriminatory policies; subtler forms of discrimination, through attitudes and entrenched practices, must be confronted and rooted out, contends the report.
While there is no “one size fits all” solution for all countries, certain efforts like a universal approach to social policy and integration of measures that tackle discrimination have been successful in the past.
The report also advocates that stakeholders must promote inclusive institutions. Examples of ways to achieve that goal are by engaging with civil society, supporting equitable work environments, and challenging exclusionary attitudes.
Such changes, however slow to unfold, are necessary for sustainable progress, especially at the highest levels in powerful institutions.
Related News
Rwanda hailed for enhancing cross-border trade
Rwanda has been lauded for its efforts to promote cross-border trade, which is viewed as a vehicle for economic growth and poverty eradication among developing countries.
This was noted during the opening of a two-day Enhanced Integrated Framework (EIF) Board Meeting in Kigali yesterday.
The meeting also combined with a workshop on cross-border trade.
It sought to consolidate key policies and strategies with a focus on promoting broad-based economic growth, employment creation, trade development and poverty reduction in Least Developed Countries (LDCs).
The workshop brought together high-level government officials, as well as representatives of EIF and other partners involved in the implementation of the National Cross Border Trade Strategy in Rwanda.
The EIF is a core part of the Sustainable Development Goals, directly referenced in Target 8.A.
The EIF is the only Aid for Trade programme exclusively designed for Least Developed Countries.
The programme brings together partners and resources to support the world’s poorest countries in using trade for poverty reduction, inclusive growth and sustainable development, according to officials.
Over the past seven years, the EIF global partnership supported 142 projects in Least Developed Countries, equivalent to over $200 million.
According to Eloi Laourou, the LDCs Group coordinator, hosting the meeting in Rwanda was very important given the remarkable progress that the country has registered over the years.
“There is no substitute for Rwanda’s rapid growth in trade, technology and innovations among the least developed countries in the region; the country is becoming a model LDC for rapid economic growth and we applaud you for that,” Laourou said during his opening remarks.
He called on governments to ease the policy and legislative environment which, he said, not only helps the LDCs to boost their trade but also attracts local and foreign investment.
“Sound public policies stimulate sound public-private partnerships, and thus sound private sector investment,” he said.
Ratnakar Adhikari, the EIF executive director, hailed Rwanda for promoting cross-border trade, especially focusing on women, saying it would help them enhance their income, knowledge, expertise, entrepreneurship abilities among other opportunities.
Adhikari observed that supporting women is emphasised under the global sustainable development goals.
“Rwanda is not only one of the fastest growing economies in Africa, but it’s also leading the way in cross-border trade and provides a good example of how charting economic development progress in a unified front can significantly attract foreign investments and boost economic growth,” he added.
EIF donated $3 million for construction of cross-border markets in Karongi District and the Cyanika market (in Burera District) along the Uganda border, according to Adhikari.
Francois Kanimba, the Minister for Trade, Industry and EAC affairs, said that cross-border trade generated $ 300 million this year – both formal and informal trade.
It is estimated that between 70-80 per cent of cross-border traders are women, with 90 per cent of these women traders relying on cross‑border trade as their sole source of income.
Kanimba said Rwanda will retain friendly policies to facilitate doing business, security and infrastructure development.
“EIF is one of Rwanda’s key development partners. Not only has EIF brought in their own projects but they have also helped us leverage wide-ranging support from the private sector and other development partners to implement the national cross-border trade strategy,” said the minister.
“This, in turn, has helped the Government bring economic development and opportunities to our border regions and to some of our most vulnerable citizens, including women in informal cross-border trade,” he added.
Based in Geneva, EIF supports 51 least developed countries. Over the past seven years, the EIF global partnership has supported 142 projects in LDCs, equivalent to over $200 million, according to officials.
Related News
ECCAS leaders discuss security, trade
President Paul Kagame, yesterday, attended the 8th Extraordinary Session of the Heads of State of the Economic Community of Central African States (ECCAS) in Libreville, Gabon.
The Heads of State summit, chaired by President Ali Bongo Odimba of Gabon, was also attended by Presidents Idriss Deby Itno of Chad and Faustin-Archange Touadera of Central African Republic.
Other countries were represented by high-level officials.
Rwanda rejoined the 11-nation regional bloc in 2015 as part of efforts to tap into the potential in the region in the form of investments and duty free markets.
The leaders discussed a number of pertinent issues, including the rise of terrorism in parts of the region as well as active militia groups in DR Congo, Central Africa Republic, and Burundi who threaten to disrupt peace and security in the region.
President Bongo, who’s also the current Chairperson of the ECCAS, called on member states to continue embracing the spirit of fraternity and partnership in their efforts to tackle challenges facing the central African region.
The Heads of State summit also reviewed the elections that took place in Gabon this year and the issues around them.
The meeting also discussed intra-Africa and cross-border trade, as well as maritime and aviation development within the region.
ECCAS is in the process of setting up a free trade area in a bid to boss trade among member countries.
Member states have since been requested to submit a list of products they intend to export to the other partner states upon the launch of the free trade area.
To fund the establishment and operationalisation of the free trade area, the bloc’s ministers in charge of trade and finance agreed on a special tariff to be imposed on imports by member states for products originating outside the region.
The proceeds were earmarked as contributions to meet the bloc’s operating costs as well as compensate potential revenue loss.
Fifty per cent of the proceeds are to be used for compensation of potential revenue losses resulting from the liberalisation of tariffs within the ECCAS free trade area.
The grouping fixed a 0.4 cent levy on all imports from outside the region.
However, Rwanda has since sought to be exempt from the funding model as the country has committed to use the import levy model in two other cases.
Rwanda is signatory to a similar import levy arrangement of 1.4 per cent under the East African Community (EAC) with proceeds going to joint infrastructure projects.
The country is also committed to another import levy under the African Union, whereby 0.2 per cent levy on eligible imports is expected to raise about $1.2 billion every year.
Instead, Kigali wants to meet its financial commitments to the ECCAS Secretariat through other means.
ECCAS is comprised of Angola, Burundi, Cameroon, Chad, Central African Republic, Congo, DR Congo, Equatorial Guinea, Gabon, Rwanda, and Sao Tome & Principe.
Related News
President Kenyatta addresses EALA
President Uhuru Kenyatta is challenging the East African Legislative Assembly to concert its efforts in ensuring the integration process is not only on course, but geared towards meeting the aspirations and high expectations of the people. The President is emphatic that the people of the region want nothing else but a Community that works for all and that is effective.
In this regard, the President is calling on the Assembly to up the stakes on the sensitisation process and on its consultations with legislative processes including engagement with the Partner States’ National Assemblies as envisioned under Article 65 of the Treaty of the Establishment of the EAC.
The President’s remarks were delivered on his behalf by the Speaker of the Senate, Rt Hon Ekwe Ethuro at the Special sitting of the 3rd Meeting of the 5th Session held at the Parliament Chambers (Senate) yesterday. In attendance were EALA Members, former Members led by Speaker Emeritus, Rt Hon Abdirahin Abdi and representatives of the Private Sector. The President noted the various achievements realised by the Community to date.
“I note with appreciation the progress that the Community has made to date. Eleven (11) years ago, we established the EAC Customs Union. It has generated positive results. This is clearly demonstrated by the trend in intra-EAC trade over the period. For instance, the value of the total intra-EAC trade rose from US Dollars 1.8 billion in 2004 to US Dollars 5.1 billion US Dollars in 2015 representing a significant growth of 190 percent,” he said.
The President hailed the business community whom he termed keen partners and drivers of the integration proces. “I laud and commend them for their efforts in boosting our investment profile and partnership in creating jobs for our people. We are therefore duty-bound to support them in addressing the challenges they face in conducting and expanding their businesses in the region,” he added.
The speech noted the various challenges the region continues to face. “There still exists a considerable number of trade restricting measures that are a hindrance to actualizing free trade in the EAC. Among the obstacles, include long clearing procedures; road blocks and changes in applicable regulations, which together, contribute to impact trade negatively,” it said in part.
The Head of State reiterated Kenya’s commitment to the integration process and cited the infrastructure projects as keen in the integration process.
“We have every reason to take pride in what we have achieved in here in Kenya. We have commenced work on the Standard Gauge Railway (SGR) and we expect it to be operational by the middle of 2017. On-going development works on the Port of Mombasa and regional roads confirms Kenya’s commitment to building and achieving sound infrastructure for the greater benefit of the region,” he said.
The President noted that EAC needed a strong oversight body and hailed the EALA for rising up to the occasion.
“For example, among the notable achievements of this Assembly include the passage of over 20 Bills cutting across various areas of integration. The Assembly’s legislative priority and performance in the last four years has indeed exhibited clear appreciation and understanding of matters that are of great relevance and urgency in deepening and widening the EAC integration,” the President remarked.
In his remarks, the Speaker of EALA, Rt Hon Daniel F. Kidega, maintained that citizens of the region were keen to see the process of integration fortified.
“I can confirm the Assembly is often inundated by citizens’ concerns to see the Common Market agenda become a reality. Essentially, it is important that we open our East African markets to African people and beyond to create jobs and opportunities. Likewise, we must avoid situations where we export jobs and allow cheap goods from outside the EAC to permeate the local markets,” Speaker Kidega noted.
The Speaker noted the fight against Corruption needs to be taken a notch higher in the Partner States. “At the regional level, EALA is on the verge of enacting a Bill on Whistleblowers and on Anti-Corruption, thereby, putting in place a legal framework to report instances of corruption to authorities – given the fact that the vice knows no borders,” he added.
The Speaker termed matters of peace and security as of paramount importance to the development in the region and further called for the fight against terrorism to be sustained.
He termed the approximation of the national laws in order to create uniformity within the Partner States as necessary and called on the Partner States to move with haste in the matter.
An EALA Report adopted at the Sitting shows that Republics of Rwanda and Uganda have each approximated ten pieces of laws each, Republic of Kenya (6 laws), United Republic of Tanzania (6 laws) and Republic of Burundi (3 laws). Approximation of National Laws is vital in line with the Article 126 (2b) of the Treaty for the EAC is fundamental.
The Siting came to an end with the next plenary expected to be held in January in 2017.
Related News
Britain won’t turn its back on Africa following Brexit – MP Lord Paul Boateng
Brexit does not mean that the British government will turn its back on Africa, Lord Paul Boateng, a Member of the United Kingdom’s House of Lords said Monday.
Speaking at the first ever Africa Trade Week rum which is being hosted by the Economic Commission for Africa and the African Union, Mr. Boateng said Brexit presents Africa and the UK with an opportunity to “put development at the heart of our trading relationship with Africa in a way frankly that it has not always been in relation to the EPAs, let’s be frank about it”.
“The UK recognizes that and we will seek every opportunity to minimize the disruption in our trading relationship and take every opportunity to seize this chance to re-fashion the relationship between the UK and Africa in terms of trade so intra-African trade becomes an opportunity which we can seize together,” he said.
Contributing to debate on Africa-E.U. Economic and Trade Cooperation and Brexit implications for Africa, Mr. Boateng assured participants, including African Ministers of Trade, Finance and Transportation as well as senior government officials, heads of Regional Economic Communities (RECs), African CEOs and executives, representatives of international development agencies, civil society and others, that trade relations between the UK and Africa will not be affected following Brexit.
“There is clearly a need in the aftermath of Brexit for there to be a degree of reassurance given to Africa that Brexit doesn’t mean that the United Kingdom is going to turn its back on Africa and I’m able to assure you that right across the political divide in the UK, in both Houses, Africa and the UK’s historic link with Africa remains central to our thinking,” he said.
“Yes there’s uncertainty at this time, that is inevitable, when such a momentous decision is made,” said Mr. Boateng.
“Yes there is a hazard always when you think about the scale of the task that lies ahead in terms of mapping out the future of the trading relationship between the UK and Africa but I think I can give the absolute assurance that we see this in the UK as an opportunity to be seized.”
He said he was concerned by the issue of infrastructure in most African countries. Mr. Boateng was born and brought up in the Gold Coast in Ghana.
“I am the grandson of cocoa and cassava farmers. My grandmother grew cassava, my grandfather grew cocoa and when I look at our village in Tafo in the eastern region of Ghana, two things strike me, first of all, that in the 1950s there was a direct rail link between Tafo, a heart of cocoa growing region and Takoradi, which at that time was our main port,” he told participants.
“That rail link no longer exists and that has had a damaging effect on agriculture in Ghana but Ghana is not alone in seeing the deterioration of its infrastructure so the United Kingdom recognizes the importance of infrastructure in terms of promoting intra-African trade.”
The second matter which I can’t but help notice, he said, is that right next door to my grandmother’s farm was a West African Cocoa Research Institute and that was a major resource for West Africa in terms of agricultural support and extension and research at the highest level so it produced every year a handful of PhDs now sadly due to decades of neglect and the impact of the structural adjustment of the 70s and the 80s, that emphasis on higher education and the link between higher education, science, technology and innovation and agriculture simply went now we are seeking to revisit that but I would argue that that too is a very important part of our struggle in order to increase agricultural productivity of Africa.
“Without that we are going to be in difficulties but the good news is it seems to me that is changing and the UK and our department of international development is making its contribution to that,” Mr. Boateng said.
Participants will be in Addis Ababa for the week attending the first ever Africa Trade Week, a multi-stakeholder platform for the advancement of the Continental Free Trade Area (CFTA) and intra-African Trade.
Related News
African countries should align AGOA and their developmental integration agenda – Minister Davies
The Minister of Trade and Industry, Dr Rob Davies has emphasised the importance of export diversification and industrialisation in Africa. He was speaking in Addis Ababa, Ethiopia where he was moderating the Africa Trade Week Panel Discussion on Africa Growth and Opportunity Act (AGOA) and the Continental Free Trade Area (CFTA).
The session considered AGOA implementation over the remaining period of the legislation granting the trade preference up to 2025. It also reflected on the future of Africa-US trade relations beyond AGOA based on the type of trade arrangements that would support Africa’s regional integration agenda. Minister Davies said African countries need to increase their utilisation of the trade preferences granted by the United States (US) under AGOA to attract Foreign Direct Investments into priority sectors that are eligible under AGOA and that can favour industrialisation.
“African countries should also ensure that there is alignment between AGOA and their development integration agenda, focus on their industrialisation and preserve policy space aimed at enhancing efforts to diversify their exports base and integrate supply chains so as to take advantage of market access opportunities under AGOA,” added Minister Davies.
The Panel also highlighted the low levels of utilisation of AGOA trade preferences by eligible countries in Sub-Saharan Africa. These are largely attributed to supply-side constraints, productive capacity constraints, onerous rules of origin requirements, lack of capacity to meet stringent sanitary and phytosanitary measures, labelling requirements in the US, as well as the fact that some products of export interest to the African countries are not covered under AGOA.
In terms of future US-Africa trade relations, the panel stated that the US is expected to advance a trading relationship based on reciprocity. Minister Davies noted that the US proposed a number of options for post AGOA trade relations. He indicated that these options need to be carefully considered by African countries to ensure that their developmental priorities are not compromised.
Panel members agreed that the Continental Free Trade Area (CFTA) that is currently under negotiation can be a driver of structural transformation for sustained economic growth and enhanced intra-Africa trade and investment in the continent.
Earlier in the Africa Trade Week programme, former South African Ambassador to WTO, Dr Faizel Ismail spoke on a coherent approach to achieving the African Union’s Agenda 2063 through the CFTA. Ismail indicated that the success of the CFTA and the implementation of continent’s integration agenda would be dependent on the adoption of an inclusive approach. He indicated that there is a need for academics and civil society to be greater involved in trade policy formulation.
“So they need to identify these challenges and opportunities for Africa. But they also need to become participants in the process of negotiating the Continental Free Trade Area (CFTA) so that the CFTA becomes a living process that includes the dynamics of both the different stakeholders on the ground and also that it is customised to the actual conditions and objectives of the people on the ground,” he added.
Related News
Op-Ed: The impact of Brexit on South Africa
South Africa can be reasonably confident that by the end of 2019, at the latest, the UK will not legally be part of the European Union (EU), nor a signatory to the EU’s myriad trade agreements, including the recently agreed Economic Partnership Agreement (EPA) between the EU and the South African Development Community (SADC). What is less clear is the nature and character of the trading relationship the UK will have with the EU after Brexit is formalised.
Equally unclear is the kind of trading relationship South Africa will have with the UK. As the below quotes illustrate, opinions are sharply divided:
‘Brexit will be terrible for Africa’s largest economies’ – Quartz Africa, 2016
‘For South Africa, the implications (of Brexit) through direct trade links will be relatively minimal’ – Daniel Mminele, Deputy Governor of South African Reserve Bank, 2016
The UK and the EU face a period of continuing uncertainty and complexity as they come to terms with the consequences of Britain’s vote five months ago to “leave”. The process of how and when the UK leaves, the nature of the all-important post-Brexit UK-EU relationship and the impact of the post-Brexit agreement on Britain’s national income are significant unknowns.
Of primary concern to South Africa’s interests, especially exports, is the impact of Brexit on the UK economy. The most significant threat of Brexit to South Africa will arise from a reduced export demand if the UK economy is damaged as a result of leaving the EU. Predicting the impact of Brexit on South Africa is further complicated by the need to negotiate a new South Africa-UK trade agreement to replace the existing EU agreements, which will no longer apply to South Africa-UK bilateral trade after Britain leaves the EU.
In assessing the impact of Brexit on South Africa, two stand-out questions therefore arise:
-
How important is the UK to the South African economy?
-
What impact will Brexit have on the UK economy and, in particular, South Africa’s interests in the UK economy?
How Important is The UK to the South African Economy?
According to the most recent economic data, in 2015 South African merchandise trade, both imports and exports, to the 28 members of the EU amounted collectively to $38.3-billion, representing approximately 26% of South Africa’s total merchandise trade. The EU28 is by far South Africa’s largest trading partner, almost 40% bigger than its second most important trading partner, the Southern African Development Community (SADC). The UK accounts for approximately 15% of all South Africa’s trade with the EU, representing 3.7% of South Africa’s global trade.
In terms of exports, in 2015 South African merchandise exports to the 28 members of the EU amounted collectively to $15.1-billion, representing approximately 20% of South Africa’s total exports. The UK received 20% of all South Africa’s exports destined for the EU, representing 4% of South Africa’s global exports. South Africa’s exports to the UK are dominated by three key items: precious metals and stones (39% of all exports to the UK); fruits and nuts, mainly fresh fruit (16%) and; vehicle and vehicle parts (15%). For certain items and regions, for example agriculture from the Western Cape, UK trade is important to the regional economy.
In 2015, the UK was South Africa’s third most important export market for agriculture. In 2014, approximately 40% of South Africa’s exotic fruit exports, 30% of all fruit exports and 25% of wine exports were destined for the UK market. Clearly, high-value South Africa agricultural exports to the UK are important.
A summary of key South African merchandise exports to the UK in 2015.
While significant, amounting to just over $3-billion in 2015, the importance of South African merchandise exports to the UK should not be exaggerated. In 2015, South Africa exported more to the rest of sub-Saharan Africa ($18.7-billion) than to the EU and more to India ($3.1-billion) than to the UK. That year South Africa’s exports to Botswana alone were approximately 15% more than to the UK.
But South African-UK economic links extend far beyond merchandise trade. According to Moody’s, South Africa has been the largest recipient of British foreign direct investments (FDI) in Africa, standing at 30%, with a particular focus on mining and financial services. According to the South African Reserve Bank, a significant 46% of South Africa’s global direct investments originate from the UK, amounting to approximately $54-billion, representing 60% of all EU FDI in South Africa. South Africa’s FDI in the EU is also disproportionally concentrated on the UK, standing at 30%. In the area of FDI, finance and portfolio investments, the South Africa-UK relationship is significant.
Brexit therefore has the potential to impact South Africa on numerous fronts. The most obvious pathways are:
-
Bi-lateral South Africa-UK trade, either positively or negatively. In particular, slower UK growth (as a result of Brexit) impacting South Africa’s trade (and investments). Lower UK growth will lead to reduced UK imports which will, in turn, lessen South African exports to the UK.
-
Access to the Single Market for British companies and South African companies located in the UK.
-
South Africa-EU trade and collaboration agreements will in future not include the UK.
What impact will Brexit have on the UK economy and, in particular, South Africa’s interests in the UK economy?
Moody’s believes the biggest threat to South Africa will be “reduced export demand” if the Brexit negotiations damage the UK economy. A key concern for the UK, South Africa and South African firms located in the UK is the level of access the UK will have to the EU Single Market after 2019 and how that level of access will impact on the UK economy.
The long-term impact of Brexit on the UK economy will depend on how and on what terms the UK exits the EU. Several reviews have already identified several complex scenarios. However, it is best to conceptualise any future UK-EU agreement as being on a continuum between “Hard” Brexit – wherein the UK refuses to budge on issues such as free movement of people, taxation, environmental legislation, etc, in all likelihood leading to denial of benefits of the Single European Market (SEM) – and “Soft” Brexit – relatively free movement of people, goods, capital and services, and the UK remaining a de facto member of the SEM though not part of formal EU decision-making. In between the “Hard” and “Soft” Brexit extremes there exist a number of other possible alternative trading relationships, based primarily on the use of bilateral agreements to govern specific areas of trade.
It is simply not possible to predict with any accuracy the long-term impact of Brexit on the UK economy. Not only is Article 50 – the invocation of which by the UK triggers the formal negotiation process between the UK and the remaining 27 EU members – untried, but the nature and character of the post-Brexit agreement (Hard, Soft or somewhere in the middle) is at this stage unknown. And the post-Brexit agreement will be the determining factor. With 44% of UK trade with Europe it is hard to conclude anything other than the UK economy is vulnerable to a poor post-Brexit deal, especially one that effectively restricts UK access to the SEM. The UK economy, especially investments and FDI, is also vulnerable to uncertainty.
The most recent independent forecasts used by the UK government predict that the real effect of Brexit will be to cut the potential size of the UK economy by 2.4% in 2020. The most significant threat of Brexit to South Africa will arise from reduced export demand if the negotiations damage the UK economy. But with UK-destined exports standing at just 4% of South Africa’s total exports and a reasonable worst case scenario of the British economy shrinking between -2.5% and -5.0% of GDP by 2020 if a Hard Brexit approach is adopted, the direct impact of Brexit on the South African economy is likely to be marginal. While Brexit is not unimportant for the South African economy, its negative economic impacts on South Africa overall are likely to be negligible. Nevertheless, for certain South African industries, especially agriculture (wine and fresh fruit, especially grapes), precious stones and motor vehicles, the UK economy is disproportionally important and these sectors are more vulnerable if the UK economy is damaged by the process and impacts of Brexit.
The Common Agricultural Policy
Whatever happens in the post-Brexit negotiations, the UK will not be part of the Common Agricultural Policy (CAP). This is particularly important for South Africa, with its competitive and seasonally complementary agricultural industries. The UK’s very significant agricultural imports from the EU will almost certainly be reduced, due to trade barriers and the functioning of the CAP, opening up opportunities for South Africa to export more agricultural products to the UK. The well-respected Consultancy Agra Europe argues that “what is certain is that no UK government would subsidise agriculture on the scale operated under the EU”.
Far from Brexit having a negative impact on South Africa, there may well be increased opportunities for South African agricultural exporters, especially of wine, fruits, beef and sugar. The impacts on South African agriculture will depend on the decisions the UK makes about its agricultural tariff regime, but that regime is almost certain to be less restrictive that the current CAP. This will mean additional opportunities for South Africa’s competitive agricultural exporters that already have a high profile in South Africa’s exports to the UK. The level of access afforded to South African agriculture to enter the UK market, after the existing South Africa-EU trade regime no longer applies to the UK, will be critical.
The Future South Africa-UK trading regime
Until South Africa’s first democratic election in April 1994, access to the EU market was governed by its MFN status, which is at the very bottom of the EU’s complex hierarchy of trade privileges. South Africa’s market access to the EU was therefore on terms similar to the world’s most powerful states, such as the USA and Japan. In November 1994, South Africa applied for Lome membership, an application that was rejected by the EU on the grounds of WTO compatibility and the need to promote reciprocity.
Currently, South Africa’s trade relations with the EU (including, of course, the UK) are governed by a separate South Africa-EU Agreement: The Trade Development and Co-operation Agreement (TDCA), signed in July 1999. The TDCA established a free trade area that covers 90% of bilateral trade between the EU and South Africa.
The liberalisation schedules contained in the TDCA were completed by 2012. However, this will soon be replaced following the signing (signed but not yet ratified) of the Economic Partnership Agreement between the European Union and the SADC EPA Group. In February 2007, South Africa joined the Economic Partnership Agreement (EPA) negotiations as part of the Southern African Development Community Group. The SADC EPA, agreed and signed in June 2016, now needs to be ratified in the 28 EU Member States, the five Southern Africa Customs Union (SACU) Member States and Mozambique, according to national ratification procedures. The SADC EPA guarantees Botswana, Lesotho, Namibia, Swaziland (BLNS) and Mozambique duty-free and quota-free access to the European market. South Africa’s access, which is being enhanced from its current position, is less favourable than the BLNS states and Mozambique.
South Africa’s trade relations with the UK are, until such time as the UK legally leaves the EU, governed by South Africa-EU Agreements. The same is true for the BLNS and Mozambique. This affords South and southern Africa favourable and asymmetric access to the EU market, including the UK. However, the level of preferential access afforded to South African merchandise trade to enter the UK market, through European agreements, will be removed when the UK leaves the EU. The existing South Africa–EU trade regime, come 2019, will no longer apply to the UK.
A new South Africa (SACU/SADC)-UK trade and development agreement will therefore need to be negotiated, signed and ratified by 2019. The options are to:
-
Modify slightly the recently signed EPA to cover a transitional period.
-
Accept the existing EPA Agreement.
-
Negotiate a new South Africa-UK Agreement. (A new South Africa-UK trade, tariff and quota regime would probably take more than two years to negotiate and the outcome would be uncertain.)
-
Accept EPA but renegotiate agricultural access to the UK market, which will be fundamentally reformed by the UK leaving the CAP. Agricultural access would appear to be one of the key issues for discussion and of significant interest to South Africa.
In Conclusion
From the evidence presented here, Brexit is likely to have a marginal impact on the South African economy as a whole. Even under a worst-case scenario of a “Hard” Brexit, and the imposition of WTO MFN tariffs, UK GDP could fall by an estimated -2.4% to -5.0%. This is unlikely to damage seriously South Africa’s exports to the UK.
Nonetheless, if a substantial reduction of UK imports does take place it could have a significant negative impact on certain South African industries, especially agriculture. On the other hand Brexit could open up certain opportunities for South Africa, in the very same sectors identified as vulnerable to a significant reduction in UK imports. When the UK leaves the CAP, opportunities will almost certainly exist for South Africa to expand its agricultural exports. The scale of this opportunity will depend on the UK agricultural regime designed to replace the CAP.
Until the UK and EU27 are in a position to clarify their post-Brexit trading relationship, it is very difficult for South Africa to assess what it will need to prioritise in its trade negotiations with the UK (and perhaps even the EU). However, the UK will almost certainly prioritise negotiating its post-Brexit EU trading agreement, alongside renegotiating its membership of the WTO. After that, the UK’s priority will be focused on establishing trade agreements with its largest trading partners, especially the USA, Canada, India, Australia, China etc. With the UK’s current trade negotiating capacity being severely limited – it has not had to do this kind of work for over 40 years – South Africa is not going to be a priority trade agreement.
The threat to South Africa is that, by default, Brexit could lead to a worsening of its access to the UK market until such time as a new South Africa/SACU/SADC-UK trade agreement is negotiated. The priority for South Africa is to avoid this default position, and negotiate, even temporarily, a UK trade deal that is close to, or better than, the existing EU arrangement. A secondary priority would be to focus on identifying and supporting, both domestically and through trade agreements, offensive trade interests which stand to gain from the Brexit change.
Professor Richard Gibb has published several books and numerous articles on regional integration in both Europe and southern Africa. Previously Pro Vice-Chancellor at the University of Plymouth (UK) and Provost of Abu Dhabi University, he now acts as a consultant on international trade agreements. He is also an Associate of The Brenthurst Foundation.
A longer version of this article is published as a recent Brenthurst Foundation Discussion Paper by the author.
Download:
The Impact of Brexit on South Africa | Brenthurst Discussion Paper
Related News
Tax revenues reach new high as the tax mix shifts further towards labour and consumption taxes
Tax revenues collected in advanced economies have continued to increase from last year’s all-time high, with taxes on labour and consumption representing an increasing share of total tax revenues, according to new OECD research.
The 2016 edition of the OECD’s annual Revenue Statistics publication shows that the OECD average tax-to-GDP ratio rose slightly in 2015, to 34.3%, compared to 34.2% in 2014. This is the highest level since the Revenue Statistics series began in 1965. An increase in tax-to-GDP levels was seen in 25 of the 32 OECD countries that provided preliminary data in 2015, while tax-to-GDP levels fell in the remaining seven countries.
Consumption Tax Trends 2016 highlights that VAT revenues are the largest source of consumption tax revenues in the OECD, and have now reached an all-time high of 6.8% of GDP and 20.1% of total tax revenue on average in 2014. This is up from 6.6% of GDP and 19.8% of total tax revenue in 2012. Revenues from VAT rose as a percentage of GDP in 22 of the 34 OECD countries that operate a VAT and fell, only slightly, in 5 countries compared to 2012.
The new data shows that the structure of tax revenues continues shifting towards labour and consumption taxes. The combined share of personal income taxes, social security contributions and value-added taxes were higher in 2014 than at any point since 1965, at 24.3% of GDP on average in 2014.
The share of personal income taxes in total tax revenue continues to increase since the crisis, whereas the share of corporate tax revenues has not yet recovered to pre-crisis levels. Personal income taxes increased to 24% of total revenue in 2014, versus a pre-crisis level of 23.7% in 2007. The share of corporate taxes to total revenue in 2014 was 8.8%, relative to 11.2% in 2007. The share of social security contributions to total revenues also increased sharply after the crisis, from 24.7% of total tax revenues in 2007 to 26.8% in 2009. Since then they have decreased slowly as a percentage of total tax revenues to 26.2% in 2014.
In 2015, the largest increases in the overall tax-to-GDP ratio relative to 2014 were seen in Mexico and Turkey, and strong increases were also seen in Estonia, Greece, Hungary and the Slovak Republic. The largest falls in 2015 were seen in Ireland, Denmark, Iceland and Luxembourg. The fall in Ireland was due to exceptionally high GDP growth in 2015, mainly due to transfers of intangible assets into the Irish jurisdiction by a number of multinational enterprises. Excluding Ireland, the average OECD tax-to-GDP ratio in 2015 was 34.6%, an increase of 0.3 percentage points since 2014 for the remaining 34 countries.
Revenue Statistics also contains a special feature on “Current issues on reporting tax revenues”. This chapter discusses methodological issues in the classification of taxes used in Revenue Statistics, which is set out in the Interpretative Guide. A key issue discussed in the special feature is the treatment of non-wastable tax credits and the impact of different approaches to reporting these credits.
Detailed Country Notes provide further data on national tax to GDP ratios and the composition of the tax mix in OECD countries.
Key Findings:
-
Compared with 2014, the average tax burden in OECD countries increased by 0.1 percentage points to 34.3% in 2015. This followed a rise of 0.9 percentage points between 2009 and 2014, reversing the decline from 33.8% to 32.4% between 2007 and 2009.
-
The largest tax ratio increases between 2014 and 2015 were in Mexico (2.3 percentage points) and Turkey (1.3 percentage points). Other countries with substantial rises were Estonia, Greece, Hungary and the Slovak Republic (greater than one percentage point).
-
The largest falls between 2014 and 2015 were in Ireland (5.1 percentage points, due to exceptionally high GDP growth in 2015), Denmark (3 percentage points) and Iceland (1.8 percentage points). Luxembourg also showed a fall of more than one percentage point.
-
Underlying the OECD average, individual countries show widely differing trends. For example, Norway recorded a fall of 4.0 percentage points between 2007 and 2015, while Greece recorded an increase of 5.6 percentage points.
-
Historically, tax-to-GDP ratios increased through the 1990s, to a peak OECD average of 34.0% in 2000. They fell slightly between 2001 and 2004, but then rose again between 2005 and 2007 to an average of 33.8% before falling back sharply during the crisis.
-
Denmark has the highest tax-to-GDP ratio among OECD countries (46.6% in 2015), followed by France (45.5%) and Belgium (44.8%).
-
Mexico (17.4% in 2015) and Chile (20.7%) have the lowest tax-to-GDP ratios among OECD countries. They are followed by Ireland, which has the third lowest ratio among OECD countries at 23.6%, and Korea at 25.3%.
-
Data for 2014, the latest year for which a breakdown of revenues by category of tax is available for all OECD countries, show that revenues from personal and corporate income taxes are continuing to recover following the sharp falls of 2008 and 2009. However, the share of these taxes in total revenues remains at 33.7%, somewhat below their 36% share in 2007.
-
In 2014, an average of 24.3% of revenues is attributed to sub-central levels of government in Federal countries in the OECD - about two thirds of this is attributed to State and one third to local governments. The same applies to Spain, which is classified as a regional country in the publication. In the 25 unitary countries, 11.7% of revenues are attributed to local governments.
Consumption Tax Trends
Standard VAT rates in the OECD reached a record level of 19.2% on average in 2015 and have remained stable since. Ten OECD countries now have a standard VAT rate above 22%, against only four in 2008. The average standard rate of the 22 OECD countries that are members of the European Union (21.7%) is significantly above the OECD average.
Most OECD countries have implemented or announced measures to collect the VAT on the ever-rising volume of online sales by offshore sellers in line with the International VAT/GST Guidelines and the OECD/G20 BEPS Action 1 Report, Addressing the Tax Challenges of the Digital Economy.
Country Notes provide further data on national consumption tax trends and the effectiveness of VAT/GST collection in OECD countries.
Related News
DG Azevêdo: “We must ensure that the gains of trade are better shared across society”
In a speech to the OECD’s Global Strategy Group on 28 November, Director-General Roberto Azevêdo stressed the importance of making the case for trade amid a rise in anti-globalisation sentiment in many countries. Governments also need to work on creating a better, more inclusive model of globalisation and ensure the benefits of trade reach further and wider through new trade reforms. This is what he said:
These are proving to be testing times for the global economy.
The outlook for trade growth has weakened significantly. In September the WTO downgraded its forecasts for trade growth in 2016 from 2.8 per cent to 1.7 per cent. If realized, this would mark the slowest pace of trade growth since the financial crisis. This is of course largely due to the lacklustre performance of the global economy – and not the other way around.
At the same time, foreign direct investment flows have not returned to pre-crisis levels.
Both trade and investment are important ingredients for global economic integration, growth and prosperity, so this should be of particular concern. And of course the two are very closely linked.
For example, services trade now accounts for almost two thirds of global inward FDI stock. And FDI is fundamental because:
-
First, it is the main vehicle for the supply of services in foreign markets; and
-
Second, it is critical in enabling global supply chains to function properly.
More open trade policies can boost FDI and strengthen a positive relationship between the two.
Of course, recent political developments will also have an effect on the trading landscape – from the Brexit referendum in the UK to elections in many major economies. It’s too early to say what all of this will mean, but of course, we will be watching the developments very closely.
In addition, all of this is taking place amid a rise in anti-globalisation discourse in many countries and communities. And trade is often singled out as a major cause of instability in labour markets. I would firmly dispute this point, and I’ll come back to it in a moment. However, my biggest concern is not that such arguments are being made. My concern is the echo that they attract from the people. It is real and heartfelt.
Trade is essential for economic growth and development around the world.
However, a proper argument for trade must recognize that it is not a panacea or silver bullet. Trade will not fix widespread shortcomings in terms of economic, social and educational policies that lead to low productivity and asymmetries in wealth distribution. Such quandaries would require a much more encompassing set of policies.
A proper case for trade would also need to recognize that it is not perfect and that, despite the overall gains it brings to the economy, it can have negative effects in some parts of society. Those effects can have a big impact on some people’s lives. And for these people, the net overall benefits for the economy are no consolation. So there is a responsibility on leaders to reflect, and to respond.
We all know how fundamental trade is for economic growth and job creation. But it is also vital that it is perceived as such. So, effective communication is key.
I think there are a number of steps that we need to take.
First, we have to work harder to make the case for trade. And we must do so in a credible, well-informed, and balanced way.
For example, a charge often leveled against trade is that it sends jobs overseas, particularly in manufacturing. Trade can cause this kind of displacement, but the effect should not be overstated.
Technology and innovation are having a much bigger impact on the structure of labour. Studies suggest that around 80 per cent of job losses in advanced economies are due to technology and innovation. Almost 50 per cent of existing jobs in some developed countries are at high risk of automation today. And the number is higher in many developing countries.
Like trade, technological progress is indispensable for sustained growth and development. The answer is not to reject these forces. We must embrace them and learn to adapt.
At present anti-globalisation sentiment is being manifested mostly in developed economies. In developing economies – and particularly in Africa – globalisation and trade are seen as a way for improving lives and livelihoods. But we shouldn’t be complacent about this.
I’m sure everyone is familiar with Branko Milanovic’s famous ‘elephant curve’ graph, and the more in-depth analysis by the Resolution Foundation, showing that incomes have stagnated for the middle classes in advanced economies in recent years. This stagnation has fueled feelings of being left behind by globalization.
However, if you look at income gains in developing countries alone, you see a similar pattern emerging. The biggest gains are going to the richest segments of society. If this doesn’t change over the coming years, we could see that feeling of being left behind spreading to communities around the world.
And this brings me to my second point, which is that we have to act domestically.
If we are going to create a better, more inclusive model of globalisation, then we must ensure that the gains of trade are better shared across society. Domestic policy will be the key factor here.
As I’ve said, unemployment and other dislocations are not strictly or mainly a trade issue, so trade measures alone will not address this disorder. We need a more far-reaching response which also deals with the wider changes in the economy that are being driven by technology and innovation.
This will require action in a number of areas, for example, to ensure that people can have the right skills to participate and to have access to the jobs being created in today’s markets. More active and cross-cutting labour market policies will be essential, also touching on aspects of education and skills, help for smaller companies, and improved adjustment support to the unemployed.
The OECD average for spending on active labour market policies is 0.6 per cent of GDP. Some countries allocate much less than this; and some considerably more. Of course there is no single recipe for success here, but it is important to look at where things have been done well. Countries such as Singapore, Denmark and South Korea have adopted adjustment programmes with great success.
Given we are hosted this evening by Denmark, I would like to say a few words about the Danish model.
Denmark spends 1.5% of its GDP on labour market policies known as “flexicurity” – so that’s significantly above the OECD average.
The approach combines greater labour market flexibility – not less! – with improved training support and enhanced unemployment insurance. It guarantees 90% of the previous wage if an employee is laid-off.
From the evidence I’ve seen, I must say that it seems, overall, to be a fairly successful model – with job creation remaining relatively high. Despite the flexibility in the labour market, there is a sense of security. And, interestingly, most people in the country perceive globalisation as an opportunity, rather than as a threat.
Of course, this is not just about governments – there is also a role here for business. I think that initiatives like the OECD Guidelines for Multinational Enterprises are very important, for example by informing businesses about their impact in their communities, helping to encourage positive practices.
Now, let me turn to the third step that I think we need to take. And that is to act globally.
Trade is sometimes perceived as an activity that benefits just a few, or only the big players. While I would have strong reservations concerning such an assertion, I think it is clear that smaller players face greater challenges and higher costs than the large corporations. So we should seek to address this. I think we can do more to ensure that the benefits of trade reach further and wider through new trade reforms.
Clearly we are in a period of change. Some countries are looking afresh at their trade policies. But even if policies and approaches change, I don’t see anyone turning against trade per se – not yet anyway.
As the only organization dealing with trade rules on a global level, I have no doubt that the WTO will continue to play an important role.
Indeed, over the past few years, the WTO has shown that it can deliver. Since 2013, the WTO has done so in a number of very significant deals, including – but not limited to:
-
The Trade Facilitation Agreement to cut trade costs and red tape, which could boost global exports by up to 1 trillion dollars per annum.
-
The Information Technology Agreement, which eliminates tariffs on a range of new-generation IT products – trade in which is worth around 1.3 trillion dollars each year.
-
And a deal to abolish export subsidies in agriculture, which delivered on a key target of “Zero Hunger” – one of the UN’s Sustainable Development Goals.
These are the biggest reforms in the global trading system for 20 years, all delivered since 2013. And, as we speak, a group of members is making progress in a deal to eliminate tariffs in environmental goods like wind turbines and solar panels. Ministers will be meeting at the WTO this weekend to try to finalize this agreement. I will be doing all I can to support a successful outcome.
As a result of the progress made in recent years, members now want to deliver more.
Members are discussing how to deal with longstanding issues, such as agriculture (including domestic support), services, and market access for industrial goods.
In agriculture, discussion is intense but gaps remain difficult to bridge. In services there is ongoing work on domestic regulation and services trade facilitation, among other areas. In rules I would underline the debate on fisheries subsidies, which has attracted a lot of attention.
Active discussions are also happening in areas like:
-
How to help smaller companies to trade, and
-
How to harness the power of e-commerce to support inclusiveness.
Work on these issues can be very important in helping more people to join trade flows. Among OECD countries, SMEs account for more than 60 per cent of employment.
The internet itself has the potential to bring many new entrants into the market, and cut trade costs related to physical distance.
However, in OECD countries, around 20 per cent of the population still doesn’t have access to the internet. In Africa, only one in four people use the internet – and, in LDCs, only one in seven people.
So there is huge unexplored potential here.
These conversations at the WTO are at an early stage. So we’ll see where members want to take them in the New Year – particularly as we look ahead to our next Ministerial Conference, which is being held in Buenos Aires in December 2017.
I’ll conclude now as I began: these are testing times for the global economy.
I think we all have a responsibility to respond.
That’s what we’ll be trying to do at the WTO. And I look forward to working with the OECD, and all of you, to achieve it.
Thank you.
Related News
IMF Executive Board provides further guidance to enhance the financial safety net for developing countries
On November 16, 2016, the Executive Board of the International Monetary Fund (IMF) discussed a staff paper on “Financing for Development: Enhancing the Financial Safety Net for Developing Countries – Further Considerations”, which identifies areas where current guidance on Fund policies needs to be clarified in regard to the access of developing countries to financial support from the Fund.
The staff paper examines a number of issues raised by Executive Directors and by the International Monetary and Financial Committee (IMFC) since the issuance to the Board in June 2015 of a staff paper on “Financing for Development: Enhancing the Financial Safety Net for Developing Countries.”
That paper had proposed a number of measures to expand access to Fund resources for developing countries, including a 50 percent increase in access limits to Fund concessional resources for those members deemed eligible to access the facilities supported by the Fund’s Poverty Reduction and Growth Trust (PRGT) – a proposal that was endorsed by the Board on July 1, 2015.
The new paper provides clarification on a number of issues pertaining to access to Fund resources for PRGT-eligible members. The issues examined include: a) access of PRGT-eligible members to Fund instruments that draw on the General Resources Account (GRA); b) the role of access norms in providing indicative guidance on what could constitute the appropriate level of access; c) the adequacy of PRGT-eligible members’ access to precautionary financial support; and d) the adequacy of safeguards to prevent repeated use of the Rapid Credit Facility (RCF) as a substitute for arrangements with ex post conditionality.
The paper does not propose specific reforms to the Fund’s concessional facilities at this juncture. A comprehensive review of PRGT resources and facilities is planned for 2018.
Executive Directors welcomed the opportunity to discuss the Fund’s policies and practices in regard to the access of PRGT‑eligible members to the Fund’s concessional and GRA resources, as called for by the International Monetary and Financial Committee (IMFC) at its Spring 2016 meeting. Directors agreed that the current concessional financing toolkit is generally well calibrated, and appreciated clarification of existing policies and the revisions underway to the Low‑Income Countries Handbook.
Directors reaffirmed that a PRGT‑eligible member has the right to access GRA resources on the same conditions as any other Fund member. They also noted that, given the financial benefits to the member from borrowing on concessional terms, staff should continue to advise PRGT‑eligible members considering Fund financial support to seek support from the PRGT up to the applicable limits before seeking GRA resources.
Directors welcomed the clarification of the current policy on blending. They agreed that the presumption of blending PRGT with GRA resources should continue to be applied to PRGT‑eligible members meeting the income or market access thresholds for blending; these countries would have access to PRGT resources only in conjunction with access to GRA resources. Directors also agreed that this presumption does not normally apply where the member is in debt distress or at high risk of debt distress.
Directors noted that PRGT‑eligible members that are not presumed to blend can access PRGT resources exclusively up to the applicable PRGT access limits. They also noted that these members, to the extent that they meet the applicable policies on access to GRA resources, are not precluded from accessing these resources, either on a standalone basis or in conjunction with PRGT resources.
Directors reaffirmed that access to GRA resources is subject to the general policies governing GRA access and that total access to Fund resources (the sum of GRA and PRGT resources made available) should be determined case by case on the basis of the standard criteria, including balance of payments need, program strength, and capacity to repay the Fund, informed by debt sustainability analysis. Many Directors encouraged the staff to be more open to considering requests for higher levels of access to Fund resources as allowed within the current access rules, while safeguarding the Fund’s resources. Some Directors noted that this was of particular relevance in the current juncture, where a number of low‑income and frontier market economies had sizeable financing needs that could well exceed the applicable PRGT limits.
Directors underscored that access norms, as used in PRGT facilities, are neither a ceiling nor a floor on the level of access provided in PRGT‑supported arrangements. Norms should help to inform the assessment of access levels but should not be misconstrued as access limits or entitlements.
Directors agreed that the record of usage of the Rapid Credit Facility (RCF) suggests that the existing safeguards are adequate to prevent repeated use of the RCF as a substitute for arrangements with ex post conditionality and called for continued monitoring in this regard. For countries receiving support under the RCF that are also seeking to build a track record toward an upper credit tranche (UCT)‑quality program, Directors agreed that the use of a staff‑monitored program (SMP) to build such a track record would normally be the preferred option, while noting an assessment of the policy commitments made in the context of disbursements under the RCF could also be used for that purpose. Hence, a number of Directors underscored that use of an SMP to build a track record in such circumstances, while preferable, should not be required, providing flexibility to accommodate individual country circumstances.
Directors were of the view that the existing array of Fund facilities provided substantial room to provide PRGT‑eligible members with Fund support on a precautionary basis. Most Directors did not see a need to establish new facilities in the PRGT targeted specifically at providing precautionary support to PRGT‑eligible members at this juncture.
Directors emphasized the importance of continued attention to maintaining the adequacy and flexibility of the PRGT lending toolkit, including by reviewing access norms and limits, blending policy, interest rate structure, and safeguarding mechanisms for maintaining the self‑sustaining capacity of the PRGT. In this regard, they looked forward to the planned comprehensive review of PRGT resources and facilities in 2018, in accordance with the normal five‑year cycle for such reviews, as well as the upcoming meeting on the Fund’s role in assisting small states build resilience to natural disasters and climate change.
Related News
tralac’s Daily News Selection
The selection: Tuesday, 29 November 2016
Diarise: World Economic Forum on Africa (3-5 May 2017, Durban)
Key statements from the opening session at Africa Trade Week 2016:
UNCTAD’s Mukhisa Kituyi: “To me the Abuja Declaration was important. It was a starting point towards where we are but even if there had not been an Abuja and a Lagos Plan of Action, the reasons for creating a Pan African free trade are important even from today’s challenges so we have enough reasons from today apart from our inherited responsibility from Abuja”
ATPC’s David Luke: “These include Africa’s trade relations with Asia, Europe, the United States and emerging markets; how trade can support gender equality and empowerment; perspectives from the regional economic communities and the CFTA negotiations and related flanking measures”
African Union Commissioner Fatima Haram Acyl: Africa needs to bring the cost of doing business down,[which] would significantly boost trade performance with trade facilitation, which looks at procedures and controls governing the movement of goods across borders, enabling Africa to do that.
African Civil Society statement on the Continental Free Trade Agenda
From 26-27 November, civil society organisations from Africa met under the umbrella of the Africa Trade Network in Addis Ababa, in advance of the Africa Trade Week and the seminar of the CFTA to discuss the challenges of Africa’s economic transformation and integration and role of the CFTA. We have come to the following conclusions and make the following demands: [Download the French version, pdf]
SA at Africa Trade Week: Minister Rob Davies will also attend the African Union’s Ministers of Trade meeting where ministers will consider the progress of the CFTA negotiations. On the side-lines of the Africa Trade Week 2016 meeting, Minister Davies will meet the Ministers of Trade of Kenya, Egypt, and Nigeria to discuss the enhancement of cooperation and advancing regional economic integration in Africa.
Tanzania: Major blow for government as mega-factory shuts down (IPPmedia)
The fifth phase government’s industrialisation drive has been dealt a heavy blow by the unexpected closure of the country’s currently biggest cement plant run by Dangote Industries (Tanzania) Limited due to rising production costs and a ‘technical glitch’at the $500 million (1.1 trillion/-) factory. The abrupt suspension of the relatively new plant’s operations is reported to have caught the government by surprise, at the same time reigniting a row over the quality of the country’s coal reserves amid reports that the factory managers were preferring to import coal from South Africa instead of using local supplies. The Ministry of Energy and Minerals recently announced a ban on coal imports from South Africa, insisting that the Dangote cement plant must use coal mined in Tanzania because it meets quality requirements. But now the factory management has responded by shutting down operations indefinitely.
Foreign firms hit by tax demands rethink Tanzanian expansion (Reuters)
Some of Tanzania’s biggest foreign investors say they could scale back their operations or expansion plans because of tougher demands placed on companies, including higher tax bills, as part of the president’s drive to overhaul the economy. At least six companies are rethinking their business and investment plans, according to Reuters interviews with senior executives at a dozen of the biggest foreign firms operating in Tanzania, or their local arms, in sectors including mining, telecoms and shipping. Three said they could scale back operations in the East African nation, two said they planned to expand in other countries on the continent instead, while one said it was in the process of withdrawing from Tanzania altogether.
Mauritius hosts regional workshop on Post Clearance Audit (GoM)
A five-day workshop on Post Clearance Audit, which is an effective measure for trade facilitation as well as compliance verification, kicked off yesterday at the Mauritius Revenue Authority Regional Training Centre, Mer Rouge. Some 30 delegates from 19 countries of the East and Southern Africa region are participating in this workshop with the aim to assist the Customs administrations to implement or reinforce PCA.
ASEA conference: Africa’s exchanges urged to be innovative and integrate to attract more investment (New Times)
Rwanda’s equity market capitalisation to GDP ratio stood at 32.93% in 2015 compared to 48% in Kenya. In monetary value, the country’s stock exchange has kept a steady performance in the last five years, registering a market capitalisation of almost $4.2bn of 2015. The Rwanda Stock Exchange market capitalisation was at Rwf2.751 trillion at the close of yesterday’s trading session compared to Rwf2.820 trillion on 4 January 2016. Five years since the bourse was launched in Rwanda, there are seven companies and 13 government and corporate bonds listed on the exchange and eight trading members as well as two licensed custodians. However, Dr James Ndahiro, the RSE chairman, said there is still need to deal with challenges facing the industry, including the lack of innovative products.
Building a regional solution to bridge Eastern and Southern Africa’s science and technology gap (World Bank)
Last month, we launched the project’s second phase, ACE II, in Nairobi – a far-reaching initiative that seeks to strengthen 24 competitively selected centres in Eastern and Southern Africa to deliver top quality and relevant post-graduate education in regional development priority sectors that need it the most. The ACE II’s expected impact will be unprecedented once achieved. In five years, its selected 24 centers are expected to enroll more than 3,500 graduate students in their specialized areas, with at least 700 students pursuing PhDs, and more than 1,000 would be women. The project also aims to have more than 300 research collaborations with the private sector and academic institutions, and generate about $30 million in external revenue to make the centers sustainable.
Germany to support three new UNIDO projects: including Africa’s pharmaceutical industry project (UNIDO)
The first project on “Devising practical approaches for mobilizing investment capital and transfer of technology for Africa’s pharmaceutical industry” capitalizes on UNIDO’s previous work in Africa’s pharma industry, and seeks to further mobilize public and private partners through the newly incepted ITPO Bonn, which was formalized last week by Gerd Müller, Federal Minister of BMZ and Director General LI Yong on the occasion of the Organization’s 50th Anniversary celebrations. “This is a very important initiative”, said Li. “Together with the heads of State and Government of the African Union as well as with our development partners, including Bill Gates, we agreed that a lot of attention needs to be paid to this specific sector as it pertains both to the health of people and the manufacturing of generic drugs. We are thankful to Germany for its continued support”.
Two commentaries on the Doing Business 2016 report:
José Antonio Ocampo, Edmund Fitzgerald: Doing Business should stop promoting tax competition (Project Syndicate): The World Bank Group has just released Doing Business 2017: Equal Opportunity for All, the latest version of its flagship report. According to the Bank, the annual report is one of the world’s most influential policy publications, as it encourages countries to reduce the regulatory burden on the private sector. But there is a serious flaw in the report’s formula: the way it treats corporate taxation. A race to the bottom in corporate taxation will only hurt poor people and poor countries. If Doing Business is to live up to its own slogan, “equal opportunity for all,” it should abandon the tax indicator altogether.
Cecile Fruman: Why gender equality in doing business makes good economic sense (World Bank): For the first time since it was launched in 2002, the World Bank Group’s annual Doing Business report this year added a gender dimension to its measures, including to the annual ranking on each country’s ease of doing business. Looking at gender differences when it comes to starting a business, registering property or enforcing contracts, Doing Business shows that 23 countries impose more procedures for women than men to start a business. Sixteen countries limit women’s ability to own, use and transfer property. And in 17 economies, the civil courts do not value a woman’s testimony the same way as a man’s. This pattern might give the impression that such legal differences are really only an issue in a selected group of countries. But Doing Business’ sister publication – Women, Business and the Law (pdf) – tells us otherwise.
6th Africa Regional Platform on Disaster Risk Reduction: statement of the East African Community
What are our future plans? The East African Community commits to implement its Disaster Risk Reduction Law as soon as it is assented to and in line with the Sendai Framework on Disaster Risk Reduction. In this regard, the EAC priorities will be the following: [SADC Ministers adopt Regional Disaster Preparedness and Response Strategy]
Rwanda: Why hotels and supermarkets continue to import fresh food (New Times)
According to the Ministry of Trade, Industry and EAC Affairs, Rwanda designed the Domestic Market Recapture Strategy 2015 (pdf) geared at helping the country reduce the growing trade deficit, by promoting production and consumption of locally-made products. The ministry also identified priority sectors that can quickly contribute to Rwanda’s domestic market recapturing, including floriculture and horticulture production. The ministry says the domestic market recapturing strategy study could enable the country to save almost $450m per year or 17.8% reduction on the current import bill. Agro-processing, light manufacturing and the construction materials are the key priority sectors identified by government in its push to reduce the country’s widening import bill. Under the Domestic Market Recapture Strategy 2015, implemented by the Ministry of Trade, Industry and EAC Affairs, it is hoped Rwanda can save up to $450m annually. [Rwanda: Enhanced communication key to increased tax compliance – survey]
Supply chain risk in sub-Saharan Africa tops the chart (Bizcommunity)
Supply chain risk in Sub-Saharan Africa remains the highest in the world and continued to increase during the third quarter of the year as South Africa and Nigeria’s economies struggled. Supply chain risk in sub-Saharan Africa worsened from 5.544 to 5.558 during the third quarter of 2016, as measured by the Chartered Institute of Procurement and Supply Risk Index (pdf), powered by Dun & Bradstreet. The Index tracks the impact of economic and political developments on the stability of global supply chains.
Magufuli, Lungu agree to jointly kick-start TAZARA recovery (IPPMedia)
President John Magufuli and the visiting Zambian leader Edgar Lungu yesterday pledged to take decisive action to revive the perennially cash-strapped Tanzania-Zambia Railways Authority (TAZARA) and a joint crude oil pipeline project owned by the two neighbouring countries. President Magufuli expressed dismay at a drastic decline of cargo volumes carried by TAZARA from around 5 million tonnes a year at its peak in 1976 to just 128,000 tonnes a year presently. He said the performance of the Tanzania-Zambia oil pipeline project (TAZAMA) has also dropped from handling 1.1 million tonnes of crude oil per year to just 600,000 tonnes. Magufuli said he has agreed with his Zambian counterpart to review and amend the TAZARA Act of 1995 so as to scale-up the company’s efficiency.
Malawi: Nacala Rail and Port Value Addition Project GPN (pdf, AfDB)
The main goal of the technical assistance project is to improve on the efficiency and competitiveness of local businesses in the Nacala Corridor to enable them to take advantage of the newly constructed transport infrastructure, and to achieve accelerated economic and social growth in Malawi. The specific objectives are as follows:
Seeing opportunity in textile imports, Kenya plans cotton revival
To stop relying on Western hand-me-downs, African countries are importing Chinese textile companies
Kenya: New plan to take export zones to all 47 counties
Mozambique: IMF to initiate discussions on a new programme
Outgoing AUC commissioner for infrastructure and energy, Elham Ibrahim: ‘PIDA was my major milestone’
Benin opens 8th edition of Chinese products’ trade fair for West Africa
Related News
First ever Africa Trade Week opens in Addis Ababa
The first ever Africa Trade Week opened in Addis Ababa on Monday with the Economic Commission for Africa’s David Luke, urging participants to come up with solutions to unanswered questions about the Continental Free Trade Area.
Speaking on behalf of Abdalla Hamdok, ECA Acting Executive Secretary Mr. Luke said the CFTA is a bold initiative aiming to bring together 54 African countries with a combined population of more than one billion people and a combined gross domestic product of more than US$3.4 trillion.
African leaders, with the CFTA, aim to, create a single continental market for goods and services, free movement of business persons and investments and expand intra-African trade, among other things. The CFTA is also expected to enhance competitiveness at the industry and enterprise levels on the continent.
He said, the questions include; how the continent can involve civil society and the African citizenry so that the CFTA has legitimacy among the people of Africa, what level of liberalization should the continent aim for at the beginning given adjustment costs, what safeguards are needed to protect the most vulnerable and those that may be driven out of business by the CFTA. For individual countries, which sectors should they liberalize, how does Africa get the details as rules of origin, technical barriers to trade sanitary and dispute settlement, among others.
Mr. Luke also urged participants to discuss how Africa can ensure the CFTA gets effectively implemented, adding the full range of key African trade policy issues should be looked at this week.
“These include Africa’s trade relations with Asia, Europe, the United States and emerging markets; how trade can support gender equality and empowerment; perspectives from the regional economic communities and the CFTA negotiations and related flanking measures,” he stressed.
He noted that relations with Asia, Europe and the United States account for massive shares of our trade currently and it is important for us to get these right.
He said that the discussions would allow actors “to examine our trading relationships with these partners and how to recalibrate them to ensure coherence with the CFTA initiative and its objectives as well as trade and gender issues and the importance of trade policy being gender sensitive.”
He said the CFTA presents Africa with a critical opportunity for development, adding research by the ECA has shown that the CFTA could add up to 2.5 percent to Africa’s annual economic output which is around $65 billion based on data for 2014, adding:
“Unlike much of the commodity-driven growth that we have recently experienced, the CFTA is likely to make growth in the African economy more sustainable and inclusive.”
“As such, the CFTA presents us with an opportunity that we simply have to seize. But how do we do so? There are many questions that remain to be answered on how exactly to pursue this most important initiative.”
Also speaking during the opening ceremony, African Union Commissioner Fatima Haram Acyl of Trade and Industry said Africa needs to bring the cost of doing business down, adding this would significantly boost trade performance with trade facilitation, which looks at procedures and controls governing the movement of goods across borders, enabling Africa to do that.
“The Africa Trade Week is a historic event and the whole purpose of this week is to encourage fruitful and stimulating dialogue among all stakeholders,” said Ms. Acyl, adding the African Trade Facilitation Forum, that begins Thursday, will explore ways to overcome the obstacles to trade and imports across Africa such as non-tariff barriers including quotas, embargoes, sanctions and levies.
Mukhisa Kituyi Secretary-General of the United Nations Conference on Trade and Development (UNCTAD) gave the keynote address. He said Africa should forget about the Abuja Declaration and focus on getting investors.
“To me the Abuja Declaration was important. It was a starting point towards where we are but even if there had not been an Abuja and a Lagos Plan of Action, the reasons for creating a Pan African free trade are important even from today’s challenges so we have enough reasons from today apart from our inherited responsibility from Abuja,” said Mr. Kituyi.
“These include Africa’s ability to expand trade, inclusive trade has the best possibilities, the most flexible opportunities are within Africa itself,” he said.
“Second, as the world goes towards much more refined global value chains our ability to create regional value chains, trade linkages is the first building block towards being competent in order to find a scaled-up possibility on the global value chains and third, Africa’s unemployed youth needs trade related opportunities and these opportunities have to be dealt with through best practices in Africa and cross boarder engagements – infrastructure that goes beyond countries, possibilities of e-trade for example that go beyond country boundaries and this is the ecosystem that can only be created under a Pan African free trade area.”
One of the issues that participants will discuss is the relationship between Africa and the United States following the recent election of business magnate Donald Trump as President-elect of the US, the changing architecture of global trade, AGOA implementation, trade partnerships, the CFTA, trade facilitation and related issues.
The ATW is bringing together a broad range of participants, including senior governmental officials, representatives from RECs, civil society, CEOs and executives from the private sector, development banks, academia, international development agencies and the media, among others.
Related News
South Africa: Agribusiness outlook for 2017
As predicted, 2016 has been an extremely challenging and tumultuous year for the agribusiness environment and farmers alike, Agbiz CEO, Dr John Purchase, said Friday, 25 November 2016, at a media briefing in Pretoria.
Not only did the prevailing drought of the previous years continue its devastation over much of the country, but a declining economy and resultant constrained consumers led to dampened demand and declining output.
Tinashe Kapuya, head of international trade and investment intelligence at Agbiz adds: “In real terms, South Africa’s overall agricultural trade balance, despite remaining positive, fell sharply by as much as 22% and 11% in the first and second quarter of 2016, respectively.”
Political economy
Dr Purchase says that given additional policy uncertainty and the country’s deteriorating political economy, agricultural Gross Domestic Product (GDP) and agribusiness confidence were in significantly negative territory for the most part of the year.
In addition to domestic uncertainty were unexpected international events, such as Brexit and the election outcome in the United States, both of which will likely carry longer term implications for South Africa’s key agricultural export markets.
However, Dr Purchase says in the last quarter of 2016 there was evidence of some recovery in the Agbiz/IDC Agribusiness Confidence Index, and with good rains falling in key production areas, this has indicated a potential turnaround situation. The situation around the country’s broader political economy, however, remains a major concern.
Given deep and fundamental political divisions in government and the governing party, threats of rating agency downgrades to sub-investment grade, as well as given an especially uncertain global political and economic environment, these ‘green shoots’ could prove to be but an empty promise. Thus, the agro-food food system and consequently also the country’s food security remains at risk.
Wandile Sihlobo, head of economic and agribusiness intelligence at Agbiz, says political and policy uncertainty are likely to remain key concerns in the agricultural sector over the foreseeable future.
Industry growth
Sihlobo says: “Prospects emanating from the Agbiz/IDC Agribusiness Confidence Index suggest that confidence in the sector may remain in positive territory for the first six months of 2017, largely driven by expected improvement in agricultural conditions and production.
“Moreover, this Index serves as a leading indicator for the contribution of the agricultural sector to the Gross Domestic Product (GDP), therefore positive improvements suggest that the agricultural sector could finally escape the current mediocre growth path in the fourth quarter of this year to 2017.
“More importantly, the agricultural sector constitutes roughly 6% of South Africa’s total employment. Therefore, expected growth in the sector could possibly have positive spill-overs on the agricultural labour market. This would be a welcomed recovery, following significant job losses in the earlier part of 2016, as farmers and agribusiness were constrained by the effects of the 2015/16 El Niño induced drought.”
Legislation
In his forecast for 2017, Dr Purcahse says the agribusiness environment will be faced with various challenges in terms of engagement with key land reform legislation.
These challenges include:
-
Revision of the Expropriation Bill in Parliament, following the Bill’s return to Parliament;
-
The possible introduction of the Regulation of Land Holdings Bill, which proposes land ceilings and the prohibition of agricultural land ownership by foreigners, into the legislative process; and
-
Revision of the Restitution of Land Rights Amendment Bill by Parliament, after having been suspended by the Constitutional Court.
-
Finalisation of the Extension of Security of Tenure Amendment Bill currently in Parliament.
Other critical pieces of legislation that will feature in the legislative process and impact on the agribusiness environment will be:
-
The Carbon Tax Bill;
-
The National Skills Development and Sector Education and Training Authorities (SETA) policy revision;
-
The Liquor Amendment Bill;
-
New legislation governing the water environment and giving effect to the cabinet-adopted National Water Resource Strategy Version 2 (Water Amendment Bill and Revision of the Pricing Strategy for Water Use Charges in terms of the National Water Act, 1998);
-
The implementation of the new and more onerous AgriBEE Sector Code, once finalised and that will replace the 2012 Sector Code; and
-
Implementation of the recently announced national minimum wage.
“Additional and critical policy and legislation impacting on the agro-food industry will no doubt surface in 2017 and will be addressed by Agbiz. A positive aspect is that the so-called CEO Process, initiated by Minister Pravin Gordhan, can assist in creating an environment for strong and inclusive growth in the broader agro-food sector,” Purchase says.
Trade negotiations and relations
Kapuya is of the opinion that 2016 will go down as one of the most fruitful in South Africa’s trade policy, with several milestones attained.
-
In March 2016, South Africa avoided suspension in the Africa Growth Opportunity Act (AGOA) preference programme, ensuring that duty-free quota-free market access is retained for a number of agricultural products such as oranges, mandarins, macadamia nuts, and wine.
-
In April 2016, the SACU-MERCOSUR Preferential Trade Agreement was concluded, and came into force later on in the year, in October 2016. This has paved the way for preferential market access into South America while offering prospects of much-needed relief for feed manufacturers who will be able to import soybean cake at a preference margin.
-
In June 2016, the Economic Partnership Agreement (EPA) was officially signed off, opening up new market access for a range of agricultural products such as wine, sugar, ethanol and fresh fruit, effective 1 November 2016.
“Looking ahead to 2017, a rebound in domestic production will expectedly boost agricultural exports going forward, with increased growth prospects to be expected in the EU. As the Brexit debate takes shape in early to mid-2017, deliberations on that front are not expected to have any impact on South Africa’s exports. However, we expect the diversification of exports to continue, particularly for fresh fruit into Asia and the Middle East.
“There is no expectation that AGOA will be repealed in the USA, and a Trump Administration will likely not change the current SACU-SA relations in a fundamental way. However, uncertainty remains in the manner and extent to which the new Administration will push for reciprocity going forward. The expectation is that SA will retain its market access in the medium to long term, notwithstanding the possibility of out-of-cycle reviews.
“The African market will remain the centerpiece of South Africa’s agricultural export growth in 2017, especially against the backdrop of a recovery in domestic production. The Tripartite Free Trade Agreement (T-FTA) negotiations will resume in February 2017, with the expectation that progress towards its conclusion will pick up speed in the new year.
“However, the T-FTA will not likely be concluded in 2017. Meanwhile, the Continental FTA discussions will expectedly gain momentum as modalities are laid out towards its negotiation,” Kapuya says.
Grain industry
Mariana Purnell, general manager at Agbiz Grain, says role players in the grain industry collectively decided to come together and discuss action plans to revive the South African wheat industry. The Wheat Forum and its Steering Committee supported these efforts and have been working with industry role players in this regard since the beginning of 2014.
“The whole industry is in dire straits, not just farmers. The survival of the local wheat industry is important for the whole value chain, from the producer to the processor. Several changes have been made during 2016 to help farmers produce wheat more sustainably and to also address other issues of concern along the value chain,” she says.
The Agbiz Grain desk will host a Wheat Indaba in February 2017. The main focus of the Indaba is to communicate all the changes aimed at reviving the wheat industry, as well as indicate new regulatory requirements that impact the industry. One event will be held in Pretoria and one in Stellenbosch. The Agbiz Grain Wheat Indaba 2017 in Pretoria will take place on Friday, 17 February, and in Elsenburg on Tuesday, 21 February 2017.
Related News
Home stretch for ADF-14: “Africa deserves more, not less”
On November 28 and 29, 2016, the third and final replenishment meeting for the 14th replenishment of the African Development Fund (ADF-14) is taking place in Luxembourg, following two previous meetings held in Abidjan in March and June 2016.
This is the opportunity for donors to the Fund to mobilize the resources that will support development projects financed by the ADF from 2017 to 2019, as part of the African Development Bank Group’s Ten Year Strategy. Several of the Fund’s recipient countries will also be present along with observers from peer institutions.
Many flagship projects have been made possible through the ADF: projects to support food security in Madagascar and Senegal (video), New Rice for Africa (NERICA) (video), the Ketta-Djoum-Brazzaville road in the Congo (video), the Mozambique drinking water project (video) and the Menengai Geothermal Power Station in Kenya (video), among other examples. Other, more recently launched projects include: the development of agricultural value chains in The Gambia and a project to create employment and improvement of livelihoods in Mozambique.
Each of these projects has very tangible impacts on the ground, changing the lives of millions of Africans. Behind the figures, there are lives, communities and countries that are seeing new prospects open out before them. The purpose of the ADF is to change the lives of the most vulnerable African populations.
For 2017 to 2019, the AFD-14 goals are clear, with a focus on the African Development Bank Group’s High 5 development prorities.
-
Light up and power Africa: US $2.9 billion will be invested in energy to install up to 4,600 MW of capacity and to connect 23.6 million Africans to the power network.
-
Feed Africa: US $2.1 billion will be allocated to the agriculture sector to grow farm incomes and reduce poverty in rural areas.
-
Industrialize Africa: US $1.7 billion will be reserved for industrialization projects. The priority will be on funding the private sector through a range of risk mitigation instruments, guarantee products and mixed funding mechanisms to attract other funds to fill the funding gap.
-
Integrate Africa: US $2.7 billion will be mobilized in support of regional integration projects to address the lack of integration that is costing the continent between 1 and 1.5 per cent in annual GDP.
-
Improve the quality of life for the people of Africa: US $1.9 billion will be invested to create 17.5 million jobs in ADF countries and strengthen the economic and employment skills of 50 million young Africans by 2050.
The crucial importance of the ADF is long established: between 2008 and 2013, ADF-funded projects and programmes meant that over 13 million Africans gained access to safe drinking water and sanitation services; 42.2 million benefited from new transport infrastructure; and 64 million were able to access education. Over the same period, more than 3 million Africans were connected to the electricity grid for the first time; 46.1 million saw their agriculture skills improved; and 10.2 million benefited from microfinance initiatives.
In nearly 40 years of existence, the ADF has awarded more than US $40 billion in funding, making it one of the main sources of concessional funding in Africa with 38 recipient countries* and 29 donor countries to date. It is one of the three separate entities that make up the African Development Bank Group, with the AfDB itself and the Nigeria Trust Fund (NTF).
This last meeting of ADF-14, held behind closed doors in Luxembourg, will establish the amount of resources allocated to the Fund to enable it to finance its operations between 2017 and 2019 and, thus, contribute to unlocking the potential of Africa and improving the lives of millions of Africans on the continent.
* Eligibility for ADF is determined by a country’s gross national income per capita (GNI per capita) and its solvency.
“Africa deserves more, not less”
Speech delivered by AfDB President Akinwumi Adesina at the Final Pledging Session for the ADF-14 Replenishment, 28 November 2016, Luxembourg
Honorable Minister Pierre Gramegna, Minister of Finance of Luxembourg; Honorable Ministers of Finance from Africa and Governors of the African Development Bank; ADF Deputies; Executive Directors, Senior Management and staff of the African Development Bank; colleagues from other development organizations; distinguished ladies and gentlemen – friends of Africa – good morning!
It is my great pleasure to welcome you to the third and final replenishment meeting for the fourteenth replenishment of the African Development Fund (ADF). I wish to thank our partner, the European Investment Bank (EIB), for your generosity in hosting us in your beautiful building facilities for this meeting. I also wish to thank Vice-President Ambroise Fayolle of EIB, who is here with us today. Just last week, I was with President Hoyer in Abidjan and today we are at your headquarters. That is real partnership at work!
Honorable Minister Pierre Gramegna, I wish to immensely thank you and the people of Luxembourg for hosting this final pledging session for the ADF-14 replenishment. As a first-time participant in the replenishment of the ADF, you are sending a very clear positive signal of your strong support for Africa’s development – and for that we are most appreciative. I thank the delegation from Ireland for attending. We look forward to welcoming you to the ADF family!
We are honored and delighted to have with us the Honorable Ministers from Chad, Lesotho, Tanzania and Senegal, who are collectively representing the voice of ADF beneficiary countries. I also wish to thank our friend, Richard Manning, for the outstanding job he has done in coordinating the entire replenishment process. He has been with us through the ups and helped us during the downs as well.
I wish to specially thank you, the ADF Deputies. You are our partners and best advocates to ensure the success of the replenishment process. Supporters and friends like you are rare. Thank you for your continued support to see this replenishment through to a successful conclusion.
This final meeting is a culmination of our coordinated effort to support some of the poorest countries on the African continent through the African Development Fund – an instrument of hope going back to 1974.
As you know, this particular replenishment is taking place at a time when many ADF countries have been hit by several shocks – the sharp decline in commodity prices, tighter financing conditions, and a severe drought in southern and eastern Africa. This comes after an extended period of strong economic growth in most of these countries.
Growth fell in 2015 to its lowest level in some 15 years and is expected to slow further in 2016. However, we should not conclude that Africa is all gloom. The picture is in fact more positive; some of the fastest-growing economies in the world are in Africa. The growth performance differs significantly across countries, with most oil importers faring reasonably well. Medium-term prospects remain favorable, but many countries need to reset their policies urgently to reinvigorate growth and realize their potential. To this end, the Fund will support countries as they adjust fiscal, monetary and other policies targeted at diversification and financial sector development so as to strengthen resilience and boost growth.
I appreciate that times are difficult all over these days. So, having an ADF replenishment in the midst of one a global environment with sticky slow growth is challenging. I know you all face challenges in your fiscal environment at home. Other unexpected shocks have happened, including Brexit, which has significant implications for multilateral finance institutions. The migration crisis in much of Europe is displacing development financing to solve national issues. A move away from multilateralism in some places could also impact global development.
Nonetheless, I believe that Africa deserves significant support, even in the midst of these challenges. We must not forget that the reason several thousands of Africans have been migrating to Europe, is because of lack of jobs and shrinking economic opportunities back at home. Our resolve must not be to reduce support, but to increase support to help Africa, to build greater resilience, boost its economies, address its structural challenges, such as closing its huge infrastructure gap, strengthening intra-regional trade and creating jobs for its teeming youths.
Investing in Africa is investing in your homeland security as well.
I make a plea, not for the African Development Bank. I make a plea for Africa. The African Development Bank is the institution to deliver. The African Development Fund is the instrument to deliver. But Africa is the beneficiary.
As an institution, we have shown our capacity to deliver for Africa. As shown by the independent evaluation, the Bank met all its obligations under ADF-13. I must note that the Bank is the first of the Multilateral Development Banks to have undergone such a comprehensive independent evaluation.
The Bank is much stronger today than ever before. So much has happened since we last met in Abidjan in March of this year. We have moved aggressively to reform ourselves to improve institutional efficiencies, effectiveness and delivery for impact. The Transformation Management Team and the Development and Process Efficiency Committee have taken off and the results are encouraging.
Four of the five High Five strategies of the Bank were developed and approved by the Board within a period of six months. It normally takes up to two years sometimes to get one strategy approved. Our Board has been impressive and worked so hard. We are tackling the challenge of low disbursements compared to approvals, which has been raised over the years. Since I signed the Presidential Directive on this in November 2015, the lapse of time between approvals and declaration of effectiveness for first disbursement has declined by over 40%. Projected disbursements this year are $6.6 billion (UA 4.4 billion) – the highest in the history of the Bank. You will hear more from my colleagues.
As you know, the Bank Group is implementing its new Development and Business Delivery Model (DBDM) – a program of transformation to move closer to our clients, streamline business processes, and improve financial performance. All of this will be rooted in a culture of results and accountability.
All the senior management of the Bank have been hired. Following a very transparent, competitive and rigorous global recruitment process, the Senior Vice-President and all the Vice-Presidents have been recruited – and they are highly qualified individuals with global experience who have proven themselves in different parts of the world. Our new Vice-President for Power, Energy, Climate and Green Growth, Amadou Hott, is right here with us today.
Just last week, I appointed – again through a very transparent international recruitment process – and well ahead of schedule – all the five Director Generals for the regional development and business delivery hubs. I also appointed five country managers who will support them, and the Director of the Nigeria country office.
And we are making good on my pledge to increase the number of women in senior management levels: 60% of the above appointments are women – a record in the history of appointments at the Bank. The newly recruited Director of the Bank for rural development is also a woman, from Japan.
We are making very good progress on the rollout of the Affirmative Finance Action for Women – an innovative partnership platform to leverage $3 billion for women-owned enterprises in Africa. To fully mainstream gender into all of our operations, a new Department of Women, Gender and Civil Society has been created and we are currently recruiting for the Director, who will take over from the excellent foundation laid by Geraldine Fraser-Moleketi, the Special Envoy on Gender, as she transitions from the Bank.
A new performance culture is being ingrained in the Bank. All staff of the Bank are now signing performance contracts with clearly defined key performance indicators, linked to delivery. The process, which was started with the Senior Vice-President and Vice-Presidents, is now being cascaded down the whole organization. Our goal is to deliver more and better for our member countries.
I want to assure you that your investment in the African Development Fund will generate greater leveraging effect through our focus on partnerships, co-financing and syndication efforts. Let me explain with some few examples:
The Africa Renewable Energy Initiative, which has the goal of delivering 300 GW of renewable energy in 2030 and 10 GW by 2020, is now based within the Bank. Its delivery unit is now established. The G7 have promised $10 billion to support this initiative, which came out of COP21 and was approved by the African Union. France has already paid in €6 million for the delivery unit and Germany expects to soon pay €2 million. The Bank is working closely with the European Union on energy, with European Commission commitment to provide €3 billion for the initiative.
The Bank is clearly leading on renewable energy. We will help Africa to unlock its full energy potential, while developing a balanced energy mix to support its industrialization. Effective partnerships are being implemented with the UK Government’s Energy Africa Initiative (and UK is the largest contributor to the ADF over the years), the US Power Africa, the Sustainable Energy for All, Millennium Challenge Corporation (MCC), USAID and OPIC, among several others.
The Bank is fully committed in its Climate Action Plan, which will soon be going to our Board. Our commitment is to ensure 100% climate screening for all Bank financed projects. We will also support countries to translate their Independent Nationally Determined Contributions (INDCs) in actions. The Bank has been on the forefront of Africa’s efforts on climate finance – including at COP22 in Marrakech, Morocco, where the Bank’s franchise value as the leading development finance institution for Africa was widely recognized.
In partnership with the World Bank, we are moving ahead to plan joint operations in the Middle East and North Africa region, around agriculture, energy and youth employment. With the International Finance Corporation (IFC) we are working to launch joint projects on investment in women enterprises under the Affirmative Finance Action for Women. And with the European Investment Bank we jointly held Africa Day in Abidjan last week, and co-launched a €253-million Boost Africa Initiative for business incubation support facilities for young entrepreneurs.
Our partnership on the Multilateral Development Banks risk exposure exchange with the World Bank and the Inter-American Development Bank has allowed the Bank to diversify its risks and free up $10 billion headroom for new lending. Even in the case of policy-based operations, we have worked closely with the World Bank and the IMF, from Nigeria, Egypt, Algeria, Gabon and others. Facts are facts.
The Bank is the leading partner of choice in Africa. We worked closely with the US Government for the success of the US-Africa Business Forum, along with several US agencies. The Africa Growing Together Fund with China, for $2 billion, has allowed us to expand work on infrastructure development. The Bank played a major role in TICAD 6 this year, where Japan announced $10 billion for support of infrastructure in Africa and the African Development Bank was singled out to be a key partner to help deliver on this. The successful launch of the Enhanced Private Support Assistance (EPSA) 3 for co-financing of $3.3 billion between Japan and the Bank will allow the Bank to do more on private sector and infrastructure, including energy. Korea, during the KOAFEC ministerial conference, co-hosted with the Bank, announced $10 billion in support for Africa – and, most importantly, this will all be fully aligned with the Bank’s High Five priorities in Africa.
This year, the Bank arranged a $965-million syndicated A/B loan for ESKOM in South Africa, with nine other Banks, the largest ever in Africa. We plan to do more, as we put in place the new syndications team, recently approved by the Board within our new business delivery model. Across Nordic countries, we are partnering on climate, gender diversity, and fragility and natural resource management issues.
We are your partners to deliver more and better for Africa’s low-income countries. Even in the midst of very difficult and fragile situations, we stay there. During my recent visit to Madagascar, the President of Madagascar singled out the African Development Bank as the most “trusted, reliable and consistent” partner, which was there even through the most difficult periods. The same applies in Egypt, where we stayed through turbulent times, and in Liberia, Sierra Leone, Guinea and Mali, where our highly dedicated staff put their lives at risk, for the benefit of the populations we serve.
Your support for the ADF-14 cycle will help us to deliver very concrete developmental impacts, across each of the High Five areas of selectivity for interventions. Your ADF-14 support will install 46,600 MW of electricity for 24 million households with improved electricity connections. That will light up their homes, allow their kids to study at night without candles and mothers will face less pollution from fuel wood, charcoal and kerosene use. It will save lives and no price can be put on that.
Your ADF-14 support will contribute to the transformation of agriculture, provide an additional 280,000 ha of newly irrigated lands, and provide access to new agricultural technologies to 40 million people. Food security will expand and malnutrition will be reduced, and rural areas will be transformed from “zones of misery” to “zones of prosperity”.
Your ADF-14 support will provide access to finance to 1.4 million micro and small enterprises and support industrial development to benefit about 18 million people, creating jobs, securing lives and livelihoods. Your ADF-14 investment in infrastructure, especially improved transport, will enable 73 million people to benefit from improved access to transport and train 16 million persons in road maintenance and safety.
Your ADF-14 support will help to create a better future for Africa’s youth and women, and provide about 7 million direct and indirect jobs, equip 4 million people with job-specific skills and support better education for 1 million people, with 50% of the beneficiaries being women. Quality of life will be improved, with access to water and sanitation for 8 million people.
You can see: your investments will make a big difference.
As President of the African Development Bank Group, I will like to assure you that the Bank will meet all its commitments. We may not be as big as some, but you can be sure that we deliver better results per unit of invested funds in Africa. We leverage our knowledge products and our franchise value as Africa’s own Bank – a trusted partner for Africa’s development. We leverage on the franchise value of the African Development Fund, as Africa’s leading fund specifically devoted to the needs of low-income countries, especially fragile states.
Our vision is to help Africa’s low-income countries build economic and social resilience. As an institution, we are focused sharply on greater efficiency, effectiveness, delivery, and accountability for results, while promoting knowledge. We will innovate, while putting in place systems for better project designs, supervision and learning from evaluations and our new results’ measurement framework.
But we also know that money alone is not enough: we need knowledge and policy products to support countries in their efforts to better manage and grow their economies. That is why we have restructured our economics work to sharply focus on economic governance and knowledge management. Our new Chief Economist and Vice-President for Economic Governance and Knowledge Management, Célestin Monga, is with us here today. He and his team will accelerate support for better macroeconomic and fiscal policy management and greater domestic resource mobilization for countries; while ensuring better management of natural resources, reducing illicit capital flows and ensuring sustainable debt management.
Now it is time for decisions. Over the next two days, you will meet and close on the pledges for the ADF-14 replenishment. I have not missed a single meeting throughout this replenishment process. That tells you my high level of commitment to the Fund and to your work and efforts as Deputies. I hope we have convinced you that Africa deserves more, not less; that ADF-14 should do more, not less; and that the Bank will use your resources well, leveraging more through partnerships, syndications and co-financing. We will deliver greater value for money for your ADF-14 contributions.
In closing, let me say that I am delighted we are doing this replenishment in Luxembourg. I developed a personal attachment to Luxembourg six years ago, when I worked with partners in the Ministry of Cooperation of Luxembourg to develop innovative financing tools to support agricultural development in Africa. Out of that discussion came the largest and most successful efforts to leverage banks across Africa to lend to agriculture. The seeds of hope were sown right here in Luxembourg.
As we face Africa’s challenges, especially for low income and fragile states, I am happy that the seeds of hope will again be sown right here in Luxembourg, in the final pledging session for ADF-14.
Let’s make this pledging session a successful one for Africa. Let us send a strong message of support for Africa. The choice of the financing scenario for support is key for the success of this replenishment. Let’s not set our ambitions low. Let us dig deep and go for the “High Scenario” of support for Africa. That is what Africa deserves, and that is what Africa needs. And I know you can do it for Africa!
Thank you very much. Merci beaucoup! Gracias!
Related News
Enhanced communication key to increased tax compliance – survey
Tax compliance increases with enhanced communication, a study commissioned by the Rwanda Revenue Authority (RRA) shows.
The study, whose findings were released yesterday, was conducted in partnership with the African Tax Administration Forum and International Centre for Tax and Development.
Richard Tusabe, the RRA Commissioner-general, said the agency is looking to increase voluntary tax compliance and was rolling out various strategies.
The tax authorities have previously used several strategies to increase compliance, including audits and general communication.
“The research had to look at how we can increase compliance of taxes through communication. Whatever approach we roll out has to be from an informed basis. We have been trying to communicate in the past just as we have been conducting audits to scale up compliance,” Tusabe said.
The research findings showed that some of the adjustments that RRA ought to incorporate into their communication strategy are personalised messages to clients that include their tax account details.
The study also showed that technology-based communication, such as emails and SMSes, tend to have more impact compared to traditional forms such as letters.
Dr Giulia Mascagni, the research director at International Centre for Tax and Development, one of the lead researchers in the project, said the findings also showed that customer centric manners of communication seemed to have better results than deterrence when trying to increase compliance.
The study involved 3000 personal income taxpayers and about 10,800 corporate income tax payers.
‘Re-customising strategy’
By improving and enhancing communication during the pilot study of the initiative, the tax agency saw an increase in tax compliance by 20 per cent after raking in $9 million in extra revenue.
“The research has shown that through different methods of communication to the various tax bases, we can improve on efficiency. However, different methods have different impact on different tax payer categories,” Tusabe said.
Going forward, he said, they were keen on re-customising their strategy and using specific channels for specific audiences.
In coming days, messages and communiqué sent out by the authorities will have more information on taxpayers’ account status in a bid to create closer ties with them, he said.
“We have also seen from the feedback what we should include in the messaging we send out to taxpayers. For example, rather than only remind one to pay taxes, we could also share with them the status of their tax account,” Tusabe said.
Making the changes and enhancements will not come at a huge cost as the agency already has established communication channels, Tusabe said.
“There is no huge cost for this because we have been communicating to the taxpayers already. We will only need to change some of our approaches in an informed manner and not use a one size fits all approach,” he added.
Some findings and changes that are operational will be implemented immediately while the policy-related kind of findings will go through the Ministry of Finance and Economic Planning to change necessary laws.
Logan Wort, the executive secretary of African Tax Administration Forum, said enhanced communication to increase tax compliance has been tried and tested in middle and high income countries, and yielded positive results.
“This is the first research of its nature in Africa. The other African country that has used a similar model to improve compliance is South Africa. We have seen that having personalised messages and communication, compliance goes up,” Wort said.
He said the study and efforts to invest in communication for compliance was coming at an opportune time and would help translate the recent economic growth into revenue.
“With the growth being experienced in the country in recent years, there is a larger pool to get revenue resources from and that is why RRA ought to improve compliance,” Wort said.
Related News
Zimbabwe launches ‘bond notes’ currency in bid to ease cash crunch
Zimbabwe launched a “bond notes” currency that held its value against the U.S. dollar on Monday, despite warnings that it could cause hyperinflation and suggestions it could bring down President Robert Mugabe.
The bright green bond notes, introduced by the southern African nation’s central bank to try to ease a shortage of dollars, were accepted by most businesses and black market traders.
At the Road Port bus station in the capital Harare, an informal foreign currency market, traders said the $2 bond notes were trading, as planned by the central bank, at 1:1 with the dollar.
That will provide some relief for Mugabe as many Zimbabweans fear the bond notes will quickly lose value and some have staged protests. Internal intelligence briefings seen by Reuters also raise the possibility that the bond notes, if they crash, could spell the end of the 92-year-old leader’s 36-year rule.
Undeterred by a heavy downpour, illegal currency dealers swarmed round a Reuters correspondent’s car offering to exchange bond notes for South Africa’s rand or U.S. dollars, Zimbabwe‘s currencies since the local dollar was scrapped in 2009 during a battle against hyperinflation.
“For now it is the same rate whether it’s bond or U.S. dollar, my brother. We will see in the next few days whether it changes,” said Tatenda, a currency tout who declined to give his surname.
His business card, which gave only his first name and mobile number, summed up the lot of most of Zimbabwe‘s 13 million people since the multi-billion percent inflation of eight years ago wiped out the nation’s savings.
“Hustlers for life, if you can’t beat them, join them,” the card read. “Money don’t change us, but we are money changers.”
Formal businesses were told they had to accept the notes as legal tender. Most did so though Zimbabweans circulated one cellphone video clip of a teller at South African supermarket chain Pick n Pay refusing to accept a $2 bond note.
There was no immediate comment from the company.
“Ill-conceived”
At independence from Britain in 1980, Zimbabwe was regarded as one of Africa’s most promising prospects. But its economy has nearly halved since 2000 after the violent seizure of white-owned commercial farms and disastrous printing of money.
The secrecy of the Reserve Bank of Zimbabwe (RBZ) around the release of the notes, including its failure to publish security features or say where they are being printed, has heightened fears it will print more than a stated $200 million issuance limit.
On Sunday, before the notes were introduced, pictures of them were already circulating on social media – a leak that the RBZ said came from the Post Office Savings Bank (POSB), a state-owned lender that it fined $500,000.
“The employees of the POSB who took, publicised and distributed the images on social media have been dismissed with immediate effect,” the central bank said.
It first announced plans to introduce the bond notes in May to address the chronic cash shortages and supplement the dwindling U.S. dollars that have been in circulation for the past seven years.
However, the announcement was followed by a run on the banks as Zimbabweans tried to empty their accounts of hard currency.
“People are sceptical because of what happened to our old currency in the past when the money lost its value. That is why they think it could happen again,” said 36-year-old street hawker Tennison Tigere, after withdrawing $50 of bond notes.
On Monday, Prosper Mkwananzi, spokesman of social media movement #Tajamuka, which has organised some of the protests against Mugabe, was arrested while speaking to journalists about the bond notes.
“We believe that it is ill-conceived and will not resolve the crisis in the country. It is actually daylight robbery,” said Mkwananzi, before being whisked away by a dozen anti-riot police at an open space in central Harare.
Even if they do not depreciate in value, many economists say the bond notes will serve only as a sticking plaster for an economy with a $250 million-per-month trade deficit.
In addition to weak exports, Zimbabwe has had to deal with a devastating drought that has left millions facing hunger and boosted the need for food imports.
Zimbabwe is $1.6 billion in arrears to the World Bank and African Development Bank, outstanding debt that prevents Harare from securing any extra financing from the two institutions or the International Monetary Fund.
Related News
Trade facilitation and global value chains: What role in sustainable development?
Global value chains are an important new reality in the world economy. But can increased GVC activity in developing countries generated by trade facilitation help promote economic, social, and environmental sustainability, as embodied in the UN Sustainable Development Goals?
Trade is an important means of implementation for the UN Sustainable Development Goals (SDGs), adopted in September 2015. The SDGs take a holistic view of development, including economic, social, and environmental aspects. Although there is no trade goal, and treatment of trade in the accompanying targets and indicators is limited, it remains important for the trade community to look at ways in which sensible trade policy can help promote sustainable development objectives.
A key reality of the current trade agenda is the rise of global value chains (GVCs). This new business model relies on narrow niches of specialisation and trading in tasks to fragment the production process across numerous countries. Free flows of goods, investment, knowledge, and technology are crucial to GVCs. Trade costs are therefore an important determinant of lead firms’ decisions to source from particular countries, or to locate production and assembly facilities there. Empirical evidence shows, for example, that processing trade activity in China is closely related to upstream and downstream trade costs.
Trade facilitation can be understood broadly, as in the Asia-Pacific Economic Cooperation (APEC) definition, as the set of policies designed to reduce trade costs. As such, trade facilitation is the lifeblood of GVCs. Those developing countries that have done well in terms of linking to GVCs have worked hard on different areas of trade facilitation. Vietnam, for example, which is enjoying considerable success in electronic goods, has invested heavily in improving connectivity, both in terms of upgraded international gateways (investments in ports and airports), and improved links between those gateways and the hinterland (investments in road links, and regulatory changes to facilitate quicker, safer, and more reliable movements of goods).
Can GVCs help promote the SDGs? A new paper seeks to provide some answers to this complex question. On the economic side, there is strong evidence that GVC participation boosts incomes and employment, even when a country specialises in low value-added activities like assembly. In China, for instance, involvement in light manufacturing GVCs like apparel and consumer electronics provided employment and wage income for millions of new workers emigrating to the coastal cities from the agricultural heartland. Although wages in low value-added activities in developing countries can seem low by the standards of developed countries, there is a wealth of empirical evidence showing that foreign invested firms and exporters employ more workers, and pay higher average wages, than domestically owned firms that only serve local markets.
Over the medium to long term, the crucial question is whether or not a developing country can “move up” the value chain to higher value added activities. Sound trade policy is a necessary condition for that move to take place, but it is not sufficient. On the one hand, surplus labour needs to be absorbed by the manufacturing sector, so that the labour market can tighten, and wages can start moving up. At the same time, there needs to be a stock of well qualified technical employees to move into more productive tasks. As a result, education and training policies are crucial. Similarly, the business environment needs to be conducive to new, long-term investments, which implies macroeconomic stability and a certain ease of doing business. This moving-up process is currently underway in countries like China: labour costs are increasing, and low value-added assembly activity is starting to migrate to countries like Vietnam, while Chinese GVC participation is moving into higher value-added activities like component production, and even some design and development.
On the social and environmental side, GVCs come with potential, but also risks. In both areas, there are fears of a competitive “race to the bottom” – an effort to attract investment by lowering regulations meant to ensure an appropriate level of social and environmental protection. But a dynamic that is empirically more important is the potential for developed country consumers to demand better environmental and social standards in buyer-driven value chains. In apparel, for example, major fast fashion retailers like Zara and H&M have adopted important traceability and sustainability initiatives, covering social as well as environmental aspects.
These policies have had profound implications on conditions in factories in countries like Bangladesh. Although monitoring remains far from perfect, the combination of consumer pressure and transparency has potential to help ensure GVCs promote social and environmental sustainability. Of course, from a governance point of view, it is not unproblematic for Northern consumers to be influencing social and environmental standards in the South. But on balance, the need to avoid a race to the bottom, and ensure some basic norms are respected all around the world, means that this is one mechanism among many that can be leveraged.
Another aspect of sustainable development relates to gender and inclusion. In many developing countries, GVCs have been positive for female employment – indeed, industries like apparel often offer women an entry point into the formal labour market, and provide them with a first source of independent income, which has the potential to alter power relations within the household. Despite this largely positive dynamic, other problems remain, in particular the gender wage gap, whereby women are paid less than men for doing the same work. This gap exists in every country on earth, and comprehensive efforts are required to address it. Dissemination of best practice within buyer-led GVCs has the potential to positively influence suppliers.
The SDGs set out an ambitious framework for development post-2015. They engage developed and developing countries alike, and recognise the common nature of the challenges facing the world in terms of economic, social, and environmental sustainability. GVCs are not a development panacea, but they represent a new way of looking at the world economy, and provide significant perspectives for developing countries in all aspects of development. Of course, the policy dimension is crucial, both to attract GVC activity in the first place, and to maximise dynamic benefits for the population.
Experience around the developing world suggests that there are a number of key points for policymakers in designing trade facilitation programmes to promote sustainable development through GVC engagement. First, a broad-based approach is necessary, covering all sources of trade costs, not just traditional measures like tariffs. Second, GVCs often have a regional dimension, which means that countries can gain by moving forward with regional partners on key initiatives, as East African countries have done with the assistance of TradeMark East Africa. Third, hard capital investments in infrastructure are important, but not more so than soft investments in regulatory reform to ensure markets function properly. Finally, GVCs make the question of complementary policies, like non-discrimination and the social safety net, as well as environmental protections, even more salient – developing countries need to move forward on them at the same time as they increase GVC integration if the process is to support achievement of the SDGs as much as it can.
This post draws on the paper Trade Facilitation and Global Value Chains: Opportunities for Sustainable Development published by ICTSD and authored by Ben Shepherd.
Ben Shepherd is the Principal of Developing Trade Consultants.
Executive summary
Global value chains (GVCs) are extending their reach into regions and sectors that have historically been under-involved in this business model. There is considerable interest in the development community as to the complex relationship between GVCs and sustainable development outcomes, including social and environmental issues in addition to economic performance and income generation. This paper analyses that relationship from the specific perspective of trade facilitation – an important set of policies that have been shown to boost GVC involvement in developing countries.
As complex interlinked networks of cross-border and domestic flows of goods, services, and factors of production, GVCs rely heavily on trade facilitation for their effectiveness. Lowering trade costs can help countries join GVCs, and is one factor in enabling them to “move up” to higher value added activities. However, it is well known from trade theory that changing trade costs has implications for producers and consumers across the globe, and can potentially create losers as well as winners – even though the global implications of lowering trade costs are typically positive.
In addition to exploring the links between trade facilitation and GVCs, the paper also unpacks the question from the point of view of sustainable development, combining economic, social, and environmental dimensions. Any increase in GVC activity brought about by improved trade facilitation could have important economic benefits, but is not necessarily positive on all social and environmental fronts. However, there is no simple answer to the question whether or not GVCs are “good” for sustainable development. The relationship is complex, driven by an interplay of economic and institutional factors.
One key insight of the paper is that, as in many questions relating to international trade policy, it is not fundamentally GVCs that drive the sustainable development implications of improved trade facilitation, but rather the extension and intensification of economic activity. GVCs as businesses of course have some particular characteristics that need to be taken into account, in particular the complex relationships among actors in different countries performing different functions. But to ensure that GVCs are consistent with the global commitment to sustainable development most recently embodied in the UN Sustainable Development Goals, the most important priority for low income countries and least developed countries is to develop domestic regulatory infrastructure in areas like environmental and social protection. If appropriate steps are taken to put in place effective and efficient regulations that accord with national preferences, GVC development can in fact be a force for positive change in terms of broader development outcomes. To ensure consistency between the GVC model and the dynamic aim of production upgrading, it is crucial to develop human capital through a strong commitment to education policies in developing countries.
Numerous developing countries have taken significant steps forward in the area of trade facilitation over recent years – a process that is likely to intensify in light of the WTO Agreement on Trade Facilitation. As that process deepens, it is important to keep a broad approach in mind, covering soft (regulatory) infrastructure and hard (physical) infrastructure, in addition to customs and border procedures. The trade facilitation programmes with the greatest potential in lower income countries, such as in East Africa, are firmly grounded in that outlook. If policies are appropriately designed and implemented, there is much that trade facilitation can do to increase GVC involvement, which in turn can have positive implications for sustainable development prospects.
This paper was produced under ICTSD’s Programme on Inclusive Economic Transformation as part of a project focused on global value chains which is aimed at empowering LDCs and low income countries to effectively utilise value chains to achieve sustainable and inclusive economic transformation.
Related News
African Civil Society Statement on the Continental Free Trade Agenda at Africa Trade Week 2016
From 26 to 27 November, 2016, civil society organisations from Africa met under the umbrella of the Africa Trade Network in Addis Ababa, in advance of the Africa Trade Week and the seminar of the CFTA to discuss the challenges of Africa’s economic transformation and integration and role of the CFTA. We have come to the following conclusions and make the following demands.
African Heads of State launched the CFTA in the context of continuing and worsening crises in the global economy which have played havoc with the lives of ordinary people in Africa and the world over.
These crises have served to highlight once again the untenable situation of African countries due to their subordination in the global economy as primary commodity export dependent economies – a situation inherited from their colonial past but reinforced by decades of the application of neoliberal free market policies. The CFTA was meant to contribute to put an end to this situation, i.e., to be an instrument for the transformation and integration of Africa’s economies driven by and meeting the needs and aspirations of all their peoples.
From the experiences of the variety of efforts undertaken and policies applied by African countries over the past 50 years or more of political independence, such transformation and integration of Africa’s economies requires packages of policies that complement each other to build the capacity of African producers and productive capabilities in general; develop national and regional infrastructure; and create integrated national and regional markets for African products, producers and investment. Such policies must aim to develop national and regional linkages among various sectors of economic activity, including agriculture, manufacture, and resource extraction sectors. The policies must be based on, nurture, support and promote indigenous, domestic and regional enterprise in all variety, including through the development of productive networks among Africa’s enterprises, from small and medium to large ones. Such policies must also promote and protect the economic, social, and cultural rights and material needs of the peoples across Africa.
The policies for the Africa’s transformation and integration must depart from the one-size-fits-all approaches of the neoliberal structural adjustment era. Instead they must be sensitive to the particular situations and needs of different social groups, including along lines of gender, class, ethnicity, and other status. Promoting gender equity and equality to redress the societal subordination of women and their inadequate access to and control over a broad range of economic resources is integral to the project of structural economic transformation of the African continent. Similarly, the needs and rights of smallscale producers, farmers, and traders, workers’ rights and the effects of the trade regimes on their livelihoods and precarious conditions of labour must be a fundamental consideration in states’ deliberations around regional integration. Furthermore, regard must be paid to the differences among countries in different situations, including taking into account the specific realities of post-conflict countries.
Climate change and environmental degradation threaten the very possibility of structural transformation in Africa. Therefore urgent measures are needed to address the impacts of global warming, along with the capacity of African nations to adapt to and mitigate this growing crisis, and promote environmental sustainability.
Above all, Africa’s experience of thirty years of the failure in the application of the so-called free market policies of neo-liberalism shows that the process of economic transformation and regional integration and the policies required cannot be left to the free-working of market forces. Rather they require the conscious, purposive and systematic role of the state, through a public sector that creates the appropriate regulatory and supportive framework for African enterprises as well as direct economic role in strategic areas. Crucial to this is the active role and space for all citizens, as various socio-economic constituencies and stakeholders, to effectively participate in and shape policies. As recognised in the Constitutive Act of the African Union, this involves the promotion of democratic principles and institutions, popular participation and good governance.
These policies and approaches are minimal necessities if the CFTA is to function as an instrument for the transformation and integration of Africa’s economies – the role for which it was proclaimed. In addition, the same African governments which launched the CFTA have, in meantime, continued to undertake commitments and obligations under international agreements like the WTO and the EPA, as well as bilateral investment treaties and double taxation agreements, which go against the very imperatives of transformation. It will be therefore important to revisit and revise these commitments as part of the process of such continent-wide initiatives as the CFTA.
Unfortunately, the processes of the CFTA as they have so far unfolded do not appear to be consistent with these minimally necessary pre-requisites.
The processes involved in the design and negotiations of the CFTA are so far opaque and exclusive. The structures created for the CFTA have little or no space for the involvement of civil society, the private sector, and the different social groups and economic constituencies whose interests are implicated. In addition, information related to the CFTA process, including even the timings of the meetings of the CFTA structures and their agenda, tend to be treated as confidential and are not readily available.
Thus the perspectives and concerns of workers, farmers, traders, domestic producers, women’s groups who have borne the brunt of trade policies of the past risk being marginalised in the CFTA process.
Instead, the bits of information so far available indicate that the predominant focus of the CFTA is on ambitious and aggressive elimination of tariffs and deregulation of services, with little regard for the different needs and capacities of different countries and socio-economic constituencies in Africa. Furthermore, this focus of tariff and regulatory restrictions appears to be at the expense of any serious efforts to co-ordinate and integrate even the other minimal measures related to productive capacity, infrastructure, etc., that was identified as part the programme of Boosting Intra-African Trade that was adopted as a necessary counterpart in the launch of the CFTA.
In short, it would appear that the same one-size-fits-all measures of trade liberalisation that have been experienced in the past are now being applied in an African setting, with the hope that it will somehow yield different results.
A CFTA of this nature will not fulfil the expectations of economic transformation and integration for which it was launched. On the contrary, it will simply contribute to creating a bigger African market for further domination by foreign products and investors over African products and investors, and bigger producers over smaller ones.
In the light of the above we demand that:
-
Space must created at the national, regional and continental level for African citizens, and their socio-economic groupings – that is workers, farmers, traders, producers, enterprises, civil society, private sector – to participate effectively in a democratic and transparent process and ensure the reflection of their concerns and views in the negotiations;
-
Information on the CFTA processes must be made available in a timely and accessible manner to citizens to enable their input and effective participation at national, regional, and continental levels;
-
The emerging focus of the CFTA on across the board tariff elimination and deregulation of services must be counter-balanced with more attention to industrial and other policies to build domestic productive capacity;
-
Rather than fast-tracking the CFTA on its own, there must be proper sequencing of any liberalisation measures with constructive policies to strengthen productive capabilities in African economies, build domestic enterprise and promote the rights and social protection of workers, farmers, traders, women and all other citizens.
Related News
tralac’s Daily News Selection
The selection: Monday, 28 November 2016
Featured tweet, @ECA_OFFICIAL: This week at #2016ATF, the big conversation is how to turn the #CFTA into reality - David Luke
Africa Trade Week 2016: Advancing socio-economic structural transformation through intra-Africa trade. Follow debates and presentations via Twitter: #2016ATF
Africa Trade Facilitation Forum: On 1-2 December, a select group of senior private sector executives from within Africa and from across the world will take centre stage at ATW 2016 during two days of high-level multi-stakeholder panel events called the Africa Trade Facilitation Forum. At the ATFF CEOs will join a prominent group of delegates from various stakeholder groups to share views on how Africa can trade with Africa. The ATFF will explore ways to overcome the restrictions to trading and imports across Africa such as non-tariff barriers like quotas, embargoes, sanctions, and levies. The Africa Trade Facilitation Forum is the first major platform for a broad group of stakeholders to come together to create a powerful network to act on this important issue. [Note: The programmes for the Africa Trade Week and the Africa Trade Facilitation Forum can be accessed here]
Other trade and development conference listings:
The 20th African Securities Exchanges Association annual conference begins today in Kigali
Measuring and implementing trade facilitation in Ghana (28 November - 1 December, Accra)
Regional conference on grain trade in West Africa (29 November - 1 December, Ouagadougou)
EIF Board meeting, EIF workshop in support of cross‑border trade (30 November - 1 December, Kigali)
UNU-WIDER, SA National Treasury conference: Growth and development policy – new data, new approaches, and new evidence (30 November – 1 December, Pretoria)
African Continental Free Trade Area: two papers from the UNCTAD project "Strengthening capacities of African countries in boosting intra-African trade"
Some issues in liberalizing trade in services: The negotiating approach that is adopted needs to take into account the work that has already been undertaken in the different African RTAs. However, it does not necessarily mean that the CFTA should adopt a similar approach as these RTAs. An approach that will facilitate trade and ensure that African countries develop regional value chains and also join GVCs should be considered. In this regard consideration should be given to the use of the `eclectic’ approach in terms of scheduling of commitments which combines various approaches. The following salient suggestions on services trade and trade negotiations under the CFTA, reflecting some of the suggestions above, emerged from a meeting organized by UNCTAD and the African Union Commission in Nairobi, Kenya: [The analyst: Emily Mburu-Ndoria]
Advancing pan-African integration - some considerations: Furthermore, a rapidly integrating Africa needs to make far-reaching decisions on a number of trade-related policies to target intra-regional trade (and investment) growth, to wit continent-wide standards for trade facilitation, rules of origin, Trade and Investment Repository platform, Inventory of Trade Restrictions including non-tariff measures and mechanisms to address them, and transparency and integrity in governance. Each of these related policies that African countries would need to adopt at the continent level to serve as building blocks for the CFTA are discussed below. [The analyst: Osvaldo Agatiello]
Regional integration in Africa (CUTS International)
On 26 October, CUTS International, Lusaka collaborated with Caritas Zambia to host a trade conference on ‘Regional integration in Africa’. The discussions focused mainly on the TFTA and the CFTA and their implications on regional integration for Zambia. The conference sought, inter alia, to identify common positions on the CFTA between the government, private sector and civil society, as discussions on the CFTA gain momentum. Presentation downloads: (i) Implications of regional integration on Zambia (ii) Implications of regional integration on Zambia’s agricultural sector (iii) Implications of regional integration on Zambia’s manufacturing sector (iv) Key reflections on implications of regional integration on cross border trade (v) Past performance of Zambia in COMESA and SADC.
East African Legislative Assembly adopts key report on sensitisation activities (EAC)
The EALA is recommending that sensitisation and awareness on the integration process be institutionalised as a continuous activity on its agenda. This is in addition to a raft of resolutions it adopted late yesterday as it debated a key Report on Sensitisation. The report follows the sensitisation activities carried out by the Assembly between 27 October to 7 November in the Partner States. The sensitisation, the third such series this year for EALA, targeted various stakeholders in outreach and was anchored on the theme: “EAC Integration Agenda: accessing the gains”. In the report, the Assembly urges the Partner States to fully implement the Common Market Protocol which provides for free movement of people, capital and services among others, to allow citizens of East Africa to enjoy their rights. With it comes the need for the partner states to eliminate non-tariff barriers which impact negatively on intra-regional trade activities. [Isaac Mwangi: EAC old barriers tackled as new ones spring up]
EAC revenue bodies raise red flag over fraud cases (New Times)
Revenue collection from the East African Community is under threat from increased fraudulent practices, commissioner-generals from the regional bloc have said. The fraudulent practices witnessed across the region differ from country to country. During a meeting of EAC Revenue Authorities Commissioner Generals in Kigali, last week, officials observed that fraudulent practices took various forms and changed depending on the mitigations set up. Richard Tusabe, the RRA commissioner-general, said that tax fraud was not unique to the region and is always changing depending on control mechanisms put in place. “It is a shared problem across the region. Some of the imports that come through customs come underdeclared, others undeclared. We are trying to consolidate our efforts to check these frauds. We want to own some of the regional initiatives where we can pool resources to be able to mitigate some of the risks together at regional level,” Tusabe, who chaired the meeting, said.
Tapping into digital innovation to promote trade, investment in Africa (ITC)
The slowdown of trade and the rise of e-commerce are two contrasting trends that are shaping the future of trade and investment, particularly in Africa. That’s according to global leaders gathered at the Trade Promotion Organization Network World Conference and Awards 2016 in Marrakech (24-25 November). ‘Slow economic growth, unequal distribution of the benefits of trade and policies that have gradually removed safety nets created the anti-globalization movements of today,’ said Mukhisa Kituyi, Secretary-General of UNCTAD. The challenge is not digitalization but how to manage those who lose out during the process, said Dr Donald Kaberuka, former President of the African Development Bank. ‘Successful businesses will be those who integrate social goals into their business plans.’
ESA Region members gather to drive customs modernization processes (WCO)
The 25th Regional Steering Group meeting (3-11 November) explored the status of the decisions of the 21st Governing Council held during the month of May this year in Lesotho. The RTC Heads noted with satisfaction the pre-launch of the new WCO ESA ROCB website and the support provided by CCF Korea. They acknowledged the publication Trade facilitation in East and Southern Africa (pdf) from the 1st Regional Research Conference to researchers. The WG for the development of a new Regional Strategy and Implementation Plan focused their efforts on revising the strategic objectives taking into account current & emerging issues such as, among others, the Trade Facilitation Agreement, Digital Customs, Illicit trade, and Customs and Tax Cooperation. Several activities linked to the agendas of the regional economic communities were identified by the WG. This will facilitate members’ involvement in the development of the strategy while reducing the risk of duplication of activities.
Tanzania: TMEA backs freight, logistics platform with 886.6m/- grant (IPPMedia)
Stakeholders in the freight and logistics industry launched a national platform last weekend that brings together policy makers and industry leaders aimed to collectively tackle challenges of the logistics and freight in the country. The Freight and Logistics Platform is further intended to foster best practices, play a critical role in the sector that will allow players to innovate, add value and strategise in order to realise common objectives of making the logistics and freight industry more efficient. Speaking at the launch of the platform, Tanzania Private Sector Foundation Executive Director, Godfrey Simbeye said the country’s demand for domestic transport is expected to increase by 16% in 2020. [TPSF to get 1bn/- boost from TradeMark East Africa]
Mauritius firms splurge Sh5bn on Kenyan companies in one year (Business Daily)
Mauritian firms have injected more than Sh5 billion into the economy through acquisitions and investments in Kenyan companies, indicating tightening economic links between Nairobi and the Indian Ocean Island country. The rush to Kenya by Mauritian firms is partly spurred by a double-taxation agreement signed two years ago. Investment analysts say Mauritius firms are driven by the need for geographic diversification and the desire to tap into Kenya’s economic growth. Kenyan investors have also registered firms in Mauritius in an effort to enjoy the tax benefits — in some cases eliciting calls for investigations of the double taxation agreements.
‘The longest lean season’: how urgent action is needed to counter the impacts of the El Niño drought in Southern Africa(Oxfam)
Our focus in this paper is the current humanitarian situation in the region, and the responses urgently required in the coming weeks and months. While we pay particular attention to Malawi and Zimbabwe (two of the countries most affected by the crisis, where Oxfam is responding), our core messages are focused on actions desperately needed to support the whole region. Mozambique and Madagascar in particular have been severely impacted by the crisis. In Mozambique, an estimated two million people have been affected; in Madagascar, 1.6 million. Both countries are showing alarming levels of malnutrition.
Agricultural commodity value chains: the effects of market concentration on farmers and producing countries - the case of cocoa (pdf, UNCTAD)
The policy options discussed in this note are not enough to enhance the integration of small-scale and scattered farmers into agricultural value chains at a time when they must deal with a highly concentrated industry. Such policies should effectively be complemented by pro-farmer trade and agricultural development policies and other actions that contribute to improving the efficiency of agrifood value chains for all stakeholders. The role of Governments in shaping adequate policies and building strong institutional frameworks is important. Through commodity development boards, Governments of agricultural commodity producing countries may potentially play a useful role in helping farmers counteract the market power of large players. [ Note: this report was prepared for UNCTAD’s Trade and Development Board, sixty-third session, 5-9 December], [Nigeria: Potato value chain support project – ESPM summary (AfDB)]
Global Economic Outlook (OECD)
Uhuru roots for increased trade with Latin America and the Caribbean
Rwanda looks to boost exports to ECCAS
Egypt: Debunking the export myth?
Tanzania to maintain ban on coal imports
Mozambican industrialists want to prevent export of raw cashew nuts
New law strengthens capacity to attract private investment in Angola
Zimbabwe, China trade to reach $1bn mark by year end
West Africa Gateway: News Brief, 18-20 November 2016
Cameroonian government wants to establish import tax to finance African Union
IGAD CSO Grant Facility: civil society exchange on best practices
South Africa: Moody’s statement
‘India ready to submit formal proposal on services to WTO’
Participants endorse ‘Ashgabat Statement’ as first-ever UN conference on sustainable transport ends
Related News
African Continental Free Trade Area: Some issues in liberalizing trade in services
The services economy and services trade is a potential key driver of economic growth and structure transformation for African countries, including in boosting manufacturing capacities. The formation of a CFTA services agreement would be a catalyst for harnessing the potential development impact of services economy and intra-African as well as extra-African services trade.
The services negotiations could build on the autonomous liberalization and the acquis in the regional economic communities. Given the novelty and complexity of services, support in building up institutional, human and regulatory capacities of African countries to enhance their readiness and preparedness to commence negotiations is necessary and, even more important in terms of follow up implementation of agreed commitments.
Introduction
The 18th Ordinary African Union Summit held in January 2012 in Addis Ababa, Ethiopia, endorsed an Action Plan for Boosting Intra-African Trade and a roadmap for the establishment of a Continental Free Trade Area (CFTA), to be operationalized by an indicative date of 2017. There is an aspiration and commitment to pursue services liberalization to booster trade in services as part of the CFTA goal of boosting overall intra-Africa trade. The African Union has also agreed to conduct negotiations on trade in goods and in services in the first phase of the CFTA negotiations. So services liberalization and the development of services supply capacity and services trade are central to the formation of an integrated African market.
The services sector contribution to development is undeniable. The services sector is the world’s largest employer, and produces 70 percent of global gross domestic product (GDP). Services however account for only one-fifth of global trade, leaving trade in services only about an eighth as intensive as trade in merchandise (Ghemawat, 2011). For this reason, trade in services is a relatively unexplored sector compared to trade in goods. However, it is easily illustrated that the channels through which merchandise trade benefits economies extend effectively to trade in services especially since services make up a far greater part of the world economy than goods.
Infrastructure services such as transport of goods by road, air, railway and ships, is the underpinning enabler for greater integration. The movement of people requires good transport infrastructure, but also spurs the development of connecting roads and railways simply through their movement or “lobbying with their feet”. Ghemawat suggests the liberalization of services could potentially push the resulting gains past five percent of global GDP.
The push to boost intra-African trade continentally is occurring at an opportune time for Africa. According to Gernetzky (2012), Africa’s population could reach 2.7 billion people with 1 billion people in the middle class bracket by 2060. This would then triple Africa’s economically active population providing a basis for stable and consistent high levels of economic growth. As such, Africa’s demographic configuration, embodying a young, growing population, represents an important structural factor that has impacted the region’s economic prospects positively and, if well managed, promises to shape the economy for the foreseeable future.
Along with a youthful population and growing middle class, the prospect of rapid urbanization across the African continent is also spurring demand for modern goods and services while building a more sophisticated skills base, which is all part of the “demographic dividend”. On this front, Africa already represents a substantial consumer population. As more Africans flock to the cities and disposable incomes rise, the demand for modern goods and services, such as telecommunications and banking services, has accelerated. The demographic structure suggests that this “dividend” will continue to make a substantial contribution to Africa’s economic progress. Global businesses – whether based in Asia, Europe or the Americas – as well as home-grown African firms, will strive to meet this demand. An integrated African market in goods and services can provide major opportunities to maximize production, consumption and trade.
The formation of the CFTA and its implementation will present another catalyst to sustaining African economic growth potential. It can provide the necessary sustaining energy to boost trade, raise economic growth and foster development that is inclusive and sustainable and help Africa to reach common goals established under Africa's Agenda 2063 and the United Nations 2030 Agenda for Sustainable Development and the Sustainable Development Goals.
Africa’s rising integration – within Africa and between Africa and the rest of the world – is a fundamental part of understanding Africa’s full potential and realising its true economic prospects. Africa may be the least globalised region of all, but the region has started opening up to the rest of the world. This increased economic openness and integration over the past ten years has contributed toward Africa’s economic rise. Over the past decade Africa has increasingly opened up the spread of exports to international markets. According to Visa Report (2013), export volumes have grown at an average of 8.8 percent per year since 2000, as compared to the world average of 3.7 percent. This reflects rising global demand for African products and services. Moreover, given that Africa’s export growth exceeded economic growth – albeit modestly – over the period, it follows that exports have become a relatively more important component of the region’s economy since 2000 – indicative of the importance of economic openness as a component of sustained economic growth. Africa’s economic growth and the region’s rising competitiveness is evidenced further by the increased trade diversification and sophistication that has come about following important reforms during the 1990s and early 2000s, and subsequent relations with new trade partners who are also the new drivers of global economic growth.
This report is designed to inform and assist African trade policy makers, negotiators and regulators, as well as concerned stakeholders in the business sector, academia and civil society about the development potential of services sector and services trade development in Africa, and suggestions on how to negotiate a services trade agreement in the context of the CFTA so as to boost African services supply capacity and intra-African services trade growth.
Chapter I examines the broader role contribution of services and services trade, including through integration into global and regional value chains, in promoting economic growth and development. Chapter II focuses on the contribution of services to development in Africa and efforts undertaken at intra-African level in terms of trade agreements to unlock the potential of services trade. Chapter III discusses the various services negotiation modalities and approaches that African countries can consider in development a continental services agreement under the CFTA. Finally the Conclusion highlights some suggestions on a CFTA Services Agreement.
This study was prepared for UNCTAD by Ms. Emily Mburu-Ndoria under the framework of a Development Account Project on “Strengthening Capacities of African Countries in Boosting Intra-African Trade”. The views expressed in this publication reflect solely the views of the author.