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Afreximbank Forum ends with call for strengthened financial control mechanisms and capacity building on corporate governance
Africa must institute stronger financial control mechanisms and capacity-building for customer due diligence and corporate governance in order to attract capital competitively and ensure greater financial stability and sustainable development, participants in the Third Annual Forum on Customer Due Diligence and Corporate Governance organised by the African Export-Import Bank’s (Afreximbank) have said.
In conclusions at the end of the two-day Forum held in Kigali on 26 and 27 October, the close to 200 participants said that strong corporate governance was critical to ensuring the integrity and credibility of financial systems and to reducing the vulnerability of African economies to financial instability and shocks
They called on African financial institutions to engage frequently with their boards and senior management and to assess the adequacy and accuracy of information being submitted them.
Other conclusions include the need for government bodies and institutions to foster initiatives to promote good corporate governance practices and for effective capacity building and collaboration to be established between the public and private sectors in order to enhance corporate governance and customer due diligence.
Given the fast-changing business dynamics and the growth of online banking, mobile payments and other electronic platforms, the participants expressed the need for a strong technology-driven approach to corporate governance and customer due diligence so as to increase effectiveness and responsiveness to change.
The participants, in addition, welcomed the Afreximbank initiative to establish an online African Customer Due Diligence Repository Platform to serve as a centralized source of primary data required to conduct customer due diligence checks on African counterparties.
In an address to the Forum, John Rangombwa, Governor of the National Bank of Rwanda, had said that previous global financial crises had shown that weaknesses in governance contributed to systemic vulnerability and failures. He argued that financial institutions and regulators had a critical role to play in putting in place regulations and monitoring mechanisms to ensure sustained stability of the financial sector.
Participating in the Forum were representatives of regulatory bodies, financial institutions, and legal firms from more than 20 African countries, who were joined by international experts and Rwandan government officials.
Forum hears call to tackle Africa’s $50 billion annual loss to illicit financial flows
The estimated $50 billion being lost annually by Africa due to illicit financial flows should be a source of concern to the continent, especially as access to finance and capital was a key constraint to growth and economic development, Claver Gatete, Minister of Finance and Economic Planning of Rwanda, said on Wednesday in Kigali.
Declaring open the third Annual Customer Due Diligence and Corporate Governance Forum organised by the African Export-Import Bank (Afreximbank), Mr. Gatete noted that over the last 50 years, Africa had lost in excess of $1.7 trillion to illicit financial flows. That amount roughly equalled all the official development assistance it received during the same period.
The illicit activities had significant implications for growth and economic development and for the financial soundness of banks and corporates, he said, pointing out that they undercut legitimate economic activities, discouraged investment, bred suspicion and undermined government legitimacy.
The minister urged African financial institutions, regulatory bodies and governments to work together to establish mechanisms that would ensure a healthier financial landscape and help prevent financial crimes as well as strengthen investors’ confidence in the continent.
Also speaking, Dr. George Elombi, Afreximbank Executive Vice-President in charge of Corporate Governance and Legal Services, told participants that the high cost of conducting customer due diligence adversely affected the stability of the African financial sector and the productivity of corporate entities.
“Financial crimes, compounded by weak corporate governance capacity, have the potential to derail legitimate economic activity and slow down the development of financial markets essential for optimal allocation of capital to support the structural transformation of resource-constrained African economies,” he said.
He announced that Afreximbank was preparing to launch an online African Customer Due Diligence Repository Platform to provide a centralized source of primary data required to conduct customer due diligence checks on African counterparties. That platform would allow subscribers to conduct due diligences at a low cost, thereby decreasing the cost of trade finance in Africa.
Afreximbank was also increasing awareness on the need to look inward for financial resources through its Africa Direct Investment Initiative, continued Dr. Elombi. It was, in addition, promoting the use of African credit rating agencies by African entities as a way to commoditize corporate and banking-related information in order to ensure greater access to credit at reduced compliance costs.
The Forum, which is being organised in collaboration with the Rwanda Development Board, follows two editions held in Dakar in 2014 and in Seychelles in 2015.
The more than 200 participants include bankers, regulators, and representatives of financial institutions and corporate entities from Africa and beyond. It is featuring open discussions and presentations by experts, including from the International Anti-Corruption Academy in Vienna, the International Finance Corporation, the Rwanda Governance Board and several international and African banks.
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Logistics Barometer South Africa 2016
For a decade South Africa has been measuring its national logistics costs in a standardised, internationally benchmarked way. The Logistics Barometer presents the latest results of this national cost measurement and drills down to investigate the trends that influence these costs – from the oil price to outsourcing to the impact of modal strategies and infrastructure development.
Why?
The second edition of the South African Logistics Barometer continues the macrologistics research work published in the CSIR State of Logistics Survey for South Africa (discontinued in 2014) and the first Logistics Barometer published in 2015. It fits into a growing global body of work to measure national level logistics costs and links to the World Bank Trade Facilitation and Logistics Global Knowledge Network.
The Logistics Barometer provides a numerical analysis of logistics costs trends in South Africa supported by insights from logistics industry specialists and academia. The usefulness of calculating annual data lies in the fact that trends can be identified and applied by both operational and strategic analysts in the public and private sector for future planning, policy development and investment objectives on a macroeconomic level. The calculations in this edition are up to 2014, with an estimate for the 2015 year, and a forecast for the 2016 year.
At 11.2% in 2014, South Africa’s logistics costs as percentage of GDP deteriorated slightly compared to 2013, and this trend is expected to continue. The ratio generally improved up to 2011, but has been on an upward trend since then.
South Africa is still one of only three countries who consistently measures and publishes logistics costs on a national level, the other two being the U.S.A. and Finland.
The Logistics Barometer has, as its backbone, more than 20 years of research into freight volumes and freight flows in South Africa. The logistics cost calculations have been refined over the past 13 years to make it one of the most robust and reliable quantitative reports on logistics costs globally.
The source data for the logistics cost measurements originate from the Transnet Freight Demand Model (FDM), GAIN Group’s National Freight Flow Model (NFFM), StatsSA’s Annual Financial Statistics Survey (AFS) and StatsSA’s Quarterly employment statistics (QES).
Where?
South Africa’s gross domestic product (GDP) totalled R4 014 billion in 20151 and although it has claimed back the title of Africa’s biggest economy from Nigeria due to exchange rate fluctuations, both economies look to be on the brink of recession mostly due to the decline in export commodity prices.
Average GDP growth for South Africa equalled 2.1% between 2011 and 2015, but the International Monetary Fund (IMF) adjusted the growth forecast for 2016 to only 0.1%, recovering to 1.0% in 2017. Nigeria’s economy is forecasted to retract by -1.8% in 2016, recovering to 1.1% in 2017. Both countries are well below the forecasted world output growth of 3.1% in 2016 and 3.4% in 2017.
The Logistics Performance Index (LPI) provides a comprehensive measure of the efficiency of international supply chains. South Africa was ranked 20th out of 160 countries in 2016 and is classified as a logistics over-performer when compared to its peers. When looking at the performance over the aggregated LPI (2010-2016), South Africa is only one of two countries in the top 30 that are not classified as high-income countries, the other being Malaysia.
South Africa’s logistics costs totalled R429 billion in 2014 and equated to 11.2% of GDP or 51.5% of transportable GDP. Logistics costs increased by 9.2% between 2013 and 2014, after showing modest growth of only 3.5% in the previous period. It is estimated to have grown by 9.5% during 2015 and is forecasted to grow by 6.3% in 2016, in line with current inflation estimates.
The phenomenon from 2012 to 2013 of logistics costs rising faster than the underlying transport activity (measured in tonne-km) was reversed in 2014 with a relatively larger growth in tonne-km than real costs. The growth of low-value transport relative to other categories could have contributed to this phenomenon.
How does South Africa compare to other countries?
Over the past number of years more countries have attempted to measure logistics costs, some only as a once-off exercise. It is worthwhile therefore to provide a comparison between these countries although various ways of measuring exist and different economic and structural factors influence logistics costs.
Developed countries would have lower logistics costs when expressed as a percentage of GDP, the outlier being Finland, which has a low-outsourcing environment and a long cash-to-cash cycle. The developing countries also each face their own challenges. India is densely populated with high congestion and inadequate infrastructure, infrastructure also being the biggest challenge for efficient logistics in all the BRICS countries. Russia has long transport distances to contend with, Brazil has port operational challenges and China has one of the highest regulated logistics industries in the world.
South Africa’s infrastructure challenges in a BRICS context are therefore not unique and performance on LPI measurements not poor. But the country is far away from trading partners, has long inland transport distances, relies heavily on unbeneficiated exports, and has a much smaller economy than the other BRICS countries, which is also growing slower than most. The country is therefore vulnerable to external shocks and logistics cost reduction needs to be a priority.
Trade supply chains
The 13 years of measuring South Africa’s logistics costs included measurements of international trade logistics costs within South Africa, i.e. up to the quay wall landside for exports and from the quay wall landside for imports. Port costs and ocean carrier costs to foreign ports were excluded and it was therefore always a domestic cost measurement. The work was recently expanded to include these aspects.
The impact of international trade logistics costs (ITLC) on national logistics costs is depicted in Figure 8. The country’s total ITLC (up to and from foreign port gates) is R242 billion or 11.7% of trade GDP (i.e. the value of all traded commodities, amounting to R2 061 billion). Only 9.5% (R23.1bn) of these ITLC are paid directly to ports (port authority and port terminal charges).
This means that direct port costs are only 1.1% of the value of trade. As a direct result of South Africa’s spatial challenges, the highest portion of these costs is the inland logistics, being 41.8% (R101.1bn). That is because our centres of production and consumption are far from ports. Given South Africa’s distance from global markets, the contribution of ocean carrier costs is also significant, at 39.2% (R94.9bn).
The costs, up to the point when ships leave port gates or arrive in front of port gates, amount to close to R46bn (port charges, documentation charges and ship standing costs) (‘Other’ is composed of truck standing costs and inventory carrying costs, which is negligible). About half (50.3%, R23.1bn) of these costs are paid to the port authority and terminal operators. The rest is additional costs caused by documentation and additional transport costs due to the delay of ships in front of and in the port. Of the R22.8 billion (R16.8bn + R0.77bn + R5.2bn) remaining additional costs, around three quarters (73.7%) are documentation charges.
Only 3% is because trucks are delayed before and in the port and just under a quarter (22.8%) because ships are delayed in front of and in the port. A very small cost is also incurred for the financing of delayed inventory (ICC). Significantly though, these other port-related charges are more or less equal to the direct port charges. More significant is the fact that most of these charges are documentation charges or relates to what the World Bank perceives as the ease of doing business. (Please note that in this research, delay also includes “normal” turnaround time (i.e. it is impossible to turn trucks and ships around in no time), but it can always be improved. The data indicates the baseline number from which it can be improved.)
Transport costs are the dominant contributor towards logistics costs, amounting to 57% of the total in 2014, followed by inventory carrying costs (15.2%), warehousing (14.6%) and management & administration costs (13.5%).
The contribution of transport costs to total logistics costs is expected to decline to 55% in 2016 mainly due to lower fuel prices (fuel costs made up 40% of road transport costs in 2014). This is the lowest contribution level it has reached since 2010.
Transport costs showed a moderate increase of 3.7% between 2013 and 2014, still driven by efficiency gains from logistics service providers.
The trade-off was that inventory carrying costs increased by 21.8% between 2013 and 2014. The increase in the prime interest rate from 9.0% at the start of 2014 to 9.25% at year-end, compared to 8.5% in 2013, contributed to the higher inventory carrying costs, but external factors such as economic uncertainty and a volatile currency have led to increased inventory levels and are forecasted to have the same effect in 2016.
On the back of these higher inventory levels, warehousing costs (which include storage and handling costs) increased by 12.1% between 2013 and 2014, following on nominal growth the previous two years, and is estimated to have grown above inflation in 2015.
Road transport contributed 83% to transport costs in 2014, rail tariffs contributed 15% and pipeline tariffs contributed 2%.
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Exporters encouraged to utilise more of AGOA tariff lines
South African exporters have been encouraged to utilise more of the tariff lines negotiated under the Africa Growth Opportunity Act (AGOA). This came through at the two-day Team Export South Africa (TESA) workshop which took place in Midrand in the past two days.
According to the Director of Americas Bilateral Trade Relations in the International Trade and Economic Development Division (ITED) of the Department of Trade and Industry (the dti) Mr Malose Letsoalo, South Africa is only utilising 141 tariff lines out of the 1835 that are there under AGOA. He added that with regards to the 3 400 non-reciprocal arrangements, South Africa was only utilising 459.
“We have experienced a lot of change and diversification in terms of our exports to the United States of America market from just exporting mainly commodities between 1994 and 2000, to more value-added products since 2001 to date,” said Letsoalo.
He highlighted that the value-added products included among others nuts, automotives, chemicals and wines, and said more of the opportunities exited in the sectors of agricultural products, automotive components and capital equipment among others.
“TESA needs to take advantage of trade opportunities provided by trade agreements like the SADC protocol, The European Free Trade Agreement and the Economic Partnership Agreements with other countries. This will assist us to deal with the triple challenges of poverty, unemployment and inequality,” said Letsoalo.
The Chief Director for the Incentive Development and Administration Division of the dti Mr Hawie Viljoen said the department was committed to assist exporters even under the tight budgetary constraints. According to Viljoen the department had introduced more stringent criteria in terms of providing funding for exporters into the international market.
“Some of the criteria that we had to introduce included improvement in terms of strengthening post-event export benefit tracking to ensure that the companies we fund are able to increase exports, to ensure high impact and value for money,” said Viljoen.
He highlighted that the importance of exporters making use of opportunities available for export but ensuring that there is value for money in terms of what government puts in.
Ms Jill Atwood-Palm from the South African Fruits and Vegetable Canners Association said she appreciated the interaction by government, agencies and export councils and highlighted the importance of continuous engagement, as sharing of resources will ensure that the common goal of increasing exports is achieved.
Export councils as well as provincial departments participating in the workshop expressed the need for collaboration, communication and increasing the partnership between the dti and the exporters. The workshop also resolved that Trade Invest South Africa (TISA) within the dti leads the process of developing an action plan derived out of the Integrated National Export Strategy to ensure that the objectives are realised.
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Financing infrastructure in Africa: First STC on transport, intercontinental and inter-regional infrastructures, energy and tourism
The First Ordinary Session meeting of the STC on Transport, Intercontinental and Interregional Infrastructures, Energy and Tourism will be held in Lomé, Togo from 13 to 17 March 2017.
The African Union Commission (AUC), in collaboration with the Government of the Republic of Togo, the African Development Bank (AfDB) and the United Nations Economic Commission for Africa (UNECA) is organizing the first meeting of the AU Specialized Technical Committee (STC) on Transport, Transcontinental and Interregional Infrastructures, Energy and Tourism which will be held in Lomé, Togo and includes the All Africa Energy Week (AAEW) and the Pan-African Investment Forum for Transport, Energy and Tourism.
The Specialized Technical Committees (STCs), which constitute an important technical organ of the AU, were established under Article 25 of the African Economic Community Treaty (the Abuja Treaty). With the transformation of the OAU into the AU, the STCs were carried over by the Constitutive Act of the African Union under Articles 14 to 16.
The STCs are expected to work in close collaboration with the various departments of the AUC so as to provide well-informed inputs in their areas of specialization to the work of the AU Executive Council. They should also, be involved in monitoring development programmes implementation by the AUC and Regional Economic Communities (RECs).
Therefore, the early operationalization of the STCs becomes imperative, given the overall objective of accelerating continental integration and the importance attached to the effective implementation of programmes and projects of the Union. To this end, the Assembly of the Union adopted The Decision: Assembly/AU/Dec.227 (XII) reconfiguring the existing STCs and created one on Transport, Intercontinental and Interregional Infrastructures, Energy and Tourism. The STC will meet on a biennial basis.
Theme and objectives of the STC 2017 meeting
The STC sessions will focus on the following theme: “Financing Infrastructure in Africa”
The overall objective of the STC meeting is to assess progress and to achieve concrete advances in the financing of major infrastructure, notably those in the Priority Action Plan of the Programme for Infrastructure Development in Africa (PIDA/PAP), through decisions and consensus on investing in the preparation, structuring, implementation and risks mitigation of climate resilient infrastructure projects.
The specific objectives are:
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Consideration and adoption of the Rules of Procedures of the STC;
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Establishment of the STC Bureau and Sub-Committees;
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Consideration of the implementation status of the Decisions and Declarations adopted at the previous ministerial conferences and African Union (AU) Assembly sessions on transport, energy and tourism;
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Evaluation of the progress made by regional and international institutions in financing the energy, transport and tourism sectors projects, notably PIDA/PAP and regional projects and other AU flagship projects under the AU Agenda 2063;
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Analyse constraints and how to strengthen national and regional capacities and to increase the participation of national and regional financial institutions in financing the development of the three sectors (domestic and regional financial resource mobilization);
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Adoption of Strategies on making Africa the Preferred Destination for Tourism under the AU Agenda 2063;
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Adoption of infrastructure programs and initiatives as well as action plans to be undertaken January 2017 up to the next STC meeting at national, regional and continental levels; and
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Adoption of a Ministerial Declaration with Recommendations drawn from experts report and Action Plans.
Expected outcomes
The expected results are: the adoption of the Rules of Procedures of the STC, establishment of the STC Bureau and Sub-Committees, a Ministerial Declaration with recommendations drawn from the Experts’ Report and sectorial Action Plans for infrastructure projects. The ministerial declaration, report and action plans arising from the deliberations of meeting shall be submitted to the Executive Council for consideration.
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tralac’s Daily News Selection
The selection: Thursday, 27 October 2016
Launching today, in Kampala: The East African Community Common Market Scorecard 2016
Featured tweet, @Bonguglo: ’Amb Aparr, Uganda, at AU retreat says addressing NTBs is required to ensure CFTA grows weak intra-African trade’
Africa Trade Week 2016 (28 Nov - 2 Dec): preview
The African trade agenda is at a critical junction. All African sub-regions have engaged in negotiations for the EPA with the European Union. On June 24, 2016, the United Kingdom, a major trading partner for several of these EPAs sub-regions, voted to separate from the European single market. This development adds a significant complication to the African trade agenda. Furthermore, discussions are scheduled to begin next year on the post-2020 relation between the EU and the Group of African, Caribbean and Pacific countries. The United States of America, in September 2015, extended the African Growth and Opportunity Act for 10 years during which reciprocal trade agreements will have to be negotiated. Other major African trading partners such as Japan, India, China and Brazil are contemplating enhanced trade and investment ties with the continent. Moreover, the WTO ministerial in Kenya concluded in December 2015 with a symbolic face saving small package. This is the continuation of a process that has slowly undermined the development agenda that Africa had painfully and successfully inserted in the Doha Development Agenda. Finally, burgeoning mega-regional trade negotiations between the African region and major global trading partners is expected to significantly impact the African trade agenda.
More specifically, ATW2016 will aim at: (i) creating an agenda for effectively implementing the trade facilitation cluster of the BIAT (ii) building synergies, linkages and complementarities between the CFTA as well as the multilateral and bilateral trade agendas (iii) ensuring parliamentarians, private sector, and civil society have a better understanding of the CFTA and its coherence with the African structural transformation agenda (iv) creating a Pan-African platform to facilitate capacity development and harness parliamentarians, private sector and civil society contribution to the CFTA process. ATW2016 will have three main segments. The first component - the Africa Trade Forum, 28-30 November - will focus on the CFTA and its implementation as the main theme. The second segment will be a meeting of African Ministers of Trade, 29-30 November. The third segment is the 2nd African Trade Facilitation Forum, 1-2 December. It will consist of a high-level policy dialogue on the implementation of the trade facilitation cluster of BIAT, including the WTO Trade Facilitation Agreement.
Boosting Korea-Africa trade: Afreximbank, KEXIM sign MOU (Afreximbank)
Under the terms of the MOU signed by Afreximbank President Dr. Benedict Oramah and his KEXIM counterpart, Dr. Lee Duk-Hoon, KEXIM will make available a credit line of up to $100 million to Afreximbank to support trade transactions between South Korea and the African continent as part of a commitment by the two institutions to cooperate in matters of common interest. Afreximbank and KEXIM will also explore the possibility of establishing other financing schemes to promote trade between South Korea and Africa. In 2015, Africa’s imports from South Korea stood at approximately $9.8bn compared to $13bn in 2014 while the continent’s exports to South Korea amounted to $5.8bn in 2015 and $7.9bn in 2014.
Sovereign debt crises more likely, new mechanisms needed (UNCTAD)
The world needs a new mechanism to deal with sovereign debt crises, which represent a growing danger to the economic stability of many developing countries. The world needs a new mechanism to deal with sovereign debt crises, which represent a growing danger to the economic stability of many developing countries and would thwart the 2030 Agenda for Sustainable Development before it had taken off, UNCTAD said on Wednesday ahead of a UN meeting on sovereign debt restructuring. Countries in Africa and elsewhere have been stacking up debt, even as their ability to repay these debts is shrinking. Falling commodity prices, a rising dollar and the prospect of higher interest payments mean these debts may be harder than ever to repay. New research to be published in November 2016 shows that the latest round of borrowing goes back to 2006 when the Seychelles issued a sovereign bond, the first sub-Saharan African country with the exception of South Africa to do so in 30 years. In the decade since then, Angola, the DRC, Côte d’Ivoire, Ethiopia, Gabon, Ghana, Kenya, Namibia, Nigeria, Rwanda, Senegal, Tanzania and Zambia have accumulated more than $25 billion worth of bonds, with a principal amount of more than $35 billion. Many African countries are now facing repayment difficulties, the researchers, Aleksandr V. Gevorkyan and Ingrid Harvold Kvangraven, say. They point to the example of Ghana. [Aleksandr V. Gevorkyan, Ingrid Harvold Kvangraven: ‘The trouble with Sub-Saharan African debt’]
UNECA dialogue: Africa’s progress towards regional and global economic integration, impact of Brexit for the EAC (New Times)
Transformative regional integration could be achieved through collaboration between countries rather than through economic competition, economists and policymakers said yesterday. This was during a policy dialogue on regional integration organised by the Office for Eastern Africa of the UNECA, in collaboration with the University of Bremen in Germany, at the Kigali Convention Centre. Dr Thomas Kigabo, chief economist at the National Bank of Rwand, noted that the Brexit is “a very interesting example and experience.”
Doing Business 2017 – Country updates:
Egypt rises to 122 (Ahram), Kenya climbs 21 places (Business Daily), Nigeria advances one step to 169 (WorldStage), Tanzania shines in 2017 ‘doing business’ report (Daily News), Zimbabwe slips 4 places, to 161 (NewsDay)
South Africa: Medium Term Budget Policy Statement – 2016
Net exports and the current account (extract, Chapter 2, pdf): Exports grew by 3% in the second quarter of 2016 compared with the same period in 2015, supported by manufacturing and mining exports, particularly platinum group metals. The first half of the year saw a two percentage point decline in the share of exports to African markets compared with the same period in 2015, reflecting weaker economic conditions in the region.
In recent years, despite the large and sustained depreciation in the value of the rand, South Africa has not experienced strong export growth. Since 2010, the real effective exchange rate has depreciated by 20.9%. Yet the main factor in export growth is global demand, which has been moderate. A one-percentage-point increase in global demand could add as much as 0.3 percentage points to medium-term growth. Soft domestic demand was reflected in the decreased volume of imports, which fell by 3.1% in the first half of the year compared with the same period in 2015. Notable exceptions included vegetable products, oils and fats, where increases of between 43 and 60 per cent reflected the effects of the drought. Over the medium term, improved domestic demand should support import growth, but the weaker currency will limit the expansion of volumes. Imports are expected to contract in the current year and grow by 2.7% in 2017.
The current account deficit narrowed in the second quarter as net exports increased and the trade account recorded a surplus, despite some weakening of the terms of trade. The deficit was funded through an increase in net portfolio investment, mainly into government bonds, and a rise in net foreign direct investment. Over the next three years, the current account deficit is expected to average 3.9%, down from an average of 5.2% between 2013 and 2015. The forecast does not project any major gains in the terms of trade.
UK textile exporters take case to Africa (MRW)
A delegation has returned to the UK after a bid to persuade East African states to reverse their decision to outlaw imports of used textiles and leather goods. On 2 March 2016, heads of state of the East African Community (EAC), an intergovernmental organisation of Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda, passed a directive to phase out such products by 2019. This has been a concern for the Textile Recycling Association in the UK because of the jobs they fear will be lost in this country as EAC members account for a quarter of the exports to Africa – the biggest global market for the UK.
International Development Secretary Priti Patel: update on UK’s Africa trade initiatives
New support includes: (i) launching a new Invest Africa programme to encourage at least £400m of FDI into the most productive sectors – such as manufacturing – to create 90,000 direct and indirect jobs in Kenya and other African countries over the next decade. This builds on the UK’s role as the largest European investor into Africa. (ii) providing £95m over the next four years to increase Kenya’s trade by £1.3bn, building on the success of TradeMark East Africa – founded by UK aid – in breaking down the barriers to trade. This will create hundreds of thousands of new jobs, stimulate further growth and generate additional revenue for the Kenyan authorities that provide basic services for those in need.
AfDB Multi-Partner Somalia Infrastructure Fund: update
The AfDB has approved a framework document for the establishment of the AfDB Multi-Partner Somalia Infrastructure Fund. The fund will mainly focus on infrastructure rehabilitation and development in Somalia, with specific investments in the Energy, Water & Sanitation, Transport and ICT sectors, as well as related institutional capacity-building. Initial seed financing for the Fund has been provided by the UK’s Department for International Development and the Islamic Development Bank. The Bank intends to scale up its resource mobilization campaign for the Fund, by convening a Donor Roundtable meeting in November 2016, and a subsequent Infrastructure Investment Conference in early 2017.
Africans want cross-border data access reform, but they might get left out (CFR)
At the first session of the 2016 Forum on Internet Freedom in Africa, questions about cross-border data access—usually a dry topic—took center stage. The moderator and participants grilled representatives from Google and Facebook about the fairness of limited African access to African data held by U.S. companies, invoking the need for greater “internet sovereignty.” These remarks contrasted with one year ago, when I could find no one at this forum talking about African data access problems. Africans are now thinking about this issue, but the U.S. government is not really considering Africa as it debates the future of cross-border data requests. The standards outlined in the Obama administration’s draft proposal will be most easily met by favored U.S. partners; the United Kingdom appears to be first in line for a deal. Left-out countries will have few viable options for accessing data and may turn to damaging alternatives. [The analyst, Mailyn Fidler, is a fellow at the Berkman Klein Center for Internet and Society at Harvard]
Africa should pay heed to allocation of its IP addresses (IPPMedia)
The African Union has been facilitating payment to overseas carriers to exchange intra-continental traffic on behalf of African states, a process that was costly as it was inefficient. For this reason the AU provided the grant for the establishment of the Nairobi GRX, in addition to having increased the internet exchange points in the continent increased from 18 to 32 over the last five years. And, while on internet protocol exchange, industry experts have warned that Africa is set to run out of Internet Protocol addresses soon - actually as early as next year.
The cultural trade index: an introduction (World Bank)
The Cultural Trade Index aims to shed light on cultural trade and stimulate interest in how this little-known area can contribute to economic diversification, boost shared prosperity, and reduce extreme poverty. As the first index of its kind, the Cultural Trade Index would gather cultural trade data scattered across different sources, place them in one place, and show how countries are performing. Extract: In this case, according the figures in Table 2, at $759m, the Egypt leads the selected group of African nations in art crafts trade — it is followed by South Africa ($175m), and Ghana ($126m). That result, however, changes when looking at the percentages of art crafts trade in each country’s total trade. See Table 2.1. Ghana takes the second place and South Africa comes third. Under the index computed in Table 2.2, Egypt still leads, and again followed by Ghana, then South Africa. Ghana’s total trade is used in Table 2.2 as a base for illustrative purposes.
Mozambique: Good gas and bad governance (Africa Confidential), Trends and macroeconomic scenarios: presentation by Prof Sam Jones (UNU-WIDER)
South Africa: Exporters’ playing field put under pressure as DTI manages budget constraints (Engineering Weekly)
Rwandan exporters eye Congo-Brazzaville market (New Times)
Kenya: Sh14 billion second port to be put up in Kisumu County (The Standard)
Malawi National Single Window: consulting services to provide technical assistance (World Bank)
Kenya: Capacity assessment of the domestic construction industry consultancy (pdf, AfDB)
African Water Facility long term strategy 2017–2025: 27-28 October workshop (pdf, AfDB)
Uganda: IMF Staff concludes review mission
Statistical capabilities need major upgrade to achieve 2030 Agenda – UN agriculture chief
Pan African Business Forum endorses Hillary Clinton (NewsGhana)
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Africa Trade Week 2016: The Continental Free Trade Area and trade facilitation
Advancing Socio-Economic Structural Transformation through Intra-Africa Trade
Africa Trade Week 2016 will be held at the African Union Head Quarters in Addis Ababa, Ethiopia, from November 28 to December 2, 2016, organised by the Department of Trade and Industry in collaboration with the United Nations Economic Commission for Africa (ECA).
ATW2016 will focus on the Continental Free Trade Area (CFTA), with emphasis on Trade Facilitation, implementation as well as building Productive Capacities for Industrialisation. The main objective of ATW2016 is to provide a comprehensive, integrated and inclusive platform for policy dialogue between various Trade Constituencies.
ATW2016 will have three main segments. The first component – the Africa Trade Forum (ATF) – running from November 28 to 30 will focus on the CFTA and its implementation as the main theme. The ATF will encompass a combination of plenary, breakout sessions and side events on other African trade priorities. Each plenary session will be facilitated by a moderator, will have keynote speakers, followed by a high-level panel discussion by renowned practitioners and/or experts. Opportunities will be available for participants to field questions.
The second segment of ATW2016 will be a meeting of African Ministers of Trade on November 29-30. This segment is specifically for invited delegations only and will include a session for dialogue between stakeholders and ministers.
The third segment is the 2nd African Trade Facilitation Forum (ATTF), which will take place December 1-2 and will consist of a high-level policy dialogue on the implementation of the trade facilitation cluster of BIAT, including the WTO Trade Facilitation Agreement (TFA).
ATW2016 will be attended by representatives from key trade constituencies in Africa and from around the world. These will include policymakers, high-level government officials, private sector operators, civil society, parliamentarians, development partners, academics, researchers, RECs, corridor management institutions and the media.
Background and Context
The African Union (AU) has articulated, through Agenda 2063, a long-term framework for enhancing “an integrated, prosperous and peaceful Africa, driven by its own citizens and representing a dynamic force in the international arena.” The Continental Free Trade Area (CFTA) was identified therein as the pillar for “accelerating progress towards continental unity and integration for sustained growth, trade, goods exchanges, services, free movement of people and capital.”
In September 2015, the United Nations (UN) launched a new development compact, the Sustainable Development Goals (SDG), with specific targets for eliminating extreme poverty. The SDG targets are aligned with Agenda 2063 through the Common African Position (CAP) an initiative adopted by AU Heads of State and Government in 2014 as a “Collective African Voice” to inform the SDGs development process. Similarly, African Ministers of Finance and Economy in March 2016, called for an integrated approach to the AU and SDG agendas monitored through one consolidated result framework. There is now a consensus among African countries and the international community to use trade as a tool for economic transformation and poverty eradication
The African trade agenda is at a critical junction. All African sub-regions have engaged in negotiations for the Economic Partnership Agreements (EPA) with the European Union. On June 24, 2016, the United Kingdom, a major trading partner for several of these EPAs sub-regions, voted to separate from the European single market. This development adds a significant complication to the African trade agenda. Furthermore, discussions are scheduled to begin next year on the post-2020 relation between the European Union and the Group of African, Caribbean and Pacific (ACP) countries. The United States of America, in September 2015, extended the African Growth and Opportunity Act (AGOA) for 10 years during which reciprocal trade agreements will have to be negotiated.
Other major African trading partners such as Japan, India, China and Brazil are contemplating enhanced trade and investment ties with the continent. Moreover, the WTO ministerial in Kenya concluded in December 2015 with a symbolic face saving small package. This is the continuation of a process that has slowly undermined the development agenda that Africa had painfully and successfully inserted in the Doha Development Agenda (DDA)). Finally, burgeoning mega-regional trade negotiations between the African region and major global trading partners is expected to significantly impact the African trade agenda.
Trade facilitation is vital to the region. Adopting the Trade Facilitation (TF) agreement in Bali in 2013 has had considerable consequences for African countries. Trade facilitation is projected to boost intra-African trade by between 10 and 16 per cent. Analytical studies indicate that the creation of the CFTA accompanied by more efficient customs procedures and reduction in delays at African ports can more than double intra-African trade within a decade. Likewise, implementing trade facilitation measures in coastal and transit countries can have positive spill over effects on hinterland countries. The positive externalities Trade Facilitation reforms and investments produces need to be viewed as a regional public good.
The Agenda 2063 10-year Implementation Plan amongst other important priorities for the continent includes several flagship projects. The CFTA is one of these projects as defined in AU Assembly Decision 394 of January 2012, on Boosting Intra-African Trade (BIAT) and fast tracking the establishment of the CFTA. Through the CFTA, intra-African trade is expected to double between 2012 and 2022, intra-African agricultural trade to triple by 2025 (Malabo Declaration of June 2014).
According to the Guiding Principles, the objectives of the CFTA are to be met through negotiating the CFTA and through accelerating efforts on industrial development to promote the development of regional value chains. Industrial development is pursued through, among others, the Action Plan for Accelerated Industrial Development for Africa (AIDA), the Action Plan for Boosting Intra-African Trade (BIAT), the Program for Infrastructure Development in Africa (PIDA) and the CAMI Work plan, which addresses supply side constraints to ensure that market integration, is beneficial to all countries
The CFTA architecture provides for the establishment of key institutions and organs – including the African Trade Forum, the Trade Observatory and African Business Council – to ensure effective implementation. In particular there is an important role for all stakeholders, including the private sector and civil society to play in implementing, monitoring and evaluating the BIAT/CFTA agenda. The Africa Trade week 2016 (ATW2016) will provide a Pan-African platform for promoting and enhancing multi-stakeholder trade policy advocacy and dialogue consistent with the goals of the BIAT/CFTA. ATW2016 will achieve this goal by mobilizing diverse trade constituencies across Africa and around the world, to debate and exchange views on the continent’s economic transformation through trade. Due to the importance of Trade Facilitation, the AUC has developed a “Trade Facilitation Strategy” which will be launched during the Africa Trade Week (ATW) 2016 to assist African countries in their implementation of TF Agreement.
The ATW2016 will be attended by high-level government officials, representatives from the private sector, civil society, academia, parliamentarians, Regional Economic Communities (RECs), industrial development, trade promotion, development partners, the media as well as trade facilitation support institutions and organisations. The event provides an ideal framework for stakeholder mobilization to harness the opportunities offered by the BIAT/CFTA agenda.
Objectives and Expected Outcomes
ATW2016 will focus on the CFTA, with emphasis on trade facilitation, implementation as well as building productive capacities for industrialisation. The main objective of ATW2016 is to provide a comprehensive, integrated and inclusive platform for policy dialogue between various trade constituencies – including public officials, parliamentarians, civil society and the private sector – on Africa’s current trade agenda.
ATW2016 will provide networking opportunities through (a) a Business to Business Exchange program (B2B Exchange) for the private sector and through (b) an Exhibition of productive and trade capacity building programs. The specific objectives of ATW2016 are to:
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Enable high-level exchange of views between African countries, regional economic communities and their international partners on how African countries can foster economic integration that nurtures social and economic structural transformation as mandated by Agenda 2063.
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Facilitate a platform for RECs, member states and other stakeholders to exchange views on how to prioritize the CFTA as part of a coherent and consistent package that encompasses the multilateral and bilateral trade agenda as well as share experience for cross-fertilization on the CFTA negotiations and its effective implementation.
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Provide a platform for African trade stakeholders to define their contribution to the CFTA as well as reflect on how their existing trade capacity building programs can be mobilized in support of the CFTA initiative.
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Provide a platform for peer-to-peer learning among the private sector, based on best practices for private sector-led initiatives in support of Africa’s structural transformation.
The expected outcomes of ATW2016 are to enhance the contribution of various stakeholders to the effective implementation of the CFTA and Agenda 2063. More specifically it will enable participants to (1) develop a clear understanding of the CFTA and the role it will play as a vehicle for increasing intra-African trade, poverty reduction and deepening integration; (2) establish a symbiotic linkage between the CFTA and trade facilitation, with a particular emphasis on trade facilitation as a key tool for ensuring successful implementation of the CFTA. More specifically, ATW2016 will aim at:
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Creating an agenda for effectively implementing the trade facilitation cluster of the BIAT;
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Building synergies, linkages and complementarities between the CFTA as well as the multilateral and bilateral trade agendas.
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Ensuring parliamentarians, private sector, and civil society have a better understanding of the CFTA and its coherence with the African structural transformation agenda.
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Creating a Pan-African platform to facilitate capacity development and harness parliamentarians, private sector and civil society contribution to the CFTA process.
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New UK support for jobs, trade and investment to boost economic development in Africa
International Development Secretary Priti Patel pledges more help to create jobs, build livelihoods and support the poorest people in Africa to work their way out of poverty, during visit to Kenya.
As the first Cabinet Minister to visit Africa since the UK voted to leave the European Union, the International Development Secretary set out her vision for UK aid in the continent and announced new support to boost economic development.
With Africa now home to the world’s fastest growing population, Ms Patel set out the importance of generating productive jobs and sustainable livelihoods, opening up markets, stimulating economic growth and increasing business opportunities to make the most of a young, vibrant working population. This provides a better alternative to risking the dangerous journey to Europe or turning to extremism, therefore tackling migration and instability, which is firmly in the UK’s interests.
New support includes:
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Launching a new Invest Africa programme to encourage at least £400 million of foreign direct investment into the most productive sectors – such as manufacturing – to create 90,000 direct and indirect jobs in Kenya and other African countries over the next decade. This builds on the UK’s role as the largest European investor into Africa.
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Providing £95 million over the next four years to increase Kenya’s trade by £1.3bn, building on the success of TradeMark East Africa – founded by UK aid – in breaking down the barriers to trade. This will create hundreds of thousands of new jobs, stimulate further growth and generate additional revenue for the Kenyan authorities that provide basic services for those in need.
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Providing £35 million to help go beyond meeting the basic needs of refugees – focusing on creating trading opportunities and sustainable livelihoods closer to home. This support benefits not only those who have been displaced by conflict and persecution but also host communities, encouraging greater integration and stability.
International Development Secretary Priti Patel said:
No country can defeat poverty without sustained economic growth and in Kenya I saw how UK support is creating job and trade opportunities for the many, not the few.
As we redefine our place in the world following the EU Referendum, it is vital that the UK deepens existing relationships with African countries and establishes new trade, investment and economic links that deliver in our national interests, by bringing new opportunities for British businesses and creating our trading partners of the future.
Ms Patel visited Mombasa Port – the biggest port in East Africa serving 200 million people – where she saw how the UK is breaking down the barriers to trade and yielding results. This has contributed to a 75% reduction in the amount of time that it takes to move goods from Mombasa to neighbouring countries, a 10% increase in Kenya’s exports, hundreds of millions of pounds worth of increased trade and a reduction in corruption through greater transparency and accountability.
In Northern Kenya, Ms Patel visited Kalobeyei settlement near Kakuma refugee camp, where new UK support is driving forward the Government of Kenya’s progressive new approach to helping refugees access trading and livelihood opportunities. While still in its early stages, for the first time Kenya’s local communities are better integrating with refugees and sharing the benefits of greater trade.
This builds on landmark agreements at the UN General Assembly last month, including £20 million increase in UK support to help Somali refugees in Kenya safely and voluntarily return to livelihoods at home, building stability and security in the region.
Ms Patel also met local communities in the arid lands of Northern Kenya, where 94% of people are living in extreme poverty to see how the UK is leading the way in delivering smart, efficient and cost-effective aid for the poorest. By using innovative digital technology and providing regular payments directly into bank accounts, the UK is helping people purchase what they need, giving them economic empowerment and creating trading opportunities.
In the last 5 years, UK aid in Kenya has:
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enabled 550,000 children to access primary education
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provided 450,000 women with family planning services
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helped 1.1 million people cope with the effects of climate change
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improved access to clean energy for 476,000 people; and
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distributed over 12.2 million bed nets to prevent malaria.
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Collaboration key to successful regional integration, experts say
Transformative regional integration could be achieved through collaboration between countries rather than through economic competition, economists and policymakers said yesterday.
This was during a policy dialogue on regional integration organised by the Office for Eastern Africa of the UN Economic Commission for Africa (ECA), in collaboration with the University of Bremen in Germany, at the Kigali Convention Centre.
Dr Thomas Kigabo, chief economist at the National Bank of Rwanda (BNR), noted that the Brexit is “a very interesting example and experience.”
Throughout the initial session, examples were drawn from Britain’s exit from European Union (Brexit) and, like the other economists present, Kigabo could not pin down with certainty the likely implications but noted that these could be normal.
Kigabo said: “I think that on a negative note, this [Brexit] may give some argument to some countries which want to exit regional integration. It’s really a very bad example because we have been considering the EU as a good model for integration.
“Definitely, experience is showing us that it is not a good model. It has its own weakness and the reality is that UK has decided to go out. This may have negative impact on our own efforts to have our own economic bloc.”
The lesson learnt from the faltering regional integration process in Europe, he said, is that when countries are negotiating a similar protocol or agreement, they need to avoid “copy-and-paste” and be sure that when they decide to establish a regional economic bloc, they also put in place protection mechanisms to ensure that it is intact.
Brexit and EAC
Discussing Brexit’s potential impact on the East African Community (EAC), Andrew Mold, acting director of the Office for Eastern Africa of ECA, explained that it might be reduced though levels of UK’s official development assistance (ODA) to East Africa might be affected.
Mold said: “One of the consequences of Brexit has been the change in outlook of British domestic politics. The previous conservative government, under David Cameron, was actually very supportive of ODA.
“I think that possibly will change under the new government of Theresa May, particularly because you have someone in charge of DFID who has been very critical of overseas development. There are chances that there will be a reassessment of development cooperation.”
Mold, who also noted that a number of things were “thrown up in the air” by the Brexit, including Economic Partnership Agreements (EPAs) with the East African Community, said there will be the possibility that the UK suffers from the situation.
“Trade is not going to stop between the UK and the EU because of Brexit,” he said, noting that it is only the conditions under which trade happens that will change.
EPA affected
Last month’s signing of EPA with the EU by trade ministers of Rwanda and Kenya was regarded as a step in the right direction, by business leaders and government officials from the two EAC partner states.
Burundi, Tanzania, Uganda, and the new EAC member, South Sudan, are yet to put pen to paper.
However, in July, Tanzania announced it would not sign, citing the “turmoil” that the EU is experiencing following Britain’s decision to exit the EU.
Amb. Ali Idi Siwa, Tanzanian envoy to Rwanda, noted that the position of his country is well known.
He said: “We have not signed, and we did not say that we are not going to sign but we are giving ourselves time.”
The envoy gave reasons, including that the industrialisation plan for Tanzania is to go beyond import substitution and produce goods both for home consumption and export purposes.
“We have a feeling that that the EPA may jeopardise this position. So we gave ourselves time to have a closer look at this scenario so we can come up with a decision which is good for both Tanzania and the east African region,” Amb. Siwa added.
Richard Kabonero, Uganda’s envoy to Rwanda, said: “Definitely, we negotiated as a region. The commission we negotiated with is no longer in place. It looks like there are some changes there [in the EU]. The exit of the United Kingdom has a big impact. We need time to look at all the clauses. Even the EAC itself has changed, with the entry of South Sudan.”
EAC Heads of State have since asked for more time for further consultations on the proposed trade deal.
The purpose of the policy dialogue was to debate and discuss recent research on regional integration and consider the latter’s strategic implications on policy.
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Sovereign debt crises more likely, new mechanisms needed
The world needs a new mechanism to deal with sovereign debt crises, which represent a growing danger to the economic stability of many developing countries.
The world needs a new mechanism to deal with sovereign debt crises, which represent a growing danger to the economic stability of many developing countries and would thwart the 2030 Agenda for Sustainable Development before it had taken off, UNCTAD said on Wednesday ahead of a UN meeting on sovereign debt restructuring.
Countries in Africa and elsewhere have been stacking up debt, even as their ability to repay these debts is shrinking. Falling commodity prices, a rising dollar and the prospect of higher interest payments mean these debts may be harder than ever to repay.
Previous debt crises have seen the emergence of highly speculative funds, run by non-cooperative or holdout bondholders, including so-called vulture funds, which aggressively pursue debt repayments, making them more expensive and possibly disruptive. Since 2000, hedge funds have been the main plaintiff in 75% of all litigation cases against sovereign debtors.
“Sovereign nations do not have the protection of bankruptcy laws to restructure or delay their debt repayments in the same way that private debtors can,” UNCTAD Secretary-General Mukhisa Kituyi said.
“But while creditors cannot easily seize non-commercial public assets, sovereign debt faults bring major problems in terms of reputation and access to further loans,” he added.
New research to be published in November 2016 shows that the latest round of borrowing goes back to 2006 when the Seychelles issued a sovereign bond, the first sub-Saharan African country with the exception of South Africa to do so in 30 years.
In the decade since then, Angola, the Democratic Republic of Congo, Côte d’Ivoire, Ethiopia, Gabon, Ghana, Kenya, Namibia, Nigeria, Rwanda, Senegal, Tanzania and Zambia have accumulated more than $25 billion worth of bonds, with a principal amount of more than $35 billion.
Many African countries are now facing repayment difficulties, the researchers, Aleksandr V. Gevorkyan and Ingrid Harvold Kvangraven, say. They point to the example of Ghana.
“Ghana is in a difficult, yet unfortunately common, position as it depends on commodity exports such as gold, oil and cocoa,” they said.
“With falling commodity prices, the country faces a decline in revenue and a growing current account deficit,” they added, pointing out that Ghana’s total debt, both external and domestic, is at more than 55% of its GDP.
In September 2015, following work done by UNCTAD, the UN General Assembly adopted a resolution saying that sovereign debt restructuring processes should be guided by basic international principles of law, such as sovereignty, good faith, transparency, legitimacy, equitable treatment and sustainability.
The adoption of the resolution reflected growing concerns about renewed sovereign debt crises and long-term debt sustainability in the context of a continued global economic fragility.
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South Africa: Medium Term Budget Policy Statement 2016
SA should grow economy through inclusive growth
Finance Minister Pravin Gordhan says to get the country on a path of better growth, all sectors of the economy should work with government in a manner that promotes inclusive growth.
The Minister said this when he briefed the joint Standing Committees on Appropriations and Finance, on Thursday, following his Medium Term Budget Policy Statement in Parliament, on Wednesday.
“The singular focus needs to be on inclusive growth. How do you create conditions for growth in this economy? Whether it is confidence building, whether it is increases in investment by the state, whether it is encouraging private sector investment, or foreign investment,” the Minister said.
When he tabled his budget at the National Assembly, the Minister revised growth projections downwards to 0.5% for 2016, which was lower than the February estimate of 0.9%.
The Medium Term Budget Policy Statement cited low growth margins on global pressures, as well as low levels of investor confidence and structural constraints in the domestic economy.
In this difficult period, the Minister undertook a tough balancing act – first by reducing the expenditure ceiling by R10 billion next year and adding R13 billion in revenue measures.
A further proposal was made to reduce national departmental budgets by 1.1%, asking them to use existing resources to optimise delivery.
In addition, to the R16 billion added to higher education funding in the February budget, National Treasury proposed a further R9 billion to be added to the National Student Financial Aid Scheme (NSFAS) over a three year period and in the process, raising its funding by over 18% per year.
The Minister said these fiscal measures, as well as other reforms proposed in the medium term budget, were not enough.
“The fiscal issues need to be complimented by what we call a multi-faceted approach. Firstly, get the growth dynamic going.
“Secondly, build confidence, investment and partnerships. Government cannot do all the things that need to be done on its own. Thirdly, ensure that our government programmes like the nine-point plan are actually implemented. There must be concrete evidence of milestones and delivery and action assures government and others that we are a government at work.
“Fourthly, we need to undertake the reforms that we said we are going to undertake…”
National Treasury Director-General Lungisa Fuzile said with decisive action, South Africa will emerge from a period of economic weakness.
He said this would enable government to provide greater support to the economy and boost employment.
“Government’s economic reform programme is guided by the National Development Plan and, over the short term, the nine-point plan announced in February 2015.
These efforts aim to create a more just society and ensure that benefits of transformation are shared as broadly as possible,” he said.
He also said implementation reforms must be accompanied by efforts to tackle corruption.
“The benefits of empowerment should be accessible on an equal basis, not limited to connected insiders.”
SA can grow the economy better
Earlier in the day, the Minister said South Africa has come a long way to improve the lives of all South Africans.
Speaking at a breakfast briefing News24 FrontLine, which was organised by the media group, the Minister said the country has done well to get where it is today.
“If you take the past 22 years, take Stats SA numbers and SA Race Relations numbers, the numbers indicate that in terms of access and in terms of quality, we have done extremely well as South Africa.
“The number of middle class people would indicate that, your media group and what it serves and who it serves and what you see in the market, will show you shifts in the LSMs over the years as well.”
However, the Minister said more still needs to be done to put a dent on unemployment and alleviate poverty and inequality.
“What we pointed out in the speech, and it has been clear for quite a while now, is that we need a combination of efforts. We need macro stability, we need fiscal measures and monetary measures.
“Secondly, we need confidence and a clear unmitigated focus on growth and so everybody has to ask – what is my contribution to investing, to creating confidence, to creating jobs, to helping new enterprises develop?”
He said the SA economy was too concentrated and did not allow for enough competition, which he said needs to change.
Medium Term Budget Policy Statement 2016
Ch 2. Economic Outlook
Economic growth and transformation
To achieve the goal of economic transformation and build an equitable society, South Africa requires higher growth. Without decisive action, a protracted period of low growth will set back the country’s ability to realise the constitutional vision to “improve the quality of life of all citizens and free the potential of each person”. The National Development Plan (NDP) recognises that faster, broad-based growth is needed to transform the economy, create jobs, and reduce poverty and inequality.
While global economic weakness plays a large role in South Africa’s economic growth performance, domestic constraints stand in the way of investment, output and trade. The slow pace of finalising policy interventions in areas such as land reform, immigration, labour relations, mining and communications undermines confidence, which is a key determinant of economic activity. Government must demonstrate more rapid implementation to restore confidence and give hope to citizens.
South Africa’s strong institutions, stable macroeconomic environment, well-developed financial markets, relatively high levels of innovation capacity and strategic position in the region provide a solid platform for stronger growth. The fiscal framework and the monetary policy stance support a sustainable recovery in economic activity.
Government continues to prioritise infrastructure investment to ease bottlenecks and raise the economy’s potential growth rate. Public-sector infrastructure budgets total R987.4 billion over the next three years. Continued investment in energy, transport and telecommunications will boost internal and external trade efficiency. Efforts to expand coinvestment with the private sector, alongside a series of other NDP reforms discussed later in this chapter, will build confidence and encourage job creation.
Domestic outlook and developments
Domestic GDP growth for 2016, forecast at 0.9 per cent at the time of the 2016 Budget, has been revised down to 0.5 per cent. Growth is expected to increase to 2.2 per cent by 2019, supported by more reliable electricity supply, improved labour relations, low inflation, a recovery in business and consumer confidence, stabilising commodity prices and stronger global growth. Assumptions underpinning the forecast appear in the technical annexure.
Growth in real output remained moderate in the first six months of the year compared with the same period in 2015. Mining growth has declined and agricultural output weakened as a result of the drought. Growth in transport and telecommunications, and in electricity, gas and water, fell on weak demand. Manufacturing output strengthened following a contraction in 2015. Finance, real estate and business services remained buoyant.
Overview of major economic sectors and employment
Real value added in the agriculture, forestry and fishing sector contracted by 8.3 per cent in the first half of 2016 compared with the same period in 2015. Two successive seasons of severe drought in the summer rainfall regions resulted in six consecutive quarters of falling output, following robust growth in 2014. As a result, South Africa will be a net importer of maize in 2016/17, with imports expected to exceed 2 million tons. Exports of certain fruit, nuts and beef products have remained resilient, supported by the weaker rand, global demand and market diversification. Output is expected to recover as weather conditions improve.
Mining production was down 8.3 per cent in the first half of 2016 compared with the same period in 2015. High operating costs, safety stoppages, low commodity prices and weak global demand made for a difficult operating environment. Over the medium term, improved demand and increased electricity supply should boost production. In addition, a moderate rise in commodity prices that began in 2016 is expected to continue.
Manufacturing has contributed 0.2 per cent to gross value added in the first half of 2016, with performance varying across subsectors. Petrochemicals, wood and paper, and food and beverages posted growth rates of 6.5, 5.3 and 0.9 per cent, respectively. In contrast, metals products and motor vehicles contracted by 3.6 per cent and 0.5 per cent respectively. Overall capacity utilisation improved in the first half of 2016.
A moderate recovery in household consumption growth from 2017 should support domestic demand in food and beverages, motor vehicles, furniture and appliances. Continued global demand is expected for motor vehicles, with exports of finished units set to grow by over 10 per cent this year and next.
The financial sector grew by 2.2 per cent during the first half of 2016 compared with the same period in 2015, despite low GDP growth and constrained household balance sheets. Domestic banks remain well capitalised, with a total capital adequacy ratio of 15.2 per cent in June 2016, up from 14.2 per cent in December 2015. “Tier 1” capital adequacy – the highest quality capital reserves – stood at 12.4 per cent in June 2016, well in excess of Basel III’s 6 per cent requirement.
Net exports and the current account
Exports grew by 3 per cent in the second quarter of 2016 compared with the same period in 2015, supported by manufacturing and mining exports, particularly platinum group metals. The first half of the year saw a two percentage-point decline in the share of exports to African markets compared with the same period in 2015, reflecting weaker economic conditions in the region.
In recent years, despite the large and sustained depreciation in the value of the rand, South Africa has not experienced strong export growth. Since 2010, the real effective exchange rate has depreciated by 20.9 per cent. Yet the main factor in export growth is global demand, which has been moderate. A one-percentage-point increase in global demand could add as much as 0.3 percentage points to medium-term growth.
Soft domestic demand was reflected in the decreased volume of imports, which fell by 3.1 per cent in the first half of the year compared with the same period in 2015. Notable exceptions included vegetable products, oils and fats, where increases of between 43 and 60 per cent reflected the effects of the drought. Over the medium term, improved domestic demand should support import growth, but the weaker currency will limit the expansion of volumes. Imports are expected to contract in the current year and grow by 2.7 per cent in 2017.
The current account deficit narrowed in the second quarter as net exports increased and the trade account recorded a surplus, despite some weakening of the terms of trade. The deficit was funded through an increase in net portfolio investment, mainly into government bonds, and a rise in net foreign direct investment. Over the next three years, the current account deficit is expected to average 3.9 per cent, down from an average of 5.2 per cent between 2013 and 2015. The forecast does not project any major gains in the terms of trade.
Reforms advancing economic transformation
South Africa’s potential growth rate – the fastest the economy can sustain without increasing inflation – has fallen from about 4 per cent to below 2 per cent since 2012. The main obstacles to economic activity are found within the domestic economy. They include infrastructure bottlenecks, low levels of competition in certain markets, a volatile labour relations environment, regulatory constraints and red tape, inefficiencies in stateowned enterprises, and uncertainties in the policy environment. By limiting the economy’s potential to grow more rapidly, these constraints effectively block economic transformation.
Government’s economic reform programme is guided by the NDP and, over the short term, the 9-point plan announced in February 2015. These efforts aim to create a more just society and ensure that the benefits of transformation are shared as broadly as possible. The success of these efforts in boosting economic growth and employment depends on how well interventions are coordinated and put into action.
A key policy focus over the medium term is to promote urban planning reforms, supported by public and private investment, to encourage more rapid growth and innovation in South Africa’s large cities.
Encouraging private-sector investment
Expanded investment by the private sector will improve productive capacity and grow the economy. Tackling corruption will discourage rentseeking, lower transaction costs, reduce uncertainty, and prevent the wastage of both public and private resources. Initiatives that are under way include the following:
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Easing the regulatory burden and making it easier to invest. InvestSA has set up a one-stop shop to help investors with the procedures required to start up and run a business.
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Reducing time spent on compliance and paperwork. As a result of increased automation at the Companies and Intellectual Property Commission, it now takes less than a day to register a firm. Title deeds are now available within seven days at the Deeds Office. And the Department of Justice has streamlined contract enforcement, introducing court mediation to reduce legal costs.
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Strengthening competition law. Sections of the Competition Amendment Act that came into effect earlier this year make it a criminal offence for directors or managers of a firm to collude with their competitors to fix prices or collude in tenders. This should reduce prices and increase market access.
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Enhancing the environment for small business. The Department of Small Business Development is updating legislation to improve support for small businesses. Government has targeted support to small firms, and is encouraging large businesses to contract more work from small companies.
Government’s approach has begun to yield greater private investment in several areas – notably in the successful IPP programme. In addition, automotive assembly firms have pledged investments of R15.4 billion, which would create an estimated 4 675 jobs. In June 2016, the Centre for High Performance Computing launched the first petascale computing system on the African continent. Construction of the 64-dish Meerkat radio telescope array in the Karoo is due to be completed by the end of 2017. And public and private investment totalling R17 billion has been targeted towards “oceans economy” initiatives over the past two years, creating about 5 000 jobs. Investments support shipbuilding and training of marine engineers and artisans.
Complementary efforts support both commercial agriculture and emerging farmers. Efforts to diversify markets, for example, have boosted apple exports to China by 77 per cent. The recently signed Southern African Development Community – EU trade agreement improves access to European markets for sugar, ethanol and wine.
Despite a significant reduction in borrowing costs over the last 20 years, availability of funding remains an obstacle to business development. Government remains committed to working with the financial sector and development financial institutions to reduce funding constraints to business expansion and job creation.
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tralac’s Daily News Selection
The selection: Wednesday, 26 October 2016
Underway, in Nairobi: TFTA committee of senior officials, in preparation for the 10th meeting of the Tripartite Council of Ministers
Permanent Secretary Ministry of Trade Ambassador Julius Onen is leading the EAC Delegation. Onen noted that as a region, partner states have made progress on most of the outstanding issues and are ready to move forward with the finalization of the negotiations with other regional blocs. He informed the meeting that EAC had finalized all the tariff offers, however, some countries had not yet responded to the offers. Among the key outstanding issues that are being negotiated by the member states in the Nairobi meeting include: tariff offers, rules of origin, trade remedies and dispute settlement, modalities for phase II negotiations and the signature and ratification of the TFTA.
On the signature and ratification of the Tripartite Agreement, member states are still indicating varying positions with some stating that the Agreement and all its Annexes should be finalized first to enable them deposit the instruments for signature and ratification. However, other member states are willing to sign the Agreement notwithstanding that there are outstanding issues to be finalized.
DRC: Trade Policy Review documentation (WTO)
The second review of the trade policies and practices of the DRC began yesterday and continues tomorrow (27th October). The basis for the review is a report by the WTO Secretariat (pdf) and a report by the Government of the DRC (pdf).
Zambia-DRC trade facilitation study: Kasumbalesa border and surrounding areas (AfDB)
The AfDB’s Zambia Field Office, in conjunction with the Regional Integration and Trade Department, concluded a working visit on 22 September, to Lubumbashi in the DRC to establish current trade patterns with Zambia. The delegation, led by Country Economist Peter Rasmussen, drove from Lusaka to Lubumbashi, through the Kasumbalesa border crossing and crossed back through Kipushi border in the North Western Province of Zambia. The mission was part of a study on trade facilitation at Kasumbalesa border and surrounding areas that the Bank is conducting on behalf of the Zambian Government. The study on trade facilitation at Kasumbalesa border will be presented and validated at a stakeholder meeting in late November.
Northern Corridor: joint Kenya, Uganda, Rwanda real-time transit cargo tracking starts in January
This follows the award of a contract to a Malaysian firm, BSmart, to roll out the platform. The three countries will ride on the Electronic Cargo Tracking System as a single customs tool to curb theft and dumping of goods on the Northern Corridor (Mombasa-Kampala-Kigali highway). The electronic platform, it is hoped, will seal loopholes for revenue losses to the taxman as a result of under-declaration of the value of exports by rogue traders. The upgraded system was successfully pilot by the Uganda Revenue Authority and was initially meant to be implemented in June. The KRA said a central command centre would be established in Nairobi and 13 rapid response stations established throughout the country to act on any incident.
Dar beats Kenya in another deal (IPPMedia)
The business competition between Tanzania and Kenya’s main seaports has gone up another notch after Rwanda and Burundi stopped importing their fuel through Mombasa because of alleged cargo contaminations occurring there and instead opted to route their shipments via the port of Dar es Salaam. According to reports confirmed by the Kenya Transporters Association, the two inland EAC member states did the route switch earlier this year after making sure that imports through Dar es Salaam were untainted. KTA chief executive officer Alfayo Otuke said in an interview with Bloomberg that another advantage of picking the port of Dar es Salaam over Mombasa is that Tanzania also allows heavier loads. “Kenya’s position as the preferred petroleum importation route for landlocked East African nations is slipping out of our hands,” Otuke said. “It’s because importers feel our fuel is contaminated. We have unscrupulous traders. We have cases where some load transporters siphon fuel, add other products and when it gets to the destination countries, it is found to be adulterated,” he added. [MPs questions ‘fishy’ TPA bank deals leading to 38bn/- deficit]
This year’s Doing Business report includes, for the first time, a gender dimension in three indicators: Starting a Business, Registering Property and Enforcing Contracts. In Sub-Saharan Africa, 13 economies require additional legal hurdles for women entrepreneurs. For example, six economies (including Cameroon, Benin and Guinea-Bissau) require additional steps for women to formally register a business compared to men. The Paying Taxes indicator has been expanded to cover post-filing processes, such as tax audits and VAT refund. The report finds that the region has room for improvement in these new areas. In most economies in Sub-Saharan Africa – where it is likely for an audit to take place – taxpayers are exposed to a field audit whereby the auditor visits the taxpayers. This is the case in Botswana, The Gambia, Malawi, Niger, Zambia and Zimbabwe. [Downloads: Doing Business 2017: Sub-Saharan Africa (pdf), Regional profiles for Southern African Development Community (pdf), East African Community (pdf)]
Related: India’s rank improves by one in World Bank’s Doing Business survey, Why India fared badly in World Bank’s Doing Business survey
Multispeed growth: Sub-Saharan Africa Regional Economic Outlook (IMF)
This aggregate picture, however, belies considerable heterogeneity in economic paths across the region. (i) Most of the non–resource-intensive countries—half of the countries in the region—continue to perform well, as they benefit from lower oil import prices, an improved business environment, and continuous strong infrastructure investment. Countries such as Côte d’Ivoire, Ethiopia, Kenya, and Senegal are foreseen to continue to grow at more than 6%. (ii) In contrast, commodity exporters are under severe economic strains, including the region’s three largest countries, Angola, Nigeria, and South Africa. The near-term prospects of oil exporters in particular have worsened, notwithstanding the modest uptick in oil prices, as the slowdown is becoming entrenched - activity among these countries is expected to contract by 1¼ percent this year. Among other resource-intensive countries, growth in the DRC, Ghana, South Africa, Zambia, and Zimbabwe is decelerating sharply or stuck in low gear. [Akinwumi Adesina: ‘Africa’s growth story: a new chapter’ (pdf, AfDB)]
Gerhard Erasmus: ‘Governance implications of South Africa’s withdrawal from the International Criminal Court’ (tralac)
The reasons offered by the South African government as to why it is withdrawing from the ICC are discussed here, together with some of the domestic and International legal principles which now come into play. There are broader governance issues and they will also be mentioned.
South Africa: ‘We need to up our game to provide support to exporters’ – dti Director-General October
October said exporters needed more support on institutional measures as well as financial to the level of the export bank. He said government was in fact in the process of converting the Export Credit Insurance Council into an Export Import Bank to ensure that exporters and export councils have the necessary resources they require. “Countries do not export, companies do. At best we can play the facilitating role but companies should also play their role. We must close the gap between government and exporters, identify top 100 exporters and work with them to break into markets,” said October. He highlighted the importance of driving transformation and ensuring that companies are compliant with the Broad-Based Black Economic Empowerment (B-BBEE) legislation for government to assist them.
Nigeria: LCCI proposes policy to block N1tr revenue leakages (TODAY)
The Lagos Chamber of Commerce and Industry has proposed measures that will save the country N1 trillion revenue leakages at the ports within the next 12 to 18 months. LCCI also said the measures if implemented will generate10, 000 new jobs in the maritime sector, and 800,000 jobs in the industrial sector over 18-24 months. Vincent Nwani unfolded the measures on the occasion of a dialogue on Port Efficiency and Maritime Sector Roadmap, jointly organised by LCCI and Financial Derivatives Company.
South Sudan: EAC Permanent/Principal Secretaries discuss integration of new Partner State into EAC
The Secretary General revealed that the integration of the Republic of South Sudan (RSS) into the Community will be done in phases, saying: “Aware of capacity requirements, the implementation shall be phased-in and progressive to allow for South Sudan to build relevant capacity and strengthen its institutions.” He disclosed that in the course of the negotiations for the admission of RSS into the Community, it was agreed that South Sudan will have 3 years after accession to prepare for implementation of the Customs Union and Common Market Protocols. “After the three-year period, RSS will still be allowed to request for additional time in line with EAC laws if it finds itself unable to comply with certain requirements.”
Kenya shifts gears in drive to raise coffee exports into America (Business Daily)
Kenya is pushing to increase its market share for coffee in the US as a means of improving the global visibility of the local commodity. The government through the Agriculture, Fisheries and Food Authority Coffee Directorate on Tuesday said it is also targeting China, South Korea, Sweden, Norway, Denmark, Poland and Nigeria as emerging markets for the coffee. “Kenya has embarked on an aggressive marketing of her coffee globally. In view of this, the country is set to be the ‘portrait country (main feature)’ during the 2017 Specialty Coffee Association of America (SCAA) Exhibition in Seattle, Washington, US,” said Grenville Melli, interim head of the directorate during a briefing in Nairobi.
Uganda: Coffee exports drop for third year on unfavorable weather (Bloomberg)
Coffee exports from Uganda, Africa’s biggest shipper of the commodity, fell 4.1 percent in the 2015-16 season, extending declines for a third year as poor weather hurt the crop. Shipments from 1 October 2015 through September fell to 3.32m 60-kilogram bags from 3.46m bags a year earlier, the Uganda Coffee Development Authority said by e-mail on Tuesday. Uganda, which mainly grows robusta coffee, consumes less than 3% of its annual crop and exports mainly to Europe. It plans to plant 900 million new coffee trees in the three years through June 2019 to boost production, according to the UCDA.
EU-African Union Partnership: joint communiqué of the AU Peace & Security Council & EU Political & Security Comittee
Angola set to increase export capacity (Footprint2Africa)
George Wachira: ‘Economic powerhouse status beckons Tanzania in a decade’ (Business Daily)
Kenya access to Europe intact despite EAC hitch (Daily Nation)
McKinsey Global Institute: ‘Digital finance for all: powering inclusive growth in emerging economies’
WCO releases Guidelines on Customs-Tax Cooperation
Finance Minister: EU remains a vital link for a modern, forward-looking and prosperous Mauritius (GoM)
ATOR report charts path for a “nutrition revolution” in Africa (Ifpri)
Eastern Caribbean Currency Union: discussion on common policies of member countries (IMF)
Global cooperation through carbon markets could cut climate mitigation costs dramatically (World Bank)
D. Ravi Kanth: ‘The pitfalls of multilateral pragmatism’ (LiveMint)
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SADC, EAC and COMESA seek to implement Tripartite Free Trade Area
The 10th EAC-COMESA-SADC Tripartite Committee of Senior Officials for Trade, Customs, Finance, Economic matters and Internal Affairs meeting opened in Nairobi, Kenya on Tuesday to resolve issues that remain outstanding before the implementation of the Tripartite Free Trade Area.
Delegates from 26 member countries of the three African regional economic communities (RECs) including East African Community (EAC), Common Market for Eastern and Southern Africa (COMESA) and Southern Africa Development Community (SADC) aim to resolve the issues that remain outstanding after the launch of the Tripartite Free Trade Area during a summit in Sham el Sheikh in Egypt in June, 2015.
Permanent Secretary Ministry of Trade Ambassador Julius Onen is leading the EAC Delegation. Onen noted that as a region, partner states have made progress on most of the outstanding issues and are ready to move forward with the finalization of the negotiations with other regional blocs.
He informed the meeting that EAC had finalized all the tariff offers, however, some countries had not yet responded to the offers.
It is now over a year since the Tripartite FTA was launched in Sharm El Sheikh, Egypt, however, member states have failed to agree on some issues including tariff offers, rules of origin, trade remedies and the ratification of the Agreement.
Onen noted that Uganda is ready to ratify the TFTA Agreement as soon as all the outstanding issues are finalized so as to pave way for actual implementation, as the country stands to benefit a lot in terms of market access once implementation of the Agreement takes effect.
He further noted that the TFTA has more benefits to Uganda given that it has three pillars – market integration, cooperation in industrialization and infrastructure development and the movement of business persons. The Tripartite region will also provide the potential for tourism and movement of professionals across the borders in the region after the conclusion of the negotiation of trade in services in phase II of the negotiations.
It is also clear that only 18 out of 26 countries have so far signed the Tripartite Agreement. Uganda signed the Agreement during the launch in Egypt however none of the Member/Partner States has so far ratified the Tripartite Agreement.
The meeting precedes the fourth meeting of the Tripartite Council of Ministers that is scheduled to take place on October 30 and 31 2016 in Nairobi, Kenya. Uganda will be represented by Trade Minister Amelia Kyambadde.
The Tripartite FTA represents an integrated market of 26 countries with a combined population of 632 million people which is 57% of Africa’s population and with a total Gross Domestic Product (GDP) of $ 1.3 Trillion (2014) contributes 58% of Africa’s GDP. If fully implemented, the Tripartite FTA is expected to provide expanded trade opportunities to Uganda’s Private Sector in respect to trade in goods and services.
Speaking on behalf of the Minister of Trade, Industry and Cooperatives of Kenya Adnan Mohammed, the Permanent Secretary at the State Department of Trade, Kenya Dr. Chris Kiptoo encouraged parties to work towards expeditious resolution of the outstanding issues so as to pave way for smooth implementation of the TFTA Agreement by member and partner states.
“There is need for momentum in the implementation of the Tripartite FTA because it has the potential to be a game changer of trade in Africa through helping member countries to improve their competitiveness and participation in the global value chain,” said Dr. Kiptoo.
He added that member states needed to forge a way forward for the implementation of the TFTA by addressing the enormous trade barriers amongst themselves and the institutional and infrastructural challenges that pose a challenge for the implementation of the Agreement.
Among the key outstanding issues that are being negotiated by the member states in the Nairobi meeting include; tariff offers, the Rules of Origin, the Trade Remedies and Dispute Settlement, modalities for phase II negotiations and the Signature and Ratification of the TFTA.
On the tariff offers and in accordance to modalities of phase one TFTA negotiations, each member are expected to negotiate their tariff offers and afterwards exchange those tariff offers with other member countries and they will be populated as Annex I to the TFTA Agreement.
To date, only EAC, Egypt and South African Customs Union (SACU) members that have exchanged tariff offers and are currently engaged in negotiations of their exchanged tariff offers. So far no bilateral negotiations have been concluded for inclusion in Annex I of the Agreement, which has derailed the conclusion of the negotiations.
On the Rules of Origin (RoO), Parties have finalized negotiations of RoO text which is Annex IV of the Agreement and outstanding is finalization of negotiations on appendix one of the Annex on the least product rules.
The outstanding issues on Trade remedies and Dispute settlement are mainly on the legal inconsistencies in the Trade Remedies Annex especially with the WTO trade remedies provisions. Negotiations are centered on whether or not to delink the TFTA provisions on Trade remedies and dispute settlement of the agreement from the WTO provisions.
It is critical that members agree on the remedies mechanism so as to be able to develop related policy nets against unfair trade practices such as anti-dumping measures, countervailing measures and anti subsidies regimes. Such measures are intended to protect domestic industries/producers from unfair competition and to provide policy space.
On the signature and ratification of the Tripartite Agreement, member states are still indicating varying positions with some stating that the Agreement and all its Annexes should be finalized first to enable them deposit the instruments for signature and ratification. However, other member states are willing to sign the Agreement notwithstanding that there are outstanding issues to be finalized.
» Visit tralac’s TFTA Resources page for further info.
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Trade Policy Review: Democratic Republic of the Congo
The second review of the trade policies and practices of the Democratic Republic of the Congo takes place on 25 and 27 October 2016. The basis for the review is a report by the WTO Secretariat and a report by the Government of the Democratic Republic of the Congo.
Report by the Secretariat: Summary
Since its last Trade Policy Review (TPR) in 2010, the Democratic Republic of the Congo (DRC) has introduced a number of structural and economic stabilization reforms, with or without the help of technical and financial partners, enabling it to achieve sustained economic growth during the review period at an average annual rate of 7% – well above its 3% population growth rate – and to move up 12 places on the Human Development Index. Thanks to a generally restrictive monetary policy, inflation was brought down from 7.1% in 2010 to 1.03% in 2014, its lowest level in 50 years. On the budgetary front, increased government revenue helped to reduce the public deficit and in some years even to achieve a surplus (based on payments). In spite of external shocks, in particular the fall in its raw material export prices, proper management of the country’s capital account and financial transactions enabled it to achieve balance-of-payments surpluses and to build up reserves.
In spite of the country’s numerous strong points, such as its vast territory, favourable climate and fertile soil, abundant forest, lake, petroleum and mining resources and its 7% average economic growth rate since 2010, the DRC remains a least developed country, with a per capita GDP of US$480 in 2014. Its economy is heavily dependent on the mining sector, which accounts, on average, for a quarter (approximately 24%) of GDP and about 85% of export revenue. Agriculture is underdeveloped relative to the country’s potential (18% of GDP on average and only 3% of export revenue). The manufacturing sector is in its infancy (around 10% of GDP) because of supply-side constraints such as the poor state of transport infrastructure, the non-availability of inputs such as electricity, and a financial system that mainly focuses on import/export activity. Services, representing around 40% of GDP, have displayed burgeoning growth since 2000, particularly in the mobile telephony segment. Telecommunications services have become the second source of revenue for the Government. The banking system, which remains relatively small compared to the size of the country and its population, contributes but little to financing the country’s development. Most banking operations consist of deposit taking and short-term financing, and this does little to promote development, of small and medium enterprises in particular.
The Congolese economy is not very diversified; the DRC imports and exports a small range of products. Its principal imports include foodstuffs, chemical products, transport equipment and electrical and non-electrical machinery, and come mainly from the European Union, South Africa, Zambia and China. Its exports are still confined to primary (mining) products, chiefly cobalt, copper, diamonds, gold and petroleum. Its main markets are China, Zambia, the EU and the Middle East. Apart from Zambia and South Africa, official trade with other African countries is still negligible despite regional and bilateral preferential agreements that the DRC has signed but not yet fully implemented. The DRC remains a net importer of services. Travel (tourism) has dominated services exports, illustrating the country’s considerable advantages as a tourist destination, whereas transportation has been the main import item because of the remoteness of key markets. The ratio of trade in goods and services to GDP of approximately 70% (not counting the extensive informal cross-border trade) is an indication of the importance of trade for the DRC’s economy.
The DRC still faces enormous development challenges, such as its heavy dependence on the mining sector, the need to upgrade its infrastructure, its governance problems (including its public finance management system), and the weakness of its human development indicators. The greatest challenges remain the consolidation of economic growth at about 8% per year, and the need to make that growth inclusive through better distribution of wealth.
The DRC’s trade policy is based on supranational regulations resulting from multilateral, regional, and bilateral trade agreements; but owing to the delay in implementing those agreements, the national policy component remains considerable. The ultimate aim of its trade policy is to ensure that trade contributes to poverty reduction by further liberalizing the trade regime; diversifying exports; stepping up the privatization programme and sectoral reforms (in agriculture, mining, industry and services); and through trade facilitation.
The DRC has been an original Member of the WTO since 1 January 1997. It is also a member of: the African Union, the African Economic Community, the Community of the Great Lakes Countries (CPGL), and three of the eight Regional Economic Communities (RECs) recognized by the African Union, namely the Economic Community of Central African States (ECCAS), the Common Market for Eastern and Southern Africa (COMESA), and the Southern African Development Community (SADC). The DRC is engaged in the so-called “tripartite” negotiations aimed at harmonizing the rules of the East African Community (EAC), COMESA and the SADC. It has also concluded bilateral framework trade facilitation agreements with several countries. Over and above the costs involved, participation in numerous agreements could lead to a lack of coherence in the conduct in DRC’s trade policy.
There has been no significant change in the regulatory framework for investment since the DRC’s last TPR. The 2002 Investment Code remains the legal basis for investment in the country. This Code aims to facilitate and encourage domestic and foreign investment in spheres of activity which are key to the country’s development, namely infrastructure improvement, economic utilization of natural resources, and the establishment of a sound industrial base. It provides for a single regime (the general regime), alongside special provisions for the SMEs. The Code applies to all enterprises that intend to develop an economic activity in the DRC, with the exception of activities relating to mining, hydrocarbons, banking, insurance and reinsurance, and defence and arms, as well as certain commercial activities. Investment in those sectors is governed by specific regulatory frameworks and special laws. Equal treatment of domestic and foreign investors is guaranteed, subject to reciprocity.
The tax system has undergone major changes since the last TPR, as a result of the introduction of value added tax (VAT) to replace the previous turnover tax (ICA). New Customs and Excise codes were also enacted and have been in force since 2012. Although fiscal reforms have been introduced, including the elimination of certain levies, the current tax system remains complex and involves a multitude of levies, including customs duties; VAT; excise duty; personal income tax (IRPP); corporation tax; registration and stamp duties on real estate transactions; local taxes; and other levies on specific products, transport, telecommunications, and so forth. In practice, multiple exemptions alleviate the overall tax burden to some degree, which explains why the 2015 tax burden was only 15.4% (of GDP), despite a corporate tax rate which alone is already at 45%.
The DRC has simplified its procedures and documentation in relation to trade. However, it has yet to notify the WTO of these measures in the categories provided for under the Trade Facilitation Agreement, which it has not yet ratified. It has adopted the 2012 version of the Harmonized Commodity Description and Coding System (HS). Its tariff is ad valorem for all its 5,842 lines and comprises four rates: zero, 5%, 10% and 20%. The modal rate of the tariff is 10%, and the simple average rate is 11.2%. On the other hand, 29.4% of tariff-lines (those with a rate of 20%) represent international peaks.
The DRC’s tariff structure has remained relatively the same since the country’s first TPR. Agricultural and non-agricultural products (WTO definition) enjoy about the same average levels of nominal tariff protection, 11.1% and 11.2% respectively. In ISIC terms, manufacturing is the most protected sector with an average rate of 11.4%, followed by the agriculture, hunting and forestry sector (10%), and finally the mining and quarrying sector (7.1%). A breakdown of the rates by HS chapter reveals a general increase in the protection levels to close to 20% for coffee and tea, beverages and tobacco, wood and paper, and textiles and clothing.
Overall, the tariff shows a slight positive escalation from raw materials (9%) to semi-finished products (9.6%) and a decidedly positive one towards finished products (12.7%). A more detailed breakdown (ISIC two-digit) shows that this overall structure is the result, inter alia, of the positive tariff escalation in the industries producing food products, beverages and tobacco; textiles and clothing; paper, articles of paper, printing and publishing; and chemical products. In these industries the positive escalation implies a relatively high level of actual protection, which is unlikely to boost the competitiveness of the products concerned and, consequently, their export.
At the same time, the raw materials used in certain industries (for instance non-metallic mineral products) enjoy considerable protection, well above the average rate of 12.3% for the manufacturing sector as a whole, which means that the cost of inputs and semi-processed products remain high. This kind of tariff structure does little to encourage diversification of economic activity through the processing of local raw materials prior to their export; hence the many tariff and tax reductions granted under different mechanisms. As a result of these reductions, the tariff escalation becomes positive, and hence exacerbates the effective protection of the activities concerned. Moreover, the management of a regime of this kind has its cost, and its transparency remains limited.
The DRC has bound all its tariff lines at ceiling rates, the simple average of which is 96%, or 97.5% for agricultural products and 95.7% for non-agricultural products. While binding its tariff lines at ceiling rates leaves the DRC a broad margin to increase its applied rates, it does not guarantee the predictability of its tariff regime, which might deter a prospective partner, whether a trading partner or one seeking a stable environment in which to invest.
Other duties and taxes are bound at zero, but imports are subject to a large number of taxes that are unrequited or whose the proportions far exceed the utility of the services in question (rendered). In keeping with the principle of national treatment, the main internal taxes are levied on imports and domestic products alike. Moreover, despite the creation of single windows for imports and exports, several other institutions are still operating outside that framework, thereby prolonging the time required for administrative formalities and increasing their cost. Preshipment inspection is mandatory for most imports of US$2,500 or more, and the corresponding fees (0.75% of the c.i.f. value, with a minimum charge of US$100) are borne by the importer. The DRC has never made use of contingency measures, for which it has no legislation.
The DRC is still finding it difficult to implement its 2003 legislation based on the WTO Customs Valuation Agreement and utilizes reference values provided by the BIVAC. Setting up the national system of standardization, technical regulations and accreditation is proving problematic, and this raises questions about the validity and relevance of the various control procedures being conducted, including at the border, by a myriad of institutions with overlapping activities; all imports and exports as well as products placed on the domestic market are subject to systematic checks. Imported vegetables and vegetable products must be accompanied by a phytosanitary certificate and imported animals and animal products by a sanitary certificate, both issued in the country of origin.
Export duties are levied on green coffee; minerals and mineral concentrates; mineral oils; electric power; logs; edged timber; fresh water; and scrap metal. In principle, these duties are applied to certain products in order to encourage the local processing of natural resources. Nevertheless, a large quantity of mineral ores and logs are being exported with no prior processing. The DRC does not have any export promotion or assistance mechanism.
The new Government Procurement Code aims to encourage transparency and the use of tendering, with national and regional preferences. The DRC is pursuing its efforts to reform State-owned enterprises: approximately 20 companies are still in the State’s portfolio, and the rest have either been rehabilitated, restructured or privatized. The country does not have any competition regime; the prices of certain goods and services, deemed to be “strategic”, are regulated. Also, because the DRC is finding it difficult to enforce any intellectual property legislation, it has trouble controlling IPR infringements.
The DRC has also launched other reforms to facilitate doing business, including reducing the cost of obtaining a construction permit and the cost of registering a new building; abolishing or reducing the various costs associated with registering a new business; and abolishing a long list of “nuisance taxes”. However, although some of these measures have been debated and adopted by the Council of Ministers, they have not yet been transposed into laws, which has not helped the DRC’s Doing Business ranking. The country’s current ranking reflects, among other things, the slow pace of applying certain measures, a degree of inconsistency in implementing others, and the need to improve follow-up, assessment and interministerial coordination.
The DRC has made commitments under the General Agreement on Trade and Services (GATS) in a number of services branches, namely construction and related engineering services, communication services, business services, education services, tourism and travel-related services, and recreational, cultural and sporting services. Some of these branches are being opened up almost completely, and others only partially. The extension of the DRC’s multilateral commitments to all services categories that have already been liberalized should shore up the credibility of the reforms introduced, improve the predictability and transparency of the systems concerned and help attract the much needed capital for the DRC to realize its immense potential.
By continuing to implement its reforms effectively, and in particular to simplify and rationalize its tax system and the different controls, procedures and institutions involved at all levels, it should be possible for the DRC’s economy to become more competitive and for new enterprises and jobs to be created.
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Sub-Saharan Africa: Policy adjustment way out of growth slump
Growth in sub-Saharan Africa is set to slow to its lowest level in more than two decades, the IMF said in its latest Regional Economic Outlook for Sub-Saharan Africa.
The report projects average growth to fall to 1.4 percent in 2016 (see chart 1), less than half of last year’s growth and far below the 5 percent plus experienced during 2010-14. GDP per capita will also contract for the first time in 22 years, according to the report.
The head of the IMF’s African department, Abebe Aemro Selassie, said there are two main factors behind this sharp slowdown: “First, the external environment facing many of the region’s countries has deteriorated, notably with commodity prices at multi-year lows and financing conditions markedly tighter. Second, the policy response in many of the countries most affected by these shocks has been slow and piecemeal, raising uncertainty, deterring private investment and stifling new sources of growth,” Selassie said.
Multispeed growth
Mr. Selassie cautioned, however, against a swing from the strong optimism of recent years to excessive pessimism today: “The fuller picture is one of multi-speed growth, with the aggregate growth number masking considerable diversity across the region.”
Non-commodity exporters, around half of the countries in the region, continue to perform well with growth levels at 4 percent or more. Those countries benefit from lower oil import prices, improvements in their business environments, and strong infrastructure investment. Countries such as Côte d’Ivoire, Ethiopia, Senegal, and Tanzania are expected to continue to grow at more than 6 percent for the next couple of years.
Most commodity exporters, however, are under severe economic strain. This is particularly the case for oil exporters like Angola, Nigeria, and five of the six countries from the Central African Economic and Monetary Union, whose near-term prospects have worsened significantly in recent months despite the modest uptick in oil prices. In these countries, repercussions from the initial shock are now spreading beyond the oil-related sectors to the entire economy, and the slowdown risks becoming deeply entrenched.
Conditions in non-oil commodity exporters also remain difficult, including in South Africa where output expansion is expected to stall this year. Likewise, growth in the Democratic Republic of Congo, Ghana, South Africa, Zambia, and Zimbabwe is decelerating sharply or stuck in low gear. The challenges for several of these countries have been compounded by an acute drought affecting large parts of eastern and southern Africa.
Implementing prompt, comprehensive adjustment
Looking ahead, Mr. Selassie noted that a modest pick-up in economic activity is likely, provided strong policy action is taken: “Subject to reforms being initiated quickly in the coming months, growth would recover close to 3 percent in 2017. But to make this happen, the hardest-hit countries, especially oil exporters, need to act promptly.”
While many of the hardest-hit oil-exporters have taken steps to adjust to the new reality of low commodity prices, Selassie said by and large, the adjustment has been too slow and incomplete. “Given the scale and persistent nature of the shock, and as existing buffers have been exhausted, a comprehensive three-pronged adjustment effort is needed urgently: Strong fiscal adjustment, enhanced social protection policies, and structural reforms to facilitate competitiveness and diversification. Further delays in addressing the elevated macroeconomic imbalances are certain to undermine growth prospects further and delay a robust and job-rich recovery,” he said.
For countries outside monetary unions, the report urges central banks to allow the exchange rate to fully absorb external pressures, and tighten monetary policy where needed to tackle sharp increases in inflation. The report also stresses the need to durably reduce fiscal deficits. For countries within monetary unions, where the exchange rate tool is not available, the burden on fiscal adjustment to deal with the shock is likely to be considerably greater still, and the report stresses that central bank financing of excessive fiscal deficits needs to be sharply curtailed.
Mr. Selassie stressed that sub-Saharan Africa remains a region of immense economic potential, but that a comprehensive and internally coherent set of policies to reestablish macroeconomic stability is needed in the hardest-hit countries.
Countries in the region that have continued to enjoy strong growth have also seen fiscal deficits widen and debt levels increase in recent years, largely due to stepped-up development spending. In those countries, the report shows there is a need to strike a better balance between increased investment spending needs and debt sustainability.
In two background studies, the Regional Economic Outlook also examines the evolution of exchange rate regimes in sub-Saharan African countries during the past 35 years, as well as the region’s high vulnerability to natural disasters and policy measures to mitigate their impact.
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Experts warn Kenya against costly transport of crude oil by trucks
The Kenyan government has been urged to consider a pipeline for oil exports to reap maximum benefit from the proposed early production.
According to oil and gas experts, the basic principle that defines the economic viability of crude oil production lies in cost effective and reliable means of transport.
“The most cost effective and reliable means to transport crude oil is by pipeline,” said Charles Wanguhu, Kenya Civil Society Platform on Oil and Gas co-ordinator.
Kenya, Uganda and Tanzania have discovered crude oil deposits and natural gas respectively and are still grappling with lack of the necessary infrastructure to facilitate production.
The discovery of crude oil in Uganda and Kenya in 2006 and 2012 respectively and natural gas in Tanzania in 2010 was seen as the beginning of economic transformation in the region.
Years later, lack of infrastructure, particularly pipelines, has made the deposits a headache for governments and companies that have invested in exploration.
For example, British company Tullow Oil and its joint partners have invested about $4 billion, and discovered about 1.7 billion barrels in Uganda while in Kenya recoverable crude is about 750 million barrels.
To recover the investments, Tullow Oil has been pushing for small-scale commencement of production before the necessary infrastructure, including the proposed pipelines, refinery and storage tank is in place.
An Early Oil Scheme developed by the company in Uganda in 2009 failed to kick off after it become evident that producing 2,000 barrels of oil per day and transporting it by road was too costly.
Uganda abandoned the scheme and is partnering with Tanzania to build a $4 billion pipeline from its oil fields to the port of Tanga.
Despite the failure in Uganda, Tullow is proposing a similar model in Kenya, where it wants to commence production in June next year.
In the Early Oil Pilot Scheme, Tullow Oil and its partners Africa Oil Corp and Maersk Oil intend to produce 2,000 barrels of oil per day.
The oil will be transported to Mombasa by road in what is seen as an important step towards full field development of the oil discoveries in Turkana County.
The government said the scheme is necessary as a precursor to full development and commercialisation of the crude oil business.
“The Early Oil Pilot Scheme is not a money-making operation, we are simply proving our capacity to export crude oil and preparing the market for full production,” said Petroleum Principal Secretary Andrew Kamau.
However, the decision to opt for road transport for the scheme in which 14 “tanktainers” will be transporting 980 barrels of crude for a distance of about 1,090 kilometres has raised concerns about the economic viability of the project.
Coming at a time when crude oil prices at the international market are still depressed at around $50 per barrel, analysts said that Kenya is embarking on a loss-making venture that could cost the taxpayer Ksh4 billion ($40 million).
“In the absence of a significant increase in either oil price or export volumes, the scheme is a money-losing venture.
The volumes are too low to make any economic sense at this initial stage of oil resource extraction,” noted Mr Wanguhu.
He added that the best route for Kenya is the full field development proposal that involves the construction of the 891km crude oil export pipeline from Lokichar to Lamu.
With the pipeline in place, the country will be able to commence production at around 75,000 barrels per day and increase over time to around 150,000 barrels per day.
“This approach is entirely consistent with good oil sector practice and does not require small scale early production,” Mr Wanguhu noted.
More investment needed
If the government opts for the scheme, it must invest $50 million to upgrade the 320km road from Lokichar to Eldoret and $14.5 million to upgrade the storage facilities of the Kenya Petroleum Refinery Ltd.
Upgrading of the facilities is necessary considering the waxy nature of the Kenyan crude, which must be kept heated to remain in liquid form.
Besides the cost implications estimated at $63 million for the two-year period of transporting the crude on heated tankers to maintain the oil at a temperature of 75-80 degrees, safety, health and environmental concerns have been raised.
“The economics of the base case with production of 2,000 barrels per day over two years are not positive,” stated Mr Wanguhu.
The total volume of oil produced and exported will be about 900,000 barrels in two years, which will amount to a loss of $29 million at an estimated crude price of $46 per barrel in the international market.
Rwandan govt moves to regulate warehouse business for commodities exchange
The Government has tabled a Bill before Parliament that seeks to regulate the business of providing warehouse services and value certificates for stored agricultural produce in a move that is poised to boost commodities exchange in the country.
Presented by the Minister for Agriculture and Animal Resources, Dr Gerardine Mukeshimana, yesterday, the draft law regulating the warehouse receipt system in Rwanda seeks to encourage farmers who would like to make more money from their produce.
Under the Bill, whose basis was approved by the Lower House, yesterday, any person who wishes to operate a warehouse receipt system will have to apply for a license from the Rwanda Capital Markets Authority.
The operator of a warehouse receipt business will be issuing a certificate to the farmers showing how much their produce is worth and the latter will be able to use the paper as collateral in order to get loans in banks while they will also have the option to sell their produce at any time.
“Most farmers currently sell their produce right after harvest. The new system will help them to have a safe place to store their produce and sell it when prices improve,” Mukeshimana said.
Rwanda has warehouses across the country with capacity to stock tens of thousands of tonnes in grains but the new law is likely to boost efforts to venture into the business by more private operators which will improve small farmers’ access to commodities exchange services, officials say.
“Not every available warehouse in the country will do the warehouse receipt business. This will be more of a private sector job than it is a government’s role. What we need to do is to mobilise farmers and traders about this business,” the minister said.
While only one company – the Kigali-based East African Exchange (EAX) – in the country is presently involved in the commodities exchange business, officials said setting up a regulatory framework for warehouse receipt system will help bring in more players.
The agricultural produce that will be stored will mainly include imperishable products such as grains like different kinds of beans, maize, sorghum, rice, and wheat, among others.
Most legislators called for the Bill to cater for smallholder farmers’ interests instead of caring for big businesses’ benefits alone.
“It shouldn’t be the same case as warehouses for Irish potatoes whose existence seems to help dealers instead of improving prices for smallholder farmers,” said MP Nura Nikuze.
MP Adolphe Bazatoha agreed, calling for the proposed law to ensure that smallholder farmers get access to the warehouse receipt system services closer to their villages.
“How will small farmers be facilitated to access the warehouses? Isn’t this system going to help dealers instead of the average farmer?” Bazatoha wondered.
Debates and analysis on the draft law will continue at the committee level in the Lower House, a process that allows more room for debates and necessary modifications on the Bill before it is passed into law.
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African economies adopt record number of reforms, says Doing Business 2017 report
Sub-Saharan Africa economies carried out a record number of reforms in the past year to improve the business climate for local entrepreneurs, says the World Bank Group’s annual ease of doing business report.
Doing Business 2017: Equal Opportunity for All, released today, finds that 37 of the region’s 48 economies adopted 80 reforms in the past year, an increase of 14 percent from the previous year. More than half of the past year’s reforms were implemented by the 17 members of the Organization for the Harmonization of Business Law in Africa (OHADA).
The region’s economies reformed most in the areas of Resolving Insolvency (with 18 reforms) and Starting a Business (15). Nigeria, Rwanda and South Africa, for example, made starting a business easier by introducing or improving online portals. Furthermore, as a part of the OHADA reform agenda, Cameroon, among other things, introduced a new conciliation procedure for companies in financial difficulties. This now makes resolving insolvency easier by allowing additional outlets to settle debts.
Seven economies implemented reforms related to Trading Across Borders. For example, Niger made trading across borders easier by removing the mandatory pre-shipment inspection for imported products. Also, Mauritania made trading across borders easier by upgrading to the ASYCUDA World electronic data interchange system, which reduced the time for preparation and submission of customs declarations for both exports and imports. For example, it now only takes 51 hours in Nouakchott, Mauritania to comply with documentary procedures for exports, compared with 59 hours previously.
As governments continue to take up the reform agenda, Doing Business data shows continued successes on the ground. For example, it now takes an average of 27 days to start a business in Sub-Saharan Africa, compared with 37 days five years ago.
“Although the region still has work to do to make itself more business-friendly, we see steady improvements within various economies in the region,” said Rita Ramalho, Manager of the Doing Business project. “To see a record number of reforms take place in Africa is very encouraging for local entrepreneurs and the global business community alike.”
Mauritius once again ranks best in the region, with an overall Doing Business global ranking of 49. Mauritius performs best in the areas of Protecting Minority Investors and Dealing with Construction Permits, with a rank of 32 and 33 respectively, on those indicators. For example, it takes 156 days to complete the construction permitting processes for simple buildings, compared to 183 days in France and 222 days in Austria.
Ranks of some other economies in the region are Rwanda (56), Botswana (71) and South Africa (74). This year’s report also covers Somalia for the first time, bringing the total number of economies covered globally to 190. Somalia is ranked 190.
For the second consecutive year, Kenya places among the global top 10 improvers. Ranked 92, Kenya implemented reforms in five Doing Business areas. For example, in the area of Resolving Insolvency, the economy introduced a reorganization procedure and introduced regulations for insolvency practitioners. Starting a Business was made easier by removing the stamp duty fees required for the nominal capital, memorandum and articles of association and eliminating requirements to sign the compliance declaration before a commissioner of oaths.
Kenya also streamlined the process of Getting Electricity by introducing a geographic information system which eliminates the need for a site visit, thereby reducing the time and interactions needed to obtain an electricity connection. This reform reduced the time for grid connection by almost two weeks.
This year’s Doing Business report includes, for the first time, a gender dimension in three indicators: Starting a Business, Registering Property and Enforcing Contracts. In Sub-Saharan Africa, 13 economies require additional legal hurdles for women entrepreneurs. For example, six economies (including Cameroon, Benin and Guinea-Bissau) require additional steps for women to formally register a business compared to men.
The Paying Taxes indicator has been expanded to cover post-filing processes, such as tax audits and VAT refund. The report finds that the region has room for improvement in these new areas. In most economies in Sub-Saharan Africa – where it is likely for an audit to take place – taxpayers are exposed to a field audit whereby the auditor visits the taxpayers. This is the case in Botswana, The Gambia, Malawi, Niger, Zambia and Zimbabwe.
Record Number of Economies Carried Out Business Reforms in Past Year
A record 137 economies around the world have adopted key reforms that make it easier to start and operate small and medium-sized businesses, says Doing Business 2017, the World Bank Group’s annual report on the ease of doing business. The new report finds that developing countries carried out more than 75 percent of the 283 reforms in the past year, with Sub-Saharan Africa accounting for over one-quarter of all reforms.
In its global country rankings of business efficiency, Doing Business 2017 awarded its coveted top spot to New Zealand, Singapore ranks second, followed by Denmark; Hong Kong SAR, China; Republic of Korea; Norway; United Kingdom; United States; Sweden; and Former Yugoslav Republic of Macedonia.
The world’s top 10 improvers, based on reforms undertaken, are Brunei Darussalam; Kazakhstan; Kenya; Belarus; Indonesia; Serbia; Georgia; Pakistan; United Arab Emirates (UAE); and Bahrain.
The report cites research that demonstrates that better performance in Doing Business is, on average, associated with lower levels of income inequality, thereby reducing poverty and boosting shared prosperity.
“Simple rules that are easy to follow are a sign that a government treats its citizens with respect. They yield direct economic benefits – more entrepreneurship; more market opportunities for women; more adherence to the rule of law,” said Paul Romer, World Bank Chief Economist and Senior Vice President. “But we should also remember that being treated with respect is something that people value for its own sake and that a government that fails to treat its citizens this way will lose its ability to lead.”
Doing Business data points to continued successes in the ease of doing business worldwide, as governments increasingly take up key business reforms. Starting a new business now takes an average of 21 days worldwide, compared with 46 days 10 years ago. Paying taxes in the Philippines involved 48 payments 10 years ago, compared to 28 now and in Rwanda, the time to register a property transfer has dropped from 370 days a decade ago to 12 days now.
This year’s Doing Business adds gender measures to three indicators – Starting a Business, Registering Property and Enforcing Contracts – finding disparities in 38 economies. Of these, 23 economies impose more steps for married women than men to start a business. Sixteen limit women’s ability to own, use and transfer property. Doing Business finds that, in these economies, fewer women work in the private sector both as employers and employees.
The report also features expansions to the Paying Taxes indicator, to cover post-filing processes, such as tax refunds, tax audits and administrative tax appeals, to better understand the overall tax environment. Since 2004, when Doing Business started, a total of 443 reforms have been recorded under the Paying Taxes indicator, the second highest number of reforms, with 46 reforms implemented in the past year.
However, easing the requirements for Starting a Business is, by far, the most common area for reform, with almost 600 reforms recorded since 2004. Of these, 49 reforms were introduced during the past year.
“Government policy plays a huge role in the daily operations of domestic small and medium-sized firms and onerous regulation can divert the energies of entrepreneurs away from developing their businesses or innovating. This is why we collect the Doing Business data, to encourage regulation that is designed to be smart, efficient, accessible, and simple,” said Augusto Lopez-Claros, Director of the World Bank’s Global Indicators Group, which produces the report.
This year’s Doing Business report includes a pilot indicator on public procurement regulations. The report studies procurement in 78 economies across five main areas: accessibility and transparency, bid security, payment delays, incentives for small and medium enterprises and complaints mechanisms. Public procurement represents, on average, 10 to 25 percent of an economy’s GDP, making the procurement market a unique pool of business opportunities for the private sector.
By region, East Asia and the Pacific is home to two of the world’s top 10 ranked economies, Singapore and Hong Kong SAR, China, and two of the top 10 improvers, Brunei Darussalam and Indonesia. The pace of reforms picked up significantly in the past year, with the region’s economies implementing a total of 45 reforms to improve the ease of doing business.
The Europe and Central Asia region was also a major reformer during the past year, with Belarus, Georgia, Kazakhstan and Serbia amongst the world’s top 10 improvers. Europe and Central Asia has consistently been the region with the highest average number of reforms per economy and is now close to having the same good practices in place as the OECD high-income economies.
Business reform activity accelerated in Latin America and the Caribbean with over two-thirds of the region’s economies implementing a total of 32 reforms in the past year, compared with 24 reforms the previous year. The bulk of the reforms were aimed at improving tax payment systems, facilitating cross-border trade and starting a new business, with Brazil implementing the most reforms in the past year.
The Middle East and North Africa region saw the most reforms implemented in the past year since 2009, with 35 reforms in 15 of the region’s 20 economies. Among the reformers, the UAE and Bahrain were among the world’s top 10 improvers. However, the region features the greatest gender disparities, with 70 percent of the economies creating barriers for women entrepreneurs.
In South Asia, five of the region’s eight economies implemented a total of 11 reforms in the past year, compared with nine the previous year. Pakistan, which was among the world’s top 10 improvers, implemented several reforms this past year, as did India and Sri Lanka. The bulk of the business reform activity in the region was aimed at facilitating cross-border trade. However, Afghanistan and Pakistan, stipulate additional hurdles for women entrepreneurs.
Sub-Saharan Africa economies stepped up the pace of reform activity, with 37 economies undertaking a total of 80 business reforms in the past year, an increase of 14 percent from the previous year. For the second consecutive year, Kenya was among the world’s top 10 improvers, while seven economies implemented four or more reforms each in the past year. However, 13 economies in the region stipulate additional hurdles for women entrepreneurs.
“The overarching goal of Doing Business is to enable entrepreneurship, for women and men, particularly in low and middle income countries. That governments around the world are taking up the challenge of improving the business climate, to enable job creation, is worth celebrating and we look forward to continue recording the successes we have seen this past year in the years to come,” said Rita Ramalho, Manager of the Doing Business project.
» Download: Doing Business 2017: Equal Opportunity for All (PDF, 9.46 MB)
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tralac’s Daily News Selection
The selection: Tuesday, 25 October 2016
Featured tweet, @ThulasSims: ’Dlamini Zuma; ‘We’ve lost 40% of our aviation market, because as Africans we don’t make agreements with ourselves’ #AfricanEditorsForum’
AfDB VP appointments: Khaled Sherif (Regional Development, Integration and Business Delivery), Amadou Hott (Power, Energy, Climate and Green Growth), Pierre Guislain (Private Sector, Infrastructure and Industrialization)
2017 World Bank Doing Business: Rwanda maintains second spot in Africa (New Times)
The 2017 World Bank Doing Business Report has ranked Rwanda 2nd in Africa after Mauritius. And globally, Rwanda has improved six places ranking 56th out of 190 countries. The latest World Bank report was released Tuesday. The rankings also indicate that Rwanda reduced the gap with Mauritius, from 30 places last year to only seven places. Botswana came in third place in Africa and 72nd globally, with South Africa at 73rd globally. Morocco was fifth on the continent and 75th globally. [Note: the Doing Business Report will be available for download later today]
EAC/JICA automotive industry expert meeting kicks off in Nairobi (EAC)
The main objective of the three-day meeting is to review and validate the progress report of the Comprehensive Study on Automotive Industry and provide inputs towards finalization of the same and also inform the EAC and potential private sector investors (both foreign and domestic) on policy options and modalities to promote and develop the motor vehicle industry in the region. The 16th Ordinary Summit of the EAC Heads of State, of 20 February 2015, “directed the EAC Council of Ministers to study the modalities for promotion of motor vehicle assembly in the region, and to reduce the importation of used motor vehicles from outside the community, and to report progress to the 17th Summit.” The Director for Productive and Social Sectors at the EAC Secretariat, Mr. Jean Baptiste Havugimana, said the EAC had made a strategic decision to invest in the motor vehicle industry as a way of diversifying the regional manufacturing base which at the moment relies heavily on raw agriculture commodities.
South Africa: Automotive groups seek to develop car-making industry north of SA (Business Day)
A group of car makers led by Ford and Nissan executives will seek to work with Kenyan authorities to develop an car-manufacturing industry there, building on talks with Nigerian MPs. The African Association of Automotive Manufacturers, which includes Toyota, General Motors, BMW and Volkswagen, was formed to take advantage of a surge of interest from African governments in building vehicles. Kenya "would love to have a big automotive industry, they would love to beat SA, Egypt", Schaefer said. "They want fully fledged production." Still, even when policies and incentives were in place, it took years for car makers and suppliers to plan, approve and invest, said Nemeth. [Deloitte Africa: Automotive Insights(pdf)]
Afreximbank unveils Model Law on Factoring
The African Export-Import Bank has introduced a model law on factoring to provide a benchmark for African national legislatures enacting arrangements aimed at fostering the growth of factoring activities across the continent. The Afreximbank Model Law on Factoring, which was unveiled in Cape Towny during the seventh Annual Meeting of the Africa Chapter of Factors Chain International, is based on recommendations received from consultative meetings with factors, government and regulatory bodies, enterprises, legal experts and banks across Africa and the world. Launching the model law, Kanayo Awani, Chairman of the Africa Chapter of FCI and Managing Director of Afreximbank’s Intra-African Trade Initiative, predicted that the document would have profound impact on the way small and medium-sized enterprises were financed in Africa.
Virtual competition: the promise and perils of the algorithm-driven economy (Unctad)
Within the span of a decade the internet has expanded marketplaces, enabling business and consumers to enter into new and apparently beneficial relationships. But in a new book, Virtual Competition: The Promise and Perils of the Algorithm-Driven Economy, Ariel Ezrachi and Maurice E. Stucke, warn that this new environment may be changing the nature of competition. Mr Ezrachi, who is a professor of competition law at the University of Oxford, launched the book during a meeting of the Intergovernmental Group of Experts on Competition Law and Policy, organized by UNCTAD, in Geneva on 19 October. Q&A with Ariel Ezrachi, Professor of Competition Law, Oxford:
Rwanda-Morocco business council will drive bilateral trade, says PSF (New Times)
Last week, Rwandan and Moroccan businesses formed a joint council and signed a partnership agreement in the presence of the leaders of the two countries, President Paul Kagame and King Mohammed VI. Benjamin Gasamagera, the Private Sector Federation (PSF) chairman, told Business Times that the body would represent mutual interests of the businesses from both countries. “The mandate of the council is to implement the agreement, but we will have to first agree on the criteria as the business council,” he said. [Coming in from the cold: Morocco returns to Africa]
Team Export South Africa workshop: update (dti)
The workshop (24-26 October) targets Export Councils from the provinces, government departments across the three spheres of government, and stakeholders in the export value-chain. DTI DG Lionel October says the event will be structured into 4 discussion panels that focus on the following topics: (i) institutional arrangements by government institutions to promote growth in exports (ii) institutional arrangements by private enterprises to promote growth in exports, (iii) Africa as an export market (iv) export support measures.
Zimbabwe’s trade deficit narrows (The Herald)
Zimbabwe’s trade deficit narrowed 13% to $2bn in the nine months to September compared to $2,3bn in the same period last year on lower imports. According to figures released by the Zimbabwe National Statistics Agency, the country’s imports for the period dropped 6,4%, to $3,7bn, from $4bn worth of goods imported during the same period last year. Statistics show that top source countries for imports include South Africa, Singapore, China, India, Mozambique, Japan, Botswana and the United Arab Emirates. Major imports for the period were diesel, unleaded petrol, electrical energy, crude soya bean, rice and non alcoholic beverages and medicaments used in management of chronic illnesses. [Exports surge 61% to $254m in six months]
Zimbabwe: Economy to grow nearly 5% in 2017 (The Chronicle)
According to the 2017 National Budget Strategy Paper developed by the Ministry of Finance and Economic Development, projected growth is anchored in fundamental economic assumptions that include improved performance of agriculture. Meteorological and climate change experts for SADC have forecast normal to above normal rainfall in the next rainy season, a positive phenomenon for Zimbabwe’s agriculture driven economy. Projections say growth will also depend on increased financing for agriculture, incentives for exporters, better mineral prices, improved investment climate, re-engagement with International Monetary fund and other global funders and positive gains from measures taken to cushion local industry. Exports are projected at $3,8bn, against imports of $5,4bn, resulting in a high unsustainable trade gap of over $1,5bn. Government says in line with the value addition and beneficiation thrust, import restrictions will remain necessary, while instituting appropriate measures that promote production for both the domestic and export markets will be critical. The budget strategy paper says that a number of measures will be required in 2017 to stimulate growth in productive sectors. [Download the 2017 Budget Strategy Paper]
Egypt industry races to fill void as trade gap to narrow $11-12bn in 2016 (Reuters)
Egypt expects to cut its trade deficit by $11-$12bn in 2016 as part of efforts to ease an acute dollar shortage and is encouraging domestic industries to fill the void as imports plummet, Trade and Industry Minister Tarek Kabil said. Speaking as part of the Reuters Middle East Investment Summit, Kabil said Egypt had produced about $4bn worth of import substitutes since the start of the year and aimed to grow domestic industry by 8% in three years. "If you look at last month’s report, industry grew by almost 20%, because it has to fill the gap of the imports. Some of (the imports) are unnecessary and some is real consumption that Egyptian industry has to fill the gap for," he said in an interview at his wood-paneled offices in Cairo.
Weak data buries the shine of Kenya’s huge mineral resource (Daily Nation)
A report released on the country’s potential mineral resources show that Kenya has billions below its surface worth of minerals yet to be mapped and quantified for mining. The Ministry of Mining, which is yet to identify a consultant expected to carry out a year-long aerial mapping of the country’s minerals said in the Kenya Mining Investment Handbook 2016 (pdf) that the country’s mining potential is huge and remains unknown. Mining Cabinet Secretary Dan Kazungu said 17 bidders had applied to be the consultant expected to conduct the Sh3 billion survey to map the country’s mineral locations and allow for informed marketing of the country as mining hub. [Scottish oil and gas trainers on East Africa trade mission]
EALA halts recruitment at secretariat over graft claims (New Times)
The East African Legislative Assembly has resolved to investigate allegations of corruption and other malpractices in the recruitment processes at the EAC secretariat. The decision, which also puts to halt ongoing recruitment, was reached at, last week, as the Assembly concluded its latest sitting in Zanzibar, Tanzania. It followed passing of a motion “of public importance” moved by MP AbuBakr Ogle (Kenya) seeking suspension of the ongoing recruitment process at the Secretariat in Arusha, Tanzania, pending an audit. “This is a result of widespread complaints by the citizens of East Africa regarding the transparency of the process. There are claims of impropriety and underhand dealings in short-listing and hiring. These claims must be verified before it can be allowed to continue,” Ogle said. According to the lawmaker, after the Assembly passed the motion, the next move is for the Speaker to communicate the subsequent resolution to the Council of Ministers with a view to reporting back to the Assembly at its next sitting in Nairobi, Kenya, next month. [In response: statement by the EAC Secretary General]
Tanzania: Ex-ports chief, 3 others in court over $4m bribery charges (IPPMedia)
The former director general of the state-run Tanzania Ports Authority, Ephraim Mgawe, and three other senior officials were yesterday charged with soliciting a $4 million (close to 9 billion/-) bribe from a foreign company that was awarded a tender worth $66.48 million (over 140 billion/-) for upgrading infrastructure at the port of Dar es Salaam. Singapore-registered Leighton Offshore Pte Limited won the 2010 tender to replace the port’s old oil discharging terminal with a new dual pipeline single point mooring system. This is the second time that the 62-year old Mgawe has been charged with graft related to his stint as boss of the historically corruption-ridden port of Dar es Salaam. In July 2014, he was alleged in a separate case to have fraudulently awarded a controversial contract worth more than $523 million to a Chinese company for the port’s expansion. The expansion project was abandoned after officials reported that the costs being cited by China Communication Construction Company Ltd were double those for similar port projects.
Meeting of SADC Ministers for ICTs, Transport & Meteorology: summary
David Satterthwaite: ‘Will Africa have the world’s largest cities in 2100?’
A new report suggests that most of the world’s largest cities in 2100 will be in Africa – including many with over 40 million inhabitants. This blog suggests growth in numbers will hinge more on the extent of economic development. The world’s urban population is growing rapidly – and current projections suggest it will increase by 2.9 billion between 2015 and 2050, and it could grow another 3 billion by 2100. But where will this vast growth in the world’s urban population live? A new paper by Daniel Hoornweg and Kevin Pope projects the world’s largest cities and their populations in 2100 under three different scenarios: [Greg Foster: ‘Africa’s future is in its secondary cities’ (Devex)], [Edward Paice: summary of the Habitat III Africa Regional Report (ARI)]
Botswana Vision 2036: achieving prosperity for all (pdf, GoB)
Concluding today, in Nairobi: ‘WTO’s Trade Facilitation Agreement: making cross-border trade easier for Kenyan business’
Lord Stephen Green, Ali A. Mufuruki: ‘Time to reboot UK relations with Africa’ (The Standard)
South Africa: Composite Business Cycle Indicators – October 2016 (SA Reserve Bank)
Angola’s 2017 budget reaches $44bn (Macauhub)
Bank of Mozambique increases interest rates by 6 percentage points (Macauhub)
African Innovation Foundation unveils Sh15m competition for businesses (Business Daily)
Carmen Reinhart: ‘The return of dollar shortages’ (Project Syndicate)
Uganda’s first Social Service Delivery Equity Atlas launched (Mareeg)
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Rwanda maintains second spot in 2017 World Bank Doing Business report
The 2017 World Bank Doing Business Report has ranked Rwanda 2nd in Africa after Mauritius. And globally, Rwanda has improved six places ranking 56th out of 190 countries.
The latest World Bank report was released Tuesday.
The rankings also indicate that Rwanda reduced the gap with Mauritius from 30 places last year to only seven places.
Botswana came in third place in Africa and 72nd globally, with South Africa at 73rd globally.
Morocco was fifth on the continent and 75th globally.
The 2017 report is the 14th edition of a series of annual rankings that examine the regulations and conditions that enhance business conduciveness as well as those that limit.
The World Bank Doing Business report focuses on several aspects that facilitate business including; the ease of starting a business, obtaining construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.
The report’s authors observed that that the rapid improvement across all the key sectors was largely characterised by progress in aspects such as transparency, accountability and strategic channeling of investments to maximise impact.
The most significant improvement was in the service industry. In credit financing, Rwanda was ranked second in the world. And in registration of property, Rwanda came fourth globally.
In recent years, the country has rolled out a number of policy directives to improve the business environment most of which have yielded result according to the local and international businesses.
Starting business has been made easy through online registration which offers a one-stop shop as well as streamlining post-registration processes such as availing VAT registration procedures online.
Property registration was made easier through the introduction of effective time limits and increasing the transparency of the land administration system.
The Government also eased trading across borders by removing the mandatory pre-shipment inspection for imported products which significantly reduced multiple requirements and steps.
The 2017 Doing Business Report also introduced a gender dimension which measures equality of ownership between men and women in registration, ownership and rights to business.
In the new aspect, the report observed that all the three elements meet the gender equality principles which provides for the minimum of 30 per cent quota for women in all decision making positions.
Commenting on the development, Rwanda Development Board chief executive Francis Gatare said the strides and progress in the new report stem from the focus to optimise the service industry and capitalising on investment opportunities that promote long-term sustainable growth.
He also cited the role of social stakeholders whose social and financial support had pushed the country forward.
“We also continue to harness the role of the private sector in accelerating economic growth to make the country even much easier and conducive in conducting business,” Gatare said.
“We would not have achieved these advancements without the support of our stakeholders whose social and financial impact has been greatly felt in the country.
“We shall continue to stretch our borders and ensure that strengthening the regional economy is at the centre of Rwanda’s sustainable development, making Africa an investment hub as a whole.”
The report continues to be a major reference document for investors who are constantly on the lookout for places with best environments for their investment.
» Find out more in Doing Business 2017: Equal Opportunity for All
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EAC/JICA Automotive industry expert meeting kicks off in Nairobi
A broad spectrum of stakeholders and experts from the Automotive Industry, Finance, Customs and Trade sectors as well as vehicle manufacturing company representatives from the EAC Partner States embarked on a three-day meeting at the Sarova Panafric Hotel in Nairobi, Kenya.
The main objective of the meeting, which is organized by the EAC and the Japan International Cooperation Agency (JICA), is to review and validate the progress report of the Comprehensive Study on Automotive Industry and provide inputs towards finalization of the same and also inform the EAC and potential private sector investors (both foreign and domestic) on policy options and modalities to promote and develop the motor vehicle industry in the region.
The EAC Heads of State Summit have on various occasions reiterated the need to promote motor vehicle assembling in the region, given the huge potential that can be realized from a thriving iron ore extraction and beneficiation industry that can in turn, lay the foundations for a globally competitive steel production industry on a scale to support the establishment of an automotive industry in East Africa.
Cognizant of this, the 16th Ordinary Summit of the East African Community Heads of State of 20th February 2015 “directed the EAC Council of Ministers to study the modalities for promotion of motor vehicle assembly in the region, and to reduce the importation of used motor vehicles from outside the community, and to report progress to the 17th Summit.”
The Director for Productive and Social Sectors at the EAC Secretariat, Mr. Jean Baptiste Havugimana, for the EAC Secretary General, said that road transport was the most predominant mode of transport across the EAC region due to its affordability and flexibility.
“The automotive industry is a major industrial and economic force worldwide. It makes 60 million cars and trucks a year, and is responsible for almost half the world's consumption of oil. In addition, the industry employs 4 million people directly, and many more indirectly," Mr. Havugimana said.
Mr. Havugimana said that the EAC had made a strategic decision to invest in the motor vehicle industry as a way of diversifying the regional manufacturing base which at the moment relies heavily on raw agriculture commodities.
It is anticipated that the development of an automotive industry will create more jobs and reduce transportation costs. The industry also has the potential to contribute to foreign exchange reserves, if some of the vehicle parts currently imported are competitively produced within the EAC Region.
To reap the full benefits from the industry, it will be vital to nurture it. To do so, the EAC Secretariat has been tasked to speed up work on a comprehensive study on the bloc’s automotive industry to help decision makers plan better and put in place modalities that will support similar initiatives and promote the automotive industry.
In his remarks, Mr. Julius Kirima, the Acting Deputy Director of Industries in Kenya’s Ministry of Industry, Trade and Cooperatives acknowledged the generous support extended by the Japanese government through JICA to facilitate the study on the automotive industry in East Africa.
Mr. Kirima noted that the study gives ample opportunity to chat the way forward towards promotion of intellectual development, production of quality automotive products and increased employment opportunities within the region.