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tralac’s Daily News Selection
The selection: Thursday, 29 September 2016
Profiled tweets from the WTO Public Forum:
@wto: For Liberia it is more expensive to trade with neighbours than with China, so trade facilitation is essential - Minister @AxelAddy; @Gonzalez_WBG: In Africa, we must view trade ministries differently...for their ability to drive jobs & transform economies - Minister @AxelAddy
The Namibian-German Centre for Logistics annual conference is underway in Swakopmund. The theme: An opportunity for trade in Africa
The OECD’s Africa Forum 2016 takes place today in Paris. The theme: African cities for Africa’s development
The UNECA’s Carlos Lopes announced yesterday, in an interview with Le Monde, that he would be stepping down at the end of October this year.
Profiled new trade publications:
Launched, in Arusha: ‘The EABC Business Agenda: deepening private and public sector participation in EAC integration’ (EABC): The EABC Business Agenda salutes and celebrates the EAC business community’s many success stories, invaluable contributions, and innovative solutions that respond imaginatively to the unique challenges that continue to confront our region. The book further demonstrates that at the EABC Secretariat, we are ready to engage with both the private and public sectors in the EAC at every level - from having strategic dialogues to meeting the challenges of day-today regional integration and development issues through the collaborative efforts of stakeholders from diverse sectors across the region. The EABC Business Agenda is, at once, both a ready reckoner and an elegant coffee-table accessory, with unique and crisp profiles, in-depth interviews and shared global best practices pioneered in the corporate world to promote new efficiencies and improve both the transparency and accessibility of quality service delivery to support key integration and development initiatives in our region.
Launched in Geneva: African perspectives on trade and the WTO (WTO): The WTO launched a new publication entitled “African perspectives on trade and the WTO” on Day 2 of the Public Forum. The book – co-published by the WTO and Cambridge University Press — examines how enhanced participation in world trade could help Africa achieve further growth and emphasizes the need for the continent to undertake structural reforms to underpin its economic transformation. The book brings together contributions from African policy-makers and representatives of partner institutions to assess how the multilateral trading system could assist Africa in overcoming some of its greatest challenges in areas such as governance, economic diversification and integration into global value chains.
Abidjan-Lagos Corridor: coordination meeting update (AfDB)
Delegates from the five member countries – Nigeria, Benin, Togo, Ghana and Côte d’Ivoire – gave status reports of their implementation activities on the corridor, while highlighting areas for further improvement. In terms of trade facilitation, the countries called for the creation of a knowledge- and data-sharing platform. The representatives also espoused the need for effective implementation of rules and protocols to facilitate free movement of people and goods. The following recommendations and key takeaways were drawn from the meeting: (i) combining and strengthening financial interventions (ii) creating a platform for knowledge management and sharing (iii) assessing development impacts of activities along the corridor (iv) drawing valuable lessons and adopting best practices from other regions (v) setting up a coordination mechanism for improved and accelerated corridor performance, as well as the creation of an effective tool to monitor implementation of Heads of States’ decisions.
Promoting growth poles in West Africa (UNECA)
The overall objective of this mission (26-30 Sept) is to set the basis of an ECA technical assistance to Burkina Faso, to support its development strategy, mainly with regard to development planning systems and statistics. In parallel and over the same period, the ECA Subregional Office for West Africa is organizing, at the request of Nigerien authorities, a mission to share experiences on the strategy to promote development poles, between senior officials from Niger and their counterparts from Burkina Faso.
Abou Fall: ‘Development of export industries in West Africa critical to reap maximum AGOA benefits’ (AfDB)
In West Africa, exports to the US from seven countries (Benin, Burkina Faso, Cameroon, Côte d’Ivoire, Ghana, Nigeria, Senegal) totaled $5.3bn in 2014, of which $1.3bn was exported under AGOA (including GSP – Generalised System of Preferences), which represents about 24.52% of total exports to the US. The low percentage of AGOA exports can be attributed to the fact that most West African countries export primary products that attract no duty under the Normal Trade Regime. In addition to the low level of AGOA exports as a result of duty-free under the NTR, US importers also paid duty on products that were supposed to enter the US duty-free under the GSP and AGOA, hence a missed opportunity for the selected African countries to take advantage of AGOA. For the seven selected countries, the total value of unclaimed AGOA/GSP exports in 2014 was $1.3bn, or 24.77% of exports, while in 2015, the total value of unclaimed AGOA/GSP exports was $520m, or 17.85% of total exports. By value, top product categories – petroleum products excluded – that entered the U.S. from the seven countries with unclaimed AGOA benefits were: prepared foodstuffs, vegetable products, and textiles and apparel. [The author is a senior trade and investment officer at the AfDB]
Related: Speech by Axel M. Addy (pdf), Liberia’s Minister of Commerce and Industry at AGOA Forum
Promoting intra-African investment, regional investment policy framework and SMEs policies consultancy (pdf, AfDB)
The specific duties and responsibilities of the consultant will include: (i) provide support to three selected RECs, namely ECOWAS, WAEMU and CEMAC in designing or reviewing their Regional Investment Policy Framework or regional investment agreements and SMEs policies to address the misalignment between the regional policy and the national policies (ii) help the above-mentioned RECs and regional member countries to review these frameworks, agreements and policies; update, harmonize and implement them (iii) develop and recommend SMEs policies to promote SMEs integration in the regional productive/value chains and access to intra-regional/African investments and markets.
A trade in services special feature:
At WTO, India proposes ways to cut transaction costs (LiveMint): India has floated a concept paper (pdf) at the World Trade Organization on how to reduce transaction costs that impose regulatory and administrative burden on global trade in services, on the lines of what was concluded in the so-called Trade Facilitation Agreement of 2014 for trade in goods. “Like the TFA, there is a need for a counterpart agreement in services, an agreement on Trade Facilitation in Services, which can result in reduction of transaction costs associated with unnecessary regulatory and administrative burden on trade in services,” India argued in the paper submitted to the WTO’s Working Party on Domestic Regulation on 23 September. India’s concept note also covers specific issues in four modes of supply of services of the WTO’s General Agreement on Trade in Services.
Two new papers from ILEAP, CUTS International Geneva and the University of Sussex’ CARIS:
Services trade data in LDCs & LICs: challenges, “better performers” and pathways for improvement: Nevertheless, some have performed better than others at collecting, compiling and reporting on services trade data. This paper identifies good practices successfully adopted by these “better performers”, which could be replicated in other countries. It suggests that, more than the level of economic development itself, key determinants of success are an enabling legislative provisions, the use of multiple data sources and checks and balances, as well as securing external technical assistance.
Improving services data collection in Least-Developed and Low-Income Countries - a toolkit: Designed based on good practices tested in similar countries, the strategy proposed in this toolkit follows a sequenced process from adopting enabling legislative provisions and institutional frameworks, to securing external technical assistance and diversifying data sources. [Both papers can be downloaded after user registration]
India to sign social security pacts with other BRICS nations (LiveMint): India will sign social security agreements with Brazil, Russia, China and South Africa after a consensus emerged at a BRICS labour ministers conference on Wednesday that they will promote labour mobility in the grouping. India has been trying to persuade the US to sign a similar bilateral social security agreement, which could help bring back billions of dollars worth of contributions made by Indians while working in the US even though they were not allowed to avail of that country’s social security benefits. Though there is not much labour movement among BRICS countries at the moment, India is of the opinion that with relations strengthening among the five emerging economies, more of their citizens will seek jobs in each other’s countries and an enabling framework is the first formal step in that direction. [BRICS Labour and Employment Ministers’ declaration: full text]
Kenya, CCA trade MoU signed (Standard)
The Corporate Council on Africa and the Kenyan Ministry of Trade, Industry and Cooperatives have signed a MoU to formalise a partnership to promote US-Kenya trade and investment. “We view this MOU as an important and serious commitment to work on key programs between Kenya and the US private sector so that both our nations benefit,” said CCA President Stephen Hayes. “We will be working with Kenya closely over this period and far beyond.”
Bank of China Mauritius: update (GoM)
The Bank of China Mauritius Ltd will add to other major international names operating in Mauritius including HSBC, Barclays, and Standard Chartered, amongst others. According to Minister of Finance and Economic Development, Mr Pravind Kumar Jugnauth, besides enhancing the credibility of our jurisdiction, this subsidiary would enhance trade ties and direct investments between Mauritius and China, and contribute in a significant way to expand the global connection of our financial system. He further underlined that with the setting up of operations of the Bank of China in Mauritius, it will be easier for Mauritius to realise its ambition of hosting a renminbi clearing centre for the region which he said will further cement the role of Mauritius as a regional financial hub.
Tanzania: Researchers propose policy reviews to spur pharmaceutical sector (Daily News)
Policy Research for Development (REPOA), in its policy brief report (pdf) released yesterday in Dar es Salaam, proposed the restructuring of policies to favour local producers currently moving out of production of basic affordable medicines over profitability concerns. Mr Katera said that successful African experiences show that the pharmaceutical industry can be sustained and grown with an active industrial policy. He noted that policies to reverse any decline would require government’s action on targeted business support and collaboration with manufacturers. Mr Katera identified some of the challenges as tax exemptions on imported medicines, the situation that discourages domestic manufacturers.
Zambia: Government determined to revamp textile industry (Lusaka Times)
Government says it is determined to revamp the Textile and Garment subsector because of its vast potential to spur economic diversification. Commerce Minister Margaret Mwanakatwe said her Ministry is to this effect revising its commercial, trade and industry policy in order to have a more integrated and coherent policy intervention that support growth and development of Zambia’s trade and industrial sector.
Citizen engagement in rulemaking: evidence on regulatory practices in 185 countries (World Bank)
This paper presents a new global data set on citizen engagement in rulemaking and provides detailed descriptive statistics for the indicators. The paper then provides preliminary analysis on how the level of citizen engagement correlates with other social and economic outcomes. To support this analysis, we developed a composite citizen engagement in rulemaking score around the publication of proposed regulations, consultation on their content and the use of regulatory impact assessments.
Zambia to seek regional bodies’ guidance over Zimbabwe trade ban
SA Competition Commission statement on raids on cargo shipping companies
East African nations urged to take advantage of strong growth: an FT interview with Kenya’s central bank governor, Patrick Njoroge
African countries to adopt Rwanda’s YouthConnekt youth empowerment initiative
Rwanda: MPs question officials on agriculture export project
Alan Winters, Jim Rollo, Peter Holmes: ‘Leaving the EU Customs Union: what is the issue?’
India: Govt eyes big jump in World Bank’s Doing Business index
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New book examines African perspectives on trade and the WTO
The WTO launched a new publication entitled “African Perspectives on Trade and the WTO” on Day 2 of the Public Forum on 28 September 2016. The book – co-published by the WTO and Cambridge University Press – examines how enhanced participation in world trade could help Africa achieve further growth and emphasizes the need for the continent to undertake structural reforms to underpin its economic transformation.
“African Perspectives on Trade and the WTO: Domestic Reforms, Structural Transformation and Global Economic Integration” brings together contributions from African policy-makers and representatives of partner institutions to assess how the multilateral trading system could assist Africa in overcoming some of its greatest challenges in areas such as governance, economic diversification and integration into global value chains.
The launch was attended by the three co-editors – Patrick Low, Chiedu Osakwe and Maika Oshikawa – and by H.E. Joshua Setipa, Lesotho’s Minister of Trade and Industry, and H.E. Dr Okechukwu Enelamah, Nigeria’s Minister of Industry, Trade and Investment, who contributed to the publication. H.E. Axel Addy, Liberia’s Minister of Commerce and Industry, also participated in the panel discussion, focusing in particular on Liberia’s accession process, which concluded on 14 July 2016.
In his opening remarks, WTO Director-General Roberto Azevêdo said: “The WTO’s African members have been increasingly central in the debates here over recent years. All members are working now to plot the way forward after Nairobi, and it is clear to me that Africa’s voice will be more important than ever in that conversation. The WTO can help to deliver a more inclusive trading system – and that’s why I think this book is so welcome. It is a reminder of the importance of the multilateral system for growth and development in Africa. And it is a reminder that African members must continue to play a leading role in forging the way forward.”
Minister Setipa said: “We need to ensure that the multilateral trading system is supportive and aligned with our regional priorities as Africans. The cost of moving a container to an African neighbouring country is higher than moving it to New York. Unless we make efforts to bring trade costs down, our trade competitiveness will be undermined. Now that we have ratified the Trade Facilitation Agreement – we need to exploit its potential gains. For Africa, the WTO is the best platform to contribute and get issues on the agenda and the only place where we can deal with structural challenges like agricultural subsidies.”
Minister Addy said: “This book provides some useful insights into where Africa is going, and I hope we can leverage some of the inputs such as foreign direct investment and trade facilitation. In the last decade, as we were reintegrating Liberia into the global economy, we considered WTO membership as an opportunity to announce to the international community that Liberia is ready for business. The role of the private sector will be crucial in leveraging the necessary investment.”
Minister Enelamah said: “This book captures the importance for stakeholders to exchange their experiences. Trade is central, and must be underpinned by proper investment and industry policies. This is why Nigeria has launched a new industrialization plan to create an enabling environment to help businesses to thrive. As part of this, President Buhari is committed to his priorities of good governance, economic welfare, security and the fight against corruption. WTO members need to be good trade neighbours to invite each other to build a strong multilateral trading system. I believe that Africa will emerge. With our critical mass, I am convinced that as Africans, we can actively participate in the global trading system. We reaffirm our strong support for DG Azevêdo.”
The book opens with a message from Kenya’s President, Uhuru Kenyatta, and a joint foreword by DG Azevêdo, the Cabinet Secretary for Foreign Affairs and International Trade Amina Mohamed and China’s Commerce Minister Gao Hucheng.
The publication includes contributions by:
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the African Union Commissioner of Trade and Industry Fatima Haram Acyl
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South Africa’s Minister of Trade and Industry Rob Davies
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Morocco’s Minister for Trade, Industry and Investment Moulay Hafid Elalamy
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the Executive Director of the International Trade Centre (ITC) Arancha González
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the United Nations Conference on Trade and Development (UNCTAD) Deputy Secretary-General Joakim Reiter
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the Senior Director of the Global Practice on Trade and Competitiveness of the World Bank Group Anabel González.
The contributors to the book provide insights into how African governments could foster sustainable and inclusive economic growth and eradicate poverty by undertaking reforms to address market turbulence, increase intra-African trade, widen participation in global value chains and diversify exports.
The book is based on contributions to the Fourth China Round Table held just before the WTO’s Tenth Ministerial Conference in Nairobi, Kenya in December 2015. The China Round Table is part of the China Programme, which aims to help least-developed countries (LDCs) integrate more effectively into the global economy by strengthening their participation in WTO activities and by helping those not yet members to join the WTO.
Book launch: “African Perspectives on Trade and the WTO: Domestic Reforms, Structural Transformation and Global Economic Integration”
Opening remarks by DG Azevêdo
It is a pleasure to welcome you all to the launch of this new WTO publication: “African Perspectives on Trade and the WTO”.
This volume looks at the challenges and opportunities for Africa as it continues to integrate into the multilateral trading system. And it is closely associated with our 10th Ministerial Conference, held in Nairobi last year.
It evolved from an event held the day before the Conference began – the Nairobi China Round Table. I joined President Kenyatta, Cabinet Secretary Amina Mohamed, Chinese Vice-Minister Wang, and a number of other Ministers to exchange views on the role of Africa in the future of the multilateral trading system.
That debate raised many important issues and ideas, which are developed in this new publication. And it helped to focus minds ahead of the Nairobi Ministerial Conference, which of course went on to deliver some very important outcomes for Africa.
Those outcomes included the biggest reform of global agriculture trade in 20 years – which also delivered on a key target of the UN Sustainable Development Goals.
So I’m pleased to be joined by these Ministers today, as they played a key role in that success.
The WTO’s African members have been increasingly central in the debates here over recent years. And I think the fact that the WTO Ministerial Conference was held in Africa for the first time helped to strengthen that sense of ownership.
All members are working now to plot the way forward after Nairobi, and it is clear to me that Africa’s voice will be more important than ever in that conversation.
This is an exciting time for the WTO – and it is an exciting time for Africa.
The continent is often described as the next “growth frontier”.
The collapse of commodity prices has led some to question whether this is still the case. However, I think the fundamentals are strong. Africa is projected to be the world’s second fastest growing continent between 2016 and 2020, with an annual growth rate of 4.3%. It has the youngest population and a growing consumer base. By 2034, the continent is expected to have a larger workforce than China or India. And African entrepreneurs are increasingly innovating and capturing people’s attention.
Facebook Founder Mark Zuckerberg said recently that Africa’s technology companies would help change the whole world.
But for all this to happen, we have to be making progress across the board. That means tackling poverty and inequality. It means shifting away from a reliance on primary commodities. It means finding ways to boost infrastructure – both traditional and digital.
Only one in four people in Africa use the internet. But numbers are growing. And as we’ve seen with the spread of mobile phone usage in Africa and innovations like M-Pesa – technology allows you to make big jumps forward.
And I think the WTO can continue to play an important role in a whole range of ways – but I want to mention just three this afternoon.
First, by offering a platform to influence the debate.
When we talk about “Africa” of course we are actually talking about 54 very diverse countries.
44 of these are WTO members – meaning that Africa already makes up more than a quarter of the total membership. And seven more are in the process of joining.
The discussion at the WTO is currently more open and dynamic than we’ve seen in a long time. This is an opportunity to put Africa’s issues and economic priorities on the table and work to push them forward. And the time to do it is right now.
Second, the WTO can be a means to help achieve goals on regional integration.
Intra-regional trade accounts for only about 17% of the total trade in Africa. So clearly there is scope for more to be done on this front.
The WTO’s Trade Facilitation Agreement can have a big impact here, helping reduce barriers to intra-regional trade.
We’ve all seen the difference that these kinds of reforms have made in East Africa, for example. This Agreement will allow us to achieve even more.
On this point, we need to keep up the momentum to ratify the Agreement as soon as possible.
On a related point, I’d like also to mention the TRIPS Amendment on access to essential medicines, which members are also in the process of ratifying. This Amendment was agreed at the request of African members – but it has waited far too long to enter into force.
I’m pleased to say that we are now just a handful of ratifications away from the finishing line. So I ask for your help to ensure we deliver on that important commitment.
This brings me to my final point, which is that the WTO can help to deliver a more inclusive trading system.
We can do this by continuing to deliver reforms to the trading system which work for developing and least developed countries. And we can do it by delivering even more aid and technical assistance to help these countries to improve their capacity to trade and compete.
So I think the WTO has a vital role to play – and that’s why I think this book is so welcome.
It is a reminder of the importance of the multilateral system for growth and development in Africa. And it is a reminder that African members must continue to play a leading role in forging the way forward.
So I want to thank all of the contributors who have shared their experience and knowledge in this publication.
I would also like to thank the co-editors: Patrick, Chiedu and Maika for their excellent work.
And I would like to say a word of gratitude to the Government of China for supporting the Nairobi China Round Table, which led to the production of this book today.
I urge everyone to read it – and I wish you all a productive and engaging discussion this afternoon.
Related News
At WTO, India proposes ways to cut transaction costs
The proposed Trade Facilitation in Services Agreement will address key issues such as transparency, streamlining procedures for facilitating trade in global services, India says
India has floated a concept paper at the World Trade Organization on how to reduce transaction costs that impose regulatory and administrative burden on global trade in services, on the lines of what was concluded in the so-called Trade Facilitation Agreement (TFA) of 2014 for trade in goods.
“Like the TFA, there is a need for a counterpart agreement in services, an agreement on Trade Facilitation in Services (“TFS Agreement”), which can result in reduction of transaction costs associated with unnecessary regulatory and administrative burden on trade in services,” India argued in the paper submitted to the WTO’s Working Party on Domestic Regulation on 23 September.
The proposed “TFS Agreement”, according to India, will address key issues such as transparency, streamlining procedures, and eliminating bottlenecks, for facilitating trade in services.
Given the burgeoning trade in services in which India hopes to gain market access in major industrialized countries that impose a range of domestic regulatory barriers, New Delhi wants WTO members to address several “cross-cutting issues relevant for all modes of supply of services”. Issues include publication and availability of information, including automation and international electronic exchange of trade data, transparency in application of all measures of general application affecting trade in services, ensuring administration of measures affecting trade in services in a “reasonable, objective and impartial manner”, “cooperation among relevant authorities, opportunities to comment before entry into force of measures affecting trade in service, procedures and timelines for consideration of applications from service suppliers, disciplines on taxes, fees, charges and other levies, and institutional arrangements.
India’s concept note also covers specific issues in four modes of supply of services of the WTO’s General Agreement on Trade in Services (GATS). In Mode 1 of GATS, which deals with cross border services, India wants “facilitation of free flow of data across borders for ensuring meaningful supply of Mode 1 services.”
As regards Mode 2 of GATS, India wants facilitation of services that would enable “cross-border insurance portability for availing medical or tourist related services in a foreign country” and streamlining “temporary entry formalities” like visa processing fees and “procedures and timelines for consumers seeking entry into another country to avail of medical services, educational services, and tourism”.
In Mode 3 of GATS, which involves setting up of commercial establishment in a foreign country, India has underscored the need “single window clearance” for setting up ventures/shop, and disciplines to ensure that foreign services supplies are not unfairly treated through exorbitant charges.
For the movement of short-term services providers under GATS Mode 4, which is India’s core area of interest in global trade in services, India wants “simplification of procedures for temporary entry and stay, and clarity in respect of work permits and visas” and “disciplines on measures relating to taxation, fees/charges, discriminatory salary requirements, social security contributions in relation to temporary entry.”
At present, India is involved in a major trade dispute with the United States at the WTO on Washington’s alleged barriers on Indian software companies. India had charged Washington for imposing burdensome measures and financial fees on Indian software companies running into billions of dollars. New Delhi raised two sets of issues concerning US’s measures relating to fees for L-1 and H-1B visas and measures relating to Numerical Committment for H-1B visas. A preliminary ruling on India’s dispute is expected to be issued in the coming months.
India’s concept note on TFS would face fierce opposition from one major industrialized country, the US, which had consistently opposed attempts to remove domestic regulation barriers in Mode 4 on grounds that they would impinge on immigration and other domestic issues, according to analysts familiar with the negotiations on domestic regulation.
Related News
The EABC Business Agenda: Deepening private and public sector participation in EAC integration
This is the First Edition of the East African Business Council (EABC) Business Agenda, themed on the critical role of private and public sectors in deepening the ongoing East African Community (EAC) integration and development.
The first of an annual and strategically-integrated policy advocacy programme, this corporate book publishing project will be rolled out under varying themes critical to the deeper participation of the corporate sector in the EAC development agenda.
Various overarching and reinforcing motivations underpin this edition. Specifically, this first edition will endeavour to:
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Critically analyze EAC integration; celebrate the significant milestones so far realized; and showcase the Private Sector’s increasing significance as the primary engine of growth and socio-economic development in the region;
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Highlight the critical role of the EABC, and our strategic partners against our establishment objectives; outline our organization’s strategies towards addressing emerging issues in the regional integration agenda; and showcase our ongoing policy advocacy programmes, which are critical in the achievement of reforms that are necessary in propelling the EAC to greater socio-economic growth and enhancing its overall competitiveness;
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Extensively detail how the EAC Partner States’, National Focal Points, and sector associations are seeking to further promote Public-Private sector engagements through policy framing mechanisms that address strategic and cross-cutting issues aimed at improving the Partner States’ economies and the region’s business environments; and,
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Ultimately, sensitize, inform and empower the people of East Africa to make informed decisions so as to have a more meaningful participation in EAC integration and cooperation.
In order to sufficiently address these multi-pronged book publishing objectives, we have strategically leveraged on the direct collaboration and shared experiences of stakeholders from diverse sectors across the region, including policy framers, business leaders and industry experts through in-depth interviews, thought-provoking opinions, and exclusive case studies.
While we remain fully aware that matters integration cannot be covered exhaustively in a single publishing project of this nature, it has, nonetheless, remained our utmost ambition to stimulate, inspire, enthuse and motivate our readers and the general populace in the region and beyond, towards a greater understanding of our individual, corporate and ultimately, collective responsibilities in the ongoing EAC integration and sociodevelopment agenda.
Marking 16 years of integration: The achievements and tasks ahead
Last year, Uganda once again joined the other four Partner States of the East African Community to celebrate 16 years of integration and mark the EAC Day. This day has a rich history. It goes back to that memorable Thursday, on 30th November 1999, at Sheikh Amri Abeid Memorial Stadium in Arusha, when the three Heads of State of Uganda, Kenya and Tanzania, put pen to paper to ink the Treaty re-establishing the East African Community. Rwanda and Burundi would accede to the Treaty in 2007.
It is also for this reason that, in commending the successful celebrations of the 10th anniversary of the signing of the Treaty, the 20th EAC Council of Ministers meeting held in March 2010, underscored the need to reinforce the spirit of East African unity as well as to galvanize a passionate and visionary participation of the citizenry in the integration plan under the clarion call of, “One People, One Destiny”. The Council not only directed the EAC Secretariat at Arusha to plan in advance for future commemorative events, but also urged Partner States to hold EAC Weeks annually.
More recently, the East African Legislative Assembly passed the East African Community Holidays Bill 2013. The Bill, which was passed in August 2013, was meant to further promote the spirit of East Africanism through the annual celebration of the East African Community Day, on 30th November. However, owing to other engagements, in Uganda, the day was marked on 4th December 2015.
These activities are not only aimed at raising awareness on the benefits and opportunities of EAC integration, but also to reflect on the vision and progress made as well as the opportunities arising from integration.
The EAC journey has been an illustrious one, with a lot of achievements that we should take pride in as East Africans, the challenges notwithstanding.
The community is now at a crucial stage of social and economic integration, following the establishment of a Customs Union in 2005, a Common Market in 2010, and the signing of the Monetary Union Protocol in 2013, which has since been ratified by all the Partner States.
Regional economic groupings such as the EAC common goal of economic transformation and development, which implicitly includes the eradication of poverty. This means that economic integration should not be seen as an end in itself, but rather as a means towards sustainable economic development.
Today, the EAC has, indeed, realized remarkable economic integration as evidenced by the continued growth in intraregional trade among the Partner States.
By creating a single large market that spans an area of 1.82 million square kilometres, with a population of over 145 million, the EAC has and will continue to be an attractive destination for foreign direct investment, which will, in turn, spur greater economic growth and the development of the Partner States. The establishment of the Customs Union has, for instance, led to an increase in intra-regional trade.
According to recent figures, Uganda’s volume of trade with its fellow EAC Partner States increased since the establishment of the Customs Union in 2005, from US$670.7 million to US$1539.9 million in the 2014/15 financial year.
But, in addition to celebrating the achievements of the EAC, it is vital to evaluate whether the circumstances leading to the challenges of the original EAC of 1967-1977 have been adequately addressed and what measures have been put in place to prevent a recurrence.
Whereas the political will continues to present a serious challenge for many regional integration arrangements, this has, by and large, not been a serious problem for the EAC. It is, indeed, unprecedented that the EAC is the only regional bloc whose establishment clearly brings out a political federation as its ultimate objective. Federating will not only fortify the EAC as a bloc, but it will also empower the region to play a meaningful role in the era of globalization and enhance our bargaining strength in bilateral as well as multilateral negotiations.
Regional arrangements face challenges along the way to integration. It should, therefore, not surprise anyone that the EAC still has a lot to do, as was aptly encapsulated in the theme for last year’s celebrations: 16 Years of EAC Integration: So Much Done, So Much to Do.
For our economies to become vibrant and successful, there is a need to implement adequate tax and social security reforms as well as policies that will contribute to the expansion of the private sector, create jobs and increase productivity. We have to deal with the scourge of corruption and strengthen regional as well as national institutions to promote the rule of law.
We also have to address the infrastructure deficits, including those that deliver basic essentials such as access to clean water and sanitation. Good health is a premium and so is education, which needs to be galvanized at the primary, secondary and university levels through adequate funding, staffing and facilities. Energy and durable transportation networks need to be built whilst tourism, a potentially huge foreign exchange earner, should be aggressively promoted.
As a community, we need steadfastness to adopt harmonized economic policies that enhance a collective approach in tackling problems. Indeed, for integration to succeed, regional policies must take eminence over domestic policies and programmes.
Report by Ms Edith Mwanje, Permanent Secretary, Ministry of EAC Affairs, Republic of Uganda
The EAC Trade Report 2013
In 2013, the process of East African Community integration gained momentum when an agreement was reached on the policy and institutional framework for the Single Customs Territory. As a result, a number of non-value adding processes of transporting goods from Mombasa to Kigali through Kampala will be removed and, therefore, the number of days taken to move cargo from Mombasa to Kampala and finally to Kigali will be reduced.
Further, the year 2013 saw the signing of the Monetary Union Protocol, which is very important for the integration of financial systems within the region. These developments are expected to ease doing business in the East African Community, making the region one of the major investment destinations in the world.
The developments within the community require regular monitoring and evaluation as we move towards a Monetary Union and subsequently a Political Federation. The 2013 EAC Trade Report presents detailed analysis of trade flows within the community and between the EAC and other regional blocs and is a tool which will enable the improvement of trade policy within the region and with other regions. It is important to note that current negotiations for a Free Trade Area between the EAC, and other regional blocs like SADC are guided by the information provided in this and similar trade and investment reports.
The 2013 Trade Report provides trends in the intra-EAC trade. It is clear that intra-EAC trade continued to exhibit a positive trend by posting a 6.1 per cent growth. Burundi posted the highest intra-trade growth rate of 91.5 per cent, which is an indication of improvement of its participation in regional trade.
The EAC's total trade with the rest of the world maintained an upward trend by posting a growth rate of 8.3 per cent in 2013. On the investment front, the Foreign Direct Investment (FDI) in the EAC increased by 6.6 per cent to US$3.7 billion in 2013, an improvement over 2012. This increase was mainly driven by developments in the oil and sectors in Kenya, Tanzania and Uganda.
Executive Summary
In the community, GDP growth remained strong, averaging 5.1 per cent, but Tanzania recorded the highest economic growth rate of 7.1 per cent. Inflation remained within a single digit range with Rwanda registering the lowest rate of 4.2 per cent, while both Tanzania and Burundi have the highest rates of 7.9 per cent each.
World trade remained sluggish after recording a growth rate of 2.1 per cent in 2013. Trade between developing countries, especially in the Asian region, was much stronger than what it was with the developed countries. Africa’s exports declined by 3.4 per cent during 2013, which can be explained by the 2012 recession in the European Union zone that extended to 2013. The European Union remains the major trading partner of the African countries and, therefore, any volatility in the EU affects African trade.
The total EAC trade with the rest of the world declined by 0.8 per cent due to a 6.7 per cent reduction in exports. Most export markets such as the European Union suffered a recession while South Sudan and Democratic Republic of Congo faced political instability. The value of EAC imports increased by 1.8 per cent, but was lower than the 8.1 per cent growth recorded in 2012. The Intra-EAC trade growth slowed down to 6.4 per cent in 2013 from 21.9 per cent in 2012.
The value of goods imported under the exemption and remission regime declined in all the Partner States except Tanzania. Over the years, the value of goods imported under the exemption and remission regime has been growing, resulting in much revenue foregone (34.9 per cent of total trade taxes). Most imports under the exemption and remission regime included goods for investment projects, funded projects, charitable organizations and embassies and consulates. The value of sensitive goods imported by EAC Partner States declined by 20 per cent to US$2,941.8 million in 2013.
The value of sensitive goods imported within the EAC Partner States was US$285.7 million, which was 9.7 per cent of the total value of imported sensitive goods in 2013. Customs revenue from all Partner States increased by 6.9 per cent to US$6,993.2 million in 2013 from US$6,544.8 million recorded. VAT on imports remained the major source of Customs revenue, which is explained by the destination principle design of the VAT system. In all the Partner States, the share of Customs revenue to total tax revenue is declining. This is largely explained by improvements in domestic tax collections as economic integration continues to deepen.
The political stability, improving economic environment and expanding market in the community continue to be the major drivers of investment. The FDI inflows to the community increased by 6.6 per cent to US$3.7 billion in 2013. Uganda and Tanzania recorded relatively high inflows due to developments in the oil and gas sector. On the Intra-EAC investment flows side, the total value increased by 9.8 per cent to US$236.6 million in 2013 from US$215.4 million in 2012. Kenya was the main source of intra-EAC investment, while Uganda was the major destination. In line with the increase in the value of investment flows, the number of projects increased to 70 in 2013 from 53 in 2012.
The number of jobs created through licensed FDI projects increased by 24.9 per cent to 131,967 jobs in 2013 from the 105,618 jobs recorded in 2012. New investment opportunities are emerging in the region, especially in the oil and gas sector. Whereas FDI inflows to the region continued to grow, infrastructural bottlenecks, especially in the transport and energy sectors, and limited skills base have remained major challenges to investment promotion. Further, lack of a harmonized investment regime has perpetuated uncoordinated promotion of investments in the region.
» Download: The EABC Business Agenda: Vol 1. Deepening Private and Public Sector Participation in EAC Integration (PDF, 17.9MB)
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The EU’s new offer to Africa
The European Commission’s plan for a multi-billion African investment vehicle was one of few highlights in Jean-Claude Juncker’s often turgid state of the Union speech earlier this month.
As with the original European Fund for Strategic Investments (EFSI), the main plank of the Juncker commission’s economic policy, there’s not much hard cash behind the initiative.
The investment vehicle will be based on a €1.5 billion guarantee from the EU budget, and a further €1.85 billion from the European Development Fund and EU budget. It will subsume the existing EU-Africa Infrastructure Trust Fund, which has paid out more than 90 grants to infrastructure projects since 2007.
EU officials hope that the seed capital and new guarantees, which will allow the European Investment Bank (EIB) to cover €750 million of potential losses, will persuade private firms to fund riskier projects in sub-Saharan Africa.
African investment based on blending small amounts of public money with private capital is not new. The EIB has been steadily expanding its operations in sub-Saharan Africa over the past decade.
Sweetening the pill
The EIB is not the only player in an expanding market. In Europe alone, the consolidated portfolio of European Development Finance Institutions (EDFI) members jumped from €10 billion to €28 billion between 2003 and 2014. The big international players are the World Bank’s International Finance Corporation, the African Development Bank, along with the French, German and Japanese development agencies.
So what’s the big deal?
Unlike other development finance vehicles, the EFSD is overtly political. The commission says the fund will “address the factors that constitute the root causes of migration and to support partners to manage its consequences”.
At a time when European governments are seeking to increase their deportation rates, the fund is a bid to sweeten the pill on tackling migration to their African counterparts.
The fund will also be formally directed by the commission, rather than the EIB, and the hope of the EU executive is that MEPs and ministers will have passed the legislation needed to make the fund operational by the next EU-Africa summit planned for autumn 2017.
‘Lifelines’
The rationale behind the fund and, indeed, the individual “country compacts” launched earlier this year, under which the EU will offer financial support to countries who work to stem economic migration, and that the EU is seeking to broker with a group of African governments, is that economic incentives will persuade African governments to do more to control their borders.
As Juncker put it, the fund “will offer lifelines for those who would otherwise be pushed to take dangerous journeys in search of a better life”.
What is new are the incentives that the Fund offers to European companies, governments and their African counterparts.
In a bid to persuade European treasuries to cough up some money, the commission proposes that national contributions to the fund be classified as “off balance sheet” to avoid being classified as public spending, and allow governments to earmark their contributions to a specific region or sector.
The commission hopes that its €3.35 billion will lead to projects worth €44 billion, and potentially more if national governments boost the coffers.
However, EU governments have so far been reluctant to back up their rhetoric with cash, stumping up a €80 million to the EU-Africa Emergency Trust Fund set up last December to pay for migration-control related projects.
The commission also sees the fund as a way to encourage European firms to invest in African countries, potentially making them a competitor to Chinese firms who dominate the infrastructure investment sector in the region.
Yet it is also part of the move away from conventional development aid in favour combining public guarantees with private investment,
A carrot among the sticks
The EU has been pushing blended finance for many years. “Official Development Assistance does not have the capacity alone to eradicate extreme poverty... it should be used to mobilise domestic and private finance,” said one EU development minister at last year’s Financing for Development conference in Addis Ababa, and this sentiment reflects a consensus view amongst European governments.
“Humanitarian aid is not the solution for dealing with long-term migration,” a senior commission official told EUobserver in August.
The Fund may be intended as a complement to the EU-African “compacts”, but linking the investment fund to migration tool is a risky political move.
Amnesty EU director Iverna McGowan described the proposed “compacts” as amounting to “little more than ‘let’s throw money at keeping them out’”.
An investment fund based on €3 billion isn’t going to suddenly turn around the boats making the treacherous journey from North Africa across the Mediterranean. Improving the long-term economic prospects across sub-Saharan Africa will take years, and much more investment. At best, it is another incentive for African leaders to give higher priority to border management.
But it is, if nothing else, a carrot among the sticks.
Benjamin Fox, a former reporter for EUobserver, is a consultant with Sovereign Strategy, a London-based PR firm, and a freelance writer.
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WTO Public Forum debates role of digital economy in facilitating inclusive trade
The digital economy can create opportunities for inclusive trade but the right conditions must be in place for it to flourish, speakers at the WTO Public Forum stressed. Over 20 sessions at the WTO Public Forum this year have focused on the digital economy.
Participants recognized the digital economy can generate a new industrial revolution and that it allows small enterprises in developing countries to tap into global markets. But they said infrastructure and skill gaps need to be addressed.
A new opportunity
“We have over 17 million people on Facebook, and the youth are keen on this new digital economy,” said Nigeria’s Trade Minister, Mr Okechukwu Enelamah, in a session organized by Huawei Technologies focusing on bridging the digital divide to facilitate inclusive global trade. “There is no question that if we build a digital economy, small enterprises can benefit the most,” said Mr Enelamah. He stressed that the government needs to eliminate bottlenecks and create a conducive environment for the digital economy to flourish.
A Kenyan digital entrepreneur, Mr Roy Ombatti, shared his experience in creating a 3D printer out of recyclable waste, illustrating how Africa is utilising the digital economy. But the growth of the digital economy is not without obstacles. The lack of access to finance and regulatory trade barriers can pose challenges for young entrepreneurs. He called for increased investment and partnerships in the digital economy.
Another speaker shared her use of digital fabrication in small-scale workshops to create unique, personalized objects at a session on the new landscape of inclusion in digital trade organized by the International Centre for Trade and Sustainable Development (ICTSD). Workshops of the sort – known as “fab labs” – are now flourishing all around the world, spurring creativity and enabling individuals to make products without mass production, said Martina Ferracane, a policy analyst and founder of a “fab lab” in Sicily. She cited policy issues such as intellectual property protection, taxation and safety standards faced by such innovation.
Digital technology allows developing countries to make significant advances in industrialization. Africa has the fastest growing mobile phone market, and small developing countries can now connect to the world in a way never seen before. “When we think about how to further discuss this topic in the WTO, we have to be careful not to put digital trade issues in a traditional North-South context,” said Ambassador Ihara of Japan, stressing that the digital economy is particularly beneficial for developing countries.
Digital trade allows many small enterprises to participate in the global market. A study by PayPal found that enterprises that trade across borders typically double their income compared with those who sell at home. A study in Viet Nam also shows that small enterprises selling online are 75% more productive. Much of the growth generated by the digital economy benefits people living in poorer, remote cities in developing countries.
Speakers at a session on the trade implications of business-to-business e-commerce cited the growing importance of B2B trade and said companies will come under increasing pressure to provide customers with seamless and simple transaction services. But the implications from a trade perspective are less clear: most e-commerce continues to take place domestically, and no reliable figures exist on the amount of e-commerce business that takes place across borders.
Bridging the digital gap
To reap the benefits of the digital economy, a lot more needs to be done, participants stressed. A number of speakers cited barriers that can hinder digital trade, including a lack of broadband infrastructure, secure payment solutions, logistics and digital entrepreneurship.
The government has a crucial role to play in helping electronic commerce flourish. This was highlighted at a session on e-commerce as a tool for inclusiveness in developing countries organized by the Argentinian ministries of Production and Communication. Participants stressed that the necessary infrastructure, including adequate access to broadband and quality mobile connections, must be in place to eliminate the ’digital gap’ between communities. Legislation that facilitates e-commerce is vital, speakers underlined.
Ms Daniela Zehenter-Capell of the German Ministry for Economic Cooperation and Development shared the German government’s efforts to foster education in information technology through its “lab of tomorrow” programme in Africa. “Information Technology solutions do not have borders, and we have to work together on these issues,” she told participants at a session on enabling African, Caribbean and Pacific countries to harness digital innovation.
The United Nations Conference on Trade and Development (UNCTAD) recently launched an e-Trade for All Initiative to bring together key public and private stakeholders and to help them cooperate more effectively with developing countries’ governments in harnessing electronic commerce.
Global rules on digital trade
The rise of the digital economy underlines the need for regulations at national and international level. “Because the nature of the Internet market place is global, only a global trade deal makes sense”, said Hosuk Lee-Makiyama of the European Centre for International Political Economy at a session on global trade rules for bridging the digital divide.
WTO rules on electronic commerce and on services trade could provide guidelines for digital trade. An early ratification of the WTO’s Trade Facilitation Agreement could also ensure that products can cross borders much more quickly, participants heard.
International organizations have a role to play in mapping and removing trade barriers in information and communication technology. The digital economy also requires trade negotiators to be more cooperative and open-minded. To enable small enterprise to trade, some participants put forward the idea of an agreement to ease the trading of low-value goods, and programmes to fast-track trusted small traders.
Participants recognized that the digital economy involved many complex and sensitive issues including consumer protection, privacy, Internet neutrality, competition and data access. While some of these issues can be dealt with in trade agreements, others need to be addressed in other fora. They called for international regulatory cooperation in digital trade to open access for data, harmonize regulations, and protect intellectual property.
At the same time, they emphasized that regulators must be careful not to introduce regulations without understanding the nature of digital trade. The WTO can help to improve members’ knowledge of the digital space and how it impacts trade, participants said. It is also essential to engage stakeholders in making new rules.
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Development of export industries in West Africa critical to reap maximum AGOA benefits
Since 2000, the United States’ African Growth and Opportunity Act (AGOA) has been a pillar of the U.S. trade policy towards Sub-Saharan Africa. It offers duty-free entry to over 6,400 products into the U.S. from eligible Sub-Saharan African countries, making African products more cost-effective and competitive. The recent extension of AGOA to 2025 gives new impetus to eligible countries to harness its advantages.
In West Africa, exports to the U.S. from seven countries (Benin, Burkina Faso, Cameroon, Côte d’Ivoire, Ghana, Nigeria and Senegal) totaled $5.3 billion in 2014, of which $1.3 billion was exported under AGOA (including GSP – Generalised System of Preferences), which represents about 24.52% of total exports to the U.S. The low percentage of AGOA exports can be attributed to the fact that most West African countries export primary products that attract no duty under the Normal Trade Regime (NTR).
For example, 63% of Côte d’Ivoire’s exports, and 48.52% of Ghana’s exports to the U.S. are cocoa beans (whole or broken, raw or roasted) that enter the U.S. duty-free under the NTR, so they are not counted under AGOA or GSP. Similarly, Benin and Burkina Faso mainly export cashew nuts to the U.S. (duty-free under the NTR), at 65.24% and 40.80%, respectively. Senegal registers low AGOA exports because 49.09% of its exports (wigs), and 11.98% (fish – frozen, except fillets, livers and roes) enter the U.S. duty-free under the NTR.
In addition to the low level of AGOA exports as a result of duty-free under the NTR, U.S. importers also paid duty on products that were supposed to enter the U.S. duty-free under the GSP and AGOA, hence a missed opportunity for the selected African countries to take advantage of AGOA.
For the seven selected countries, the total value of unclaimed AGOA/GSP exports in 2014 was US $1.3 billion, or 24.77% of exports, while in 2015, the total value of unclaimed AGOA/GSP exports was US $520 million, or 17.85% of total exports. By value, top product categories – petroleum products excluded – that entered the U.S. from the seven countries with unclaimed AGOA benefits were: prepared foodstuffs, vegetable products, and textiles and apparel.
With petroleum products excluded, prepared foodstuffs are the main unclaimed AGOA/GSP exports. They comprised cocoa paste (not defatted) and cocoa powder (not containing added sugar). Over US $100 million in cocoa paste and cocoa powder were exported from Côte d’Ivoire and Ghana. Vegetable products were the second largest unclaimed AGOA/GSP exports amounting to US $12 million in exported vegetable products (including kola nuts from Côte d’Ivoire, ground ginger and spices from Nigeria, yams from Ghana, and dried mangoes from Burkina Faso).
Textile and apparel products, AGOA products par excellence, represented over US $950,000 in 2014 and US $1.4 million in 2015 in unclaimed AGOA benefits. This means some of the selected countries are not effectively using their textile visa arrangements in order to take advantage of AGOA.
The low performance of AGOA exports initially resides in the structure of most African economies that still focus on the export of primary products which do not attract duty in the U.S. under the NTR in the first place. Even when African countries export processed products to the U.S., a big percentage of these products enter the U.S. with duty paid, hence missing a tremendous opportunity to expand duty-free exports under AGOA and GSP as suggested above.
The low performance of AGOA exports, including the missed opportunities of claiming duties on AGOA-eligible products as highlighted above, also suggests that customs documentation still remains an issue. For example, a Commercial Invoice without proper description of the product and the correct nomenclature or Harmonized System (HS) code, or the textile visa stamp for apparel products, will likely attract duties in the U.S. This issue can be easily solved without much financial cost by simply training export promotion agencies and customs officials on the right export documentation procedures.
The lost opportunities highlighted above suggests the need to rethink a normative framework to boost exports, create jobs, and attain inclusive growth that is anchored around moving from a commodity-led to a value-addition led economy. Since most AGOA-eligible products fall in the realm of value-added products, Sub-Saharan African countries need to strategically implement an industrialization policy centered on competitive global value chains (GVCs) with anchor firms that have developed their capacity to comply with international standards and regulations.
Countries that are most successful in exporting to the U.S. under AGOA have defined a clear strategic framework that targets the most competitive GVCs, and have set up an effective institutional mechanism that seeks to improve the business environment, and attract investment. More importantly, SSA countries need to graduate from local and national interests to a more dynamic regionalism that will create economies of scale and enhance their export competitiveness.
The last iteration of AGOA provides a unique opportunity for SSA to improve its overall competitiveness and increase its share of global trade. This, however, will only make sense if SSA countries address their internal supply-side constraints. SSA needs to look beyond these trade arrangements, and be serious about structuring their economies to become global players. In that respect, there may be value in incorporating the African Development Bank’s High 5s that provide an all-encompassing approach to address some of those supply-side constraints, notably through the Bank’s “Industrialize Africa” and “Integrate Africa” agendas.
Abou Fall was the AGOA Coordinator for USAID West Africa Trade and Investment Hub, and is currently a Senior Trade and Investment Officer at the African Development Bank (AfDB).
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BRICS Labour and Employment Ministerial meeting held under BRICS India presidency, 2016 concludes
Shri Bandaru Dattatreya, the Union Minister of State (IC) Labour and Employment met media persons after the BRICS Labour and Employment Ministerial Meeting that concluded in New Delhi on 28 September 2016.
Briefing the media, the Minister said that India organized the BRICS Labour & Employment Ministers’ Meeting in New Delhi under the Indian Presidency. Over the course of two days fruitful discussions were held on areas of common labour and employment issues. The BRICS Labour and Employment Ministerial Declaration has been adopted at the end of these discussions.
India is encouraged by the presence of International Organisations in this meeting of BRICS Labour Ministers. India is also extremely happy that as a presidency initiative and in the best tradition of tripartism and social dialogue, India could associate BRICS national social partners to this forum. In a very constructive special session issues of employment generation, sustainable development, social security and decent work which are relevant for India were raised.
The Social partners, both from Employers’ side as well as the workers’ side actively participated and made constructive interventions. The Lead Organisations from the Employers’ and employees’ side, i.e. Council of Indian Employers and Bhartiya Majdoor Sangh coordinated with their counterparts from BRICS Nations, had discussions on 26th November to formulate their views.
Other important points made by the Minister include:
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BRICS comprising of Brazil, Russia, India, China and South Africa are five major emerging economies comprising 43% of the world population, 37% of the world GDP and 17% of the world trade. BRICS began their association primarily with discussions on economic issues of mutual interest. Overtime, the areas of cooperation have widened to include topical global issues.
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The First BRICS Labour & Employment Ministers’ meeting held in Ufa, Russia recognized that Employment Pillar is essential and thus laid the foundation of BRICS Employment Working Group (BEWG).
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For India, BRICS is about practical cooperation. Indian Presidency is working with a five pronged approach for cooperation. It’s about Institutionalising cooperation; implementing and integrating our previous decisions and commitments while innovating new areas of cooperation and finally ensuring the continuity of these initiatives.
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The BRICS Labour and Employment Ministerial meeting took place in New Delhi on 27-28, September, 2016. Delegates from all the BRICS nations participated in this meeting and discussed diverse issues which are being collectively faced by these nations in their national circumstances. The deliberations included “Employment Generation”, “Social Security”, and “Inclusive Development including Formalization”. BRICS Ministerial Declaration was adopted by the BRICS Labour and Employment Ministers.
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The BRICS Ministerial Declaration is an action oriented statement. Strong interventions and actions have been proposed in the areas concerning employment generation, social security and formalization of labour markets leading to inclusive and sustainable development.
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Member countries agreed to pursue bi-lateral social security agreements amongst the BRICS member states. They also acknowledged the need to develop a network of lead labour research and training institutions in BRICS member states for undertaking joint research and training activities, capacity building of various stakeholders and exchange of information in areas of expertise.
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Thought provoking Interventions were made by the BRICS Labour and Employment Ministers where they talked about the best practices in their countries, reforms undertaken to promote employment generation and the challenges faced. International organisations, ILO and ISSA appreciated the policy initiatives of BRICS member states and also suggested ways to overcome the hurdles faced by the BRICS countries. The discussion took place in an atmosphere of openness and countries showed a keenness to discuss their concerns and challenges. India’s initiatives and transformative decisions particularly the recent amendment to child labour act for putting complete ban on employment of children below 14 years of age, the enhanced paid maternity leave of 26 weeks, revision of minimum wages, and broad initiatives at employment generation were acknowledged by BRICS nations as well as ILO.
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The forum acknowledged the centrality of employment generation to the overall policy objective of sustainable development. A broad consensus was reached on “encouraging social security agreements” and “networking of labour institutions of BRICS member states” and these have been included in the BRICS Labour and Ministerial Declaration. Now the Labour and Employment Ministers' Declaration and conclusions and agreements will be placed for consideration by leaders of member nations and find appropriate mention in the BRICS Leaders Declaration which would be adopted in Goa in October 2016 and will pave way to strengthen the cooperation and collaboration along these lines.
The BRICS Ministers also visited Rajghat and paid homage to the Father of the Nation.
BRICS Labour and Employment Ministers’ Declaration
Employment generation, social protection for all and transition from informality to formality
Introduction
1. We, the Ministers of Labour and Employment from the Federative Republic of Brazil, the Russian Federation, the Republic of India, the People’s Republic of China and the Republic of South Africa, met at New Delhi, India, on September 27-28, 2016, for the Second BRICS Labour and Employment Ministers’ Meeting to strengthen intra-BRICS coordination, enhance information sharing, discuss and agree upon specific areas of cooperation in our endeavor to address labour and employment challenges faced commonly by BRICS member states.
2. Addressing labour, employment and social issues is imperative for fostering strong, sustainable and inclusive growth. We recognize that the constitution of the BRICS Employment Working Group (BEWG) initiated by the Russian Presidency is an important step for facilitating focused deliberations on BRICS labour and employment issues and achieving the broad objectives of quality and inclusive employment, formalization of labour markets, and exchange of labour market related information.
3. We have collaborated successfully in the ILO Governing Body and International Labour Conference on specific issues of common interest and we pledge to strengthen this collaboration to further promote common objectives at other international fora.
4. We recalled our meeting hosted by India on the sidelines of the International Labour Conference in June 2016 where we discussed issues of common interest to the group such as employment generation, small and medium enterprises (SMEs), transition to formality, and sharing of good practices.
5. Wehile acknowledge the importance of global supply chains and its contribution to job creation. We recognizeing current challenges in addressing labour issues in global supply chains. we beli As a group we will participate in the discussions onion global supply chain and endeavour to evolve our approach towards the new policy options.
6. As key operational areas, the BRICS member states will focus on employment generation, formalization of labour markets and social protection.
Employment Generation
7. Quality employment plays a central role in ensuring sustainable development and is at the core of the 2030 Development Agenda. In promoting inclusion and greater equality in the labour market, a top priority for BRICS member states is the generation of adequate decent and productive job opportunities, fair wages and adequate social protection systems for all, including floors. This, will in turn help in tackling poverty and lead to sustainable growth.
8. Technological revolution and structural changes require adequate labour resources. We recognize the importance of addressing labour mobility issues, which can bring potential benefits to our economies. We will focus our analyses at the institutional arrangements and social networks facilitating labour mobility and on forecasting of the labour market needs and the labour force availability.
9. We resolve to assist each other in sharing best practices in implementing policies and programmes that encourage innovation and entrepreneurship for employment generation. We intend to strengthen our public employment services to help our labour force, particularly the youth to find employment opportunities. We are also committed to strengthening labour market information systems based on each other’s experience.
10. We resolve to improve the employability of our workforce through modernization of skills development systems and life-long learning, which allows workers to remain relevant in the world of work environment that is changing fast due to technological revolution. We believe that expanding and improving education and formal training is of paramount importance to tap the benefits of innovation and to increase productivity, which shall lead to decent jobs.
Formalization of Labour Markets
11. Informality in the labour market remains a big challenge for all BRICS member states. Informality is often linked to low income jobs, lack of social protection and insufficient access to basic services. Recognizing the multiple issues in our national labour markets context, we are committed to tackling both the existing as well as emerging forms of informality. Consistent with the objectives of the ILO Recommendation No. 204, we aim at improving the livelihood of workers engaged in the informal economy and facilitating their transition to the formal economy, while at the same time enhancing the productivity and competitiveness of enterprises.
12. We encourage the adoption of measures to enhance employability of workers in the informal economy through expanding social security, skilling and re-skilling of the workforce and adopting amongst others of a regulatory environment, which promotes formalization through easier compliance and adequate safeguards for labour rights.
13. We acknowledge various innovative approaches that have been implemented in BRICS member states aimed at reducing informality and facilitating the access of workers to social protection and to formal markets and we pledge to continue our efforts on implementing such actions.
Social Protection
14. We recognize that a crucial way in which governments can positively influence labour market outcomes and reduce exclusion and poverty is by providing social protection to its workers. Those who work, and those who are too young or old or unable to work, require protection from idiosyncratic and economy-wide shocks and unanticipated events.
15. We recognize the innovative capacity of our nations in responding to their particular national circumstances and evolving social protection systems that aim to strike the balance between work-incentives, improving human capital and income protection. We resolve to undertake policy measures in a comprehensive manner, with particular attention to including those in the informal economy and outside the scope of the existing schemes.
16. We support designing and implementation of comprehensive social security systems that are effective, equitable, economically sustainable and address the needs of the society. We therefore endorse the portability of social security benefits for migrant workers encourage bi-lateral social security agreements amongst the BRICS member states and work towards developing a general framework for cooperation.
Way Forward
17. We reiterate our commitment, in line with the Sustainable Development Goals 1 and 8, to continue to promote inclusive and sustainable growth, employment and decent work for all with a view to end poverty in all its forms in BRICS member states by 2030. In doing this, we acknowledge all the current initiatives taken including commitment towards ensuring decent work for all, formalization of the informal economy and the extension of social protection.
18. We are committed to take steps to establish a network of lead labour research and training institutions in BRICS member states for undertaking joint research and training activities, capacity building of various stakeholders and exchange of information in areas of expertise, with the cooperation of international organizations in particular the ILO.
19. We thank our social partners for their inputs in addressing labour and employment challenges. We intend to strengthen our tripartite social dialogue processes for advancing labour market development and promotion of stronger labour market outcomes.
20. We recognise the importance of evidence based research in informing our policy decisions on labour and employment issues and acknowledge the contributions of ILO, and the International Social Security Association (ISSA) and national organizations in supporting BRICS co-operation in these areas. We will continue our close cooperation with these and other international organizations.
21. We thank the Indian Presidency for holding the first formal BEWG at Hyderabad, India, on July 27-28, 2016. We further express our appreciation to the Indian leadership in organizing the Labour and Employment Ministerial Meeting at the sidelines of ILC, Geneva in June 2016, and the Second Labour and Employment Ministerial meeting at New Delhi, India. We look forward to our next meeting under the Presidency of the People’s Republic of China.
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tralac’s Daily News Selection
The selection: Wednesday, 28 September 2016
World Trade Report 2016: levelling the trading field for SMEs (WTO)
The World Trade Report 2016 examines the participation of SMEs in international trade. In particular, it looks at how the international trade landscape is changing for SMEs, where new opportunities are opening up and old challenges remain, and what the multilateral trading system does to ensure inclusive participation of firms in global markets. Some key facts and findings: [The core chapters: SMEs in international trade: stylized facts, Dynamics of internationalization processes of SMEs, Trade obstacles to SME participation in trade, Cooperative approaches to promoting SME participation in trade, Conclusions] [Related: Yesterday’s WTO Public Forum: highlights; IMF’s World Economic Outlook, October 2016: ‘Global trade: what’s behind the slowdown?’]
The Global Competitiveness Report 2016-2017 (WEF)
One of the most improved nations in sub-Saharan Africa is Rwanda, which rises 6 places to 52. It is closing in on the region’s traditionally most competitive economies, Mauritius and South Africa, although both these countries register more modest improvements, climbing to 45 and 47 respectively. Lower down the ranking, Kenya climbs to 96, Ethiopia holds steady at 109 while Nigeria slips three to 127. There is some sign of convergence in the competitiveness of the world’s largest emerging markets. China, on 28, remains top among the BRICS grouping although another surge by India – which climbs 16 places to 39 – means there is now less of a gap between it and its peers. With both Russia and South Africa moving up two places to 43 and 47 respectively only Brazil is declining, falling six places to 81. [Related: Political uncertainty pushes down ranking of SA’s institutions, India improves in Global Competitiveness Index, UAE most competitive nation in Arab world]
AGOA commentaries:
Christopher Wood: ‘Making the best of AGOA through export-promotion policies’ (AfDB): The failure of African trade relations to diversify beyond commodities during the period of AGOA demonstrates that the problems African exporters face go well beyond tariffs. Governments need to help, but their interventions must fulfill two criteria. Firstly, they must be quick to roll out and quick to make an impact. Secondly, they must continue to make a contribution even after AGOA ends. The worst thing that can happen now is to launch into an endless process of crafting AGOA strategies, which, when finally rolled out, will have a shelf life of only a couple of years before expiry of AGOA. Focusing on developing core trade capacity – like standards, export costs, and establishing strong intermediaries – will boost AGOA implementation and remain relevant in whatever new regime replaces it.
Tom Perez (US Secretary of Labor): ‘Reaching farther together for inclusive growth in Africa’ (State Department): This year’s forum was the first time ministers responsible for labor and employment and ministers responsible for trade and investment have met under AGOA to promote coordinated policy action. Each minister came a long way to join us. Now, together, we can go farther. Bringing trade and labor ministers to the same table brings us one step closer to a vision of inclusive economic growth, where all of us work together toward an outcome that serves the interests of businesses, workers, communities, and nations as a whole. That is why the worker rights eligibility component of our AGOA law is so important. Strong and increased trade, coupled with effective protection of worker rights, is a sturdy framework upon which inclusive growth can be supported.
Rep. Karen Bass (D-Calif): ‘Building on AGOA, strengthening US-African trade ties’ (The Hill): Second, we should work closely with our African partners to raise standards in key substantive building blocks that have the greatest potential to unlock value for business and investors. These should include fundamental areas of trade policy, including market access, trade facilitation, data flow and intellectual property, transparency, and anti-corruption, labor, and the environment. Third, we should determine what form our future trade arrangements with our African partners should take. Possibilities could include free trade agreements with a single country, a regional economic community, or a combination of the two; a mega-regional free trade agreement building on existing African free trade agreements; or allowing African countries to join existing or renegotiated free trade agreements.
Cameroon goes it alone with controversial EU trade deal, angers regional partners (African Arguments)
“Cameroon’s signing of the agreement constitutes a great threat to regional integration,” says economist Dr Ariel Ngnitedem. “It might destroy regional integration especially if the EU fails to reach a regional agreement with the CEMAC countries.” Ngnitedem says that by signing the EPA unilaterally, Cameroon has broken the ‘common external tariff’ rule under which tariffs on goods entering a customs union are the same regardless of which specific country the goods are entering. He also suggests other countries in the region may now be tempted to do the same by entering alternative agreements with other partners such as China. Many politicians in Cameroon, however, are dismissive of these concerns.
AfDB seeks investors for $7.6bn Tanzanian railway line (Bloomberg)
The Tanzania line will run from Dar es Salaam port to Rwanda’s capital, Kigali. Two other lines will branch off to Musongati in Burundi and to Mwanza port on the shores of Lake Victoria to service Ugandan shippers. The line to Kigali is expected to ultimately connect to the eastern Democratic Republic of Congo. Export-Import Bank China may lend Tanzania $7.6 billion to finance the railway, the government said in July. Chinese investors will be among those invited to the AfDB financing roadshow, Negatu said. AfDB holds no “short-term financing view” on the railway line, although most investors would prefer debt repayment periods of as long as 15 years, according to Negatu. The line “can be amortized over 100 years,” he said. “It will be profitable -- this is a project for the next century.”
Kenya: Mombasa’s push for cargo levy sets stage for row with shippers (Business Daily)
Through its Finance Bill 2016/17 currently undergoing public participation phase, the Mombasa county government has been lobbying industry players to accept its plan to collect Sh5,000 ($50) per 20-foot container and Sh9,000 ($90) for a 40-foot container as part of transport infrastructure development levies. The county also intends to impose a penalty of Sh50,000 ($500) on shipping lines that fail to pay the levy. Yesterday, Shippers Council of Eastern Africa chief executive Gilbert Langat said the proposed levy amounts to double taxation as shipping lines already pay taxes to the national government through the Kenya Revenue Authority. Last week, Mombasa Transport executive Taufiq Balala said the county would impose the levy to raise cash for funding road projects and rehabilitate the existing ones. “It should be noted that 5,000 trucks which collect cargo from the Mombasa port daily damage our roads as well as cause traffic congestion,” he said. Of the 1,200 kilometres of roads in the county, he said, only 300 kilometres were tarmacked, adding that was why the county sought to the funds for infrastructure development. [Sh17bn windfall for Kenya marine insurers]
Abidjan-Lagos Corridor Highway Development Project Study (pdf, AfDB)
The Abidjan-Lagos Corridor is a subset of the longer Dakar-Lagos Corridor, which is part of the Trans African Highway Network within the ECOWAS region. The Abidjan to Lagos section is the eastern section of the latter and on an east-west coastal axis of the region spanning five participating member countries, namely, Cote d’Ivoire, Ghana, Togo, Benin and Nigeria. It covers a distance of 1,028km and eight border crossings. The corridor currently supports approximately 75% of the trade activities of the subregion and considered as the spine for multi-modal trade logistics. The objective of the Abidjan-Lagos Corridor Highway Study is to undertake all the necessary studies on the hard and soft aspects necessary for the effective implementation, operations, and economic development of the corridor, primarily between the two nodes i.e. Abidjan and Lagos. The new highway will be a six-lane (3-lane dual) carriageway highway.
Hajia Aishat Abubakar: ‘Why Nigerian products are shunned globally’ (Vanguard)
The lack of an institutional accreditation body in Nigeria has hindered the access of goods and services to other countries of the world, the Minister of State for Industry Trade and Investment, Hajia Aishat Abubakar has said. Abubakar, speaking at the opening of the 7th African Accreditation Cooperation conference, hosted by the Standard Organisation of Nigeria, said the establishment of a national accreditation body would boost the access of goods and services of small scale to other countries.
Cecile Fruman: ‘Exploring links between trade, standards, and the sustainable development goals’ (World Bank)
The equation is simple. Standards are integral to international trade, and trade is a critical component of achieving the sustainable development goals. Then it follows that progress must be made on international standards in order for trade to contribute to the SDGs. Partnerships - and closer cooperation and support, especially for developing countries - will be needed to maximize the opportunities that exist.
Nigeria-India Business Forum: update (Sify)
Vice President Hamid Ansari said at the Nigeria-India Business Forum in Abuja: "Over 100 Indian companies have made Nigeria their base to operate in West Africa, employing the largest number of Nigerians after the federal government, and covering diverse sectors of the economy. It is estimated that the Indian investments have exceeded $10bn so far, and another $5bn are committed. Indian investments are in diverse sectors such as communications, power, pharmaceuticals, healthcare, automotive sector and oil, among others". The next Joint Commission Meeting will take stock of the ongoing cooperation in trade and investments.
Kenya: Sugar shortage causes retail chain trouble with regulators (Business Daily)
An acute sugar shortage in the domestic market and the resulting surge in retail prices have put Nakumatt Supermarkets in the eye of regulators who have launched investigations into the retail chain’s dealings in the sweetener. The Sugar Directorate, yesterday fired a letter to Nakumatt, accusing it of hoarding and rationing sugar to create an artificial shortage in order to increase prices. The agency, which is the sector regulator, says in a letter to Nakumatt that the retailer is using its dominant position in the market to earn ‘‘unjustified abnormal profits’’ from sugar.
Central Africa: AfDB in talks with CSOs on Africa’s transformative agenda
The African Development Bank’s consultations with civil society organisations in the Central Africa region are underway in Yaoundé, Cameroun. The 26-28 September discussions aim at enhancing cooperation between at regional and country levels to effectively support the Bank’s Regional Member Countries in delivering development programs. Earlier this month, the Bank held talks with CSOs in West Africa in Dakar, Senegal, to discuss its agenda for Africa in the next 10 years. By the end of 2016, the Bank will have hosted a total of five consultations with civil society groups on how to jointly deliver on its roadmap for Africa’s transformation.The consultation for Southern Africa region will be held in November 2016 in Johannesburg while the East Africa consultation will take place in early December 2016 in Nairobi. Tunisia will host the North Africa regional consultation workshop on 14-16 December.
FAO’s Committee on Agriculture: update
Another keynote speaker at today’s COAG opening, Joachim von Braun, Director of University of Bonn’s Center for Development Research, underscored the need for scientific innovation in agriculture to go hand-in-hand with policy reform. "Agriculture and food systems are transforming, and that must be supported by a sound cooperation between science and policy," von Braun said. He told participants that for this purpose, an International Panel on Food, Nutrition and Agriculture should be established to assist the international community in the same way as the Intergovernmental Panel on Climate Change "helps guide global climate policy". [Committee on Agriculture, 26-30 Sept: documentation] [BRICS Agriculture Ministers: SA statement]
Rwanda: Central bank remains positive on projected 6.0% growth for 2016
Zimbabwe’s CZI: Key sectors in economy set to open
Zimbabwe: National roads conditions survey funding lagging - Zinara
Kenya: More Chinese firms get mega construction deals
ICAI: UK Aid’s contribution to tackling tax avoidance and evasion
South Africa’s trade minister: ‘SA economy still attractive for investment’
SA’s economic cluster: MTSF Q1 progress report
South Africa: Mantashe backs signing FIC amendment
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WTO launches 2016 World Trade Report on levelling the trading field for SMEs
Reduced trade barriers, improved transportation links, information technology and the emergence of global value chains give small and medium-sized enterprises (SMEs) the potential to become successful global traders, according to the WTO’s flagship report launched on 27 September 2016 at the WTO Public Forum.
Director-General Roberto Azevêdo delivered the opening remarks at the book launch. He said: “SMEs are responsible for the largest share of employment opportunities in most economies – over 90% in some countries. And they are big employers of women and young people. In developing countries, for example, one in three SMEs is owned by women. By enhancing SMEs’ opportunities in the global economy, we can help improve the lives of many individuals and communities. If we are to ensure that the global trading system is truly inclusive for SMEs, we must look at the challenges that they face to join trading flows and look at how we can tackle them.” His full speech can be found here.
Today’s increasingly interconnected global economy is transforming what is traded and who is trading, says the Report. Participation in international trade, once exclusive, can progressively become more inclusive.
The Report looks at how the international trade landscape is changing for SMEs, where new opportunities are opening up and old challenges remain, and what the multilateral trading system does and can do to encourage more widespread and inclusive SME participation in global markets.
The Report finds that small businesses continue to face disproportionate barriers to trade and highlights the scope for coherent national and international policy actions that would enhance the ability of SMEs to participate in world markets more effectively. It underlines that participation in trade has an important role to play in helping SMEs become more productive and grow. For open trade and global integration to fully benefit everyone, it is crucial to ensure that all firms – not just large corporations – can succeed in today’s global marketplace.
The World Trade Report is the WTO’s flagship annual publication. It aims to deepen understanding about trends in trade, trade policy issues and the multilateral trading system.
The Report was launched at a plenary session of the Forum attended by Liam Fox, the United Kingdom’s Secretary of State for International Trade, Robert B. Koopman, Chief Economist of the WTO, and Hildegunn Nordas, Senior Trade Policy Analyst at the OECD. The panellists discussed the findings of the Report and how SMEs can participate more actively in world trade.
Liam Fox said: “The World Trade Report on more inclusive trade is important and timely. It rightly focusses on the currently unfulfilled potential of SMEs in the global market place. SMEs are the lifeblood of any economy.”
He added: “We must resist calls for protectionism and isolationism. These voices seductively promise protection and security from outside forces, but ultimately result in greater instability and economic insecurity, with often the poorest in society bearing the brunt. Either we shape the forces of globalisation or they shape us”. His full speech is available here.
Robert B. Koopman said: “The World Trade Report helps us to have a better understanding of how SMEs’ role in trade and economic activity is contributing to both trade and domestic production and how this landscape may be changing.”
Hildegunn Nordas said: “We have at the moment a fragmented picture about SMEs in world trade and the World Trade Report brings it all together. It also adds an insight of its own which is highly appreciated. It will be a source of information for a long time to come for both policy makers, researchers and other interested parties.”
The panel also included Kati Suominen, Founder and CEO of the Nextrade Group and Founder and Chairwoman of TradeUp Capital Fund, Miguel Angel Aldrete Pelayo, Manager of Chicza Rainforest, and Sherill Quintana, Owner and Founding President of Oryspa, who brought the perspective of SMEs into the debate.
They shared their personal experiences of starting SMEs in their own countries and the difficulties they faced along the way. They spoke about attempts at including indigenous communities and women in global trade. They also touched upon the role of the WTO in bringing different stakeholders to the table, such as financial institutions, donors, governments and SMEs.
Introduction
Today’s increasingly interconnected global economy is transforming not only what is traded and how it is traded, but also who is trading. Large companies continue to dominate international trade, because they have the critical mass, organizational reach and relevant technologies necessary to access and supply foreign markets. But thanks to the Internet, the emergence of new business platforms, and the increasing openness of the global economy, many small and medium-sized enterprises (SMEs) now have the potential to become successful and important global traders as well.
The World Trade Report 2016 examines the participation of SMEs in international trade. In particular, it looks at how the international trade landscape is changing for SMEs, where new opportunities are opening up and old challenges remain, and what the multilateral trading system does to ensure inclusive participation of firms in global markets.
Some key facts and findings
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In every country’s population of firms, most are small. Small and medium-sized enterprises – SMEs (excluding micro enterprises, non-employers and informal firms) – account for 93 per cent of enterprises in non-high income, non-OECD countries. Micro firms and SMEs account for over 95 per cent of all enterprises in OECD countries.
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Micro firms constitute the bulk of MSMEs in all countries. On average, 83 per cent of the more than 12 million firms covered by the IFC’s MSME Country Indicators are micro firms. Information for five developing countries indicates that, among informal firms, the overwhelming majority (between 80 and 95 per cent) are micro firms.
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Most MSMEs (85 per cent of micro firms and 72 per cent of SMEs) operate in the services sector, and in particular in wholesale and retail trade.
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MSMEs account for around two-thirds of total employment in developing and developed countries alike. Their contribution to GDP is lower, at around 35 per cent in developing countries and around 50 per cent in developed countries; SMEs are 70 per cent less productive than large firms.
The world economy is changing rapidly – for companies, as well as for the goods and services they produce. In the nineteenth and twentieth centuries, scale was often critical to success in international trade. Firms needed to be big in order to create integrated production systems, build global distribution networks, and cover the relatively high transport, communications and border costs associated with international trade. But as the world economy enters the twenty-first century, a number of important changes are diminishing the advantages of scale in international trade, with the result that smaller, nimbler “micro-multinationals” are also beginning to succeed in a global marketplace once overwhelmingly dominated by big multinationals.
One important change is the dramatic lowering of trade costs. Traditionally, trade was often a costly, complex and time-consuming process. This meant that only large businesses – usually manufacturers or primary resource producers – could typically engage directly in global commerce because of the enormous organizational, financial and infrastructural investments required; smaller firms often lacked the resources to advertise in foreign markets, to ship and distribute overseas, and to navigate the complex and costly tariff and regulatory obstacles at the border. But today’s dramatically reduced trade barriers, improved transportation and telecommunications links, and breakthroughs in information technologies now make it possible for smaller companies – from software programmers to precision instrument manufacturers to boutique winemakers – to gain the global reach and market presence of larger companies at a significantly lower cost. This is symbolized by the rise of online marketplaces such as eBay or Alibaba which, by globally linking buyers and sellers, simplifying international payments, and leveraging express delivery systems, has allowed SMEs to enter markets and supply customers almost anywhere in the world.
Another important, and related, change is the disaggregation or “unbundling” of global production. In the past, most trade was in finished goods manufactured by large, vertically integrated conglomerates. But today almost two-thirds of world trade is in intermediate goods and services produced by firms specializing in just one stage of the production process – from components to assembly to back-office services. These value chains extend within countries, as well as between them, meaning that many small and mediumsized businesses are indirectly involved in international trade, even if their products are never directly exported. Not only are the competitive advantages of large-scale industrial integration, bureaucracy and infrastructure diminishing across a number of tradable sectors, but big multinational firms can often be at a disadvantage when fast-changing markets demand rapid innovation and organizational flexibility.
In many ways these changes are only in their infancy. While some SMEs may benefit considerably from access to global markets in general, and niche markets in particular, the reality is that large firms continue to dominate the global trade landscape. SMEs’ direct or indirect penetration of overseas markets is still limited to certain sectors and to a handful of countries. Connecting to world markets is important. SMEs that manage to sell abroad successfully can take advantage of increasing returns to scale, hone their competitive and innovative edge, and thereby increase their productivity – growing, if not into bigger firms, then into even more valuable small ones.
Small businesses continue to face disproportionate barriers to trade, whether in the form of tariffs and non-tariff measures, unnecessary regulatory burdens, customs red tape, financing gaps or information deficits – meaning that there is scope for coherent national and international policy actions that would enhance the ability of SMEs to participate in world markets more effectively. For open trade and global integration to benefit a larger share of the population, it is important to ensure that those SMEs with the potential to succeed – not just large corporations – gain access to the global marketplace.
This report documents SME participation in today’s fast-evolving trading system and contributes to a better understanding of the determinants and consequences of this participation, with the aim of adding to the debate on the role of SMEs in making growth more inclusive.
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Declining openness a major threat to global competitiveness
A ten-year decline in the openness of economies at all stages of development poses a risk to countries’ ability to grow and innovate, according to The Global Competitiveness Report 2016-2017, which is published today.
The report is an annual assessment of the factors driving productivity and prosperity in 138 countries. The degree to which economies are open to international trade in goods and services is directly linked to both economic growth and a nation’s innovative potential. The trend, which is based on perception data from the Global Competitiveness Index (GCI)’s Executive Opinion Survey, is gradual and attributed mainly to a rise in non-tariff barriers although three other factors are also taken into account; burdensome customs procedures; rules affecting FDI and foreign ownership. It is most keenly felt in the high and upper middle income economies.
“Declining openness in the global economy is harming competitiveness and making it harder for leaders to drive sustainable, inclusive growth,” said Klaus Schwab, Founder and Executive Chairman, World Economic Forum.
The report also sheds light on why quantitative easing and other monetary policy measures have been insufficient in reigniting long-term growth for the world’s advanced economies. The report finds that interventions by economies with comparatively low GCI scores failed to generate the same effect as those performed in economies with high scores, suggesting that strong underlying competitiveness is a key requirement for successful monetary stimulus.
The report offers insight into how priorities may be shifting for nations in earlier stages of development. While basic drivers of competitiveness such as infrastructure, health, education and well-functioning markets will always be important, data in the GCI suggests that a nation’s performance in terms of technological readiness, business sophistication and innovation is now as important in driving competitiveness and growth.
The Global Competitiveness Index in 2016
For the eighth consecutive year, Switzerland ranks as the most competitive economy in the world, narrowly ahead of Singapore and the United States. Following them is Netherlands and then Germany. The former has climbed four places in two years. The next two countries, Sweden (6) and the United Kingdom (7) both advance three places, with the latter’s GCI score being based on pre-Brexit data. The remaining three economies in the top ten; Japan (8), Hong Kong SAR (9) and Finland (10) all move backwards.
While European economies continue to dominate the top ten, there remains no end in sight for the region’s persisting north-south divide. Spain improves by one point climbing to 32, however Italy drops back one place to 44 and Greece reverses 5 places to 86. France, the Eurozone’s second largest economy, climbs one place to 21. For all economies in Europe, maintaining and improving prosperity levels will depend heavily on their ability to harness innovation and the talents of their workforces.
There is some sign of convergence in the competitiveness of the world’s largest emerging markets. China, on 28, remains top among the BRICS grouping although another surge by India – which climbs 16 places to 39 – means there is now less of a gap between it and its peers. With both Russia and South Africa moving up two places to 43 and 47 respectively only Brazil is declining, falling six places to 81.
The competitiveness gap in East Asia and Pacific, meanwhile, is widening. Although 13 of the 15 economies covered consecutively since 2007 have been able to improve their GCI score over the past decade, this year sees reversals for some of the larger emerging markets in the region: Malaysia drops out of the top twenty, falling seven places to 25; Thailand drops two to 34; Indonesia falls 4 places to 41 while the Philippines drops ten to 57. A consistent theme for all the region’s developing countries is the need to make inroads into the more complex areas of competitiveness related to business sophistication and innovation if they are to break out of the middle-income trap.
The drop in energy prices has heightened the urgency of advancing competitiveness agendas across the Arab world. With three economies in the top thirty; the United Arab Emirates (16); Qatar (18); and Saudi Arabia (29) there remains a clear need for all energy-exporting nations to further diversify their economies and for much greater effort to improve basic competitiveness among the region’s energy-importing nations.
Two countries in Latin America and the Caribbean make it into this year’s top 50. Chile, the outlier in the region on 33, climbs two places although the gap is closing with the second highest ranked economy, Panama (up 8 places to 42). Next comes Mexico which performs strongly with a 6-point climb to 51. Argentina and Colombia, the third and fourth largest economies in the region, rank 104 and 61 respectively.
One of the most improved nations in sub-Saharan Africa is Rwanda, which rises 6 places to 52. It is closing in on the region’s traditionally most competitive economies, Mauritius and South Africa, although both these countries register more modest improvements, climbing to 45 and 47 respectively. Lower down the ranking, Kenya climbs to 96, Ethiopia holds steady at 109 while Nigeria slips three to 127.
“To me, the interest in economic growth comes from the fact that it is potentially so important for improving human welfare. The Global Competitiveness Report helps us understand the drivers of growth and this edition comes at a time of stalling productivity, the main determinant of future growth,” said Xavier Sala-i-Martin, Professor of Economics at Columbia University.
What is competitiveness?
What is competitiveness? There are actually a number of definitions out there. The World Economic Forum, which has been measuring competitiveness among countries since 1979, defines it as “the set of institutions, policies and factors that determine the level of productivity of a country”. Others are subtly different but all generally use the word “productivity”.
Another way to think about what makes a country competitive is to consider how it actually promotes our well-being. A competitive economy, we believe, is a productive one. And productivity leads to growth, which leads to income levels and hopefully, at the risk of sounding simplistic, improved well-being.
Why should we care about it?
Productivity is important because it has been found to be the main factor driving growth and income levels. And income levels are very closely linked to human welfare. So understanding the factors that allow for this chain of events to occur is very important.
Basically, rising competitiveness means rising prosperity. At the World Economic Forum, we believe that competitive economies are those that are most likely to be able to grow more sustainably and inclusively, meaning more likelihood that everyone in society will benefit from the fruits of economic growth.
How do we measure it?
We break down countries’ competitiveness into 12 distinct areas, or pillars, which we group into three sub-indexes. These are “basic requirements” which comprise institutions, infrastructure, macroeconomic environment and health and primary education. We call these “basic” as these pillars tend to be those that countries at earlier stages of development tackle first.
Next comes our “efficiency enhancers” sub-index. Essentially we’re looking at markets – whether it is the functioning of goods, labour or financial markets – but we also consider higher education and training, and technological readiness, which measures how well economies are prepared for the transition into more advanced, knowledge-based economies.
Our last pillar, innovation and sophistication, consists of two pillars: business sophistication and innovation. These are more complex areas of competitiveness that require an economy to be able to draw on world-class businesses and research establishments, as well as an innovative, supportive government. Countries that score highly in these pillars tend to be advanced economies with high gross domestic product per capita.
What doesn’t competitiveness tell us?
Generally, the world is getting better and better at measuring things, but nonetheless there are always black-spots in any benchmarking exercise. Despite our best efforts, we still haven’t found a fail-safe way of including a country’s environmental record into its competitiveness score. Nor do we attempt to measure whether, or to what degree, competitiveness makes people happy, although there are others that do attempt to measure this. Does a country that is competitive mean it is best able to face the future? Again, the answer is yes and no: some countries are investing for the onset of the Fourth Industrial Revolution in ways that we have not yet found a reliable way of measuring. This last area is a focus of considerable work here these days.
What have we learned this year?
Aside from some countries going up and others going down, this year’s set of data gives us insight into three areas that continue to be important to policy-makers in 2016. With the debate on globalization becoming increasingly politicized, with opponents blaming it for increasing levels of inequality and offshoring of manufacturing jobs, and proponents emphasizing the role it has played in raising millions of people out of poverty, we actually find that countries’ openness when it comes to trading goods and services with one another has been declining steadily, if slowly, for the past 10 years. With openness directly linked to economic growth, this seems significant, especially as the trend seems to stem mainly from the encroachment of non-tariff barriers, which are subtle and often hard to detect.
With every advanced economy having undergone some form of monetary stimulus such as quantitative easing since the great recession, the report also helps us understand why some countries have been more effective than others in reigniting sustained growth. By comparing the competitiveness of those economies that have engaged in monetary stimulus programmes over this period, we find that those with high competitiveness scores were more successful in driving economic growth than others with lower scores, even if the latter have expanded their central bank balance sheets by a greater amount.
The report offers insight into how priorities may be shifting for nations in earlier stages of development. While basic drivers of competitiveness such as infrastructure, health, education and well-functioning markets will always be important, data in the report suggests that a nation’s performance in terms of technological readiness, business sophistication and innovation is now as important in driving competitiveness and growth. This is important for policy-makers and leaders in emerging markets who need to be aware that the reality when it comes to helping move their economy up the income ladder is much more nuanced than they may have previously believed.
» Download: The Global Competitiveness Report 2016-2017 (PDF, 5.99 MB)
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Transforming agriculture to address climate change and other global challenges
FAO’s Committee on Agriculture focuses on innovation to achieve food security and sustainable development
The agricultural sector must transform itself not only to achieve food and nutrition security for all, but also to help address global challenges such as climate change and antimicrobial resistance, FAO Director-General José Graziano da Silva said on 26 September 2016.
In a speech to ministers, government, private sector and civil society representatives attending the biannual meeting of FAO’s Committee on Agriculture (COAG, 26-30 September), the Director-General noted how “agriculture is at the very heart” of a recent series of ground-breaking international agreements, including the Sustainable Development Goals and the Paris Climate Change Agreement.
“Sustainable agriculture is paramount to eradicate extreme poverty and hunger, to sustain natural resources, to adapt to and mitigate the impacts of climate change, to achieve healthier food systems and to build resilience against crises and natural disasters,” Graziano da Silva said.
But he noted that while past developments in agriculture have led to major improvements in productivity, “progress has been uneven” and that “greater emphasis must be placed on the social and environmental dimensions of sustainability”.
Sierra Leone’s Minister for Agriculture, Forestry and Food Security, Monty Patrick Jones, also addressed the meeting, stressing that in Africa boosting agricultural productivity in a sustainable way is not only essential for food and nutrition security, but is also critical to eradicating poverty.
In particular, small-holder farmers “should produce food not just for the table, but also for the market,” he said, urging governments to play their part by supporting the process and increasing investments.
“We’ve seen an increase in investments... but only a few invest 10 percent” of their budget on agriculture Jones said, referring to a pledge made by African leaders in the 2003 Maputo Declaration.
Another keynote speaker at today’s COAG opening, Joachim von Braun, Director of University of Bonn’s Center for Development Research, underscored the need for scientific innovation in agriculture to go hand-in-hand with policy reform.
“Agriculture and food systems are transforming, and that must be supported by a sound cooperation between science and policy,” von Braun said.
He told participants that for this purpose, an International Panel on Food, Nutrition and Agriculture should be established to assist the international community in the same way as the Intergovernmental Panel on Climate Change (IPCC) “helps guide global climate policy”.
FAO action on antimicrobial resistance and climate change
Graziano da Silva, noting that the “role of agriculture goes beyond generating food and income,” referred to FAO’s recent commitment at the United Nations General Assembly to work closely with the World Health Organization (WHO) and the World Organisation for Animal Health (OIE) to curb antimicrobial resistance (AMR).
“We at FAO believe that antibiotics and other antimicrobials should be used in agriculture to cure diseases and to alleviate suffering. Only under strict circumstances they could be used to prevent an imminent threat of infection,” the Director-General said.
Graziano da Silva also pointed to growing international recognition that agriculture can play a transformative role in addressing the impacts of climate change.
Countries are set to gather for the COP 22 summit in Morocco in November to put into motion their pledges on climate change, and FAO “stands ready to assist governments, especially of developing countries to have access to international resources that are available to finance these actions,” he said.
FAO support for 245 initiatives in 89 countries
Graziano da Silva told participants at COAG’s opening session that in 2014-15, FAO supported 245 initiatives in 89 countries to promote sustainable agricultural production practices based on participatory approaches.
“Results have well exceeded our targets. More than 80 of these initiatives were implemented in Africa alone,” the FAO Director-General said.
He noted that within the Save Food Initiative, FAO supported 45 countries in reducing food waste and loss, through a partnership network that includes civil society, the private sector, the UN institutions and academia.
FAO also provided support to 70 countries across five regions to advance the mainstreaming of food security and nutrition in public policies and programmes.
COAG meets every two years to assess the current state of affairs in world agriculture and provide guidance to FAO on its program of work.
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Keeping the wheels of trade in motion
The slowdown in trade growth since 2012 is largely because of weak growth, but also fewer trade deals and a recent uptick in protectionism, a new IMF study finds. Further trade reforms, together with measures to help those who stand to lose, would help reinvigorate trade, which helps spread technology and know-how.
Since 2012, growth in the volume of world trade in goods and services has been tepid at around 3 percent, less than half the rate during the preceding three decades. World trade has barely kept pace with world GDP and the slowdown has been widespread (see panel chart).
The study, published in the October 2016 World Economic Outlook, explores the reasons for the weakness in global trade using a number of complementary approaches and a new detailed data set of trade volumes by product type.
The growth cogs in the trade machine
Slow trade is mostly a symptom of the sluggish economic recovery, the study finds. Empirical analysis suggests that up to three-fourths of the shortfall in real trade growth since 2012 compared with 2003-07 can be traced to globally weaker economic growth, notably subdued investment. A model-based estimate delivers a similar result.
Beyond changes in the level and composition of economic growth, other factors are weighing on trade growth, collectively shaving up to 1¾ percentage points off global real import growth each year since 2012. Among these factors, trade costs – caused in part by protectionist policies – and the extent to which countries are involved in global supply chains accounted for almost half.
Even though the contribution of trade costs to the trade slowdown has been limited relative to weak economic activity so far, the dearth of new global policy initiatives to reduce these costs, along with the gradual rise of non-tariff barriers since the global financial crisis, could pose further risks to trade. The apparent slowdown in the relocation of production across countries is also putting the brakes on trade, though it is difficult to determine whether existing opportunities to exploit supply chains have been exhausted, or whether they have been hampered by trade-distorting policies.
What does this mean for the outlook for global trade? The study suggests that trade and economic growth are closely linked: faster growth typically accompanies greater trade. With only a limited pickup in global activity on the cards for the next five years, slow global trade growth, therefore, will most likely persist.
And even as the global economy eventually gathers momentum, trade is unlikely to post the sorts of growth rates seen prior to the global financial crisis. At that time, investment growth in China and many other emerging markets was unusually high, trade costs were falling due to policy cooperation and technological advances, and global value chains were rapidly developing.
Greasing the wheels
Addressing constraints to growth should lie at the heart of the policy response. This would not only boost overall global activity but also help grease the wheels of international commerce, creating a virtuous cycle as trade stimulates further gains in productivity and growth across borders. For example, firms can get access to better quality inputs through trade, as well as learn about new technologies and processes from foreign markets.
However, with the weak economic outlook already weighing on trade, trade policies (for example, free trade agreements) themselves remain relevant, and all forms of protectionism should be resisted. At the same time, dismantling remaining barriers would provide much-needed support for trade, possibly by jumpstarting a new round of global supply-chain development.
There is also substantial scope to further reduce trade costs. These include:
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cutting tariffs where they remain elevated;
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ratifying and fully implementing commitments made under the Trade Facilitation Agreement; and
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establishing a way forward for the post-Doha trade agenda
Future trade reforms should also focus on the area’s most relevant to the contemporary global economy, such as regulatory cooperation, reducing barriers to trade in services, and taking advantage of the complementarities between cross-border investment and trade.
Fair(er) trade for all
To preserve the benefits of trade integration, policymakers should address the concerns of workers and industries that have trouble adjusting to greater overseas competition and take steps to ease their transition. Such policies include sufficiently broad social safety nets, as well programs to support retraining, skill building, and occupational and geographic mobility.
The authors of this chapter are Aqib Aslam, Emine Boz, Eugenio Cerutti, Marcos Poplawski-Ribeiro, and Petia Topalova, with support from Ava Yeabin Hong, Hao Jiang, Evgenia Pugacheva, Rachel Szymanski, and Hong Yang.
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Cameroon goes it alone with controversial EU trade deal, angers regional partners
Many in Cameroon and the wider region worry that the unilateral signing of an Economic Partnership Agreement was a bad decision.
Regional integration in Central Africa hangs in the balance following Cameroon’s unilateral decision to agree a trade deal with the European Union last month.
Despite protests from the Economic and Monetary Community of Central Africa (CEMAC), Cameroon agreed to an Economic Partnership Agreement (EPA) with Europe at the start of August, allegedly in violation of CEMAC rules.
The EPA is intended to succeed the Cotonou Agreement under which African countries were able to export goods to the EU duty free. Negotiations over the details of the new deal – under which several preferential features for African countries will no longer stand – have been ongoing since 2003, with the Central African states bargaining as a regional bloc.
These talks have continually faced deadlocks, however, and the deadline to agree and ratify the new deal was pushed back from October 2014 to August 2016. As this second deadline approached – after which preferential treatment to European markets would be suspended – most regional leaders were still unhappy with the proposals and agreed to hold out for a better deal.
Cameroon was warned against taking unilateral action, with CEMAC officials saying it would be in breach of the community’s rules and would threaten its membership of the bloc.
“[CEMAC] recommends that the Cameroonian authorities delay the [tariff] dismantling process billed for August 4 until the conclusion of a regional agreement,” Pierre Moussa, President of the CEMAC Commission, wrote in a letter to Cameroon’s Economy Minister.
But at the start of August, Cameroon disregarded this advice and signed into law its existing draft EPA. Amongst other things, this agreement means that its exports will still have duty- and quota-free access to European markets, but it also means that the country will have to gradually reduce its tariffs on EU imports over the coming years.
A threat to the union?
While Cameroon has now approved its EPA, negotiations with the other countries in the region are still deadlocked. However, Françoise Collet, head of the EU Delegation in Cameroon, told African Arguments that she hopes the deal with Cameroon will now build up to a regional agreement with Central Africa.
Collet also claimed that regional heads of state in July agreed that Cameroon would engage separately with the EU. Nonetheless, many commentators claim Cameroon betrayed and undermined the union as well as violating CEMAC rules.
“Cameroon’s signing of the agreement constitutes a great threat to regional integration,” says economist Dr Ariel Ngnitedem. “It might destroy regional integration especially if the EU fails to reach a regional agreement with the CEMAC countries.”
Ngnitedem says that by signing the EPA unilaterally, Cameroon has broken the ‘common external tariff’ rule under which tariffs on goods entering a customs union are the same regardless of which specific country the goods are entering. He also suggests other countries in the region may now be tempted to do the same by entering alternative agreements with other partners such as China.
Many politicians in Cameroon, however, are dismissive of these concerns.
“At a given moment, we have to focus on our interest first. We have a strategic interest in the EPA,” says Emmanuel Mbanmi, an MP with the ruling Cameroon People’s Democratic Movement (CPDM) party. “Britain voted to pull out of the EU and Cameroon as a sovereign state also has the right to exit CEMAC if being in the union becomes a burden.”
The MP for Ngoketunjia South also brushes off claims his government has undermined CEMAC, saying that there are many regulations Cameroon respected while others in the union ignored them.
Joshua Osih, Vice President of the Social Democratic Front (SDF), Cameroon’s leading opposition party, concurs with this view. He says that other CEMAC countries have continuously disobeyed directives such as the free movement of citizens holding a biometric CEMAC passport which, he says, “today is a big joke”.
Good for development?
According to the EU, the EPA is meant to boost trade, enhance regional integration and contribute to the development of its African partners. But its negotiations with different regional blocs across the continent have consistently come across intractable disagreements.
Many experts argue that the trade deal – which requires African countries to reciprocally lower tariffs on imports over time – will constrain domestic policy options and undermine local production and industrialisation.
They say that dismantling tariffs on imports will not only lead to a reduction in customs revenue – which, for Cameroon, amounts to an estimated 600 billion CFA francs ($1 billion) per year – in the short-term. But it will also mean that burgeoning African businesses will always struggle to contend with much more competitively-manufactured products from Europe. They suggest that Africa will be caught in a position where it can only export raw goods to Europe and import cheaper finished products from elsewhere.
“[The EPA] will kill budding local industries,” says Ngnitedem. “African countries are under pressure from Europe which has an economic growth rate of 1% and lacks a market for its products.”
Bernard Njonga, President of the Cameroon Association for the Defence of Collective Interests, echoes these concerns. He also adds that the EU’s counterclaims that access to the EU Development Fund will in fact boost local companies to enable them to compete with Europe are “mere wishes”. “Do you believe they will raise our economy to the level that it would challenge theirs?” he asks.
It is these kinds of widespread concerns that have stalled the EU’s negotiations with the rest of the Central African bloc as well as other regions across the continent. But while Mbamni of the CPDM party concedes that Cameroon could become a dumping ground for some EU products, he insists that the country can benefit overall through smart policy choices.
“Tax reforms, land reforms, forest reforms and more are underway,” he says. “Tax would cover losses in customs duties since we can double production and exportation capacity. We must open our economy with specific provisions to protect nationals.”
SDF’s Osih agrees that the EPA can be seen as an opportunity as well as a danger, but is much less optimistic about the country’s prospects.
“We don’t have the right government and political leadership to make use of the huge opportunity,” he says. “The next thing is for us to get rid of our actual government and [President] Paul Biya to make the EPA profitable for each and every Cameroonian.”
Mbom Sixtus is a freelance journalist based in Cameroon. He contributes to several national and international media outlets on topics including the economy, politics, environment, climate change and agriculture.
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Making the best of AGOA through Export-Promotion policies
Ten years is a very short time in the global economy, and by all accounts a decade is all that is left of the African Growth and Opportunity Act (AGOA). While the United States’ unilateral preferential access programme for Africa has been reauthorized three times since it began in 2000, it looks very unlikely to be extended beyond 2025.
An increasingly desirable African domestic market seems likely to inspire calls for reciprocal trade deals akin to the European Union’s Economic Partnership Agreements (EPA); while an increasingly protectionist American political space may see eroding access to the US market. What those deals will look like, and if they could be agreed upon before AGOA expires, remains uncertain, but they are likely to represent significant shifts in the US-Africa trade architecture in 25 years.
For policymakers, this poses a difficult question: is it really worth spending scarce resources on helping firms to take advantage of AGOA, when the deal will end in 10 years? Those 10 years certainly hold immense opportunity, with the US being the world’s single largest consumer market, and seemingly leading the way in a global recovery that remains weak in Europe and is hurting emerging economies. But the development of new export opportunities through policy takes a long time. If we consider the time it takes to make, implement, and see the impact of export-promotion policy, the trade it creates will only be discernable after ten years. If that trade is dependent on AGOA, then it risks having consumed policy focus for short-lived success.
And yet policy is certainly needed. While AGOA has lowered formal trade barriers between Africa and the US, non-tariff barriers and basic structural limitations in domestic economies have prevented countries from truly taking advantage of the trade potential on offer. While Africa - US trade has grown during the period of the deal, the growth has overwhelmingly been in commodities (particularly oil) that do not face serious trade barriers in the first place. And with the end of the commodity boom, even that limited success is in doubt, with oil exports in 2015 being only a tenth of what they were in 2008.
Countries with more diversified economies, notably South Africa, have succeeded in exporting value added goods (particularly automobiles), and some small economies have had limited successes in exports of textiles or select agricultural goods. Overwhelmingly, however, AGOA has a lot of potential without offering real transformation (so far).
A number of creative ideas seem to offer solutions to the puzzle of how to improve AGOA utilization, with many of these revolving around value chains. Instead of building export industries from scratch, smaller African countries could focus on trying to supply components to more diversified African economies. These have existing exports capacities to the US, using the new AGOA’s more accommodating approach to cumulation of origin. Similarly, all African countries could target entry to strategic European value chains, allowing an alternative low-tariff route to the US, via Africa’s EPAs and Europe’s developing trade preferences under the Transatlantic Trade and Investment Partnership (if the deal is agreed).
These strategies are vital and should be guiding considerations on how to approach AGOA, but they are not policies, and they are not likely to take root in 10 years. What most states need now are targeted interventions that achieve two things; first, quickly boosting AGOA utilization; and second, remaining relevant and beneficial even if AGOA goes away.
Three immediate interventions could prove useful:
1. Rolling out funding support for firms seeking standards certification for export to the US market: Exporting higher value added products often requires meeting rigorous quality and product standards, and this is particularly true for a US market that maintains demanding technical regulations and sanitary and phytosanitary standards. Inability to meet these requirements can preclude firms from utilizing AGOA, while also locking them out of value chains that supply the US market. Many firms, however, have neither the capacity to meet standards, nor the knowledge of those standards and their certification processes - and require support to achieve compliance. Governments can help either through a targeted support programme for certifications that currently create problems for their exports or they can offer all-purpose quality certifications like ISO-9000.
ISO-9000 certifications offer a triple-benefit of being recognized worldwide, establishing quality controls that help firms manage their production while also familiarizing them with the process of certification. This makes it easier for the firms to meet any product-specific requirements they may face. ISO-9000 promotion was a key strategy utilized by China to overcome perceptions of low quality goods, and could build a base of trust that facilitates easier entry into the US market for potential AGOA exporters.
Table 1: product consignments rejected by US Border control over the last 15 years
2. Investing in the middleman: Export support tends to be concentrated on producer firms, helping them to upgrade or improve their trade capacity. Mostly, however, small or new firms do not sell directly to foreign markets, but rather work through some intermediary, either a marketing agency in the case of agriculture or a distributor in the case of manufacturing. Specialist trading firms played a vitally important role in growing exports in Asia. As Ahn, et al note, “In the early 1980s, 300 trading (non-manufacturing) Japanese firms accounted for 80 percent of Japanese trade, and the ten largest of these firms accounted for 30 percent of Japan’s GNP”. Yet, these intermediaries often do not receive the type of trade-promoting support given to producers.
Governments can invest in these intermediaries in simple ways. First, by establishing a forum through which to engage with these bodies and understand their needs: While some countries might already do so, others tend to concentrate export promotion activities on manufacturers, often neglecting the intermediaries who do the trading on their behalf. Second, by helping create forward and backward linkages, linking local producers to their local distributors, and local distributors to foreign (in this case American) purchasers, whether through trade shows or sponsored visits. Third, through offering subsidized insurance and guarantees to trading intermediaries, to alleviate the risk they incur being the middleman. Fourth, by establishing such, especially where marketing agencies or trading firms do not exist: Small firms do not have the capacity to do business globally, but they can do business locally with an agent that can help them achieve global reach, while governments create the enabling environment to facilitate the realization of this important objective.
3. Establishing local networks to facilitate freight cost sharing: Trade is a scale business; a half-empty ship costs exporters much more than a full ship. A truck that is full one-way and empty on the return journey costs more than a full truck both ways. With weak trade among many African countries, the cost of shipping small consignments of manufactured goods goes up, as ships have to operate at reduced capacity or exporters have to bear the cost of getting their goods to a busy port. Even when working efficiently, transport costs can often be prohibitive for new firms. Building local cooperation on shipping logistics (in which firms share containers or larger consignments) can help to reduce costs and spread the risk of major shipments. Freight sharing can be facilitated either by creating a common central platform where firms can post their shipping plans and find partners with matching needs, or by more aggressive approaches, such as developing warehousing capacity for AGOA-utilizing firms, where the warehouse can centralize freight plans.
The failure of African trade relations to diversify beyond commodities during the period of AGOA demonstrates that the problems African exporters face go well beyond tariffs. Governments need to help, but their interventions must fulfill two criteria. Firstly, they must be quick to roll out and quick to make an impact. Secondly, they must continue to make a contribution even after AGOA ends.
The worst thing that can happen now is to launch into an endless process of crafting AGOA strategies, which, when finally rolled out, will have a shelf life of only a couple of years before expiry of AGOA. Focusing on developing core trade capacity – like standards, export costs, and establishing strong intermediaries – will boost AGOA implementation and remain relevant in whatever new regime replaces it.
Christopher Wood is an economist focusing on trade and industry policy. The views expressed in this article are those of the author and should not be attributed to the African Development Bank (AfDB).
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Building on AGOA, strengthening U.S.-African trade ties
With strong bipartisan support in Congress, the Obama administration signed into law last year a ten-year extension of the African Growth and Opportunity Act (AGOA), the foundation of U.S. evolving trade policy with sub-Saharan Africa since 2000.
The long-term renewal of AGOA serves as a powerful and enduring symbol of the U.S. trade and investment relationship with sub-Saharan Africa, while providing valuable incentives and predictability to investors seeking to capitalize on Africa’s dynamic, rapidly growing markets and to buyers looking to source from the continent.
Congress accompanied its renewal of AGOA with inquiries regarding the future of the U.S.-Africa trade relationship and its supporting policy, With a doubling of regional real GDP, a rapidly urbanizing population, and 300 million people connected to the world through the internet and mobile technologies, Africa has become better equipped to supply America with goods and to buy American products, over the past 16 years. African economies have created new industries – from ‘Nollywood’ movies to Kenya’s Internet-based financial services – whose strengths and policy needs are in intellectual property, data flow, and other areas rather than in tariff-based market access. Africa’s policy landscape has also changed substantially since 2000, with the region moving towards greater market opening and internal economic integration, as well as greater integration with China, the European Union, and other outside partners.
AGOA has provided the policy architecture for U.S.-sub-Saharan African trade and investment for the past 16 years, with its unilateral market access provisions, convening power, and basic eligibility requirements, including the establishment of market-based economies, rule of law, policies to reduce poverty, protection of internationally recognized worker rights, and efforts to combat corruption. It has helped increase trade, investment, and job creation in sub-Saharan Africa and in the U.S., as is the case of Los Angeles, where we export about $390 million a year to African customers and where we have a huge and vibrant diaspora community of Nigerians, Ethiopians, and Cameroonians, among others, eager to do business on the continent.
However, as with any temporary tariff waiver program, AGOA cannot produce the certainty and depth in the U.S.-Africa trade and investment relationship that parties on both continents need in the long-term.
The U.S. and Africa should maximize AGOA’s benefits in the remaining nine years of the renewal while also developing a policy framework beyond AGOA to deepen and strengthen the U.S.-Africa trade and investment relationship in the years to come. One major area we should focus is capacity training, which would enable African entrepreneurs to fully address the effective implementation of AGOA.
We should also develop shared principles to guide this new policy framework. These should include evolving towards greater reciprocity; driving African reforms across a broad range of policy areas; supporting Africa’s regional economic integration and integration into the global trading system; promoting Africa’s export diversification and value-added production; and accounting for different levels of readiness and capacity across the continent while preparing all African countries to assume higher standard commitments.
Second, we should work closely with our African partners to raise standards in key substantive building blocks that have the greatest potential to unlock value for business and investors. These should include fundamental areas of trade policy, including market access, trade facilitation, data flow and intellectual property, transparency, and anti-corruption, labor, and the environment.
Third, we should determine what form our future trade arrangements with our African partners should take. Possibilities could include free trade agreements with a single country, a regional economic community, or a combination of the two; a mega-regional free trade agreement building on existing African free trade agreements; or allowing African countries to join existing or renegotiated free trade agreements.
For its part, sub-Saharan Africa has long established several Regional Economic Communities (RECs) with an eye towards greater regional economic cooperation, coordination, and synergy – priorities of African Union leadership. The sheer size and potential scope of these regional markets, which include millions of upwardly mobile consumers, speak to why sub-Saharan Africa is viewed as increasingly attractive to both U.S. trade partners and competitors.
We should not look past last year’s historic renewal of AGOA. However, we should also not miss the opportunity to develop a mutually beneficial policy architecture that harnesses the true potential of the U.S.-Africa trade and investment relationship, and adapt to a changing Africa and global trading system. I stand ready to work hand in hand with my colleagues in Congress on both sides of the aisle, with the next administration, and with our partners and AGOA stakeholders in Africa.
Bass represents California's 37th District and is a member of the House Foreign Affairs Committee. The views expressed by author are their own and not the views of The Hill.
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AfDB seeks investors for $7.6-billion Tanzanian railway line
The African Development Bank will hold an investors’ roadshow to attract as much as $7.6 billion in financing for a railway line linking Tanzania’s port in Dar es Salaam with neighboring landlocked countries.
The Abidjan, Ivory Coast-based lender is teaming up with the World Economic Forum to help find investors to bankroll the 2,200-kilometer (1,370-mile) line, according to Gabriel Negatu, AfDB’s regional director for East Africa.
“We are convening a meeting of would-be investors to see how best to finance the line,” Negatu said in a Sept. 23 interview in Kenya’s capital, Nairobi. “Everyone who can come up with financing, we will recommend them to the Tanzania government.”
The planned standard gauge line is “credit positive” and once operational may cement Tanzania’s position as a logistics hub for Eastern Africa, Moody’s Investors Service said Sept. 15. While President John Magufuli’s government says it will become a major trade artery between Tanzania and its neighbors, research firms such as NKC African Economics say there’s uncertainty about whether regional demand will justify both Kenya and Tanzania operating similar rail networks.
Rwanda, Burundi
The Tanzania line will run from Dar es Salaam port to Rwanda’s capital, Kigali. Two other lines will branch off to Musongati in Burundi and to Mwanza port on the shores of Lake Victoria to service Ugandan shippers. The line to Kigali is expected to ultimately connect to the eastern Democratic Republic of Congo.
Export-Import Bank China may lend Tanzania $7.6 billion to finance the railway, the government said in July. Chinese investors will be among those invited to the AfDB financing roadshow, Negatu said.
“If they finance it completely, no one will be more happier than us,” he said. “If China comes up with that money, I will kiss their hands.”
AfDB wants to co-finance the project, with a strategy to “catalyze financing” and encourage other investors to come on board, he said.
Tanzania’s economy, East Africa’s largest after Kenya, is expected to grow 7.2 percent this year, partly due to investment in roads and power plants, along with upgrades to ports and airports, according to the International Monetary Fund. The country is the continent’s fifth-biggest gold producer and has estimated reserves of 58 trillion cubic feet of natural gas being developed for export by companies including Statoil ASA and BG Group Plc.
‘Next Century’
AfDB holds no “short-term financing view” on the railway line, although most investors would prefer debt repayment periods of as long as 15 years, according to Negatu. The line “can be amortized over 100 years,” he said. “It will be profitable – this is a project for the next century.”
Kenya is building a similar railway that seeks to connect landlocked countries to Mombasa, its main port. Given that such economies “are not particularly large,” it’s “questionable whether the region requires two standard-gauge railway networks connected to two of sub-Saharan Africa’s largest ports,” Jacques Nel, an analyst at Paarl, South Africa-based NKC African Economics, said in an e-mailed response to questions.
The first phase of the Kenyan link, measuring 609 kilometers and costing $3.2 billion, is scheduled for completion by June 2017. Construction of a second 120-kilometer leg will begin by the end of this year, according to the government.
Tanzania is also planning a liquefied natural gas plant that could cost as much as $30 billion and a $10 billion port at Bagamoyo. It has also agreed to host a $3.6-billion pipeline to transport Ugandan crude to its Indian Ocean port at Tanga.
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tralac’s Daily News Selection
Event listings (Lusaka, Ottawa, Johannesburg):
Today, in Lusaka: COMESA Business Council consultative meeting on the COMESA Business Visa and Tripartite Regional Dialogue on the Movement of Business Persons. See, below, for a preview: COMESA visa expected in two years.
Today, in Ottawa: Defining Canada’s ‘Progressive Trade Agenda’ for Africa (Carleton University’s Centre for Trade Policy and Law, Institute of African Studies). ATPC’s David Luke will be one of the speakers.
Tomorrow, in Johannesburg: a joint JCCI, US Embassy, Trade Law Centre workshop ‘How to use AGOA effectively to increase your exports to the US’. tralac’s Willemien Viljoen will be one of the speakers.
Next year’s 2017 AGOA Forum will be hosted by Togo.
Trade in 2016 to grow at slowest pace since the financial crisis (WTO)
World trade will grow more slowly than expected in 2016, expanding by just 1.7%, well below the April forecast of 2.8%, according to the latest WTO estimates. The forecast for 2017 has also been revised, with trade now expected to grow between 1.8% and 3.1%, down from 3.6% previously. With expected global GDP growth of 2.2% in 2016, this year would mark the slowest pace of trade and output growth since the financial crisis of 2009. The downgrade follows a sharper than expected decline in merchandise trade volumes in the first quarter (-1.1% quarter-on-quarter, as measured by the average of seasonally-adjusted exports and imports) and a smaller than anticipated rebound in the second quarter (+0.3%). The contraction was driven by slowing GDP and trade growth in developing economies such as China and Brazil but also in North America, which had the strongest import growth of any region in 2014-15 but has decelerated since then. WTO Director-General Roberto Azevêdo said:
Call for papers: Cross-border co-operation in West Africa (AAG 2017, April 2017, Boston)
This session adopts a different approach to West African borders. Its aim is to discuss how cross-border co-operation contributes to the regional integration process. Building on an ongoing research project that examines the current challenges of cross-border co-operation in the region, we are particularly interested to understand more about the economic potential of West African regions, the structure of cross-border policy networks, the spatial perceptions of the region’s policy makers, and the place-based policies that could be developed in the region.
ReEOI: detailed scoping study of Vision 2063 Africa Integrated High Speed Railway Network and Master Plan (Nepad, EAC)
Vision 2063 envisages an Africa Integrated High Speed Railway Network (AIHSRN) and Master Plan, comprising of four longitudinal and six latitudinal North-South and East-West continental railway network respectively, to be implemented over a period of three planning horizons: short term (2015-2025), medium term (2025-2045) and long term (2045-2065) development plan of 50 years. Phase 1 entails investigating key viability issues of traffic demand forecasts, costs and revenue estimates, corridor/routes, rail technology options, innovative financing models, among other related issues.
ATAF General Assembly preview: Tax authorities brace for continental indaba (The Chronicle)
South Africa is set to host this year’s edition of the African Tax Administration Forum General Assembly where the continent’s heads of tax administrations will meet to map out ways of optimally using Africa’s untapped tax base. Scheduled for 3-7 October in Durban, the conference will run under the theme: “Harnessing the African cash economy: contributing towards expansion of the African tax base.” Zimbabwe is chairing the ATAF council, deputised by Senegal. ATAF media and communications officer Mr Taungana Ndoro reported that the informal sector, which uses unrecorded cash transactions, has prejudiced the African economy at least 38% of its GDP. A key outcome of the conference, he said, will be laying the foundation for development of action plans to be pursued by African tax administrations until the next general assembly in 2018.
REC policy highlights:
COMESA visa expected in two years (Malawi Times): Talks are now at an advanced stage to establish the COMESA Business Visa, an initiative seeking to make it easy for business persons from countries that make up the Common Market for Eastern and Southern Africa to move across borders. The COMESA Secretariat has confirmed that once adopted, the visa could be operational in the next two years. Representatives from Comesa member states are meeting this week in Zambia to review and validate proposals that have been made so far. The dialogue is further expected to enhance deliberations between the private sector and governments on pertinent migration issues to ensure that the existing policies contribute to increased trade, tourism flows, and business engagement in the region. Key recommendations will be streamlined into an advocacy position for the COMESA Business Council while the proposed instrument is expected to be tabled for adoption before the COMESA policy organs and Summit meetings that will take place in Madagascar from 10-19 October. [Dianna Games: Political will is weak to make travel in Africa cheaper and easier]
IOM, COMESA launch flagship training programme on free movement agenda (COMESA): The International Organization for Migration and COMESA Secretariat have launched a flagship training programme on the signature and ratification of the COMESA Protocol on the Free Movement of Persons, Labour, Services, Right of Establishment and Residence (otherwise known as the Free Movement Protocol). This training, the first of its kind, targets Zambia and Zimbabwe and represents a significant milestone for the COMESA free movement agenda. The training was intended to contribute to the expedited signature and ratification of the Free Movement Protocol, which despite having been established in 2001 has not yet entered in to force. A minimum of seven ratifications are required for this to happen, and so far, only four Member States have signed, and two have ratified the Protocol.
Japan to deploy experts to COMESA Secretariat (COMESA): The Japanese government is to deploy technical staff through the International Cooperation Agency at COMESA Secretariat to work on infrastructure and related issues. Ambassador Koinuma praised the relationship between COMESA and Japan and confirmed that JICA has agreed in principle to deploy the technical staff. Further, he hailed the signing of the MoUs between PTA bank and Japanese financial development institutions which will facilitate trade and investment between the COMESA region and Japan.
IGAD /ICPALD trade mission to South East Asia: IGAD/ICPALD organized a trade mission (11-22 Sept) to explore alternative markets, enabling livestock and meat exporters of the region to diversify and expand markets in Malaysia and Vietnam. The main objectives of the trade mission were to brief the regulatory bodies and importers on the livestock resource base status of production and marketing and share promotional materials; to collect information on live animal and meat (chilled, frozen, edible offal) importing requirements, to discuss with the importers on the volume of import and price, identifying potential trade partners and undertake observations on major meat and live animal markets.
Zimbabwe: Interim Poverty Reduction Strategy Paper (I-PRSP) launched (NewsDay)
Government has launched the Interim Poverty Reduction Strategy Paper (I-PRSP) for Zimbabwe, which requires $2,7bn to implement in the period 2016 to 2018. Speaking at the launch of the document yesterday, Finance minister Patrick Chinamasa said government and development organisations have secured $800m so far for the implementation of the I-PRSP, leaving a funding gap of $1,9bn. He said the $1,9bn would be mobilised through the budget and other domestic savings and the private sector. Jesimen Chipika, the national consultant for I-PRSP, said the economy needs to grow at 7% growth rates, receive normal rainfall and continue to use the multicurrency system. [IRIN: Climate change on the front line, in rural Zimbabwe]
Rising coal prices improve prospects for infrastructure projects in Mozambique (MacauHub)
Coal prices on international markets have more than doubled since the beginning of the year, allowing mining projects to resume and improving the prospects for infrastructure projects in Mozambique. Due to international production cuts over the past months, coal prices rose from almost US$80 per tonne to around US$190 per tonne this month, which has led India’s Jindal Steel & Power Ltd. to resume its operations at the Chirodzi mine, achieving a monthly production of 300,000 tonnes.
Malawi: Government drafts Economic Empowerment Bill (The Times)
The government has drafted the Malawi Economic Empowerment Bill, which will spearhead implementation of Buy Malawian Strategy which calls for a minimum of 30% purchase of goods and services from local firms. Minister of Industry, Trade and Tourism, Joseph Mwanamvekha, said this during the opening of the 6th annual procurement and supply management conference in Mangochi on Friday.
Kenya’s full plate of Chinese imports (Daily Nation)
Kenya is on course to a bigger import bill for Chinese consumer goods such as fish, phones, tyres and cement amid growing concerns that the mountain of products being brought in could stifle performance of the local industries. The Asian giant is the only country whose annual exports to Kenya have crossed the Sh300bn mark, cementing its position as the largest supplier of East Africa’s largest economy. Imports from China hit Sh320bn last year, up from Sh248bn in 2014 – representing a 29% growth, according to the Kenya National Bureau of Statistics data. The import growth trend is expected to continue this year based on the latest half year data even as the world’s most populous country’s economy falters back home, forcing it to turn to foreign markets such as Kenya.
MDG Transition Report: reliable statistics and integrated policy approach key to successful SDG and Agenda 2063 implementation (UNDP)
This latest publication which is the last in a series of MDG reports, takes stock of Africa’s performance during the 15 year development campaign and reflects on the challenges and opportunities associated with the dual transition to the new global and continental development agendas adopted in 2015: the 2030 Agenda for Sustainable Development and the African Union’s Agenda 2063, Africa’s roadmap for development.
Related AU statistics policy processes: The African Charter on Statistics, Standards and Guidelines for the Implementation of the African Charter on Statistics, Model Statistics Law in the context of the African Charter on Statistics, Methodological guidelines.
Digital trade: changing the landscape in the information age (Tutwa)
As for economic development e-commerce looks to be a capitalist dream. A seemingly open and fair market place for a virtually unlimited number of consumers who, in turn, have a seemingly unlimited number of suppliers to choose from. Rather than solely relying on supplier generated marketing material you have access to user reviews and ratings. In addition, the larger market access means that niche markets can be sustainable without compromise to meet local or regional demands. But all this could come at a price. [The analyst: Heinrich Krogman]
Products and provinces: a disaggregated panel analysis of Canada’s manufacturing exports (IMF)
The waning of the commodity boom places renewed emphasis on manufacturing as an engine for Canadian growth. However, Canadian manufacturing exports have been relatively stagnant since 2000. While the exchange rate depreciation over the past two years has energized export growth, the response has not been as strong as would have been expected given the size of the depreciation. More fundamental issues appear to be impeding the growth of the Canadian manufacturing sector. This study analyzes the structural factors behind export competitiveness by using unique Canadian data on exports, which are disaggregated both by province and by product.
Zimbabwe: President rejects Special Economic Zones Bill
Angola’s risk increase, Fitch Ratings says
SADC Groundwater Management Institute (SADC-GMI) launched
Russia to lift import ban on Egyptian fruits, vegetables: Egypt trade ministry
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Trade in 2016 to grow at slowest pace since the financial crisis
World trade will grow more slowly than expected in 2016, expanding by just 1.7%, well below the April forecast of 2.8%, according to the latest WTO estimates. The forecast for 2017 has also been revised, with trade now expected to grow between 1.8% and 3.1%, down from 3.6% previously. With expected global GDP growth of 2.2% in 2016, this year would mark the slowest pace of trade and output growth since the financial crisis of 2009.
The downgrade follows a sharper than expected decline in merchandise trade volumes in the first quarter (-1.1% quarter-on-quarter, as measured by the average of seasonally-adjusted exports and imports) and a smaller than anticipated rebound in the second quarter (+0.3%).
The contraction was driven by slowing GDP and trade growth in developing economies such as China and Brazil but also in North America, which had the strongest import growth of any region in 2014-15 but has decelerated since then.
WTO Director-General Roberto Azevêdo said:
“The dramatic slowing of trade growth is serious and should serve as a wake-up call. It is particularly concerning in the context of growing anti-globalization sentiment. We need to make sure that this does not translate into misguided policies that could make the situation much worse, not only from the perspective of trade but also for job creation and economic growth and development which are so closely linked to an open trading system.
“While the benefits of trade are clear, it is also clear that they need to be shared more widely. We should seek to build a more inclusive trading system that goes further to support poorer countries to take part and benefit, as well as entrepreneurs, small companies, and marginalised groups in all economies. This is a moment to heed the lessons of history and re-commit to openness in trade, which can help to spur economic growth.”
The latest figures are a disappointing development and underline a recent weakening in the relationship between trade and GDP growth. Over the long term trade has typically grown at 1.5 times faster than GDP, though in the 1990s world merchandise trade volume grew about twice as fast as world real GDP at market exchange rates. In recent years however, the ratio has slipped towards 1:1, below both the peak of the 1990’s and the long-term average.
If the revised projection holds, 2016 will be the first time in 15 years that the ratio between trade growth and world GDP has fallen below 1:1. Historically strong trade growth has been a sign of strong economic growth, as trade has provided a way for developing and emerging economies to grow quickly, and strong import growth has been associated with faster growth in developed countries. However the increase of the number of systematically important trading countries and the shift in the ratio of trade and GDP growth makes it more difficult to forecast future trade growth. Therefore, the WTO is for the first time providing a range of scenarios for its 2017 trade forecast rather than giving specific figures. As Chart 1 below shows, the current trend in the relationship between trade growth and world GDP is lower than observed over the last three decades.
Since the WTO’s April 2016 forecast was issued, some important downside risks have materialized, most notably a period of financial turbulence that affected China and other developing market economies early in the year, but which has since eased. Recent movements in trade by level of development are illustrated by Chart 2, which shows seasonally-adjusted quarterly merchandise trade indices in volume terms (i.e. adjusted to account for fluctuations in prices and exchange rates.)
Import demand of developing economies fell 3.2% in Q1 before staging a partial recovery of 1.5% in Q2. Meanwhile, developed economies recorded positive import growth of 0.8% in Q1 and negative growth of -0.8% in Q2. Overall, world imports stagnated in the first half of 2016, falling 1.0% in Q1 and rising 0.2% in Q2. This translated into weak demand for exports of both developed and developing economies. For the year-to-date, world trade has been essentially flat, with the average of exports and imports in Q1 and Q2 declining 0.3% relative to last year.
These results are largely in line with the signals given by the WTO’s World Trade Outlook Indicator (WTOI), a new tool launched in July to provide “real time” information on trends in global trade. At that time the WTOI indicated that world merchandise trade might rebound in Q2 but would likely remain below trend.
The stagnation of world merchandise trade disguises strong shifts at the regional level, which are illustrated by Chart 3. The most striking feature of this chart is the steep decline in imports of resource-exporting regions over the last two years, driven by falling commodity prices and declining export revenues. South America and Other regions (comprising Africa, the Middle East and the Commonwealth of Independent States) arrested their declines in Q2 of 2016 while imports of North America and Europe both dipped in the latest quarter. Meanwhile, Asian imports declined by 3.4% in Q1 against a backdrop of concerns about slowing growth in China, before rebounding to 1.3% growth in Q2 as these concerns eased. The 3.3% decline in Asian exports in Q1 mirrored the drop in Asia on the import side, but this was mostly reversed by a 3.2% rise in exports in Q2.
There are some indications that trade may be picking up in the second half of 2016, although the pace of expansion is likely to remain subdued. Container port throughput has increased (Chart 4), export orders have risen in the United States, and nominal trade flows in US dollar terms have stabilized, but numerous risks remain.
The outlook for the remainder of this year and next year is affected by a number of uncertainties, including financial volatility stemming from changes in monetary policy in developed countries, the possibility that growing anti-trade rhetoric will increasingly be reflected in trade policy, and the potential effects of the Brexit vote in the United Kingdom, which has increased uncertainty about future trading arrangements in Europe, a region where trade growth has been relatively strong.
The UK referendum result did not produce an immediately observable downturn in economic activity as measured by industrial production or employment; the main impact was a 13% drop in the exchange rate of the pound against the US dollar and an 11% decline in its value against the euro. Effects over the longer term remain to be seen. Economic forecasts for the UK in 2017 range from fairly optimistic to quite pessimistic. Our forecast assumes an intermediate case, with a growth slowdown next year but not an outright recession.
Table 1 below summarizes the WTO’s revised trade forecast. According to these estimates, world merchandise trade volume will grow more slowly than world GDP at market exchange rates in 2016 (1.7% compared to 2.2%)
Exports of developed countries are expected to outpace those of developing economies this year, 2.1% compared to 1.2%. On the import side, developing countries are expected to register sluggish growth of 0.4% compared to 2.6% for developed countries.
The biggest downward revision to imports from our April forecast for 2016 applies to South America (-8.3% compared to -4.5% previously) as the recession in Brazil intensified. This was followed by North America, where import growth was revised down from 4.1% to 1.9% as GDP growth came in below earlier projections. Asian import growth was also scaled back to 1.6% from 3.2%, while our forecast for Europe was revised upward from 3.2% to 3.7%.
Export growth in 2016 was downgraded for most regions, with the strongest revisions applied to Asia (0.3% compared to 3.4% in April) and North America (0.7% compared to 3.1%). Meanwhile, South America’s export growth is expected to be stronger than previously forecast (4.4% compared 1.9%), benefitting from favourable exchange rate movements. Even with the downward revision to our estimates, risks to the forecast remain mostly on the downside.
A range of estimates have been provided for 2017 to reflect the increasingly uncertain relationship between trade and output growth. World trade growth could be as high as 3.1% next year if it regains some of its earlier dynamism. However, it could also be as low as 1.8% if the ratio of trade growth to GDP growth continues to weaken.
Estimates of export growth range from 1.7% to 2.9% for developed countries and from 1.9% to 3.4% for developing economies in 2017. On the import side, developed countries could see trade growth of between 1.7% and 2.9% while developing countries expand by between 1.8% and 3.1%.
A number of reasons have been advanced to explain the decline in the ratio of trade growth to GDP growth in recent years, including the changes in the import content of demand, absence of trade liberalization, creeping protectionism, a contraction of global value chains (GVCs), and possibly the increasing role of the digital economy and e-commerce, but all have likely played a role. Whatever the cause, the recent run of weak trade, and economic, growth suggests the need for a better understanding of changing global economic relationships. The WTO, and other international organizations, are working hard to understand this current evolution and its implications for continued growth.
It should be noted that the trade forecasts in Table 1 relate to changes in the quantity of goods traded rather than changes in their dollar value. In 2015, merchandise trade volumes continued to grow slowly despite the sharp 14% decline in the dollar value of world trade, which was largely due to the appreciation of the US dollar. As chart 5 below shows, the dollar has started to depreciate again in the first half of 2016, with an inverse effect on values of traded goods, particularly commodities such as oil. If this trend continues for the remainder of the year, world merchandise trade growth in dollar terms could exceed trade growth in volume terms in 2016. Trade developments in current dollar terms are shown for selected economies in Chart 6.
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4th ATAF General Assembly: Durban gears up for continental tax indaba
The fourth African Tax Administration Forum (ATAF) General Assembly is scheduled to be held in Durban, South Africa from 3-7 October 2016 as the continent’s heads of tax administrations meet to map out ways of optimally leveraging Africa’s untapped tax base. The conference will run under the theme: “Harnessing the African Cash Economy: Contributing Towards Expansion of the African Tax Base.”
At least 38 African states and development partners in the international community are expected to converge in Durban for fruitful deliberations aimed at understanding underlying aspects, reasons and consequences of the cash economy, and its implications for tax revenues, tax burden as well as revenue forgone due to non-compliance with tax laws.
The tax indaba will focus on providing practical solutions in dealing with a cash economy in order to broaden the tax base in Africa in a bid to maximise revenues within the current cash environment as well as encourage migration to the non-formal economy such as e-wallet and both mobile phone and internet banking.
A cash economy is basically economic activity where goods and services are substantially paid for in cash and where transactions are generally unrecorded making it extremely difficult for potential revenue to be harnessed into the tax net. ATAF hopes to curb base erosion by helping member states identify the dynamics of a cash economy in an endeavour toward maximising domestic resource mobilisation on the continent.
Speaking ahead of the conference, Logan Wort, the Executive Secretary of ATAF said, “It is widely believed that the African tax base is yet to be optimally explored. This is partly due to non-contribution of a fair share of taxes by cash economies in Africa. Although efforts are being made to close the tax gap through various initiatives aimed at the multi-national enterprises (MNEs) and cross border transactions, cash economies in Africa pose base erosion threats that have not been adequately addressed.
“The conference will therefore provide an ideal opportunity for the exchange of views in anticipation of special attention being given to the cash sector of the economy. Tax administrations will have an opportunity to share experiences which will collectively provide a sound basis for appropriate remedial action plan such as for instance, the implementation of digitalisation of transactions,” he said.
Reports estimate that on average the size of the informal economy in Africa (in percent of GDP) was 42% for the years 1999/2000. Zimbabwe (59.4%), Tanzania (58.3%) and Nigeria (57.9%) have by far the largest informal economy on the continent. At the lower end of the informal economy are Botswana with 33.4%, Cameroon with 32.8% and South Africa with 28.4% although the figures are rising. In sum, the size of the informal economy, which is more like a parallel economy in Africa, is quite large.
It is further reported that the informal sector, which uses unrecorded cash transactions, has prejudiced the African economy at least 38% of its GDP and therefore a key outcome of the conference, will be laying the foundation for development of action plans to be pursued by African tax administrations until the next General Assembly in 2018.
ATAF, the leading Pan-African tax organisation, holds its General Assembly, the highest decision-making congress, every two years. During the previous General Assembly convened in Tanzania in 2014, ATAF members discussed leadership and management strategies for African tax administrations in the new global tax environment and focused on a theme on “Leveraging on technology: The scope of automation and modernisation,” in one of its sessions.
In 2014, members realised that the modern finance and information technology systems which have changed the way transactions are recorded and reported by tax authorities presented new demands in the way tax administrations collected tax and audited taxpayers. Having generally successfully implemented automation innovations and interventions by 2016, ATAF members have now realised that a parallel economy has been created which only uses cash in order to evade the automated tax radar hence the call for harnessing the cash economy during the fourth General Assembly.
In Durban, ATAF members will also hear from the African Cross-Border Trade Technical Committee who led the African inputs on the OECD BEPS programme. According to the OECD 2015 explanatory statement on BEPS in Africa, “the findings of the work performed since 2013 confirm the potential magnitude of the issue (of BEPS), with estimates indicating that the global corporate income tax (CIT) revenue losses could be between 4% to 10% of global CIT revenues, i.e. USD 100 to 240 billion annually.” The international community will therefore stand to benefit from continuous cooperation with ATAF by supporting the organisations efforts at reducing tax losses through aggressive African cross-border tax practices.
The General Assembly will also culminate in the election of a new ATAF Council which is the organisation’s advisory and steering body. The current chair of the ATAF Council is Zimbabwe with Senegal serving as deputy chair while South Africa has a permanent seat in the 10-strong council comprising Nigeria; Mauritius; Cameroon; Uganda; Tanzania; Burundi and Togo. The tenure of Council members expires after two years.
ATAF is an international organisation for revenue authorities in Africa. The organisation was launched in Kampala, Uganda in November 2009 and provides a platform for African revenue authorities to articulate African tax priorities, develop and shape best practices and build capacity in tax policy and administration. Its membership comprises 38 tax administrations across the African continent.