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Namibian government plans rand-denominated loans and bonds
Namibia will seek to raise about US$5 billion in loans and bonds over the next decade to help diversify and industrialise its economy with any debt sales to take place in South Africa, President Hage Geingob told Bloomberg this week in an interview in New York.
The President said the government plans to issue rand-denominated bonds and get funding from countries including the US, China, India and Japan.
“We're looking at the South African bond market, and some concessional loans. Rand bonds would be much better than dollar-denominated Eurobonds,” he said.
Namibia pegs its currency to South Africa's rand on a one-to-one basis. While the rand has appreciated 12% against the dollar this year, since the start of 2015 it has been one of the worst-performing currencies among major emerging markets, weakening by 17%.
That's caused the Namibia dollar to drop in tandem, and made its debts in the US currency more expensive to pay off.
Namibia doesn't have any plans to sell another dollar Eurobond, said Geingob. Namibia has issued three rand bonds since 2012.
The President said the government would also seek German investment, including in wind farms, as a form of reparation for the Nama/Herero massacre in the early 20th century, when Namibia was a colony known as German South-West Africa.
Commenting on Geingob's comments, economist Rowland Brown said the objective of industrialising the country is good, but the approach pursued will be the determinant of whether such an activity will be successful in achieving the objective.
“Should these funds be used to address infrastructure constraints and provide for strategic public and social services as well as reduce bureaucracy and facilitate smooth-functioning private and public enterprise, I believe this can be viewed as broadly positive,” said Brown.
He said should these funds be used to try and develop a publicly owned manufacturing industry, supported by government contracts, subsidies and handouts, it would obviously be negative, and likely to be little different from the current commercial state-owned companies such as Namibia Wildlife Resorts.
“The question, however, is who is expected to buy the debt of government, and at what price? The value mentioned by the President is more or less in line with the value of debt issued by government over the past 20-odd years, which has mainly been used from operational expenditure and the construction of office buildings,” he said.
As a result of the use of the previous debt issuance, conventional borrowers are unlikely to be as willing to provide this funding to the government, going forward, and those who are willing to do so will do so at an ever higher price.
“This means that the approach taken to address the industrialisation challenge has to be more effective than those previously pursued, or it will not be possible to get a return on the invested debt that is commensurate with the returns that it generates,” explained Brown.
Given the massive growth in the debt stock over the past 18 months, investors are likely to be wary of lending further funds to the sovereign, unless the country gets its fiscal affairs in order.
“This means bringing operational expenditure under control, as well as containing the vast budget deficits that we have seen over the past few years. In short, investors will not be willing to lend Namibia additional money if Namibia is not spending her own money wisely,” he stated.
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tralac’s Daily News Selection
The selection: Thursday, 22 September 2016
From yesterday’s US-Africa Business Forum: remarks by President Obama
So we are making progress, but we’re just scratching the surface. We have so much more work that can be done and will be done. The fact is that, despite significant growth in much of the continent, Africa’s entire GDP is still only about the GDP of France. Only a fraction of American exports - about 2% - go to Africa. So there’s still so much untapped potential. And I may only be in this office for a few more months, but let me suggest a few areas where we need to focus in the years ahead.
Trade Africa Annual Report 2016 (USAID): Programme Impacts: The U.S. Government implements most of its Trade Africa programs through its three Trade and Investment Hubs, bilateral programs in the expansion countries, and interagency agreements. From July 2014 through 2016, the Trade and Investment Hubs facilitated more than $283m in African exports and $140m in investment. In East Africa, the initial focus of the initiative, the results over the past three years have exceeded most of Trade Africa’s targets: (i) EAC exports to the United States increased by about 36% between 2013 and 2015, and in the past five years, by 95%; (ii) The average time to trade goods across borders along the Northern Corridor, from Mombasa, Kenya, to Kampala, Uganda, decreased from 18 days in 2013 to four days in 2014 – a 77% reduction. From Mombasa to Kigali, Rwanda, it declined by 71%, from 21 days in 2013 to six days in 2014. And, on the Dar es Salaam, Tanzania, to Kigali route, it decreased by 80%, from 25 days in 2013 down to five in 2014; (iii) Since 2013, the East Africa Trade and Investment Hub helped generate about 29,000 new jobs through $27m in new investments in targeted sectors and over $163m in exports under AGOA.
Power Africa Annual Report: Third Year in Review (USAID): Despite significant progress to-date, challenges to expanding access to energy persist in sub-Saharan Africa. Power Africa partners have faced a host of external obstacles this year, including a deterioration of macroeconomic and political conditions. Falling commodity prices hurt African trade in 2016 and lower economic growth is expected as a result in the short-term. Lower global gas prices have posed financial challenges for countries seeking to take advantage of their own vast gas resources. Unpredictable and depreciated currencies, along with credit agency “downgrades” for investment in certain countries, left many investors sitting on the sidelines, waiting for the currency issues to stabilize before moving forward on particular deals.
Fact Sheets prepared for the US-Africa Business Forum: US-Africa Cooperation on Trade and Investment under the Obama Administration, US-East African Heads of State and CEO Roundtable
The 15th AGOA Forum starts today. The theme: ‘Maximising US-Africa trade and investment - AGOA and beyond’
Beyond AGOA: looking to the future of US-Africa trade and investment (pdf, USTR): AGOA has supplied the policy architecture for nearly two decades. But, while AGOA has had important successes, our experience suggests that it is unlikely to be sufficient for achieving transformative changes in trade and investment. To deepen and expand the US-African trade and investment relationship over the long term, we will need more effective mechanisms to address both tariff and non-tariff constraints to trade, at the border and beyond. Further, as US and African policymakers assess a future trade policy architecture, they may wish to consider certain guiding principles and some of the key lessons from US and African experiences building trade relationships in recent years. Specifically, a new US-Africa trade and investment policy architecture should: (i) support African regional economic integration (ii) move toward greater reciprocity (iii) support African value-added production and promote diversification of exports (iv) include African reforms across a broad range of policy areas (v) promote African integration into the global trading system (vi) account for different levels of readiness and capacity across the region.
Somduth Soborun: The way forward for Mauritius (Mauritius Times)
While we should continue to move up scale and towards high end in the production of textile products, apparel and garments, we should take immediate steps to diversify our exports base to gain better and more diversified access to the American market under the Act. The way forward (15 recommendations): (i) develop, put in place and execute a national AGOA exports strategy urgently; (ii) set up an AGOA Implementation and Monitoring Mechanism. The institutional structures must be centered round the main priorities of the of the AGOA country strategy. We need to set up small coordination committees to oversee and implement strategic actions and priority sectors; (iii) Set up an AGOA Promotion Authority for advisory, oversight and funding of operations of the above said items (1-11)
Trade and Development Report 2016: structural transformation for inclusive and sustained growth (UNCTAD)
Because countries will still need to benefit from the opportunities of international trade, albeit with lower expectations than in the past, new points of entry into existing markets must be found. Competition policy needs much more attention, given the market dominance of MNEs. Even without explicit cartel behaviour or the abuse of dominant market position through restrictive business practices, there may be other effects of a less competitive environment. These may be expressed indirectly through higher prices for banking services, transport or electricity. The combination of increasing concentration at the top end of GVCs and increasing competition at the bottom end may require a new global institution, such as a global competition observatory, to monitor trends along different segments of these chains and across sectors, and to ensure that firms outside GVCs are not unfairly impacted.
Although multilateral and regional trade and investment agreements have constrained many of the policy options that once helped today’s industrialized countries, some important space and flexibilities remain. It is important for governments to consider how they can work with local businesses to take advantage of the remaining policy space in a strategic manner. Moreover, governments can encourage MNEs to become actively engaged players in industry associations, joining local firms as much as possible to participate in formal discussions about industry needs and constraints, and help stimulate linkages and learning by monitoring processes that are an important part of the support-performance pledges described above.
Africa Partnership Conference 2016: Mauritius is well positioned to underpin development in Africa, says Finance Minister (GoM)
With over 25 years of experience in the global business sector, Mauritius is well positioned to make significant contribution in attracting, mobilising and channeling the necessary financial resources to underpin development endeavours of Africa. The Minister of Finance and Economic Development, Mr Pravind Jugnauth, made this statement yesterday at the opening of a two-day Africa Partnership Conference organised by the Board of Investment, in collaboration with the World Association of Investment Promotion Agencies, on the theme ‘Creating shared value through sustainable investment’. The Finance Minister recalled several initiatives taken by Mauritius, including the setting up of the new Africa strategy. The two-day conference brought together eminent speakers from around the globe, representatives from 19 African Investment Promotion Agencies, and some 150 potential investors from 25 countries across the world including both local and foreign participants from the private sector, policy makers and Government officials. [Conference programme, pdf]
Towards a more coordinated approach to the management of West African corridors (AfDB)
The meeting, 27-28 September, will be structured around two key initiatives that aim at promoting dialogue between different stakeholders involved in the projects. The first day will be dedicated to the Abidjan-Lagos Corridor development led by the AfDB, the ECOWAS Commission and the NPCA. Discussions on the second day will focus on the three corridors covered by the Accelerating Trade in West Afric project: namely Abidjan-Ouagadougou, Tema-Ouagadougou and Lomé-Ouagadougou. “This critical meeting is in line with the Bank’s commitment to promote efficient transport corridors in West Africa and support Africa’s regional integration agenda for inclusive economic growth. At the end of the meeting, we hope to be better equipped to improve the conditions of shippers, transporters and traders in West Africa when they engage in cross-border trade,” said Moono Mupotola, Director of the AfDB’s NEPAD Regional Integration and Trade Department.
Namibia: IMF completes 2016 Article IV Mission
After years of strong performance, growth is expected to temporarily slowdown in 2016. The IMF projects 2016 growth at 2.5 percent, compared to 5.3 in 2015, as the government starts consolidating and construction activity slows down. The performance is expected to accelerate to above 5 percent in 2017 and 2018 as production from new mines rumps up. Risks to this outlook are tilted to the downside and include volatile Southern African Customs Union revenue, further commodity price declines, and possible sovereign debt credit downgrades.
Mauritius: India pledges to support socio economic development (GoM)
The Minister of Finance and Economic Development, Mr Pravind Jugnauth, pointed out that various issues of strategic importance were discussed during his 13-18 mission to India, namely: the Comprehensive Economic and Partnership Agreement, implementation of the Metro Express, development of Ocean Economy, port development, visa on arrival, Overseas Citizen of India, liberalised remittance system, the Double Tax Avoidance Treaty as well as Mauritius’ Sovereignty over Chagos Archipelago. Minister Jugnauth stated that a grant of Rs12,7 million has been allocated by India for development projects in Mauritius particularly for infrastructure projects among others. He further pointed out that in addition to this financial envelope, Mauritius has solicited the assistance of India to extend an additional financial aid amounting to some Rs 7 billion hence bringing the total allocation to Rs 20 billion for the implementation of other major projects.
CoP-COMESA Knowledge Sharing Forum: trade facilitation, business climate and macro-economic convergence (AfriK4R)
From 22-23 September, in Lilongwe, AfCoP-COMESA-AfriK4R is organizing a forum to take stock of Managing for Development Results (MfDR) implementation in policies and strategies and discuss about successes, challenges and the way forward. The focus will be on MfDR implementation in three key policy areas: trade facilitation, business climate and macro-economic convergence. The forum will include the following sessions: (i) COMESA goals and objectives with regard to the three key policies (ii) status of MfDR in the COMESA region (iii) panels and roundtables to discuss case studies on trade policies, business climate, public finance management (iv) drafting Action plans or Roadmaps in the three key policy areas.
Botswana: National Aid for Trade strategy launches (Daily News)
Giving the overview of the strategy, the consultant, Dr Claudious Preville said it has three priority areas: diversify export-led economic growth and employment creation, strengthening human development outcomes and eradicate poverty and reduce inequality. He said the strategy has a number of objectives such as to improve trade performance and terms of trade, increase employment opportunities for women, youth and people with disabilities and modernize trade related infrastructure. Other objectives are to diversify the export sectors and strengthen the legal and regulatory frameworks to support trade.
Botswana: Call to revamp anti-competitive poultry industry (Mmegi)
The study, carried out under the Private Sector Development Programme, says although the poultry industry in Botswana is self-sufficient in local production, it is anti-competitive. It says the introduction of an import substitution policy in the poultry sector has led to the demise in its competitiveness. “The Control of Goods Act of 1979 was introduced to restrict the importation of eggs and poultry meat and thus promote local production,” the study says. Of the total 46,080 tonnes produced locally, the study reveals that 10% is by small-scale producers whose production patterns are erratic and inconsistent.
High-Level Commission on Health Employment and Economic Growth: new investments in global health workforce will create jobs, drive economic growth (WHO)
The Presidents of France and South Africa have called for urgent investments globally to create new jobs in the health sector in order to prevent a projected shortfall of 18 million health workers primarily in low- and lower-middle-income countries, and help countries to maximize the social and economic benefits of increased health employment. The High-Level Commission on Health Employment and Economic Growth, chaired by H.E. François Hollande and H.E. Jacob Zuma, delivered its final report and recommendations to United Nations Secretary General Ban Ki-moon on the sidelines of the UN General Assembly in New York.
President John Dramani says Africa needs ‘fair chance’ to trade, not sympathy or aid
President Macky Sall urges massive investment and fair development for Africa
West African leaders cite terrorism as singular challenge to global peace and development
President Hage Geingob vows to ‘spare no effort’ to lift nation’s people out of poverty
Kenya to spend Sh3 bn on mineral survey
Somalia faults Kenya’s argument on ocean row
State invites bids for six-lane super-highway expansion of Nairobi-Mombasa highway
World Bank, ILO announce the Global Partnership for Universal Social Protection
India: Current account deficit at 0.1% of GDP in April-June quarter
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Beyond AGOA: looking to the future of U.S.-Africa trade and investment
There have been significant changes in Africa and the global trade policy landscape in the nearly two decades since the African Growth and Opportunity Act (AGOA) – the cornerstone of our trade relationship with sub-Saharan Africa – came into effect.
Today, Africa, as a whole, is more prosperous, more developed, and better-connected to the global economy, and its growth prospects have improved. Moreover, African countries are generally moving towards greater market opening and regional economic integration, and more recently, integration with outside partners, including the European Union (EU). The trade landscape in the United States has been changing as well since 2000, with many more reciprocal free trade agreements in place with partners around the world, including with developing countries, and various multilateral and plurilateral trade initiatives underway. Given these changes, it is important to assess the trade policy framework that we have in place with sub-Saharan Africa and to determine whether new policies are needed for this new era.
“The question now is not whether AGOA is an important tool – it has been and, for many countries, will continue to be vital for the near future. The question is whether we also need to develop new trade policies for the new Africa, given the broad spectrum of countries that now make it up and the changing global trading system of which it is part.” – U.S. Trade Representative Michael Froman, Beyond AGOA Hearing, January 28, 2016
The case for deepening U.S.-Africa trade and investment ties
The case for developing new policies to strengthen the trade and investment relationship between the United States and Africa has never been stronger. Africa can gain significantly from partnering with the United States. Moreover, there are significant risks to Africa of not pursuing a diversified export strategy, which are already playing out in the slowdown Africa has experienced over the last year attributable to such factors as weak demand in China. At the same time, the United States also has much to gain from a rising Africa. Africa’s consumer market holds great potential for U.S. exporters across a wide range of industries, and investment in many African countries is now much more attractive. This potential could continue to grow as demographic trends, such as a dramatic increase in Africa’s labor force, manifest over the next 15 years.
Global trends underscore the need to rethink U.S. trade policies towards sub-Saharan Africa
A number of trends are particularly relevant as we think about our trade policy toward Africa. First, as sub-Saharan African countries establish closer trade ties with other countries both within and outside the continent, American businesses will be increasingly interested in strengthening their own ties to sub-Saharan African countries. Second, there is likely to be growing interest in the United States in reviewing unilateral trade preference approaches, particularly as an increasing number of beneficiaries of such programs enter into reciprocal trading relationships with others, including with the EU and China. This is also particularly likely as other important preference provider countries, such as the EU and Canada, move away from preferences with all but the poorest countries and towards free trade arrangements. Finally, while there has been a general global, African, and American trend towards more stable, reciprocal trading arrangements, there is also great variation in the kinds of arrangements countries have chosen, particularly as to scope, quality, and degree of implementation and enforcement. As the United States assesses policy prospects, it will be important to determine which approaches would be most effective in deepening trade and investment ties.
Learning from history – Lessons from Vietnam, South Africa, Peru, and Liberia
This report considers a number of case studies to shed light on the question of which policies and approaches will be most effective at encouraging deeper integration.
Vietnam
Vietnam has had significant success in transforming an agricultural economy damaged by post-war command socialism into one of the world’s major agricultural and light manufacturing export centers. The United States has been a key partner in this transformation. The Vietnam experience suggests three basic points for policymakers to consider: (1) ambitious trade liberalization programs are attainable for lower-income countries, (2) strong economic and strategic incentives foster political will for trade agreements, and (3) an incremental approach may offer a way forward.
South Africa
The EU-South Africa and later EU-Southern African Development Community (SADC) negotiations highlight the complexities of negotiating reciprocal trading arrangements with sub-Saharan African countries with varying interests and levels of economic development. This case study suggests a number of conclusions: (1) regional agreements and commitments in Africa can be a significant complicating factor in considering new trade arrangements with sub-Saharan African partners, (2) regional leaders can play an important role, (3) taking on all of Africa at once with one single approach is unlikely to be effective, and (4) there have to be strong economic motivations on both sides in order for an initiative to work.
Peru
Peru’s experience with economic liberalization, its motivations for pursuing reforms, and the factors that allowed it to be successful offer a number of lessons. Peru’s path demonstrates that preference programs – while important – have their limits, incremental approaches towards deeper trade arrangements can be very effective, and focused leadership commitment to reform across changes in administration can be critical to economic integration into the global economy.
Liberia
In connection with its WTO accession, Liberia has committed to an extensive and, in some ways, demanding set of trade policies that reflect a significant level of ambition for an extremely low-income country recovering from conflict. Liberia’s commitments pro vide a sense of the minimum standards that might be sought in future trade arrangements with sub-Saharan African countries, as well as insight as to the greater level of reciprocal engagement that could be expected of the continent’s larger and more advanced economies.
Policy building blocks
The framework we put in place to deepen U.S.-African ties is unlikely to be effective if it does not include strategies to improve the conditions for trade. Accordingly, in developing such a framework, U.S. and sub-Saharan African policymakers should consider incorporating commitments in a number of policy areas such as trade facilitation, intellectual property, labor, sanitary and phytosanitary measures, market access, services, investment, environment, technical barriers to trade, and transparency and anti-corruption. These are “building blocks” that, together, can help to expand trade and attract investment. The policy blocks can be part of different trade instruments – from free trade agreements, to cooperative arrangements like Trade Africa, to preference programs, to possible hybrids and alternative approaches in between – and commitments within each building block can be scaled up as countries develop and increase their capacities. This report explores scalable standards within each potential building block area that could serve as the basis for reform.
Potential structural and strategic options for moving beyond AGOA
Finally, policymakers will need to consider policy instruments that are most appropriate for U.S.-Africa trade and investment. AGOA has supplied the policy architecture for nearly two decades. But, while AGOA has had important successes, our experience suggests that it is unlikely to be sufficient for achieving transformative changes in trade and investment. To deepen and expand the U.S.-African trade and investment relationship over the long term, we will need more effective mechanisms to address both tariff and non-tariff constraints to trade, at the border and beyond.
The United States, the European Union, sub-Saharan trading partners, and others have used a number of different policy instruments to seek to deepen trade and investment ties, from: (1) comprehensive U.S.-style trade agreements, which may be an option for sub-Saharan African partner countries that are willing and able to undertake the generally higher standards of such an approach; to (2) limited, asymmetrical EU-type agreements, which have no precedent in the United States and may offer limited benefits on both sides; to (3) collaborative arrangements like Trade Africa that may be useful “stepping stones” for countries with limited capacity to undertake comprehensive trade agreements in the near term; to (4) preference programs with policy-based eligibility criteria. U.S. and African policymakers should consider the advantages and disadvantages of the full spectrum of approaches in determining a way forward.
Further, as U.S. and African policymakers assess a future trade policy architecture, they may wish to consider certain guiding principles and some of the key lessons from U.S. and African experiences building trade relationships in recent years. Specifically, a new U.S.-Africa trade and investment policy architecture should:
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Support African regional economic integration. The goal of creating viable regional markets in sub-Saharan Africa is both an African and a U.S. priority. While initiating expanded trade discussions with one regional leader may be the best first step, as the EU did with South Africa, the goal should be to expand to a more regional footing over time.
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Move toward greater reciprocity. As more reciprocal arrangements go into effect within sub-Saharan Africa and between African countries and other developed country partners, the pressure to consider more stable, permanent, and mutually beneficial alternatives to AGOA will grow in the United States as well.
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Support African value-added production and promote diversification of exports. Africa’s economic future depends, in important part, on its ability to add value on the continent to its vast natural resources and agricultural commodities, as well as on its ability to diversify its exports.
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Include African reforms across a broad range of policy areas. As the Vietnam and Liberia case studies confirm, developing countries – even the least developed among them – are capable of taking on significant policy reform obligations and drawing powerful benefit from them in growth, economic diversification, and the alleviation of poverty.
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Promote African integration into the global trading system. There is a strong correlation between developing countries that have reformed, liberalized, and integrated their economies into the global trading system and those that have experienced the most significant improvements in development outcomes. This includes developing country U.S. FTA partners.
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Account for different levels of readiness and capacity across the region. Sub-Saharan Africa is comprised of a diverse group of countries at differing levels of development, wealth, and readiness for expanded trade engagement. The next generation trade framework with sub-Saharan Africa will need to recognize this and avoid a “lowest common denominator” approach, while also helping to bring standards up in all countries over time.
This report has sought to make the case for reinvigorating the U.S.-Africa trade and investment relationship and for reimagining the policy architecture to propel this relationship into the future. This is the start of an important conversation, which policymakers on both continents need to engage in with the same spirit of shared commitment, pragmatism, and urgency that spurred on the creation of AGOA nearly two decades ago.
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Global economy needs policy overhaul to move beyond sixth straight year of sluggish growth: UNCTAD report
Structural transformation for inclusive and sustained growth
Getting the world economy back on track requires that global leaders use bolder macroeconomic policies, strengthened regulation of finance and active industrial policies, the United Nations Conference on Trade and Development (UNCTAD) said on 21 September 2016.
In its annual Trade and Development Report, the United Nations body argues that economic slowdown in the advanced economies is the biggest drag on global growth, but developing countries are now caught in the downdraft.
“Policymakers all around the world face a difficult combination of sluggish investment, productivity slowdowns, stagnant trade, rising inequality and mounting levels of debt,” said UNCTAD Secretary-General Mukhisa Kituyi, adding that “solutions require an ambitious rethink, not a tepid business-as-usual reaction”.
A year of living dangerously
In many developed countries, a stringent fiscal stance and at times outright austerity have led to one of the weakest recoveries from an economic crisis on record. This has come on top of a prolonged period of slow wage growth, leading to insufficient household demand and weak spending on productive investment.
Growth in the United States of America is expected to slow to 1.6 percent this year, close to the Eurozone growth rate, while in Japan, growth continues to stagnate. In the United Kingdom of Great Britain and Northern Ireland, revived growth will be cut short by the decision by the United Kingdom of Great Britain and Northern Ireland to leave the European Union, or “Brexit”, though it is still difficult to predict just how big the impact will be, and what – if any – will be the wider contagion effects.
The loss of economic momentum in the advanced economies is having knock-on effects on developing countries, which will grow on average less than 4 per cent this year, some 2.5 percentage points below the pre-crisis figure. Considerable regional variations mean that while Latin America is in recession, Asia continues with slower but steadier growth.
Slower growth in developing economies compounds concerns for the global economy. In 2016, global growth will likely drop below the 2.5 per cent figure registered in 2014 and 2015, and UNCTAD economists would not be surprised if it dropped further.
Global trade has slowed even more dramatically following a brief bounce from the depths of the global financial crisis, dropping to just 1.5 per cent this year, a full percentage point lower than world output; the Geneva-based body argues that the lack of global demand and stagnant real wages are the main problems behind the slowdown in international trade. But if policymakers fail to mitigate the negative impacts of unchecked global market forces, then a turn to protectionism could trigger a vicious downward cycle affecting everyone.
Regulate finance: Money for nothing, but investment still stuck in low gear
“Enthusiasts for efficient markets once promised that financial deregulation would boost productive investment, but this promise has not been met,” said Richard Kozul-Wright, Head of the UNCTAD Division on Globalization and Development Strategies and lead author of the report.
“Instead, rising profits coincide with increased dividends, stock buybacks, and mergers and acquisitions, but not with new plant and equipment or even research and skill acquisition,” he said.
Corporations are not reinvesting their profits into production capacity, jobs, or self-sustaining growth. Indeed, even as profit shares have risen, private sector investment is over 3 percentage points lower than what it was 35 years ago, the report finds. It argues that a reliance on monetary policy and cheap credit to stimulate recovery has reinforced this pattern.
The UNCTAD report warns that developing countries have become increasingly vulnerable to volatile global financial markets, including speculative and sizeable capital flows, and that financial deregulation in emerging economies is beginning to see corporations reduce their profit-to-investment ratios, with negative consequences for long-term economic growth. In countries such as Brazil, Malaysia and Turkey, investment-to-profit ratios have fallen sharply since the mid-1990s, the report finds.
Net capital flows to developing countries turned negative in the second quarter of 2014, with over $650 billion leaving in 2015 and a further $185 billion in the first quarter of 2016.
The UNCTAD report warns that despite a respite in the second quarter of 2016, deflationary spirals remain a risk: capital flight, currency devaluations and collapsing asset prices could stymie growth and shrink government revenues. Several commodity exporters are already facing debt distress, and without more orderly workout procedures in place, worse could follow.
Alarm bells have been ringing, in particular, over the explosion of corporate debt levels in emerging economies, which now exceed $25 trillion.
The explosion of corporate debt has also coincided with the accumulation of financial assets and the skewing of investment towards highly cyclical and rent-based sectors of limited strategic importance for catching up, such as the oil and gas sector, mining, electricity, real estate and non-industrial services.
The report calls for the closure of corporate tax loopholes, plus fiscal and regulatory measures to encourage long-term investment. It argues for more diversified financial systems, including a bigger role for development banks.
Bolder macro policy: Boosting domestic demand is key to global growth
Advanced economies can help kick-start sustainable global growth by combining proactive fiscal policy, including on infrastructure spending, with supportive monetary policy and redistributive measures too, the UNCTAD report says. Redistributive policies include income policies, minimum wage legislation, progressive taxation and welfare-enhancing social programmes tailored to local circumstances. Such policies can also lead efforts to regulate against global and corporate financialization.
Developing countries should build domestic demand, use regulation to protect themselves from the risks of financialization in their domestic contexts and protect their policy and fiscal space to manage any unforeseen shocks, the report finds.
Many of these measures will require better policy coordination at the international level, particularly among systemically important economies in the Group of 20.
Manufacturing productivity growth in the South
According to the report, catching up is not getting any easier for developing countries. Some regions, notably East Asia, have successfully boosted productivity and incomes by developing strong manufacturing export sectors. But raising the share of manufacturing in gross domestic product above 30 per cent has not been replicated elsewhere, not even in their neighbours in the South-East, the report finds.
Elsewhere industrialization has stalled, with middle-income countries finding it increasingly difficult to move to the next level. In several cases, “premature deindustrialization” has taken place, often triggered by drastic policy changes that place undue faith in markets. In such cases, long periods of productivity stagnation or decline have coincided with declining shares of manufacturing value added and employment, and sharp falls in investment growth, particularly in the public sector.
In 2014, Asia alone accounted for 90 per cent of manufacturing exports from developing countries to the world and for 94 per cent of South-South trade in manufactures. Countries from East and South-East Asia in particular have been able to generate significant value added from their export of manufactures.
However, this model is looking less assured. Weak aggregate demand around the world has made export markets more crowded and competitive. Downward pressure on prices and wages has hit even the most successful Asian exporters. Job creation has stalled, notably among women.
Upgraded technology or economies of scale in selective industries can offer solutions. But the spread of global value chains, where a sector’s leading firms carry significant bargaining and pricing power, makes it challenging for developing country firms to enter markets in economically consequential ways, while any productivity increases drain abroad through lower prices.
Developing countries will need strategic policies to enhance their production, design and marketing capabilities in order to enter developed-country markets. Development-oriented competition policies and rules can also help nurture domestic producers. But global support to track sectoral trends in different segments of value chains and monitor restrictive business practices would also be helpful.
In addition, regional markets and South-South trade offer new export opportunities; however, a more balanced growth strategy would require attention to strengthening local markets.
UNCTAD contends that conventional policy advice on structural reforms, which often combine an overvalued currency and wage repression, will not contribute to deliver sustainable outcomes.
Industrial policy revived
The more challenging global environment means that developing countries cannot count on a swift return to the rapid growth enjoyed in the first years of the new millennium. Solutions will require ambitious but pragmatic responses, including a shift of resources towards more diversified and higher value added activities.
Industrial policy has always involved the selection and support of key sectors, but this year’s Trade and Development Report argues for a more sophisticated approach, including the construction of linkages and capabilities to build a production base fit for purpose in a rapidly changing world where sufficient space is available for experimenting and learning, both in the public and private sectors.
This is not only a matter for developing countries, with developed countries struggling to address post-industrial worries over secular stagnation and a hollowing out of the middle classes.
The report calls for policymakers to be more pragmatic, learning from both successes and failures.
Capable and stable government institutions, along with adequate public resources, matter. But dialogue between government and business is also essential for the exchange of information and building trust. Importantly, the state should also be willing and able to withdraw or withhold financial support in case of underperformance by business.
The report calls for a less ideological discussion of targeting support while also recognizing that standalone industrial policies are unlikely to deliver. Instead, the key to success lies in the effective integration of macroeconomic, financial, trade and industrial policies.
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U.S.-Africa cooperation on trade and investment under the Obama Administration
Africa’s immense economic potential, increasing integration into global markets, expanding infrastructure, and demographic boom provide a remarkable opportunity to enhance U.S. trade and investment ties across the continent.
African countries are tackling economic challenges by diversifying their economies, streamlining regional and global economic cooperation, and innovating to overcome barriers to trade and investment. The United States is committed to being a partner in these efforts, including through initiatives such as the Doing Business in Africa Campaign, Power Africa, and Trade Africa. Taking into account these and other efforts, at the 2014 U.S.-Africa Business Forum (USABF) co-hosted by the U.S. Department of Commerce (Commerce) and Bloomberg Philanthropies, $33 billion in commitments, including $14 billion in private sector deals and commitments, were made to support economic growth across Africa. Over the last two years, Commerce has tracked nearly $15 billion in additional private sector deals reached between U.S. and African partners, and from 2008 to 2015 U.S. direct investment in Africa rose from $37 billion to $64 billion on a historic-cost basis – an increase of more than 70 percent. That’s more than double the total global official development assistance that went to Africa in 2015.
Today’s U.S.-Africa Business Forum builds upon the partnerships created in 2014 with new commitments to mobilize an additional $9.1 billion in trade and investment to support the development of Africa’s consumer goods, construction, energy, healthcare, manufacturing, telecommunications, and transportation sectors.
The U.S. Government has Expanded its Presence and Economic Engagement in Africa
Since 2008, Commerce has doubled its presence on the continent, opening new offices in Angola, Tanzania, Ethiopia, and Mozambique, expanding its presence in Ghana, and re-establishing a presence at the African Development Bank. The U.S. Trade and Development Agency (USTDA) has opened an office in Nigeria and restarted work in Kenya, and the Overseas Private Investment Corporation (OPIC) opened offices in Kenya, South Africa and Cote d’Ivoire. The U.S. Agency for International Development (USAID) has deployed more than 40 field-based transaction advisors in sub-Saharan Africa to track projects for potential Power Africa support and to provide technical support to improve the enabling environment for private sector investment in the energy sector.
In addition to expanding their physical presence, economic and development agencies have significantly expanded their portfolios on the continent:
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OPIC has tripled its portfolio in Africa since 2009, and investments in Africa now represent nearly a third of OPIC’s total portfolio. OPIC has committed more than $7 billion in financing and insurance to projects in Africa, and these commitments have mobilized more than $14 billion in additional investments into highly impactful sectors in Africa like clean energy, telecom, healthcare, education, and microfinance.
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USTDA has more than doubled the size of its Africa portfolio in the last eight years, supporting 135 projects across 14 countries. This early-stage investment, which has the potential to mobilize more than $17 billion in private and public financing, has already helped to realize $2.5 billion in U.S. exports.
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From 2009-2016, Export-Import Bank of the United States (EXIM Bank) authorizations doubled in Sub-Saharan Africa as compared to the previous eight-year period, and rose across all of Africa by 45 percent. In the past five years EXIM Bank has approved more than $6.3 billion in financing for U.S. exports to sub-Saharan Africa, including a record $2.1 billion in fiscal year 2014.
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Twenty of the Millennium Challenge Corporation’s (MCC’s) signed compacts are with African countries, totaling $7.9 billion and representing approximately 68 percent of MCC’s total compact portfolio. In addition, 11 of MCC’s threshold programs are with African countries, totaling more than $203 million.
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Since 2008, the U.S. African Development Foundation (USADF) commitment to Africa has grown with entry into 8 new countries. USADF has opened African-led program offices in each country, with African country teams that manage nearly $25 million active projects
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The Department of the Treasury has committed to double resources for the domestic resource mobilization work of the Office of Technical Assistance (OTA) by 2020, which will expand support for building effective revenue and expenditure systems. OTA has increasingly focused on Africa, with projects in sub-Saharan Africa making up approximately one third of its portfolio.
The Administration has Expanded Access to U.S. Government Tools that Support Our Trade and Investment with Africa
The U.S. Government, across a dozen Departments and Agencies, offers a suite of financial and technical tools and programs to support U.S. businesses looking to trade with and invest in Africa, including financing for overseas investments; export credit and political risk insurance; partial loan and risk guarantees; support for project preparation, feasibility studies and training; and export counseling and market analysis. Diplomatic engagement by the State Department also supports American firms and promotes host government reforms that improve investment environments.
In 2012, the Administration launched the Doing Business in Africa (DBIA) Campaign to help make the U.S. Government’s resources more easily available to the U.S. private sector and African public and private sector partners. At the 2014 Forum, the President announced the formation of an Advisory Council on DBIA to provide information, analysis, and recommendations on opportunities for the U.S. Government to promote broad-based economic growth in the United States and in Africa by encouraging U.S. companies to trade with and invest in Africa. Today, the President welcomed the new members of the Advisory Council on DBIA, which was expanded from 15 to 24 members to ensure a more robust representation across U.S. industries.
Since the DBIA Campaign was launched in 2012, Commerce has assisted more than 1,500 U.S. clients seeking to export to African countries. Since 2009, Commerce’s International Buyer Program has helped bring 522 delegations and 8,123 buyers from Africa to U.S. trade shows, and Commerce has taken 283 U.S. companies on trade missions to Africa. Commerce’s Minority Business Development Agency has sponsored the African Global Pathways initiative, which provides minority-owned firms access to expert consulting services that promote U.S.-Africa business linkages. USTDA has hosted African government and business leaders on more than 40 reverse trade missions to the United States since 2008 – helping to generate over $135 million in U.S. exports to Africa. OPIC has also led investor delegations to Liberia, Sierra Leone, Cote d’Ivoire, and Senegal to identify ripe opportunities and encourage investment, and MCC conducted its first ever investment mission to Tanzania and Malawi.
Earlier this week, the Department of Commerce and leaders from East Africa announced new steps they plan to take to support tourism, cold chain development, and infrastructure in that region. At the USABF, Commerce and the Nigerian Ministry of Industry, Trade and Investment are announcing the establishment of the U.S.-Nigeria Commercial and Investment Dialogue to sustain engagement between our governments and private sectors in order to promote deeper trade and investment ties between the United States and Nigeria.
The U.S. government is also working to make it easier for U.S. companies to invest and work in Africa. The Department of Transportation (DOT) continues to work with African governments to improve transportation infrastructure, modernize laws and regulations governing transportation, reduce technical barriers to trade through harmonization of standards, and improve regional connectivity. Under the Safe Skies for Africa program, DOT has completed more than 100 training courses and workshops to facilitate African aviation professional’s exposure and adherence to international aviation standards. And today, the Department of Agriculture (USDA) is making up to $100 million in credit guarantees available to establish or upgrade facilities or infrastructure in Africa and elsewhere, enhancing countries’ ability to import U.S. agricultural commodities.
In addition to in-person resources, departments and agencies are expanding access to online resources. Commerce launched a One-Stop-Shop website to offer American businesses and entrepreneurs real-time access to critical African market information, financing tools available to them, projects to consider, and key contacts. The Department of Energy (DOE) developed the online “Clean Energy Solutions Center,” which connects policymakers in Africa with experts and best practice resources to help governments design and adopt policies that support the deployment of clean energy technologies, including by harmonizing these policies with countries’ Intended Nationally Determined Contributions. DOE also brought together world class industry experts and emerging natural gas producers and consumers in sub-Saharan Africa to create a “Liquefied Natural Gas (LNG) Handbook,” which will help foster a shared understanding between government officials and private companies of the factors that lead to successful LNG projects. Commerce’s Commercial Law Development Program and the African Development Bank’s (AfDB’s) African Legal Support Facility released two handbooks under the auspices of Power Africa that are helping to strengthen the capacity of African governments to negotiate fair and transparent power deals. Today, MCC launched a new collaboration with the Organization for Economic Cooperation and Development (OECD) to catalyze investment in the developing world by sharing economic analysis and identifying potential partnerships and investment opportunities.
Through Power Africa, launched in 2013, the U.S. Government and a coalition of more than 130 public and private sector partners are working to double access to electricity in sub-Saharan Africa. At the 2014 USABF, the President pledged new funding to expand Power Africa’s reach to all of sub-Saharan Africa, and announced a new aggregate goal of adding 30,000 megawatts (MW) of new, cleaner electricity and increasing electricity access by at least 60 million new connections. Power Africa is providing support for projects expected to generate more than 29,000 MW, and this support has already helped transactions expected to generate more than 4,600 MW of generation reach financial close. Through the combined efforts of Power Africa’s strategic partners, including the World Bank Group, the AfDB, the European Union, and the Governments of Sweden, the United Kingdom, Norway, and Canada, Power Africa is on track to meet its goals by 2030. In August 2016, Power Africa announced a new partnership with the Government of Japan, through which Japan committed to bring 1,200 MW of electricity to sub-Saharan Africa by the end of 2018. To date, Power Africa’s initial $7 billion commitment has mobilized more than $52 billion in additional external commitments, including more than $40 billion in private sector commitments to invest in power generation and distribution across sub-Saharan Africa.
By demonstrating that renewable power transactions are financially viable, improving the performance of utilities, changing the regulatory mind-set on renewables, and harmonizing policies to drive investment and stability, Power Africa is also playing a critical role in advancing affordable, reliable, and modern energy services and substantially increasing the share of renewable energy in sub-Saharan Africa – which currently represents three quarters of the projects Power Africa is supporting. Through the U.S.-Africa Clean Energy Finance (ACEF) Initiative, OPIC and USTDA have provided critical early-stage project preparation support for 34 renewable energy projects in ten African countries. Already, 15 ACEF projects have secured project financing, which is leading to increased power generation capacity and expanded access to electricity. For example, since receiving ACEF funding from OPIC in 2013, Off-Grid Electric has expanded solar energy provision in Tanzania from 2,000 households to more than 100,000. A grant from the USTDA to Rwandan company Amahoro Energy Ltd. to develop two run-of river hydropower plants helped open up Rwanda’s hydropower sector to eight other projects, in addition to providing electricity to the Shyira Hospital and 22,500 households in rural Rwanda. Power Africa has also facilitated the signing of 14 Independent Power Purchase Agreements to develop 1,125 MW of new solar power in Nigeria, and through a partnership with Lekela Power, OPIC will support the development, construction and operation of a 158.7 MW wind farm in Senegal, which will boost Senegal’s generation capacity by nearly a quarter and provide a critical foundation for its power generation and sustainable energy growth plan. Through the Power Africa Off-Grid Energy Challenge, in partnership with GE Africa, USADF has awarded 50 grants totaling an investment of $5 million to African energy entrepreneurs who have leveraged their awards to bring electricity, from solar micro-grids to biogas, to rural communities living beyond the grid. Today, the USADF announced 21 new Off-Grid Energy Challenge grant winners and launched a new partnership with GE Africa focused on African women-owned and managed energy enterprises.
The Trade Africa initiative, launched in 2013, has helped countries boost trade within Africa and between Africa and the United States, while reducing barriers to trade across borders on the continent. Trade Africa has expanded to five additional countries, in addition to its original focus on the Partner States of the East African Community (EAC). Since 2014, USAID regional Trade and Investment Hubs in Ghana, Kenya, and South Africa have facilitated more than $283 million in African exports to the United States and $140 million in U.S. investment in Africa. The East Africa Hub has supported 29,000 new African jobs, and exports facilitated by the Hub has contributed to the 36 percent increase in EAC exports to the United States between 2013 and 2015. Trade Africa has helped reduce cross-border transit times from key East African ports to land-locked interior destinations by as much as 80 percent – exceeding the initiative’s 15 percent target – through its contribution to and leadership in the TradeMark East Africa initiative and the Hub’s efforts to establish partner government joint border committees, support the development of “single windows” for traders to file paperwork, and facilitate the adoption of electronic data exchange systems. Trade Africa has also facilitated successful policy dialogues on trade and investment issues, including an agreement to cooperate on World Trade Organization trade facilitation measures and enhancing food safety.
Today, USAID issued two reports on behalf of the Administration that highlight progress to date under the Trade Africa and Power Africa initiatives. The Power Africa Annual Report complements the January 2016 Power Africa Roadmap, which describes the initiative’s path to achieving its ambitious access goals by 2030. The Trade Africa Annual Report highlights the most significant impacts this initiative has had on trade between African countries and between Africa and the United States. In addition, USTR issued a report entitled “Beyond AGOA: Looking at the Future of U.S.-Africa Trade and Investment”, which considers paths to deepen the U.S.-Africa trade and investment relationship, keeping pace with dramatic change in Africa.
The United States is Supporting the Next Generation of African Leaders and Makers
The United States also recognizes the role that young people play in supporting economic growth, including through entrepreneurship. Africa’s large and growing youth population is central to achieving and maintaining Africa’s robust economic growth. That is why the United States has held two Global Entrepreneurship Summits (GES) in Africa – in Morocco in 2014 and in Kenya in 2015 – showcasing the innovation and economic opportunities of both North and Sub-Saharan Africa. Through the GES, the U.S. Government has mobilized more than $1 billion in capital for entrepreneurs across Africa and around the world. At the 2015 GES, USAID, the United Kingdom, and the Shell Foundation, under the auspices of Power Africa, launched the Scaling Off-Grid Energy: Grand Challenge for Development, a $36 million investment to empower entrepreneurs and investors to connect 20 million households in sub-Saharan Africa to modern, clean, and affordable electricity. As part of the Grand Challenge, USAID partnered with DOE and the Global Lighting and Energy Access Partnership to launch a refrigeration prize that will leverage $300,000 to catalyze technological advancements in off-grid refrigeration.
Since 2010, the Young African Leaders Initiative (YALI) has engaged nearly 300,000 young Africans through the YALI Network, an online and in-person community of entrepreneurs, activists, and public servants working together to solve shared challenges for their continent and the world. Since 2014, two thousand young people have participated in the Mandela Washington Fellows program, and thousands more have joined seminars and workshops at the four YALI Regional Leadership Centers in Accra, Dakar, Nairobi, and Pretoria. The USADF has committed $7.5 million over three years to fund YALI entrepreneurs who are launching and expanding their businesses and social ventures across Sub-Saharan Africa. In 2016 Mandela Washington Fellows were able to join the first sector-specific YALI training program at the YALI Energy Institute, a collaboration between USAID, the U.S. Department of State, the DOE’s Lawrence Berkeley National Laboratory, and the University of California at Davis.
The United States is Combatting Corruption at Home and Abroad
We have also committed to continue and expand efforts combat to corruption at home and abroad, as we recognize corruption’s pernicious effects on inclusive economic growth, prosperity and sustainable development, as well as the obstacle that it continues to represent as we seek to grow trade and investment. In 2014, President Obama announced the Partnership on Illicit Finance (PIF)at the U.S.-Africa Leaders Summit, an initiative co-led by the United States and Senegal that brings together African partners and the United States to jointly tackle the challenges of corruption and other financial crimes. This May, the United States launched its PIF National Action Plan, along with Senegal. The remaining six PIF partners are working to develop their plans, and we look forward to those plans being released soon. We are also working together to combat corruption and to increase transparency and accountability in the region through the Open Government Partnership (OGP). Participation from African countries in OGP is growing, and OGP can play an important role in addressing common governance challenges across the continent, including by engaging civil society and building trust in government. In addition, in May 2016, President Obama announced several important steps we are taking in the United States to strengthen financial transparency, combat money laundering, corruption and tax evasion, and called upon Congress to take additional action to address these critical issues.
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Trade Africa Annual Report 2016
Increased trade is one of the drivers of Africa’s extraordinary average annual growth rate of 5.1 percent over the past decade. Growth driven by trade and accompanied by complementary policies and good governance creates good jobs and reduces poverty, and a growing, increasingly integrated Africa with strong trade and economic ties with the United States benefits all partners and citizens.
In July 2013 President Obama launched Trade Africa – a new whole-of-government partnership between the United States and sub-Saharan Africa that seeks to expand trade between the United States and African countries – including by better utilizing the benefits of AGOA – as well as among African countries. The United States is committed to strengthening its trade and economic ties with African partners, and AGOA continues to be a cornerstone of this partnership.
“Africa’s progress will depend on unleashing economic growth – not just for the few at the top, but for the many, because an essential element of dignity is being able to live a decent life. That begins with a job. And that requires trade and investment.” – President Obama at African Union Headquarters, Addis Ababa, Ethiopia, July 28, 2015
In its initial phase, Trade Africa focused on the Partner States of the East African Community (EAC) featuring an ambitious set of goals:
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Double intraregional trade in the EAC.
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Increase EAC exports to the United States by 40 percent.
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Reduce by 15 percent the average time to import or export a container from the ports of Mombasa in Kenya or Dar es Salaam in Tanzania to the land-locked interior.
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Decrease by 30 percent the average time a truck takes to transit selected borders.
To achieve these goals, U.S. assistance supports trade capacity building, value-added production, value chain development, regional trade, trade with U.S. and global markets, and investment. It also advances the goals of the Feed the Future initiative to expand regional access to, and availability of, staple foods grown in Africa, thus promoting food security. The initiative is closely linked to U.S. trade policy toward sub-Saharan Africa to promote reciprocal agreements and trade relations that benefit all partners.
U.S. Trade Representative Michael Froman and trade ministers from the EAC marked a milestone for Trade Africa in 2015 by signing a Cooperation Agreement to increase trade-related capacity in the region and deepen the economic ties between the United States and the EAC. During the ceremony, Ambassador Froman announced:
“Today’s agreement builds on our progress. It’s an important milestone for deepening what has already proven itself to be a promising and impactful partnership. By tackling tasks in important areas, this agreement will help us lift the burdens that trade barriers impose, unlocking opportunity on both our continents.”
The Cooperation Agreement builds capacity in three key areas: trade facilitation, sanitary and phytosanitary measures, and technical barriers to trade. Implementing critical customs reforms, harmonizing standards, and undertaking multilateral commitments will support greater EAC regional economic integration and strengthen its trade relationship with the United States and other global partners.
In addition, following the signing, the initiative was expanded to West and Southern Africa, with bilateral programs in Côte d’Ivoire, Ghana, Mozambique, Senegal, and Zambia to implement WTO and regional protocols. Trade Africa is also supporting the Economic Community of West African States (ECOWAS) in the areas of trade facilitation and sanitary and phytosanitary standards. The entire initiative now exceeds $150 million investment by the U.S. Government.
Program Impacts
The U.S. Government implements most of its Trade Africa programs through its three Trade and Investment Hubs, bilateral programs in the expansion countries, and interagency agreements. The Office of the U.S. Trade Representative, U.S. Department of State, USDA, U.S. Department of Commerce, OPIC, EXIM, MCC, USAID, USTDA, USDOT, CBP, and Small Business Administration all implement policies and programs that foster the goals of the initiative.
From July 2014 through 2016, the Trade and Investment Hubs facilitated more than $283 million in African exports and $140 million in investment under Trade Africa. In East Africa, the initial focus of the initiative, the results over the past three years have exceeded most of Trade Africa’s targets:
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EAC exports to the United States increased by about 36 percent between 2013 and 2015, and in the past five years, by 95 percent.
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The average time to trade goods across borders along the Northern Corridor, from Mombasa, Kenya, to Kampala, Uganda, decreased from 18 days in 2013 to four days in 2014 – a 77 percent reduction. From Mombasa to Kigali, Rwanda, it declined by 71 percent, from 21 days in 2013 to six days in 2014. And, on the Dar es Salaam, Tanzania, to Kigali route, it decreased by 80 percent, from 25 days in 2013 down to five in 2014.
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Since 2013, the East Africa Trade and Investment Hub helped generate about 29,000 new jobs through $27 million in new investments in targeted sectors and over $163 million in exports under AGOA.
Looking forward
In its initial phase, Trade Africa made significant gains in facilitating regional integration and improving economic linkages with U.S. and other global markets through trade and investment and trade facilitation. This includes targeted efforts to reduce the cost and time to trade, reduce the technical barriers to trade, improve trade competitiveness, promote an enabling environment for trade and investment, and improve access to credit by deepening the financial sector. Strong partnerships among the U.S. Government, sub-Saharan African trading partners, and the private sector made these gains possible.
AGOA has served as a foundation for U.S. trade policy toward sub-Saharan Africa since 2000. Going forward, the Trade Africa model can continue to play a vital role in advancing policies that enhance AGOA utilization and can promote building blocks in additional policy areas – and with additional partners – in order to deepen our trade and investment relationship further, perhaps beyond AGOA.
The initiative’s guiding principles:
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Regional Integration, Creation of Regional Markets, and an Increase in Intraregional Trade. Regional integration and creation of regional markets are key to raising competitiveness, diversifying the economic base, and promoting food security – benefiting both African consumers and the United States. USAID is working with RECs and national governments to reduce the barriers to trade and investment flows across the continent. In particular, the U.S. Government continues to promote trade facilitation, customs modernization, and standards harmonization; support regulatory coherence and transparency; improve infrastructure that strengthens regional trade and access to global markets; and explore ways to remove impediments to the efficient operation of supply chains in the region.
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Improvement of Trade and Investment Linkages with the United States. Building on AGOA and United States trade policy, Trade Africa is promoting trade and economic ties with the United States, using opportunities under AGOA and potential trade agreements with African partners.
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Value Addition and Integration into Regional and Global Value Chains. USAID is promoting investment and value addition, particularly in agriculture, that can increase competitiveness, foster links to global and regional value chains, and create jobs.
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Encouragement of Regulatory and Institutional Reforms that Improve the Business Climate and Enabling Environment for Trade and Investment. The initiative is working with governments, the private sector, advocacy groups and multilateral organizations to improve the business climate for investment, trade, and private sector development.
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Diversification of the Export Mix. Commodity and oil exports now account for a major share of sub-Saharan African exports. Trade Africa is therefore helping African countries diversify their export base by investing in new value chains and/or products exploiting Africa’s comparative advantages. The newly developed mango value chain in West Africa is a case in point.
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Improvement of Access to Finance. The U.S. Government continues to work to improve access to finance and financial sector deepening through various mechanisms, such as the Development Credit Authority. This includes facilitating improvement in host government policies to increase access to credit.
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Power Africa Annual Report: Third Year in Review
In June 2013, US President Barack Obama launched Power Africa with the ambitious goal of doubling access to electricity in sub-Saharan Africa. Three years later, Power Africa is already delivering results.
Power Africa’s 2016 Annual Report highlights the progress made in the Presidential Initiative’s third year, including lessons learned and a roadmap plan for continued progress. The report showcases achievements to date and progress made toward the goals set by President Obama.
Power Africa is a U.S. Government-led initiative, coordinated by the U.S. Agency for International Development (USAID), that comprises 12 U.S. Government agencies, and a diverse coalition of more than 130 public and private sector partners, including bilateral and multilateral partners, as well as international organizations, civil society organizations, and private sector companies. In its first three years, Power Africa has built the foundation of an innovative development model that focuses on supporting “first-of-their-kind” transactions that create pathways for future transactions to move forward. Power Africa also prioritizes unlocking and accelerating transactions by removing barriers and building a more investment-friendly enabling environment. Through this model, Power Africa is leading a major international effort to develop new power generation capacity and connect millions of households and businesses to on-grid and off-grid power across sub-Saharan Africa.
The Power Africa Roadmap, released in January 2016, lays out our strategy for doubling access to power across sub-Saharan Africa by adding 60 million new electricity connections, as well as increasing installed generation capacity by 30,000 MW by 2030. The Roadmap outlines Power Africa’s three strategic pillars: Generation, Connections, and Unlocking Energy Sector Potential. These three pillars help our partners to accelerate energy transactions by working with African governments to create the policy, legal, and regulatory frameworks needed to attract private sector investment in the energy sector. Alongside the Roadmap, Power Africa also launched the Power Africa Tracking Tool (PATT), an online and mobile application that allows users to easily track power sector development and transactions across the continent. Through the PATT, much of this transaction data is being made publicly available for the first time, increasing transparency and better informing investors on opportunities.
In February 2016, the Electrify Africa Act of 2015 passed by unanimous consent in both chambers, a testament to the bipartisan and bicameral leadership in Congress in advancing solutions to pressing development issues. The legislation states that it is the policy of the United States to promote first-time access to power for at least 50 million people and to encourage the installation of at least 20,000 additional MW of electrical power in sub- Saharan Africa by 2020. On February 8, 2016, President Obama signed the Electrify Africa Act of 2015 (S.2152) into law, institutionalizing the work of Power Africa through legislation and signaling to the global community that expanding electricity access in sub-Saharan Africa is a longterm foreign policy priority of the U.S. Government.
The Electrify Africa Act, whose goals are broadly consistent with Power Africa, validates the work and approach that Power Africa has already undertaken to address energy poverty, and ensures that the transformative progress we are making will continue beyond this Administration. In August 2016, Power Africa released the Electrify Africa Act Report, which complements the Power Africa Roadmap and entails a comprehensive multiyear strategy for how the United States intends to achieve the goals of addressing sub-Saharan Africa’s energy crisis in areas such as increasing and improving power generation, transmission, and distribution; increasing first-time access to electricity; reforming policy, regulatory, and power sector governance; and increasing affordability and non-discriminatory access to power.
After three years of operation, Power Africa has helped facilitate the financial close of private sector power transactions that are expected to generate over 4,600 MW. Power Africa is currently tracking approximately 60,000 MW of generation projects across the continent, which we recognize is just a subset of all generation projects proposed or underway. Based on the realities of capital projects, our experience in sub-Saharan Africa, and the best available information we have today, we expect that between 18,000 – 21,000 MW of the 60,000 MW we are tracking will reach financial close and are expected to be online by 2030. In the past year, Power Africa grew the number of its field-based transaction advisors in sub- Saharan Africa to over 40 experts who are helping the private sector and governments prioritize, coordinate, and expedite the steps necessary for the implementation of these power projects. Our transaction advisors are also working with our partners to help us identify new viable projects to fill the gap of 9,000 – 12,000 MW to reach our 30,000 MW goal.
This year, the U.S. Government Agencies participating in Power Africa continued to grow their respective African energy portfolios. The Millennium Challenge Corporation (MCC) now has five ongoing power-focused compacts or threshold programs in sub-Saharan Africa in Malawi, Benin, Ghana, Sierra Leone, and Liberia (with Sierra Leone, Benin, and Liberia, totaling an investment of $680 million, added within the past year). The Overseas Private Investment Corporation (OPIC), the U.S. Government’s finance institution, has committed more than $1.7 billion in debt financing and insurance in support of 19 Power Africa projects, already exceeding an original $1.5 billion commitment. These OPIC commitments have mobilized more than $3 billion in additional investment to support Power Africa projects in sub-Saharan Africa. These projects are expected to create almost 1,500 MW of new generation capacity.
In the past year, the U.S. Trade and Development Agency (USTDA) funded 13 Power Africa activities that are expected to generate over 300 MW of renewable energy and catalyze nearly $800 million in financing upon implementation. The funding of these grants brings USTDA’s total number of grants under Power Africa to 43, leveraging a potential $6.8 billion in financing. These projects will help develop more than 860 MW of new generation, powering an estimated 1.7 million homes and businesses and impacting approximately 8.6 million people.
Under the Power Africa Off-Grid Challenge, a public-private partnership between General Electric (GE), USAID, and the U.S. African Development Foundation (USADF), Power Africa grew its support for African companies and organizations that are providing renewable, off-grid solutions for local communities in sub-Saharan Africa. In 2016, USADF funded an additional 10 grants of up to $100,000 each, bringing the total number of grants to 50, totaling an investment of $5 million to African owned and managed energy companies in nine countries from 2013 to 2016. USADF is currently in the process of funding 21 additional grants and six expansion grants for an additional $2.4 million through FY 2018.
To further improve sub-Saharan Africa’s investment climate, the U.S. Department of Commerce (DOC) Commercial Law Development Program (CLDP), supported by Power Africa and the African Development Bank’s (AfDB) African Legal Support Facility (ALSF) released its second practitioner’s guide, titled “Understanding Power Project Financing.” This reference handbook, along with CLDP’s first publication, “Understanding Power Purchase Agreements,” are the product of consultations with public and private sector stakeholders from Africa, the United States, and Europe. Both books take a detailed and neutral approach to understanding the terms, balancing of interests, and structure of power projects. To date, ALSF has also provided direct support to the development of power projects in over 10 African countries with activities including government advisory services on project agreements, drafting model agreements, and trainings on the development of public-private partnerships.
Over the past year, we have seen great progress in the commercial viability of both household rooftop systems and grid-scale solar power projects in sub-Saharan Africa. For example, in Nigeria, the Nigerian Bulk Trader signed power purchasing agreements (PPA) on 14 Solar independent power projects (IPP) in July 2016.These solar IPPs, totaling 1,125 MW of generation capacity, are expected to attract more than $1.5 billion of combined domestic and foreign direct investment. The signing of these PPAs was an historic moment for utility-scale solar in Africa and for the Power Africa team in Nigeria that provided significant technical and legal advisory support to this effort.
Despite significant progress to-date, challenges to expanding access to energy persist in sub-Saharan Africa. Power Africa partners have faced a host of external obstacles this year, including a deterioration of macroeconomic and political conditions. Falling commodity prices hurt African trade in 2016 and lower economic growth is expected as a result in the short-term. Lower global gas prices have posed financial challenges for countries seeking to take advantage of their own vast gas resources. Unpredictable and depreciated currencies, along with credit agency “downgrades” for investment in certain countries, left many investors sitting on the sidelines, waiting for the currency issues to stabilize before moving forward on particular deals.
While there is no quick fix to solving Africa’s energy challenges, Power Africa is committed to working together with African leaders and a growing coalition of international partners to build a sustainable energy sector and unlock the continent’s vast energy potential. Power Africa, along with its many partners, is on an upward trajectory and continues to build a pipeline of viable projects that, over the coming years, will accelerate electrification of the African continent in order to reduce poverty and promote economic growth.
Background
African leaders are articulating their own vision to dramatically increase access to power on the continent. Power Africa is supporting this African-driven vision in practical ways aimed at delivering results. Power Africa’s approach focuses on partnership, driven by the private sector and supported by host country governments and multilateral and bilateral donors.
Large- and small-scale solutions for bringing cleaner, more efficient electricity generation capacity to sub-Saharan Africa are all grounded in a new model of development that drives Power Africa. The core of this model is based on effective partnerships that link public and private sector goals and resources, and connect investors and entrepreneurs to business opportunities in Africa. Structured not from the top down, but laterally, with U.S. agencies, African governments, private sector actors, and other stakeholders serving as partners in the enterprise – Power Africa is delivering results.
Power Africa’s approach considers three related but distinct challenges to bringing that vision to life. power must be available, meaning sufficient megawatts must be generated to meet people’s needs. It must be accessible, so that even those communities that cannot be connected to national grids can still access electricity. And it must meet basic quality considerations, meaning natural resources and megawatts generated are efficiently managed to ensure optimal use.
Over the past three years, we have witnessed an unprecedented groundswell of support from other countries and multilateral actors, who have collectively committed to invest more than $12 billion in energy deals in sub-Saharan Africa in support of Power Africa’s goals. Power Africa’s model is based on effective partnerships, and with 130 partners and mobilized financial commitments firmly in place, Power Africa remains optimistic about maintaining momentum towards President Obama’s goals for increasing access to electricity – and spurring economic growth – in sub-Saharan Africa.
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Power Africa Annual Report: Second Year in Review - July 2015
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Power Africa Annual Report - July 2014
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Remarks by President Obama at the 2nd U.S.-Africa Business Forum
Strengthening trade and financial ties between the United States and Africa
New York, 21 September 2016
Well, good morning, everybody! Let me begin by thanking Mayor Bloomberg – not just for the introduction but for the incredible work that Bloomberg Philanthropies is doing, not just in helping this event but for all the work that you’re doing in promoting entrepreneurship and development throughout Africa.
And I’d also like to thank our co-host, and a tremendous champion of investment and engagement in Africa – my great friend, Commerce Secretary Penny Pritzker.
I also want to welcome our partners from across Africa, including the many heads of state and government leaders who are with us. And I want to acknowledge Senator Chris Coons and leaders from across my administration, who share a profound commitment to expanding opportunity and deepening relationships between our countries.
Most importantly, I want to thank all of you – the business leaders, entrepreneurs, on both sides of the Atlantic, who are working very hard every single day to create jobs and to grow economies and to lift up our people.
Now, I gave a long speech yesterday. Some of you had to sit through it. I’m going to try to be a little more concise today. I’m here because, as the world gathers in New York City, we’re reminded that on so many key challenges that we face – our security, our prosperity, climate change, the struggle for human rights and human dignity, the reduction of conflict – Africa is essential to our progress. Africa’s rise is not just important to Africa, it’s important to the entire world.
Yes, too many people across the continent still face conflict and hunger and disease. And, yes, recent years have brought some stiff economic headwinds. And we have to be relentless in our efforts to end conflicts, and improve security and promote justice. At the same time, the broader trajectory of Africa is unmistakable. Thanks to many of you, Africa is on the move – home to some of the fastest-growing economies in the world and a middle class projected to grow to more than a billion customers. An Africa of telecom companies and clean-tech startups and Silicon savannahs, all powered by the youngest population anywhere on the planet.
As President, I’ve worked to transform our relationship with Africa so that we’re working together, as equal partners. I’m proud to be the first American President to visit sub-Saharan Africa four times; the first to visit Ethiopia and speak before the African Union; the first to visit Kenya – which I think was obligatory. I would have been in trouble if I hadn’t done that. I believe I’m also the first American President to dance the Lipala in Nairobi – or to try to dance the Lipala.
And wherever I’ve gone, from Senegal to South Africa, Africans insist they do not just want aid, they want trade. They want partners, not patrons. They want to do business and grow businesses, and create value and companies that will last and that will help to build a great future for the continent. And the United States is determined to be that partner – for the long term – to accelerate the next era of African growth for all Africans.
And that’s why, over the past eight years, we’ve dramatically expanded our economic engagement. With your support, we renewed the African Growth and Opportunity Act for another decade, giving African nations unprecedented access to American markets. We launched Trade Africa, so that African countries can sell goods and services more easily across borders – both within Africa and with the United States. We created Doing Business in Africa campaign to help American businesses – including small businesses – pursue opportunities across Africa. And under Penny’s leadership, nearly 300 American companies have taken trade missions to Africa, with more than 8,000 African buyers attending U.S. trade shows.
If you are an African entrepreneur or an American entrepreneur looking for more support, more capital, more technical assistance, there has never been a better time to partner with the United States. Commitments from the Export-Import Bank and the U.S. Trade and Development Agency have doubled. OPIC investments have tripled. Nearly 70 percent of Millennium Challenge Corporation compacts are now with African countries. And we’ve opened up and expanded new trade and investment offices, from Ghana to Mozambique. Through our landmark Power Africa initiative, the United States is mobilizing more than 130 public and private sector partners – and over $52 billion – to double electricity access across sub-Saharan Africa.
Meanwhile, our Global Entrepreneurship Summits in Morocco and Kenya and our Young African Leaders Initiative are giving nearly 300,000 talented, striving young Africans the tools and networks to become the entrepreneurs and business leaders of the future. We’ve got some of those outstanding young people here today. And two years ago, I welcomed many of you to our first ever U.S.-Africa Business Forum, where we announced billions of dollars in new trade and investment between our countries.
And you can see the results. American investment in Africa is up 70 percent. U.S. exports to Africa have surged. Iconic companies – FedEx, Kellogg’s, Google – are growing their presence on the continent. You can hail an Uber in Lagos or Kampala. In the two years since our last forum, American and African companies have concluded deals worth nearly $15 billion, which will support African development across the board, from manufacturing to health care to renewable energy. Microsoft and Mawingu Networks are partnering to provide low-cost broadband to rural Kenyans. Procter & Gamble is expanding a plant in South Africa. MasterCard will work with Ethiopian banks so that more Ethiopians can send home remittances.
These are all serious commitments. New relationships are being forged, and I’m pleased that, altogether, the deals and commitments being announced at this forum add up to more than $9 billion in trade and investment with Africa.
So we are making progress, but we’re just scratching the surface. We have so much more work that can be done and will be done. The fact is that, despite significant growth in much of the continent, Africa’s entire GDP is still only about the GDP of France. Only a fraction of American exports – about 2 percent – go to Africa. So there’s still so much untapped potential. And I may only be in this office for a few more months, but let me suggest a few areas where we need to focus in the years ahead.
We have to keep increasing the trade that creates broad-based growth. In East Africa alone, our new trade hubs have supported 29,000 jobs and helped increase exports to the United States by over a third. So we need to keep working to integrate African economies, diversify African exports, and bring down barriers at the borders. Since we’re approaching two decades since AGOA was first passed, we’re releasing a report today exploring the future beyond AGOA, with trade agreements that are even more enduring and reciprocal.
We also have to keep making it easier to do business in Africa. We know progress is possible. A decade ago, if you wanted to start a business in Kenya, it took, on average, 54 days. Today, it takes less than half that. And governments that make additional reforms and cut red tape will have a partner in the United States.
At our last forum, I announced the creation of our Presidential Advisory Council to guide our work together. And today, I’m pleased to welcome the newest members of our expanded council, so that more industries and insights can shape their recommendations. Feel free to find them later, bend their ear. Don’t be shy. They are excited about their work and excited to hear from you.
We also need to invest more in the infrastructure that is the foundation of future prosperity. And, as I indicated earlier, we’re especially focused on increasing access to electricity for the two-thirds of sub-Saharan Africans who lack it. Three years after launching Power Africa, we’re seeing real progress – solar power and natural gas in Nigeria; off-grid energy in Tanzania; people in rural Rwanda gaining electricity. This means that students can study at night and businesses can stay open. And we are not going to let up. Partners like the World Bank and the African Development Bank are mobilizing billions.
Last month, the government of Japan made a major commitment to support this work. And together with GE, today we’re launching a public-private partnership to support energy enterprises managed by women in Africa. So we’re on our way, and by 2030, I believe we can bring electricity to more than 60 million African homes and businesses. And that will be transformative.
But even if we do the infrastructure, even if we’re passing more business-friendly laws, even if we’re increasing trade, I think all of you know that we’re also going to have to keep promoting the good governance that allows for good business. Graft, cronyism, corruption – it stifles growth, scares off investment. A business should begin with a handshake and not a shakedown. So through our efforts like our Open Government Partnership, and our Partnership on Illicit Finance, we’re going to keep working to encourage transparency, stamp out corruption and uphold the rule of law. That’s what’s going to ultimately attract trade and investment and opportunity.
The truth is, is that those governments that are above-board and transparent, people want to do business there. People don’t want to do business in places where the rules are constantly changing depending on who’s up, who’s down, whose cousin is who. It creates the kinds of risks that scare investors away.
And finally, we need to invest more in Africa’s most precious resource, and that is its people, especially young people. Men and women; boys and girls. I’ve had the opportunity to meet the next generation of leaders and entrepreneurs – in Soweto and Dar es Salaam and Dakar. I’ve welcomed many of them to the White House. They are spectacular. They are itching to make a difference. Their passion is inspiring. Their talent is unmatched. They are hungry for knowledge and information, and are willing to take risks. And many of them, because they’ve come from tough circumstances, by definition they’re entrepreneurial. They’ve had to make a way out of no way, and are resilient and resourceful.
So we got to continue to empower these aspiring leaders – give them the tools, the training and the support so that a few years from now, they can be sitting in this room. Because if Africa’s young people flourish, if they are getting education, if they are getting opportunity, I’m absolutely convinced that Africa will flourish as well.
And they are the future leaders that inspire me. I think of the Rwandan entrepreneur I met earlier this year at one of our entrepreneurship summits. His company is turning biomass into energy. He started his business when he was 19 years old. And a lot of folks didn’t get what he was doing or why. He made an interesting comment that sometimes in traditional cultures, in African cultures, the working assumption is, is that young people don’t know anything. And since we were in Silicon Valley when he was telling this story, I wanted to point out that folks in Africa may want to rethink that – because if you’re over 30 there, you’re basically over the hill.
But he kept at it. As he told me, “No matter what you’re trying to do,” you need the “motive in your mind that you want to help your society move forward.” He was doing well, but he was also trying to do good.
And that’s what this is all about. That’s the work that we’ve got to carry on. This is a U.S.-Africa business forum. This is not charity. All of you should be wanting to make money, and create great products and great services, and be profitable, and do right by your investors. But the good news is, in Africa, right now, if you are doing well, you can also be doing a lot of good. And if we keep that in mind, if we do more to buy from each other and sell from each other, if we do more to bring down barriers to doing business, if we do more to strengthen infrastructure and innovation and governance, I know we’re going to be able to move our societies and economies forward. And that will be good not just for Africa, but it will be good for the United States and good for the world.
We want Africa as a booming, growing, thriving market, where we can do business, where you’ve got a young population that is surging. And although this will be the last time I participate in the U.S-Africa Business Forum as President, I think you should anticipate that I will be continuing to work with all of you in the years to come, and I know that Penny has done a great job in working to institutionalize these efforts. And when we’ve got great partners like Mike Bloomberg and the Bloomberg Foundation involved in this, I have no doubt that this is just going to keep on growing, and we’re going to look back and say, we were on to something.
Thank you so much, everybody. Appreciate it. Keep up the great work.
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U.S. Secretary of Commerce Penny Pritzker and East African leaders agree to business commitments in New York
On Tuesday, U.S. Secretary of Commerce Penny Pritzker hosted the East African Heads of State roundtable in New York City.
Held alongside the United Nations General Assembly meeting and the U.S.-Africa Business Forum, the roundtable brought together East African leaders to discuss business development, investment opportunities, and economic growth in their respective countries. Hailemariam Desalegn, Prime Minister of Ethiopia, Yoweri Kaguta Museveni, President of Uganda, Paul Kagame, President of Rwanda, and William Ruto, Deputy President of Kenya participated, along with multiple U.S. and African CEOs from companies doing business in the region.
The roundtable built on the achievements from the CEO regional integration roundtable Secretary Pritzker co-chaired with President Kagame in January 2016 during her trip to Africa with members of the President’s Advisory Council on Doing Business in Africa (PAC-DBIA). Secretary Pritzker facilitated yesterday’s discussion aimed at accelerating regional integration through practical and actionable private sector driven proposals in the areas of travel and tourism, agribusiness technology, and infrastructure. The East African leaders agreed to support these proposals, which are critical steps to expanding the bilateral trade and investment relationships between their respective countries and with the United States.
The impact of the travel and tourism sector on the economic and social development of a country can be enormous. Given this, Secretary Pritzker facilitated an agreement among the East African leaders and the U.S. Departments of Commerce and State to launch an annual rotating U.S.-East Africa Travel and Tourism Dialogue to promote East Africa as a top global travel and tourism destination and support the growth of new partnership opportunities for U.S. and East African companies in this sector.
While East African countries are exploring many exciting travel and tourism initiatives, agriculture remains the backbone of many African economies, and the sector has not reached its full potential During today’s roundtable, the East African leaders agreed to launch the pilot in Kenya and scale it across the other East African countries. At the same time, they recognized that a more holistic approach to agribusiness development is necessary. As a result, Secretary Pritzker tasked the U.S. Department of Commerce to work with partner agencies to develop a comprehensive and data driven approach to address production, productivity and value added challenges.
Similarly, interconnected infrastructure is essential to realizing East Africa’s economic potential, and would significantly improve regional integration and the growth of intra-regional and global trade. East African leaders and Secretary Pritzker agreed to work together to address challenges in building large-scale infrastructure, with the goal of convening an Infrastructure Summit with U.S. investors and companies across the infrastructure value chain focused on specific projects in the critical areas of electricity, transport and water infrastructure.
Fact Sheet: U.S.-East African Heads of State and CEO Roundtable
On September 20th, U.S. Department of Commerce Secretary Penny Pritzker chaired a roundtable with East African Heads of State and CEOs focused on advancing regional economic integration and opportunities in the travel and tourism, agribusiness technology, and infrastructure sectors. The meeting resulted in agreement on significant new steps to expand collaboration in these three important areas.
Secretary Pritzker and their Excellencies Ethiopian Prime Minister Hailemariam Desalegn, Rwandan President Paul Kagame, Ugandan President Yoweri Kaguta Museveni, Kenyan Deputy President William Ruto, and Tanzanian Foreign Minister Augustine Mahiga agreed to launch a Travel and Tourism Dialogue, scale a digital platform on agriculture across East Africa, and work toward convening an Infrastructure Summit.
I. U.S.-East Africa Travel and Tourism Dialogue
The impact of the travel and tourism sector on the economic and social development of a country can be enormous. Given the significance of the sector to our overall economies, the East African leaders and the U.S. Departments of Commerce and State agreed to launch an annual rotating U.S.-East Africa Travel and Tourism Dialogue to promote East Africa as a top global travel and tourism destination and support the growth of new partnership opportunities for U.S. and East African companies in this sector. The Travel and Tourism Dialogue would: (1) promote and expand business opportunities; (2) deepen regional integration and cooperation in travel and tourism across East Africa; and (3) strengthen people-to-people ties. Each year the dialogue will be co-hosted by one of the East African countries.
II. Agribusiness Technology
Agriculture remains the backbone of many African economies, but the sector has not reached its full potential. For example, post-harvest losses of fruits and vegetables can exceed 35 percent in many supply chains because they perish before they reach the market. Solving the transportation challenge through technology, including temperature-controlled supply chain, or “cold chain,” can help reduce these losses and capitalize on existing infrastructure by providing more immediate access to markets. The Commerce Department, IBM and the Global Cold Chain Alliance are exploring the development of a scalable digital marketplace pilot that will be accessible via smart and feature phones, that instantly connects farmers and buyers to transporters with cold chain capabilities. During today’s roundtable, the East African leaders agreed to launch the pilot in Kenya and scale it across the other East African countries. At the same time, they recognized that a more holistic approach to agribusiness development is necessary. As a result, Secretary Pritzker tasked the U.S. Department of Commerce to work with partner agencies to develop a comprehensive and data driven approach to address production, productivity and value added challenges.
III. Infrastructure Summit
Interconnected infrastructure is essential to realizing East Africa’s economic potential, and would significantly improve regional integration and the growth of intra-regional and global trade. Today, the East African leaders and the Department of Commerce agreed to work together to address challenges in building large-scale infrastructure, with the goal of convening an Infrastructure Summit with U.S. investors and companies across the infrastructure value chain focused on specific projects in the critical areas of electricity, transport and water infrastructure. As a first step before proceeding with the Summit, East African leaders and Secretary Pritzker agreed it would be valuable to convene a meeting with ministers and technical experts to build the capacity of East African government officials to develop bankable, feasible projects.
Roundtable Participants
His Excellency Hailemariam Desalegn, Prime Minister of Ethiopia
His Excellency Paul Kagame, President of Rwanda
His Excellency Yoweri Kaguta Museveni, President of Uganda
His Excellency William Ruto, Deputy President of Kenya
His Excellency Augustine Mahiga, Foreign Minister of Tanzania
Penny Pritzker, Secretary of the U.S. Department of Commerce
Martin H. Richenhagen, Chairman, President and CEO, AGCO
Andrew Patterson, President of Africa Division, Bechtel Group, Inc.
Vimal Shah, CEO, Bidco Africa Ltd.
James Mwangi, CEO and Managing Director, Equity Bank
Tewolde GebreMariam Tesfay, CEO, Ethiopian Airlines
Sara Menker, Founder and CEO, Gro Intelligence
Takreem El-Tohamy, General Manager, Middle East & Africa, IBM
Carole Kariuki, CEO, Kenya Private Sector Alliance
Mohammed Dewji, CEO, Mohammed Enterprises Tanzania Limited (MeTL)
Stephen Douglas Cashin, CEO, Pan African Capital Group LLC
Willy Foote, Founder & CEO, Root Capital
John Mirenge, CEO, RwandAir
Tom Klein, President & CEO, Sabre Corporation
Patrick Bitature, Chairman, Simba Group of Companies
Kenneth S. Siegel, EVP, CAO and General Counsel, Starwood Hotels & Resorts Worldwide, Inc.
Sean Klimczak, Senior Managing Director, The Blackstone Group
Stephen Hayes, President and Chief Executive Officer, the Corporate Council on Africa
Corey Rosenbusch, President & CEO, the Global Cold Chain Alliance
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Botswana’s national Aid for Trade Strategy launches
Botswana, through the National Aid for Trade Strategy, aims at building a diversified export-led economy.
Speaking at the launch of the strategy on September 20, the Acting Minister of Investment, Trade and Industry Advocate Sadique Kebonang said it took into account the development aspirations of Botswana as outlined in key policy documents such as the Keynote Policy Paper for National Development Plan (NDP 11).
Advocate Kebonang said the strategy also identified key national development objectives which could be achieved through international trade such as eradication of poverty and reduction in inequality, employment creation, diversified export-led economic growth and strengthening human development.
“The implementation of the strategy will be concurrent to that of NDP 11 to ensure its contribution to national development objectives,” he said.
He said the strategy would be implemented by different ministries, the private sector and parastatal organisations.
“We all need to own it and ensure that we mainstream the initiatives in our respective strategies and plans,” he said.
Advocate Kebonang said Botswana was a signatory to a number of trade agreements and these include the World Trade Organisation (WTO), Southern African Customs Union (SACU), SADC Protocol on Trade and SADC/EU Economic Partnership Agreement (EPA).
He said despite the market access opportunities for goods and services presented by these agreements, as well as trade agreements like Africa Growth Opportunity Act (AGOA), Botswana’s level of integration remains minimal.
“Further, Botswana’s exports remain undiversified and susceptible to external shocks like fluctuations in commodity prices,” he said.
He said the government continues to develop and implement projects, policies and programmes aimed at improving Botswana business environment and to achieve economic diversification.
These include infrastructure development like roads, rail and energy and regulatory reforms aimed at improving business service delivery.
The strategy was developed in partnership with the Commonwealth.
Giving the overview of the strategy, the consultant, Dr Claudious Preville said it has three priority areas; diversify export-led economic growth and employment creation, strengthening human development outcomes and eradicate poverty and reduce inequality.
He said the strategy has a number of objectives such as to improve trade performance and terms of trade, increase employment opportunities for women, youth and people with disabilities and modernize trade related infrastructure.
Other objectives are to diversify the export sectors and strengthen the legal and regulatory frameworks to support trade.
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Mauritius well positioned to underpin development in Africa, says Finance Minister
With over 25 years of experience in the global business sector, Mauritius is well positioned to make significant contribution in attracting, mobilising and channeling the necessary financial resources to underpin development endeavours of Africa.
The Minister of Finance and Economic Development, Mr Pravind Jugnauth, made this statement at the opening of a two-day Africa Partnership Conference on 20 September 2016 organised by the Board of Investment (BOI) in collaboration with the World Association of Investment Promotion Agencies on the theme: Creating Shared Value through Sustainable Investment at the Intercontinental Mauritius Resort Balaclava.
The Minister Jugnauth highlighted that Mauritius has set out a new Africa Strategy which rests on the following three main pillars:
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Partnership for Development: The aim is to focus on collaborative learning models to share innovative, adaptable and cost-efficient solutions to address development challenges
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Innovative G2G Approach: This focuses on a new model for boosting cross-border investment and trade – one that transcends multilateral efforts and the traditional signing of bilateral investment and taxation agreements.
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Capacity Building: This centers around building human and institutional capacity, attracting FDI, and encouraging the transfer of technology and knowledge.
Minister Jugnauth expressed his optimism towards a brighter future for the African continent while he recalled that Africa is the future and has far to go and a lot to achieve in terms of development, less poverty and more sustainable growth and hence transforming itself into a land of prosperity.
To attain these objectives, he called for tremendous policy efforts and massive mobilisation of resources so as to make of Africa the land of opportunities which he said will necessitate some US $500 billion investments over the next five years in telecommunications, energy, water, road networks and infrastructure amongst others.
On this score, he appealed to the business community to tap the various investment opportunities in Africa that will create jobs, raise the standard of living, reduce poverty, stimulate demand, leading to yet more investment and growth.
The Finance Minister recalled the several initiatives taken by Mauritius among which the setting up of the new Africa strategy in a spirit to consolidate our relations with other African nations as well as open up new avenues for cooperation and economic integration so as to attract Foreign Direct Investment (FDI) flows into Africa and to promote intra-Africa investment flows.
He concluded by expressing his conviction that Africa can and will fulfil its determination to unlock investment and seize opportunities so as to lift the standard of living of our people, alleviate poverty in a significant way and play a bigger role in the global value chain.
On the second day, Honourable Seetanah Lutchmeenaraidoo, Minister of Foreign Affairs, Regional Integration and International Trade highlighted the importance of ease of doing business for investors. The Minister also pointed out that corruption should be eliminated as it hinders the development of Africa.
Furthermore, it is crucial to improve air connectivity among African countries which will enable IPAs to effectively promote FDI and foster economic development.
The two-day conference brings together eminent speakers from around the globe as well as representatives from 19 African Investment Promotion Agencies, and some 150 potential investors from 25 countries across the world including both local and foreign participants from the private sector, policy makers and Government officials.
Moreover, the conference which is at its second edition is part of the Africa Strategy aimed at strengthening our relations with other African nations and in opening up new avenues for cooperation and economic integration.
The Africa Partnership Conference 2016 is serving as unique platform in addressing infrastructural funding gap, which is a major constraint to optimising FDI flows in Africa and also to promoting Mauritius as a well-regulated platform offering security and comfort to investors while serving as the natural corridor to Africa which is an integral component of the Africa Strategy.
Three priority areas are being discussed during the conference namely: Attracting investment and private sector players to enhance the hard and soft infrastructure in Africa; Creating shared value by improving investment climate in Africa through better collaboration; and Positioning Mauritius as the platform for boosting trade and investment into Africa
It will be recalled that the BOI also signed two Memoranda of Understanding yesterday with Swaziland Investment Promotion Authority and the East Africa Trade Investment Hub thus bringing the total number of Investment Promotion Agreements signed so far to 31.
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tralac’s Daily News Selection
The selection: Wednesday, 21 September 2016
On Day 1 of UNGA’s annual general debate: Southern African leaders underline importance of regional efforts for sustainable development; Africa will share lessons through Global Goals centre, says Kagame (New Times); longform summary of statements
The US-Africa Business Forum meets today in Washington. Chatham House’s Alex Vines penned this analyis: Trade not aid: Obama’s Africa legacy
The USABF is meeting at an opportune moment for both African states and American businesses. Many African leaders, confronted by slower growth rates, are once again reappraising their international partnerships. Diversification is the preferred strategy for many, and the US is clearly part of the calculation for most (although South Africa is increasingly hostile to the US and seems to be pulling in the opposite direction). At the same time, the longstanding pattern of US corporate investment being limited to extractives – and some broader engagement in South Africa − is changing. Major players in corporate America, such as Blackstone, General Electric and Johnson and Johnson are developing long-term investment strategies across the continent, complementing Exxon’s and Chevron’s many decades of engagement. Other companies are testing the waters, assessing whether investing in Africa is profitable and possible given tightening US and European regulatory regimes. [Barack Obama’s final UN speech: full text]
More than Sh101 billion in Power Africa commitments finalised (Business Daily)
The latest deals were finalized around a US-Africa business forum on the sidelines of annual UN meetings in New York this week, USAID chief Gayle Smith said in an interview with Reuters. Smith said the deals covered funding for regional infrastructure facilities, risk insurance and renewable power projects in Kenya, Nigeria, Senegal, Sierra Leone, South Africa and Tanzania. To date, Power Africa has mobilized more than $52bn in additional commitments, of which $40bn is from private companies, according to USAID, which coordinates the program. Power Africa is tracking more than 500 deals, and 40 transaction advisers working across Africa have identified 60,000 megawatts of potential deals, Smith said. [EAC Heads of State and CEOs roundtable: a push for direct US flights]
President’s Advisory Council on Doing Business in Africa, 2016-2018: 16 new appointments
US Secretary of Commerce Penny Pritzker has announced the appointment of 23 private sector leaders to the second President’s Advisory Council on Doing Business in Africa. PAC-DBIA members – representing small, medium, and large companies from a variety of industry sectors – advise the President, through the Secretary of Commerce, on ways to strengthen commercial engagement between the United States and Africa. [Mike Bloomberg: Africa could be the great economic success of this century, David Pilling: ‘Africa Rising: a long view may bear proponents out’]
Dangote named co-chair of US-Africa centre (Punch)
The US Chamber of Commerce, in a show of commitment to collaboration by the business communities in the US and across Africa, has named Aliko Dangote as the co-chair of its US-Africa Business Center. A statement by the chamber on Tuesday stated that Dangote would serve alongside President and Chief Executive Officer of General Electric Africa, Jay Ireland, as a leader for the US-Africa Business Center Board of Directors. “We are honoured to have Aliko Dangote on board to help guide the business communities’ efforts in pursuit of a new era of unprecedented growth between the US and Africa,” the President of the US-Africa Business Center, Scott Eisner, said.
Kenya: House okays EU trade pact ahead of deadline (Business Daily)
Parliament unanimously endorsed Economic Partnership Agreement (EPA), sending yet another strong signal of Kenya’s resolve to conclude the decade-old negotiations with Europe. On Tuesday, Mr Mohamed hailed Parliament for ratifying the agreement saying that Kenya’s interests are were now safeguarded. He said Kenya could not risk its EU markets and face a Sh10 billion-a-year tax on exports.
AU’s Transport sector development programme: 2nd validation workshop begins today.
Delegates from West Africa participate in week-long EAC visit: explore strategic partnership on trade facilitation and regional integration (TMEA)
Trade, Customs and Infrastructure departments and the Borderless Alliance participated in a 5-day study tour in East Africa, from 12-16 September. Organized by the Accelerating Trade in West Africa project in collaboration with the TradeMark East Africa and the support of the Ministries of Foreign Affairs of Denmark and the Kingdom of the Netherlands, the aims of the tour were to showcase TradeMark East Africa supported East African initiatives in the field of Trade, Transport and Trade Facilitation that could inform a set of initial projects in the ECOWAS/UEMOA region that would be undertaken in partnership with regional commissions, national agencies, the private sector and civil society organisations.
Pursuant to the study tour, West African delegates expressed their appreciation of the projects and interventions of TradeMark East Africa in the region indicating their wish for similar support and structures to facilitate trade in West Africa specifically expressing the following desires: (i) that the proposed interventions be aligned with the development objectives of the regional communities, ECOWAS and UEMOA as is the case in the EAC; (ii) that pending the conclusion on the establishment of a formal structure in West Africa, the commencement of some interventions be initiated. Calling on the Ministries of Foreign Affairs of Denmark and the Kingdom of the Netherlands as existing development partners supporting the ATWA Initiative as well as the TradeMark East Africa, the West African delegates expressed an urgent desire for the commencement of the following interventions:
Accelerating Trade in West Africa: summary of Stage 1 report (pdf, ATWA)
Collaboration with the proposed regional transport & facilitation observatory: A project with which ATWA could collaborate with (and potentially support) in Stage 2 and Stage 3 at an early stage would the proposed Regional Transport and Facilitation Observatory which has been agreed by ECOWAS and UEMOA but which has not yet been established. In East Africa, TMEA has established a strategic collaboration wit observatory of the Northern Corridor Transit Transport Coordination Authority (NCTTCA) in Mombasa, Kenya. The West Africa region is in great need for timely and reliable information on trade flows, transport infrastructure, corridor performance and trends. The information presented in this Stage 1 main report may give the impression that there is extensive data on the performance and features of key corridors. However, it took the ATWA project team however several months to gather and compare this information from various sources, and some of it is several years old. Most corridor data has been collected by one-off studies by different organizations for different purposes, at different times, making the data difficult to compare, and often difficult to interpret, confusing and contradictory. [Note: More ATWA reports will be uploaded in the near future]
A profile of major West African corridors (pdf): The Dakar to Niamey corridor mainly serves international traffic between Dakar and Mali. The two other countries, namely Burkina Faso and Niamey, are mainly served by the ports located on the Abidjan-Lagos corridor. Due to the long distance, it is unlikely in the foreseeable future that sizeable volumes of traffic will be conveyed on this corridor between Mali and Niger. The Abidjan-Lagos corridor does not serve any land-locked country. Ports along the corridor mainly serve their domestic market together with bordering land-locked countries. As such traffic within the corridor is currently quite limited. This corridor will however grow as regional trade improves between the countries within the corridor. Finally, the Douala-N’Djamena/Bangui corridor is currently the only corridor enabling Chad and Central African Republic to have access to the sea. Corridor volumes are low compared to other corridors due to the limited market the corridor serves. This corridor however remains essential for both Chad and Central African Republic.
Apparent strengths and weaknesses of existing corridor management groups: Abidjan-Lagos Corridor (pdf). ALCO started off as a single issue corridor entity, with a high level of recognition. At the same time, it has a significant local level reach through NGOs. More recently, initiatives have started to broaden the range of issues tackled by ALCO, to include trade facilitation measures. These developments serve to underscore the importance of having a broad perspective on cross border issues as they relate to transit movements. The ALCO experience also brings to the fore the important contribution that donor funding can make to the initial establishment of multi-state corridor initiatives. It is not always the case that all countries would be willing to fund corridor based initiatives right from the beginning, before some of the benefits have been demonstrated. [Note: Extracted from Annexure A]
Nigeria: Customs enlightens Chinese community on import, export laws (Nigeria Maritime News)
The Nigeria Customs Service recently held a sensitization and enlightenment seminar to help the Chinese community in Lagos understand clearly, Nigeria’s import/export trade laws and guidelines. This came on the request by the Consul General of the Peoples Republic of China, Lagos Consulate, Mr Chao Xiaoliang.
Transport and transit facilitation programme: Eastern and Southern Africa Region (SADC)
The purpose of this technical assistance contract is to develop and implement harmonised road transport policies, laws, regulations and standards for efficient cross border road transport and transit networks, transport and logistics services, systems and procedures in the Eastern and Southern Africa region. This includes the following key results areas: (i) implementation in the beneficiary countries of the Vehicle Overload Control Management Strategy; (ii) implementation in the beneficiary countries of the harmonized Vehicle regulations and standards; (iii) preconditions for an operation common transport registration and management system implemented; (iv) efficiency of regional transport corridors enhanced.
SADC staff not accountable enough – consultants (Sunday Standard)
A report by Ernst and Young consultants has found that the SADC secretariat in Gaborone has not been able to fully play its role as a ‘think tank.’ According to the core functions of the Secretariat as listed in the “SADC capacity Development Framework 2008”, one of its roles is to act as a ‘think tank’ with the capacity to strategically advise and guide Member States on the implementation of the SADC common agenda. Minutes of the recent meeting of the Council of Ministers that was held in Swaziland show that consultants at Ernst and Young who were engaged by the secretariat found that the secretariat does not account to Member States of the regional bloc. The minutes also state that Secretariat does not operate as a coordinated organisation, but instead as fragmented system of separate Directorates and Units mapped on the pillars of Regional Indicative Strategic Development Plan.
South Africa: Border agency wrinkles nearly all ironed out, says Home Affairs (Business Day)
Home Affairs director-general Mkuseli Apleni told Parliament’s home affairs committee on Tuesday that the department was close to ironing out its differences with other departments over the contentious Border Management Authority Bill. "SARS and Home Affairs are still engaging on the bill. We have found points of agreement. There will be a split of the customs law enforcement for Home Affairs and the revenue collection will remain with SARS. This is still under discussion with SARS," Apleni said. He pointed out that the bill was subjected to a Nedlac consultation process, where many of the areas of concern that departments had recently brought before the committee were not even raised as points of disagreement.
Forever Young? Social policies for a changing population in Southern Africa (World Bank)
The study illustrates how social policies designed to fit with evolving demographic structures are likely to lead to wealthier and more productive future generations, fostering growth and equity. But the reverse also holds: ill-tailored social policies can hold back countries’ development and heighten intergenerational tensions. Chapter 2 presents evidence on demographic trends in Southern Africa. Chapter 3 explains the report’s conceptual framework and how demography can be an opportunity or a curse, depending on the policy environment. Chapter 4 studies the five countries’ labor markets and documents challenges that a growing active labor force is likely to generate. Chapter 5looks at the likely impacts of changing demographics on social sectors.
Malabo Declaration biennial reporting process (AU)
This meeting (21-24 Sept) will bring together CAADP focal points and M&E experts from ministries of agriculture from member states and RECs, AUC, NPCA and technical partners to: (i) inform on the modalities and process for the validation of the report at national, regional and continental level; (ii) discuss and agree on the RECs engagement in coordinating Member States during the Biennial Reporting exercise; (iii) discuss and agree on the mode of engagement and ToRs on support from the technical working groups; (iv) discuss and agree on the roadmap and structure of the regional training workshops to prepare countries for the reporting exercise.
Andrew Norton: ‘Automation will end the dream of rapid economic growth for poorer countries’
SA rand firming good for Zimbabwe
Kenya and Somalia plan free visa pact
Egypt, Ethiopia, Sudan sign final contracts on Nile dam
UNCTAD’s High-level conversation: empowering SMEs through e-trade and investment facilitation
Macroprudential policies to reduce risk of crises: IMF-FSB-BIS paper for G20 examines country experiences, lessons
Nancy Alexander, Aldo Caliari: ‘Some highlights of the 2016 China-led G20 Summit’ (pdf, HBS)
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Promoting financial inclusion in West Africa: Leveraging financial technology for the underbanked
More than two billion people worldwide are without bank accounts. Most are poor and only a third of adults in sub-Saharan Africa have access to any kind of basic financial services. IMF Deputy Managing Director, Mitsuhiro Furusawa, says the region is running the development race weighed down by exclusion.
“Access to financial services allows families to smooth out consumption and invest in their futures through education and health. And access to credit enables businesses to expand, creating jobs and reducing inequality,” Furusawa added.
Furusawa was in Dakar, Senegal to attend a conference designed to promote financial inclusion in West Africa. With less demand for African products, the slower global economy has put added pressure on many African economies, particularly the natural resource exporters, to find ways to reinvigorate growth. Furusawa said financial inclusion is one key for promoting strong and stable economic growth.
There are many reasons for the lack of access to traditional financial services, but Roger Nord, Deputy Director of the IMF’s African Department, says technological innovation within the financial sector, commonly known as Fintech, is perhaps the most promising way to advance financial inclusion.
“Access to formal financial services is often difficult in low-income countries: bank branches are concentrated in urban areas, and costs and fees can be high. Financial technology can tackle both problems at once: suddenly financial services are available to anyone with a mobile phone at a fraction of the cost,” Nord said.
And the rapid spread of technology is proving its worth. Sub-Saharan Africa leads in the adoption of mobile banking around the world.
Simple payments to simple savings
In Kenya, for example, the mobile banking system known as M-Pesa that started as a way for mobile phone users to transfer unused air minutes to each other, quickly turned into a cash payment platform. Rather than spending several days traveling by bus to deliver cash to family members in rural villages, one could send money via text message, at a minimal cost.
Local banks have since teamed up with M-Pesa, and started offering users a savings option for unused balances in their M-Pesa accounts – paying interest, regardless of how small the account balance. Meanwhile, user data enables the issuance of micro-loans to those deemed creditworthy.
As a result, more Kenyans are saving and borrowing, and the proportion of the population excluded from financial services has fallen below 17 percent. Kenya is now third in sub-Saharan Africa for financial access, behind South Africa and Mauritius. Other East African countries such as Tanzania, Uganda, and Rwanda are following Kenya’s example, using financial technology to leapfrog traditional banking systems and provide financial services to all levels of society.
The promise of Fintech
Another promising application of Fintech for low-income countries could be to lower the cost of cross-border transfers, thereby addressing the worrisome loss of correspondent banking relationships that many low-income countries have seen in recent years as commercial banks cut back in the face of rising compliance costs. This could provide a significant boost to low-income countries that receive significant remittances from overseas.
The power of financial technology to lower transaction costs and expand access to financial services is not limited to low-income countries in Africa. A recent conference co-organized by the IMF and Singapore Management University illustrated the global potential of Fintech.
In China, the financial services arm of online retailer Alibaba has grown so rapidly that it now surpasses the largest Chinese commercial banks in transaction volumes. India’s biometric identification system, Aardhar, has started to open up low-cost financial services to previously underserved populations. And, in advanced economies, there are a multitude of technology start-ups aiming to revolutionize global payment and settlement systems through the use of digital currencies and blockchain technology.
Meanwhile, regulators are carefully considering the impact of new technology on the stability of the financial system, including on money laundering and the financing of terrorism. The financial technology revolution is likely still some way off, but for low-income countries the benefits are tangible and, as in the case of Kenya’s M-Pesa, already evident. Financial institutions are quickly adapting to Fintech innovations that will ultimately bring more unbanked into the banking fold, which Furusawa says is essential for the economic development of the region.
The conference in Dakar was co-hosted by The Bank of West African States (BCEAO) and the IMF, and examined the prospects and policy options for promoting financial inclusion in West Africa.
Trade not aid: Obama’s Africa legacy
A shift in policy towards trade promotion could be the defining characteristic of the Obama administration’s relationship with the continent.
The US-Africa Business Forum (USABF), which meets for the second time in New York on 21 September, provides a platform to deepen business and financial ties between the US and Africa, and is the culmination of efforts to diversify Washington’s focus away from humanitarian concerns and counterterrorism. Emphasizing the business opportunities that Africa offers could be Barack Obama’s key Africa legacy, equivalent to the African Growth and Opportunity Act (AGOA) for Bill Clinton and the President’s Emergency Program on AIDS Relief (PEPFAR) or the US Africa Command (AFRICOM) for George W Bush.
The USABF is co-hosted by US Secretary of Commerce Penny Pritzker and Michael Bloomberg. President Obama, President Jacob Zuma of South Africa and President Muhammadu Buhari of Nigeria are attending, and almost 50 African heads of state or government have been invited. Up to 100 US and African corporations will be participating, in addition to numerous global CEOs, and new announcements of both private sector investments and government initiatives will be made. The forum will focus on seven sectors important to African economies; finance, capital investment, infrastructure, power and energy, agriculture, consumer goods and information communication technology.
It is no coincidence that President Obama wanted a second USABF before he ends his presidency. The USABF was the most successful part of the 2014 US−Africa Leaders’ Summit in Washington DC – the largest gathering of African heads of state and government ever convened by an American president. It resulted in announcements of billions of dollars of investment in Africa, and US-Africa trade has subsequently grown significantly, albeit from a low base. During the second Obama administration new initiatives such as Power Africa, Trade Africa and the President’s Advisory Council on Doing Business in Africa have been launched. The Power Africa initiative has leveraged nearly $43 billion in commitments from over 120 public and private sector partners and the Trade Africa partnership (with an initial focus on the East African Community) and saw a 24 per cent increase in exports of goods from the EAC to the US in 2013-14. There has also been the Global Entrepreneurship Summit, which met in 2014 in Morocco and Kenya in 2015, and an increase in trade missions. And not only does the Corporate Council on Africa in Washington DC now promote African trade, but recently the US Chamber of Commerce has finally begun taking Africa more seriously.
The USABF comes a year after AGOA was renewed for another decade (to 2025), and is timed to follow the 2016 annual AGOA Forum in Washington DC. Although Africa remains a relatively small player in world trade, representing just 3.3 per cent of global exports, its share is growing. AGOA and defining the agreements that will succeed it are likely to be an important agenda item both for the USABF and for future US administrations, and will have implications across global trade negotiations. Frameworks like the Transatlantic Trade and Investment Partnership (TTIP) being negotiated between the EU and US will impact the US−Africa trade relationship, as do the reciprocal economic partnership agreements (EPAs) that the EU has struck with most African nations. As the EPAs give Europe advantages over the US, Washington may seek to shape TTIP negotiations so as not to cede long-term commercial advantage to European firms trading with Africa. This has implications too for a post-Brexit United Kingdom, as London is also considering its own trade relationships in Africa outside the EPAs.
The USABF is meeting at an opportune moment for both African states and American businesses. Many African leaders, confronted by slower growth rates, are once again reappraising their international partnerships. Diversification is the preferred strategy for many, and the US is clearly part of the calculation for most (although South Africa is increasingly hostile to the US and seems to be pulling in the opposite direction). At the same time, the longstanding pattern of US corporate investment being limited to extractives – and some broader engagement in South Africa − is changing. Major players in corporate America, such as Blackstone, General Electric and Johnson and Johnson are developing long-term investment strategies across the continent, complementing Exxon’s and Chevron’s many decades of engagement. Other companies are testing the waters, assessing whether investing in Africa is profitable and possible given tightening US and European regulatory regimes.
When Obama was elected as the first African-American US president, some thought that Africa would become a more important focus of overall US foreign policy. It was never a realistic prospect, given the range and importance of US global strategic interests. But President Obama has been engaged in African issues, visiting Africa twice during his second term of office − Senegal, South Africa and Tanzania in 2013 and Kenya and the African Union headquarters in Ethiopia in 2015. He may yet visit Nigeria before his presidency ends, and will meet President Buhari in New York. In addition to improving bilateral relations with Kenya and Nigeria, President Obama’s mediation efforts have helped transitions in recent years in Senegal, Côte d’Ivoire and Burkina Faso, although he clearly regrets how poorly prepared his NATO allies, Britain and France, were in their Libyan intervention, given the instability that followed.
And perhaps most importantly, Obama recognized that in addition to good governance and aid, Africa can only flourish if there is more trade and investment into the continent. Reorienting US-Africa policy towards trade, and putting in place practical initiatives, such as the USABF, to build relationships and encourage investment, will be the key Africa legacy of the Obama administration.
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More than Sh101 billion in Power Africa commitments finalised
More than Sh101 billion ($1 billion) in debt and financing commitments from US agencies and private investors is set to be announced on Wednesday for US President Barack Obama’s signature Africa energy initiative, Power Africa, a top USAID official said.
The latest deals were finalized around a US-Africa business forum on the sidelines of annual UN meetings in New York this week, USAID chief Gayle Smith said in an interview with Reuters.
Obama launched the initiative in 2013 with an initial investment of $7 billion, which aims to install 10,000 megawatts of new generation capacity, connect 20 million new customers, and improve electric reliability across the Sub-Saharan Africa.
The program hoped to attract private capital into energy projects in a region where regulatory hurdles and lack of risk instruments have often kept Western investors away.
Smith said the deals covered funding for regional infrastructure facilities, risk insurance and renewable power projects in Kenya, Nigeria, Senegal, Sierra Leone, South Africa and Tanzania.
Potential deals
To date, Power Africa has mobilized more than $52 billion in additional commitments, of which $40 billion is from private companies, according to the United States Agency for International Development (USAID), which coordinates the program.
Power Africa is tracking more than 500 deals, and 40 transaction advisers working across Africa have identified 60,000 megawatts of potential deals, Smith said.
While the initiative has been criticized for its slow start, she said projects were starting to come online.
“We’re starting to see some of these projects go online and actually start the generation,” Smith said.
“We’re seeing an uptick in commitments, which is because confidence of the market is building and they’re seeing you can actually get these transactions done.”
Smith said the passing this year of the Electrify Africa Act, which unanimously passed the House of Representatives and Senate, and aims to build on Power Africa, sent a “a signal that this is something the United States will continue to do” even as the Obama administration winds down.
The legislation is largely symbolic and declares it the policy of the United States to encourage electrification in Africa and instructs the US Treasury and other agencies to make electrification funding a priority.
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House okays EU trade pact ahead of deadline
Parliament unanimously endorsed Economic Partnership Agreement (EPA), sending yet another strong signal of Kenya’s resolve to conclude the decade-old negotiations with Europe.
A copy of the EPA that MPs ratified Tuesday will be submitted to the European Union as proof of Kenya’s commitment to boost free trade with the 27-member bloc.
“The minister will have 10 days to notify the EU council of the ratified agreement to save our exports from duties once we hit the October deadline,” National Assembly Majority Leader Aden Duale said.
The East African Community (EAC) states have negotiated EPAs in the last 10 years without conclusion. On September 1, Kenya teamed up with Rwanda to sign the pact that MPs ratified Tuesday.
The move by Kenyan Industrialisation Secretary Adan Mohamed and Rwandan Trade counterpart Francis Kanimba took the EAC by surprise.
The regional bloc’s presidents who met in Dar es Salaam a few days ago asked for up to January to review the EPA’s legal text.
On Tuesday, Mr Mohamed hailed Parliament for ratifying the agreement saying that Kenya’s interests are were now safeguarded.
He said Kenya could not risk its EU markets and face a Sh10 billion-a-year tax on exports.
“This is the best deal for Kenya because if we failed to sign we would have been subjected to other conditions which the rest of our neighbours are not subject to. We had to do it before October 1 to enjoy access to the European markets,” he said at a press briefing in Nairobi.
Kenya, the only State classified as developing country among the EAC’s six members, ships close to 32 per cent of its exports to Europe. Last year, it exported Sh581 billion worth of products to different parts of the world.
The rest of the members have alternative access to EU market as they are classified as least developed countries that have duty- and quota-free access under EU’s Everything But Arms initiative.
The MPs, who had been recess since September 1, were recalled to ratify the pact just 10 days before the deadline.
The MPs urged the EAC states to speed up the process but insisted that the standoff would not hurt trade relations in the bloc.
“We will not jeopardise or undermine our larger commitment to East Africa or our negotiations in East Africa as a bloc,” said Mr Duale.
The move by Parliament was immediately praised by Kenya Association of Manufacturers CEO Phylis Wakiaga and Kenya Flowers Council CEO Jane Ngige.
“Kenya ratified position to protect its interests. Kenya is a middle income country that is subjected to unique conditions compared to other EAC countries that have automatic access due to their least development country status,” said the business leaders.
The EU parliament is expected review Kenya’s position and decide whether or not to delay imposing duty.
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Accelerating Trade in West Africa (ATWA): Stage 1 Report
Accelerating Trade in West Africa (ATWA) is a new initiative aiming to establish a durable, multi-donor vehicle dedicated to advancing regional integration, expanding trade and lowering trade costs along key trade routes in West Africa. At present, ATWA is financed by the Danish aid agency, Danida, although other development partners have already expressed interest to join.
The ATWA scoping and design phase is being executed by Saana Consulting Ltd over the period February 2015 to October 2016 and will cover both “soft” policy and trade facilitation issues and “hard” infrastructure constraints to ensure meaningful impact.
Trade facilitation and market integration issues have repeatedly been highlighted as the key to unlocking greater gains from trade in West Africa by Heads of States and Government of the Economic Community of West African States (ECOWAS). ATWA comes at a crucial moment for regional integration in West Africa. Amongst recent developments, the advent of the ECOWAS Common External Tariff (CET), on-going efforts to strengthen the free movement of goods in the region, and the introduction of several Joint Border Posts (JBPs) in the Union Économique et Monétaire Ouest Africaine (UEMOA) and ECOWAS are a positive signal that regional integration is moving forward.
ATWA seeks to build on that momentum. At present, donor support to regional trade and integration in West Africa is already substantial, but it is fragmented. This increases the complexity and transaction costs of regional efforts, for donors and recipients alike, and reduces the resources available for achieving meaningful results. ATWA rests on the idea that a more integrated, longer-term approach could achieve better results.
ATWA takes inspiration from East Africa, where eight donors (Belgium, Canada, Denmark, Finland, the Netherlands, Sweden, United States and the United Kingdom) have pooled their support and established a single non-profit organisation working across the East African Community (EAC) to further its integration agenda. The organisation, TradeMark East Africa (TMEA) currently has a budget of USD 650 million over 2011-2017 and works in the five EAC countries and South Sudan to reduce trade costs on major transport corridors and improve the business environment for trade and investment. TMEA is ATWA’s technical partner.
Approach
ATWA, as a scoping and design exercise, is structured according to three consecutive stages:
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A first stage selecting one or several trade routes in West Africa that ATWA could focus on initially as regards to their potential for development. This includes a literature review and a preliminary round of consultations with regional organisations, national governments, private sector interests and donors already active in the trade and transport field in West Africa, in order to identify their interests, priorities, challenges, opportunities and existing initiatives that ATWA can build upon.
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A diagnostic stage, in which a set of studies will establish the sources of delays and costs in international and intraregional transport along a defined group of trade routes in West Africa, and outline a number of interventions that ATWA could initially implement in order to improve trade flows. These studies will engage public, private and civil society stakeholders across the region in order to get a comprehensive picture of needs and priorities, opportunities and bottlenecks. The ATWA project team will also organise a study visit to the EAC by a West African delegation.
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A final stage which will include the development of a clear and costed programme document to be presented to regional and national authorities, as well as interested donors. As part of this stage, Danida and the project team will devise the budget, governance options and a roadmap for ATWA’s implementation phase.
Regional Context
ECOWAS and UEMOA plans and priorities
ECOWAS is the only regional economic commission recognised by the African Union in West Africa and has 15 Member Sates. UEMOA, the second regional commission in West Africa is composed of 8 Member States whom are all also part of ECOWAS.
ECOWAS Vision 2020 identifies 242 priority projects for a total estimated cost of almost USD 27 billion. About half of them are in the fields of free movement of people and goods, regional integration, transport infrastructure and food security, and could potentially be of interest to ATWA. UEMOA is working on an updated Community Action Programme on infrastructure and road transport, which should be ready by the end of 2015.
There are about 125 ECOWAS projects which could be of interest to ATWA. ECOWAS’ latest and most ambitious road project to date is the construction of a six-lane highway from Lagos to Abidjan, which was agreed by the Heads of State of the concerned countries in a Treaty signed in March 2014 and which may get funding from China.
In the field of trade policy, a major achievement is the agreement on the structure of the ECOWAS/UEMOA CET agreed in 2013, which is currently being implemented. Should the CET be implemented effectively in the years to come this could lead to the reduction of barriers to trade amongst ECOWAS Member States and open the way for the creation of a full Customs Union and Common Market in goods.
In 2001 UEMOA adopted a Community Action Program for Infrastructure and Road Transport (Programme d’actions communautaires des infrastructures et du transport routiers – PACITR). As part of that program, UEMOA defined eleven priority corridors which were to be upgraded.
The action programme also called for the construction of 11 JBPs and an Observatory of Bad Practices (Observatoire des pratiques anormales – OPA). UEMOA is presently in the process of developing an updated community action program for infrastructure and road transport development, which is scheduled to be ready before the end of 2015.
Legal environment
From a regulatory perspective the lack of progress in regional integration is not because of lack of legal instruments but mostly because they are not effectively implemented. There are still national and bilateral agreements that hinder the free movement of goods and people, such as cargo sharing quotas, first-come-first-served shipper and transporter matching arrangements, and compulsory cargo insurance requirements. However cargo sharing and cargo matching rules are nowadays only enforced on a few corridors. Export bans, standards based barriers and residual import tariffs are also still present amongst ECOWAS Member States.
The most relevant regional regulations for ATWA cover different sectors.
For trade policy these are:
1. The ECOWAS Trade Liberalization Scheme (ETLS) and its various instruments, establishing the internal free trading regime in ECOWAS.
2. The recently adopted ECOWAS Common External Tariff and its Supplementary measures of protection, establishing a common tariff schedule for all ECOWAS member States.
For customs and trade facilitation:
3. ECOWAS Decision A/DEC/13/01/03 Relating to the Establishment of a Regional Road Transport and Transit Facilitation Programme in Support of Intra-Community Trade and Cross-Border Movements.
4. Joint Border Posts: Supplementary Act /Sa.1/07/13 Relating To The Establishment and Implementation of the Joint Border Posts Concept within Member States of ECOWAS establishes, among other things, the legal framework of Joint Border Posts.
5. Checkpoints : Décision N°15/2005/CM/UEMOA Portant Modalités Pratiques d’Application du Plan Régional de Contrôle sur les Axes Routiers Inter-Etats de l’UEMOA.
6. Corridor management committees: Décision N° 39/2009/CM/UEMOA Portant Création et Gestion des Corridors de l’Union.
And in the field of interstate transport and transit:
7. The 1982 ECOWAS Convention A/P2/5/82 Regulating Inter-State Road Transportation (between ECOWAS Member States, referred to as the IST Convention).
8. The 1982 ECOWAS Convention A/P.4/5/82 Relating To Inter-State Road Transit of Goods – referred to as the ISRT Convention. This Convention establishes the conditions under which cargo can be transited through member states.
9. Axle Load control: UEMOA Règlement N°14/2005/CM/UEMOA Relatif à l’Harmonisation des Normes et des Procédures du Contrôle du Gabarit, du Poids, et de La Charge A l’Essieu Des Véhicules Lourds de Transport de Marchandises dans les États Membres de l’UEMOA.
There are other, more specific regulations dealing with, for example special regimes for the intra-community trade of staple food products that are not reviewed here but could be of relevance for interventions in more specific sectors.
Traffic flows
Traffic flows are heaviest in the southern part of the coastal countries in West Africa, which is also where most people live and where most economic activity takes place. The busiest road transit corridor is Cotonou-Niamey, probably because a large volume of goods transported on that corridor goes to northern Nigeria. The next busiest transit corridor is Lomé-Ouagadougou. Transit traffic is very unbalanced with export volumes from landlocked countries being about 10 percent of import volumes. Intra-regional traffic flows are about 50 percent of transit flows. The African Union’s Programme for Infrastructure Development in Africa (PIDA) initiative forecasts that traffic volumes in West Africa will grow 80-fold from 7 million tonnes (mt) in 2007 to 176mt in 2020, to 300mt in 2030 and to 556mt in 2040.
Road transport services
In West Africa, road transport services are expensive and of poor quality. Truck fleets are old and operators small and not very professional. For example, the average truck in Benin is more than 27 years old and, of 15,700 Benin transporters, 10,000 operate a single truck and another 4,500 operate an average of 2.5 trucks each, while the 16 largest operate fleets of only 84 trucks per fleet, on average. Inefficiencies are numerous and truck utilization very low with the average transit truck spending only about 30 percent of turn-around times travelling while 70 percent of the time is spent waiting in ports or at an inland terminal.
Road transport
The major trade corridors in West Arica have seen many improvements to road quality in the last number of years and the network has probably never been as good as it is today. More than 90 percent of the movement of freight and passengers in the ECOWAS region takes place by road.
The ECOWAS region has only 4.7km of road per 100km, which is lower than the average of 6.8km for the African continent as a whole. Still, relative to GDP, West Africa has a large road network and in Niger, for example, the asset value of the road network exceeds 30 percent of GDP, an indication of the large economic burden of maintenance. Therefore, conserving the road infrastructure is an important challenge which ECOWAS member states address from two angles.
First, many countries have established independent road maintenance funds financed by fuel levies and tolls, but generally that only covers about half the required amount. The second approach is to limit premature wear and damage to roads by enforcing axle load controls. This has been a very serious problem for many years as trucks loaded to almost three times the legal limit have been plying the corridors, destroying the roads and presenting great hazards to road safety. Progress has been slow but as of 2014 all major countries in the region had axle load control programmes in place.
Checkpoints and road governance
The excessive number of checkpoints along inter-state roads in West Africa has been, and still is, an important barrier to the free movement of goods and people. UEMOA with the support of USAID’s West Africa Trade Hub established an “observatory of bad practices”, the Observatoire des pratiques anormales in 2006 to document the situation, hoping that monitoring and advocacy would solve the problem. But the problem has not been solved and in early 2015 the number of checkpoints in Ghana on the Tema-Ouagadougou corridor, for example, had mushroomed to about 50.
However, past donor programmes have found that the amount of bribes paid at checkpoints is relatively low for “legal” trucks – trucks meeting all regulatory requirements, carrying cargo properly documented, and driven by drivers with all papers in order. Most informal payments for a given consignment are paid in ports or inland terminals where goods are cleared and money changes hands. However, for informal trade or trucks carrying perishable goods the harassment is very serious and can amount to the equivalent of USD 70 per 100km.
West African Corridors: Overview and comparison
West African corridors can be divided into two categories: transit corridors and intraregional corridors. Transit corridors link a port with a landlocked country, running from North to South, while intraregional trade corridors link multiple countries from East to West.
This report reviews all major corridors in West Africa. These include, from West to East:
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Lagos-Kano-Jibiya in Nigeria (NG) to the border with Niger (NE) and beyond
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Cotonou, Benin (BJ) - Niamey, (NE)
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Lomé, Togo (TG) - Ouagadougou, Burkina Faso (BF)
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Tema, Ghana (GH) - Ouagadougou, BF
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Abidjan, Côte d’Ivoire (CI) - Ouagadougou, (BF)
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Abidjan, (CI) - Bamako, Mali (ML)
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San Pedro, (CI) - Bamako, (ML)
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Conakry, Guinea (GN) - Bamako, (ML)
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Dakar, Senegal (SN) - Bamako, (ML)
There is less information available on intraregional corridors in ECOWAS, but we also present evidence and data available about the two main East-West corridors in the region:
10. Dakar, (SN) - Niamey, (NE)
11. Dakar, (SN) - Lagos, (NG)
West African corridors: Overview of main features
Basic data detailing transit flow volumes, the number of checkpoints on the corridor and the amount of formal and informal payments paid along the road by transporters is available for nearly every corridor.
Transit corridors
Lagos-Kano-Jibiya (LAKAJI): This is not strictly speaking a transit corridor although it serves markets in Niger and beyond. The port-city interface is very congested, and it is expensive to move containers out of the port. The corridor costs are high compared to other countries in the region, and levels of road harassment are the highest in the region. There are also significant security concerns in Northern Nigeria.
Lagos ports have a 2015 projected capacity of 1,450,000 TEU. They currently have no Single Window. On the positive side, the railway is being upgraded and may help ease port congestion and improve port-city interface.
Cotonou-Niamey: The Cotonou-Niamey corridor is the busiest West African transit corridor (2.2Mt). However much of the goods carried on this corridor are destined for northern Nigeria, competing with the more expensive LAKAJI corridor described above. It is the least costly corridor in the region (USD 3,938). The delays at the border crossing and checkpoints are also the lowest in the region at 98 minutes. Road harassment is low for transit import through Benin because the country imposes the presence of military personnel in transit trucks to Niger. The road harassment issues are more present once the truck crosses into Niger and on the return trip to the port.
On the negative side, Customs convoys, quotas and the tour-de-rôle system are still in place, suggesting that a reform of the transport sector is needed if reduction of costs along the corridor is to be passed on to consumers. The corridor also exhibits the highest truck turn-around time (19.7 days).
The Cotonou port was recently upgraded and has a projected 2015 capacity of 400,000 TEU. A Single Window is in place since 2013. The Dutch Embassy will sponsor the development of a port master plan to be undertaken by the Port of Amsterdam (this activity was temporarily suspended because of embezzlement of Dutch funds in Benin, but is set to resume shortly).
Informal trade and smuggling between Benin and Nigeria, and possibly also between Niger and Nigeria, is very high. The Netherlands has been sponsoring a project focusing on formalizing informal trade between the two countries.
A JBP is being built on this corridor between Benin and Niger (Malanville).
Lomé-Ouagadougou: This is the most important transit corridor for Burkina Faso. Costs are lower than average at USD 4,092, and it has the lowest truck turn-around time (11.6 days). The delays at border crossings and checkpoints are also below average at 122 minutes, and harassment levels for transit import through Togo are low because gendarmerie checkpoints have been abolished. They are however quite high in Burkina Faso. GPS tracking is used in Togo, but police convoys are still used in Burkina Faso. Quotas and tour-de-rôle are loosely implemented to allocate cargos to truckers, if at all. Informal payments are the highest recorded (USD 349) – 8.5 percent of total costs.
The Lomé Port is being expanded and has a 2015 projected capacity of 1.25 million TEU. A Single Window was launched in 2014, and important set of expansion projects is under way.
The region’s first JBP was built on this corridor between Togo and Burkina Faso (Cinkassé). The JBP is operational but the customs systems either side of the border are not interconnected and few processes have been harmonized and simplified.
Tema-Ouagadougou: The Port of Tema complains that is has lost importance as transit port (transit to Burkina Faso has dropped to 358,000t) because Ghana has been implementing axle load control regulations for longer and more stringently than any other country in West Africa. Current low transit figures may therefore not reflect the true potential of the corridor.
Performance indicators are mixed with a lower than average corridor cost (USD 4,058), lower than average truck turn-around time (13.1 days), but above average delays at border crossings and checkpoints (265 min). The corridor has high level of controls (particularly in Ghana) but the lowest overall level of reported bribes and informal payments along roads and in ports and terminals (USD 125) – 3 percent of total costs.
The Port of Tema has a billion-dollar expansion project and a 2015 projected capacity of 800,000 TEU. The Single Window was launched in 2002, and is the first Single Window in West Africa. The port has also recently installed a modern gate system. Ghana customs uses GPS tracking and quotas and tour-de-rôle are no longer enforced. The Ghana customs authority has an agreement with Burkina Faso and Mali customs authorities to implement a single customs guarantee.
Abidjan-Ouagadougou/Abidjan-Bamako: Abidjan-Ouagadougou has both a road and a rail corridor. With road and rail combined, this is the second most important corridor for Burkina Faso (848,000t) and will probably grow if the railway is upgraded and extended to Niamey and Cotonou, as planned. Abidjan-Dakar is the second most important corridor for Bamako (700,000t).
The corridors have higher than average costs (USD 5,095 to Ouaga and USD 4,870 to Bamako), above average truck turn-around times (17.5 days for Ouaga and 15 days for Bamako), but below average delays at border crossings and checkpoints (165 min and 234 min respectively). The corridors have high levels of controls (21 and 37 respectively) and above average levels of bribes at controls (XOF 39,300 and 47,000 respectively). Mali has the highest level of harassment and bribes among countries participating in OPA.
The Port of Abidjan has a large expansion project and a 2015 projected capacity of 1,000,000 TEU. A Single Window was launched in 2013, and the Côte d’Ivoire customs authorities use GPS tracking in partnership with the Chamber of Commerce. The tour-de-rôle and freight sharing quotas are present on paper but not fully enforced due to a lack of trucks in Cote d’Ivoire.
The Côte d’Ivoire customs authorities have an agreement with Burkina Faso, Mali and Senegal customs authorities to inter-connect their systems and a costed project ready to be implemented (estimated at USD 7.6 million). Cote d’Ivoire and Burkina Faso also have agreed with the World Bank to implement transport sector services reforms in return for a USD 50 million Development Policy Operation (DPO) loan for each country.
Dakar-Bamako: Dakar-Bamako, like Abidjan-Bamako, has both a road and a rail corridor, but the rail corridor is dilapidated. The company Transrail obtained a concession for the railway in 2003 but has not invested in the line.
The Mali Transport Observatory reports that 288,000t were transported by rail in 2013. The USAID Projet de Croissance Économique (PCE) project reported that the rail corridor was the least expensive of all West African corridors (USD 2,703) but it is not sustainable as the line is not being maintained.
The Dakar-Bamako corridor is the second busiest transit corridor (1.7 Mt) in West Africa. In 2015, a second, southern route was opened. Corridor costs are lower than average (USD 4,160). Truck turn-around time is below average (14 days) but delays at border crossings and checkpoints are the highest among transit corridors (316 min). The corridor has a high number of controls (27) and above average levels of bribes at controls (XOF 40,000).
The Dakar port container terminal has been upgraded and has a 2015 projected capacity of 600,000 TEU. The port has had a Single Window since 2006.
Intraregional corridors
Bamako-Ouaga and Ouaga-Niamey: These corridors are part of the Trans-Sahelian Highway (TAH 5) from Dakar to N’djamena in Chad. The Bamako-Ouagadougou corridor is rather similar in performance to transit corridors. For the Ouaga-Niamey corridor we do not have much information but expect it to be similar to Bamako-Ouaga.
The Abidjan-Lagos corridor: is part of the Trans-Coast Highway from Dakar to Lagos. The Abidjan-Lagos corridor connects the major urban centres in West Africa – with a total combined population of 37 million. It carries much local cargo traffic, and international traffic is dominated by passenger traffic.
The average traffic count across borders on the Abidjan-Lagos corridor is 196 trucks per day, which is lower than the average transit corridors where 212 trucks pass per day. The busiest border crossing for cargo is between Ghana and Togo with 493 trucks per day, which is more than the busiest transit corridor, Cotonou-Niamey with 308 trucks per day. This might be due to clinker shipments being shipped from the Port of Lomé to a cement factory in Ghana close to border. The traffic survey this report relies on counted only 29 trucks per day at the Seme-Krake border crossing between Benin and Nigeria, which is surprising.
As for passenger traffic, the average Abidjan-Lagos border crossing sees some 7,500 people crossing per day whereas the average transit corridor only sees 2,100.
The Abidjan-Lagos corridor has a very high density of checkpoints with a total of 62 on a distance of less than 1,000 km. On average, a loaded truck must expect to spend 32 hours at a border crossing on this corridor, from a “best” of 7 hours at the border from Benin to Togo and a “worst” of 63 hours crossing from Nigeria to Benin.
There are currently two JBPs being built on the Abidjan-Lagos corridor: between Nigeria and Benin (Seme-Krake) and between Togo and Ghana (Noepe). It was announced in May 2015 that a third JBP would be built between Ghana and Côte d’Ivoire (Noe).
Review of corridor performance indicators
Corridor performance indicators detail the time and cost it takes to ship goods from a port to its final destination. They also specify the range of days this process can be expected to take, thereby including a measure of uncertainty – an important metric for economic operators. Currently, such data exists for 7 out of the 11 corridors reviewed.
Some general observations can be made with regard to the performance of these seven corridors:
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Total corridor logistics costs, road The average costs is USD 4.395 with the least expensive being Cotonou-Niamey at USD 3,938 and the most expensive being Abidjan-Ouaga at USD 5,095 with the difference between highest and lowest being about 30%. In reality the Lagos-Kano-Jibiya (LAKAJI) corridor, running from the south of Nigeria to the north of the country is probably the most expensive since our data includes neither a border crossing nor goods clearance for consumption in Niger. Elsewhere in the region these activities add from USD 300 to 1,200 per TEU.
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Corridor time The time required to move a consignment from arrival in port to clearance for consumption at destination is on average 16 days with a high of 19.7 for Cotonou-Niamey and a low of 11.6 days for Lomé-Ouagadougou. On average about 70 percent of this time is spent in ports and the inland terminals.
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Road travel time is on average 4.7 days for import, with the slowest being the LAKAJI corridor at 5.4 days and the quickest Dakar-Bamako at 4.1 days. The return trip is quicker – on average 3.1 days – because export is subjected to less control and many trucks are empty. For a distance of about 1,200 km, this is slow (about 32 km/h) but not totally unreasonable.
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Traffic All transit corridors are also important national corridors. National traffic is not reported and we have little information about it. However, a Traffic Study undertaken by JICA reported that among their survey points, Kumasi in South-Central Ghana, and Yamoussoukro in South-Central Côte d’Ivoire were the busiest in the region. The southern part of transit corridors are therefore much more congested than the transit and intraregional trade figures alone would suggest.
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Transit versus Intra-regional It appears that intraregional traffic is between 30-50% of total international traffic except maybe for Dakar-Bamako where 82% was reported to be intraregional traffic (not shown in the table). However, the source report for this figure counted vehicles for a period of only 4 days and may therefore not be representative.
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Truck turn-around time Is a serious problem with an average of 18 days, of which about 75 percent is spent waiting. The worst is Tema-Ouaga at 26 days while the “bests” are Abidjan-Bamako and Dakar-Bamako at 14 days.
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Controls Trucks are not stopped at every checkpoint but there may be more than one control at a checkpoint. The Observatoire des Pratiques Anormales (Observatory of abnormal practices, or OPA) is the most important source for road harassment data. The Abidjan Lagos Corridor Organization (ALCO) monitors checkpoints along the Abidjan-Lagos corridor but it does not report on how often a truck is stopped, how many controls it is subjected to, how much is paid and the delays this cause. At 54 checkpoints/ controls the LAKAJI corridor in Nigeria seems to be the corridor with the highest levels of controls and bribes. The corridor with least controls is Cotonou-Niamey with 11 controls for import, but that is somewhat misleading because trucks travel with military personnel in the truck through Benin, which prevents harassment. There is no military personnel presence on the return trip, which therefore has a higher level of corruption.
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Border crossing times An average border crossing time on a transit corridor is around 1.5 hours, whereas along the Abidjan-Lagos corridor the average is reported to be 32 hours. The difference may in reality not be quite as extreme as these numbers suggest. We know that less than 50% of the border crossing times on the Abidjan-Lagos corridor is processing time and on transit corridors much time is wasted waiting for convoys to take off.
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Delays at control points and at the border crossings on transit corridors amount to 240 minutes per voyage on average. This is 4 hours or about 10 percent of total travel time, assuming 8 hour driving per day.
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Financial inclusion: Bridging economic opportunities and outcomes
Promoting Financial Inclusion in West Africa: ECOWAS Regional Conference
Remarks by IMF Deputy Managing Director Mitsuhiro Furusawa in Dakar, 20 September 2016
Good morning. It is an honor for me to speak today before such a distinguished group on the theme of financial inclusion. I would like to thank the colleagues from the BCEAO and Senegal for their close cooperation in organizing this conference – one of several the IMF has organized on this theme over the past few years here in Africa and in other regions.
It is very important that we are meeting on this topic. Access to financial services as part of the development process is an increasingly important element of your work and the Fund’s advice, research and technical assistance in this region.
The numbers are stark: about two billion people worldwide currently lack access to basic financial services. Most of them are poor, and a large proportion are African.
Many of your countries have taken great strides extending financial services in recent years. Here in Senegal, the share of the population with a bank account more than doubled to about 12 percent between 2011 and 2014. Benin, Mali, Niger and Togo also have done well. Mobile banking is complementing traditional banking services.
But there is a long way to go. Even with mobile banking, only one in three adults in sub-Saharan Africa has access to banking services; in WAEMU we are talking less than 18 percent. Too many households lack bank accounts; too many small businesses have no recourse to loans. You are running the development race weighted down by exclusion
The benefits of financial inclusion and inclusive growth are clearly established. Access to financial services opens doors for families, allowing them to smooth out consumption and invest in their futures through education and health. Access to credit enables businesses to expand, creating jobs and reducing inequality. Financial inclusion is the bridge between economic opportunity and outcome.
The imperative to address this issue has never been more important – clearly because of the benefits it will bring your countries, but also because of the challenges posed by the global economy. We are experiencing a period of disappointing global growth that is expected to continue into 2017. Slower demand from the advanced and emerging economies has hit Africa hard since 2014, particularly the natural resource exporters.
Several of your countries continue to post high levels of growth, but others in Africa are struggling after more than a decade of expansion. There is no reason for complacency. It is essential to put in place policies that can sustain or reinvigorate growth, and financial sector development and inclusion need to be part of this effort. In fact, IMF analysis has shown that more inclusion boosts growth. So for once, it is possible to have both: higher growth and more inclusion.
So in the time that I have remaining this morning, I would like to set the stage for our discussions by offering a few big picture perspectives on how best to deepen financial inclusion, and the all-important connection between inclusion and financial stability.
Lessons from Experience
There are many success stories across the globe that we can look to in seeking the right approach to financial inclusion. In Asia, countries like China, India and Indonesia all are pursuing paths that have rapidly brought millions into the financial mainstream. In East Africa, the achievements of Kenya and other countries in advancing mobile banking can provide a model for other countries.
Experience offers several key lessons.
First and most broadly, financial inclusion must be seen as closely intertwined with the process of financial sector development. If inclusion means access to banking, then those services need to be closer to where the people are – offering deposit-taking, payments processing, microfinancing, mortgages, insurance. In other words, all of the products and services that fuel investment, create jobs and stimulate growth.
Central banks inevitably play a crucial role in creating the enabling environment for financial access. It is their role to get the right balance between ensuring access to financial instruments and protecting banks from instability and risks.
Beyond the central bank, governments have a responsibility to provide the laws and regulations that encourage both financial sector development and inclusion. Regulations are particularly important; for example, basic things like documentation requirements for opening an account. Potential customers may be excluded if they are required to provide a fixed address or proof of employment in the formal sector. Technological innovations like mobile banking will require specific regulations. There also may be a need for laws that allow entry into the industry for institutions offering Sharia-compliant financial products – a key issue in several African countries. Central banks also can play a key role in many of these issues.
Of course, financial inclusion is not just a matter for government. Many other actors are required – particularly the private sector, but also civil society.
I am sure we will delve into some of these topics in more depth today.
Technology and Inclusion
I have already touched on the role of technology in encouraging inclusion, but allow me to elaborate. Technological advances already have shown real results in improving access to financial services, notably by lowering costs and extending services into areas where bank branches may not exist.
The latest Findex report prepared by the World Bank tells an encouraging story: of all the regions in the world, Sub-Saharan Africa has the highest proportion of mobile bank accounts. This offers the potential of a much more rapid increase in access than the traditional banking system could have provided.
In Kenya, the mobile payment service M-PESA has become an integral part of the market economy and is being extended to neighboring countries. Over the past decade the proportion of Kenyans lacking access to financial services has fallen to 17 percent from 41 percent. Now a mobile savings scheme is offering consumer credit as well.
Mobile banking has a foothold in West Africa as well, but it has less coverage. But it is noteworthy that in Cote d’Ivoire the number of mobile accounts has exceeded traditional bank accounts.
Overall, I find it interesting that the Kenyan mobile banking system has developed with a telecommunications company playing a key role. In other countries the services operate through the banking sector. So I will be very interested to hear your views about the right approach to expanding the service during our discussions today.
Let me now take a closer look at the question of financial stability. We are well aware that talk of deepening financial inclusion is often accompanied by expressions of concern about the implications for systemic stability. This is a valid issue. Extending credit to unproductive projects or unfit clients can expose lenders to higher risks; it can also expose ill-informed borrowers to increased risk of debt distress.
But improving financial access need not lead to instability. Inclusion does not mean lending to everyone at any cost.
This is where regulations – and supervision – are so important. Durable and efficient financial inclusion requires a balance of innovation with safeguards for financial soundness. It means helping consumers, especially the most vulnerable, to benefit from access without diving deeper into debt. So well-designed financial regulations – including strong prudential oversight – can ensure that loans are channeled to the most productive uses. Many countries have achieved this balance, and financial inclusion has increased.
Encouraging Active Inclusion
Before concluding, allow me to make one other observation about financial inclusion. Access to financial services is not necessarily the same thing as active participation in the financial system. Take the example of South Africa: so-called “no frills” bank accounts have generated a significant increase in the number of accounts. But after five years, 42 percent of those accounts were inactive. So while many customers have benefited, a large number have not.
The lesson from this experience is that there is a need for active efforts to assist the newly included to take advantage of the services placed at their disposal. This requires training – particularly in record-keeping, budgeting and planning for small businesses. Clearly, it also requires work for the jobless and underemployed so that they can have an income to save and invest. But that is a topic for another conference.
Our task is to ensure that financial inclusion empowers individuals, families and small businesses, particularly in impoverished communities; along with the well-functioning financial systems that can empower them and strengthen economies. At the IMF, we see financial inclusion as a key pillar of economic development. Together with the World Bank and other regional institutions, we have worked with many African countries on reforms that can support greater inclusion.
We will continue to expand our knowledge of the issues, and develop and share best practices with our membership, to encourage the policies that enable more and more people to take advantage of opportunities to improve their lives. This effort is just beginning. I very much look forward to hearing you views on these issues today. Thank you.
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Leveraging engagement with emerging partners to boost Africa’s economic development
The scramble for Africa by emerging economies, and the response by traditional partners, is all to Africa’s benefit. How can Africa leverage its growing ties with the South to boost industrial diversification and economic development?
Africa has witnessed a major shift in its development relations since the turn of the century, away from its traditional partners (the EU and the US) and towards emerging economies – a wide range of South partners, including in particular the BRIC economies (Brazil, Russian Federation, India, and China). This eastward shift of the “center of gravity” has spawned a large and growing literature on the emerging economies’ engagement with Africa, much of it focusing on China. Following Jenkins and Edwards[1], it has become conventional to analyse Africa’s relations with its emerging partners in terms of three vectors of influence, namely trade, investment, and aid.
How deep is Africa’s engagement with emerging partners?
Trade
The rise of South-South trade is not a trivial happenstance, considering the speed and intensity with which it occurred, and its potential to permanently alter the dynamics of global trade. Some critics have argued that the increased trade between developing countries is mainly a China story. Indeed, China alone accounted for over 70 percent of the market share gains by developing countries in both industrial and developing countries during the 2000s, and the Asian giant is now Africa’s second most important export destination behind the EU. Recent evidence suggests that a 1 percentage-point increase in China’s domestic investment is associated with a 0.6 percentage-point increase in export growth from Africa.[2]
However, several other emerging economies – notably Brazil, India, Korea, Turkey, and the United Arab Emirates – have also become key trade partners for Africa. Developing countries in the aggregate accounted for 56 percent of Africa’s exports in 2013, up from 51 percent in 2000 (Figure 1). The BRIC group of countries saw the largest increase in export share, from 8 percent to 28 percent, over the period. China alone accounts for two-thirds of Africa’s exports to BRIC. India has surpassed the US to become Africa’s third largest export destination.
Emerging economies have also become significant suppliers to Africa, with the BRIC group alone accounting for 27 percent of the continent’s imports in 2013. China’s exports to Africa crossed the US$100 billion mark in 2014 as a result of steady growth since 2009. India is trailing just behind the US, whose exports to Africa have progressed slowly in recent years. At current trends, the US is likely to cede its third place to India. However, even as the increase in South-South trade continues to squeeze traditional partners’ share in Africa, the EU remains by far Africa’s dominant trade partner and the recently concluded Economic Partnership Agreements could further strengthen this position in the future.
Figure 1: Africa’s main export destinations, 2000 and 2013
Source: UN Comtrade
Investment
Foreign direct investment (FDI) flows to Africa have increased almost six-fold, from US$ 9.6 billion in 2000 to US$ 54 billion in 2014. Although, in recent years, FDI to the continent seems to have levelled off after bouncing back from a low point in 2010 (Figure 2), greenfield investment has continued to grow, reaching US$87 billion – at a time of sluggish growth in global FDI flows. Much of the investment is market-oriented, with multinationals seeking to get a bite of Africa’s emerging middle class[3] in sectors like real estate and communications.
Figure 2: FDI flows to Africa, 200-2014
Source: UNCTAD TDI/TNC database
A significant share of this FDI is resource-seeking: 38 percent of investment flows in 2014 targeted the coal, oil, and natural gas sector. Concomitantly, announced FDI projects in the manufacturing sector have doubled in value relative to the previous year, with major investments in food and beverages as well as in textiles and clothing. Driven primarily by financial services and construction, the services sector continues to attract the largest FDI flows, accounting for 42.5 percent of greenfield FDI in 2014 and 48 percent of Africa’s inward FDI stock in 2012. Unfortunately, business services as well as transport and communications have witnessed sharp declines in new investment in 2014.[4]
Emerging partners’ investment activity in Africa has raised many questions – and some controversy. The questions arise presumably because of a lack of transparency around FDI projects, fueled by China’s opaque practices as one of the major investors on the continent. To date, however, poor data and patchy information have impeded research on the developmental impacts of investment.
Arguably, the hype about Chinese investment in Africa is overblown – for several reasons. First, China is far behind the top investors in Africa. While greenfield investment by China shot up to US$6.1 billion in 2014, placing the country third on the investors league, that was rather exceptional given that FDI the previous year was a mere US$289 million. A more reliable picture is presented by the FDI stock in Africa, which was estimated at US$655.3 billion at the end of 2013. China, a late entrant into Africa’s investment field, accounted for a mere 7.3 percent of this stock. The BRIC economies’ share stood at 17.6 percent, much of it attributed to India’s 10 percent stake. Brazil’s FDI presence is small, and has grown slowly in recent years, partly due to divestures. The Russian Federation’s investment activity is negligible.
Second, there is a perception that Chinese investment in Africa is predominantly concentrated in the oil and mineral sectors. Yet, a 2011 IMF study found that mining projects accounted for a mere 29 percent of Chinese FDI flows. Smaller investment projects, and those that do not require the blessing of Chinese authorities, often go unrecorded. This points to significant investment opportunities outside of the extractive sector. However, recent data suggests that Chinese non-mining investment is particularly sensitive to the country’s economic fortunes.
Moreover, critics have often confused aid for infrastructure investment with FDI per se, leading to erroneous analysis and unjustified criticism. This confusion derives from a loose definition of investment, which does not distinguish financing from ownership and control. The distinctive feature of FDI is that it gives the investor a degree of control over the project’s management and revenues. China’s so-called “investments” in African infrastructure projects, such as roads, railways, and ports, typically do not give the Chinese any ownership of the projects. The Chinese are simply financing these projects, not investing in them.
As we discuss below, Chinese and other emerging economies’ investments in Africa can do much to build productive capacity, transfer knowledge to the benefit of indigenous firms, and ultimately boost trade, both internationally and regionally.
Aid
Aid is the third channel through which emerging partners are engaging with Africa. Aid flows to Africa from the South have increased massively alongside trade and investment. However, since such aid occurs outside of the OECD Development Assistance Committee (DAC) framework, it has proved difficult to measure it accurately. There is also an issue about whether South aid is aid in the conventional sense. While it is usual to refer to it as “aid” in a blanket way, much of the financial assistance provided by the emerging economies to their African partners may not meet the minimum threshold of 25 percent grant element to qualify officially as aid. There is little doubt that technical assistance, capacity building, and scholarships constitute aid as commonly understood; but the same cannot be said of financial aid.
It appears that a significant portion of financial aid flows from emerging economies to Africa is in the form of lines of credit and other non-concessional loans that, strictly speaking, are not aid. Both China and India have provided large amounts of financing in this form. Under the first India-Africa Forum Summit, for example, India offered lines of credit worth US$7.4 billion to 41 African countries. China has used a range of ingenious alternative financing instruments, including export credits, natural resource-backed loans, and mixed credits (in which concessional and market-rate loans are combined), that have eluded any attempt to measure their aid component.
However, it would be wrong to say that emerging partners’ aid activity in Africa has been limited to loans, concessional or not. China’s aid, for example, spans across eight types, including technical cooperation, medical assistance, humanitarian aid, and debt relief,[5] but these are often left in the shadow of bigger financial deals partly because they are difficult to summarise in statistics. Where data is available, the scale of aid is significant. For example, by the end of 2009, China had provided a cumulative total of US$37.7 billion in aid globally, of which US$15.6 billion (or 41.4 percent) in the form of grants, US$11.25 billion as zero-interest loans, and US$10.8 billion as concessional loans.[6]
In other cases, data is not readily available, but this does not mean that the aid was less significant. At the UN Sustainable Development Summit in September 2015, for example, China’s pledge to set up a US$2 billion fund to assist poor countries in the areas of education, health, and economic development received a great deal of attention. The Chinese premier also vowed to write off an undisclosed amount of debt due to be paid in 2015 by least developed countries (LDCs) and small island economies. This offer of debt relief is of critical importance to a number of debt-saddled poor countries, but the fact that no official amount was announced made it less visible in the media.
A key distinction between traditional and emerging partners’ aid to Africa is the direction of the resource flows. Whereas large doses of aid from traditional partners have been directed to the social and productive sectors, aid from emerging economies has specifically targeted infrastructure projects. Given the visibility and importance of such large-scale projects, African politicians have welcomed aid from South partners. This has created the impression that emerging partners’ aid is more “effective” than official development assistance (ODA) from developed countries.
A number of critics, especially from the press, have claimed that Africa’s engagement with the South is shrouded in opacity and that it might harm good governance on the continent. This is partly due to the fact that Africa’s financial deals with emerging economies have not been subject to the same scrutiny as ODA from OECD donors. The lack of conditionality on loans as well as the growing popularity of oil-for-infrastructure deals, notoriously linked to Angola – even though the model is more widespread –, have been additional factors. China has specifically been singled out by traditional partners for its burgeoning relations with resource-rich African countries. Although the evidence does not support this view, China’s dominance in Africa will remain in the spotlight for years to come.
Impact on African economic development
Each of the three vectors of influence discussed above can have an important impact on economic development in Africa.
Trade
Africa’s trade with the South is skewed towards commodity exports whereas intra-Africa exports show a higher concentration in manufactures. Whether this suggests any pattern or causality is yet to be established. Perhaps it is symptomatic of a pattern of regional specialisation determined by differences in demand. But whatever may be the reason for the underlying correlation, if maintained over time, it can be a boon for industrialisation in Africa: as the continent’s trade with the South continues to increase, so also might its regional trade in manufactures.
An important development following the WTO ministerial conference in 2005 has been the offer of trade preferences by some emerging economies to LDCs. India launched its duty-free tariff preference scheme in August 2008, and published a revised scheme in April 2014. The current scheme provides preferential tariffs on 98 percent of Indian tariffs, including a number of products of key export interest to African LDCs. A series of country studies by ICTSD found that the initial scheme had limited impact on African exporters, mainly because of a lack of awareness among exporters and critical product exclusions. The revised scheme and greater initiative on the part of the Indian government to promote the scheme should, in principle, address these flaws.
China also came up with a preferential scheme in 2010, with an initial duty-free treatment on 60 percent of tariff lines, to be extended eventually to 97 percent. At the Asian-African Summit held in April 2015, China announced that the promise of a duty-free quota-free scheme would be fulfilled by the end of the year. Besides China, India, and Korea, no other emerging economy has proposed any meaningful trade preferences to LDCs. The pressure is currently on Brazil to follow the example set by its peers, but its domestic economic woes make this development unlikely any time soon.
Finally, it is often assumed that the imports of capital goods and technology-intensive products from a country can facilitate the transfer of technology from that country to the importing partner and its firms. The evidence suggests that Africa’s imports from the emerging economies, notably China and India, have been mainly in manufactured goods, including motor vehicles, machinery, and equipment. To the extent that these products can be sourced at lower cost from the South, African countries can afford to import more of them, leading to greater productive capacity and, ultimately, increased trade.
Investment
Foreign investment can contribute to building a country’s productive capacity – both directly and through knowledge spillovers. Where FDI is export-oriented, the impact on exports, employment, and economic growth could be significant, as illustrated by Ethiopia’s recent experience.
China’s investment abroad is bound to increase as Chinese labour-intensive industries seek cheaper production sites abroad. Already, some African countries – like Ethiopia – are welcoming large spurts of FDI as China carries out the initial phase of its plan of building nine special economic zones in seven countries.[7] These industrial zones are designed to succeed where Africa’s previous attempts have failed. Although the developmental impacts of the zones on the host economies are debatable, if they generated technological spillovers, cultivated backward and forward linkages in the host country or with other regional economies, or boosted regional exports, then the impact on African development could be significant.
Emerging evidence from Africa suggests that South partners’ investments in Africa are helping build domestic productive capacity and regional value chains. For example, a Taiwanese textile firm based in Lesotho sources 95 percent of its cotton from southern Africa, and does all of its packaging in the region. Chinese firms in Ethiopia are growing some of their cotton requirements in the country itself.
Indian investments in Africa can be of added benefit to African firms because of India’s reputation for transferring state-of-the-art technology and knowhow to host countries. A number of Indian companies – in sectors such as pharmaceuticals, automobiles, telecommunications, IT, and power – are already seizing emerging business opportunities in Africa. The third India-Africa Summit, held in October 2015, promised to energise Africa-India relations.
Aid
There has been a flurry of research recently on the developmental impacts of aid, particularly aid for trade (AFT). The evidence is at best mixed. Ancharaz, Ghisu, and Bellmann have argued that the best way to measure the effectiveness of aid is at the project level.[8] Using this approach, and drawing on a series of country-level case studies, they conclude that AFT generally works when a set of conditions – reminiscent of the Paris principles of aid effectiveness – are present.
There is much less evidence on the impact of emerging economies’ AFT flows on Africa’s export growth. One reason could be data issues and the definition of AFT. However, if the financing of infrastructure, whether hard or soft, includes a component of aid, then it is not hard to see that such aid can facilitate intra-Africa trade and development by reducing the cost of trading across borders. Aid in other areas, including technical assistance and technological collaboration, could also boost productive capacity and trade competitiveness over the long term.
Leveraging emerging partners to boost Africa’s economic development
African countries can take several concrete steps to leverage their budding partnership with emerging economies. First, while India and China have dedicated institutional structures through which they interact with their African partners, there is an absence of such mechanisms on Africa’s part. This gap can be filled by a simple extension of the African Union Commission’s (AUC) role. For example, the AUC could work with the emerging economies to promote their trade preference schemes more widely while advocating for less stringent non-tariff measures.
A similar mechanism can help streamline Africa’s investment deals with the emerging economies and thus avoid a race to the bottom as African countries, desirous of attracting investments of any size and type, are rushing to offer the most generous concessions, at significant opportunity cost to the government. Finally, an AU-based pan-African institution that takes care of Africa’s aid relations with emerging economies (as well as traditional partners) can go a long way in ensuring that aid makes a greater impact on Africa’s development.
Second, African countries can individually, or at the regional level, take a number of measures to get the most out of their partnership with emerging economies. They must continuously reform their investment regimes, improve the local business environment, and provide efficiency-enhancing advantages, such as a trained workforce, infrastructure, and logistics. Moreover, African economies must ensure that FDI flows to sectors with significant potential for industrial development. Promising sectors include agro-processing, textiles, and light manufacturing, among others. Unfortunately, the recent trend of leasing out large tracts of agricultural land to foreign investors does not bring much economic value to the host countries. They must negotiate better terms with their partners, insisting on greater local content, domestic linkages, and technology transfer.
Third, there is a critical need for transparency to ensure that economic prosperity is shared as broadly as possible. In a number of resource-rich countries, deals have been concluded with emerging economies (especially, but only, China) under opaque conditions. Even in a country like Mauritius, which boasts a strong democratic tradition, the terms on which the Chinese Jin Fei project was awarded was kept a state secret. One way in which this could be done is for all African countries to sign on to the Extractive Industries Transparency Initiative, and for a pan-African institution like the AUC to monitor such commitment.
Finally, African economies can leverage financing for development from emerging economies. While a significant amount of funding, whether as lines of credit or concessional loans, have already flowed to African countries, most of it has been for national infrastructure projects. Financing for regional infrastructure has been limited. It is hoped that the New Development Bank, which announced its first set of loans in April 2016, would help fill Africa’s huge infrastructure deficit, both at the level of individual countries and across regional partners.
Vinaye Ancharaz is an Independent consultant, Mauritius.
This article is published under Bridges Africa, Volume 5 - Number 7, by the ICTSD.
[1] Jenkins, R. and Edwards, C. (2005), The Effect of China and India’s Growth and Trade Liberalisation on Poverty in Africa. Institute for Development Studies, London.
[2] Drummond, P. and E. Xue Liu (2013), “Africa’s Rising Exposure to China: How Large are the Spillovers Through Trade? IMF Working Paper WP/13/250, November 2013, IMF.
[3] Mubila, M. and ben Aissa, M.-S. (2011), “The Middle of the Pyramid: Dynamics of the Middle Class in Africa”, AfDB Market Brief, April 20, 2011, African Development Bank.
[4] UNCTAD (2015), World Investment Report 2015: Reforming International Investment Governance, United Nations.
[5] Sun, Y. (2014), Africa in China’s Foreign Policy, Brookings, Washington, D.C.
[6] Brautigam, D. (2011), “Chinese Development Aid in Africa: What, Where, Why, and How Much?” In J. Golley and L. Song, eds, Rising China: Global Challenges and Opportunities, Canberra: Australia National University Press, 2011, pp. 203-223.
[7] Brautigam, D. and T. Xiaoyang (2011), “African Shenzhen: China’s special economic zones in Africa”, Journal of Modern African Studies, 49 (1): 27-54
[8] Ancharaz, V., P. Ghisu and C. Bellmann (2013), “Assessing the effectiveness of Aid for Trade: Lessons from the ground”, Bridges Africa 2 (4), July 2013
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At UN, Southern African leaders underline importance of regional efforts for sustainable development
In their respective addresses to the United Nations General Assembly on 20 September 2016, Southern African leaders stressed the importance of regional efforts, such as within the African continent through the African Union (AU) to realize a better and sustainable future for all.
“The mission of every generation should be to leave our world a better place for next generations,” said President Arthur Peter Mutharika of Malawi in his address to the UN General Assembly.
“We are the generation that must transform the world. History demands our collective leadership,” he added, stressing the potential of the SDGs to transform the world.
In his address, the President said that Malawi will do its part and that it is doing its part, by offering refuge to people fleeing violence elsewhere as well as send peacekeepers to places where there is need, and noted that it actively pursues the AU Agenda 2063 to ‘Silence the Guns’ by 2020.
He further reported that Malawi continues to register steady but considerable progress in spite of the challenges it faces, in particular noting the effects of climate change which manifested as devastating floods in 2015 followed by severe droughts in 2016.
In responding to the natural disasters and the ensuing food insecurity, he stressed that the Government will do all it can to provide for the estimated 6.5 million affected people, but added that the country will need external support from the UN, multilateral institutions and other cooperating partners.
Describing additional progress in the areas of health, gender equality, trade, investment and market access, he emphasized “we are ready to do business with the world” but stressed that regional and global markets must be free of distortions such as subsidies, tariffs and non-tariff barriers and that international community must live up to the aspirations of the World Trade Organization (WTO) Doha Agenda.
Also speaking in his capacity as a UN Youth Champion, President Mutharika underscored that he is “More than committed to the promotion of youth development and harnessing the demographic dividend in Malawi, across the African Continent and beyond,” and called upon world leaders to follow the example of AU adoption of Demographic Dividend as its theme for 2017.
In his own address to the plenary of the General Assembly, President Jacob Zuma of South Africa recalled the commitment made by world leaders last year in adopting the 2030 Agenda for Sustainable Development, and Sustainable Development Goals (SDGs) to address poverty, unemployment and inequality, three major challenges of this century.
Noting that though the Millennium Development Goals (MDGs), the SDGs’ predecessor, played a major role in the world, and in particular in Africa, President Zuma added, however, the continent and particularly sub-Saharan Africa, did not achieve the targets that were set in the MDGs.
“We have an interest therefore to ensure the improved implementation of the SDGs, as we take forward the agenda of promoting Africa’s sustainable development,” he underlined, adding that if the African is to develop faster, constraints, such as inadequate infrastructure, price volatility, limited investment in research and development and low private sector investment needed to be addressed.
Referring specifically to his country, the President added that the Government has put in place a national development plan that is aligned to the AU Agenda 2063, the AU Plan as well as the SDGs.
Citing challenges at the regional level, in particular in resource mobilization, President Zuma told the General Assembly that according to estimates from a joint AU-UN Economic Commission for Africa (UNECA) panel, illicit flows from the continent could be as much as $50 billion per year.
“If we can arrest and robustly deal with this scourge, the continent will have all the domestic resources required for the implementation of its own development agenda,” he stressed.
He further underlined the need to close the gap between the rich and the poor which has divided countries between big and small economies, “Inclusive growth has thus become a peace, security and prosperity imperative,” he added.
Further stressing that inclusive growth would remain a dream if powerful nations continue to put their national interests ahead of the global collective interest and that conflicts around the world continue, he underlined “As a continent, we remain committed through the AU and its Peace and Security Architecture to resolve the few remaining conflict areas.”
In his address, President Zuma also highlighted the importance of the Paris Agreement on climate change as well as for reforms in the UN system and said that he was pleased to see that the General Assembly “for the first time in the history of this organization been at the centre of the process of finding a new Secretary-General.”
Further, addressing the General Assembly, President Edgar Chagwa Lungu of Zambia highlighted the synergies between the African Union’s 2063 Agenda and the 2030 Agenda, and said that the two clearly show that the aspirations of the African continent and those of the broader international community are well aligned for achieving a better world for all global citizens.
Underscoring that elimination of poverty is at the core of sustainable development, he called for: “Special attention [for] the least developed countries (LDCs), who are more vulnerable and in need of more support to strengthen their economies in order to overcome the challenges they face.”
Speaking of his country’s efforts to overcome poverty, unemployment, hunger and inequalities, President Lungu highlighted efforts to develop value-chain clusters, diversity agriculture, promote forestry, as well as foster industrial growth through multi-facility economic zones and industrial parks, as well as developing skills of the population and promoting education.
At the regional level, the Zambian leader underscored that development of infrastructure is fundamental to fulfilling the continents desire to accelerate economic growth and enhancing its competitiveness on the global market.
Noting the importance of the Paris Agreement, he informed the UN body of some of the steps his country has taken to address the threat of climate change, reporting that it has been pursuing greater energy mix through investment in alternative sources of energy. He added that in the agricultural sector, Zambia is exploring technologies that strengthen sustainable agricultural practices as well as increasing food production.
He also spoke about the advances the country has made in improving standards of health for its people as well as strengthening legal frameworks for gender equity and equality that has domesticated the Convention on the Elimination of Discrimination against Women.
As recognition of the country’s efforts to promote gender equality, he noted that Zambia was among 11 countries in Africa to be presented with the gender award for promotion of gender economic rights, and that he, himself, was conferred with the title of promoter for the HeforShe campaign by the UN Entity for Gender Equality and the Empowerment of Women (UN-Women).
Furthermore, in his address, the President spoke of the need of reforms at the UN so that it can reflect the contemporary realities of today’s global order. He also noted that Zambia fully supports the Ezulwini consensus and the Sirte declaration, representing the common African position on the reform of the UN Security Council.