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Blockchain will become ‘beating heart’ of the global financial system
Blockchain will fundamentally alter the way financial institutions do business around the world, according to a new World Economic Forum report, The future of financial infrastructure. However, the effects will be hidden, coming from new processes and architecture based on blockchain rather than radical fintech innovation or new currencies such as bitcoin.
The report focused on nine individual uses of blockchain across six separate activities in financial services – insurance, payments, market provisioning, investment management, capital raising, and depositing and lending – to build a picture of how processes in each could be transformed by the technology. It also considers how other emerging technologies in the industry, such as biometrics, cloud computing, cognitive computing, machine learning, quantum computing and robotics, will combine with blockchain to drive further transformation.
Use cases
Some of the processes the report found would be replaced by blockchain include bread-and-butter activities of financial institutions, such as:
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International payments and wire transfers, which currently involve a lot of manual steps and fees ciated
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Rehypothecation, or the repackaging of mortgages, which caused the last global financial crisis ciated
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Compliance reporting of banks to regulators, currently a long and ineffective process.
With blockchain promising to simplify back-end banking processes, making them cheaper, securer and more accessible, one area where it could have a profound impact is in creating an inter-bank, blockchain-based fiat currency to streamline the arduous process for transferring money, as illustrated below. Such process innovation would cause blockchain technology to enter the finance bloodstream.
Transfer money process, current (left) and future (right) state
“Rather than stay at the margins of the finance industry, blockchain will become the beating heart of it,” said Giancarlo Bruno, Head of Financial Services Industries, World Economic Forum. “It will help build innovative solutions across the industry, becoming ever more integrated into the structure of financial services, as mainframes, messaging services and electronic trading did before it.”
Blockchain could thus redraw the structure of financial institutions and the back-end of services as we know them today. Blockchain could allow consumers to pay less for all kinds of financial activity, from international payments to the trading of stocks and bonds. It could also give regulators new capabilities, allowing them to stop regulatory violations before they start and to watch more effectively for warning signs of financial crises.
However, Bob Contri, Global Financial Services Industry leader, Deloitte Global, and a co-sponsor of the report, said competing financial institutions will need to come together to achieve these results. “Before full adoption is possible, there are factors that need to be addressed, including an uncertain regulatory environment, lack of standardization efforts and the need for a formal legal framework,” he said.
Similar to any technological innovation, blockchain comes with a set of risks that must be considered, the report also notes. These include errors in the design, malicious autonomous behaviour as a consequence of human decisions, and potential gaps in security across all inputs and outputs. Challenges such as these must be overcome if the economic and social benefits of blockchain are to be realized.
“While there is no doubting the transformative potential of blockchain technology, it is not a blanket cure for inefficiency in financial services. At this stage of evolution, the critical task is knowing where to focus your efforts. Blockchain will have the greatest impact when applied to business problems involving a shared repository of information, multiple writers, minimal trust, the presence of intermediaries and interdependencies between transactions. Without these conditions, blockchain may not be the answer,” said Rob Galaski, Partner, Deloitte.
“The financial services infrastructure will be radically changed by blockchain technology. It will redraw processes and call into question policies that are the groundwork of today’s business models,” said Jesse McWaters, Project Lead, Disruptive Innovation in Financial Services, World Economic Forum. “Our research looks to the future state of blockchain technology and by starting this conversation we believe this will help further build perspective for what is to come.”
The report is the most recent phase of the Forum’s ongoing Disruptive Innovation in Financial Services project. It draws on over 12 months of research, engaging 200-plus industry leaders and subject matter experts through interviews and multistakeholder workshops.
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EAC Assembly passes key report on Poaching, urges governments to reform laws, get though on those plundering wildlife resources
The East African Legislative Assembly resumed its session in Arusha, Tanzania on 23 August 2016, where it debated and passed a critical report on poaching in the region. The Assembly in essence, urged EAC Partner States to reform wildlife laws and to put in place initiatives that promote upkeep of communities that neighbor the wildlife conservancy areas.
The Oversight report on poaching presented to the House by the Chair of the Agriculture, Tourism and Natural Resources Committee, Hon Christophe Bazivamo, further urges Partner States to develop/improve wildlife conservation strategies and protection measures through patrols, joint cross border operations, surveillance and information sharing.
With it, the Assembly says Partner States should and can provide part of the revenue collected from wildlife tourism to the communities living around the National Parks to promote conservation.
The report emanates from a workshop on poaching and fisheries held in Mwanza, Tanzania and in Nairobi, Kenya in August 2014. Its objective was to sensitize Parliamentarians on the escalating problem of poaching and illegal wildlife trafficking in EAC region and to solicit their views on strategies and measures that could be adopted in addressing the problem. The workshop further sought to consider existing international and regional policies, strategies and regulatory framework/instruments on wildlife management on the one side as well as the current and proposed national and regional initiatives toward strengthening wildlife conservation on the other hand.
The report was a follow-up on the Resolution moved in the House by Hon. Ogle Abubakar on “Escalating problem on Poaching and Illegal Wildlife trafficking in EAC” in August 2013 in Arusha.
The Committee was only able to visit the Serengeti National Park and the Mwaloni Kirumba fish market in Mwanza, Tanzania as well as the Nairobi National Park. The Serengeti National Park is dubbed as one of the park’s with the greatest concentration of game in the region and famed for over two million wildebeest, half a million Thomson’s gazelles and a quarter of a million, zebras. The Committee observed that mining settlements are interfering with the migration path of some animals and mechanized agriculture has taken over where wildebeests would historically breed their calves.
This has caused a loss of habitat for many species in the Serengeti. At the same time, Hon Bazivamo informed the House that non-authorized people enter into Serengeti National Park for various reasons. Such include poaching, hunting, cutting trees/firewood, grazing, fishing, cultivation and mining. Persons also traverse the parks collecting grass, medicine, honey, water and seeking refuge.
In Kenya, the Assembly was informed that proliferation of small arms and light weapons created an avenue for wildlife poaching. Other documented challenges include inadequate man power (rangers), skills, equipment and transport as well as human settlement around key rhino and elephants’ areas.
The Report also highlights findings of the fishing sector following a visit to the Mwaloni-Kirumba fish market in Mwanza as well as a presentation by experts on fisheries on the Lake Victoria. It states in part that the increasing number of fishermen to 1.5% between 2012 to 2014 means the sector is in danger of collapse in the future.
“Usually, any natural water points (such as lakes, rivers) have a maximum number of fishing effort it can accommodate so that the fisheries become sustainable, above which the fisheries become depleted, unsustainable and will eventually collapse,” a section of the report says.
The report also informs the House of decrease of the use of long-line hooks as well as the use of prohibited illegal gillnet as challenges despite its decrease in usage by 7.2%.
During debate on Tuesday, Hon Martin Ngoga said Police in Rwanda recently intercepted ivory cargo transiting through the country and said further deficiencies in legislation on matters of poaching need to be effectively handled.
“We have to look into the shortcomings on legislations with a view to coming up with regional piece of legislation or strengthening those of Partner States,” the legislator said.
Hon Ngoga remarked that there was abundance of political will in resolving the poaching impasse but said such capacities need to be strengthened. Hon Taslima Twaha said the water hyacinth continued to be a challenge in Tanzania saying it was depriving fish of existence.
“The technology that was used in the Republic of Kenya in Kisumu could be shared in Mwanza to address the problem,” Hon Twaha said. He said fish and specifically the nile perch was good for health of all citizens and that it was vital for the demands of the region to be fully met before any exports. Hon AbuBakr Ogle said the Middle East and specifically China was a big beneficiary of poaching menace and it was necessary for the Government and the EAC to partner together to end the vice.
Hon Shyrose Bhanji said the fish market provided labour opportunities for those in the fishing business. She remarked that the Serengeti national park which straddles Arusha, Manyara and Mwanza which had a rich ecosystem for a number of years was now deprived and pegged at 30%. “The Park needs to be preserved and mining activities should be suspended and stiff penalties meted to poachers. Our governments must come together to fight the malpractices,” she said.
Hon Isabelle Ndahayo said corruption was a key ingredient of poaching and the region needs to stem the vice. “We have debated the matters over and over again, passed a number of resolutions. The conservation areas are shared and a joint strategy is necessary. The Council of Ministers must deal with the matter squarely,” Hon Ndahayo said.
Hon Nusura Tiperu said the adoption of the report was a key indication that the Assembly is passionate about ending poaching. “Governments must be tough and act to save those working to deplete numbers. Animals have no borders and laws that are defined within national borders may not suffice. Instead a regional mechanism is key,” Hon Tiperu said.
Hon Maryam Ussi, Hon Pierre Celestin Rwigema, Hon Dr Odette Nyiramilimo, Hon Patricia Hajabakiga also supported the report.
Third Deputy Prime Minister and Minister for EAC, Republic of Uganda, Rt Hon Kirunda Kivejinja said a regional mechanism was necessary to contain poaching. Kenya, United Republic of Tanzania and Uganda are beneficiaries of the Ivory Fund whose contributors include; Netherlands, Germany, China, UK, France Belgium and South Africa. Kenya and Tanzania have been identified to be among the eight countries of concern with respect to increased illegal trade in elephant ivory and directed by the Convention on International Trade on Endangered Species (CITES) Parties through the Standing Committee to put in place actions aimed at reducing the illegal trade.
» Download: Report of the Committee on Agriculture,Tourism and Natural Resources on the Oversight Activities on Poaching, 2 June 2016 (PDF, 8.69 MB)
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tralac’s Daily News Selection
The selection: Tuesday, 23 August 2016
SADC Secretariat records E160m operating surplus (Swazi Observer)
The Southern African Development Community Secretariat has recorded a healthy operating surplus of $11.8m (approximately E160m), for the 2015/2016 financial year. The good news was revealed by the SADC Director for Budget and Finance Clement Kanyama yesterday. Kanyama said the recorded surplus showed an increase from 2014/2015 financial year, as the SADC Secretariat recorded E139m ($10.3m). Kanyama said 2015/2016 revenue was $78.6m made up of $51.6m from Member States and $27m from grants, which were recognised as contributions based on the SADC Secretariat compliance with condition, as specified in each financing agreement. “The total expenditure was $66.8m and total assets under the control of SADC Secretariat of $101.1m,” he said.
Southern African Business Forum seeks projects to spur socio-economic growth (Swazi Observer)
SADC Lawyers’ Conference: full text of the speech by Jeff Radebe (pdf), Minister in The Presidency for Planning, Monitoring and Evaluation
Has SA’s foreign policy smoothed the way for companies in Africa?: commentary by George Rautenbach (Business Day)
AU’s Kigali summit decision on the Continental Free Trade Area (AU)
The Heads of State and Government decided to establish a High Level Panel of five eminent persons (one from each region) to champion the fast tracking of the Continental Free Trade Area (CFTA), ahead of its proposed launch in 2017. They also called on Member States to speak with one voice on all issues related to trade negotiations with third parties.
Rwanda has formally rejoined ECCAS: two updates
Rwanda back to Central Africa bloc, 10 years on (The EastAfrican): Rwanda has formally rejoined the Economic Community of Central African States (ECCAS), after Foreign Affairs Minister Louise Mushikiwabo presented the instruments of ratification to the economic bloc on August 17. The return repositions the country to benefit economically, politically and diplomatically in the Central African region. Rwanda, which had been a member of ECCAS since 1981, was readmitted into the bloc last year, almost 10 years after leaving. When it left, it cited the need to focus on its membership in the East African Community and the Common Market for Eastern and Southern Africa.
Rwanda eyes big opportunities from central African bloc (Global Times): Francois Kanimba, Rwanda minister of trade and industry said that Rwanda will reap big from various regional economic groupings. "Our country joining ECCAS is a big opportunity for Rwandan traders to sell their goods and services on a bigger platform across the continent. Local producers will benefit from increased market size which is an important factor facilitating innovation and competition," he added. Kanimba stated that Rwanda has gained a lot from being a member of multiple regional blocs since each bloc has comparative advantages to the other, ultimately strengthening the country's economic institutions.
South Africa: trade and industrial policy outcomes from Cabinet Lekgotla (GCIS)
Cabinet took strategic decisions to secure higher impact implementation of the Industrial Policy Action Plan including: (i) That the Department of Public Enterprises and National Treasury will consolidate procurement for locomotives into a single institution (Transnet) to ensure efficiency and compliance with the localisation requirements; (ii) Finalising the evaluation of financial incentives for business to strengthen conditionalities and achieve greater value for money to enhance more inclusive growth; (iii) A trade statistics architecture developed by the South African Reserve Bank, National Treasury, SARS and Stats SA will identify and hold illicit financial flows; (iv) Introducing legislative amendments to implement the 30% set asides (a new Procurement Bill developed by National Treasury) by March 2017 and unlock the potential of SMME’s, cooperatives and the township and rural enterprises. (v) Implementing the new Preferential Procurement Regulations by end August 2016 as an interim measure to this radical intervention.
Government will continue to focus on labour-intensive sectors, including the need for various mechanisms to support greater impact on jobs, such as the use of our incentive programmes, amongst others: clothing, textiles, leather and footwear value-chain; agro-processing and business process services. The successful Oceans Economy intervention will scale up projects to expand coastal and marine tourism in order to realise significant job creation.
South Africa: Minister Ebrahim Patel welcomes action against collusion and price-fixing in steel industry (GCIS)
The Minister of Economic Development, Ebrahim Patel, has welcomed the announcement of a R1,5bn fine payable by ArcelorMittal, the country's largest steel-maker, for price-fixing and collusion in the steel industry. This is the largest single fine imposed against a single company thus far by the competition authorities. The company also undertook, as part of the settlement with the authorities, to invest R4, 6 billion in new capital spending to upgrade its plants and improve its competitiveness. The settlement further provides for a pricing mechanism that will cap the company's margin on flat steel products for a period of five years. [Increase in wheat tariff slammed]
South Africa – Zimbabwe trade war: time for WTO intervention? (Tutwa Consulting)
Should Zimbabwe’s action be regarded as safeguard action, that is, provisional safeguard measures, a violation of both the WTO Agreement on Safeguards and of Articles 20 and 20 BIS of the SADC Trade Protocol is apparent. For instance, the measure imposed should only be a tariff increase pending an investigation and not a ban requiring a license which can only be issued to prevent shortages in the local market where domestic production cannot satisfy demand. Interestingly, SI 164 as well as the subsequent press statement by the Minister of Industry and Commerce do not make any reference to any enabling provisions of the SADC Trade Protocol or WTO provisions, as if Zimbabwe is not bound by its trade liberalization commitments regionally and internationally – only domestic legislation is mentioned. While the SADC Trade Protocol provides a mechanism, Annex VI, to be followed in the event of a dispute, to date no trade dispute has been considered under this system. [The analyst: Nkululeko Khumalo]
Zimbabwe: Govt seals multilateral road deal (The Herald)
Zimbabwe yesterday signed a “framework agreement,” with an Austrian construction firm Geiger International and a Chinese Company, China Harbour Engineering, setting the stage for the rehabilitation, dualisation and upgrading of the Beitbridge–Harare and Harare-Chirundu highways. “The signing of this framework is an important milestone in the negotiations that will result in the implementation of the construction of this very important road in Zimbabwe through a combination of Build Operate Transfer and loan financing models,” he said, dismissing claims that it would cost $2.1bn. “The section from Beitbridge to Harare shall be implemented as a BOT, with a concession period of 20 years, while the section from Harare to Chirundu — including the Harare ring road — will be implemented as a combination of a loan and private sector investment contributed by CHEC.”
Beitbridge redevelopment: many intentions, no action (The Herald)
95% of cargo transported in the region is by road with a delay of three days at the border increasing transport costs by about $500 per truck per day which is passed on to the importer. In other terms some unscrupulous officials have turned the port of entry and the entire town into a danger zone for travellers and transit population. Beitbridge Border Post used to be the port of choice for many travellers in the last five years, with importers or travellers in transit opting to put up in local hotels in the town, soon after getting their goods or vehicles cleared at the border. However, that has changed as a result of the mercenary attitude among border officials.
SMEs and GVCs in the G20: implications for Africa and developing countries (GEGAfrica)
The paper first reviews, in broad outline, key contours of the global debate on GVCs and what they imply for trade and investment policies. Broad implications for SMEs wishing to integrate into, and upgrade within, GVCs are also developed. The paper then relates the broad positions of key international institutions on the matter. These institutions represent large and small businesses, and international governmental agencies charged with developing policy perspectives on the issue. Broad implications for SMEs are drawn from this survey, and related to the debate previously charted. Finally, South African, and to some extent African, realities are compared with the policy perspectives emerging from the international institutions surveyed, in light of the GVC policy debate. The paper concludes with recommendations for the South African government. [The analysts: Peter Draper, Chiziwiso Pswarayi], [Emerging economies hope to get economic boost from G20 summit]
Why business operators should embrace arbitration (New Times)
Dr Fidelle Masengo, secretary general of the Kigali International Arbitration Centre, said arbitration is new in Rwanda, adding that they are going to conduct awareness drives to educate business operators on the concept. He argued that arbitration benefits all parties involved in commercial disputes, saying it is not costly in terms of money and time compared to resort to courts of law. “We are already training lawyers and business people about the benefits of this form of settling commercial conflicts so they avoid lengthy and costly court processes,” he said. He said KIAC is working with the Private Sector Federation and some specific sectors, like mining, services and banking, sensitising them on how they can use arbitration to settle disputes. He said the centre has already trained a sizeable number of professional arbitrators to handle such cases.
Rwanda: What new online portal means for agric export-import enterprises (New Times)
The new online portal will reduce the transaction and administrative time and costs associated with issuance of permits and certificates by up to 45%; the current direct transaction costs to apply for a permit or certificate is $5.67, this is expected to drop to less than $3 per transaction. Already, 150 companies and 50 individuals registered with the system following during its three-month piloting. During this period, a total number of 120 import permits and 207 phytosanitary certificates were issued. [Prices soar in Rwanda as Burundi’s ban on food exports bites]
Tanzania: State urges speed on LNG plant (Daily News)
President John Magufuli has directed the Ministry of Energy and Minerals to fast-track the construction of a liquefied natural gas plant in Lindi Region to cost $30bn (65 trillion/-). “I want to see this project taking off, there have been a lot of unnecessary delays...just accomplish whatever is creating any bureaucracy so that our investors can begin the work with immediate effect,’’ he said. The president was speaking at the State House in Dar es Salaam yesterday after receiving a progress report on the multi-trillion grand project for construction of Liquefied Natural Gas (LNG) plant at Likong’o area in Lindi Region. The report was presented by an official of the Norwegian Company, Statoil Country Representative, Mr Oystein Michelsen, who insisted that after completion of the construction of the envisaged gas plant, production would continue for a period of not less than 40 years. [Nissan earmarks Tanzania for growth in Africa]
Namibia: Team Namibia calls for public sector to procure local (The Namibian)
“Attempts to persuade the public sector to procure local have proved to be futile as imported goods are purchased, despite the availability of their locally manufactured counterparts. The public sector should be the driving vehicle and exemplary agent for ensuring that our Namibian manufacturers and service providers are their first choice of preference,” Roberta da Costa, CEO of Team Namibia, add.
The political and economic dynamics of foreign aid: a case study of US and Chinese aid to Sub-Sahara Africa (pdf, ERSA)
This study sought to answer four specific questions. First, what are the determinants of Chinese and American aid allocation decisions to SSA countries? Second, how has US aid allocation determinants changed with the arrival of China into the aid field in SSA? Third, is there any credence to assertions that China is primarily motivated by access to resource in SSA? Fourth, how significant is recipient governance in the decision of both countries aid allocation decision to SSA.[The analysts: Kafayat Amusa, Nara Monkam and Nicola Viegi]
Agreement on trade in services between India and the Association of Southeast Asian nations: report by the Secretariat (WTO)
This report, prepared for the consideration of the Agreement on Trade in Services between India and the Association of Southeast Asian Nations (ASEAN), has been drawn up by the WTO Secretariat on its own responsibility and in full consultation with the Parties. The Agreement on Trade in Services under the framework agreement on comprehensive economic cooperation between India and the Association of Southeast Asian Nations is ASEAN's 6th regional trade agreement. It is however ASEAN's 3rd Agreement covering trade in services. The Agreement is India's 14th RTA but India's 5th RTA in trade in services. In commercial services, India ranked 5th globally in terms of both global exports and imports, amounting to $156bn and $147bn, respectively. This represents 3.15% and 3.07% of world exports and imports, respectively. Among the ASEAN members, Singapore accounted for the largest share of world trade followed by Thailand and Malaysia. Among the newer ASEAN members (Cambodia, Lao PDR, Myanmar and Viet Nam) Viet Nam had the largest share of exports and imports of commercial services, while Lao PDR has the smallest share. [ASEAN in a climate of change: spotlight on sustainable energy in Malaysia, Thailand, Vietnam (Economist Corporate Network)]
World Bank facilitates water sector talks between Egypt, Sudan, Ethiopia (Daily News)
Angola: EIU forecasts economy will grow 1.3% in 2016 (Macauhub)
UN health agency’s African member States adopt new malaria framework (UN)
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How infrastructure development can turn around Africa’s fortunes
Africa has been touted as the new destination for investors. However, the continent still faces a myriad of challenges that hold back its potential, especially efforts aimed at improving business environment and alleviating poverty to ensure sustainable economic growth.
That’s why Africa needs leaders who can tackle these challenges and translate them into opportunities to achieve the ‘Africa we want’ as per the theme of the recently-concluded 27th African Union summit in Kigali.
Supportive policies and infrastructure that promote entrepreneurship and trade on the continent will play a critical role in helping the continent rise from the ‘ashes’ to achieve the African renaissance dreams proclaimed by the likes of former South African President Thabo Mbeki, experts say.
According to Teddy Kaberuka, an economic analyst in Kigali, infrastructures, including transport, power and information and communication technologies (ICTs) facilities, are instrumental in supporting growth in the global economy. That’s the reason why African countries must prioritise infrastructure development to ensure sustainable economic growth on the continent.
“The only way Africa can increase its production and strengthen its economy is by investing heavily in infrastructure development to support the production and ease access to markets and encourage intra-regional trade. Therefore, government must invest more in the energy, ICT and transport sectors because these are enablers of trade and development,” he said. “Without enough power, the continent’s production capacity will be affected, condemning the continent to rely on European imports.”
Kaberuka adds that transport and ICT sector are essential to ensure access to markets by farmers and the industrial sector.
With the majority of the continent’s enterprises falling in the category of small-and-medium enterprises (SMEs), experts call on African leaders to put in place policies and regulations that propel them further and help make them sustainable. The SME sector is the backbone of Africa’s economies, employing the majority of the continent’s youth and supporting millions of households.
However, the challenge of poor infrastructure and cumbersome border policies must be addressed for intra-country and intra-region trade to flourish. Most African countries are not trading with each other, preferring to trade with Europe and America where they face immense challenges as they largely deal in primary products.
According to AU statistics, improving the continent’s infrastructures, like roads, energy and ICTs, can add up to 2 per cent to GDP growth rate per year and also increase productivity by 40 per cent. The World Bank attributed more than half of impressive growth recorded in Africa to infrastructure development on the continent because it offered many countries the required stimulus for growth.
Christian Rwakunda, the Ministry of Infrastructure permanent secretary, said putting in place right infrastructure is key driver for socio-economic development. He says improving transport networks and access to reliable energy and ICTs will reduce the cost of operations and ensure efficient production and service delivery.
“For instance, development of an efficient regional railway transport system would cut the cost of export/import by almost half and reduce the transit significantly. This would open up new opportunities for export and increase regional trade,” he notes.
In addition, access to affordable and efficient energy for local industry is essential to grow the sector which is still almost dormant, he adds. Rwakunda says access to affordable power promotes growth of micro-industries allowing more Rwandans and Africans generally to engage in processing of raw materials into finished products and earn more revenue.
He says lack of efficient infrastructure facilities and skilled human resource has led to high costs of investment, while private investments remain low compared to the expectations of developing countries.
“As a result, development and operation costs remain high in Africa. For example, the recent development of the methane gas power project on Kivu Lake required skilled personnel do carry out research. Besides, implementation of infrastructure projects by foreign firms reduces benefits for local populations,” he says. The PS notes that such situations are mitigated by knowledge transfer programmes to benefit the host countries.
“To address these issues, Rwanda has put in place an investor-supportive investment policy as well as created an enabling environment. The government also promotes public-private partnerships, especially for key projects and export-oriented investments.”
“In addition, technical and vocational education has been given priority to bridge the skills gap in the industrial and other sectors,” he says.
He adds that the government encourages local content development at all levels, including human resources, local materials, local partnership or sub-contracting. Rwakunda says the African leaders need to address the key challenges affecting the continent’s development through regional frameworks that will help fast-track the implementation of the African Agenda. These efforts are crucial for the realisation of the ambitious continental free trade area (CFTA) initiative that seeks to promote trade with the continent, among others.
The CFTA will be made up of over one billion people, with a GDP of $3 trillion. It will also boost trade by 50 per cent among African countries by 2022. The continent’s gross domestic product (GDP) is also estimated to rise from $1.7 trillion in 2010 to $2.6 trillion by 2020, while consumer spending will grow from $860 billion to $1.4 trillion over the period.
Already, plans are underway by three regional blocs on the continent to create the largest free trade area on the globe, from the Cape to Cairo. The tripartite free trade area will bring together the East African Community, the Common Market for Eastern and Southern Africa and the Southern African Development Community into a single new zone. This is envisaged to ease barriers to trade, and stimulate $1 trillion worth of economic activity across the region of more than 600 million people.
However, there is need to support the private sector with improved infrastructure and other facilities and initiatives to enable free movement of people and goods. Easing movement of goods and people is critical in driving the trade and that why the launch of the African e-passport at the Kigali AU summit was a key milestone for the continent that could help in the realisation of this goal. This remarkable step could help drive trade on the continent and spur sustainable socio-economic development.
Some of these efforts could eventually help address most of the challenges hampering business growth across the continent, which will in the long-run contribute to the realisation of the new Africa aspirations, making the African renaissance a reality.
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Summary of 27th AU Summit Decisions: tax imports to finance AU; establish Protocol to issue African passports to citizens; and CFTA
The Twenty-Seventh Ordinary Session of the Assembly of the African Union (AU) in Kigali, Rwanda, ended on an extremely high note. It was hailed by many, including the Chairperson of the AU Commission, Dr. Nkosazana Dlamini Zuma as the best Summit ever.
“This is the best Summit we’ve had, we must maintain it, while striving to get better and better.” Dr. Dlamini Zuma remarked in a tweet that has been retweeted several times. The Chairperson also expressed gratitude to the current Chairperson of the Union, President Idriss Deby Itno of Chad, host President Paul Kagame of Rwanda, Heads of State and Government, AU Commissioners, the people of Rwanda, AU Commission Staff and Service Providers for delivering a successful Summit.
The richness of the 27th AU Summit was as a result of both a streamlined programme focusing on strategic areas and their outcomes, as well as the smooth organisation by the host country and the AU Commission.
Over Thirty-five (35) Heads of State and Government personally attended the Summit, with a few others represented by Vice Presidents and Foreign Affairs Ministers. Burundi attended the Permanent Representative Committee, but was absent from both the Executive Council and the Summit.
An historic and landmark decision on financing the Union, was taken by the Heads of State and Government, who met in a retreat together with their Finance and Foreign Affairs Ministers. They had decided to convene the retreat during the 26th Summit in January 2016.
Some countries were awarded for the progress made in promoting women’s right and gender equality, according to the recently introduced Gender Scorecard. The three main categories awarded were: social, economic and political. Winners in the various categories included: in the social category were: Algeria and Tunisia; economic category was South Africa; and Rwanda topped the political category. Algeria was awarded for being the overall winner in categories pulled together, though not having featured topmost on the economic and political categories.
Following is the summary of key Decisions taken at the 27th AU Summit:
1) Extension of the current Commission’s mandate
2) Financing the Union through import Levy
3) African Union Passports to African citizenry
4) Continental Free Trade Area (CFTA)
5) Peace and Security Decisions on South Sudan, Burundi, Libya and Terrorism
6) Appointment of Judges of the African Court on Human and Peoples’ Rights
7) Theme, date and venue of next Summit
8) Declarations
1. Extension of the current Commission’s mandate
The much-anticipated elections of new members of the AU Commission took place on 18 July 2016, but none of the three candidates, running for the position of the Chairperson of the Commission, received the required two-thirds of Member States’ vote. After seven (7) rounds of voting, the last of the three candidates obtained 23 votes, with 28 Member States abstaining.
Of the fifty-four (54) Members States eligible to vote, fifty-three (53) were present and voted. Only Burundi did not vote since they were absent from the Summit.
Therefore, the Summit decided, as it had done in 2012, to extend the mandate of the current Commission leadership comprising the Chairperson, Deputy Chairperson and the eight Commissioners, until the next elections, which will take place in January 2017, at the Headquarters in Addis Ababa, Ethiopia. During this period, the process will be reopened new candidates, as well as the current contenders, to apply.
2. Financing the Union through import Levy
In an unprecedented decision, the Summit has decided to institute and implement a 0.2 percent Levy, with effect from 2017, on all eligible imported goods into the continent to finance the AU’s operational projects, programmes and peace and security operations budget.
While the specific mechanisms are being worked out, the amounts collected will automatically be paid by Member States into an account opened for the AU within the Central Bank of each Member States for transmission to the AU in accordance with the assessed contribution.
The Summit also appointed President Paul Kagame of Rwanda to lead the ongoing institutional reform of the Union (the AU Commission and the Organs) to ensure that the AU structures and modus operandi are aligned with the demands of integration and implementation of Agenda 2063, and to enable more effective and efficient use of resources and business-oriented delivery. President Paul Kagame is expected to present a report during the January 2017 AU Summit in Addis Ababa, Ethiopia.
3. African Union Passports to African citizenry
Following the launch of the African Union Passport and the overwhelming enthusiasm that greeted it, the Assembly also decided to encourage all Member States to adopt the African Passport and to work closely with the AU Commission to facilitate the processes towards its issuance at the national level, based on international and continental policy provisions.
The Commission will provide technical support to Member States to enable them to produce and issue the African Passport to their citizens. The Commission has to put in place an implementation roadmap for the development of a Protocol on the Free Movement of persons in Africa by January 2018, which should come into immediate effect in Member States, in line with the continental transformation framework, Agenda 2063.
4. Continental Free Trade Area (CFTA)
The Heads of State and Government decided to establish a High Level Panel of five eminent persons (one from each region) to champion the fast tracking of the Continental Free Trade Area (CFTA), ahead of its proposed launch in 2017. They also called on Member States to speak with one voice on all issues related to trade negotiations with third parties.
5. Peace and Security Decisions on South Sudan, Burundi, Libya and Terrorism
Following the Report of the Chairperson of the Commission on the state of peace and security in Africa, the following Decisions were taken on: i) South Sudan, ii) Burundi, iii) Libya, and iv) Terrorism.
i) South Sudan
The Assembly strongly condemns the outbreak of fighting that took place on 7 July 2016 in Juba, resulting in loss of lives and other tragic impacts on civilians, as well as the cowardly attacks against diplomatic missions; It expresses deep concern at the slow pace and recurring setbacks on the implementation of the Agreement on the Resolution of the Conflict in the Republic of South Sudan signed in August 2015, and reiterates its disappointment at the lack of its implementation.
The Assembly endorses the communique of the Summit meeting of the Heads of State and Government of the IGAD-Plus, in particular with respect to the reinforcement of UNMISS as proposed by the UN Secretary-General and the call to the UN Security Council to extend the Mission of UNMISS with a revised mandate, including the deployment of a regional protection force to separate the warring parties, protect major installations and civilian population and demilitarize Juba; looks forward to the plan Peace and Security Council visit to South Sudan and stresses the critical importance of convening a pledging conference in support of South Sudan.
ii) Burundi
The Assembly expresses deep concern over the continued targeted killings and other acts of violence in Burundi and deplores the recent assassinations. It reaffirms the determination of the AU to spare no effort to help Burundi restore and rebuild peace, security and stability, reiterating the need for a truly inclusive dialogue, involving all the Burundian stakeholders, led by the East African Community Mediator, President Yoweri Museveni of Uganda, with the Support of the Facilitator, former President Benjamin Mkapa of Tanzania.
The Assembly urges the Burundian Government to fully honour the commitment to facilitate the speedy deployment, including issuance of visa and other requirements, of the 200 AU human rights observers and military experts.
iii) Libya
The Assembly reiterates the commitment of the AU to assist the Libyan parties in finding lasting solution to the crisis facing Libya. The Assembly comments the Chairperson of the AU, President Idriss Deby Itno, for his initiatives and support provided towards reconciliation in Libya. It reiterates its support to the Libyan stakeholders and encourages the efforts of the AU High Representative for Libya, former President Jakaya Kikwete of Tanzania.
The Assembly reaffirms that only political dialogue can bring a durable solution to the crisis facing Libya and that military intervention can further escalate and complicate the situation. It calls on AU Member States to provide the necessary political and moral support to the Government of National Accord of Libya.
iv) Terrorism
The Assembly Decides to establish an AU Special Fund for Prevention and Combating of Terrorism and Violent Extremism, to be funded through voluntary contributions. It requested the AU Commission to work out the modalities for its establishment and functioning mechanism.
6. Appointment of Judges of the African Court on Human and Peoples’ Rights
The Summit appointed two Judges of the African Court on Human and Peoples’ Rights (AfCHPR) for a six (6)-year term. They are: Marie-Theresa MUKAMULISA from Rwanda and Ntyam ONDO MENGUE from Cameroon. The remaining two Judges shall be elected in January 2017 only from among female candidates from the Northern and Southern regions, in respect of equitable geographical and gender representation in AU Organs.
7. Theme, date and venue of next Summit
The Twenty-Eighth Ordinary Session of the Assembly will be held in Addis Ababa, Ethiopia from 24th to 31st January 2017, under the theme of 2017: Harnessing Demographic Dividend through investments in the Youth”.
8. Declarations
The 27th AU Summit also made declarations on the Summit theme, ‘The African Year of Human Rights with Particular Focus on the Rights of Women’; a Declaration on the “Commemoration of the 10th Anniversary of the Operationalization of the African Court on Human and Peoples’ Rights;” and on the situation in the Middle East and Palestine.
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SADC Secretariat records E160m operating surplus
The Southern African Development Community (SADC) Secretariat has recorded a healthy operating surplus of US$11.8 million approximately E160 million for 2015/2016 financial year.
The good news was revealed by the SADC Director for Budget and Finance Clement Kanyama yesterday.
This was during the start of the 36th Ordinary SADC summit hosted by the country. The SADC financial standing means His Majesty King Mswati III, who will assume chairmanship of the organisation will inherit a healthy organisation.
Kanyama said the recorded surplus showed an increase from 2014/2015 financial year, as the SADC Secretariat recorded E139 million (US$10.3 million).
Kanyama said 2015/2016 revenue was E1 trillion (US$78.6 million) and it was made up of E700 million (US$51.6 million), from Member States and E370 million (US$27 million) from grants, which were recognised as contributions based on the SADC Secretariat compliance with condition, as specified in each financing agreement.
“The total expenditure was E900 million (US$66.8 million) and total assets under the control of SADC Secretariat of E1.4 billion (US$101.1 million),” he said.
He further said the 2015/16 financial year was the first year for SADC to operationalise the RISDP, which was revised was the summit in April 2015. “The revised RISDP has front loaded implementation of industrialisation programmes and related actions to enable member states to benefit fully from the SADC Free Trade Area,” he said.
Kanyama further revealed that for 2016/2017 financial year, the SADC Secretariat budgets provided E580 million (US$42.578 million) from member states funds and E450 million (US$32.990 million) from grants as availed by International Cooperation Partners.
“The SADC Council of Ministers will also consider proposals for revision of 2016/2017 budget of the SADC Secretariat. The 2016/2017 SADC Secretariat Budget and detailed activity plans continue to implement programmes, projects and action derived from the RISDP and Strategic Indicative Plan for the Organ (SIPO),” he said.
Programmes
He said programmes under implementation included coordination of SIPO interventions in the area of politics, defence and security cooperation. It also includes programmes, projects and actions aimed at consolidation of SADC Free Trade Area within the Community and enabling infrastructure.
“The Regional Industrialisation Strategy and Roadmap for 2015-2063 has been developed. Implementation processes are now underway and the operationalisation of the Regional Agricultural Policy (RAP) as well as programmes, projects and actions in the area of health, HIV and AIDS, education and skills development, and labour and employment and gender and development,” he said.
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Rwanda back to Central Africa bloc, 10 years on
Rwanda has formally rejoined the Economic Community of Central African States (ECCAS), after Foreign Affairs Minister Louise Mushikiwabo presented the instruments of ratification to the economic bloc on August 17.
The return repositions the country to benefit economically, politically and diplomatically in the Central African region.
Rwanda, which had been a member of ECCAS since 1981, was readmitted into the bloc last year, almost 10 years after leaving. When it left, it cited the need to focus on its membership in the East African Community and the Common Market for Eastern and Southern Africa.
Since its readmission, countries such as Chad, which did not have diplomatic representation in Rwanda, have opened diplomatic ties with the country. One of Rwanda’s most hostile neighbours for over a decade has been the Democratic Republic of Congo, a key member of the Central African bloc.
But both countries now seem to have buried the hatchet after a meeting between President Paul Kagame and Joseph Kabila last week.
After their meeting, Rwanda praised the DRC for its progress in eradicating negative forces – a marked departure from previous pronouncements where Rwanda criticised the DR Congo for harbouring the FDLR rebel group.
This cooling of the longstanding animosity between the two countries was key to ensuring the growth of Rwanda’s economy – considering that Rwanda’s exports to the DRC represent 75 per cent of its informal cross-border exports.
Its readmission to ECCAS has opened up more opportunities for Rwanda and boosted economic ties with the other 10 member states.
For example, Angola received its first Rwandan envoy, Alfred Kalisa, in September last year, while several bilateral agreements have been signed with countries like Equatorial Guinea and the Republic of Congo (Brazzaville).
Rwanda has built business ties with Congo-Brazzaville, with both countries having a joint commission that evaluates recommendations made by politicians and investors, as well as identifying new areas of co-operation.
Last month, Rwanda and Gabon launched a One Network Area – the first of its kind – which is expected to boost trade between both countries.
Rwanda is also a contributor to peace-building in the region, having contributed about 750 peacekeepers to the United Nations Multidimensional Integrated Stabilisation Mission in the Central African Republic.
Prof Simeon Weihler, dean of social, political and administrative sciences at the University of Rwanda believes that this offers advantages to Rwanda’s diverse market and friendly neighbours.
“Joining multiple economic blocs poses no problem in theory, but could raise implementation challenges if bi-lateral trade arrangements result in contradictory or inconsistent regulations. The desire to build and fortify inter-African trade is an oft-stated goal, and augments Rwanda’s overarching development objectives,” he said.
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What new online portal means for agric export-Import enterprises
Claude Niyomugabo, a produce dealer in Kigali, last month failed to close a huge deal after failing to obtain the necessary import documentation in time.
Niyomugabo is not alone as many other agro-dealers, importers and exporters had fallen victim to the previously bureaucratic and tedious process of acquiring import or export certification.
The bureaucratic procedures had often resulted into delays in terms of delivering farm inputs to farmers affecting sales and crop productivity. However, this could soon become history, thanks to a new online portal unveiled last week, which will ease the process and make it more efficient.
The facility has automated the systems and processes used by Rwanda Agricultural Livestock Inspection and Certification Services (RALIS) to regulate and facilitate businesses involved in international trade in the agricultural sector in Rwanda.
The portal, launched on Friday, was developed by the Ministry of Agriculture and Animal Resources with $150,000 funding from TradeMark East Africa (TMEA), a trade facilitation non-profit organisation.
The new online portal will reduce time and cost to issue import and export certificates, as well as permits of plants, animal materials and agrichemicals by 45 per cent, according to Tonny Nsanganira, the State Minister of Agriculture.
According to Beatrice Uwumukiza, the RALIS director general, the portal will enhance enforcement, as well as ensure transparency and accountability among stakeholders, including traders, transporters and government agencies.
Uwumukiza said the facility that uses the Electronic Single Window system will ease clearance activities and exchange of information among government agencies. The system will help eliminate the Sanitary and Phytosanitary (SPS) non-tariff barriers (NTBs), and this has been a priority area under the market integration pillar of the newly launched Tripartite Free Trade Area (TFTA).
Denise Uwase from Kayonza District is optimistic the initiative is a double win, not only for importers and exporters, but also farmers as it will improve access to inputs like fertilisers and improved seeds, as well as boost produce export.
“This means that those trading in plant and plant materials, animal and animal products and agrichemicals will spend less time and money when acquiring import and export permits,” Uwase said.
The portal targets importers and exporters of plant and plant materials, animal and animal products, and agrichemicals into and out of Rwanda. It will enable traders to make applications and receive import and export permits from the comfort of their offices, without making physical trips to the ministry. This is aligned to government’s vision of making Rwanda a paperless economy through automating all government services to the public and the private sector.
About the portal
The trade portal comprises of two interlinked platforms – a front-end login portal, where RALIS stakeholders will access services ranging from information on Sanitary and Phytosanitary requirements, international and Rwanda trade regulations and features to request for services.
The second platform is a management information system to be used by RALIS to process requests for services. The management information system has been integrated with the Rwanda Electronic Single Window, enabling information sharing between Rwanda Revenue Authority (RRA) and the Ministry of Agriculture and Animal Resources.
It will also be integrated with financial systems, such as the national payment gateway and banking systems, further reducing transaction and administrative costs. The linkages within the system will enhance inter-government agency coordination with the aim of improving service delivery and good governance in Rwanda, said Dr Savio Hakirumurame, the brain behind the portal.
Hakirumurame said that the portal targets importers and exporters of plant, plant materials, animal and animal products, and agrichemicals into and out of Rwanda. Traders will be able to make applications as well as receive import and export permits from the comfort of their offices, without making physical trips to the ministry.
This is aligned to the government’s vision of making Rwanda a paperless economy through automating all government services to the public and the private sector. The new online portal will reduce the transaction and administrative time and costs associated with issuance of permits and certificates by up to 45 per cent; the current direct transaction costs to apply for a permit or certificate is $5.67, this is expected to drop to less than $3 per transaction.
Already, 150 companies and 50 individuals registered with the system following during its three-month piloting. During this period, a total number of 120 import permits and 207 phytosanitary certificates were issued.
Other key benefits of the portal will include improved service delivery and better governance around the management of certificates and permits for the sector. The portal will ease the process of getting prerequisite documents by exporters dealing in time sensitive sectors such as horticulture, according to Lillian Uwintwali, the managing director of M-AHWII, an agri-tech ICT firm, said.
In a world where document forgery has become common, the portal will enable secured and transparent management of documents making it possible for destination market authorities to trust trade documents from Rwanda – and this will enable Rwandan exports to undergo less document scrutiny in the export markets.
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Increase in wheat tariff slammed
The SA Chamber of Baking said on Friday that it did not support the 30 percent tariff increase on wheat imports as this could lead to consumers paying more for a loaf of bread. This would put a strain on an already struggling consumer.
Geoff Penny, the executive director of the SA Chamber of Baking, said the chamber’s calculations had shown that the price of bread could go up by as much as 20 cents a loaf if the tariffs were implemented. She said the pending increase would hit the poorest of the poor most.
“Bread is a staple food and this will hit the lower Living Standards Measure (LSM) group. It might not be too much for the upper LSM consumers, but for those who can’t afford, a 20c increase will be a bit too much,” Penny said.
“We are more concerned about these marginal costs increases and as a chamber we don’t support the tariffs. However, it would be up to the retailers and bakers to determine how much the price of bread will go up by. Because this is a free market, the store promotions on bread and depending where one buys the bread can soften the price increase.”
Urged to publish
Last week, GrainSA won a ruling in the North Gauteng High Court in Pretoria, urging the government to publish the new wheat import tariff.
The court ordered the government to bring into force the expected 30 percent tariff increase on wheat imports after delays held up trading in the market.
It said the government should publish the new levy of R1 591.40 a ton in its official gazette needed before the rate could be formally applied.
Wandile Sihlobo, a senior agricultural economist at Agricultural Business Chamber, said that the tariff increase would in all likelihood lead to an increase in the price of bread.
Sihlobo, however, said although the tariff increase was 30 percent, this would not mean that the price of bread would go up by 30 percent as well.
“The bakers will pay more for their wheat and they might be tempted to pass the costs to the consumer,” he said.
“But this will be determined by the activity between the buyer and the seller. It is too early to tell now whether this will lead to price increases or not in the future. We can only monitor and see once the tariffs are implement what effect they will have on the price of bread.”
Protecting farmers
Sihlobo said the tariffs were protecting the local wheat farmers against unfair competition.
“From the producer perspective, domestic wheat farmers need to be protected from unfair competition from highly subsidised foreign imports,” he said.
JSE-listed companies RCL Foods and Pioneer Foods, who are among the country’s biggest players in the bread industry, elected to leave the industry to determine whether the price of bread should go up, because of the expected wheat tariffs.
“RCL Foods feel that as the wheat pricing is an industry-wide issue, it would be best to approach the SA Chamber of Baking for comment,” said the company.
Grain SA Wins Wheat Tariff Court Case
The Court ruled in favour of Grain SA in Pretoria on 18 August 2016 in an urgent application urging the Government to publish the new wheat import tariff. The new tariff of R1 591.40 per ton triggered on 24 May 2016 and Government dragged their feet in the publishing thereof until the Court made a ruling today. The Court instructed SARS to publish the new tariff in the Government Gazette no later than Wednesday 24 August 2016.
“It is a sad day that we need to manage Government through the Courts, but at least this worked for us,” said Jannie de Villiers, CEO of Grain SA. It already took the Government Departments involved 60 working days without a commitment as to when it will be published. Grain SA also lodged an urgent case in April 2016 for exactly the same reasons, but SARS published the tariff on the day of the Court case – 84 working days later.
Trading in the South African wheat market almost came to a halt given all the uncertainties and delays. We need certainty. It is unfortunate that the consumers did not benefit from this delay as the cheaper international prices of wheat were not passed on to the battling consumers by decreasing bread prices.
Grain SA believes that this ruling will assist the whole value chain to bring certainty to the market and give some indication as to some reasonableness in administering these tariffs.
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Minister Ebrahim Patel welcomes action against collusion and price-fixing in steel industry
The Minister of Economic Development, Ebrahim Patel, on 22 August 2016 welcomed the announcement of a R1,5 billion fine payable by ArcelorMittal, the country’s largest steel-maker, for price-fixing and collusion in the steel industry.
This is the largest single fine imposed against a single company thus far by the competition authorities. The company also undertook, as part of the settlement with the authorities, to invest R4,6 billion in new capital spending to upgrade its plants and improve its competitiveness. The settlement further provides for a pricing mechanism that will cap the company’s margin on flat steel products for a period of five years.
“The action by the competition authorities is part of a crackdown against abuse of market power and price-fixing that undermine the performance of the economy, imposes unnecessary costs on downstream factories and damages local jobs,” Minister Patel said.
“South Africa’s competitiveness and industrial performance require an efficient basic steel supplier industry. High levels of concentration together with collusion undermine our national goals. Companies collude because they believe they can get away with it. Over the past seven years, the competition authorities have focused on collusion and abuse of market dominance involving key input costs in the economy, such as steel-making, fertilizers, construction and telecommunications and well as important basic goods such as bread, poultry and flour,” he said.
“Our resolve is clear: we want to promote investment-led economic growth, not collusion-induced economic stagnation. South Africa is open for business and the message we want to send is that we will act against conduct that damages competition and jobs,” Minister Patel said.
“This can be a boost for small business and for new investors,” he said.
“We look forward to seeing more competitive prices and will be monitoring price increases through the committee set up under the International Trade Administration Act, drawing on the information available from the company’s customers. We will not hesitate to act against any further abuse of market power in the steel industry should this be necessary. We have recently brought into effect the provisions in the Competition Act that criminalize collusion and impose jail terms of up to ten years on directors and employees found guilty thereof,” Minister Patel said.
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Agreement on Trade in Services between India and the Association of Southeast Asian Nations: Report by the WTO Secretariat
Trade Environment
The Agreement on Trade in Services under the framework agreement on comprehensive economic cooperation between India and the Association of Southeast Asian Nations (hereafter “the Agreement”) is ASEAN’s 6th regional trade agreement (RTA). It is however ASEAN’s 3rd Agreement covering trade in services. The Agreement is India’s 14th RTA but India’s 5th RTA in trade in services.
In commercial services, India ranked 5th globally in terms of both global exports and imports, amounting to US$156 billion and US$147 billion, respectively. This represents 3.15% and 3.07% of world exports and imports, respectively.
Among the ASEAN members, Singapore accounted for the largest share of world trade followed by Thailand and Malaysia. Among the newer ASEAN members (Cambodia, Lao PDR, Myanmar and Viet Nam) Viet Nam had the largest share of exports and imports of commercial services, while Lao PDR has the smallest share.
Commercial services trade for India in 2005-2014 show that India has run a constant trade deficit in these services. While its exports are dominated by other business services and computer and information services, key imports are transport and other business services.
Figures on India’s bilateral commercial services trade with ASEAN have not been made available.
In terms of commercial services trade, ASEAN’s top three traders (both for exports and imports) were Singapore, Thailand, and Malaysia. In general travel and transport services are important exports and imports although other business services are also important notably for Indonesia, the Philippines and Singapore.
Based on available data on total inward and outward foreign direct investment (FDI) stocks with the world for each ASEAN Member State, Singapore remains the largest source and destination for FDI. It is also the largest investor in India and the largest recipient of FDI from India among ASEAN members.
Regarding total foreign direct investment flows by ASEAN member states during 2005-2014, for its investment in India, Singapore has consistently been the largest recipient and provider of direct investment from and to the world, respectively. Malaysia and Indonesia have consistently been the second and third largest providers of FDI during the period surveyed. Thailand and Malaysia have consistently been next as the second and third largest recipients of FDI, respectively, for most of this period. In the second part of the period, Indonesia became the third destination for FDI, following Singapore and Thailand.
Characteristic Elements of the Agreement
The Agreement was signed by India and the ASEAN member states (hereafter “the Parties”) on 13 November 2014 and entered into force on 1 July 2015. It was notified to the WTO by the Parties on 20 August 2015 under GATS Article V:7(a).
The Agreement was negotiated under the Framework Agreement on Comprehensive Economic Cooperation between the Republic of India and the ASEAN and the Protocol to amend the Framework Agreement, signed in 2009. It should also be seen in connection with the Agreement on Trade in Goods that entered into force on 1 July 2003; the ASEAN-India Agreement on dispute settlement mechanism (hereafter the “DSM agreement”), which was signed in 2009; and the Agreement on investment that was signed on 12 November 2014. The text of the Agreement is available, together with its Annex, on the official website.
Structure of the Agreement
The Agreement is composed of four Parts and 34 Articles. It also contains an Annex on movement of natural persons. Each Party’s Schedules of specific commitments are attached to and form an integral part of the Agreement. Moreover, the GATS Annexes (on the movement of natural persons supplying services, air transport services, financial services, and telecommunications) shall apply to the Agreement, mutatis mutandis (Article 28).
Part I of the Agreement provides the scope of its disciplines and definitions. Part II contains the main obligations and disciplines while Part III addresses the Parties’ specific commitments covering market access and national treatment, as well as additional commitments. It refers to the Parties’ individual Schedules of specific commitments and addresses the application and extension of commitments as well as the procedure applicable to the modification of Schedules. Part IV contains other and final provisions covering areas such as the relationship between the Agreement and other agreements; the incorporation of annexes and possible future legal instruments; comitology (contact points and Joint Committee on Services); the review of the implementation and operation of the Agreement; amendments to the Agreement; dispute settlement; denial of benefits; the entry into force of the Agreement; and withdrawal from it or its termination.
The Parties may adopt legal instruments in the future pursuant to the provisions of the Agreement. Such instruments shall form an integral part of the Agreement (Article 24).
Provisions on Trade in Services
Scope and Definitions
The Agreement applies to measures of a Party affecting trade in services. Trade in services is defined as the supply of a service through the four modes of supply6 defined by the GATS.
The Agreement does not apply to: i) services supplied in the exercise of governmental authority; ii) laws, regulations or requirements on government procurement of services in the exercise of non-commercial resale and use; and iii) cabotage in maritime transport services (Paragraph 2 of Article 1).
The newer ASEAN Member States, Cambodia (which joined in 1999), Lao PDR (1997), Myanmar (1997) and Viet Nam (1995) enjoy special and differential treatment and flexibility under the Agreement (preamble of the Agreement). The increasing participation of these Parties shall be facilitated through negotiated specific commitments taking into account, inter alia, their need to improve access to technology, to distribution channels and information networks, and the liberalization of market access in sectors and modes of supply of export interest to them. Appropriate flexibility shall also be accorded to these Parties for progressive liberalization in terms of specific commitments undertaken in line with their respective stage of development (Article 16).
Denial of Benefits
Article 31 on the denial of benefits is based on Article XXVII of the GATS and allows a Party to deny the benefits of the Agreement, inter alia, for the supply of a service, if it establishes that the service is supplied from or in the territory of a third-party; or if it establishes that a natural person is not a “natural person of another Party”, or that a juridical person is not a “juridical person of another Party”.
General Provisions on Trade in Services
Market access
The market access provisions mirror the language of Article XVI of the GATS (Article 18). The Parties’ market access commitments are contained in their Schedules of specific commitments.
National and MFN treatment
The national treatment provisions mirror the language of Article XVII of the GATS (Article 17). The Parties’ national treatment commitments are contined in their Schedules of specific commitments. The Agreement does not contain provisions on MFN treatment.
Commercial presence
No specific provision on commercial presence, per se, is stated by the Agreement. The limitations on commercial presence in the services sectors are contained in the Parties’ schedules of commitments.
The Agreement on Investment of the Framework Agreement on Comprehensive Economic Cooperation between the Parties contains a provision affecting the supply of a service by a Party’s service supplier through commercial presence in the territory of another Party. The Agreement on Investment shall not apply to measures adopted or maintained by a Party to the extent that they are covered by the Agreement (Paragraph 4(a) of Article 1 of the Agreement on Investment).
Performance requirements
No specific provision on performance requirements, per se, is stated by the Agreement. The limitations related to performance requirements in the subscribed services sectors are contained in the Parties’ schedules of commitments. Parties’ additional commitments, including those regarding qualifications, standards or licensing mattes are included in their Schedules of specific commitments (Article 19).
Senior Managers and Boards of Directors
No specific provision on senior managers and boards of directors, per se, is stated by the Agreement. The limitations that may be applicable to senior managers and boards of directors in the services sectors are contained in the Parties’ schedules of commitments.
Movement of natural persons
There is no specific provision on the movement of natural persons in the Agreement. However, where commitments are undertaken by a Party on the movement of natural persons, the categories of natural persons for whom commitments are undertaken are defined in the Annex on Movement of Natural Persons, where applicable. This Annex identifies and provides definitions for three categories of natural persons: (i) business visitor; (ii) contractual service supplier; and (iii) intra-corporate transferee.
The GATS Annex on Movement of Natural Persons Supplying Services shall, mutatis mutandis, apply to the Agreement (Paragraph 1 of Article 28).
Liberalization Commitments
Part III of the Agreement contains disciplines related to the specific commitments made by each Party in their individual Schedules. A GATS-like “positive listing” approach is used for their commitments in market access, national treatment, and additional commitments. Modification and withdrawal of commitments are governed by Article 22. Notification of changes followed by negotiations with the affected Party and the necessity to agree on compensatory adjustment are disciplined. If the Parties are unable to reach an agreement on compensatory adjustment, the matter shall be resolved under the DSM Agreement. In such cases, the modifying Party may not modify or withdraw its commitment until it has made compensatory adjustments in conformity with the findings of the arbitration.
The Parties’ Schedules of specific commitments identify the services sectors and sub-sectors for which commitments are made, and specify, by mode of supply, the conditions and limitations that may be applicable to market access and national treatment-related commitments. It lists as well additional commitments that the Parties may wish to register (Article 19).
The sections below compare each Party’s GATS schedule with its respective Schedules of specific commitments attached to the Agreement. Improvements over existing GATS commitments are a reduction in limitations to market access and/or national treatment, a relaxation of the form of establishment under mode 3, and/or additional commitments and increased coverage. However, horizontal limitations in the GATS Schedule of Specific Commitments and reservations covering all sectors are not included. Moreover, mode 4 commitments and limitations are, to a large extent, excluded. The following sections are to be read in conjunction with the Parties’ schedules of commitments under the Agreement.
India
India has a single Schedule that is applied to Brunei Darussalam, Cambodia, Lao PDR, Malaysia, Myanmar, Singapore, Thailand and Viet Nam, and two separate individual Schedules that are applicable to Indonesia and to the Philippines (Article 22).
Horizontal commitments
India’s horizontal commitments in the Agreement, almost identical for all its ASEAN partners, partly match those under the GATS. Additional national treatment limitations are registered for some types of transfer of equity; on the repatriation of sale proceeds of immovable property; on certain aspects of taxation laws; and on the acquisition of land. Subsidies are unbound. Under mode 4, the horizontal commitments in the GATS serve as a basis for those in the Agreement, with some specific commitments made in particular for the provision of computer and related services.
Sector-specific commitments
Under the Agreement, India’s services schedule builds on its commitments under the GATS. It both expands the coverage of its specific commitments and improves market access and/or national treatment by withdrawing some limitations (for the latter in particular in relation to modes 1 and 2).
With respect to sectors for which it has commitments under the GATS, India makes improvements, under the Agreement, in relation to professional services (though not with respect to the Philippines); computer and related services, and some other business services (though no improvement is made with respect to Indonesia and the Philippines). Improvements are also made in some telecommunication services and, marginally, some audiovisual services (motion picture or video tape distribution services); general construction work for civil engineering; some health services – in particular hospital services (though this is not applicable with respect to the Philippines); hotel and restaurant services and travel agencies and tour operators services (improvements for the latter two tourism subsectors not benefitting the Philippines); and some maritime transport services (with a number of limitations and not in favour of the Philippines).
As under the GATS, no commitment is made, under the Agreement, in distribution services; education services; environmental services; and recreational and cultural and sporting services. India’s partial GATS commitments in financial services are repeated, without improvement, in the Agreement.
ASEAN Member States
The specific commitments of the ASEAN Member States are contained in separate individual Schedules. While some ASEAN Member States Schedules are similar to their GATS specific commitments, others have made commitments higher than their GATS commitments in terms of coverage and depth. It is understood that, in the latter case, their GATS commitments continue to apply to the other Parties, even if not specifically included in the Schedules in the Agreement.
Regulatory Provisions
Domestic regulation
Article 5 largely replicates the disciplines contained in Article VI of the GATS. It also binds the Parties to bring the results of the negotiations related to Article VI.4 of GATS into effect under the Agreement, as appropriate.
Recognition
Under Article 6, the Agreement mirrors the provisions in paragraphs 1 through 3 of Article VII of the GATS.
Upon request by a Party, the Parties shall also encourage their respective professional bodies or professional regulatory authorities, to negotiate arrangements for mutual recognition of education or experience obtained, requirements met, or licences or certifications granted in that service sector, with a view to the achievement of “early outcomes”. Progress in this regard will be reviewed by the Parties in the course of the review of the Agreement pursuant to Article 27.
The provisions of the DSM Agreement shall not apply to disputes arising out of, or under, the provisions of agreement or arrangements for mutual recognition that may be concluded by the Parties’ respective professional bodies or professional regulatory authorities.
Subsidies
While excluding subsidies or grants by a Party or any conditions attached to the receipt or continued receipt of such subsidies or grants from the scope of the Agreement, Article 14 allows a Party to request consultations if such subsidies or grants significantly affect trade in services in which commitments were taken under the Agreement. To reach an amicable resolution of the matter, the Parties shall provide information on subsidies related to trade in services in which commitments were made to any requesting Party; and review the subsidies when relevant disciplines are developed by the WTO. The provision of the DSM Agreement shall not apply to any request made or consultation held under Article 14 or to any dispute that may arise between the Parties under Article 14.
Safeguards
Upon the conclusion of the WTO negotiations on GATS Article X (emergency safeguard measures), the Parties shall discuss appropriate amendments to incorporate the results of the WTO negotiations into the Agreement (Article 9). Until such time, no Party shall take safeguard actions against services and service suppliers of the other Party (or Parties). The Agreement however foresees exceptional circumstances under which a safeguard measure may be taken by Party in the event that the implementation of this Agreement causes substantial adverse impact to a service sector of another Party (before the conclusion of the multilateral negotiations under Article X of the GATS). In such a case, the Parties shall however first consult for the purposes of discussing any such safeguard measure. Any measure taken pursuant to the Agreement (in particular paragraph 2 of Article 9), including the duration for which the measure shall apply, shall be mutually agreed by the Parties concerned, applicable based on the principle of nondiscrimination, and limited to the specific service sector concerned. The circumstances of the particular case shall be taken into account, and sympathetic consideration shall be given to the Party seeking to take a measure.
Under Article 11, where a Party is in serious balance of payments and external financial difficulties or threat thereof, it may adopt or maintain restrictions on trade in services in accordance with paragraphs 1, 2, and 3 of Article XII of the GATS.
Other
Monopolies and exclusive service suppliers
Article 7 (on monopolies and exclusive service suppliers) essentially reproduces Articles VIII 1-3, and 5 of the GATS. For example, if a Party has reason to believe that another Party’s monopoly service supplier is acting contrary to Article 7 (paragraphs 1 and 2), the Party may request the other Party that has established, maintained or authorized such supplier to provide specific information concerning the relevant operation.
Under Article 8, the Parties also recognize that certain business practices of services suppliers (other than monopolies and exclusive service suppliers) may restrain competition and therefore restrict trade in services. If requested by a Party, the other Party shall enter into consultations with a view to eliminating such practices. With full and sympathetic consideration the affecting Party shall cooperate in supplying publicly available information on the matter.
Investment
As mentioned above, the Agreement on Investment contains a provision affecting the supply of a service by a Party’s service supplier through commercial presence in the territory of another Party. The Agreement on Investment shall however not apply to measures adopted or maintained by a Party to the extent that they are covered by the Agreement (on services).
General Provisions of the Agreement
Transparency
Article 3 contains general transparency disciplines. In particular, it foresees prompt publication of all relevant measures of general application which pertain to or affect the operation of the Agreement. International agreements pertaining to or affecting trade in services to which a Party is a signatory shall also be published. Each Party shall respond promptly to all requests by any other Party for specific information on any of the notified measures. Moreover, each Party shall establish one or more enquiry points to provide specific information to any other party, upon request, on all related matters.
Article III bis of the GATS (disclosure of confidential information) is, mutatis mutandis, incorporated into and forms part of the Agreement.
Payments, transfers and capital movements
Articles 10 prohibits that Parties apply restrictions on international transfers and payments for current transactions relating to their specific commitments. The Parties’ rights to apply restrictions to safeguard the balance of payments, as disciplined under Article 11, remain reserved. The rights and obligations of any Party who is a member of the IMF are unaffected, provided that a restriction on any capital transaction is not imposed inconsistently with that Party’s specific commitments.
With respect to a Party’s market access commitment in relation to the supply of a service through mode 1, that Party is committed to allow such movement of capital. Moreover, with respect to a Party’s market access commitment in relation to the supply of a service through commercial presence, that Party is committed to allow related transfers of capital into its territory.
Accession and termination
The Agreement does not contain any accession provisions. Termination is, however, governed by Article 34 and foresees that the Agreement shall terminate if India withdraws or if the Agreement is in force for less than four ASEAN Member States.
Institutional framework
A Joint Committee is established, inter alia, to review the implementation and operation of the Agreement, and to supervise and coordinate the work of all Sub-Committees established under the Agreement or that it may establish (Article 26).
Each Party shall designate a contact point to facilitate communications between the Parties on any matter covered by the Agreement (Article 25).
Dispute settlement
The DSM Agreement applies to the Agreement (Article 30). A full description of the DSM Agreement is contained in the factual presentation dedicated to the Trade in Goods Agreement between India and the ASEAN nations (see Factual Presentation on Preferential Trade Agreement between Mauritius and Pakistan (Goods)).
Relationship with other agreements concluded by the Parties
Under Article 23 the Parties reaffirm their commitments under the WTO Agreements and other agreements to which these Parties are a Party. Nothing in the Agreement shall be construed to derogate from any right or obligation of a Party under the WTO Agreement and other agreements to which these Parties are a Party. Consultation with a view to finding a mutually satisfactory solution is foreseen in the event of any inconsistency between the Agreement and these other agreements.
Nothing in the Agreement shall prevent any individual ASEAN Member State from entering into any agreement with India and/or any one or more ASEAN Member State. Moreover, the Agreement shall not apply to any agreement among ASEAN Member States or to any agreement between India and any ASEAN Member State unless otherwise agreed by the parties to that agreement.
Except as otherwise provide din the Agreement, the Agreement or any action taken under it shall not affect or nullify the rights and obligations of a Party under existing agreements to which it is a party (Article 28).
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Emerging economies hope to get economic boost from G20 summit
Amid a sluggish world economy, emerging countries voiced expectation that the upcoming Group of 20 (G20) summit could deliver some changes and help boost growth.
The summit, with the theme “Toward an Innovative, Invigorated, Interconnected and Inclusive World Economy,” will be held in the eastern Chinese city of Hangzhou on Sept.4-5.
A record number of developing countries will participate in the summit for the first time in the G20’s history, said Chinese Ambassador to Ethiopia La Yifan on Friday.
“The G20 summit in Hangzhou will focus on development, especially that of developing countries, including African countries, which makes it different from other G20 summits,” he said.
By bringing more interlocutors together, the G20 summit will push for a more inclusive world economy, said the Chinese ambassador.
For the developing world, the gathering is indeed a good opportunity to play a better role and an ideal platform to strengthen cooperation.
A visible symbol of that is the BRICS summit is now routinely held on the sidelines of the G20 summit.
“BRICS countries have always met on the sidelines of summits like the G77+China and G20 to discuss matters regarding the bloc and coordinate their policies,” said South African Deputy Minister of International Relations and Cooperation, Luwellyn Landers.
Landers said that South Africa expected the summit to enhance stable economic growth and address the cause of the weak economic growth affecting some countries, particularly in the developing world.
According to Landers, the summit will take place as the world is facing sluggish global economic growth with some countries like South Africa facing further downgrades by rating agencies.
The summit should be targeting the developmental needs of all countries that currently face a turbulent economic situation, Landers said.
“We need to take into consideration the global politics and the global economic downturn, which are the issues that would inform the outcomes of the G20,” said the official
Landers said South Africa also expected the summit to talk about global terrorism, trade and investment.
“We also need to talk about the fact that as countries we need to engage more on bilateral and regional levels with regards to trade and investment. That’s my reading of the situation,” said Landers.
Senegalese President Macky Sall has said that African governments expect that the upcoming G20 meeting under the chairmanship of China will usher in a new industrial take-off on the continent.
Africa now is ready than ever before for an industrial revolution and awaits the September meeting of the G20 countries, said Sall.
“Our harmonization of country and regional level industrialization policies to ensure synergies with continental policy creates a conducive environment for partnership that is geared at improving lives in Africa,” Sall said.
He said that the chairmanship of China is a new opportunity given the partnership between the Asian country and Africa in the development of infrastructure.
“The resolution is expected to propel Africa’s industrialization process through capacity enhancement in science, technology, innovation and entrepreneurship,” he added.
Arjun Prasad Saha, CEO of Linuo Co.’s India branch, said that India could ask other G20 members to bring more investment to the country and make good use of its manpower. He hopes G20 leaders can talk about technology sharing and transfer.
Analysts said the just concluded China-India Financial Dialogue in Beijing last week has sent a clear message that the two economies are starting serious work on official and legal framework buildups for future larger economic partnerships.
The conference was held, incidentally, just ahead of the upcoming G20 summit and BRICS Summit in Goa, which is to be held in October.
Officials from finance ministries and key foreign policy and investment and trade organs attending the conference agreed that it is essential for the two sides to share information and experiences in financial management and macro-economic policy making.
They also agreed to build platforms for such interactions while increasing dialogue within the G20, BRICS and other multilateral frameworks.
G20 summit in China a new launchpad for global economy
For a world economy mired in a prolonged downturn, the G20 summit next month could be the light at the end of the tunnel.
Eight years after the global financial crisis, the recovery remains slow and fragile. The current global economic growth environment is mediocre, featuring rising unemployment, soaring debt, sluggish trade and investment and turbulent financial and commodity markets.
Since the outbreak of the financial crisis, fiscal stimulus and monetary easing have played an important role in lifting growth. However, over-reliance on monetary policy, especially in some developed countries, has led to macroeconomic and financial instability elsewhere. The use of fiscal policies is also constrained in some countries due to high debt levels.
Added to the already complicated global political and economic situation, Brexit, trade protectionism and terrorism are exacerbating the problem, meaning nations are struggling to find suitable work-arounds to ensure the success of their stimulus packages.
Accounting for two thirds of the world's population and more than 80 percent of global economic output, G20 nations deserve, and are expected, to play a bigger role in managing the world economy. The upcoming summit is undoubtedly a prime opportunity, and has the potential to play a significant role in the rebooting of global growth.
The focus of the summit will be sustained global growth. As the host nation, China will use the conference to spur dialogue among developed and developing countries around the potential to foster growth through reforms and innovation.
While fiscal and monetary policies will address fluctuations in the short term, a longer-term strategy is needed to elevate the current malaise permeating the world economy. Reforms, structural adjustments in particular, must be incorporated into current policy frameworks to create fertile surroundings for growth.
Innovation will be a G20 key agenda for the first time, thanks to a proposal by China. Innovation, characterized by technology and new products and business models, will create new consumption opportunities and trends.
The people of the world have high expectations for the summit, yet, success depends heavily on all G20 members working together, to implement, not just hash out, policies and measures.
The summit offers a new starting position. However, the journey will be fraught with obstacles. To successfully address low growth, nations must put their faith in cooperation, implementation and, sometimes, painful reforms. Although, perhaps, a bitter pill to swallow, the results will speak for themselves.
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Despite steady wealth creation, Kenya lags behind its African peers in reducing poverty
Kenya lags behind sub-Saharan Africa in poverty reduction, as uneven wealth distribution widens the rich-poor gap. This is despite Kenya’s gross domestic product (GDP) expanding by an average 4.8 per cent since 2000.
This additional wealth generation has benefited only a small section of the population, leaving millions of low-income earners trapped in cycles of poverty.
A new development index places Kenya fourth in the region in transforming the benefits of growth into wellbeing for citizens, despite the country’s economic and political clout.
Ethiopia on top
Ethiopia is ranked top in the index that seeks to go beyond the use of GDP in measuring economic wellbeing, with Rwanda emerging second and Tanzania third.
The rankings were presented in the latest edition of the Sustainable Economic Development Assessment Index (SEDA), published by global think-tank Boston Consulting Group.
“Leaders around the world increasingly recognise that GDP alone cannot give a full picture of a country’s performance, as the wellbeing of the citizens is an even more important measure,” the study reads in part.
Large African economies like South Africa, Nigeria, Angola and Kenya scored poorly in transforming this wealth into improved wellbeing for their citizens, with smaller economies like Rwanda and Sierra Leone scoring higher in recent progress towards alleviating poverty.
The index defines wellbeing using three elements. The first is economics, which gauges a country’s performance in generating balanced growth through income, economic stability and employment.
The second is investments in sectors like health, education and infrastructure that boost economic growth and wellbeing.
The third is sustainability, which refers to environment and social inclusion measures that factor in indicators of income equality, civil society and governance.
These indicators were then collated to generate scores of a country’s current level and recent progress in wellbeing.
The findings released last month are the latest evidence of the uneven wealth distribution model that has seen many low and middle-income Kenyans question the country’s economic growth data.
The World Bank early this year said Kenya’s growth is volatile and lacks inclusivity. The volatility has been attributed to external (trade or global commodity prices) and domestic factors (election cycle or drought), with the latter having a larger and more ruinous impact on the economy.
The economy has further been affected by the stagnation of what should be the country’s growth engines – manufacturing and agriculture.
The contribution of agriculture to the country’s GDP has shrunk from 26.5 per cent in 2006 to 22 per cent in 2014. Over this period, the contribution of manufacturing to GDP also shrunk, stifling competitiveness, productivity and innovation. As a result, the economy has been unable to increase the number of jobs available for its growing skilled and educated population.
When stacked against comparator countries like Senegal, Ghana, Tanzania and Burkina Faso, Kenya’s youth unemployment stands at 17 per cent, double the figure in Tanzania and thrice as high as in Burkina Faso.
The country’s unemployment levels have, however, fallen marginally from 46 per cent in 2006 to 42 per cent in 2013.
National savings
Further, data from the Kenya National Bureau of Statistics indicates that only one in four people working in formal employment earn more than Sh50,000 per month. This lowers the amount of available national savings required to fuel economic growth.
Ethiopia, on the other hand, has managed to not only grow GDP at an impressive 10.9 per cent over the last 15 years, but leads the continent in translating this growth into wellbeing for its citizens.
The World Bank estimates that the country has been able to cut the population living on less than $1.25 (Sh125) a day from 56 per cent in 2001 to 31 per cent in 2011.
This poverty reduction has simulated foreign direct investment that is slowly turning Addis Ababa into the economic centre of the region.
It has also put Ethiopia on course to attain its plan to achieve middle-income status by 2025, beating Kenya to become the regional economic powerhouse that improves the living standards of its citizens.
Many developed countries are struggling to convert economic growth into well-being improvements for citizens – trailing large developing countries
A new report by The Boston Consulting Group finds that many leading developed countries are not effectively converting their economic growth into well-being improvements for their citizens. Using BCG’s measure of well-being, the research also finds a clear and measurable link between financial inclusion – access to basic financial services such as a bank account – and national well-being. The report, titled The Private-Sector Opportunity to Improve Well-Being: The 2016 Sustainable Economic Development Assessment, was released on 21 July. It uses the example of financial inclusion to highlight the critical role private-sector innovation can play in improving living standards.
The findings are based on the firm’s latest study of worldwide economic growth trends using BCG’s Sustainable Economic Development Assessment (SEDA). The fact-based, comprehensive analysis measures the relative well-being of 163 countries through ten key areas, including economic stability, health, governance, and environment. SEDA scores countries in two ways: the current level of well-being and recent progress in well-being from 2006 to 2014. It also assesses how countries convert wealth and growth into well-being.
Changing Global Dynamics as World Leaders’ Progress Slows
The report underscores the growing challenges many large developed countries face. Among the key findings:
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The United States’ performance in converting both wealth and growth into well-being is below par globally, while Germany’s performance is above par on both counts. The UK’s strong performance in converting wealth into well-being is being threatened by its recent subpar conversion of economic growth into well-being improvements.
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A European divide: Among countries in Western Europe, those with high current levels of well-being (Austria, Denmark, Finland, Germany, the Netherlands, and Norway) are making greater progress than those with low current-level scores (Cyprus, France, Greece, Italy, Malta, Portugal, and Spain), particularly in employment and education. These countries, concentrated in southwest Europe, are performing particularly poorly in employment and are falling further behind the rest of the world in that area.
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Central and Eastern European countries that have recently joined or are in the process of joining the EU have made strong gains in sustainability measures, which include income equality, civil society, governance, and the environment
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China is converting wealth into well-being at a rate slightly above par and – remarkably, given its very high growth rate – is converting growth into well-being at par. China continues to score low on the environment, however. India also produced strong recent progress improvements but converted its strong growth into well-being at a rate slightly below average. India also leads the pack in progress on financial inclusion, as nearly 200 million people have gained access to financial services.
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Peru has outstripped Brazil’s recent progress in well-being with strong gains in employment and education.
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Ethiopia holds the top spot when it comes to recent progress in well-being. Ethiopia’s performance is emblematic of gains in sub-Saharan Africa as a whole
“The G20 finance ministers’ meeting in China this weekend is taking place amid concern about low global growth – even stagnation – so making the most of what you have is going to be crucial,” says Douglas Beal, a BCG partner and a coauthor of the report. “SEDA’s two measures that look at the conversion of wealth and growth into well-being provide a more meaningful perspective than GDP alone can offer on how well countries are doing in that regard. Changes in the relative performance of countries are making the old ‘advanced’ and ‘developing’ labels obsolete – some countries in Europe are stuck, while others around the world are making significant progress.”
The Importance of Financial Inclusion
The 2016 SEDA report took a close look at the issue of financial inclusion. The analysis found that the strong link between well-being, as measured by SEDA, and financial inclusion existed even when controlling for income. This means that among countries with the same income (GDP per capita) level, those with higher levels of financial inclusion are likely to have higher well-being levels.
That finding is particularly relevant now, as G20 finance ministers discuss an ongoing agenda that includes the importance of financial inclusion. Nobel Peace Prize Laureate Muhammad Yunus remarks in his foreword to the report that BCG’s analysis sheds light on the implications of the 2.5 billion people who are cut out of the financial system.
The report notes that financial inclusion is not an issue that is confined to the developing world. Though the United States’ overall rate of financial inclusion increased from 88% in 2011 to 94% in 2014, some US states have more than double the national unbanked rate of 6%. Louisiana and Mississippi, for example, have lower financial inclusion levels than Greece.
“We have found a clear and measurable association between financial inclusion and well-being” says Enrique Rueda-Sabater, a BCG senior advisor and a coauthor of the report. “The private sector can make a significant improvement in people’s lives. But to make meaningful progress in this area, companies must pursue financial inclusion in their core business, not just as part of their corporate social responsibility strategies.”
Weak Infrastructure Limits Financial Inclusion
SEDA also finds a strong association between financial inclusion and three SEDA dimensions – civil society, governance, and infrastructure. The role of infrastructure is particularly noteworthy – BCG’s research finds that countries with poor infrastructure are struggling to expand financial inclusion.
The study also assesses the significant impact of improvements in financial inclusion for women around the world. Giving women control over family finances results in increased household spending on food and education. And expanding access for women is good business, as research has shown that women have lower default rates than men.
The Foundations for Financial Inclusion
The report finds that two factors are critical to improving financial inclusion: a regulatory structure that provides safeguards but allows innovation and a solid infrastructure, including communications networks and payment systems.
With those two elements in place, private-sector innovation flourishes. The pace of innovation is reflected in a surge in investment in financial technology firms, from $4 billion in 2011 to $22 billion in 2015. And new technology is allowing the development of novel business models that allow companies to make money delivering financial services to previously unprofitable customer segments.
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tralac’s Daily News Selection
The selection: Monday, 22 August 2016
Today, in Arusha the East African Legislative Assembly resumes; in eZulwini the launch of the SADC Regional Water Strategic Action Plan
Brexit commentaries from Commonwealth Trade Hot Topics: Global trade slowdown, Brexit and SDGs: issues and way forward (Mohammad Razzaque, Brendan Vickers, Poorvi Goel), Trade implications of Brexit for Commonwealth developing countries (Christopher Stevens, Jane Kennan)
Level of intra-Africa trade scandalous - Jeff Radebe (Fin24)
Countries in the SADC region need to come together to bargain for better inter- and intra-Africa trade, said minister in the presidency for planning, monitoring and evaluation Jeff Radebe. Radebe was the keynote speaker on Friday night at the 17th annual conference of the SADC Lawyers Association. Radebe offered a number of recommendations for improved regional integration: (i) amend the SADC Treaty; (ii) adopt harmonised community laws that are directly applicable in the SADC region; (iii) consider establishing a regional legislative body that can act SADC-specific laws; and (iv) empower the SADC Tribunal to better oversee that harmonised law is applied and implemented across countries.
Zimbabwe: Parliament adopts SADC Tribunal Protocol (The Herald)
The National Assembly yesterday adopted the SADC Tribunal Protocol that seeks to rationalise its powers by barring it from hearing cases brought against states by its citizens. “The difference now is that the former Tribunal allowed it to supersede a decision of the High Court of member states. It allowed citizens to take their own Government to the Tribunal without even exhausting domestic remedies. This Tribunal is structured to adjudicate and deal with disputes between member states and not individuals taking their Government to the Tribunal. Disputes are bound to arise between states whose nature might be commercial, industrial and even political,” said VP Mnangagwa. He said the Tribunal might also deal with ordinary Bills that were not of a constitutional nature nor statutory instruments. “We will not raise the status of a Statutory Instrument to be discussed,” said VP Mnangagwa.
Harnessing resources for industrialization: SADC talks energy infrastructure investment (SARDC)
One of the issues that SADC leaders are expected to discuss when they meet in Mbabane is the need to reduce structural impediments to industrialisation. Running under the theme “Resource Mobilisation for Investment in Sustainable Energy Infrastructure for an Inclusive SADC Industrialisation for the Prosperity of the Region”, the 36th SADC Summit is expected to discuss measures to improve power generation capacity and facilitate an increase in the development and use of renewable sources of energy as well as ensure adequate water supply. The Summit is also expected to discuss a costed Regional Agriculture Investment Plan (2017-2022) that was approved by the Ministers Responsible for Agriculture and Food Security in Swaziland in July. Another issue for Council and Summit will be the review of the SADC Protocol on Gender and Development to align it to global processes and emerging issues, following recommendations by Ministers responsible for Gender and Women Affairs who met in Gaborone, Botswana in June.
12th Civil Society Forum: communiqué
The 12th Civil Society Forum convened by the SADC Council of NGOs (SADC-CNGO), Fellowship of Christian Councils in Southern Africa (FOCCISA) and the Southern Africa Trade Unions Coordinating Council (SATUCC), gathered together more than 350 delegates from the 15 SADC countries, representing regional thematic networks and deliberated on progress made on the implementation of the resolutions of the 11th CSF (pdf) and reflected on the key challenges facing the region. The CSF determined and developed a clear action plan for a new path and strategies towards the realisation of people-centred development in Southern Africa, reclaiming our full citizenship, democratic dispensation and developmental priorities through:
SADC Women conference: recommendations (1 Billion Rising)
On 18 August, SADC Women had a successful side event, Engaging with SADC Civil Society Organisations, during the SADC people’s summit on the socio-economic and political issues affecting women in the region; ahead of the 36th Summit of SADC Head of States. This event was organised by Women and Law in Southern Africa – Swaziland, the Swaziland Rural Women’s Assembly and the Swaziland Domestic Workers Union in partnership with the One Billion Rising Revolution campaign. The following recommendations came from the Women’s commission:
Spatial externalities, openness and financial development in SADC: beyond the multilateral monetary agreement (ERSA)
Precisely, the study tests if financially less developed economies in SADC benefit from linkages with and proximity to South Africa, a financially developed economy. The Spatial Durbin Model estimated using GMM and Dynamic Panel Estimations, establishes that financial development in the SADC region is sensitive to space and hence not immune to spatial externalities. Results indicate that monetary measures are highly sensitive to geography than credit and that allowing for spatiality, credit from South Africa crowds-out domestic and private credit of other SADC countries. Precisely, proximity to South Africa brings negative externalities in credit but positive externalities in money markets. [The analysts: Alex Bara, Gift Mugano, Pierre Le Roux]
EPA: Kenya’s fate now lies with heads of state (The EastAfrican)
Kenya has left the fate of the controversial Economic Partnership Agreement with the EU in the hands of the EAC heads of state, whose meeting was rescheduled to next month. The Extraordinary Summit would have been held this [past] week but Tanzania cancelled at the eleventh hour a ministerial summit that would have sought to resolve the EPA dispute. Tanzania said it was not ready to participate in the EAC Council of Ministers meeting that was to be held from August 17-20, partly informing the agenda of the Summit. “The EAC Heads of State Summit decided that the region negotiate with the EU as a bloc. If we have to do otherwise then it requires the summit’s decision,” Dr Chris Kiptoo, Principal Secretary in-charge of Trade in Kenya’s Ministry of Industry, Trade and Co-operatives told The EastAfrican. Dr Kiptoo said he did not have details on why the meeting was deferred.
Seychelles: Infrastructure Action Plan Report (pdf, AfDB)
While the draft Medium Term National Development Strategy (MTNDS) emphasizes GoS’ intention to significantly increase private sector participation in Public Private Partnership (PPP) projects, improve the business environment for SMEs and build its institutional and regulatory capacity, PPPs in Seychelles are limited. An assessment of the essential criteria critical for success in PPPs shows that on all criteria except the proposed investments in physical infrastructure, Seychelles is not yet ready to effectively implement them. Much needs to be done, as shown below.
Tanzania: Tanga Economic Corridor update (IPPMedia)
Construction of 20 factories for Tanga Economic Corridor that will form the city’s nucleus of industrial hub, is still going on despite challenges, Chairman of African Future Forum (AFF) from South Korea, Chris Incheul has said. Incheul told Property Watch this week that the project is on course although key permits from the government are yet to be approved. Incheul who is also the Chairman of Tanga Economic Corridor Limited, dismissed reports that the project has collapsed, saying they are working hard to implement it. [More than 300 local, foreign firms for Mwanza trade expo]
Northern Corridor: reducing the impact of road crashes (Business Daily)
To beat traffic on the roads, weighbridges and border posts, most drivers find themselves sleeping for about four hours after driving for about eight to 10 hours. To tame road crashes along the corridor, Kenya, Uganda, Rwanda, Burundi, South Sudan and Democratic Republic of Congo have launched a project to reduce accidents. The project managed by Northern Corridor Transit and Transport Coordination Authority plans to build 141 roadside stations in the six countries. Construction of 67 roadside stations at an estimated cost of Sh7 billion has been given priority. [Pulitzer Centre project: In this project, journalist Beatrice Obwocha focuses on how road crashes involving heavy commercial vehicles impact local economies]
South Africa: MPs issue deadline to settle border agency discord (Business Day)
The Department of Home Affairs, the Police Ministry and the Treasury have less than four weeks to sort out their differences over the Border Management Authority Bill, which has huge implications for the country’s tax-collection regime. The bill, which has been seven years in the making, has raised concerns because it proposes setting up a parallel function to the South African Revenue Service commissioner in a border management agency, without outlining the division of responsibilities and mandates in terms of collecting import duties.
South Africa: Mechanisms to protect the local manufacturing sector from illegal and substandard products (pdf, the dti)
South Africa and Zimbabwe trade: how does it work? (tralac)
The Zimbabwe Ministry of Industry and Commerce has allocated TWO days per week for import permits – Wednesday and Thursday. These days are up on a notice in their offices. It is now taking between 10-14 days to obtain an import permit, from the date of application, and each import license costs $30.00. A trader is required to apply for an import license for each product he/she would be importing. Therefore, giant retailers which import various commodities requiring import licenses would handle large volumes of documentation. These import licenses for the above items are required even if goods are being imported under customs or trade agreements. [The analyst: Elisha Tshuma], [Gerhard Erasmus: How can the Beitbridge dispute be resolved?]
Zimbabwe: Importers CBCA compliance goes up (The Chronicle)
Industry and Commerce Deputy Minister Chiratidzo Mabuwa says importers’ compliance to the Consignment Based Conformity Assessment programme “significantly” increased to 58% in June. CBCA was implemented on 1 March 2016 by the Government through the Ministry of Industry and Commerce as a measure of curbing the influx of substandard and hazardous goods in the country as well as creating a level playing field for local industry. “The majority of the certificates of conforming issued are for chemical products respectively while pearls are the least. Most of the conformity assessment activities are carried out in South Africa, as it is the largest trading partner constituting 77% of total certificates of conforming issued followed by China, Zambia and the rest of the world.” [CCZ: Import ban triggers price increase]
Rwanda launches online service to ease agri-produce trade (New Times)
The Ministry of Agriculture and Animal Resources has launched a new online portal expected to reduce the cost of importing and exporting agricultural produce. The trade portal comprises of two interlinked platforms; a front-end login portal where Rwanda Agriculture Livestock Inspection and Certification Services (RALIS) stakeholders will access services ranging from information on Sanitary and Phytosanitary (SPS) requirements, international and Rwanda trade regulations, and features to access and request for services. The second platform is a Management Information System to be used by RALIS management and staff to process requests for services. “The linkages within the system will enhance inter-government agency coordination with the aim of improving service delivery and good governance in Rwanda,” said Beatrice Uwumukiza, the Director General, RALIS.
Zimbabwe: Drought, finance cuts hit cotton (The Herald)
Cotton output is expected to fall to its lowest level since the 1992 drought because of the serious drought last season and the reduction in finance from cotton companies. Production is expected to be between 30 000 tonnes and 35 000 tonnes, down from 102 000 tonnes produced last year, an official with a leading cotton company said. The sector used to support about 400 000 households. It is a major source of livelihood in communities such as Gokwe, Chiredzi and Muzarabani. Free inputs disbursed by the Government last year had the potential of producing 130 000 tonnes. [Tobacco farmers begin land preparations]
Regional strategy on regulation of medical products in the African Region, 2016–2025 (WHO Regional Committee for Africa)
WHO has been supporting regulatory systems strengthening through several collaborative initiatives. These include the African Vaccine Regulatory Forum, the African Medicines Regulatory Harmonization initiative, harmonization projects in regional economic communities and the African Medicines Agency. However, countries still face challenges in governance of their regulatory systems, as well as low human, financial and technical resource capacity required for functional National Medicines Regulatory Authorities (NMRAs). This regional strategy therefore aims at ensuring that NMRAs are strengthened to effectively fulfil their mandate. It prioritizes interventions that will improve governance of regulatory systems, enhance collaboration, harmonize standards and facilitate implementation of joint regulatory activities and strengthen capacity of NMRAs to improve access to medical products of good quality. [Access via the extensive documentation for the Sixty-sixth session, 19-23 August, Addis Ababa]
Africa-Arab Partnership pre-summit meetings: trade, investment, communication, transport, energy (AU)
Congo copper deal with China may draw $2bn of investment (Bloomberg)
Conflict gold rules ignored by DR Congo and Dubai (China Dailogue)
Study on sustainable industrialization in the wood industry in the countries of the Congo Basin (pdf, AfDB)
Sudan, Ethiopia draft MoU on cross-border animal health and livestock trade programmes (IGAD)
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Harnessing resources for industrialization – SADC talks energy infrastructure investment
Southern African leaders are expected to discuss measures to mobilise resources for developing energy infrastructure as a key enabler for the region’s industrialisation thrust as well as discuss other pertinent regional issues when they gather for their annual summit in Swaziland from 30-31 August.
The 36th Summit of SADC Heads of State and Government comes at a time when southern Africa is vigorously pursuing an initiative to industrialise the economies of the 15 Member States.
Industrial development has been identified as one of the main drivers of the integration agenda in southern Africa as the region moves away from an economic path built on consumption and commodity exports onto a sustainable developmental path based on value-addition and beneficiation.
SADC Member States acknowledge that industrial development is central to the diversification of their economies; development of productive capacity; and the creation of employment in order to reduce poverty and set their economies on a more sustainable growth path.
The challenge facing most countries in the SADC region is to transform their economies from being raw resource-dependent to ones that enjoy beneficiated products and are knowledge-driven, dynamic and diversified.
To address this situation, a special Summit of SADC leaders last year approved the SADC Industrialisation Strategy and Roadmap 2015-2063 and has since started the process of developing a costed action plan for the strategy.
The strategy and its roadmap aim to allow the region to harness the full potential of its vast and diverse natural resources.
To encourage creation of regional value chains and participation in global processes, the region has identified five priority areas where value chains can be established and for which regional strategies should be developed by 2020.
These are in the areas of agro-processing, minerals beneficiation, consumer goods, capital goods, and services.
One of the issues that SADC leaders are expected to discuss when they meet in Mbabane, Swaziland at the end of August is the need to reduce structural impediments to industrialisation.
Running under the theme “Resource Mobilisation for Investment in Sustainable Energy Infrastructure for an Inclusive SADC Industrialisation for the Prosperity of the Region”, the 36th SADC Summit is expected to discuss measures to improve power generation capacity and facilitate an increase in the development and use of renewable sources of energy as well as ensure adequate water supply.
The SADC region has faced power shortages since 2007 due to a combination of factors that have contributed to a diminishing generation surplus capacity against increasing growth in demand. The prevailing instability in the sector is compounded by many other factors that include tariff levels that are not cost-reflective and caught between the viability and access conundrum; capacity issues at both national and regional levels; and energy sector reforms that are generally perceived to be moving at a sluggish pace.
Current available operating capacity stands at 46,910MW against demand of 55,093MW, which includes peak demand and suppressed demand as well as reserves. This gives a generation capacity shortfall of more than 8,000MW, which includes a shortfall in reserves for emergencies and system stability.
According to the SADC Regional Infrastructure Development Master Plan (RIDMP) of 2012, assuming an average economic growth rate of eight percent per annum, the forecast peak load is expected to rise to more than 77,000MW by 2020 and to over 115,000MW in 2030.
With total peak demand plus reserves of more than 55,000MW as of September 2015 (the figure drops to about 52,000MW when only Southern African Power Pool operating member countries are considered), the region will have to invest in new generation capacity of up to 25,000MW by 2020 to meet rising demand.
The precarious electricity supply situation calls for urgent action to promote investment in the energy sector in order to support the industrialisation drive by the region.
The RIDMP’s Energy Sector Plan estimates the total cost of additional electricity generation capacity up to 2027 to be in the range of US$114 billion to US$233 billion.
Related transmission investment costs to support new generation capacity are estimated at about US$540 million. This transmission investment does not include planned transmission interconnectors and national backbone lines.
Another key enabler for the industrialisation agenda is investment in the water sector where a number of water supply and sanitation projects are ongoing. These include the Kunene Transboundary Water Supply, the Lesotho Highlands Phase II Project, the Sengwa River Basin Project and the Lomahasha-Namaacha Transboundary Water Supply.
Several investment and financing options are available to the region for funding infrastructure to support its industrialisation.
The conventional source of funding for infrastructure in SADC Member States is public funding in the form of national budgets and this is considered important in delivering the needed energy infrastructure.
Private sector participationin various forms is a feasible method of financing large infrastructure projects. This participation may take different forms such as Build‐Operate‐Transfer, Build‐Own‐Operate, Build‐Own‐Operate‐and‐Transfer, or public-private partnerships.
Infrastructure bonds and pension funds are another source that can be mobilised to finance infrastructure projects or leverage more financing from other sources, including from commercial banks or multilateral banks such as the African Development Bank.
International Cooperating Partners have been a major source of financing for “soft” projects such as studies, formulation of policy/regulatory frameworks, planning and capacity-building. Their resources can also be used to leverage financing from banks.
Close cooperation with the emerging economies of China, India and Brazil will yield new financial resources.
Following the SADC China Infrastructure Investment Seminar held in Beijing in July 2015, Chinese investors and financiers expressed interest in various SADC infrastructure projects in the areas of power generation, transmission and interconnectors; and water infrastructure development relating to water supply and hydro-generation as well as irrigation and related projects.
Other issues to be discussed during the 36th SADC Summit include the food security situation in the region. Southern Africa experienced a devastating drought episode associated with the 2015/16 El Nino event that led to drier-than-normal conditions.
This has resulted in a significant reduction in agricultural production in most Member States, particularly since 2015/16 was the second successive season where drought was experienced in many parts of the region.
The regional vulnerability assessment indicates that over 40 million people within SADC will require humanitarian assistance.
To address these challenges, a Regional Logistics Team was established at the SADC Secretariat in April to coordinate a regional response.
The SADC Secretariat with the support from United Nations agencies issued a regional humanitarian appeal, launched by SADC Chairperson, President Seretse Khama Ian Khama of Botswana, on 26 July.
The Summit is also expected to discuss a costed Regional Agriculture Investment Plan (2017-2022) that was approved by the Ministers Responsible for Agriculture and Food Security in Swaziland in July.
The investment plan is part of measures to implement the Regional Agriculture Policy and aims to promote sustainable agricultural production, productivity and competitiveness; improve regional and international trade and access to markets of agricultural products; and reduce social and economic vulnerability of the region’s population in the context of food and nutrition security and the changing economic and climatic environment.
Another issue for Council and Summit will be the review of the SADC Protocol on Gender and Development to align it to global processes and emerging issues, following recommendations by Ministers responsible for Gender and Women Affairs who met in Gaborone, Botswana in June.
The security situation in the region will also be discussed during the Summit, mainly the political challenges in the Kingdom of Lesotho.
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EPA: Kenya’s fate now lies with heads of state
Kenya has left the fate of the controversial Economic Partnership Agreement with the European Union in the hands of the EAC heads of state, whose meeting was rescheduled to next month.
The Extraordinary Summit would have been held this week but Tanzania cancelled at the eleventh hour a ministerial summit that would have sought to resolve the EPA dispute.
Tanzania said it was not ready to participate in the EAC Council of Ministers meeting that was to be held from August 17-20, partly informing the agenda of the Summit.
Kenya had hoped to persuade Uganda and Tanzania to sign the EPA in order to safeguard its preferential export status to the EU.
“The EAC Heads of State Summit decided that the region negotiate with the EU as a bloc. If we have to do otherwise then it requires the summit’s decision,” Dr Chris Kiptoo, Principal Secretary in-charge of Trade in Kenya’s Ministry of Industry, Trade and Co-operatives told The EastAfrican.
Dr Kiptoo said he did not have details on why the meeting was deferred.
“I’m still trying to get details on their decision. Of course, that is not good for us [Kenya]. The more we delay, the more we get worried because we are getting closer to the deadline,” said Mr Kiptoo.
Options
The deadline for the East African countries to append their signatures to the trade agreement is October 1.
The EastAfrican has learnt that during the September summit the heads of state will consider three options:
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First, the presidents could decide to sign the agreement as a bloc and pave way for provisional application of the agreement based on the resolutions by the Council of Ministers pending ratification of the agreement by the respective parliaments according to Article 139 of the EPAs treaty.
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Second, they could reach a consensus and request the EU to allow those countries that are ready like Kenya to sign the agreement and let others join later under the geometrical variability rules.
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Third, the EAC member states could request for a delay in the EU Market Access Regulations (MAR) to allow them time to sort out their problems, meaning that, if this request is granted, EAC products would still enjoy quota-free, duty-free access to the EU market after October 1.
President Yoweri Museveni alluded to the latter option on Thursday during a meeting with the East Africa Legislative Assembly speaker Dan Kidega, when he said he was interested in seeing how Kenya can retain its EU duty-free export status even without signing the EPA.
“I am interested in seeing how Kenya can be accommodated and especially if it can trade under Everything But Arms (EBA), which the rest of the partner states can,” President Museveni said.
Mr Kidega had said Kenya should not sign the EPA alone as this would go against a resolution of the regional parliament in 2008 for joint negotiations of international agreements and treaties that affect the bloc under the Trade Negotiations Act.
Mr Kidega said the issues raised by Tanzania and Burundi should be addressed so that every country was on board before signing the EPA.
“One major concern is Brexit and its implications, which we as a region need to take cognisance of. The other concern is the decision by the EU to blockade Burundi from enjoying the benefits of trade,” Mr Kidega said.
Failure by the EAC countries to sign the agreement as a bloc would see Kenyan products in the European market start attracting duty due to its status as a developing nation.
Its regional counterparts – Tanzania, Uganda, Rwanda and Burundi – which are classified as least developed countries (LDCs) would continue enjoying duty-free quota-free access to the EU market under the Everything But Arms protocol.
Tanzania, East Africa’s second largest economy, had expressed reservations that signing the agreement would not benefit local industries but would instead lead to their destruction with developed countries controlling the market.
“If we don’t sign this agreement, our industries are going to lose out heavily, particularly the flower sector,” Mr Kiptoo said.
It is estimated that over one million people in Kenya depend on the flower sector both directly and indirectly.
GSP+
Sources told The EastAfrican Kenya could be forced to negotiate for the EU’s preferential trade scheme dubbed GSP+, which allows products from vulnerable developing countries to access the EU market quota free duty-free.
However it is feared that negotiations will take up to 10 months and this decision would undermine its trading arrangements with other EAC member states.
“We are not keen to go to GSP+ because we don’t want to jeopardise other markets,” said the source.
The GSP+ is a component of the EU Generalised Scheme of Preferences (GSP) for developing countries that offers additional trade incentives to developing countries already benefiting from GSP to implement core international conventions on human and labour rights, sustainable development and good governance.
The scheme rewards developing countries that commit to implementing those conventions by granting duty reductions on exports to the EU on some 6,000 tariff lines. Kenya has signed all but two of the conventions – the ones on genocide and labour.
The beneficiaries of this scheme include countries such as Armenia, Bolivia, Cape Verde, Costa Rica, Ecuador, Georgia, Mongolia, Paraguay and Peru.
To be considered under the special trade arrangement countries must meet the vulnerability criteria and ratify 27 international conventions.
These are mainly United Nations, International Labour Organisation, environment and good governance conventions.
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Level of intra-Africa trade scandalous – Jeff Radebe
Countries in the South African Development Community (Sadc) region need to come together to bargain for better inter- and intra-Africa trade, said minister in the presidency for planning, monitoring and evaluation Jeff Radebe.
Radebe was the keynote speaker on Friday night at the 17th annual conference of the Sadc Lawyers Association held in Cape Town over three days.
Altogether 15 countries, including Angola, Botswana, Democratic Republic of Congo (DRC), Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe, are currently Sadc members.
Speaking about the need to better synchronise trade, investment and legal practice across the region, Radebe said intra-Africa trade, which only accounts for 12% of Africa’s total trade, is an intolerable statistic in this day and age. “In fact, it is scandalous.”
Although it is laudable that Sadc states have entered into various bilateral and multilateral trading agreements to promote the movement of goods, Radebe said, it has resulted in a “spaghetti bowl” of regional free trade areas and customs unions arrangements.
“But there is a need to better harmonise this. We must recognise that our colonial legacy which introduced arbitrary borders and foreign legal traditions into our respective jurisdictions has made the issue of harmonisation of trade, investment laws an even greater imperative.”
Radebe offered a number of recommendations for improved regional integration:
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amend the Sadc Treaty;
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adopt harmonised community laws that are directly applicable in the Sadc region;
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consider establishing a regional legislative body that can act Sadc-specific laws; and
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empower the Sadc Tribunal to better oversee that harmonised law is applied and implemented across countries.
These recommendations, Radebe said, would “help unleash the full potential of the region so that skills development and job creation can be realised.
“It’s important that governments, businesses and all the related stakeholders join hands and collaborate with that of the legal profession,” Radebe said.
“Developing economies in the Sadc region may not have much control over the challenges that they face today, but that does not mean that they are powerless. Much can be done not just to sustain moderate growth, but also to secure a more prosperous and resilient future,” he said.
Promoting the harmonisation of trade and investment laws and legal practice standards for regional development and effective integration in SADC
Extracts from the speech by Minister Jeff Radebe
At no point in recent history have calls for Africa to harmonise been stronger than they have been lately and the importance of this conference and general meeting cannot be overstated. Across the continent, regional integration and industrialization is arguably the most talked about subject among policymakers. So why has action on the ground and in relation to harmonizing trade, investment and legal practice been so tardy, cumbersome and fallen short to move the needle on this important development marker?
Ladies and gentlemen: the narrative of a ‘rising’ Africa is now widely recognised. It has replaced the discourse of ‘the hopeless continent’. Africa’s economic fortunes have become more hopeful as the global trade architecture has changed dramatically in the new millennium.
In thinking a bit deeper about this, one must ask: what are the main changes in the global trading and investment architecture over the past 15 years? What are the opportunities for the next 15 years? How have these changes impacted on Africa’s economic development and the nature of trading relations between Africa and its traditional developed country partners, the European Union, the UK and the USA, and its main developing country partner, China? What are the implications of ‘Brexit’ – the UK’s departure from the European Union – for Africa’s trade?
And how has the changing narrative of trade and trade integration impacted on Africa’s own strategy to integrate its market? Then, crucially for us here tonight, where does this leave the legal profession and legal practise generally in the SADC region and beyond? Thus must present a massive opportunity for all in this room, I would submit?
This is of some significance to note because in the current depressed global environment African countries continue to make significant economic growth strides despite the attendant challenges. Africa registered an average GDP growth of about 3.6% in 2015, against 2% recorded by the developed countries during the same period! That is remarkable, even if it is still short of the high growth rate that is necessary to ensure sustainable development.
Africa’s resilience at a time when major economies struggle to advance is primarily due to substantial public investment, particularly in infrastructure, sustained domestic consumption, the growth in the services sector and progressive gradual economic diversification.
However, again, our continental growth rates are not immune to a number of risks, such as those related to continued declines in commodity prices, lack of adequate infrastructure, the problem of inclusive growth, the challenge of harmonisation of trade, investment and legal practise and the global dimension of contraction that are hampering growth and highlight the need for diversification.
Thus, as Africans we are again seized upon to fulfil the mission of accelerating the continent’s development by continuing what we considered critical for the growth and development of the continent: igniting, energising, feeding, industrialising and integrating Africa in order to improve the quality of life of Africans. And so, the biggest opportunity for Africa is Africa! Let me repeat that: the biggest opportunity for us as Africans is what we do about our own destinies as Africans.
It goes without saying that harmonising trade, investment and legal practise laws are important for economic development not just across the world, but perhaps more importantly, for us in Africa, more generally, and in SADC more particularly. The same applies what lawyers often refer to as “pari passu” (side by side) to our regional integration efforts. These are primary and fundamentally instruments of economic development.
It is true that in an effort to maximise member state participation in the complex arena of international trade, we as SADC states have often entered into various bilateral and multilateral trading agreements with each other in the sub region as well as with the rest of the world. This, in turn, has resulted in a spaghetti bowl of regional free trade areas and customs unions arrangements and various related frameworks. These have all the overarching “noble” objectives of serving to promote the movement of goods, services, capital and people within the continent, and the SADC region.
There is a need to better harmonise the trade, investment and legal practise dispensation across the SADC region. This need must be positioned in such a way that it will take account of, and ensure, that we tackle impediments to more prodigious inter and intra Africa trade, which includes the stated problem of diversity of laws. We all know the numbers 12 % intra Africa trade is simply an intolerable statistic in this day and age. This has been an area that continues to snipe at our heels in the SADC region. I am sure that as you wind up your deliberations here today, this has been at the forefront of your reflections.
We must recognise that our colonial legacy which introduced arbitrary borders and foreign legal traditions into our respective jurisdictions has made the issue of harmonisation of trade, investment laws an even greater imperative.
I am convinced too, that the flourishing and emergence of various harmonisation initiatives at sub regional level, be it at the EAC, COMESA, ECOWAS, IGAD, AMU or SADC level (all regional economic communities) is implicit evidence of the need for promoting a different kind of harmonisation within the SADC context.
It would be my sincerest wish that this conference did indeed reflect and contemplate on our regional objectives particularly on whether trade, investment and legal practise harmonisation is achievable under the current SADC Treaty framework. To be brutally frank – the question must be whether the current SADC Treaty is ‘’fit for purpose’’ and allows for the creation of an adequate mechanism to harmonise our efforts at regional integration.
Now, I know legal practitioners would want me to offer some concrete recommendations. So let me be bold and offer the following to stimulate some further thinking. The key issues to address, in my view, where practicably feasible, and subject to your learned considerations are:
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One: an amendment to the SADC Treaty – this in order to make the harmonisation of laws one of the critical objectives;
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Two: Provide for the procedures and mechanisms to adopt harmonised community laws that are directly applicable in the SADC region;
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Three: consider a regional legislative body, which can enact laws that are directly applicable in the SADC region;
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Four: the SADC Tribunal could be adequately capacitated to ensure effective application and implementation of the harmonised law;
In this way, the legal profession would help unleash the full potentials of the sub region, to meet its growth needs in respect of skills development, employment creation and a better life for all the region’s people.
It is important that governments, businesses and all the related stakeholders join hands and collaborate with that of the legal profession, as we advance on our roadmap – Agenda 2063.
Developing economies in the SADC region may not have much control over the challenges that they face today, but that does not mean that they are powerless. Much can be done not just to sustain moderate growth, but also to secure a more prosperous and resilient future. Again this SADC Lawyers Conference and General Meeting will help advance the cause better regional development through enhanced trade and investment.
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Agency bets on 141 rest hubs to tame accidents on Mombasa-Kigali road
The 10 years of hauling cargo from Mombasa port to Kigali have made Pascal Rubimbura an unusually cautious long distance trucker.
Over the period, the Rwandan driver has come to appreciate the dangers of fatigue and speeding, the two major causes of accidents along the Northern Corridor.
“I drive between 40kph and 60kph,” he says. “I never drive when tired. I try to get as much rest as I can but in case I get tired, I park by the roadside and take a quick nap.”
I recently accompanied Mr Rubimbura to Kigali, a journey that lasted five days. On the first day, we left Mombasa at 9.30am, had a brief stop at Mariakani weighbridge and finally arrived at the Machakos junction by 10pm. Like most drivers, Mr Rubimbura had an option to book himself into a guesthouse but frugality confined him to the cabin of his truck for the next three nights.
“Most rooms cost Sh1,000 ($10) and at times they are not the best. Some even have bedbugs. Most of us prefer to sleep on the bed in the cabin even if it is uncomfortable,” he says.
To beat traffic on the roads, weighbridges and border posts, most drivers find themselves sleeping for about four hours after driving for about eight to 10 hours.
We drove from Machakos Junction to Luanda, a few kilometres past Kisumu on the second day, with two stops along the way, getting to Busia border on the third day. Mr Rubimbura showed signs of fatigue as we queued through the weighbridge.
“We will stop early today near Kampala so that we can rest well,” he says. On arrival in Kigali, Pascal drove to the transporter’s yard and parked the truck for off-loading.
“I am going home to rest for two days before I start my journey back to Mombasa,” he says. Depending on destination, most of the drivers spend up to 24 days in a month on the road.
Most drivers plying the Mombasa-Kigali route take three to four days and do three trips in a month.
A round trip takes about eight days and most of them rest for two days in Kigali before embarking on the journey back. Those transporting goods to Burundi and Democratic Republic of Congo take more days.
Road safety agencies have blamed fatigue for most of accidents on the Northern Corridor. In Kenya, data from the National Transport and Safety Authority (NTSA) shows crashes involving heavy commercial vehicles accounted for 18 per cent of accident in 2015 with 514 people losing their lives.
Between January and April 26 this year, 198 people had been killed in crashes involving trucks.
In Uganda, total number of crashes in 2014 according to the Annual Crime and Traffic Report was 2,845. About 95 per of goods in Uganda is transported by road. Rwanda’s Ministry of Infrastructure reported 507 road crashes deaths in 2013.
On the trip to Kigali, we found trucks that had overturned near Mariakani while others had stalled on the Gilgil-Kericho road in Kenya.
On the third day we encountered a fatal road crash on the Masaka-Mbarara highway in Uganda on May 20. A lorry and a saloon car had collided head on, killing six family members.
To tame road crashes along the corridor, Kenya, Uganda, Rwanda, Burundi, South Sudan and Democratic Republic of Congo have launched a project to reduce accidents.
The project managed by Northern Corridor Transit and Transport Coordination Authority (NCTTCA) plans to build 141 roadside stations in the six countries. Construction of 67 roadside stations at an estimated cost of Sh7 billion has been given priority.
The roadside stations will be rest stops for heavy commercial vehicles, passenger vehicles and other motorists along the Northern Corridor.
The roadside stops will have hotels with accommodation, shops, supermarkets and banks. They will also host service stations and workshops for vehicle repair. There will be a specific workshop at each station for repairing trucks as well as designated parking space for trucks and buses.
“Drivers work long hours which leads to fatigue, loss of concentration and poor health all of which are major contributors to accidents,” states NCTTCA on its website. “The road side stations programme comes to enhance road safety and health along the Northern Corridor”.
Mr Donat Bagula, the NCTTCA executive secretary told the Business Daily that loss of lives of travellers on the route has an economic impact as most of them are breadwinners, meaning their families suffer after they die or become disabled.
“It gets worse if the goods and truck are completely destroyed but the biggest impact is the loss of lives. The drivers are breadwinners and in the African context the immediate and extended family are affected.
Each of the six countries will have a number of the rest stations depending on the stretch of the corridor and border points connecting to other member countries.
Task forces
According to the NCTTCA, Uganda will have the highest number of roadside stations with 27 followed by Kenya with 22.
Rwanda and DR Congo will have seven each while Burundi and South Sudan will have two.
The authority says the roadside stations project was launched at an investor’s conference in Nairobi on April 28 last year.
The conference was held to seek public, private partnership in the construction of the roadside stations.
Member countries are expected to form task forces that will spearhead the projects.
“Kenya has a task force in place which is currently working on the guidelines for investment,” says Mr Bagula. He said in Kenya, two pilot roadside stations will be constructed in Sultan Hamud and Salgaa.
Documents from the NCTTCA show that the Sultan Hamud project is expected to cost Sh118.9 million while the one in Salgaa will cost Sh114 million.
Uganda Roadside Stations Task Force was launched in April during the Infrastructure Development and Private Sector Promotion programmes in Kampala.
Mr Bagula said other countries on the Northern Corridor are also forming teams to implement the projects.
“I was in Rwanda recently and soon they will launch their task force,” he said.
Mr Bagula said the presence of facilities such as restaurants and banks would spur growth around the road side stations by creating employment.
“Our aim is to use the road side stations not only to tame road crashes but also spur economic activities along the corridor to improve the lives of people,” the NCTTCA executive director says.
The road side stations will also have parking lots that will curb parking of trucks by the roadside, which at times lead to accidents mostly involving pedestrians and hawkers selling to travellers along the highway.
Dr Duncan Kibogong, a deputy director for safety strategies at the NTSA in Kenya, says heavy commercial vehicles parked by the roadside make roads narrow and easily cause accidents.
Corrupt police officers
“Stationary trucks also cause crashes, especially at night due to obstruction,” he says.
Health facilities will also be constructed at the hubs to cater for drivers in case they fall sick.
The medical centres will also serve people living with HIV.
To ease number of road blocks, the resting stations will also have police check-points along the Mombasa-Malaba highway.
Some of the long distance drivers who spoke to the Business Daily said they have to bribe traffic police officers at the roadblocks even when they have not committed any offence.
While Uganda and Rwanda have done away with roadblocks, Kenya still retains them with police saying they are used for security checks.
Mr Yasin Mugisha, a truck driver, on the Mombasa-Kigali route, says most long distance drivers make three stops to avoid the officers, whom he claimed, demand bribes.
“There is almost a standard fee of Sh50 we give to police officers at roadblocks, but those in Naivasha, Salgaa and Burnt Forest in Kenya do not take less than Sh1,000,” he says.
He claimed drivers are locked up if they do not part with the bribe.
There are no blocks in Uganda and Rwanda. But there were police officers along the way to look out for motorists driving beyond the speed limit.
The writer is a Pulitzer Centre on Crisis Reporting grantee.
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Global trade slowdown, Brexit, and the trade implications for Commonwealth developing countries
Global Trade Slowdown, Brexit and SDGs: Issues and Way Forward
The Sustainable Development Goals (SDGs) outlined in the 2030 Agenda for Sustainable Development, adopted by the international community in September 2015, is a global framework of actions over the next 15 years to tackle critical socioeconomic challenges faced by developing countries. Through its 17 goals linked to 169 targets, the progress of which is to be measured by as many as 304 proposed indicators, the SDGs aim to eliminate extreme poverty, combat inequalities, promote prosperity and strengthen global partnerships while protecting the environment. Building on the Millennium Development Goals (MDGs) initiative implemented during 2000-15, this new global architecture seeks to finish what the MDGs started. However, the SDGs go much beyond in clearly identifying the tools, or ‘means of implementation’, for meeting the targets.
Unlike its predecessor, the 2030 Agenda provides an elaborate role – both direct as well as crosscutting – for international trade for achieving many of the specific SDGs and targets. Indeed, trade has been directly referenced nine times in the seventeen SDGs compared to just once in the MDGs. This heartening effort of mainstreaming trade in a global development strategy has, however, come at a rather inauspicious time.
More than eight years after the global financial crisis of 2008, the world economy is still struggling to return to its pre-crisis growth trajectory. The growth of world trade has also been depressingly sluggish for several years now amid the feeble economic performance of the euro-zone, growth slowdown in China, lower commodity prices and a stronger US dollar – all having adverse implications for developing countries’ trade expansion. The failure to conclude the long-running Doha Round of multilateral trade negotiations contributing to the proliferation of regional trading arrangements has also placed the global trading system at a crossroads.
Furthermore, the decision of British voters in a referendum on 23 June 2016 to leave the European Union (EU), termed ‘Brexit’, presents an additional shock to the system. The uncertainties caused by Brexit may weaken the prospects for world economic recovery, with severe implications for developing countries and Least Developed Countries (LDCs). Since trade is to play a major role in the SDG framework, the outlook for promoting trade-led economic growth and sustainable development may become more challenging.
This issue of Commonwealth Trade Hot Topics provides some perspectives on how the current global economic environment, including the possible impact of Brexit, bear upon the effectiveness of trade in achieving the SDGs, and what can be done to address this challenge.
Post-Brexit trade and development implications
The UK is the world’s fifth largest economy generating trade flows of US$1.6 trillion (almost 4 per cent of total world trade in goods and services in 2015). While the UK’s total goods trade within the EU has remained relatively unchanged over two decades, the UK has steadily diversified its trade with developing economies, especially China. Developing countries now account for about 25 per cent of the UK’s total goods trade – approximately US$300 billion.
Owing to strong historical ties, the UK is an important export destination for many African, Caribbean and Pacific (ACP) countries. However, these countries have not been able to substantially grow their exports to the UK due to various capacity constraints. This is most evident in the case of CARICOM, where the share of total trade with the UK has contracted, notwithstanding the implementation of the EU-CARIFORUM Economic Partnership Agreement (EPA). There is, however, a bright side as well. Sub-Saharan African (SSA) countries have almost doubled their merchandise exports to the UK over the period 2000-14, from US$8 billion to approximately US$16 billion, while LDC exports have grown about fivefold over the same period, from US$1.58 billion to about US$7.84 billion. Almost 70 per cent of UK goods imports from LDCs are consumer goods, such as textiles and garments, supporting industrial capacity in these poorest nations. Although the information on services trade is not readily available, it is a matter of fact that the UK has been one of the most important drivers of services exports for many tourism-dependent ACP countries. Remittances from the UK are also quite high for several ACP countries.
Given the UK’s significant participation in world trade, the economic fallout from Brexit will have major implications for developing countries. The transmission channels whereby developing countries will be impacted include trade, investment, remittances, aid and development finance, the performance of the UK economy, and the UK’s global influence on trade and development issues. For example, as the pound depreciates by more than 10 per cent, ACP countries stand to lose purchasing power of their export receipts, remittances and aid resources close to US$2 billion. Over the medium to long term the repercussions through these channels will be determined by the nature of trade deals the UK can secure with the EU and trading arrangements with ACP countries.
Therefore, along with prolonged subdued global trade and growth, Brexit-related uncertainties can further weaken global economic prospects, undermining the achievement of the SDGs. To illustrate with one specific example, consider SDG 17, target 11: doubling the share of LDC exports by 2020 (first agreed in the Istanbul Programme of Action and since adopted as SDG 17.11).
The total exports from African LDCs in 2010 were US$116.7 billion, accounting for 0.76 per cent of global exports. While these economies recorded strong export growth until 2011, export performance has since been dismal owing to falling commodity prices and other reasons mentioned above. By 2015, African LDC exports had contracted to US$97.5 billion, with their combined share in global exports shrinking to 0.59 per cent.
Even under the current weak state of trading activities, if the global trade continues to grow at 3 per cent per annum, African LDCs will have to record annual export growth of about 25 per cent to meet this SDG target. This appears to be a bleak prospect given these countries’ recent export performance.
Trade Implications of Brexit for Commonwealth Developing Countries
This issue of Commonwealth Trade Hot Topics analyses ‘Brexit’ – the UK’s departure from the European Union (EU) – and shows that the effects for some Commonwealth countries may be severe unless specific actions are taken to avoid this. Yet there is a danger of Commonwealth interests being ‘crowded out’. Most member countries will have no representation in the decisions that could affect their trade, being able to influence events only from the side-lines in an environment where there exists severe time pressure and great uncertainty over almost all features of the Brexit process.
Brexit will affect the rest of the world along several direct and indirect pathways. If the UK or EU economies slow, so may their import growth. The UK will create a new trade policy and its departure may provoke changes in the impact of the EU-27’s regimes. Any reduction in investment as a consequence of short-term uncertainty or longer-term de-integration of the single European market will have possible adverse effects on growth and trade. Then there are indirect effects through the impact on investment and exchange rates, migrant remittances and global growth.
The trade policy effect
This Hot Topic focuses on what may be the most visible and, for some Commonwealth countries, potentially the most dramatic Brexit effect: changes to UK trade policy. The challenge is to ensure that the exports of Commonwealth countries are not disrupted immediately following Brexit and, more ambitiously, to use the UK’s new-found policy discretion to fashion a trade regime that is better at supporting development than the status quo.
There will be trade policy effects in three arenas:
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the UK and its current EU partners (including two Commonwealth countries);
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the UK and those states that currently have favoured access to the EU market;
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possible trade agreements between a post-Brexit UK and countries such as China, India and USA with which the EU does not have a trade agreement.
All of these are related, but the second is perhaps the most urgent for those Commonwealth developing countries that have ‘better-than-Most Favoured Nation (MFN)’ access to the EU market under either an Economic Partnership Agreement (EPA) or other type of Free Trade Agreement (FTA), or through trade preferences. One point on which there appears to be legal consensus is that unless specific actions are taken to avoid this outcome the trade regime of the EU will cease to apply to imports into the UK on Brexit+1.
EU border measures will be replaced by those of the UK – but these are yet to be created. Negotiations within the World Trade Organization (WTO) will be needed to dissect the EU’s commitments into a set applying to the UK and another set for the remaining members. But they are unlikely to be concluded by Brexit+1, given that creating a completely new MFN regime for goods and services would be a hugely complex and time-consuming task.
The only reasonable working assumption is that the Brexit+1 default option – if nothing better is put in place – is that the UK’s MFN regime will be the same as, or very similar to, current EU policy. This would affect seriously some Commonwealth developing countries. To flag the scale and incidence of the impact we have analysed all UK imports from each vulnerable Commonwealth trade partner and, where this is possible, calculated whether they would face a tariff hike.
It is easier to list the Commonwealth countries that will not be affected significantly by Brexit than those that will. Based on average annual EU imports in 2013-15, only 12 of the Commonwealth developing countries face a potential calculable tax hike representing less than 1 per cent of the UK’s total imports from them.
How big a hit? A simple indication is €715 million. This is the ‘new tax’ that would be levied on UK imports from the Commonwealth from (calculable) tariffs that are higher than today’s. It is a broad guide only, taking account of the precise calculation issues. How could this outcome be avoided? Four stylised options (each with scope for many nuances) cover the ground.
Related News
A floating threat: sea containers spread pests and diseases
International Plant Protection Convention grapples with challenges of globalized trade
Oil spills garner much public attention and anguish, but “biological spills” represent a greater long-term threat and do not have the same high public profile.
It was an exotic fungus that wiped out billions of American chestnut trees in the early 20th century, dramatically altering the landscape and ecosystem, while today the emerald ash borer – another pest that hitch-hiked along global trade routes to new habitats – threatens to do the same with a valuable tree long used by humans to make tool handles, guitars and office furniture.
Perhaps the biggest “biological spill” of all was when a fungus-like eukaryotic microorganism called Phytophthora infestans – the name of the genus comes from Greek for “plant destroyer” – sailed from the Americas to Belgium. Within months it arrived in Ireland, triggering a potato blight that led to famine, death and mass migration.
The list goes on and on. A relative of the toxic cane toad that has run rampant in Australia recently disembarked from a container carrying freight to Madagascar, a biodiversity hotspot, and the ability of females to lay up to 40,000 eggs a year make it a catastrophic threat for local lemurs and birds, while also threatening the habitat of a host of animals and plants. In Rome, municipal authorities are ramping up their annual campaign against the tiger mosquito, an invasive species that arrived by ship in Albania in the 1970s. Aedes albopictus, famous for its aggressive biting, is now prolific across Italy and global warming will make swathes of northern Europe ripe for colonization.
This is why the nations of the world came together some six decades ago to establish the International Plant Protection Convention (IPPC) as a means to help stem the spread of plant pests and diseases across borders boundaries via international trade and to protect farmers, foresters, biodiversity, the environment, and consumers.
“The crop losses and control costs triggered by exotic pests amount to a hefty tax on food, fibre and forage production,” says Craig Fedchock, coordinator of the FAO-based IPPC Secretariat. “All told, fruit flies, beetles, fungi and their kin reduce global crop yields by between 20 and 40 percent,” he explains.
Trade as a vector, containers as a vehicle
Invasive species arrive in new habitats through various channels, but shipping, is the main one.
And shipping today means sea containers: Globally, around 527 million sea container trips are made each year – China alone deals with over 133 million sea containers annually. It is not only their cargo, but the steel contraptions themselves, that can serve as vectors for the spread of exotic species capable of wreaking ecological and agricultural havoc.
For example, an analysis of 116,701 empty sea containers arriving in New Zealand over the past five years showed that one in 10 was contaminated on the outside, twice the rate of interior contamination. Unwelcome pests included the gypsy moth, the Giant African snail, Argentine ants and the brown marmorated stink bug, each of which threaten crops, forests and urban environments. Soil residues, meanwhile, can contain the seeds of invasive plants, nematodes and plant pathogens.
“Inspection records from the United States, Australia, China and New Zealand indicate that thousands of organisms from a wide range of taxa are being moved unintentionally with sea containers,” the study’s lead scientist, Eckehard Brockerhoff of the New Zealand Forest Research Institute, told a recent meeting at FAO of the Commission on Phytosanitary Measures (CPM), IPPC’s governing body.
Stink bugs and the supply chain
Damage exceeds well beyond agriculture and human health issues. Invasive species can cause clogged waterways and power plant shutdowns.
Biological invasions inflict damages amounting to around five percent of annual global economic activity, equivalent to about a decade’s worth of natural disasters, according to one study. Factoring in harder-to-measure impacts may double that, Brockerhoff said.
Around 90 percent of world trade is carried by sea today, with a vast panoply of differing logistics, making agreement on an inspection method elusive. Some 12 million containers entered the U.S. last year, using no fewer than 77 ports of entry.
Moreover, many cargoes quickly move inland to enter just-in-time supply chains. That’s how the dreaded brown marmorated stink bug – which chews quickly through high-value fruit and crops – began its European tour a few years ago in Zurich. This animal actively prefers steel nooks and crannies for long-distance travel, and once established likes to set up winter hibernation niches inside people’s houses.
New Zealand, which is highly reliant on agricultural exports, has enforced a state of the art biosecurity and container hygiene system in its bid to keep invasive species out. It relies on partnership with the shipping industry and inspections at a host of Pacific ports and offers the economically material incentive of fewer inspections upon arrival for those who comply. Container contamination rates were higher than 50 percent before this system was adopted a decade ago, and have since dropped by 90 percent.
Designing a phytosanitary action plan
Last year, the Commission on Phytosanitary Measures adopted a recommendation encouraging national plant protection organizations to recognize and communicate the risks posed by sea containers, and to support implementation of related parts of the UN Code of Practice for Packing of Cargo Transport Units (CTU Code), a non-regulatory industry guide book.
This would allow stakeholders to implement a system to address these concerns without putting the brakes on the wheels of commerce - represented by automated cranes able to load or unload containers in around 20 seconds at a mid-sized port like Hamburg, which handles a quarter of the volume of Shanghai.
While additional time is needed, a broad consensus is emerging that the risks are significant enough to warrant action.
For now, it is a wait and see approach as stakeholders are allowed some time to implement these voluntary soft measures, more widespread use of best practices and more diligent implementation of existing procedures. Dependant on the success of these efforts, the Commission will revisit the possible development of an international standard in the future.