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Kigali investments summit to ‘demystify’ Africa’s potential
Despite abundant business and investment prospects in Africa, there continues to be negative perceptions and stereotypes about the continent which are said to often prevent investors from pursuing opportunities.
In an attempt to demystify the continent and bridge the gap between foreign investors and Africa, the Common Market for Eastern and Southern Africa (COMESA) and Rwanda are co-hosting the Global Africa Investment Summit.
The summit, slated for September 5 and 6, targets over 1,000 delegates comprising of heads of government, industry captains, and representatives of multilateral organisations.
Organisers of the forum say foreign investors are often prone to basing decisions on their perception of a market.
In the case of Africa, they say, this often leads to misconceptions, such as a reliance on aid to improve its development, instead of active investments and collaboration.
Francis Gatare, chief executive of Rwanda Development Board (RDB), said the continent’s appeal is growing among forward looking investors and is now less dependent on aid.
“Africa’s growing appeal amongst forward-thinking investors has made it less reliant on international aid. With nations like Rwanda becoming a hub of enterprise development, initiatives by businesses are changing the game and creating attractive prospects for investment,” Gatare said.
He noted that African nations were working to put in place policies and incentives to attract investments.
“Some nations are also making an active effort to enact business-friendly policies and tax incentives in order to attract investors overseas. The Global African Investment Summi will serve as an example of just what Africa can do. The event will provide a unique opportunity to forge partnerships and make investment a core element to achieving our socio-economic development goals,” Gatare added.
Officials from COMESA say that, in recent years, more and more countries across the continent are presenting viable investment prospects.
‘Becoming economic hub’
Sindiso Ngwenya, head of COMESA, said with more countries presenting viable investment prospects, the continent is on the brink of becoming an economic and technological hub for investment.
“Nations such as Rwanda, South Africa and Kenya position Africa as a viable investment prospect. As more nations follow suit, the continent will be on the cusp of becoming both an economic and technological hub for investment,” Ngwenya said.
Paul Sinclair, a member of the organising committee of the conference, cited Rwanda as one of the nations changing opinions and perceptions by investing in infrastructure.
“Rwanda is actively changing opinions with its actions to improve its industrial, agricultural and social infrastructure. Heavy investment in Rwanda’s information and communications technology has been crucial to helping the nation spearhead their long term growth strategies, allowing it to become a place of interest for investors,” Sinclair said.
Going forward, Sinclair said, investment opportunities in Africa are particularly strong due to its strong consumer base, along with the high adoption rate of various technological tools, such as smart-phones and the internet.
The summit, organisers sa,y will build on the Tripartite Free Trade Area (TFTA) that was launched in Sharm el Sheikh, Egypt, in June last year.
TFTA aims at economically integrating Africa’s three major regional economic communities; COMESA, the Southern African Development Community (SADC), and the East African Community (EAC).
Together, the three economic blocs integrated would create the largest trading bloc in Africa, comprising 26 countries, about 620 million consumers and a combined GDP of almost $1.2 trillion spanning half the continent from Cairo in Egypt to Cape Town in South Africa.
By harmonising trade policies, removing trade barriers and promoting trade facilitation, TFTA aims to reap enormous benefits for the regions’ economies and populations, the organisers says.
“The primary objective of the summit is to engage the private sector on the TFTA initiative, and explore how the public and private sector can work together to help realise the aspiration of Africa’s largest single market,” a concept note of the forum reads in part.
The summit is an internationally recognised business platform that creates a unique meeting place for global investors and public and private sectors.
The last summit took place in London, UK, in December, last year, and attracted more than 1,500 investors who manage over $425 billion in funds earmarked for emerging markets.
The forum features sessions for the various sectors, roundtable discussions, exhibitions, bilateral meetings and networking sessions.
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2016 African Caucus: Cotonou Declaration
The African Governors of the International Monetary Fund (IMF) and the World Bank met at Palais des Congres de Cotonou (Benin), the 4th and 5th of August, 2016 for the African Caucus, chaired by His Excellency Abdoulaye BIO TCHANE , Beninese Minister of State for Planning and Development, Chairman of the African Caucus.
The discussions focused on the general theme “Scaling Up Bretton Woods Institutions Support to Address Shocks, Boost Growth and Enhance Transformation in Africa”.
As outcome of this meeting, the African Governors agreed to the following:
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The conduct of development policies on the continent prove to be more challenging due to declining commodity prices, tighter financial conditions on capital markets and the multiplicity of shocks of non-economic sources mainly security issues (terrorism) and climate change.
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The Governors recognize that to support these shocks, it is necessary to promote diversity, inclusive growth, and strengthening our regional economies.
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The Governors undertake to continue to futher work for more transparent governance while implementing the public policies of development in order to preserve and strengthened the progress made by African economies over the past decade.
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Governors call on the Bretton Woods institutions to support the structural transformation of African economies, including massive investment at concessional rates in key sectors. To this end, they recommend a new approach and instruments adapted to the real needs of the continent and a debt management framework which is more flexible. Furthermore, they call on a solid IDA18 reconstitution.
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Governors seek customized technical assistance to reinforce capacity building from the Bretton Woods institutions to make African economies more resilient to external shocks, given that public development support should be a leverage to increase the domestic potential of our countries.
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The Governors called on the Bretton Woods institutions to fulfill their commitments to diversity and the representation of the African continent inside their key decision entities.
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A draft memo was adopted by the governors and will be submitted to the officials of the Bretton Wood Institutions during the annual meeting.
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The governors expressed their gratitude to the Haitian delegation for their first participation to the African caucus work.
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The Governors expressed their gratitude to His Excellency the President of the Republic of Benin, Mr. Patrice Talon, his Government and people of Benin for their hospitality and support during their stay in Benin.
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Africa’s next step should be agricultural reform: Japan trade group exec
As a leading producer of oil, copper ore and other natural resources, recent weak prices and sluggish markets have slowed African economies. Growth potential on the continent remains immense, however, with populations growing faster than the world average.
What are the economic prospects for Africa, and what challenges does it face? An expert on the subject, Katsumi Hirano, executive vice president of the Japan External Trade Organization, spoke with The Nikkei about these issues and more.
Q: Do you expect the sluggish economy in Africa to continue?
A: It’s hard even for specialists to read future price trends for natural resources. Looking back, resource prices have surged only twice since World War II: during the oil crises of the 1970s and the period between 2000 and the recent past. Behind that second price bump was the rising profile of China. Unless the Chinese economy starts growing quickly again, rapid growth in Africa is not likely anytime soon. Because they are developing economies, African nations need stable economic policies.
Q: What is needed for sustainable growth in Africa?
A: Firstly, the enhancement of agriculture. In Africa, 60% of the labor force is focused on agriculture, and 80% of the people in dire poverty live in farming villages. Unless the agricultural sector becomes more efficient, income gains in Africa are impossible across the board.
Currently, Africa is not self-sufficient in staple foods, so domestic prices cannot stabilize unless agricultural productivity rises. [Today’s upward price trend] is leading to higher wages and labor costs. That has an negative effect mainly on manufacturing sector. So many working people are engaged in agriculture, but the continent depends on food imports. Without a breakthrough in this area, there is no path to stable economic growth.
Q: Does the land in Africa have good potential for agriculture?
A: There are many challenges. Groundwater resources are scarce, so people have to secure water from underground or irrigation systems. African soil generally lacks sufficient inorganic fertilizers like nitrogen and phosphorous, leading to the use of chemicals instead. Some crop breeds can bring in large harvests even in low-water environments, and they should be used more widely. If that raises productivity in areas better suited to agriculture, Africa could minimize its food imports.
Q: The African economy did not fare well in the 1980s and 1990s. How are things different now?
A: In the 1980s, macroeconomic management failed in many African nations. Nigeria’s military regime was the worst. But now, President Muhammadu Buhari is promoting policies to address the slow economy, eradicate corruption and cut waste from government expenditures. The difference is huge.
African governments are becoming more flexible in making policy to suit current situations, which is substantially improving their quality. The foundation of the corporate sector has also progressed. In the 1980s, the government sector, including state-owned companies, accounted for 70% of Africa’s economic output, leaving very little to the private sector. But starting around 2003 the private sector began driving economic growth in the region. Not only foreign companies, but also many indigenous African companies are reporting rapid growth.
Q: Many African entrepreneurs are returning home from the West to do business. How is this affecting the situation?
A: They’re called “the cheetah generation,” and they are active particularly in IT and finance. Many were educated in the U.S. and maintain business networks in the U.S. and Europe. World financial aid has been focused on Africa, and scholarships allowed many talented Africans to go to school in the developed world. Now they are blossoming at home.
The high prices for natural resources over the decade until recently changed Africa substantially. National capitals are full of new buildings, and more cars are on the streets. But I’m not saying this growth has supported major progress in reducing poverty or substantially increased the middle class. It’s worth noting that the gap between the rich and poor expanded in natural-resource producers such as Angola and Equatorial Guinea.
Q: Historical ties led European and U.S. companies to enter African markets far ahead of the rest of the world. Will Asian companies, including Japanese ones, be able to compete going forward?
A: Business principles in Africa are relatively simple. Like the textbook example of a market economy, strong companies win there.
Africa is an ideal stage for Japanese companies to test and hone their skills, and various business models are being advanced. In Kenya, Safaricom offers secure money transfers and settlement services via cellphone. This allowed the country to join the world’s top group in terms of mobile money circulation. The Safaricom system was born of necessity because Kenya’s financial infrastructure is underdeveloped. The success of Japanese companies in Africa depends on their ability to come up with such ideas.
Q: The Tokyo International Conference on Africa’s Development [TICAD] is celebrating its sixth anniversary and will be held in Africa for the first time. China and India are hosting similar events. What do you think the Japanese government and corporations need to do to raise their profiles?
A: Japan has to regain its strength. In that regard, it’s important to designate TICAD as a policy component for that specific purpose. The conference should be operated in the spirit of Japan and Africa growing strong together, both economically and politically. One motivation for Japan to host TICAD is the possibility of increasing influence over international public opinion.
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Cameroon ratifies EU trade deal but suspicions remain
Cameroon has accepted an Economic Partnership Agreement (EPA) with the European Union on the dismantling of customs barriers, even though it told members of a regional bloc it would hold out for a better deal.
Cameroon’s decision to accept an Economic Partnership Agreement (EPA) with the European Union puts it at loggerheads with the five other members of Central African Economic and Monentary Community (CEMAC), which are Central African Republic, Chad, Republic of Congo, Equatorial Guinea and Gabon.
A week ago, CEMAC leaders met in Malabo, capital of Equatorial Guinea, and the consensus was that they would only sign an agreement that was fair and balanced. But on August 4, Cameroon reneged on the deal and ratified its existing draft EPA.
Civil society activist Jean Paul Fouda told university students in Yaounde that “Cameroon is a shameless state in Central Africa, since it has betrayed other nations.”
He said Cameroon earns 600 billion CFA francs ($1 billion, 895 million euros) in customs duties every year and “President Paul Biya is asking us not to collect the revenue from the Europeans? Let’s be serious,” Fouda added.
Lawmaker Njong Evaristus told DW that Cameroon’s budget depends on customs duties and the country was at disadvantage compared to the EU. “We don’t have developed industries that are up to a level that they can compete with industries in Europe,” he said. A trade imbalance was more or less inevitable. “We are a country that is dealing with agricultural products and the rest and they are dealing with goods that are already finalized goods.”
Tabe Nkongho, an economist at the University of Buea, is suspicious of the EPA. If it really is going to benefit Africa and Cameroon, as its supporters claim, why then do they feel the need to push so hard for its adoption. Nkongho believes the EPA is a drive in favor of the “capitalist mode of production which benefits the capitalist states but not the peripheral states in the world economy.”
Deadline postponed
African countries were given until October 2014 to ratify EPAs, otherwise the preferential treatment their exports were already receiving on European markets would be suspended. Emmanuel Nganou Ndjoumessi, a former economy minister and now minister of works, was on the negotiating team that secured an extension of the deadline until August 1, 2016. He said Cameroon ratified the agreement in order to continue selling its goods without paying customs duties.
“We have been selling to the European Union without paying customs duties and, as a consequence, we could easily sell our bananas, chocolates, beans and so on,” Ndjoumessi said.
Francoise Collet, head of the EU delegation to Cameroon, said she was urging other central African states to ratify their EPAs as well. They could help protect their poor populations by liberalizing their economies. One of the goals of the EPAs was to encourage African, Caribbean and Pacific (ACP) countries to negotiate with the EU in regional groupings rather than individually.
“It will be a safer environment for trade, for expanding trade between our regions and also within regions, that’s one of our hopes. It’s not only a trade agreement, it’s a development agreement.”
Critics doubt that EPAs are the solution to Africa’s economic problems, believing instead that they subjugate ACP economies to the needs of European capital.
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tralac’s Daily News Selection
The selection: Wednesday, 10 August 2016
SADC Trade Protocol: Mauritius workshop on MRE system (GoM)
A sensitisation workshop on the SADC Monitoring, Reporting and Evaluation System of the SADC Trade Protocol and Non-Tariff Barriers organised by the Ministry of Foreign Affairs, Regional Integration and International Trade, in collaboration with the Customs Department and the SADC Secretariat, opened at the Customs Department of the Mauritius Revenue Authority. For the first cycle of the self-reporting (2015), Member States were expected to submit annual reports showing progress made on implementation of the Protocol relative to status reported during the previous year as well as implementation plans for 2016. The aim of the workshop is to assist Mauritian stakeholders to identify implementation gaps and prepare the annual plan for 2016.
Central Corridor: Traders find solutions to NTBs but sticky issues persist (New Times)
Fresh information shows that transporters on the Central Corridor now save up to 78% of weighbridge stoppage times, thanks to an April directive by Tanzanian President John Magufuli for transit trucks to stop only three times instead of eight at weighbridges in the country. The announcement, by the Central Corridor Transit Transportation Facilitation Agency, comes hardly a month after members of the East African Business Council highlighted several issues, including delays in clearing goods, corruption and theft at the Port of Dar-es-Salaam in Tanzania. According to the agency, its own analysis revealed that from June 2015 to April 2016 transporters spent an average of 222.4 minutes (3.42 hours) on weighbridges between Dar-es-Salaam and the borders between Tanzania and Rwanda, Burundi, Uganda up to DR Congo. But there is a new hurdle. [Tanzania takes over Central Corridor Chairmanship from Rwanda, Hail transport time, cost drop on Central Corridor (editorial comment, Daily News)]
Port of Mombasa: operational performance, week ending 3 August (Business Daily)
Operational performance at the terminal registered an average ship working time from first sling to the last sling of 1.96 days while ship average waiting time was 0.35 days and dwell time was 3.93 days. Average gross move per ship was 36 per hour and average gross move per crane was 16 per hour. Containers delivered by road during the week were 10,677 TEUs while those evacuated by rail were 240 TEUs only. Imports population breakdown at the port: 1,896 TEUs were for the local market (Kenya) while 4,441 TEUs were for the transit countries. As usual Uganda had the lion share of the transit throughput with 3,508 TEUs followed by Tanzania 292, South Sudan was third with 243 TEUs and DRC imported 172 TEUs. Other countries were Rwanda with 143 TEUs, Somalia 46 TEUs, Ethiopia had 23 TEUs and last was Burundi with 14 TEUs.
Zimbabwe: Import restrictions fuel rampant smuggling in Beitbridge (The Chronicle)
Smuggling of commodities into Zimbabwe has escalated following the implementation of Statutory Instrument (SI) 64 of 2016 with the Government losing millions of dollars every week in unpaid customs duty. The instrument restricts the importation of some goods produced locally. But rampant smuggling activities are taking place at illegal crossing points dotted along the Limpopo River, The Chronicle can reveal. At Nottingham Estate, about 40km west of the border town, the news crew observed a one tonne truck being loaded with smuggled goods shortly after 8PM. The goods, which were concealed under a consignment of oranges, included alcoholic beverages and boxes of cooking oil. The smugglers are taking advantage of the dry Limpopo riverbed to cross the border using 4x4 vehicles. [Business slumps at Beitbridge as border post is deserted]
EALA to probe Burundi's ban on cross-border trade (New Times)
The East African Legislative Assembly plans to launch an independent investigation into Burundi’s recent decision to ban Rwanda’s products entering its market. The findings will inform the assembly and the Heads of State in the region on possible remedies. This was announced yesterday, by Daniel Kidega, the EALA Speaker after a meeting with Senate president Bernard Makuza. The two also discussed the EAC funding, where countries are urged to develop the necessary funding mechanisms for projects to avoid relying on donors.
COMESA: helping Madagascar, member states combat money laundering
The initiative is being implemented by COMESA under the Maritime Security regional programme which is financed through the European Development Fund (EDF 11). The MASE programme aims at fighting against money laundering and financial crimes in the region. On Monday, the COMESA Secretariat conducted a sensitization workshop for Anti Money Laundering and Combatting the Financing of Terrorism (AML/CFT) in Madagascar. Madagascar has so far been the highest beneficiary of the programme which includes support to join the Eastern and Southern Anti-Money Laundering Money Laundering Group (ESAAMLG) and alignment of its laws.
Regional leaders to meet on money laundering (The Chronicle)
The Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) and the SADC Council of Ministers will meet this month for their bi-annual task force meeting. “The 32nd task force meeting of the senior officials will be held from 28 August to 1 September in Victoria Falls, Zimbabwe,” organisers said. “The task force meeting will be followed by the council of ministers’ meeting on 2 September and the public/private sector dialogue, will take place from 2-3 September.”
Nigeria: Olusegun Awolowo worried about neglect of ECOWAS free trade (The Guardian)
Executive Director, Nigerian Export Promotion Council, Olusegun Awolowo, has urged Nigerian exporters to maximise the economic potentials inherent in ECOWAS Trade Liberalisation Scheme, to enhance economic growth in the country. The export promotion council boss, who spoke recently at capacity building workshop for exporters in Kano, revealed that survey conducted by the council on progress in Nigeria on some multilateral and bilateral trade agreements entered with some countries indicated poor impact, largely due to what he considered as lack of awareness of most of the pacts. On the contrary, President of the Trans Sahara Trade Development Association, Muntaka Isa, insisted that low participation of businessmen particularly in the Northern part of the country was not unconnected to cumbersome procedure and heavy taxes and duties imposed by Nigerian Customs services.
Mauritius hosts regional workshop on communicating scientific information to policy makers (GoM)
A five-day regional training workshop on 'Communicating Scientific Information to Policy Makers' opened yesterday. The objective is to improve decision making and the development of policies based on the scientific data, products and bulletins that are generated under the Monitoring for Environment and Security in Africa-Indian Ocean Commission project. Organised by the Mauritius Oceanography Institute, the workshop is being attended by around 30 participants, namely National Focal Point from Indian Ocean Commission member states and Eastern African countries as well as the technical focal points from the National Beneficiary Institutions. The MESA project is a contractual project between the MOI and the African Union Commission with funding and endorsement from the European Union.
Fighting deforestation in the Miombo woodlands of Southern Africa (World Bank Blogs)
The 2016 Miombo Network workshop, hosted by Mozambique’s University Eduardo Mondlane from 27-29 July, drew over 90 participants from eight African countries - South Africa, Zimbabwe, Zambia, Tanzania, Malawi, Mozambique, Namibia, and Kenya - as well as from the US, UK, Portugal, Finland, and Brazil. The participants represented a diverse cross-section of governments at the national and subnational level, non-governmental organizations, the private sector, and academia.
SADC, Germany sign technical and financial cooperation agreement
IGAD training workshop on international water law
AU's Fridays of the Commission workshop, 19 August: Lessons from the response to El Nino Eastern Africa and Southern Africa
The evolving dynamics of Africa's regional economies: Ajen Sita (EY Africa) interviewed (Forbes)
Afreximbank’s plan for Kenya regional office hit by tax war (Business Daily)
Brexit lessons for EAC about Tanzania (Business Daily)
How SA living standards have changed: analysis of selected living standards indicators (Standard Bank)
GDP per capita and disposable income per capita (national level, real terms): We use national GDP per capita over the past 15 years and divide it into 3 time periods: 2000-2005; 2006-2010 and 2011-2015. We show that living standards for South Africans improved the most during the period 2000-2005, with GDP per capita growth of 10%. The period 2011-2015 recorded the lowest per capita growth at just 2%. Similarly, analysis of disposable income per capita shows that average income for South Africans grew the slowest in the period 2011-2015, at 3%, versus 12% in 2000-2006 and 5% in 2006-2010. [The analysts: Kim Silberman, Siphamandla Mkhwanazi, Zaakirah Ismail]
Financing Africa’s infrastructure deficit: from development banking to long-term investing (Brookings)
In this paper, we first take stock of recent initiatives [including PIDA] to scale up infrastructure in Africa through the construction of new (greenfield) investment. While progress has been made on the origination front, especially for regional infrastructure investment, the financing has yet to materialize. The paper then critically reviews the literature on informed versus arm’s length debt and draws lessons for infrastructure financing. Considering the differences in investors’ preferences that Africa faces, the paper argues that Africa’s success to fill its greenfield infrastructure gap hinges upon a delicate balancing act between development banking and long-term institutional investing. [The analysts: Rabah Arezki, Amadou Sy]
Multilateral Development Banks’ Climate Finance 2015 Joint Report (AfDB)
Among the regions, non-European Union Europe and Central Asia received the largest share of total funding at 20%; with South Asia receiving 19%; Latin America and the Caribbean 15%; East Asia and the Pacific 14%; the EU 13%; Sub-Saharan Africa 9%; and the Middle East and North Africa 9%. Multi-regional commitments made up the other 2% of the total. On a sectoral basis, the largest recipient of adaptation funding was for water and wastewater systems (27%), followed by energy, transport and related infrastructure (24%), and crop and food production (18%). Renewable energy received the bulk of mitigation finance (30%), lower-carbon transport received 26%, and energy efficiency activities 14%.
14 airlines close shop in Nigeria amid forex hike (The Guardian)
No fewer than 14 airlines have withdrawn their services from the country due to low patronage on account of the economic recession. The airlines, including Iberia, United Airlines and Air Gambia, are among the 50 that operated the Nigerian routes some months ago. Besides, foreign airlines operating in the country are estimated to have lost about N64 billion in the wake of the new foreign exchange policy of the Central Bank of Nigeria.
T20 policy recommendations to the G20 (China Daily)
About 500 think tank experts, politicians and representatives of international organizations from 25 countries worldwide met in Beijing for the Think 20 (T20) Summit that ran from July 29 to 30 to contribute their wisdom to the G20 Hangzhou Summit on building new global relationships. Extract: The T20 should strengthen its own capacity building. Some experts suggest that the T20 should initiate a more institutionalized think tank alliance to provide more systematic and issue-oriented intellectual support for the G20. Others suggest that the G20 should even establish a G20 Institute funded by the G20 members and composed of relevant experts of the G20 members.
US disappointed with Chinese export subsidies says EXIM chairman (Reuters)
A senior US trade official on Tuesday complained that China's rising export subsidies were damaging American businesses and criticised the US political system for failing to adapt to competition from China. US Export-Import Bank Chairman Fred Hochberg told reporters in Beijing that China gave its exporters 10 times more financing than the US did in 2015, predicting the issue would be on the agenda at the G20 summit in Hangzhou next month. In 2015, US EXIM approved $12.4bn in export financing. During his trip to Beijing, Hochberg met with the Export-Import Bank of China, which he said extended $30bn last year and he said another agency benefitting exporters, Sinosure, gave $471bn last year to aid Chinese business and investment overseas. He said he was disappointed China has yet to sign up to a global framework regulating export subsidies.
US-China trade surprise (AEI)
China: Disappointing July imports suggest cooling domestic demand (Reuters)
India’s new stance at RCEP may benefit China (LiveMint)
Ghana: Making a case for the ratification and implementation of the WTO Trade Facilitation Agreement (WTC Accra)
China mulls venture into Rwanda's banking sector (New Times)
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Financing Africa’s infrastructure deficit: From development banking to long-term investing
Africa is the continent of the future. To realize its potential, Africa needs to reduce its massive infrastructure deficit to both achieve structural transformation and market integration. Africa is, however, constrained by its limited domestic revenue base and thus needs to tap into foreign finances.
While progress has been made on the origination of large regional infrastructure projects, the needed scaling up of financing infrastructure has not yet materialized. While research on the incentive issues in a context of public-private partnership has been prolific, little attention has been paid to the appropriate structure of financing of infrastructure investment in developing countries, and in Africa in particular. This paper fills that gap.
From the perspective of investors, including long-term investors such as sovereign wealth funds (SWFs), investing part of their assets in infrastructure would provide them with the obvious benefit of portfolio diversification while helping achieve their risk-adjusted return objectives. Long-term investors such as SWFs constitute a pool of savings that can help alleviate the financing constraints of Africa’s infrastructure. SWFs as a class of institutional investors have gained prominence over the last decade, mainly as a result of the rapid rise of their assets under management (AUM). To date, SWFs have accumulated nearly $6 trillion in assets, and if one adds to this number the reserves accumulated by central banks, total accumulated savings in this sector approach $15 trillion. One can grasp the enormous size of this global sovereign wealth by comparing it, for example, to U.S. nominal GDP ($16.6 trillion in 2012), or to the IMF’s new arrangements to borrow ($576 billion in 2013), or even to the total market capitalization of U.S.-listed companies ($18.7 trillion in 2012). In addition to their relatively large size, SWFs have long investment horizons and are relatively much better placed to invest in long-term global infrastructure assets than most investors. In the infrastructure asset class, where there is a huge demand for funding, SWFs are likely to face less competition. One major reason SWFs are in a better position to invest in such long-term assets is that, unlike other traditional long-term investors such as pension funds, most SWFs do not have substantial explicit liabilities. They are also not subject to the “prudent person” investment regulations, which prevent other institutional investors such as pension funds from building a large exposure to long-term infrastructure projects.
While the case for SWFs and other long-term investors to invest in infrastructure-based assets is strong, the modalities of such a shift in their asset allocation, especially toward Africa-based infrastructure assets, constitute a real challenge. Indeed, the asset allocation toward infrastructure by SWFs has been very modest thus far. According to TheCityUK (2013), SWFs have invested solely $26 billion of their assets under management into infrastructure assets. SWFs differ widely in terms of their objective and their asset allocation. Notable exceptions of SWFs investing significantly in infrastructure are Singapore’s Temasek and the United Arab Emirates’ Mubadala.
A few major global pension funds also invest noticeably in infrastructure assets such as the Canadian Pension Plan, which invests about 5.7 percent of its total assets. Existing evidence for African countries suggests that pension assets are relatively small and dominated by often poorly performing pay-as-you-go (PAYG) schemes for public sector employees. Notable exceptions include countries in southern Africa such as Botswana, Namibia, and South Africa, and a few others such as Kenya and Nigeria. However, even when pension reforms toward fully funded systems have been implemented (like in Nigeria), and assets are available for investment, governance and regulatory obstacles as well as a dearth of adequate financial instruments limit African pension funds’ allocation
to infrastructure.
More generally, there are three main challenges for SWFs and other long-term investors contemplating investing in infrastructure assets. First, investment in infrastructure entails different types of risk compared to other asset classes. For example, the construction risks inherent in large-scale infrastructure can deter long-term investors whose propensity to take risks is relatively low considering their main objective, which is to preserve wealth. Second, SWFs and other long-term investors lack in-house expertise specific to infrastructure. At times, it is even crucial to possess the adequate expertise on infrastructure at the sectoral level (for instance, transportation, energy, information and communication technology, or water). OECD stresses that more expertise at the level of board members will be required, perhaps including specialists that have appropriate asset and risk management skills. Third, the lack of standardization of underlying infrastructure projects is an important impediment to the scaling up of investment into infrastructure-based assets. Large physical infrastructure projects are indeed complex and can differ widely from one country and from one sector to the next.
For these reasons, banks and, in particular, development banks and multilateral development banks (MDBs) that have expertise in infrastructure and flexibility in terms of investment horizon and contract renegotiation may play a key role in paving the way for a viable engagement of institutional investors. In addition, MDBs’ claims on the governments that receive their loans are senior to other claims. MDBs indeed possess unique characteristics in providing finance that is related to the design and implementation of structural reforms and institution-building programs adopted by governments. The (credible) commitment of governments to the policy reforms and changes in government practices embodied in MDB conditionality and their monitoring and enforcement measures are fundamental to MDB operations and differentiate them from private lenders. Importantly, the advent of infrastructure investment platforms has further extended the practice of co-financing whereby MDBs and private lenders join forces to support infrastructure investments. Indeed, Armedáriz de Aghion (1999) shows that the provision by MDBs of well-targeted guarantees (or subsidies) alongside the use of co-financing (limiting the opportunities for politically motivated credit allocation) can lead to superior outcomes.
Among the international efforts to leverage institutional investment for infrastructure and other longterm investment, the G-20-OECD High-Level Principles of Long-Term Investment Financing by Institutional Investors aim at facilitating and promoting long-term investment by institutional investors, including pension funds.4 In particular, the principles seek to help policymakers design a policy and regulatory framework that encourages institutional investors to invest in long-term assets in a manner consistent with their investment horizon and risk-return objectives.
This paper relates to the economics literature on public-private partnerships (PPP). One of the central insights of that prolific literature is that it is generally incentive-efficient to structure concession contracts by bundling construction and service provisions together with a single private operator. The reason bundling is efficient is that by assigning construction and operation to the same provider, the latter has strong incentives to construct the facility so as to minimize future operating costs. Besides the focus on incentives issues, it is striking how little attention the economics literature has devoted to the fundamental question of how to structure financing of infrastructure investments including under PPPs.
This paper also relates to a strand of the finance literature on informed versus arm’s length debt. The main insight from that literature is that banks have the capacity to provide cheap “informed” funds as opposed to costly “uninformed” or arm’s length funds. There are, however, costs associated to utilizing bank debt because of informational capture. Considering the costs associated with the reliance on informed and flexible lenders at the earlier stage of infrastructure projects, this paper draws insights from the above-mentioned literature to reflect on the appropriate financing structure for infrastructure.
In this paper, we first take stock of recent initiatives to scale up infrastructure in Africa through the construction of new (greenfield) investment. While progress has been made on the origination front, especially for regional infrastructure investment, the financing has yet to materialize. The paper then critically reviews the literature on informed versus arm’s length debt and draws lessons for infrastructure financing. Considering the differences in investors’ preferences that Africa faces, the paper argues that Africa’s success to fill its greenfield infrastructure gap hinges upon a delicate balancing act between development banking and long-term institutional investing. First, a greater involvement of development banks that have both the flexibility and expertise will help finance the riskier phases of large infrastructure projects. Second, development banks should disengage and offload their mature investments that generate a stable and well-identified stream of revenue to pave the way for a viable engagement of long term institutional investors such as sovereign wealth funds. In order to promote an Africa-wide infrastructure bond market where the latter could play a critical role, the enhancement of Africa’s legal and regulatory framework should start now. Provided they uphold the highest standards, greater involvement of development banks could help with the diffusion of best practices and hence reduce substantial efficiency gaps prevailing in existing infrastructure spending.
Rabah Arezki is Non-resident Fellow and Amadou Sy is Senior Fellow and Director, Africa Growth Initiative, Brookings Institution.
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Traders find solutions to NTBs but sticky issues persist in Central Corridor
Fresh information shows that transporters on the Central Corridor now save up to 78 per cent of weighbridge stoppage times, thanks to an April directive by Tanzanian President John Magufuli for transit trucks to stop only three times instead of eight at weighbridges in the country.
The announcement, by the Central Corridor Transit Transportation Facilitation Agency (CCTTFA), comes hardly a month after members of the East African Business Council (EABC) highlighted several issues, including delays in clearing goods, corruption and theft at the Port of Dar-es-Salaam in Tanzania.
According to the agency, its own analysis revealed that from June 2015 to April 2016 transporters spent an average of 222.4 minutes (3.42 hours) on weighbridges between Dar-es-Salaam and the borders between Tanzania and Rwanda, Burundi, Uganda up to DR Congo.
“Since President Magufuli’s pronouncement in April that transit trucks and buses should only weigh at Vigwaza (Coast Region), Njuki (Singida) and Nyakahura (Shinyanga), they now spend only 48 minutes, which is 22 per cent of the time they lost before,” said Faraja Mgwabati, the CCTTFA communications officer.
But there is a new hurdle.
According to the agency, for transit trucks or buses to stop only at the three weighbridges, they need to obtain special stickers designed by the Tanzanian Ministry of Works, Transport and Communications at $40 each, paid once.
However, according to CCTTFA, as of July 28 only 254 transit trucks had obtained the stickers, representing less than 2 per cent of the total of 13,000 transit trucks registered by government.
Issa Mugarura, vice-president of Rwanda’s Truck Drivers Association (ACPLRWA), said, initially, following President Magufuli’s directive soon after his last visit to Rwanda, things changed for the better as trucks would only be weighed at the three points.
“But now, surprisingly, I have talked to a driver who arrived here today from Dar and he informs me that he passed through all the eight weighbridges. And, at some of them, he claims that they were cheating on the tonnage measurements,” said Mugarura.
“When I last travelled the same route, roughly two weeks ago, I stopped at only three weighbridges and used only three days to reach Kigali. This driver left Dar last Friday and arrived today (yesterday). These new developments are not good for business.”
Mugarura said he had no knowledge about the stickers and has never used them.
A private sector official in Kigali, who preferred anonymity, said introduction of the $40 transit sticker inconveniences transporters in terms of costs.
“When bridges were reduced the intention was to ease transport and encourage seamless flow of traffics but with the stickers introduced it means more lines in acquiring these services,” the official said.
Besides, according to the Tanzania Truck Owners Association (TATOA), the stickers only consider one route per truck or bus disregarding that some trucks could change routes depending on the destination of the cargo, therefore creating a situation where a single truck will need multiple stickers.
Asked to comment about the apparent inconvenience caused by the stickers, Mgwabati said: “The board discussed the issue of stickers and $40 and agreed that the decision will be evaluated and the government of Tanzania will make a decision whether it is still viable to have stickers or to remove them. We are optimistic that the government will remove the stickers.”
Tanzania takes over
Meanwhile, Tanzania yesterday assumed the chairmanship of the Board of Directors of the CCTTFA from Rwanda.
The Permanent Secretary at Ministry of Works, Transport and Communications, Dr Leonard Chamuriho, took over from Rwanda’s Christian Rwakunda, during the first day of the 11th Ordinary Board of Directors meeting held in Dar es Salaam.
The meeting, which ends today, will be followed by the 7th Interstate Council of Ministerial (ICM) tomorrow.
The Chairmanship of the Council and the Board rotates annually among member states. The board meets twice a year although they may hold extraordinary meetings upon request of any member state.
The Central Corridor is a collection of transport routes connecting Rwanda, Burundi, DR Congo and Uganda to the Tanzanian port of Dar-es-Salaam.
According to CCTTFA, other weighbridges installed between Dar es Salaam and the western borders include Mikese (Morogoro), Kihonda (Morogoro), Nala (Dodoma), Mwendakulima (Shinyanga), and Kyamyolwa and Mutukula (Kagera).
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Globalization is the only answer
The Brexit referendum in the United Kingdom and the presidential race in the United States have shown, among other things, that public distrust of global integration is on the rise. That distrust could derail new trade agreements currently in the works, and prevent future ones from being initiated.
The danger implied by this scenario should not be underestimated. Isolationism and protectionism, if taken too far, would break the trade-based economic engine that has delivered peace and prosperity to the world for decades.
Can the open global economy be saved from populist challengers – and from itself? Justin Yifu Lin, Ngaire Woods, Robert Shiller, and other Project Syndicate commentators examine why globalization is in such distress and disrepute.
As a former trade minister for Costa Rica, I know how difficult it is for countries – developed and developing alike – to craft trade policies that deliver benefits to all of their people. But just because managing the effects of globalization is difficult does not mean we should throw our hands up and quit.
In the developing world, trade has delivered high growth and technological progress. According to the World Bank, since 1990 trade has helped to halve the number of people living in extreme poverty. But these gains, while impressive, are not necessarily permanent. If high-income countries close themselves – and their consumers – off from global markets, the world’s poorest people will suffer the most.
Trade thrives in an open environment of willing participants acting in good faith and governed by clear rules. Short of this, the forces of globalization can turn cooperation into conflict. That’s why policymakers should focus on four areas.
First, countries should dismantle protectionist measures they have in place, and make a firm commitment not to implement policies that distort global markets.
Second, countries should come together to update the international rules governing trade to account for changing economic conditions, and effectively implement negotiated agreements.
Third, individual countries and institutions such as the World Trade Organization should work together to eliminate barriers that increase trade costs. In particular, they must abolish agricultural subsidies, remove restrictions on trade in services, improve connectivity, facilitate cross-border trade and investment, and increase trade finance.
Finally, and most important, wealthy countries should support developing countries’ efforts to integrate themselves further into the global economy. Given trade’s record of reducing poverty, this is a moral imperative; it is also indispensable for peace and stability.
To be sure, trade must deliver for all countries and for all people, from factory workers suffering plant closures in Europe or the United States to subsistence farmers trapped in informal economies in Africa and South Asia. But those who suggest that trade is a zero-sum game are simply avoiding the hard questions: Who should bear the painful dislocation costs from trade and new technologies? What policies will enable dislocated people to pursue new opportunities? How can countries maintain productivity-led growth in an age of frequent and sudden disruption?
The challenges of global integration are not new, but nor can they be ignored. Policymakers should mind the lessons of economic history. Above all, they should bear in mind that even during past periods of rapid technological change, far more people benefited from free and open trade than from protectionist barriers.
Anabel González is Senior Director, Trade and Competitiveness Global Practice, Trade & Competitiveness at the World Bank.
This article was first published by Project Syndicate.
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Collapse of EU trade deal: Kenya finds itself isolated for a third time in four months
Kenya has found itself isolated after its peers in East Africa developed cold feet on a trade deal with the European Union (EU).
One after another, the five countries in the region have backed out of the deal, leaving Kenya on the negotiating table alone.
Unlike Kenya, the other East African countries have nothing to lose if they do not ratify the deal, known as the Economic Partnership Agreements (EPAs), by the October 1 deadline – at least not in the short term.
The EPAs are trade and development agreements negotiated between the EU and African, Caribbean and Pacific (ACP) partners engaged in regional economic integration processes. When talks on the deal began in 2002, the East African Community (EAC) agreed to enter the negotiations as a bloc.
But with the signing deadline looming, Tanzania has put the first nail in the coffin after publicly declaring it would not sign the agreements.
This jolted Kenya into action in a race against time, and further tested its strained relationships with its regional neighbours for a third time this year.
In April, Uganda chose Tanzania over Kenya in building its oil pipeline route, leaving Kenya to go it alone. And then in May, Rwanda confirmed it would chose the Tanzania rail route over Kenya’s standard gauge railway.
Cracks that led to the collapse of EPAs deal emerged at an EAC meeting called on July 5 ahead of the United Nations trade meeting Nairobi hosted that month.
It was an extraordinary meeting for the EAC secretariat. No one needed to leave their offices to attend it; it was to be a video conference.
Notification letter
Kenya was hoping to get its neighbours’ approval to sign the EPAs on the sidelines of the UN meeting.
But one member was missing at the conference table. Tanzania.
Tanzania later said it was not aware of the meeting – but the EAC secretariat confirmed it had sent a notification letter to all partner states.
Uganda’s minister of trade, industry and cooperatives, Amelia Kyambadde, chaired the meeting.
The absence of Tanzania, East Africa’s most populous nation, set the stage for what would come days later. The country stunned Kenya when it rejected the trade deal that has been negotiated for more than a decade on the grounds that it is not in the interests of its local industries.
Kenya now has to ‘suffer’ the consequences of being the only country in the region that is not a least developing country (LDC).
It is the second time Kenya will be Únding itself between a rock and a hard place on the EU trade deal.
In the run up to October 1, 2014, the earlier deadline date, Kenya found itself in a similar situation, which saw it miss the deadline.
A month earlier in September, the country had rebased its gross domestic product (GDP), a move that pushed it up the economic ladder into the bracket of a low-middle income economy. Kenya was, in essence, no longer a poor country and was to be treated as such.
In the same month, a report by the United Nations Development Programme (UNDP) spelt out the price of being a middle-income economy.
“A larger economy means Kenya needs less support and will not be eligible to access key export markets on preferential terms. Hence, Kenya might experience loss of access to key markets it currently trades in under special terms as a poor country,” read the report in part.
The UN report warned that the country now needed to brace itself for the consequences that came with its new status, noting that it stood to lose well over Sh285.6 billion per annum in official development assistance (ODA).
Punitive taxes
When Kenya failed to meet the first deadline, the European Council did not hesitate to remind it of the burden of walking around with a middle-income tag.
It immediately slapped Kenyan exports into the European market with punitive taxes.
This saw products attract duty of between 5 per cent and 22 per cent, threatening to price local traders out of the international market.
This cost exporters more than Sh600 million in discounts every month to allow them to factor in the new taxes and remain competitive. More than 87 per cent of Kenya’s exports are agricultural, agro-processed and manufactured products.
The levies were reversed in December 2014, three months after they were enforced.
EU’s arm-twisting tactic was received with indignation, with some people describing it as “heavy handed” and “blackmail”.
One policy analyst told British publication The Guardian: “It’s putting Kenya in a situation of forcing its partners to sign up to something they were not in favour of.”
She added that there was nothing for the other East African member states to gain. Indeed, some civil society organisations have recently taken up that line to argue against EPAs.
According to them, the four EAC member states signed the deal not because they agreed with it, but because they were under pressure to meet the October 1, 2014 deadline so as to save Kenya – the only non-LDC country in the region – from being “removed from the list of beneficiaries of the Duty-Free, Quota-Free Market Access to the EU”.
There was a sigh of relief, especially from Kenyan flower exporters, when the deal was finally ratified, but misgivings on what the agreement meant for the region remained.
These issues were bound to bubble up to the surface once again.
The perfect moment for this was in the lead up to the renewal date, October 1, 2016.
And just like in 2014, the European Commission has already flexed its muscle by making it clear that Kenya will immediately be subjected to high tariffs if it does not get the agreement signed by October 1, 2016. This threw Nairobi into a panic.
The Government, under pressure from flower companies and lobbyists, kicked off an intense lobbying exercise that resulted in some accord that the agreement be signed on July 18 during the United Nations Conference on Trade and Development (UNCTAD) in Nairobi.
The five member states, said Cabinet Secretary for Trade and Enterprise Development Adan Mohamed at a press briefing, agreed to this.
However, it did not come to pass over what Mr Mohamed termed as “delays”. The agreement, he said, would instead be signed in the first week of August.
But not only has the first week of August ended without the deal being signed, but the voices of dissent, led by former Tanzanian President Benjamin Mkapa, have gone a notch higher.
Mr Mkapa, whose views are shared by the current Tanzanian government, argues that the EPAs for Tanzania and the EAC never made sense.
In an opinion piece on the subject in The EastAfrican, he said the costs for the country and the EAC would be higher than the benefits.
As an LDC, Tanzania already enjoys the Everything but Arms (EBA) preference scheme provided by the EU.
“In other words, we can already export duty-free and quota-free to the EU market without providing the EU with similar market access terms. If we sign the EPA, we would still get the same duty-free access, but in return, we would have to open up our markets for EU exports,” he said.
Less generous
According to Mkapa, if the EPAs were implemented, 335 of the 983 products we currently produce would be protected under the agreement’s “sensitive list”, but 648 tariff lines would be made duty-free.
Therefore, the industries under these 648 tariff lines would have to compete with EU imports without the protection of tariffs.
But if the deal is not signed by October, Kenya’s exports will immediately be subjected to the less generous Generalised System of Preferences (GSP). Under GSP, the country’s products will face higher tariffs, ranging from 1.6 per cent to 22 per cent.
Critics of the EPAs, including a group of 14 civil society organisations, say the deal would kill the region’s infant industries and jeopardise its “structural transformation and sustainable development”, as cheap manufactured commodities from Europe flood the East African market.
And with duties for imports coming into the country from Europe already low, skeptics of the trade deal have argued that companies from Europe will have no reason to set up locally.
They also cite a UN report that noted that the deal would come with massive revenue losses, with Kenya standing to lose Sh10.9 billion; Tanzania Sh3.3 billion; Uganda Sh964 million; and Rwanda Sh573 million.
However, a 2015 report on EPAs by the Institute of Economic Affairs (IEA) found little to worry about on the agreement, except for the ambiguity of how the EU will ensure agricultural products that enter East Africa are not subsidised.
While the deal talks of EAC opening up about 82.6 per cent of its market to EU exports over a 25-year period, the IEA report notes that only 17.2 per cent of imports from the EU will be liberalised.
The report, written by a trade analyst at IEA, Leon Ong’onge, noted that the majority of these products are intermediate rather than finished goods.
Moreover, according to the report, 17.4 per cent of the products from the EU that are excluded from the reduction schedule include mostly agricultural and other goods that are of strategic value to EAC member states.
The EU has also committed to help EAC members with technical assistance. This is because most East African exports into the 28-member market have been rejected for not attaining certain standards.
The EPAs note that the union will help the region comply with such non-tariff barriers as the stringent measures put in place to safeguard human, plant and animal health in the EU.
And to allay fears that subsidised agricultural exports from Europe would enter the EAC, the EU has committed in Article 78(2) not to subsidise agricultural exports to East Africa. But how this will be implemented is the headache.
“Whether and how this commitment will be practicable, for example in the separation of produce for domestic use and for export, remains to be seen, considering the pervasive subsidisation allowed by the EU’s agricultural policy,” said Mr Ong’onge.
Bottom line
Whichever way it goes, the bottom line is that Kenya has to up its game by reducing the costs of production. This is because non-ACP states have also been negotiating trade arrangements with the EU.
“In the long run, these agreements could erode the preferences that Kenyan exports receive as the tariffs levied on other countries decline over time. Kenya should, thus, eliminate the high costs of energy and infrastructure that make its exports to the EU expensive,” concluded Ong’onge.
Kenya mainly exports flowers, fruits and vegetables to the EU. The country’s flower exports control over 30 per cent of the European market.
Other exports include coffee, tea, textiles and apparel, fish and fish preparations, tobacco and soda ash. Kenya has also been exporting pyrethrum extract, but this has been declining due to the development of artificial substitutes.
Kenya exported goods worth Sh149 billion to Europe, according to Director General for Trade at the European Commission.
Now the country is hoping that because the EPAs deadline was unilaterally set by the EU, in the same fashion, the EU will extend the deadline.
“The indication also is that there was communication with the EU and the deadline will be extended to allow consensus building,” said Richard Kamajugo, the senior director for trade and development at Trademark East Africa.
Better terms
Mr Kamajugo also notes that discussions by some think tanks indicate there are provisions in the agreement that can provide leeway for continued tariff preferences for Kenya in the EU. Exporters to the EU can only hope this is the case.
A Kenyan diplomat, who has been engaged in the talks but did not want to be quoted over the issue’s sensitivity, said Kenya sees the move by Tanzania to lead the onslaught against the deal as taken out of “malice”.
“We see this as blackmail and it is aimed at increasing [Tanzania’s] share of exports to the EU at the expense of Kenya. The argument that the deal is not good for local industry is hollow because it is the region that is exporting goods at better terms,” the source said.
The diplomat added that Kenya had done everything required to see the deal through.
“What is known as legal scrubbing was completed in September 2015 and all the contradictions in provisions were removed to ensure the intended purpose and the spirit of negotiations was accurately captured. The agreement has also been translated into the 23 official languages of the EU, and Kiswahili,” the source said.
And, as the clock ticks down to the deadline, Kenya has an ambitious plan to build consensus, including the near-impossible option of starting fresh consultations with the Tanzanian trade minister, and lobbying individual member countries.
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The 2016 Brookings Financial and Digital Inclusion Project Report: Advancing equitable financial ecosystems
New Brookings report highlights advances in financial and digital inclusion
Utilizing quality, affordable formal financial services effectively enables individuals to save for the future, invest in their livelihoods and families, and protect themselves in the case of financial emergencies. At the macroeconomic level, financial inclusion provides opportunities to promote economic growth, reduce income inequality, and combat poverty.
Yet while the economic and societal benefits are evident, achieving financial inclusion is a considerable undertaking that requires significant national-level commitment from govern-ment officials, financial service providers, telecommunications bodies, retailers, and other nonbank entities such as post offices. Moreover, advancing access to formal financial services is a necessary, but not sufficient, ingredient for financial inclusion, as a thorough understanding of appropriate financial services and products is needed to leverage them in a way that promotes financial health.
Globally, there has been tremendous progress in promoting inclusive finance: Between 2011 and 2014, financial exclusion declined by 20 percent globally. Yet further efforts are needed to promote access to and usage of formal financial services among the remaining 2 billion adults without formal financial accounts. The second annual Brookings Financial and Digital Inclusion Project (FDIP) report assesses a wide array of geographically, politically, and economically diverse countries to identify areas of strength and opportunities for growth with respect to the acceleration of financial inclusion. As in the 2015 FDIP Report, the FDIP team evaluates four dimensions of financial inclusion: country commitment, mobile capacity, regulatory environment, and adoption of traditional and digital financial services. Below we highlight several of the central enhancements to and findings from the 2016 report.
What is new in 2016 FDIP report?
The 2016 FDIP Report builds upon the 2015 report findings in three key ways. First, the 2016 report amplifies the geographic diversity of the FDIP country sample by adding five new countries: the Dominican Republic, Egypt, El Salvador, Haiti, and Vietnam. The report features detailed overviews of the financial inclusion landscape in these five countries, as well as updates surrounding financial inclusion developments in the 21 countries included in the 2015 FDIP Report.
Second, the 2016 report features a number of enhancements to the scorecard metrics that reflect our heightened focus on the usage and quality dimensions of financial inclusion. For example, the new metrics feature an indicator examining financial consumer protection frameworks, as well as an indicator assessing the frequency of account withdrawals at financial institutions.
Third, the report hones in on the financial inclusion challenges facing women, refugees, and under-resourced migrants. As noted in our previous post on the gender gap in financial inclusion, women worldwide remain disproportionately excluded from the formal financial system. Moreover, a June 2016 report published by the United Nations High Commissioner for Refugees found that 65.3 million individuals globally were forcibly displaced by the end of 2015 – the highest number recorded since the aftermath of World War II.
The global gender gap in financial inclusion, as well as the staggering number of individuals affected by war, persecution, and other forms of conflict and violence, underline the need to find viable ways to ensure women, refugees, and other displaced and marginalized populations have access to the financial resources they need to ensure the well-being of themselves and their families.
What are some of the key findings from the 2016 FDIP report?
The 2016 report offers good news regarding the global financial ecosystem: Many countries from across the income and geographic spectrum are making progress toward their financial inclusion goals.
For example, on the country commitment side of the 2016 scorecard, countries such as the Philippines have published national financial inclusion strategies. In terms of mobile capacity, El Salvador earned the highest score among the five new FDIP countries, boosted by robust levels of unique subscribership and 3G network coverage, as well as an array of mobile financial service offerings. On the regulatory environment side, Peru officially launched the first fully interoperable mobile money platform, BiM, in February 2016. With respect to adoption of formal financial services, the Dominican Republic earned the highest score among the five new FDIP countries.
To further expand and accelerate access to and usage of affordable, quality financial services, the 2016 FDIP Report highlights four priority areas that warrant additional action moving forward:
1) Establishing specific, measurable financial inclusion targets
Quantifiable goals can drive country commitments and policy changes and help policymakers and non-government entities assess progress toward financial inclusion. Considerable opportunities for growth with respect to instituting concrete targets remain; about one-third of FDIP countries have not yet developed publicly available, quantifiable financial inclusion goals.
2) Collecting and analyzing data relevant to financial access and usage, particularly among underserved groups
For a number of key issues in financial inclusion, data are often limited. Examples of these issues include the frequency of formal financial account usage (particularly regarding digital financial services), consumer confidence in formal financial services, and the costs of utilizing formal financial services. Without consistent, comparable data across countries, it is challenging for researchers and other financial inclusion stakeholders to identify what approaches to financial inclusion are working, and why.
3) Advancing regulatory changes designed to facilitate financial inclusion
Regulations should promote a level playing field for financial service providers and ensure adequate consumer protection for customers. Facilitating the entry of diverse service providers into the financial ecosystem through enabling and inclusive regulation can promote competition, reduce costs, and advance access to financial services in rural and other underserved areas.
4) Enhancing financial capability among consumers
Improving access to formal financial services requires ensuring that consumers are aware of the suite of services available to them and find value in actually leveraging those services. Government leaders, non-government entities, and financial service providers should work together to implement policies and initiatives that recognize the importance of financial capability through targeted data collection and capacity-building programs.
Introduction
Review of 2015 Findings
Evaluating progress toward adoption of affordable formal financial services matters because financial inclusion is a key ingredient in promoting household well-being and broader economic development. The first annual FDIP report and scorecard, published in August 2015, addressed fundamental questions regarding ways to advance inclusive finance, including 1) Do country commitments make a difference in progress toward financial inclusion?; 2) To what extent do mobile and other digital technologies advance financial inclusion?; and 3) What legal, policy, and regulatory approaches promote financial inclusion?
To answer these questions, the 2015 FDIP Report examined the inclusion landscape across 21 economically, geographically, and politically diverse countries by examining country-specific legislation and news stories, reviewing multinational datasets, and corresponding with financial inclusion experts in the focus countries and beyond. This research and engagement process enabled the FDIP team to compile a picture of the global financial inclusion landscape, and yielded the following key takeaways:
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Country commitments to advancing financial inclusion matter.
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The movement toward digital financial services will accelerate financial inclusion.
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Geography generally matters less than policy, legal, and regulatory factors, although some regional trends in terms of financial services provision are evident.
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Central banks, ministries of finance, ministries of communications, banks, non-bank financial service providers, and mobile network operators have major roles in achieving greater financial inclusion and should coordinate closely with respect to policy, regulatory, and technological advances.
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Full financial inclusion cannot be achieved without addressing the financial inclusion gender gap and accounting for diverse cultural contexts with respect to financial services.
These recommendations regarding digital financial services and digital financial service mechanisms (e.g., merchant payments and smartphones, respectively) are reflected in the 2016 FDIP metrics. As we note below, this year’s study added several new metrics designed to assess progress toward financial inclusion. We also extended our analysis to several new countries in addition to the 21 studied last year.
New in 2016: Enhancements to the report and scorecard
Following publication of the 2015 FDIP Report, our team solicited feedback from a diverse array of financial inclusion experts, including private and public sector representatives and experts at non-government entities. We also participated in and hosted a number of public and private convenings to engage with other financial inclusion experts. For example, a Brookings roundtable on gender disparities in access to and usage of financial services informed our recommendations regarding “Financial Inclusion for Women.” Additionally, we sought engagement with financial inclusion stakeholders by providing a dedicated comments portal regarding our work.
Input from diverse financial inclusion stakeholders improved our efforts to identify additional countries for the 2016 FDIP country sample, augment and enhance the 2016 FDIP Report metrics, capture updates on progress toward greater financial inclusion across our focus countries, develop policy recommendations (e.g., regarding financial capability and the gender gap in access to and usage of formal financial services), and focus on key demographics – specifically, women, migrants, refugees, and youth – that are disproportionately affected by barriers to financial services.
Based primarily on takeaways from conversations with key stakeholders, we have broadened our 2016 country sample by adding the Dominican Republic, Egypt, El Salvador, Haiti, and Vietnam. Adding these countries enabled us to enhance the geographic diversity of the FDIP sample by including countries in the Caribbean, Central America and North Africa. As was the case during the consultation process for the 2015 report, we benefited from high levels of engagement with in-country experts, enabling us to supplement our analysis of publicly available primary and secondary sources with perspectives from financial inclusion stakeholders with long experience in these countries.
The 2016 FDIP Report features detailed summaries of the financial inclusion landscape across our focus countries. For each of the newly added nations, we assess that country’s financial infrastructure and mobile ecosystem, key regulatory and industry developments, and recommendations regarding next steps for enhancing financial inclusion. With respect to the 21 countries that were featured in the 2015 report, we highlight key updates in the financial inclusion sector since spring 2015 and identify action items to advance inclusive finance.
The 2016 FDIP research continues to examine a range of traditional and non-traditional financial services relevant to individuals at the margins of, or outside, the formal financial system. As in our 2015 report, the 2016 study focuses primarily on basic, formal financial services (e.g., payments and savings) since these services typically constitute the entry point and area of greatest immediate need for individuals whose previous engagement with the formal financial sector has been limited. While we do not look extensively at informal financial services, consumer engagement in informal or “semiformal” services such as informal savings clubs is quite common among underserved populations globally: According to Global Findex data, “[a]bout 9 percent of adults – or 17 percent of savers – in developing economies reported having saved [semiformally] in the past 12 months” as of 2014. Thus, formalizing certain financial services could provide a valuable pathway into the formal financial system for many underserved populations.
With respect to the 2016 scorecard, we have retained our approach of assessing access to and usage of financial services through four “dimensions”: country commitment, mobile capacity, regulatory environment, and adoption of traditional and digital financial services. Each dimension, in turn, comprises a set of indicators that capture data relating to that dimension. We have made several enhancements to the indicators within the 2016 scorecard, which are detailed in the Methodology section of the report.
Key findings
The 2016 FDIP Report shows that substantial progress has been made toward advancing financial inclusion in many countries. Kenya retained its position as the highest-ranked country in the study by a 5 percentage point margin. The other top-scoring countries include Colombia (earning 79 percent of the total possible score), and South Africa, Brazil, and Uganda (tied at 78 percent each). Kenya, South Africa, Brazil, and Uganda held their places in the top five-ranked countries between 2015 and 2016, while Colombia moved up five percentage points and therefore joined the top performers. Colombia’s progress was driven in part by the development of new financial inclusion targets and its strong mobile capacity as measured by our updated FDIP mobile capacity metrics.
In general, we found that the right blend of stakeholder buy-in among the public and private sectors and an enabling regulatory environment were crucial for amplifying access to formal financial services. That finding was true for a diverse range of nations. According to the World Bank, of the five countries that ranked at the top of the 2016 scorecard, one is a low-income economy, one is classified as a lower middle income economy, and three are characterized as upper middle income economies. As discussed in more detail below, this diversity demonstrates that while there is no single path to facilitating financial inclusion, engagement in multinational knowledge-sharing networks and investing in digital financial services can help countries develop successful and sustainable approaches to making progress toward inclusive finance.
The biggest improvement in scores between 2015 and 2016 was made by the Philippines, which increased its overall score by eight percentage points. The increase was driven in part by the launch of its national financial inclusion strategy, as well as its strong performance in terms of mobile capacity. For example, the Philippines boasts among the highest rates of smartphone penetration across our country sample. Along with Indonesia, it was the only lower middle income country to receive a top score for its level of smartphone adoption.
While the Philippines held the highest adoption rate of mobile money accounts across FDIP countries in Southeast Asia as of 2014, there remains a significant untapped opportunity for increased takeup of digital financial services. Moving forward, one factor that may promote increased adoption of digital financial services in the Philippines is a recent mobile money interoperability arrangement between PayMaya Philippines (formerly Smart eMoney, Inc.) and Globe Telecom’s GCash service.
The lowest income economy among the countries ranked at the top of the FDIP scorecard was Uganda. Uganda’s high score was driven in part by its strong levels of mobile money adoption (the second-highest among the FDIP countries as of 2014) and the amendment of the 2004 Financial Institutions Act. Among other provisions, the amendment provides a legal basis for the regulation of agent banking and empowers the central bank to establish more than one credit reference bureau. These changes should facilitate greater competition within the financial services ecosystem and drive expansion of affordable financial services among low-income consumers.
The other low-income country that demonstrated a particularly strong performance on the FDIP scorecard was Rwanda, which ranked among the top 10 countries overall. Rwanda provides an effective example of how country commitment to advancing financial inclusion and the promotion of digital financial services can lead to a more inclusive financial ecosystem. Rwanda is tied for the highest regulatory environment score among the FDIP countries and earned a strong score of 94 percent on the country commitment dimension. Robust data collection initiatives have documented Rwanda’s progress toward financial inclusion. For example, Rwanda’s 2016 FinScope survey, which assesses access to and usage of financial services in addition to financial capability, behavior, and trust in financial institutions, found that financial exclusion had dropped by 17 percentage points since 2012. This reduction was caused by a significant increase in the proportion of adults who have or use a product or service from a formal financial institution. Mobile money has contributed to enhanced adoption of formal financial services in Rwanda, which ranks fourth among the FDIP countries in terms of mobile money account ownership.
Among the new countries that were added to the FDIP study in 2016, El Salvador demonstrated a particularly strong performance on the FDIP scorecard. It received the highest regulatory environment, mobile capacity, and country commitment scores among the new FDIP countries. While its adoption dimension score was lower than those for the Dominican Republic and Vietnam, El Salvador has made tremendous progress in advancing financial inclusion, more than doubling the percentage of adults with an account at a financial institution between 2011 and 2014. As in Rwanda, mobile money has contributed to the expansion of financial inclusion in El Salvador: Indeed, El Salvador is among the top 15 mobile money markets in the world when measured by 90-day active accounts as a proportion of the adult population. We expect that increasing smartphone penetration will further propel the adoption of mobile money services in El Salvador.
Among the countries featured in both the 2015 and 2016 FDIP reports, scoring changes were generally positive. Countries that experienced scoring improvements tended to demonstrate advances on more than one indicator. For example, Peru increased its indicator scores within the country commitment, mobile capacity, and regulatory environment dimensions by launching a national financial inclusion strategy, demonstrating a significant increase in its market penetration of unique subscribers, and implementing an interoperable digital payments platform.
Calls to Action
Based on our research, we identify four priority areas that warrant additional action on the part of the international financial inclusion community: 1) establishing specific, measurable financial inclusion targets; 2) collecting and analyzing data relevant to financial access and usage, particularly among underserved groups; 3) advancing regulatory changes designed to facilitate financial inclusion; and 4) enhancing financial capability among consumers.
Establishing measurable financial inclusion targets
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National financial inclusion authorities should set specific, measurable targets with respect to financial inclusion. In doing so, financial inclusion leaders should be attentive to underserved demographics, including women.
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Why it matters: Quantifiable goals can drive country commitments and policy changes with respect to financial inclusion. Initiatives such as the 2013 Sasana Accord reflect the international community’s recognition of the value of measurable goals in driving financial inclusion progress. As an example, a report by the Global Banking Alliance for Women, Inter-American Development Bank, and Data2X found that “financial inclusion plans that had specific gender targets in addition to their gender strategies were most successful in ensuring that sex-disaggregated data was produced.”
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Next steps: Scores across the country commitment dimension of the 2016 FDIP Scorecard demonstrate that while the majority of FDIP countries have established a national financial inclusion strategy, there remains a need to hone in on specific quantifiable goals and to disaggregate those goals by target populations (e.g., women) in order to promote accelerated progress toward financial inclusion. For example, of the top five scoring countries across our FDIP scorecard, about 80 percent have established quantifiable goals relating to financial inclusion, indicating that there is still room for progress in terms of establishing concrete financial inclusion targets – even among countries that have demonstrated significant national-level interest in advancing financial inclusion.
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Collecting and analyzing data
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Key financial inclusion stakeholders, including industry players, non-government organizations, international financial institutions, and government entities should coordinate with respect to data-sharing and harmonization.
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Why it matters: For a number of key issues in financial inclusion (e.g., frequency of account usage with respect to formal – and particularly digital – financial services and trust in financial services), publicly available data are often limited to only a few countries, are not nationally representative, and/or subscribe to varying definitions of financial inclusion that inhibit comparability across countries. The lack of consistent, multinational data constrains the ability of researchers to identify what approaches to advancing financial inclusion are working, and why.
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Emerging opportunities: In recognition of the challenge posed by disparate or unavailable data, the new insight2impact (i2i) initiative, established by the FinMark Trust and the Centre for Financial Regulation and Inclusion (Cenfri) in 2015, aims to “drive collaboration to improve the sophistication, accuracy, and consistency of data used in the design of effective programmes, policies, and products.”
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Next steps: Policymakers, industry leaders, and other financial inclusion experts should participate in multinational knowledge-sharing networks and initiatives such as the i2i initiative and the AFI Financial Inclusion Data Working Group98 to explore how best to collect, disaggregate, and harmonize data.
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Banks and other financial service providers should gather and report supply- and demand-side sex-disaggregated data. Public sector financial inclusion authorities should coordinate with financial service providers to collect and harmonize data in order to identify gaps and market opportunities.
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Why it matters: Too few countries collect sex-disaggregated data, and this lack of data constrains the ability of financial inclusion authorities to identify market opportunities and make the business case to providers with respect to targeting women customers.
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Next steps: National financial inclusion authorities should leverage this data to inform the development or revision of countries’ financial inclusion strategies, quantifiable targets, product design, and relevant financial and telecommunications sector policies. Data aggregators such as the International Monetary Fund’s Financial Access Survey, the “global supply-side source of data on access to, and use of, basic consumer financial services by resident households and nonfinancial corporations,” could possibly then incorporate this national sex-disaggregated data into their databases to facilitate comparisons across countries.
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Telecommunications industry representatives and government entities should collaborate to 1) identify and analyze the cost barriers faced by individuals with respect to mobile phones; and 2) promote access to mobile phones and mobile financial services among women and other underserved groups by participating in international knowledge-sharing networks.
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Why it matters: Access to digital financial services has the potential to reduce the gender gap in financial inclusion, but the gender gap regarding access to and use of mobile phones constrains the utility of this channel for promoting women’s financial inclusion. A recent study from the GSMA found that women were 14 percent less likely than men to own a mobile phone, and in some regions the gap was much higher – for example, in South Asia, where women were 38 percent less likely to own a mobile phone. The study noted that cost remains the greatest barrier overall to women owning and using a mobile phone. The study found that among women who had not used a mobile phone in the previous three months (including those who would have had to borrow a phone), the cost of handsets was a particularly significant barrier, in addition to other factors such as security concerns and lack of identification documents.
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Next steps regarding data: Organizations such as the GSMA have tracked the effect of mobile sector taxation on the cost of mobile ownership, and organizations such as InterMedia have examined user perceptions of the costs associated with mobile money. However, country-specific information on the total cost of mobile ownership (including handset costs, connection costs, and call, SMS, and data usage costs) do not appear to be publicly available. The existence of comprehensive, global data surrounding these costs would provide greater insight into barriers with respect to mobile phone adoption. This data would also enable researchers to generate recommendations for helping ensure that mobile phones (and by extension, digital financial services) are available to consumers who need them most.
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Next steps regarding international collaboration: In February 2016, the GSMA announced the launch of the Connected Women Commitment Initiative. This initiative, which involves mobile operators representing over 75 million mobile internet and mobile money customers, aims to connect millions of women in low- and middle-income countries to these services by 2020. Among FDIP countries, operators in Indonesia, Bangladesh, Rwanda, and Turkey had committed to the initiative as of February 2016. Joining such an initiative could help countries to engage in knowledge-sharing regarding mechanisms for facilitating affordable access to mobile phones and mobile financial services and promote enhanced progress toward an inclusive mobile ecosystem.
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Financial service providers should consider how best to leverage technology (either directly or through technology companies) to assess non-financial data that can advance access to credit among consumers who need it within the context of strong consumer protection frameworks.
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Why it matters: As noted in the 2015 Omidyar Network report “Big Data, Small Credit,” in many emerging markets consumers face barriers to accessing formal credit services, particularly the absence of information about customers’ creditworthiness. However, the rapid proliferation of digital technology among consumers has yielded an increasingly deep “digital footprint,” including social media activity and mobile phone usage patterns, that can offer financial service providers alternative modes of assessing creditworthiness. Thus, these digital mechanisms can provide customers with opportunities to access formal financial services by yielding information relevant to credit assessments.
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Next steps: Governments should ensure that strong financial consumer protection frameworks are coupled with regulatory provisions that enable financial service providers to explore means of leveraging the proliferation of available consumer data to facilitate access to financial services among those who need them.
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Advancing an inclusive regulatory environment
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Regulators should engage in sustained dialogue with private sector representatives and other financial inclusion stakeholders to develop and refine regulations that promote a level playing field for providers and ensure adequate consumer protection for customers. As noted by the Center for Global Development Financial Regulation Task Force’s 2016 Report, “[a] level playing field in financial services is enabled by regulations ensuring that functionally similar services are treated equally as long as they pose similar risks to the consumers of the service or to the financial system as a whole.”
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Why it matters: Technological advancements have amplified opportunities for customers to access financial services through digital channels, but they have also increasingly blurred the traditional distinctions between financial and industry sectors for regulators, particularly with respect to the telecommunications field. New service providers often face regulatory barriers or uncertainties that make it difficult to bring financial services to disenfranchised individuals.
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Next steps: Ensuring that private sector voices are represented in dedicated financial inclusion bodies will help facilitate coordination among public and private sector bodies with respect to developing new financial regulations or adapting existing regulations to fit emerging services. Both digital and traditional providers should be permitted to adapt know-your-customer requirements and other combating the financing of terrorism and antimoney laundering mechanisms to reflect the level of risk posed by underserved customers engaging in low-value transactions in order to scale adoption of these services among the target market.
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Enhancing financial capability
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Government representatives should work with financial service providers and non-government financial inclusion experts to improve financial capability among consumers.
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Why it matters: To move beyond the objective of advancing access to financial services to facilitating effective usage of those services, consumers must understand what services are available, how those services will be helpful to them in their daily lives, and how to effectively leverage the given products or services. Consumers who fully understand the scope and impact of their financial options possess a greater ability to confidently access and effectively deploy formal financial services.
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Emerging opportunity: While traditional, classroom-based financial education initiatives to promote financial literacy can provide individuals with a foundation to make healthy financial decisions, an increasing emphasis on translating financial knowledge into corresponding behavior has emerged, particularly given mixed evidence on the effectiveness of traditional financial literacy programs. This is why financial capability, defined by the Center for Financial Inclusion at Accion as “the combination of knowledge, skills, attitudes, and behaviors a person needs to make sound financial decisions that support well-being,” has “emerged as a strategic policy objective that complements the financial inclusion and financial consumer protection agendas.”
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Next steps: Government leaders, non-government entities, and financial service providers should work together to implement policies that recognize the importance of financial capability through 1) targeted data collection and 2) capacity-building programs. Entities such as the World Bank have made important advances in gathering data on financial behavior and attitudes. Developing a framework at the national level for evaluating these topics would enable governments to collect and analyze financial capability data consistently. Moreover, public and private sector stakeholders should work together to develop and evaluate financial capability interventions. Programs that use innovative modes of information delivery (e.g., entertainment), provide helpful reminders, leverage social networks (e.g., family members), and introduce interventions at “teachable moments” (e.g., career transitions) have been shown to promote consumer education and skills that are conducive to financial health.
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US$81 billion mobilized in 2015 to tackle climate change: Joint MDB report
Climate finance totalling US $81 billion was mobilized for projects funded by the world’s six largest multilateral development banks (MDBs) in 2015. This included $25 billion of MDBs’ direct climate finance, combined with a further $56 billion from other investors.
The latest MDB climate finance figures are detailed in the 2015 Joint Report on Multilateral Development Banks’ Climate Finance, prepared by the Asian Development Bank (ADB) together with MDB partners: the African Development Bank (AfDB), the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the Inter-American Development Bank Group (IDBG), and the World Bank Group (WBG).
This important contribution to the global climate change challenge was reinforced last year by pledges from all of the MDBs to significantly increase their climate finance in the coming years. They made these pledges in the run up to the COP21 Paris Agreement, the world’s first universal climate accord adopted in December last year by 195 countries.
The report covers the 2015 year and shows that MDBs delivered over $20 billion for mitigation activities and $5 billion for adaptation. Mitigation activities involve the reduction of greenhouse gas emissions through energy efficiency measures and the use of clean, renewable energy sources, while adaptation measures reduce climate vulnerability and increase resilience to climate change through, for example, investing in climate-resilient land-use and water resource management. Since 2011, MDBs have jointly committed more than $131 billion in climate finance.
Among the regions, non-European Union (EU) Europe and Central Asia received the largest share of total funding at 20%; with South Asia receiving 19%; Latin America and the Caribbean 15%; East Asia and the Pacific 14%; the EU 13%; Sub-Saharan Africa 9%; and the Middle East and North Africa 9%. Multi-regional commitments made up the other 2% of the total.
On a sectoral basis, the largest recipient of adaptation funding was for water and wastewater systems (27%), followed by energy, transport and related infrastructure (24%), and crop and food production (18%). Renewable energy received the bulk of mitigation finance (30%), lower-carbon transport received 26%, and energy efficiency activities 14%.
In Africa, where basic energy services remain scarce region-wide, countries are increasingly working to develop their substantial renewable resources to help reverse this trend. To support these efforts, in 2015 AfDB has provided $905 million of its own resources in climate change mitigation finance, backed by $58 million in external resources. As African countries also look to increase their resilience against climate impacts, particularly in the forestry, agriculture and land use sectors, AfDB has provided $305 million of its own resources, bolstered by $91 million in external funding, to support their adaptation efforts. The Bank is continuously looking for concrete ways to catalyze private sector engagement such as through equity financing, partial risk guarantees, and climate risk insurance.
“At AfDB, we believe that Africa stands at the threshold of an exponential shift in clean energy access, and that over the coming decades African citizens can benefit from a widespread increase in climate-friendly energy use and green development. We have set ambitious goals for our institution to help ensure this happens, supporting innovative projects in solar, wind, geothermal, and water,” said Alex Rugamba, Chair of the Bank’s Climate Change Coordination Committee (CCCC).
“In line with our member countries’ requests in preparation of the Nationally Determined Contributions (NDCs) regime, we have particularly focused on institutional capacity building, increasing our support for technical assistance (TA) five-fold from seven projects to thirty-five projects in one year. As countries work to align their development goals with their pledged NDCs in the Paris Agreement, we believe this focus on strengthened capacity is an early signal of commitment to meet these goals. Going forward, this could be an important new area of engagement.”
Given the role of MDBs in catalyzing finance, the inclusion in this year’s report of a common tracking approach for climate co-financing is a significant step forward in making the reporting of climate finance flows more robust and transparent. MDBs have also been working closely together to harmonize reporting on greenhouse gas emissions and the use of proceeds from MDB green bonds.
Moving forward, the report notes that the MDBs will scale up climate finance activities across multiple sectors, in particular in renewable energy and energy efficiency; low-carbon and climate-resilient cities, regions and industries; low-carbon transport; natural resource efficiency; and climate-smart agriculture and food security. These efforts will help countries meet their commitments under the Paris Agreement, moving to a low-carbon, more resilient future.
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Making a case for the ratification and implementation of the WTO Trade Facilitation Agreement
In recent times, exporters, importers and manufacturers have decried the high cost of doing businesses at Ghana’s ports and borders. The delays and its attendant cost have placed huge burden on businesses.
The World Trade Organisation (WTO) including other international organisations have also recognised these difficulties and so at the 2013 Bali Ministerial Conference, an agreement on Trade Facilitation which contains provisions for faster movement, discharge and clearance of goods, in addition to transit goods was concluded. Trade facilitation is a concept geared towards the simplification of import and export procedures with the overarching aim of reducing trade transaction costs. It also emphasizes transparency of procedures, harmonization and modernization of international trade procedures.
The agreement also sets out measures for effective collaboration between customs and other key stakeholders on trade facilitation and customs compliance issues. Provisions for capacity building and technical assistance for least developed and developing countries was also included in the agreement. The pdf Trade Facilitation Agreement (TFA) (150 KB) amendment protocol was adopted by the WTO in 2014, consequently paving the way for member countries to ratify the agreement through their domestic legislative procedures.
The Trade Facilitation Agreement is very important to businesses because it can have a major impact on bringing down trade transaction costs. There are high transaction costs with respect to international trade in developing countries and these inhibit exporters and importers from integrating their businesses in the international markets. Ghanaian traders are better able to benefit from this agreement when ratified and implemented. Though Ghana has shown signs of commitment to the agreement by establishing a National Trade Facilitation Committee, it is yet to ratify the Agreement or send a notification on a category of the Agreement to the WTO. Whiles the agreement is yet to be ratified, traders have given positive remarks about Ghana’s implementation of a single window system, an aspect of the Trade Facilitation Agreement.
The relevance of trade facilitation has long been captured in the 1994 General Agreement on Tariff and Trade of the WTO thus in articles V, VIII and X. However, considering the increases in technology and the dynamics in international trade after the GATT, there was the need to enact an agreement that addresses trade facilitation issues in modern times. The scope of trade facilitation measures the GATT addresses is very limited. Beside the limited facilitation issues the GATT addresses, these articles are scattered in the text even though they are very important to business growth and the international trade process. These made it difficult to address trade facilitation issues, more so when it came to light that a trade facilitation agreement could reduce business costs by between $350 billion and $1 trillion, according to WTO (WTO, 2013), and could increase world trade by between $33 billion and $100 billion in global exports per year and $67 billion in global GDP (World Bank, OECD, 2011).
The new WTO Agreement on Trade Facilitation comprises three sections: Section I, deals with trade facilitation measures and obligations; and Section II, focuses on flexibility arrangements for developing and least developed countries (otherwise known as ‘special and differential treatment’) and Section III emphasizes institutional arrangements and final provisions.
This is the only time since the WTO was established that the capacity of a country to implement an agreement is clearly linked to the agreement, what is called special and differential treatment. The agreement also underscores the need to provide financial and technical support to developing and least developed countries in the implementation of the agreement. As a result, countries are required to categorize their commitments into A,B and C. Category A meaning fully compliant measures; Category B signifying partially compliant measures requiring transition period to nationally upgrade the measures and Category C representing measures requiring financial and technical assistance.
Following the repeal of about nine (9) Customs Acts some of which include the Customs Excise and Preventive Service (Management) Act, 1993 (P.N.D.C.L. 330), Customs, Excise and Preventive Service (Management) (Amendment) ACT, 1996 (Act 511), Customs and Excise (Duties and other Taxes) Act, 1996 (Act 512) and Customs House Agents (Licensing) Act, 1978 (S.M.C.D 188), a new Customs Act, 2015 (Act 891) was introduced as a replacement.Clearly,the new Customs Act 891 draws its strength from the WTO Trade Facilitation Agreement. It highlights issues such as Advance Ruling, post-audit clearance, risk management, provision of information which are key articles in the Trade Facilitation Agreement.
Though the Act compares favourably with the Trade Facilitation Agreement, there are several portions of the Agreement that the Act ignores. The Act does not highlight or capture some of the articles such as Establishment and Publication of Average Release Time, customs cooperation, Electronic Payment though it specifies that other than cash other means under the laws of Ghana could be permitted, i.e. Customs Act 891, Article 73(1).The strength of the Act also lies in its ability to address domestic issues such as Auctioned goods and free zones.
As at July 2016, 89 WTO members have ratified the TFA and have submitted mostly their Category A commitments. Once two-thirds of the 164 WTO members submit their ratification notice to the WTO, the agreement becomes enforceable irrespective of whether Ghana ratifies or not. Among the West African countries that have ratified the agreement include Niger, Togo, Côte d'Ivoire, and Mali.
Why the Agreement will benefit Ghana
Ghana’s exports are mostly time sensitive products. Statistics on trade with Ghana’s main trading partner, EU, shows that export of agricultural products i.e. food (including fish) and raw materials constitute 60.5% of the overall total export to the EU in 2014. As such, speeding the export process will help companies deliver on time to their foreign partners.It will also save companies in Ghana the cost of prolong refrigeration as a result of delays at our ports. Indeed, the WTO indicated in its 2015 World Trade Report that by speeding up the clearance of goods across borders, trade facilitation could prove a boon for trade in perishable goods.
Majority of Ghana’s top 10 non-traditional exports, as shown in the figure, are agricultural product of which some are time sensitive. As Ghana’s export of non-traditional products continue to peak with the passage of time, we must speed up facilitation to the international market so as to derive the maximum benefits.
Over the years,Ghana has instituted reforms to encourage business and trading activities. However, it is limited by financial and technical resources as a result of competing demands from other sectors. This agreement provides the country the opportunity to categorize those items in Category C for which it can only implement if it receives financial and technical support. The resources that would have been channeled to these areas can then be used to develop other sectors of the economy.
The national single window which is in article 10 of the TFA and currently being implemented by the Ghana Revenue Authority and West Blue Consulting has so far yielded positive results. A research conducted in 2016 by the International Chamber of Commerce (ICC) and the World Trade Center (WTC) Accra with funding from BUSAC showed that it takes a maximum of 48 hours for importers to get their Customs Classification and Valuation Reports (CCVRs), something that took one to two weeks to get under the Destination Inspections Companies regime. The respondents (95%) also indicated that the various stakeholders at the ports are major source of delay in the system.
The delays at the ports create the opportunity for importers and exporters to make unsolicited payments. Indeed, the WTO World Trade Report 2015 corroborates this assessment by indicating that the incentives to engage in fraudulent practices at the border are greater when the time needed to complete trade procedures are longer. Since trade facilitation is expected to shorten the duration of these procedures, it creates important avenue for reducing the incidence of trade-related corruption.
The Boankra Inland Port and the Eastern Railway Line projects are part of Ghana’s Public-Private Partnership (PPP) pipeline projects by the Government of Ghana. The viability of this inland port and the railway line largely depend on usage by Ghana’s landlocked inland countries. As a result, ratifying the TFA will promote transit trade in Ghana since this is a major requirement of the Agreement. There will also be value for money on the 1.5 billion dollar Tema Port expansion project which is a joint venture between the Ghana Ports and Harbours Authority and three companies: Meridian Ports Services, APM Terminals and Bollore? Africa Logistics. Countries such as Ghana, Togo, Cote d’Ivoire, Benin and Senegal are presently competing for the same transit cargoes of Burkina Faso, Niger and Mali. Perhaps this is why Togo and Cote D’ivoire have ratified the agreement.
Ratifying the TFA will also serve as a sign of commitment to Ghana’s neighbouring landlocked countries that are currently patronizing the services of other ports such as Cote D’ivoire to Ghana’s disadvantage.
The agreement also provides the greatest opportunity to address the excessive delays in doing business across borders in the ECOWAS sub-region. Members should be bold to drag each other to ECOWAS or WTO in order that there will be improvement in flow of goods in the ECOWAS region.
Conclusion
Customs, Ministry of Trade and Industry, the private sector and all key stakeholders must work collaboratively to champion the implementation of the agreement once the Parliament of the Republic of Ghana ratifies the agreement. Implementation of the TFA should be done in tandem with active support to the private sector for Ghana to reap the benefit of the agreement.
World Trade Center Accra is a trade organization licensed by the World Trade Center Association in New York. Services provided by WTC Accra include Trade Missions, Trade Education, Events, Virtual Office, Projects and Facilities.
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T20: Policy gurus gather to seek world solutions
Chinese advisers play leading part in push for new relationships
About 500 think tank experts, politicians and representatives of international organizations from 25 countries worldwide met in Beijing for the Think 20 (T20) Summit that ran from July 29 to 30 to contribute their wisdom to the G20 Hangzhou Summit on building new global relationships.
As one of the important outreach groups of the G20, the T20 is a significant platform for global think tank researchers to provide policymaking thoughts and suggestions for the G20, said Chinese G20 Sherpa and Vice Foreign Minister Li Baodong.
As this year's G20 and T20 president, China is looking to contribute solutions to the problems facing global governance. Li said in his opening speech that as the president of the G20 this year and a responsible developing country, China will achieve the expected goals of the G20 Hangzhou Summit together with other G20 member countries.
Li said he expects the G20 Hangzhou summit to achieve several major goals including innovating growth models, improving global economic governance, revitalizing international trade and investment as well as focusing on development issues.
Zhao Baige, a member of the Standing Committee of the National People's Congress and chair of the expert panel of the RDI think tank program at the Chinese Academy of Social Sciences said at the summit that the community of common destiny advanced by President Xi Jinping should be the basic principle behind the establishment of a new global relationship, and all-round innovation should provide the necessary fuel to achieve development goals.
She also pointed out that the Belt and Road Initiative advanced by China will drive new and successful global and regional relationships.
Cai Fang, vice-president of CASS, used his keynote speech to outline three major global governance issues facing the international community.
The current potential for economic growth is limited, which indicates structural reform is urgently required, Cai said.
"Meanwhile, the international community's capacity to cope with financial turbulence should also be improved."
He cited multiple challenges including climate change, imbalanced global development, the need for poverty alleviation and sustainable development in the implementation of the 2030 Agenda for Sustainable Development.
To help provide policymaking insights to the G20 on these global issues, the three Chinese think tanks organizing the T20 issued questionnaires to think tank experts worldwide.
Based on their consensus, the T20 has formulated a policy recommendation to the G20, involving several aspects of global importance, including the global economic governance mechanism, innovation and structural reform as well as international finance, trade and investment.
T20 Summit participants affirmed that the T20 is an invaluable source of information and support for G20.
Bozkurt Aran, director of the TEPAV Center for Multilateral Trade Studies in Turkey, described the T20 as "a bank of ideas in the discussion of global governance".
This year's T20 Summit is organized by three major Chinese think tanks -the Institute of World Economics and Politics at CASS, the Shanghai Institutes for International Studies and the Chongyang Institute for Financial Studies at Renmin University of China.
T20 Policy Recommendations to the G20
1. We, the Institute of World Economics and Politics, Chinese Academy of Social Sciences (IWEP, CASS), Shanghai Institutes for International Studies (SIIS) and Chongyang Institute for Financial Studies, Renmin University of China (RDCY), as the coordinating think tanks of the T20 in 2016, have held ten meetings in China, the U.S., Peru, Germany, Switzerland and India successively since the launch of the T20 at the end of 2015, where experts from the G20, non-G20 countries and international organizations have conducted in-depth discussions on such topics as global economic governance mechanism, economic growth, innovation and structural reform, international finance, international trade and investment and development issues. They have put forward valuable suggestions and reached some consensus. We have also sent questionnaires to experts in various countries on relevant issues to pool their insights. On this basis, we have proposed the following T20 policy recommendations for the G20.
2. Experts have high expectations for the 2016 G20 Hangzhou Summit and believe that a sound and robust Chinese economy has positive effect on and will continue to make great contribution to global economic recovery. They hope that the G20, as the premier forum for international economic governance, continue to focus on major financial and economic issues. Based on the comprehensive analysis of the global economic outlook and major economic risks, they hope that the G20 will make substantive progress in enhancing the global economic growth potential, improving global financial governance, facilitating international trade and investment cooperation and promoting inclusive and sustainable development. They also expressed expectations for future G20 governance.
I. Global Economic Outlook and Major Risks
3. The world economy continues to recover, but unevenly. The new round of industrial revolution is gathering momentum and there is still room for further raising the global economic growth potential. The G20 members have seen growing consensus for and gradual effects of cooperation. In recent years, actions taken by the G20 effectively prevented further deterioration of the world economy and helped stabilize market expectations. The G20 has also made progress in securing the Paris Agreement, pushing the IMF quota and governance reform package of 2010 to take effect and approving the Base Erosion and Profit Shifting (BEPS) project.
4. Meanwhile, the world economic growth is still facing the risk of further slowing down. Potential growth rate continues to fall and structural issues have become the key factor holding back strong, sustainable and balanced growth of world economy. Risks in the global financial markets are further gathering. Global trade and investment growth remains sluggish. Policy space of most countries has gradually narrowed and economic policies are seriously divided. In addition, geo-political risks, refugee crisis, political cycles of major economies, terrorism and other issues are getting more prominent and thus casting a shadow on global economic recovery.
5. Total factor productivity of major economies is growing slowly. The role of technology progress in promoting world economic growth has gradually weakened. Total factor productivity growth is facing institutional constraints at both international and national levels.
6. The labor market is facing challenges. Some are structural problems such as less flexibility in the labor market, rising ratio of the elderly in population, and the replacement of human workers by machine automation. At the same time, the weakening of global growth momentum, economic transition and restructuring have resulted in the slowdown of employment growth, including rising number of non-full time workers and serious unemployment among the young people.
7. There is a big shortfall in global public and private investment. In the wake of the global financial crisis, investment growth has slowed down, particularly in the private sector, due to financing constraints, uncertainties in economic environment and investment barriers. This has negatively affected the short-term economic growth prospects and dragged down the long-term economic growth potential.
8. Financial market risks are on the rise. Monetary policy divergence among major economies has exacerbated fluctuations in international capital flow. Asset prices in some countries remain high, while foreign exchange and stock markets in individual economies become more volatile. Global debts continue to rise. The connection and contagion of financial risks among countries are increasing. Thus the global economic recovery faces increasing uncertainties.
9. The ability of the international community to handle macroeconomic instability and financial turmoil is still inadequate. Short-sighted macroeconomic policies become less sustained and there is still lack of sufficient coordination on monetary, fiscal, exchange rate, financial stability, as well as trade and investment policies among countries. Crisis prevention and management mechanisms at global and regional levels remain incomplete. This will affect the ability at national level to fend off risks and will also give rise to new risks.
10. Growth in global trade is slowing down and trade creation capacities are declining. Multilateral trade negotiations are progressing slowly and global trade cooperation has become more fragmented as a result of the growth of “mega-regional FTAs”. Global economic slowdown, rising trade protectionism and difficulties in trade financing have also held back global trade growth.
11. Implementation of the 2030 Agenda for Sustainable Development continues to face grave challenges. The 2030 Agenda is the guiding document for the development at both global and national levels in the next 15 years. But countries differ in implementation capacities and the international system of financing for development is not full-fledged. Therefore, it remains difficult for all countries to fulfill the SDGs.
II. Policy Recommendations
Enhancing Global Economic Growth Potential
12. Structural reforms should be at the core of long-term growth for all countries. Most experts agree that?the G20 should reach a consensus on the principles of structural reforms, strengthen evaluations of the reform process, and promote international coordination. Some experts suggest that the G20 adopt a 2030 Action Plan on Long-term Growth with structural reform at its core, with the aim of building a long-term and sustainable growth framework and helping the G20 play a more important role in raising the global economic growth potential.
13. Innovation should be the key driver of sustained economic growth. Most experts suggest that the G20 should encourage countries to continue to increase R&D input and set quantitative growth targets on the ratio of R&D expenditure to GDP. It should also promote knowledge dissemination and technology transfer while protecting intellectual property rights, support open science and public access to research output, data and facilities financed by public funds, encourage opening and sharing of key research infrastructures. Multilateral technology innovation exchanges and cooperation among countries should be enhanced to coordinate innovation development strategies and share best practice.
14. More and higher quality jobs should be created. The G20 should call for inclusive education to gradually increase human capital accumulation and strengthen vocational skills training to raise re-employment capabilities. It should work hard to address gender inequality, raise labor participation rate for women, enhance integration between macroeconomic policies and social policies, promote labor market reforms and seek better balance between raising flexibility of the labor market and improving social security. Some experts suggest that the G20 should pay particular attention to the dual effects of innovation, which may bring a by-product of rising unemployment while promoting job creation in some areas.
Improving Global Financial Governance
15. Macroeconomic policy coordination needs to be strengthened. Most experts suggest that the global systemically important economies should pay attention to the “spillover” and the “spillback” effect of their own policies and seek the best balance between domestic and international goals. The G20 should conduct further coordination on exchange rate and interest rate policies, strengthen prudent macroeconomic management, prevent drastic fluctuations of the foreign exchange market and stabilize global financial market. It should also give play to the role of fiscal policies of all countries and support them in their efforts to adopt proper fiscal policies such as adjusting government expenditure structure and improving taxation measures to effectively increase high quality investment in the public sector, while ensuring that public debts of all countries will not expand disproportionately.
16. Financial crisis prevention and management should be enhanced. Most experts emphasize that the G20 should take measures to further improve the global financial safety nets. The measures include further expanding the size of IMF quota, strengthening the cornerstone role of IMF, deepening coordination and cooperation between IMF and regional financial arrangements while enhancing the role of the latter, increasing transparency of currency swap agreements and providing general guidelines for coordination, exchanges and cooperation between currency swaps and other financial stability mechanisms. The G20 should pay more attention to surveillance and international coordination on international capital flow, enhance monitoring and management of global sovereign debts, continue to establish and improve quantitative indicators and improve the sovereign debt restructuring framework.
17. Financial regulation should continue to be improved. The G20 should continue to strengthen the role of the FSB in global financial regulation, enhance regulation over the G-SIFIs and push for improvement of the financial regulation framework. Regulatory bodies of all countries should be encouraged to step up cross-border cooperation, put all financial activities under regulation, closely monitor and promptly address new risks in the financial system.
18. The role of the SDR in the international monetary system should be upgraded. Some experts suggest that the G20 should support improving the SDR supply mechanism, expand the size of SDR allocation, issue SDR-denominated bonds, promote holding and use of SDR by private sectors and expand the role of SDR in pricing, transaction and store of value in global economy. Most experts look forward to the inclusion of RMB into the SDR basket in October 2016 as scheduled and believe that this will enhance the role of the SDR and promote international currency diversification.
19. The governance structure of the IMF and the World Bank should be further improved. Some experts suggest that the G20 should push for further transfer of quota and voting power of the IMF and the World Bank to emerging and developing economies to make the voting power structure better reflect the world economic reality. The G20 should push for reform of the Executive Board, the selection system of the Managing Director of the IMF and the President of the World Bank, while promoting background diversification of their senior management and staff.
20. Global taxation cooperation should be strengthened. Most experts regard that the G20 should promote implementation of the BEPS action plan and urge all countries to enforce new standards. At the same time, a more inclusive architecture should be set up to attract more non-G20 countries adopting the BEPS project and further expand the scope of its outcome.
Facilitating International Trade and Investment Cooperation
21. Global trade needs to be invigorated. While opposing trade protectionism of various forms, the G20 should push for implementation of the Trade Facilitation Agreement as part of the Bali package agreement to cut global trade costs. The G20 should call for reducing the trade barriers of intermediate goods, promoting trade financing facilitation, improving the ability of all countries to participate into global value chains and promoting the development of the global value chains. Some experts call for the establishment of a G20 “digital trade taskforce” to set up a single and convenient international standard and regulatory system for cross-border e-commerce, and create a healthy and orderly development environment for companies engaged in digital trade. Some experts propose that the G20 should guide international institutions in improving trade statistics and monitoring for reflecting the features of new trade patterns.
22. The central role of the WTO in the global trade cooperation should be maintained. Most experts emphasize that the G20 should strengthen political support for the WTO, push for the conclusion of the “Post-Bali work program” to enhance the development of the multilateral trading system. The G20 should also support the WTO governance reform, provide guiding directions on new topics and promote reshaping of international trade rules. Some experts are of the view that the main factor behind the standstill of the WTO is the boycott of interest groups in various countries in fear of possible loss, and therefore the G20 members should take into consideration a compensation mechanism for the vulnerable groups.
23. Coordination on multilateral and regional trade rules should be strengthened. The G20 should commission the WTO to evaluate potential impacts of regional trade agreements, especially the impacts on developing countries excluded from such arrangements, study the relationship between RTAs and multilateral trading system and explore possible ways of coordination and integration. It should require that the WTO strengthen the implementation and supervision of the Transparency Mechanism for Regional Trade Agreements. Some experts hold that the G20 should help build a coordination and communication mechanism for various types of regional trade rules.
24. A unified international investment system should be put in place. Most experts propose that the G20 should push for the establishment of a unified multilateral investment system as an important agenda of the future global economic governance. In the current context of difficulties in launching multilateral investment treaty negotiations, the G20 should regard formulating guiding principles for international investment policy making and improving the international dispute settlement mechanism as its priorities. Greater openness of the markets should be promoted based on the “negative list” approach, so as to help attract foreign investment.
Promoting Inclusive and Sustainable Development
25. Implementation of the 2030 Agenda for Sustainable Development should be strengthened. Some experts suggest that the goals about “Prosperity” and “Planet” in the Agenda should be listed by the G20 as priority goals. The G20 members should play a leading role in implementing the Agenda through formulating their national action plans and progress evaluation mechanisms. Some experts suggest that the G20 should establish a knowledge and experience sharing platform in order to help developing countries, low-income countries in particular, to be more effectively engaged. In addition, some experts suggest that the G20 should initiate a new economic indicators system by taking into account, among others, the concept of “inclusive wealth”, so as to equitably measure the progress of sustainable development.
26. The international system of development financing should be improved. The G20 should support upgrading the financing capacities, encourage innovation and diversification of development financing, continue to tap the financing potential of the PPP model and encourage private sector engagement. The G20 should also support a bigger role of MDBs by taking joint actions and the establishment of a coordination mechanism for all levels of development financing institutions.
27. Infrastructure investment should be promoted. The G20 should strengthen coordination and synergy of all types of existing infrastructure connectivity initiatives for joint promotion of global infrastructure connectivity. It should enhance knowledge sharing, country experiences and policy information, give full play to the role of the Global Infrastructure Hub as a platform. Some experts suggest that the G20 should pay more attention to the mismatch of costs and benefits for countries along the routes of connectivity construction and establish a mechanism for balancing interests.
28. The green economy needs to be promoted. The G20 should continue to urge all countries to adopt strong policies on climate change mitigation, push for early entry into force of the Paris Agreement, encourage MDBs and international organizations to pool more resources for addressing climate change, promote green financial system, and strengthen PPP to attract more private capital into green finance. Some experts suggest that a global center for green economy development and exchanges be established under the Green Climate Fund.
29. Efforts should be made to help underdeveloped countries and regions develop on a sustainable basis. Some experts suggest that the G20 should strengthen cooperation with African countries on capacity building and promote African industrialization through increasing investment in infrastructure, improving business environment and stabilizing the financial market. Some experts suggest that the G20 members should enhance international industrial cooperation with underdeveloped countries to engage the latters into the global production network.
III. Expectations for the G20 Governance
30. The consistency of the G20 core agenda should be upheld. The G20 should maintain its focus on such topics as long-term growth, macroeconomic policy coordination, international finance, international trade and investment as well as sustainable development, so as to ensure progress of global economic governance in key areas.
31. The G20 should be further institutionalized. Some experts support the establishment of a G20 Secretariat, while others still believe the idea is difficult to realize. Most of the experts believe that the G20 can realize better economic governance by strengthening the mechanisms of ministerial meetings and working groups in core areas.
32. The role of engagement groups should be enhanced. Representatives of B20, Y20, C20, T20, L20 and W20 should be further engaged in the G20 official process to improve their supportive roles for the G20. Some experts suggest that the cooperation among these engagement groups themselves should also be facilitated.
33. The T20 should strengthen its own capacity building. Some experts suggest that the T20 should initiate a more institutionalized think tank alliance to provide more systematic and issue-oriented intellectual support for the G20. Others suggest that the G20 should even establish a G20 Institute funded by the G20 members and composed of relevant experts of the G20 members.
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COMESA’s programme helping States combat money laundering
COMESA is assisting its member States to strengthen the analytical capacity of their Financial Intelligence Units through capacity building initiatives and provision of hardware and software. The aim is to boost their financial security access system and surveillance.
The initiative is being implemented by COMESA under the Maritime Security (MASE) regional programme which is financed by the European Union through the 10 European Development Fund (EDF 11). The MASE programme aims at fighting against money laundering and financial crimes in the region
Madagascar has so far been the highest beneficiaries of the programme which includes support to join the Eastern and Southern Anti-Money Laundering Money Laundering Group (ESAAMLG) and alignment of its laws. This is in addition to infrastructure and telecommunications enhancement for its Financial Intelligence Unit, known as SAMIFIN.
On Monday, August 8, 2016, COMESA Secretariat conducted a sensitization workshop for Anti Money Laundering and Combatting the Financing of Terrorism (AML/CFT) in Madagascar. It targeted stakeholders’ institutions involved in combating Money Laundering/Terrorist Financing.
Madagascar Minister of Justice, Charles Andriamiseza opened the workshop with a call for joint efforts by all member States to fight money laundering if the battle has to be won.
“It is not possible for a single country to fight the vice single handedly because the crimes have no respect for borders,” the Minister said. “There is no country that can escape from Money laundering/Terrorist Financing, which is a common challenge in the 20th century hence, the need to join hands in this global fight. Madagascar is not exceptional and cannot escape this,” Mr Andriamiseza said.
Besides training Madagascar Financial Intelligence Unit, (SAMIFIN) COMESA will also provide assorted information communication technology equipment including computers, servers and software valued at over USD 100,000.
The Minister said the opening up of Madagascar to the international arena gives the country an opportunity for development and forging of future partnerships which are cardinal to the fight against Money Laundering/Terrorist Financing in the country, the COMESA region and the world at large.
He assured the workshop participants that the government has put in place systems to fight corruption and other financial crimes with the adoption of the Anti-Corruption law by parliament and conviction of Money Laundering/Terrorist Financing related crimes.
“Madagascar’s commitment to adhere to the ESAAMLG membership and other legal frameworks to assist in stolen assets recovery are examples of the government’s commitment,” the Minister said.
The Head of Governance, Peace and Security at the COMESA Secretariat, Ms. Elizabeth Mutunga, emphasized the importance of strong commitment by the governments, strong and efficient institutions and a high level of coordination among the stakeholders to curb money laundering/terrorism financing.
“We applaud the government of Madagascar for its strong commitment to fight money laundering and combating the financing of terrorism and for the measures that have been put in place to eliminate the vice which is detrimental to national and regional development,” Ms Mutunga said.
She emphasized the importance of aligning AML/CFT laws to international standards as outlined by the Financial Action Task Force (FATF) that ensures all countries have laws and regulations that are aligned to international standards given transnational nature of the crime.
The Director of SAMIFIN, Lamina Bototsaradi said the country had significantly benefited from the MASE programme and in particular on ICT enhancement and support in facilitating its application to become full members of ESAAMLG.
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tralac’s Daily News Selection
The selection: Monday, 8 August 2016
Today, in Nairobi: President Kenyatta will host a summit of investors, government officials and donors involved in infrastructure projects.
Southern Africa Business Forum: annual conference 24 August (pdf, SABF)
The Second Annual SABF Conference will focus on addressing critical issues which include: (i) sector specific challenges facing businesses operating in SADC; (ii) identifying projects that can spur socio-economic development in the region through joint private sector-SADC government engagements; and (iii) securing the resources required to make these projects a reality. The conference will be a central event at the 'SADC Industrialisation Week' which runs from 23-26 August. It will also be a precursor to the 36th SADC Summit of Heads of State and Government. The Conference will guide discussions and lead a Conference Statement on behalf of the Private Sector which will be shared at the High-Level Ministerial Meeting on 25 August 2016. SADC's Industrialisation Week will include the following activities:
Faizel Ismail: ‘The changing global trade architecture - implications for sub-Saharan Africa’s development’ (The Commonwealth)
What are the main changes in the global trading architecture over the past 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? This issue of Commonwealth Trade Hot Topics explores these questions and offers some policy recommendations for African policy-makers and trade negotiators. [The author is Adjunct Professor in the School of Economics, UCT. He previously served as SA's Ambassador to the WTO]
Justin Yifu Lin: ‘China’s chance to lead on development’ (Project Syndicate)
In time, China will likely be the world’s largest source of FDI. Having gone from being a recipient of FDI to a net contributor in recent decades, China is perfectly positioned to lead G20 discussions on global development. It should do so by setting a concrete goal for a workable development framework with a clear timeline for reaching specific milestones. An early milestone should be to establish a non-binding investment facilitation framework for developing countries. And, more generally, the agreement should emphasize inclusiveness and honest dealing to foster economic growth for developing and developed countries alike. [The author is the founding director of the China Center for Economic Research]
Chinedu Moghalu: ‘Enhancing Africa’s capacity for climate risk response’ (Premium Times)
The ARC is already off the ground. No less than 37 countries have signed up to the initiative, including Nigeria. The initial risk pool, which covered the 2014/2015 rainfall seasons, consisted of Kenya, Mauritania, Niger and Senegal. The drought insurance policies issued to the countries totalled nearly $130m in coverage for a total premium cost of $17m. The first set of insurance payouts, totalling over $26m, has been made under this initiative in January 2015, with Mauritania, Niger and Senegal benefiting as a result of drought conditions in these countries in 2014. Five other countries have since joined the pool. This has increased the drought coverage for the 2015/2016 rainfall seasons to over $190m.
However, the ARC aims to do much more. It targets up to 30 countries for coverage of its drought, flood and cyclone policies, totalling approximately $1.5 billion by 2020. An estimated 150 million Africans will benefit from the risk covers. For this, however, only $300 million in premium payments is required. This underscores the cost-benefit of early intervention through the African Risk Capacity which guarantees that every dollar spent on its insurance saves nearly four and a half dollars that would be spent after a crisis is allowed to crystallise. The potent question therefore is, how do Africans push towards the target coverage of the scheme? [The author is head of corporate communication at Nigerian Export Import Bank]
Politics hurts Kenyan growth prospects, says Kepsa survey (Daily Nation)
“80% of the 509 businesses involved in this study showed political demonstrations hit hard their incomes and threatened livelihoods but no politician seems to give a hoot to our cry. We have a role to reawaken politicians from slumber and force them to respect businesses first before doing anything else to pursue their own interests,” said Kenya Private Sector Alliance chief executive Carole Kariuki. The survey was conducted by Research firm Trends and Insights For Africa (Tifa), which was sanctioned by the alliance. Kepsa said Kenyan businesses were apprehensive of the political situation as General Elections neared and called for closer consultations to avert revenue and job losses. [Nic Cheesman: Inequality and political stability in Kenya]
East African Payment System: the mechanics explained (New Times)
However, Kagabo said central banks will use a unanimously agreed upon exchange rate shared daily across the region. “As for the exchange rate, we have agreed that at the end of each day, we will share the exchange rate of the currencies across the region to maintain the rates. We will be using a bilateral unanimously agreed upon exchange rate,” he explained. This means that a Rwandan trader importing goods from, Kampala or Nairobi will be able to travel and use the Franc for purchases and expenditures unlike now when they have to convert their money before travelling.
Taxes hindering growth of mobile services in Africa, new GSMA report says (The East African)
According to the policy manager for Africa at GSMA, Shola Sanni, the role of taxation is critical because it can either advance or hinder the development of the telecom sector. “In reality, tax policies don’t often reflect the development goals that many governments want for the mobile economy,” said Ms Sanni. “There is a need to harmonise our desire for digital inclusion and the advancement of the digital economy; we need to reflect that in the tax policy we create.” According to Ms Sanni, East Africa has too many consumer taxes.
EAC civil society views on the EAC-EU Economic Partnership Agreement (SEATINI-Uganda)
We, the members of Civil Society Organizations working on trade, fiscal and trade related issues in the EAC, would like to present our observations and recommen-dations in respect to stalled EAC-EU EPA signing. We wish to reiterate the following concerns which we have been raising since the inception of the EPA negotiations:
Ghana: TWN bemoans ratification of EPA with EU (Citi)
Speaking to Citi Business News, Sylvester Bagoroo, a programmes officer with the Third World Network Africa, bemoaned the process through which parliament assessed the agreement, describing it as lacking critical examination. “We at TWN Africa we are disappointed with what parliament as an institution has done. This is an agreement that was negotiated for over a decade because there were a lot of dangerous clauses in that agreement. We were expecting parliament to debate it at committee level for months,” he said. [Sahel and West Africa Club: latest newsletter]
African Speakers lobby for stronger continental assembly (EAC)
The 8th Annual Conference of Speakers was held last week in Midrand on the theme: Adoption of the African Union Treaties, in particular the new Protocol of the PAP. In his remarks, the EALA Speaker Daniel F. Kidega re-affirmed the need for African governments to speed up the ratification process of the revised Protocol of the Pan African Parliament. The Protocol among other things, aims at giving the PAP the opportunity to develop model laws and elections of members through universal suffrage once the electoral code is in place. “I am informed that 10 countries have already signed the amended Protocol, three have ratified, with only two depositing the Instrument”, Speaker Kidega said. “It is important to state that Africa is at a crucial time in its development and thus strengthening of AU institutions such as PAP, will improve integration of the continent”, he added. [Further details]
IGAD: communique of the Second IGAD PLUS Extraordinary Summit on the situation in South Sudan (pdf)
Underlines once again that the situation in South Sudan is a serious threat to regional peace, security and stability, and recognizes that the neighboring countries have been shouldering the heavy burden of the conflict since its outbreak in December 2013, including continued and intensive flow of refugees, as well as proliferation of illicit small arms and weapons [UN chief welcomes South Sudan's acceptance of African-led regional protection force]
Depressed energy prices playing key role in lowering food commodity prices (World Bank Blogs)
Energy prices fell 45% in 2015 and are forecast to drop 16% this year. Food prices are expected to average 26% below highs reached in 2011. Not only does energy make up more than 10% of the cost of agricultural production, energy price fluctuations affect incentives and policy support for the production of biofuels as an alternative energy source to oil. Scrutiny of these drivers helps explain declines in food prices after 2011. In that period, maize prices have fallen by 43%, wheat by 42%, rice by 25%, and soybeans fell by 23%. About one-third of this decline can be explained by the oil price drop. One-sixth of the decline is attributable to a rise in incomes during that period.
SADC Ministerial Committee of the Organ on Politics, Defence and Security Cooperation: updates from SADC, from SA's DIRCO
Peter Kagwanja: 'New financing model puts Africa’s security resources into focus' (The East African)
Eritrea: UNDP-sponsored conference urges closer ties between scholars, development experts
Grand Ethiopian Renaissance Dam: construction update (Ahram)
Ethiopia: The end, the means (Africa Report)
Tanzania’s energy sector: TPDC set to go commercial to avoid ‘resource curse’, IOCs reluctant to invest in $15bn liquefied natural gas plant
China to stop export of fake goods to Africa (The News)
USDA announces reopening of Brazilian market to US beef exports
US international trade in goods and services, June 2016 (pdf)
Free trade’s diminishing returns: commentary by Vladimir Popov, Jomo Kwame Sundaram (Project Syndicate)
World Bank Board approves new Environmental and Social Framework
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Connecting Africa to global economy spurs growth – study
Africa’s economic prospects in the face of declining commodity prices largely depend on its level of openness and integration with the rest of the world through trade and investment, according to a new study.
A study by Visa sub-Saharan Africa (Pty) Ltd shows that loose bonds and low levels of economic integration remain constraints on Africa’s economic progress that have to be overcome if the region is to achieve and sustain its economic potential.
Last year, sub-Saharan Africa’s economy expanded by 5.3 per cent, its slowest rate since the global financial crisis. This was due to declining commodity prices and falling investment levels triggered by the economic slowdown in China and political instability in some countries.
GDP in the region improved to an average of 4.6 per cent in 2014, up from 4.2 per cent in 2013, but weaker than the average of 6.4 per cent during the period between 2002 and 2008.
According to the report titled Connecting Africa: Visa Integration Index, Africa’s global economic integration remains low, meaning that the movement of goods and services between the continent and the rest of the world has been slow, with lacklustre capital flows.
Though Africa’s share of global trade increased from 2.3 per cent in 2003 to 3.3 per cent in 2015, the continent has the lowest share of world merchandise trade, compared with Europe (36.8 per cent), Asia (32 per cent) and Latin America (3.8 per cent).
International capital flows to the continent are still low, with the region attracting less than 5 per cent of global foreign direct investment.
According to the report, Africa is under-banked and under-serviced in terms of conventional financial support, capital provision and or insurance facilities, which poses enormous constraints on ordinary transactions.
Facilitation versus policy
It is argued that Africa’s poor trade performance has more to do with facilitation rather than policy and preferential market access to key markets.
African countries even find it more expensive to trade with each other than with other regions around the world because of poor or no infrastructure, and bureaucratic inefficiencies and weaknesses in other enablers that facilitate trade and overall economic integration.
“The potential of African economies hinges critically on effectively integrating with the world economy but given that the greatest gains from integration relate to local integration, it is essential that African economies connect with each other via intra-Africa trade, capital flows, movement of people and exchange of information and ideas,” says the report.
The report says Africa needs to trade and become more integrated in global value chains if it is to harness its natural potential and stimulate wealth and prosperity.
“It is clear that Africa still lags behind other regions and that improved integration will have a dramatically positive impact on economic growth and development,” reads the report.
Africa’s poor economic record is not only explained by the low levels of global connectivity but also by the low levels of intra-Africa flows and regional integration.
While Africa has made some progress towards regional integration the continent still remains largely fragmented due to high costs of intra-African trade brought about by low levels of product diversification, poor infrastructure, small markets with low purchasing power as well as conflicting legal and regulatory frameworks.
This has restricted bilateral trade between African countries and the development of a lucrative consumer market and undermined the overall competitiveness of the African economies.
Intra-African trade
Intra-African trade costs are estimated to be the highest of any developing region, averaging 50 per cent higher than in East Asia.
For instance, it takes 40 days to move a container from Shanghai to Mombasa at a total cost of $600 while it takes 40 days to move the same container from Mombasa to Bujumbura at a total cost of $800.
“As a result of these high costs, Africa has integrated with the rest of the world rather than itself and so, regional trade in Africa is much lower than in other countries,” says the report.
Africa’s intra-regional trade amounted to 16.2 per cent of its total in 2014 compared with Asia, Latin America and Europe where intra-regional trade accounted for over 50 per cent, 20 per cent and 70 per cent respectively.
Economic integration is important for the socio-economic development of African countries.
The integration is multi faceted and includes more than just the movement of goods, services and capital but also the movement of people, information and knowledge.
In 2014, commodity prices began what is believed to be their greatest decline in over a decade. This is due to a fall in global demand as a result of increased interest rates in the United States well as the slowdown of the Chinese economy, Africa’s most important export market.
With minerals and ores constituting two-thirds of merchandise exports, export volumes fell by 5.8 per cent between 2012 and 2013.
This decline in demand combined with high levels of new supply helped lead to the commodity price fall, some of the consequences of which have been witnessed already in the continent’s slower recent economic growth.
From the year 2000 to the onset of the global financial crisis, commodity prices rose significantly across all major commodity groups.
This came as a result of surging global demand and represented a material windfall gain for Africa’s many commodity-rich economies.
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Taxes hindering growth of mobile services in Africa, new report says
Taxes and fees imposed on the telecom sector are impeding the growth of mobile services in African markets, a new report notes.
The levies imposed on mobile consumers and operators include corporation tax, turnover tax and revenue tax, together with the one-off licence fee, the one-off spectrum fee, universal service obligation, the variable licence fee and the variable spectrum fee. These levies have undermined efforts to make mobile services more accessible, mainly to the poor, notes the report released by GSMA, a telecom research organisation.
“Sector-specific taxes and fees can be regressive, that is, they may have a disproportionately greater impact on the poorest households by raising the cost of mobile services across the population without regard for capacity,” notes the report.
According to the policy manager for Africa at GSMA, Shola Sanni, the role of taxation is critical because it can either advance or hinder the development of the telecom sector.
“In reality, tax policies don’t often reflect the development goals that many governments want for the mobile economy,” said Ms Sanni. “There is a need to harmonise our desire for digital inclusion and the advancement of the digital economy; we need to reflect that in the tax policy we create.”
According to Ms Sanni, East Africa has too many consumer taxes.
“There is excise duty on air time, SMS, mobile money and devices; and what all these taxes do cumulatively is to lower the appetite of the consumer to take on the mobile services,” she said.
In Rwanda for example, the consumption tax on telecommunication services has risen from 8 per cent to 10 per cent of service revenues in recent years.
But Patrick Nyirishema, director-general of Rwanda’s telecom regulation agency said that the prices of 3G Internet were still lower compared with neighbouring countries, while plans were in place to bring them down further.”
Tanzania was cited as having high levies, where mobile services specific tax payments stood at 12 per cent of market revenue, while standard tax as percentage of market revenue stood at 20 per cent.
Excise taxes have been cited among levies that could lower consumption and prevent the realisation of the full volume of positive spillovers from the sector.
For example, excise duty comprises 84 per cent and 68 per cent of sector-specific taxes in Tanzania and the Democratic Republic of Congo.
As mobile money transfer grows in the region, governments are targeting the business to generate new tax revenues.
In 2014, consumers in Kenya, Uganda, Rwanda and Tanzania transacted $45.75 billion through their mobile phones – translating into 32 per cent of their combined GDP – up from $4.86 billion or 3.4 per cent of GDP in 2009.
In Kenya, mobile money transfers and other financial transactions attract a 10 per cent duty.
Tanzania levies a 10 per cent tax on mobile money transaction fees while Uganda levies a 10 per cent tax in addition to 14 per cent tax on revenues from all mobile services including mobile money.
DRC is planning to introduce a tax on financial transactions, that would also apply to m-money services.
Mobile money transfers
The GSMA report states that taxes on these services have the potential to increase the cost of mobile money transfers, as operators pass them to consumers. This is particularly a concern for transactions of small denominations that are typically generated by the poorest sectors of the populations.
However, tax authorities need revenue to fill state coffers and, according to Ms Sanni, it is a balancing act.
“What we are advocating is best practice taxation policy which recommends broad-based taxation approach to avoid sector specific taxation,” she said.
For instance, the Kenya government exempted mobile handsets from VAT in 2009. In the three following years, the VAT reduction was followed by a 200 per cent rise in handset sales and growth in penetration from 50 per cent to 70 per cent between 2009 and 2011, above the 63 per cent across Africa.
“This is an example of how the taxation policy can have a positive impact on digital and financial inclusion,” said Ms Sanni.
Removing telecoms-targeted taxes could increase connections.
According to the GSMA report, a reduction in the excise tax on mobile services in Tanzania from 17 per cent to 10 per cent could bring in two million connections, a 5 per cent increase, and generate $549 million in GDP (1 per cent increase) and $11 million in tax revenues.
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Zim’s economic health impacts SA – Davies
Zimbabwe is to apply for a derogation from the Council of Ministers of Trade (CMT), following its failure to comply with commitments under the Southern African Development Community (SADC) protocol.
This is according to Minister of Trade and Industry, Rob Davies, who was speaking at a media briefing on Thursday.
Davies shared the outcomes of the meeting with Zimbabwe’s Minister of Industry and Commerce, Mike Bimha. The ministers met to find a resolution for the measures undertaken by the Zimbabwean government regarding exports from South Africa.
“We got a pretty comprehensive briefing on challenges Zimbabwe is facing and there was an agreement on both sides that we must follow the procedures of the SADC protocol,” Davies told Fin24.
The SADC protocol has been enforced since 2008. There is a process under the protocol which allows for the CMT to consider and agree on a derogation on commitments, he explained.
At the last CMT meeting in Botswana, it was agreed that another meeting will be held on August 24, ahead of the SADC Summit in Swaziland.
Trade-restrictive measures
The DTI is concerned about the implementation of trade-restrictive measures by Zimbabwe, explained Xolelwa Mlumbi, deputy director general at the International Trade and Economic Development Division.
This includes surcharges implemented on some of South Africa’s export products, due to the pressure the Zimbabwean economy is facing, explained Davies. “This is not just imports from South Africa, but South Africa is Zimbabwe’s largest trading partner,” he said.
Surcharges on products include agro-processing products and some chemical lines. Zimbabwe has implemented these charges to protect their local industry.
Tariff increases were also applied to 1000 product lines, some of these were of particular export interest to South Africa, explained Davies. The DTI identified 112 lines, that they believe Zimbabwe does not have production capacity for.
No response from Zim
The DTI wants Zimbabwe to review surcharges on those lines. “We were supposed to receive a response on 30 June, and we did not get a response today,” said Davies.
Getting the response is essential for the DTI to support a possible derogation. “They [Zimbabwe] understood that and undertook their best to make sure we get the information on time,” he said.
Another issue is the introduction of Statutory Instrument 64, a regulation on imports. Under this, imports for certain products will not be allowed. If there is a shortage of products, exporters can apply for a trade permit, which is time bound.
“We want a greater understanding of rules, when and where potential suppliers can use the mechanism for permits,” said Davies.
“If the Zimbabwean economy is in trouble, South Africa will feel the effects of that in a number of ways, such as migration and other factors,” he said.
The DTI is aware of the challenges in the Zimbabwean economy, which may affect its capacity to import. This will have “detrimental effects” on productive enterprises, said Davies.
“We need to be convinced there will not be a permanent damage to the SADC trade protocol for us to proceed with regional integration and regional trade agreements.”
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India, Africa rekindle trade ties
Old friends explore new possibilities
Until she travelled abroad when she started college, Zara Mwanzia had thought that chapati – the delicious bread she ate while growing up, which most Kenyans still eat – was a local delicacy. “I was surprised to find out that chapati actually originated from India,” she said, musing at how she had been wrong all those years.
Zara could be forgiven for her ignorance of the pervasiveness of India’s cultural influences in eastern and southern Africa. Tea is another Indian dietetic influence on local customs. In the Kenyan capital of Nairobi and around the country, teatime has an Eastern influence: India’s chai – a mix of milk, tea, sugar and spices – is the drink of choice over other beverages normally served at breakfast and other mealtimes.
Cultural and trade relations between India and Africa extend beyond chapati and chai, going back to ancient times – from early fourth-century trade, through Britain’s shipments of Indian labour to work on colonial projects, to political cooperation during the struggle for Africa’s independence.
“Old friends and old family”
The Indian population in Africa, including people of Indian descent, was estimated to be about 2.7 million in 2015. More than half of them are settled in South Africa, a third in Mauritius and some in the East African countries of Kenya, Tanzania and Uganda.
We are “old friends and old family,” said Nirmala Sitharaman, India’s minister of state for commerce, at the Third India-Africa Forum Summit (IAFS-III) in October 2015. Held every three years, the summit is used by India to discuss trade and investment opportunities with African leaders and to foster diplomatic relations.
At a time when African countries are looking eastward, shifting attention away from their traditional Western economic partners, and when Asia’s booming economies are rushing to invest in Africa, a shared history appears to help in boosting trade and investments between African and Indian “friends and families.”
A four-nation African tour by India’s Prime Minister Narendra Modi in July 2016 (his first-ever), on the heels of President Pranab Mukharjee first-ever visit to the continent a month prior, is the strongest signal yet of revived interest between “old friends.”
Data from the Indian government and the African Development Bank shows that bilateral trade between India and Africa rose from $1 billion in 1995 to $75 billion in 2015.
From 2010 to 2015, Nigeria was India’s largest trading partner in Africa with $1.6 billion export-import volume, followed by South Africa with $1.1 billion, while Kenya came third and Mozambique fourth.
Overall, since 2010, India’s exports to Africa have increased by 93% while imports rose by 28%, according to Africa-India: Facts & Figures 2015, a joint publication of the United Nations Economic Commission for Africa (ECA) and the Confederation of Indian Industry (CII). Africa’s share of India’s global exports rose from $17.9 billion in 2010 to $34.6 billion in 2015, according to the report.
With $64.2 billion from 2000 to 2012, Mauritius is by far the main destination for India’s foreign direct investment (FDI), according to a 2015 publication of the South African Institute of International Affairs.
Yet that amount, which represents three-quarters of India’s total FDI to Africa over the same period, is skewed because Mauritius is a tax haven for foreign investors, the report suggests. The sizable investments in Mauritius, the report says, are linked to American companies’ taking advantage of favourable fiscal rules to route their money through the country. They invest in India through Mauritian companies.
Private sector in the driving seat
India’s investments in Africa continue to expand. Bharti Airtel, the New Delhi–based giant telecommunications company, is an example of India’s extensive private-sector presence across the continent. The company has been the market leader in 18 African countries since it entered the market in 2010 after taking over operations from Kuwait’s Zain Telecom in a deal valued at more than $10 billion at the time. With over 76 million subscribers as of March 2015 and a workforce of about 5,000 people, Airtel is now the second-biggest telecom operator in Africa.
Tata Africa Holdings, with a base in Johannesburg, South Africa, is another highly recognizable Indian company in Africa. Its vehicles, including trucks, semi-trucks and public transportation buses, branded with its red-and-white logos, are common on African roads.
Tata Africa Holdings businesses go beyond vehicle assembly, however. Strongly present in 11 countries, it is also involved in information technology, chemicals, steel and engineering, hospitality, energy and mining. In 2016 the company declared investments in Africa in excess of $145 billion and a workforce of 1,500.
Other major Indian companies operating in Africa include ArcelorMittal (steel products and iron mining), Essar Steel (steel products), Coal India, Vedanta Resources (copper and other metals mining), Varun Industries (rare earth minerals), Jindal Steel and Power (steel and energy) and Apollo Tyres (tyre manufacturing and distribution).
On the other hand, India-bound investments from Africa are about $65.4 billion, according to Africa-India: Facts & Figures 2015. Most of the investments were by Mauritius-based companies, with South African multinational companies’ investments in infrastructure development, breweries and financial and insurance services accounting for less than $1 billion. But a South Africa-based Institute of Strategic Studies (ISS) report predicts African investments in India are likely to keep growing.
At the end of the 2015 India-Africa Forum Summit, Prime Minister Modi announced a $10 billion line of credit over the next five years for Indian companies wishing to invest in Africa. He also promised grant assistance of $600 million, to include an India-Africa Development Fund of $100 million, an India-Africa Health Fund of $10 million and 50,000 scholarships for African students in India over the same period.
Bolstering the links
If such announcements at the previous India-Africa summits in 2008 and 2011 are any indication, the line of credit and grant will support projects in many African countries. An earlier grant of $7.4 billion was geared toward 137 projects in 41 countries, the joint ECA-CII report pointed out, while another grant of $500 million funded capacity-building projects, including setting up specialized institutions, providing scholarships and training programmes, and implementing the Pan-African e-Network project. The e-network currently connects 48 African countries. In addition, in the past three years alone, 25,000 Africans have been trained or educated in India.
During a visit to Ghana in June this year, President Mukherjee said his African tour was part of a wider outreach and would be followed by Prime Minister Modi’s to more African countries. This, he reportedly said, meant: “Africa, we stand by you.” A month later, Mr. Modi visited Kenya, Mozambique, South Africa and Tanzania, where he signed several bilateral agreements with his hosts.
This article appears in the August 2016 edition of Africa Renewal, published by the United Nations.
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Why has Africa failed to industrialize?
Experts call for bold and creative policies
At no point in recent history have calls for Africa to industrialize been stronger than they have been lately. Across the continent, industrialization is arguably the most talked about subject among policymakers. So why has action on the ground failed to move the needle on this important development marker?
Industrialization has been a campaign promise across the African continent, with its acknowledged ability to bring prosperity, new jobs and better incomes for all. Yet the continent is less industrialized today than it was four decades ago. In fact, the contribution of Africa’s manufacturing sector to the continent’s gross domestic product actually declined from 12% in 1980 to 11% in 2013, where it has remained stagnant over the past few years, according to the UN Economic Commission for Africa (ECA).
The Economist Intelligence Unit, a British business research group, reckons that Africa accounted for more than 3% of global manufacturing output in the 1970s, but this percentage has since halved. It warns that Africa’s manufacturing industry is likely to remain small throughout the remainder of this decade.
High commodity prices triggered by China’s seemingly insatiable appetite for natural resources have fueled rapid economic growth in Africa since the 1990s. Many thought the boom would revive Africa’s waning manufacturing industry. Yet to the dismay of analysts, it failed to live up to expectations. Instead of using the windfall to set up or stimulate manufacturing industries, African countries – with a few exceptions – wasted the money on non-productive expenditures. Ghana and Zambia, for instance, used profits from the commodity bonanza to solve short-term domestic problems, such as by increasing salaries for civil servants.
Now falling commodity prices and a cooling Chinese economy have conspired to expose the myth of the “Africa Rising” story line. The International Monetary Fund estimates that growth in 2016 will fall below 4%, which The Economist, a UK-based publication, warns will lead “many to fret that a harmful old pattern of commodity-driven boom and bust in Africa is about to repeat itself.”
Had African leaders heeded advice from experts and pumped profits from the commodity boom into stimulating manufacturing companies, the results could have been different. So what are the options for Africa over the next few years? This was the question policymakers and economic experts wrestled with in Addis Ababa, Ethiopia, early this year at the launch of “Economic Report on Africa 2016: Greening Africa’s Industrialization,” published by the ECA. Their conclusion was unanimous: the only viable option is to industrialize.
Industrialize or decline
During the discussions that ensued, experts agreed that one of the main reasons for Africa’s slow industrialization is that its leaders have failed to pursue bold economic policies out of fear of antagonizing donors. As it were, the strongest criticism of this policy vacuum came not from the debate in Addis Ababa, but from the op-ed pages of The Financial Times, a British daily.
“Africa stands on the cusp of a lost opportunity because its leaders – and those who assess its progress in London, Paris and Washington – are wrongly fixated on the rise and fall of GDP and foreign investment flows, mostly into resource extraction industries and modern shopping malls,” said Kingsley Moghalu, a former deputy governor of the Central Bank of Nigeria. In a forcefully argued op-ed, he implored African countries to “reject the misleading notion that they can join the West by becoming post-industrial societies without having first been industrial ones.”
Ha-Joon Chang, an economist at the University of Cambridge and the co-author of a recently released ECA publication, “Transformative Industrial Policy for Africa”, shares this opinion. He calls for “policy imagination” – creativity in crafting policies – and urges African policymakers to avoid being bound to any single theoretical policy. “African countries need to have the self-confidence to develop alternative policies and stick to them,” he told the Addis Ababa gathering.
Firm hands on the wheel
Asia’s development of its industries is instructive: state-led development policies were responsible for lifting the region’s economies out of poverty during the late 20th century – a point Mr. Moghalu clearly recognizes. He insists “governments must lead the way, with a firm hand on the wheel and by setting policy that creates an enabling environment for market-based growth that creates jobs.” This, the former central bank deputy governor is quick to clarify, is “not an argument for a heavy-handed statist approach that would choke productivity and stifle competition.” Alluding to one of the lessons from the 2008 global financial crisis, Mr. Moghalu is adamant: “Markets must work for society and not the other way round.” He points to Ethiopia and Rwanda as notable examples of how Africa could industrialize its economies.
Adeyemi Dipeolu, an economic adviser to Nigeria’s Vice President Yemi Osinbajo, shares this view. He told participants at the report launch in Addis Ababa that African policymakers are “hesitant to take alternative policies for fear of dictates and conditionalities of the West.”
Yet The Economist sees things differently. In its analysis of why Africa has failed to industrialize, it observes that while many countries deindustrialize as they grow richer, “many African countries are deindustrializing while they are still poor…partly because technology is reducing the demand for low-skilled workers.” Another reason, says the magazine, is that weak infrastructure – lack of electricity, poor roads and congested ports – drives up the cost of moving raw materials and shipping out finished goods. But the publication acknowledges that Africa’s “favourable demography, rising urbanization and extensive agricultural resource base underscore the potential of the region’s manufacturing industry.”
The good, the bad and the smart
Many experts have called on Africa to practice “so-called sophisticated or smart protectionism” – that is, to impose temporary tariffs to shield budding industries from the negative effects of cheap imports – as part of its strategy to industrialize. In the book, “Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism,” Mr. Chang, whom The Financial Times describes as “probably the world’s most effective critic of globalization,” argues that rich countries have historically relied on protectionist approaches in their quests for economic dominance.
In its review of the book, The Publishers Weekly, a US-based news magazine on book publishing, says rich nations that “preach free market and free trade to the poor countries in order to capture larger shares of the latter’s markets and to pre-empt the emergence of possible competitors are Chang’s bad Samaritans.”
Mr. Moghalu is one of many African policymakers who support smart protectionism, making the case that it’s not only necessary but can be pursued using the rules set by the World Trade Organization (WTO), a UN body that makes rules and mediates trade disputes among nations.
The ECA has given the same advice, maintaining that African countries can legitimately pursue smart protectionism as practiced by the West.
“All countries that have industrialized started with degrees of protectionism,” says Carlos Lopes, the ECA executive secretary, adding, “But we cannot practice crude protectionism anymore we are engaged in a global debate that includes trade negotiations.” He explains that “if we have to make the rules work for Africa, that basically means smart protectionism.”
As if to prove the point that rich nations are indeed practising protectionism, the WTO reported in June 2016 that there is a rapid increase in trade restrictive or protectionist measures by the world’s leading economies that make up the G20 group. Between mid-October 2015 and mid-May 2016, the report says, G20 economies had slapped 145 new trade-restrictive measures at an average rate of 21 new measures per month, “a significant increase compared to the previous reporting period at 17 per month.”
Follow the leader
Ethiopia, Rwanda and to a lesser extent Tanzania have proved adept at navigating the bumpy path to industrialization. The common thread among them is that they have embraced policies that target and favour their own manufacturing industries. In addition to pursuing what experts call a “developmental state model,” under which governments control, manage and regulate economies, they have adopted investor-friendly policies. And most importantly, they have shown a commitment to and ownership of these policies. State control over economic policies appears to have contributed to less corruption in Ethiopia and Rwanda.
Since 2006, Ethiopia’s manufacturing sector has expanded by an annual average of more than 10%, albeit starting from a very low base, partly because it has courted foreign investors, notes The Economist. “We approached Holland’s horticultural firms, China’s textile and leather firms and Turkey’s garment firms [to invest in Ethiopia]. Now we’re bringing in German and Swiss pharmaceuticals,” says Arkebe Oqubay, author of “Made in Africa: Industrial Policy in Ethiopia,” who is also a minister and a senior adviser to Prime Minister Hailemariam Desalegn.
Ethiopia is leading by example. It has shown industrialization can happen in Africa. What the continent needs is political commitment and the audacity to implement the right policies, even in the face of strong external opposition. “For capitalism to work for Africa, just as it has for China and much of East Asia, public policymakers must shake off the shackles of orthodoxy,” says Mr. Moghalu.
This article appears in the August 2016 edition of Africa Renewal, published by the United Nations.