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tralac’s Daily News Selection
The selection: Tuesday, 2 August 2016
Today in Kampala: the Bank of Uganda’s Joseph Mubiru Memorial Lecture will be delivered by Dr Ngozi Okonjo-Iweala. The topic: ‘African central banks: rethinking their role, or staying the course? Learning from global experience’
Featured tweet, @ECA_Lopes: The Continental Free Trade Agreement could increase trade by 50% among African countries by 2022.
UNCTAD’s mis-invoicing paper: the debate
UNCTAD welcomes discussion, transparency on commodities and mis-invoicing
Challenges to our paper have fallen broadly into two specific camps. First, some argue that UNCTAD has over-interpreted - or misinterpreted - the data with its finding that some commodity dependent developing countries are losing as much as 67 percent of their exports worth billions of dollars to trade mis-invoicing. A second line of argument is that when Zambia says it exports its copper to Switzerland, it actually means that a Swiss-based company is exporting the copper, and therefore we should not take import and export data seriously when the copper does not arrive in Switzerland.
To reply to the first argument, this is what our data has shown us. We do not see a convincing challenge to the source of our data (Comtrade), the data itself, or even the methodology used to arrive at the figures for mis-invoicing, a term that we try to use without any implicit judgement or bias. Rather, the challenge has been to suggest that, for a range of historical and legacy reasons, South Africa simply does not record gold exports in the normal way, even if its trading partners do. We think this issue merits further research and discussion.
To reply to the second argument, we do not see any practical or moral reason why the destination country should not be recorded. Transparent documentation should make it possible to identify clearly the source country of any cargo, no matter how many times the cargo is sold or traded between source and destination countries. We agree with those traders who say that they should be free to do whatever they want with their cargoes, but we also think the traders should report to whom they sell their cargoes in order to ensure full transparency between the source and destination countries.
Dewald Van Rensburg: How wrong the UN was on SA gold ‘smuggling’ (City Press)
Simple statistical mistakes seemingly led one of the leading global experts on illicit financial flows to wrongly claim that billions of dollars worth of gold has been smuggled out of South Africa. Similarly, new estimates of trade misinvoicing in the platinum sector produced by Léonce Ndikumana, a professor at the University of Massachusetts at Amherst, seem to be based almost entirely on a glitch in the UN’s Comtrade database – not actual misinvoicing. Ndikumana is one of a handful of influential researchers into illicit financial flows producing widely cited estimates of the apparently enormous contribution to capital flight by companies that understate their exports. [SARS media statement (pdf), commentaries by Maya Forstater]
Manufacturing transformation: comparative studies of industrial development in Africa and Emerging Asia (UNU-WIDER/OUP)
This book (Open Access) presents results of comparative country-based research that sought to answer a seemingly simple but puzzling question: why is there so little industry in Africa? It brings together detailed country case studies of industrial policies and industrialization outcomes in eleven countries, conducted by teams of national researchers in partnership with international experts on industrial development. It provides the reader with the most comprehensive description and analysis available to date of the contemporary industrialization experience in low-income Africa. [Case studies include (pdf): Uganda, Tanzania, Senegal, Nigeria, Mozambique, Kenya, Ghana, Ethiopia]
George Omondi: ‘Kenya finds going tough with its regional partners’ (Daily Nation)
Uncertainty over future access to the European market, and losses incurred in the recent military flare-up in South Sudan, have raised fresh queries on the benefits of the regional integration to Kenya. Just when local businesses thought the road was finally smooth for the conclusion of the economic partnership agreements with the European Union, Tanzania pulled the plug. Kenya’s predicament is worsened by the fact that it cannot go it alone without its integration partners with which it now shares a customs territory. It either has to adopt the position of its neighbours or pull out of the regional integration altogether in order to safeguard its key EU market. “Tanzania as current chair of EAC Heads of State Summit should take a leadership role in signing the EPAs as it has been committed to the negotiations since October 2007,” says Ms Lilian Awinjo, chief executive of East African Business Council, a lobby for the region’s businesses. “We need to put our hands together in finding solutions to the existing challenges if we are to make our integration a fruitful one,” says EABC Vice Chairman, Mr Felix Mosha, a Tanzanian national.
Annette Mutaawe Ssemuwemba: ‘EPA negotiations: is EAC at the crossroads?’ (Daily Monitor)
Caught at the crossroads, EAC must mobilise itself for speedy review and quick resolution of the matter. During the proposed review period, EAC should consider undertaking deeper analytical sector studies to develop a current picture of the situation with a view of proposing changes, validating the current agreement and if there is a change of mind regarding the whole agreement, communicate swiftly. In this endeavour, civil society and private sector need to get actively involved and perhaps lead this effort to ensure that their voices are heard. Time is running out because the ACP-EU Partnership Agreement also known as “Cotonou” runs to 2020 subject to future amendments. [The author is deputy CEO in charge of strategy and results, TradeMark East Africa]
Zimbabwe: CZI pushes for internal devaluation (The Herald)
Industrialists will, within the week approach Government with proposals on internal devaluation mechanisms, push for active participation in the SADC Industrialisation Agenda, and lobby for the urgent adoption of the South African rand as the transacting currency. This came out as part of resolutions after industrialists under the Confederation of Zimbabwe Industries gathered in Bulawayo for the annual three-day congress which ended Friday. The resolutions include following up on value chains, implementing the UNIDO value chains model as a tool for achieving competitiveness, and calling on Government to resuscitate lead companies such as the National Railways of Zimbabwe, the Grain Marketing Board which are critical to the value chains, among others. “We have identified specific areas that we need to work on. We realise that the economy is facing challenges and we believe as CZI we need to make certain tough decisions and the resultant pain must be shared among all stakeholders,” said CZI vice president Ms Tracy Mutaviri while presenting draft resolutions at the close of the congress.
Botswana: How the US put hard money into Botswana’s diamond dream (Mmegi)
History was made on Monday morning at a breakfast signing ceremony in Botswana. Barclays Bank of Botswana signed a $125-million credit guaranty agreement with the Overseas Private Investment Corporation (OPIC), through which the United States government will share 75% of the credit risk in financing diamond beneficiation in Botswana. Eventually, it is expected, other banks in Botswana will join the programme, providing a new rationale to diamond manufacturing in the country.
COMESA moves to enhance competitiveness of Rwandan SMEs (New Times)
Claudette Niyitegeka, a supplier of horticulture produce, said the initiative will help suppliers understand the market and its requirements, and hence open more business opportunities for local SMEs. The SME sector makes up 98% of all businesses and provides 41% of all private sector employment. Over 80% of Rwandans are engaged in agriculture production. In order to take advantage of the rapid economic growth being experienced in Rwanda, SMEs need to develop skills of staff and improve their production capacity. Sohail Ghavri, the head of marketing and purchase at Airline Services & Logistics, said for local suppliers to penetrate the market, they must ensure they meet international food safety management system standards. “Consistency in standards and volumes is still a challenge faced by many local suppliers,” he said.
Kenya: Fashion retailer Deacons targets middle class for regional expansion (Business Daily)
Fashion retail chain Deacons is targeting middle class shoppers in large towns outside Nairobi as it looks to double revenue to Sh6 billion in the next four years. The retailer, which lists by introduction Tuesday on the Nairobi Securities Exchange, counts only one outlet outside of Nairobi on its Kenyan portfolio — the Mr Price shop at Nyali Plaza in Mombasa. The retailer has set a target to have 60 outlets across East Africa by 2020 from the 38 it operates currently in order to hit the revenue target, with the chief executive officer Muchiri Wahome saying they will look to open four or five new stores per year.
TAZARA snaps losing trek, earns $13.5m profit (Daily News)
The Tanzania-Zambia Railway Authority says it has made a profit of $13.5m for 2015/2016 financial year as it makes steady progress from scores of turnaround measures. The jointly owned railway line, has attributed the profit to improved business resulting from increased haulage from 87,000 metric tonnes of freight in the 2014/2015 financial year to 130,000 metric tonnes in the 2015/2016 financial year. According to a communique, issued after the 108th meeting of the Board of Directors held in Lusaka, the railway firm has since projected to generate about $44.1m in the 2016/2017 financial year due to a turnaround in business and cost-effective operations.
Stage set for massive hiring at EAC (The Citizen)
EACJ begins hearing on Zziwa case against EAC secretary general (IPPMedia)
Uganda: Political interference affecting tax collection – URA official (Daily Monitor)
South Africa: Petroleum sector fiscal regime reform (IMF)
Kigali Declaration on Forest Landscape Restoration in Africa (IUCN)
Chinese furniture fashion ravages West Africa’s savannas (TODAY)
S&P affirms African Development Bank 'AAA/A-1+' Ratings (CPI Financial)
Ghana: Indonesia Business Forum (Graphic)
Egypt: IMF deal credit positive, implementation risks remain high - Fitch (Ahram)
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How wrong the UN was on SA gold ‘smuggling’
Simple statistical mistakes seemingly led one of the leading global experts on illicit financial flows to wrongly claim that billions of dollars worth of gold has been smuggled out of South Africa.
Similarly, new estimates of trade misinvoicing in the platinum sector produced by Léonce Ndikumana, a professor at the University of Massachusetts at Amherst, seem to be based almost entirely on a glitch in the UN’s Comtrade database – not actual misinvoicing.
Ndikumana is one of a handful of influential researchers into illicit financial flows producing widely cited estimates of the apparently enormous contribution to capital flight by companies that understate their exports.
The Chamber of Mines and Statistician-General Pali Lehohla have reacted with outrage to his latest report, released this month with backing and supervision from the UN Conference on Trade and Development (Unctad).
The SA Revenue Service (Sars), which is implicitly being ciritcised for not cottoning on to this enormous “smuggling”, also slammed the report in an emailed statement on Friday afternoon (see below).
The numbers “touted” by the report are due to classifcation anomalies and easily refuted, said Sars.
“This matter was already raised with the UN statistics department way before the release of this report”, it said.
The report estimates underinvoicing of commodity exports for a handful of countries, including South Africa. It makes the shocking conclusion that almost all South African gold is smuggled out of the country.
About $113 billion (R1.6 trillion) – in 2014 terms – worth of gold was exported between 2000 and 2014 to major trading partners without being recorded, the report concludes.
It also finds significant historical misinvoicing of platinum exports to the tune of $19 billion. In both cases, the estimates are seemingly the result of basic statistical errors that City Press was able to uncover without difficulty.
The mistakes call into question some of the shocking and politically potent estimates of how pervasive trade misinvoicing is supposedly the leading contributor to illicit capital flight from Africa and South Africa in particular. The problem involves underdeclaring the value of exports to evade taxes, hence robbing countries of their rightful fiscal resources. Various estimates of how much money is involved have become the basis of global NGO campaigns and the developing world’s overall attitude towards global tax reforms.
The issue was last year given new international prominence by former president Thabo Mbeki, who led a UN high-level panel investigation into the issue using the same Comtrade database used by Ndikumana.
Going estimates put Africa’s export losses to this practice at on average $50 billion a year, which might theoretically have led to additional taxes of about $10 billion a year for the continent’s governments.
All SA gold smuggled?
The Unctad report’s major claim in relation to South Africa is that “virtually all gold exported by South Africa leaves the country unreported”.
Ndikumana came up with an estimate that South Africa had suffered underinvoicing of its gold exports to its top trading partners to the tune of $113 billion between 2000 and 2014 (in 2014 dollar terms).
City Press tried to replicate Ndikumana’s result using the Comtrade database he used, while checking figures captured there for South Africa against their original source: the local customs data kept by the SA Revenue Service (Sars).
Where Comtrade says South Africa exported almost no gold at all before 2011, the official Sars statistics actually reflect billions of rands of exports (see graphic).
The reason is that most South African gold exports before 2011 were classified as “monetary” gold. The Comtrade database does not include this gold, so it simply excludes the majority of gold exports up to 2011.
The gold still shows up in partner countries’ Comtrade statistics that make it seem like it was all smuggled out.
From 2011 onwards, South African gold exports were no longer classified as monetary, so they show up in the Comtrade data.
Unfortunately, South Africa still does not officially report the destination of gold exports as with all other goods – a hangover from gold’s previous monetary role.
Receiving countries, however, report that their gold came from South Africa, so when you look at individual trade relationships, it still looks like all South African gold exports are illicit.
Ndikumana concludes that gold “underinvoicing is pervasive both over time and over trading partners”.
According to SARS, the report not only suffers from classifcation problems, but also double counting of exports which are only refined in South Africa. Local data doesn’t count this, but trading partners’ data very well could.
Unctad spokesperson Edward Harris promised to give City Press a detailed response by Friday, but failed to do so by the time of going to print.
“In brief, though, our paper identifies certain patterns that hold true for different countries and commodities over significant periods of time,” he said via email.
“The paper highlights the need for more transparency in the trade of commodities,” said Harris.
Platinum
The Unctad paper’s estimate of platinum underinvoicing has a similar problem.
The Comtrade database has no record of South Africa’s platinum exports in 2000 and 2002. These years’ exports do reflect as imports for other countries, causing the same problem.
Sars numbers show that platinum exports in the two years were pretty much the same as in adjoining years 2001 and 2003.
Ndikumana nevertheless attributes several billions of dollars worth of underinvoicing to these two years, making up the bulk of his $19 billion estimate for platinum underinvoincing.
Big data
There are two main global trade databases that have been used to produce estimates of illicit financial flows through misinvoicing.
One belongs to the International Monetary Fund and the other one is Unctad’s Comtrade, which Ndikumana used. The IMF data only give totals and can’t show you specific products. Comtrade shows all products, but has obvious blind spots.
Mbeki’s high-level panel on the subject also used the Comtrade database for its hard-hitting report on illicit financial flows last year – possibly causing it to include the same errors that Ndikumana made.
SARS Media Statement on UNCTAD report
South Africa’s Trade Statistics are compiled according to the United Nations International Merchandise Trade Statistics (UN IMTS) guidelines which are based on the movement of goods in and out of the country’s economic territories.
The UNCTAD report states that there are ‘major discrepancies’ between the gold that South Africa reported it had exported to its trading partners and the gold imports from South Africa reported by trading partners for the period 2000-2014. Also, it alleges that most of the gold leaving South Africa is through smuggling operations.
The report indicates that South Africa’s gold exports were $34.5 billion and gold imported by South Africa’s trading partners was $116.2 billion. Thus the difference in the export value of gold is $81.7bn.
SARS has found that the statistics used in the report are not correct.
In fact, the methodology followed has severe limitations. This led to flawed conclusions on the purported missing gold.
The United Nations Statistical Division (UNSD) has officially cautioned against straight country to country analysis due to amongst other reasons: different trade statistics reporting systems; country of origin versus country of destination; Free On Board (FOB) and Cost, Insurance and Freight (CIF) differences.
For these reasons reconciliation of trade statistics requires major technical adjustments for country to country comparative studies.
The approach followed by SARS to reconcile trade of gold refutes the large discrepancy touted in the UNCTAD report.
The SARS reconciliation accounts for the discrepancy in gold exports raised by the UNCTAD report as follows;
- South African data for domestic gold exports for 2000 to 2014 $54.7 billion more than the $34.5 billion in the UNCTAD report.
This discrepancy is a result of a classification anomalies pertaining to Harmonized system of tariff classification. This matter is already under discussion with the UN Statistics department way prior to the release of this report.
- South Africa reports according to the UN Special Trade system which specifically exclude non domestic Gold refined and exported from South Africa.
Should the destination country report according to the General trade system they would include all gold emanating from South Africa, non-domestic included. SARS analysis accounts for Non-domestic gold exported from South Africa to countries using the General trade system to be $38.8 billion.
- Exports are generally reported as Country of Destination and Imports are generally reported as Country of Origin.
For example, South Africa exports gold to country A. South Africa will then report country A as Country of Destination. Country A will report the import as South Africa for country of origin. Country A subsequently exports the South African gold to country B. Country A will then report country B as country of destination. Country B will report their import as South Africa for the Country of Origin. South Africa will not record the movement between country A and country B.
Therefore, Country of Origin and Destination anomalies in which intermediary country recordal of trade may result in double counting of exports.
The SARS reconciliation therefore shows that Gold exports for the period 2000 to 2014 are in fact $7.9bn more than the $116.2bn reported by UNCTAD. Such small variances are expected as there will definitely be timing differences between the recording of exports and import transactions.
Despite this refutation of the quantum of purported missing gold, SARS as part of its normal day to day operations conduct threat analysis on gold and other commodities to inform audit and criminal investigations.
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UNCTAD welcomes discussion, transparency on commodities and misinvoicing
UNCTAD welcomes the comments on its commodities paper, which was published earlier this month.
The paper used a standard methodology and publicly available (Comtrade) data to look at the mismatches between import and export figures on a range of commodities exported from five natural-resource-rich countries over periods of about 20 years. In doing so, it identified clear and consistent patterns of misinvoicing, a term we use without attributing blame or making any specific accusations.
Trade misinvoicing has been generating more and more attention in the research and policy communities, linked mainly to debates on illicit financial flows. Trade misinvoicing continues to be used as a key mechanism of capital flight and illicit financial flows (IFFs) from developing countries.
The paper fits within our wider work on commodities, which aims to promote a more equitable distribution of value-added throughout the global supply chain, particularly towards the small producers and citizens of developing countries. In this respect, we join the growing number of analysts and commentators who are concerned about the lack of transparency in the global commodities trade. We work to promote transparency in the physical and financial flows related to commodities trade, to shine light on illicit activities, and to enable the citizens of developing countries to benefit more effectively from the extraction and trade of their nation’s commodities.
This focus on transparency began at our Global Commodities Forum in 2014, which ran with the theme of “Global value chains, transparency, and commodity-based development.” During the Forum, participants recommended that UNCTAD convene a multi-stakeholder Working Group on Commodities Governance, to promote transparency and accountability.
As part of its broader work on transparency, UNCTAD commissioned a study by Léonce Ndikumana, a leading researcher on capital flight and IFFs from developing countries, on the misinvoicing of key commodity exports from five developing countries.
Challenges to our paper have fallen broadly into two specific camps. First, some argue that UNCTAD has over-interpreted – or misinterpreted – the data with its finding that some commodity dependent developing countries are losing as much as 67 percent of their exports worth billions of dollars to trade misinvoicing. A second line of argument is that when Zambia says it exports its copper to Switzerland, it actually means that a Swiss-based company is exporting the copper, and therefore we should not take import and export data seriously when the copper does not arrive in Switzerland.
To reply to the first argument, this is what our data has shown us. We do not see a convincing challenge to the source of our data (Comtrade), the data itself, or even the methodology used to arrive at the figures for misinvoicing, a term that we try to use without any implicit judgement or bias. Rather, the challenge has been to suggest that, for a range of historical and legacy reasons, South Africa simply does not record gold exports in the normal way, even if its trading partners do. We think this issue merits further research and discussion.
To reply to the second argument, we do not see any practical or moral reason why the destination country should not be recorded. Transparent documentation should make it possible to identify clearly the source country of any cargo, no matter how many times the cargo is sold or traded between source and destination countries. We agree with those traders who say that they should be free to do whatever they want with their cargoes, but we also think the traders should report to whom they sell their cargoes in order to ensure full transparency between the source and destination countries.
The importance of this transparency and traceability is that, first, full transparency on the export and trade of commodities is a necessary (if not sufficient) condition for the citizens of resource rich countries to benefit from their countries’ natural resources. Second, it allows an importer to determine that its imports have no connection, for example, to human rights abuses. This is as true for gold exports from Eastern Congo as it is for blood diamonds. Third, if some companies are benefitting from tax incentives based on how much they have exported from a given country, then they should be able to identify the destination country too.
UNCTAD welcomes discussion around these issues, which shine a light on the lack of transparency in the trade of natural resources. We answer some of the specific comments and questions below:
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The spectacular numbers for gold “smuggling” in the paper seem to stem almost entirely from the fact that up to 2010 the vast majority of South African gold exports were classified as “monetary” – and consequently not captured in the Comtrade database. If you check the corresponding South African customs data, there were large recorded exports in all the years up to 2011. Also, even after 2010 the vast bulk of South African gold exports are recorded, but the destination countries are not recorded. This seems to have led to huge partner mismatches because in our own and in Comtrade’s numbers the 2011-2014 gold exports are all “unallocated”. This is a historic practice of our tax/customs authority that only affects gold. (Dewald van Rensburg, City Press)
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Tralac, the South African trade law centre says simply that South Africa does not report gold trade data. The South African Revenue Service (SARS) trade statistics website explains that South Africa does include gold exports in its domestic statistics, but due to legacy rules it is treated both as a good and as a country and reported under the special code ZN “Origin of Goods Unknown”. The South African Reserve Bank and SARS do not report details of where the nation’s gold exports go to (so therefore this data would not be retrievable from COMTRADE). (Maya Forstater, independent).
These comments raise further questions. Why are some data on gold exports captured in the Comtrade database, but not others? Why has South Africa not recorded the destination countries since 2011, even when their trading partners do? Why are the 2011-2014 gold exports all “unallocated”? And why is this a historic practice of South Africa’s tax / customs authority that appears to affect only gold, not other exports? These idiosyncrasies only make South Africa’s gold exports less transparent. We do not understand the need for, or the benefits from, reducing transparency on South Africa’s gold exports.
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A shipment of copper, gold, or cocoa loading up on the docks of a producer country will make its way to Rotterdam or Antwerp, Dubai, Singapore or other hub, where it may be warehoused before being split or combined with others, repacked and eventually delivered to ultimate destinations. The final endpoints may not be known when the cargo sets off, so the destination might be recorded as the home-base of the commodity company (eg Switzerland) or the first port of consignment, even though it would not be expected to be reported as an import there. (Maya Forstater, independent)
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On Switzerland, Zambia, and copper… “There’s a second level of complexity here which is that the Mopani brand is a London Metals Exchange branded one. This means that not all production goes direct to end users around the world. Some of it will end up in storage at least for a time. But the storage will be in bonded, LME approved, warehouses. And bonded here means that it doesn’t turn up on the import statistics of a country. Because it hasn’t, in the legal sense, entered a country. This is another explanation of the Chile / Netherlands puzzle too as Holland is a centre of LME warehouses. It’s true that the Swiss import statistics and the Zambia export ones don’t match up. But that’s the nature of this form of trade, not some nefarious plot to deprive anywhere of tax revenues.” (Tim Worstall, Adam Smith Institute)
Full transparency of trade flows is necessary before a country’s citizens can be confident of benefitting from their country’s precious natural resources. Bonded warehouses are used either as part of an export processing zone (EPZ) or they are used as a transit point for commodities travelling elsewhere. If they are used as part of an EPZ, then the commodities are registered as a duty-free import before being processed, and the destination country should be known. If the warehouses are being used as a transit point, then at some point the final destination will be clear. A clear trail of documents should allow the identification of the source and final countries.
We understand that the final endpoints may not be known when the cargo sets off. But if this is the case, why register Switzerland as the destination country?
In summary, these challenges do little to reassure about the lack of transparency in the trade of commodities from developing countries. As we have highlighted, this misinvoicing – a word that we use in its most technical sense, without attaching value or even accusation – means that some countries may be losing as much as 67 percent of their commodity exports.
As with related discussions on beneficial ownership and revenue flows in the extractive industries, more transparency in the commodities trade can only be a good thing for the citizens of developing countries. Indeed, this transparency may be the next major frontier to ensure that the citizens of resource-rich countries can benefit from their countries’ natural resources.
We see this paper as a first step in a process to increase our collective understanding on transparency issues in the trade of natural resources. UNCTAD looks forward to further cooperation with partners in government, business, and the non-profit sector to better understand the lack of transparency in this sector.
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Kenya finds going tough with its regional partners
Uncertainty over future access to the European market and losses incurred in the recent military flare-up in South Sudan have raised fresh queries on the benefits of the regional integration to Kenya.
Just when local businesses thought the road was finally smooth for the conclusion of the economic partnership agreements (EPAs) with European Union, Tanzania pulled the plug.
The neighbouring country made it known that it would not sign EPAs during the United Nations Conference on Trade and Development forum held in Nairobi two weeks ago putting the fortunes of Kenyan firms on the line.
Arusha’s intransigence has complicate efforts to salvage the deal that has dragged on for more than 10 years. Worryingly, the October deadline is almost here.
Kenya’s predicament is worsened by the fact that it cannot go it alone without its integration partners with which it now shares a customs territory. It either has to adopt the position of its neighbours or pull out of the regional integration altogether in order to safeguard its key EU market.
“Tanzania as current chair of EAC Heads of State Summit should take a leadership role in signing the EPAs as it has been committed to the negotiations since October 2007,” says Ms Lilian Awinjo, chief executive of East African Business Council (EABC), a lobby for the region’s businesses.
As a developing State, Kenya can only safeguard its export market of commodities such as tea and flowers by signing EPAs to continue trading without facing tariff and administrative restrictions after October.
Tanzania – like other landlocked neighbours – are however grouped as least developed States which can still export to the EU on concessionary terms without having to sign EPAs.
“Failing to observe the EPAs October deadline as set by the EU on ratification will prove costly even to Tanzania,” Ms Awinjo said in a statement to Smart Company.
The move by Tanzania comes just weeks after Uganda and Rwanda pulled out of joint crude oil pipeline and railway deals, leaving Kenya on its own.
The two landlocked States had earlier joined Kenya in the initiative called the Northern Corridor Integration projects to speed up construction of infrastructure projects. Burundi and South Sudan later joined the initiative.
The joint infrastructure projects, among them railway and ports, as well as initiatives in ICT and energy were expected to cost at least Sh10 trillion ($100 billion), according to a communiqué from Arusha-based EAC Secretariat.
Immediately Kenya built 60 per cent of its track using part of the Sh327 billion loan from China, Uganda pulled out of the corridor in March, followed by Rwanda weeks later.
It is believed that the modern railway can only be of economic benefit to the Kenya if it runs the full length from Mombasa through to Malaba, Kampala, Kigali and Bujumbura.
Kenya’s Transport ministry officials are currently mulling terminating the line either in Nairobi, Naivasha or diverting it to Kisumu port should neighbours fail to rethink their decision to pull out.
These events, together with losses that businesses have incurred in recent political clashes in Burundi and South Sudan, have raised questions over the quality of the regional integration decisions that leaders make.
In the case of Sudan, the EAC Heads of State Summit reached the decision to admit it into the bloc in April this year despite widespread concerns over its political stability.
Under article Three of EAC Treaty, a State can only be admitted into the bloc if it has compatible social and economic policies. Many observers feel South Sudan – which was just emerging from over two decades of civil war – should have been given more time to build a market economy before joining the regional integration.
It states; “Such States should have demonstrated progress in building a market-driven economy, ability to strengthen region’s economy, geographical proximity and interdependence of the bloc.”
It goes ahead to peg approval of membership on applicant’s adherence to “universally acceptable principles of good governance, democracy, rule of law, respect for human rights and social justice.”
Queries were raised as to whether the EAC presidents had ignored these requirements when they admitted Burundi in 2007 and South Sudan in April this year.
Kenya and Uganda were particularly seen as overly keen on having South Sudan on board as most of their citizen had established market linkages to the new State.
At the moment, discussions on admission of Somalia have reached advanced stages. With the on and off peace in the country, the bloc could soon be welcoming another headache.
In the meantime, firms and citizens who took admission of South Sudan into the bloc as a sign economic stability to widen search for opportunities have suffered losses in the recent military clashes.
The government was itself forced to evacuate hundreds of people from the country not to mention resultant loss of money and property.
But even within the stable States of the region, firms have said they face delays in clearance of goods, corruption, high fees charged by national agencies and influx of substandard goods.
“We need to put our hands together in finding solutions to the existing challenges if we are to make our integration a fruitful one,” says EABC Vice Chairman, Mr Felix Mosha, a Tanzanian national.
The region – now a common market – hopes to implement a monetary union protocol which it signed two years ago before eventually becoming a political federation.
Kenya appears less bothered by a series of missteps in the joint deals with neighbours that have exposed its firms and economy to serious financial consequences.
Last week, Kenya took a major step towards the envisaged political federation when the Cabinet directed all government officers and public institutions to start hoisting the EAC flag with immediate effect.
“As further set to the EAC integration, all schools will be required to hoist the EAC flag and sing the EAC Anthem alongside Kenyan Flag and National Anthem,” the cabinet said in a statement dispatched on Thursday.
The statement added: “The EAC flag and Anthem will be hoisted and sung respectively in all public events alongside the Kenya National flag and Anthem. This is intended to boost and promote the EAC integration.”
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Manufacturing transformation: Comparative studies of industrial development in Africa and emerging Asia
While it is possible for economies to grow based on abundant land or natural resources, more often structural change-the shift of resources from low-productivity to high-productivity sectors-is the key driver of economic growth.
Structural transformation is vital for Africa. The region’s much-lauded growth turnaround since 1995 has been the result of making fewer economic policy mistakes, robust commodity prices, and new discoveries of natural resources. At the same time, Africa’s economic structure has changed very little. Primary commodities and natural resources still account for the bulk of the region’s exports.
This book presents results of comparative country-based research that sought to answer a seemingly simple but puzzling question: why is there so little industry in Africa? It brings together detailed country case studies of industrial policies and industrialization outcomes in eleven countries, conducted by teams of national researchers in partnership with international experts on industrial development. It provides the reader with the most comprehensive description and analysis available to date of the contemporary industrialization experience in low-income Africa.
Can Africa industrialise?
Extracts from Chapter 13
Sub-Saharan Africa (SSA) began its post-independence economic development with a strong commitment to industry; a commitment that has never been realized. The region’s failure to industrialize is partly due to bad luck. The terms of trade shocks and economic crises of the 1980s brought with them two decades of macroeconomic stabilization, trade liberalization, and privatization. Growth was slow and uncertain and there was little private investment in industry. When Africa re-emerged around the turn of the twenty-first century, African industry was no longer competing with the high-wage industrial ‘North’, as it had following independence. It was competing with Asia. Slow growth and fiscal austerity also meant that there was a growing gap in the basics – infrastructure, human capital, and institutions – between Africa and the rest of the developing world. The initial conditions for industrialization in 2000 were less favourable in relative terms than they had been in the 1960s. From the point of view of industrial development the timing of the region’s economic decline and recovery was unlucky to say the least.
This chapter addresses what needs to be done by African governments to achieve more rapid industrialization. In doing so it also addresses the role of Africa’s ‘development partners’, the bi- and multi-lateral aid institutions. Nowhere else in the developing world do aid donors exercise the degree of influence on public budgets and public policies that they have done in SSA, where donor funding ranges from 10 to 30 per cent of GDP. For national priorities to change, donor priorities will have to change as well.
Breaking in
Despite Africa’s late start, there are a several reasons why it can reasonably aspire to break into the global market for industrial goods. First, economic changes are taking place in Asia that create a window of opportunity for late industrializers elsewhere to gain a toehold in global markets. Second, the nature of manufactured exports themselves is changing. A growing share of global trade in industry is made up of stages of vertical value chains – or tasks – rather than finished products. Trade in tasks offers late industrializers an opportunity to enter global markets in areas suited to their factor costs and endowments of skills and capabilities. Third, trade in services and agro-industry is growing faster than trade in manufactures. These ‘industries without smokestacks’ broaden the range of products in which Africa can compete, and a number of them are intensive in location specific factors abundant in Africa.
New Opportunities
There has been a spectacular reduction in transport and communications costs in the global economy over the past twenty years. Freight costs have halved since the mid-1970s, and international communication and coordination costs have plummeted. These technology-driven changes in transport and communications have opened up new opportunities for industrial development that were not available when Africa became independent. Two of these – trade in tasks, and industries without smokestacks – broaden the range of industrial activities in which African economies can break into global markets.
Trade in tasks
In some manufacturing activities a production process can be decomposed into a series of steps, or tasks. As transport and coordination costs have fallen, it has in many cases become efficient for different tasks to be located in different countries. Task-trade has expanded dramatically in the past twenty years. During 1986-90 imported intermediates constituted 12 per cent of total global manufacturing output and 26 per cent of total intermediate inputs. By 1996-2000 these figures had risen to 18 per cent and 44 per cent. A recent estimate suggests that as much as 80 per cent of global trade is linked to the production networks of multinational corporations.
For late industrializers such as Africa trade in tasks has considerable potential. It is easier to master a single stage of the production process than to develop all of the capabilities needed for vertically integrated production. Task-trade was integral to the export success of Cambodia, Tunisia, and Vietnam. Exports of assembled garments from Cambodia and Vietnam have grown at double-digit rates over the past ten years. Tunisia has enjoyed similar growth in the assembly of garments and auto parts produced for the European market. Success in attracting and retaining trade in tasks is by no means guaranteed.
Low wages are important but not sufficient to attract end-stage assembly operations. Because end-stage tasks depend heavily on imported intermediate inputs, the institutions and infrastructure directly related to international trade (for example customs and ports) must be of a high standard. Taskbased investors are also footloose, as the experience of a number of African countries under the Africa Growth and Opportunity Act (AGOA) – the United States system of trade preferences for Africa – dramatically illustrated when the multi-fibre agreement expired in the second half of the 2000s.
Changing the Investment Climate Agenda
Whether Africa is able to take advantage of the opportunities offered by changing real wages and economic policies in East Asia, task-trade and the emerging importance of industries without smokestacks will ultimately depend on the policies and public actions undertaken by African governments. Since the late 1990s policy attention to industrialization by both donors and governments in SSA has focused on reform of the investment climate, the physical, institutional, and policy environment within which firms operate. Attention to these basics is not misplaced. Africa lacks the infrastructure, skills, and institutions needed to support industrial productivity growth.
Yet since 2000 efforts to improve the investment climate have had little impact on growth of the industrial sector. This is because investment climate reform programmes have been poorly designed and implemented. As originally conceived, the investment climate reform agenda was intended to balance reducing the physical constraints to industrialization, mainly infrastructure and skills, with reforms to the regulatory and institutional environment. As implemented by the World Bank and the broader donor community, the focus of investment climate operations has been on pushing a narrow set of regulatory reforms. It is imperative that rebalancing takes place. For Africa to industrialize, greater attention and more resources must be directed to infrastructure and skills.
The Critical Role of Infrastructure
All of the SSA country studies highlight infrastructure deficiencies as a significant barrier to industrial development. Firm-level surveys identify lack of power as the greatest constraint, followed by transport. Infrastructure directly affecting international trade is badly deficient. Road infrastructure has received very little attention, and although concessions have been awarded to operate and rehabilitate many African ports and railways, financial commitments by the concessionaire companies are often small. Domestic transportation infrastructure is also an important constraint to horticultural exports; vegetables, fruits, and flowers do not tolerate delays in getting to the airport.
While the region has made considerable progress in the area of broadband connectivity – critical to success in tradable services – through regional submarine cables, a wide gap exists in national backbone networks and in interconnecting cities. About 87 per cent of Africa’s population is unable to connect to the internet. Tourism development is constrained by lack of air and ground transport, utilities, and IT infrastructure.
Closing Africa’s infrastructure gap will require around US$93 billion a year, about 15 per cent of the region’s GDP. Forty per cent of the total spending needs are for power alone. Existing spending on infrastructure in Africa amounts to about US$45 billion a year. About US$15 billion of this amount comes from external sources, including the private sector, official development assistance (ODA), and non-traditional development partners, mainly China. Even if potential efficiency gains could be fully realized, a funding gap of about US$31 billion a year would remain, about 60 per cent of which is in power.
Closing the Skills Gap
A survey of country experts from forty-five countries for the African Economic Outlook 2013 found that over 50 per cent of respondents cited lack of skills as a major obstacle which kept African firms from becoming competitive. The country studies suggest that production-related skills are most lacking. Growing firms in Uganda import skilled labour. In Mozambique there is a significant shortage of technical and higher level skills, especially in maths and science, and firms see the lack of employee skills as a serious constraint to growth. In Ghana the survival and growth of firms is strongly correlated with the educational attainment of the owner. Service providers report they are constrained by the low educational levels of potential call centre workers and a lack of customer service management skills in the industry itself. Education and training for tourism, both in language skills and in industry-specific skills, are deficient. Employer surveys report that African university graduates are weak in problem solving, business understanding, computer use, and communication skills.
Closing the skills gap presents at least as daunting a challenge as closing the infrastructure gap. DAC donor commitments to all levels of education in Africa only approach US $4 billion. Confronted with rising unit costs in primary education, increasing pressures on lower secondary education as a result of higher primary completion rates, and limited prospects of external finance, African governments need greater flexibility to reallocate expenditures from primary to postprimary education. While there is some scope in the new UN Sustainable Development Goals to do so, the fiscal reality is that even with more budget flexibility African governments will need to turn to private provision of education, especially at the tertiary and vocational-technical level.
Institutional and Regulatory Reform
Institutional and regulatory reform is important for Africa, and many countries have an unfinished agenda of reforms that need to be pursued. Surveys of manufacturing firms highlight a number of areas in which regulatory or administrative burdens impose cost penalties. The regulatory reform agenda of investment climate programmes, however, has often centred on the most widely used global benchmark of regulatory burden, the World Bank Doing Business report. Doing Business measures selected business regulations in nearly 190 countries and ranks the countries on ten dimensions, ranging from ease of opening and closing a business to investor protection. It has proved tempting for donors to suggest that African governments should target rapid progress in moving up the Doing Business rankings as the primary objective of institutional and regulatory reform.
The focus on Doing Business has been counterproductive for two reasons. First, because Doing Business was designed as a cross-country benchmarking exercise; it is not suited to the design of country specific regulatory reform programmes. The indicators do not capture country context nor can they be used to identify binding country-level regulatory constraints. Second, it has shifted the attention of both governments and donors away from the far more difficult task of identifying and funding priority expenditures in infrastructure and education to improve industrial productivity. In order to establish a relevant agenda for regulatory reform and for investment climate reform programmes more generally, African governments and their development partners will need to undertake the much harder task of working jointly with the private sector to identify the binding constraints imposed by the investment climate.
Beyond the Investment Climate
Africa entered the twenty-first century with large gaps in infrastructure, human capital, and institutions compared with other parts of the developing world. If it is to industrialize, it must get these basics right. At the same time, while public actions to strengthen the investment climate are important, they alone are unlikely to make it possible for African industry to compete with the world’s incumbent industrial producers. This is because the drivers of firm-level productivity growth are interdependent. The country studies of Cambodia, Tunisia, and Vietnam illustrate the importance of addressing the basics, exports, agglomerations, and FDI in an integrated way.
Mounting an Export Push
For the vast majority of countries in Africa the export market represents the only option for rapid growth of manufacturing, agro-industry, and tradable services. The small size of Africa’s economies and the low level of per capita income across the region mean that the scope for rapid industrial development based on domestic demand is limited. In addition to the benefit of an expanded market, there is evidence that in low income countries export success is closely linked to productivity growth in manufacturing. Because individual firms face high fixed costs of entering export markets, there is a risk that African economies will export too little, unless public policies are put in place to offset the costs to first movers.
Cambodia, Tunisia, and Vietnam each implemented a coordinated set of public investment, policies, and institutional changes designed to increase the share of industrial exports in GDP. Measures to establish a ‘free trade regime for exporters’ through various mechanisms to eliminate or rebate tariffs on intermediate and capital inputs used in export production were put in place. Taxes on exports were eliminated. Each country introduced regulatory and institutional reforms designed to lower the transaction costs faced by exporters in such areas as customs and business regulation. In some countries and in some periods financial incentives through the tax system or export finance were offered. With ascension to the World Trade Organization (WTO) these were reduced or eliminated. All three countries focused significant attention on trade related infrastructure in order to reduce the costs to producers of ports, domestic road and rail transport, and communications.
These interventions – designed to tilt the incentive structure towards exports – were similar to the ‘export push’ strategies that have been adopted by other countries in Asia since the 1970s. Several African countries – Ethiopia, Ghana, and Kenya among them – have placed recent emphasis on promoting exports. Unfortunately, there is little evidence that they have implemented the coherent set of policies that characterize an export push. To move from aspiration to implementation governments across the region will need to focus on three critical areas: policy and institutional reforms affecting exports, trade logistics, and regional integration.
Policy and institutional reforms
Rather than being undertaken piecemeal in an effort to satisfy scorekeeping by the donor community, regulatory reforms in Africa should first be undertaken to reduce the transaction costs faced by exporters. Tariff exemptions, duty drawbacks, and rebates of indirect taxes only improve competitiveness to the extent that they are well administered and timely. This is often not the case in Africa. Duty drawback, tariff exemption, and VAT reimbursement schemes are often complex and poorly administered, resulting in substantial delays. Port transit times are long, and customs delays on both imported inputs and exports are significantly longer for African economies than for Asian competitors. Export procedures – including certificates of origin, quality and sanitary certification, and permits – can also be burdensome.
Institutional reforms are also critical to the success of services and agroindustrial exports. The regulatory regime in telecommunications is important to remote tradable services, and tourism is sensitive to the behaviour of public officials ranging from immigration inspectors to the police. Horticultural exports, because they are perishable, are particularly vulnerable to delays in shipping caused by inefficient or corrupt inspection procedures at airports. Officials have the power to use delaying tactics to cause the financial loss of an entire consignment. The relatively slow growth of air-freighted fresh produce exports from West Africa has in part been blamed on corruption at airports.
Improving trade logistics
Trade in tasks has greatly increased the importance of beyond the border constraints to trade. Because new entrants to task-based production tend to specialize in the final stages of the value chain, ‘trade friction costs’ – the implicit tax imposed by poor trade logistics – are amplified. African countries have an average ranking of 121 out of 155 countries in the World Bank (2010) Trade Logistics Index. Only three of Africa’s low income economies rank in the top half of the global distribution. Two-thirds are in the bottom third, and 36 per cent are in the bottom quintile. The region ranks especially badly in terms of trade related infrastructure, and poorly functioning institutions and logistics markets increase trade friction costs.
These constraints directly reduce Africa’s ability to compete. Efficient African enterprises have factory floor costs comparable to Chinese and Indian firms for some product lines, such as garments. They become less competitive because of higher indirect business costs, many of which are attributable to deficient infrastructure and poor trade logistics. In China, indirect costs are about 8 per cent of total costs; in Africa they are 18-35 per cent. Value chain analysis of exports identifies several choke points: high costs of import and export logistics, lack of timely delivery of inputs, and low speed to market. Reducing these costs to the levels in China would save the average African firm the equivalent of 50 per cent of its wage bill. Economical and efficient transport and coldstorage chains are essential for all types of horticultural products. Half the wholesale cost of African fresh produce in European markets is represented by the cost of transport, storage, and handling. As governments begin to close the infrastructure gap, priority should be given to investments in logistics infrastructure and to the complementary institutional and regulatory reforms needed to increase competition among logistics providers.
Strengthening regional integration
The small size of Africa’s economies and the fact that many are landlocked make regional approaches to infrastructure and trade related services, customs administration, and regulation of transport in trade corridors imperative. For exporters in landlocked countries poor infrastructure in neighbouring, coastal economies, incoherent customs and transport regulations, as well as inefficient customs procedures and ‘informal taxes’ in transportation corridors slow down transit times to the coast and raise costs. Regional integration also opens up opportunities for African manufacturers to learn from regional markets before they attempt to break into global markets. Regional exports in the East African Community (EAC) for example have been growing substantially faster than exports to other destinations.
Tangible progress on regional integration has been slow. The size, scope, and objectives of Africa’s regional organizations vary greatly. Many countries are members of several arrangements, resulting in a complex web of regional organizations, competition for resources, and inconsistencies in policy. Investments in regional infrastructure are hampered by the technical complexity of multi-country projects and the time required for decisions by multiple governments. Institutional reforms to improve trade logistics – such as common standards, regulations, and one-stop border facilities – have also moved slowly. Governments can give new momentum to regional integration efforts by first focusing on trans-border infrastructure and institutions.
Africa’s development partners have not aggressively helped regional integration, preferring to deal with individual countries rather than regional organizations and limiting financial commitments to trans-border projects. Aid implementation and disbursement are particularly slow at the regional level. Aid agencies are also often better structured and equipped to deal with national partners. Donors need to make stronger efforts to harmonize their support to regional organizations, decrease the use of their own systems to channel aid flows to regional programmes, and to integrate their national aid programmes into their regional strategies.
Conclusions
Meeting the challenge of industrialization will require new thinking both in Africa and among its development partners. One of the unifying themes in the eight sub-Saharan country case studies is the central role of donor-driven investment climate reforms. While investment climate reforms are needed, they must be re-prioritized and refocused. Urgent action is required to address Africa’s growing infrastructure and skills gap with the rest of the world. However, for most African countries, investment climate reforms alone will not be enough to overcome the advantages of the world’s existing industrial locations.
The country case studies of Cambodia, Tunisia, and Vietnam provide considerable insight into the key elements of a new industrialization strategy for Africa. All three countries shifted their policy stance relatively early in the process of industrial development towards active promotion of industrial exports. The export push was accompanied by policies designed to promote the formation of industrial clusters and attract FDI. SSA countries could have made such a strategic turn at the end of the Structural Adjustment period. None of them managed to do so.
While the failure to adopt an effective export-oriented industrialization strategy is lamentable, it can be rectified. In addition to implementing a changed investment climate reform agenda African governments need to mount an export push. This will require creating an effective free trade environment for exporters, reforming the regulations and institutions directly affecting foreign trade, and investing in better trade logistics. More strenuous efforts to achieve regional integration, and especially to build trans-border infrastructure and institutions, are also needed. Upgrading the performance of Africa’s SEZs and Foreign Investment Agencies to world-class standards is an essential complement to the export push.
Today, in contrast with the turn of the century, changes in the global economy offer a window of opportunity for Africa to industrialize. Rising real wages and production costs in East Asia together with trade in tasks may open up a chance for some of Africa’s more productive firms to break into the global market for manufactured goods. Tradable services and agro-industry provide new opportunities for industrialization, and Africa may be particularly well placed to exploit these openings based on a number of location specific sources of comparative advantage. Whether Africa can seize the moment depends in large measure on public policy. If African governments and their development partners continue with business as usual, success is unlikely. With a more strategic approach to industrial development and the commitment of the region’s political leadership Africa can industrialize.
COMESA moves to enhance competitiveness of local SMEs
Early this year, the Common Market for Eastern and Southern Africa (COMESA) unveiled a new project seeking to link local producers with buyers across the country and the region.
The project under COMESA Business Council sought to revitalise Rwandan markets by encouraging corporate firms to buy most of their supplies locally.
The pilot project, which is being implemented in six countries, including Rwanda, Zambia, Uganda, Kenya, Ethiopia and Malawi, mainly focuses on producers and suppliers of fruits and vegetables, dairy and dairy products, apiculture and cassava.
Local producers had hoped the initiative would open more markets for their products. However, most suppliers lack consistency, and are not efficient to meet the required demand and ensure quality of products.
These challenges have conspired against local suppliers for long, forcing international brands to source similar products from outside the country. However, with more intervention from the COMESA Business Council, these issues should be history, propelling the local SME sector to competitiveness.
Phase two launched
As the roll out of the second phase kicks off, these shortcomings need to be addressed to ensure farmers and suppliers benefit fully from the initiative. Since its inception in February, 76 Rwandan SMEs have been trained in product handling to ensure quality.
“To date, the project has provided training on the international food safety management system known as HACCP standards to about 480 SMEs in the six countries,” the COMESA Business Council chief executive officer, Sandra Uwera said at the launch last week.
Uwera said the council has entered into partnerships with a number of key buyers within the region, including the Taj Pamodzi Hotel and the Protea Hotel in Zambia; Kigali Serena Hotel, Inyange Industries and Bralirwa in Rwanda; Protea Hotel and Speke Group in Uganda. Others are Sarova Group of Hotels in Kenya; and the Protea Royals Hotel in Malawi. The aim is to facilitate market linkages between local small enterprises and multinational companies in the COMESA region. These market linkages and partnerships are essential to promote intra-regional trade and open new markets for stakeholders in the food and beverages, hospitality and tourism sectors to create jobs and spur development in the bloc.
“COMESA global trade increased by 6 per cent, from $290 billion in 2013 to $307 billion the following year.
However, the percentage of intra-COMESA trade to total COMESA trade has risen marginally from 5 per cent in 2005 to 7 per cent in 2014. The need for structured mechanisms to promote local sourcing and encourage intra-regional trade cannot be over emphasise,” Uwera told Business Times, emphasised the need for quality, saying it crucial to sustainable partnerships.
The project has helped build capacity of suppliers in six countries, including Rwanda, in food safety management systems and standards, and provided a platform for market linkages.
Uwera said the project focuses on strengthening the participation of SMEs in value chains at all levels on the continent. She said a training programme on the global food safety management systems, Hazard Analysis and Critical Control Points (HACCP), is being implemented for SMEs to improve and guarantee quality. HACCP is a management system for food safety, where analyses and control of biological, chemical and physical hazards are carried out from raw material production, procurement and handling, to manufacturing, distribution and consumption.
COMESA Business Council and the Private Sector Federation (PSF) have organised a buyer-seller meeting, which brought together eight key corporate buyers in Rwanda. Local SMEs also showcased their products during a mini-exhibition organised by the council in Kigali.
Uwera said the activities were aimed at promoting common interests, and discussing mechanisms to address challenges, like low volumes, poor delivery, and sub-standard products and services.
“That’s why big companies still prefer to source from consistent suppliers from outside the country because they have a long standing reputation for quality and timely delivery of products and services. So, since, time, quality, cost and risk control define the reputation of companies, many large enterprises are hesitant to build relationships with smaller, local enterprises,” she said.
“Therefore, this project is essential as it will help address these challenges and make local suppliers more competitive.”
Suppliers speak out
Claudette Niyitegeka, a supplier of horticulture produce, said the initiative will help suppliers understand the market and its requirements, and hence open more business opportunities for local SMEs.
The SME sector makes up 98 per cent of all businesses and provides 41 per cent of all private sector employment. Over 80 per cent of Rwandans are engaged in agriculture production. In order to take advantage of the rapid economic growth being experienced in Rwanda, SMEs need to develop skills of staff and improve their production capacity.
The COMESA region constitutes a large market on the continent, with a population of over 480 million people and total trade of $307 billion recorded in 2014. Intra-COMESA trade represented $23 billion during the same year.
What buyers say
According to Peter Macharia, the in charge of supply and purchasing department at Nakumatt Supermarket, a regional retailer, most local suppliers struggle to meet the required quantities, their products are not certified for quality and are poorly packaged.
“They must ensure their products meet standards and are well-packaged to guarantee consumer trust and confidence,” Macharia said.
Jean Claude Bahati, a marketing expert, said increasing production is critical to convince big buyers.
“It is important for suppliers to work with farmers to ensure increased production, safety, and quality along the value chain,” he added.
Sohail Ghavri, the head of marketing and purchase at Airline Services & Logistics, said for local suppliers to penetrate the market, they must ensure they meet international food safety management system standards.
“Consistency in standards and volumes is still a challenge faced by many local suppliers,” he said.
Bralirwa’s Jouse Penaloza called on suppliers to forge long-term partnerships with established firms to boost logistical and technical capacity and be able to raise enough volumes and ensure quality along value chain.
The majority of big buyers interviewed by this newspaper say local producers and suppliers need to more than double their efforts if they are to convince corporate firms and retail chains, like Nakumatt to engage them.
This view could mean that the first phase of the project supported by the Investment Climate Facility for Africa USAID-IPAA in collaboration with the private sector and Ministry of Trade and Industry fell short of expectations. The project was launched in Rwanda in February.
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Political interference affecting tax collection – URA official
Failure of the government to put tax revenue into good use that benefits the society is the major challenge affecting tax collection in the country, a senior official has said.
According to Mr Evaristto Mugisha, the Uganda Revenue Authority (URA) official attached to Domestic Taxes Department, tax collection is affected by government’s challenge of striking a strategic balance between desire for tax revenue and appeasement of certain factions of society to gain political popularity.
“The sentiments expressed by politicians have at times been contrary to tax legislations implemented by URA and the obvious is jeopardising tax yields and putting the professional independence of the authority under suspicion,” he said.
Impact of crises
While presenting a paper at a public dialogue in Kampala last Friday on the challenges of tax collection in Uganda, Mr Mugisha explained that tax collection is a victim of numerous economic and political crises the country has gone through.
“Ugandan market is largely an importing economy and over time has witnessed a lot of political strife which hampers economic growth, killed and displaced some people within Uganda and regionally. These are not conducive avenues for commerce and trade thus affecting tax collection,” he added.
Frontier for Accountability, Transparency and Integrity (FATI) organised the dialogue under the theme ‘Revisiting Uganda’s taxation policy, its management and impact’.
In the 2015/16 financial year, URA failed to hit their revenue target with a shortfall of more than Shs400 billion.
The tax company collected approximately Shs11.231 trillion against its Shs11.63 trillion target.
Mr Mugisha said that people have maintained a negative attitude towards tax which has resulted from tax evasion activities.
“URA is facing an uphill task of combating this culture to replace it with cultivating a culture of voluntary compliance. Tax enforcement mechanisms are expensive and eventually increase the cost of tax administration generally which is uncalled for,” Mr Mugisha said.
Participation of all
According to Mr Mugisha, whether in support of the ruling regime or not, revenue collection in any country should be a concern by every right thinking national because public revenue is the backbone of every society’s economic progress.
“True, there are many challenges that hinder tax collection initiatives but with support from everybody through paying each person’s fair share of tax contribution, the tax burden is lessened,” he said, appealing to the public to embrace the culture of voluntary compliance in honouring tax obligations.
Impaired systems
FATI legal director, Ms Peace Mbabazi, observed the channels through which government is accountable are dysfunctional which demoralises tax payment in the country.
“The systems through which a local person can engage government are limited. We do not have avenues to have tax issues addressed yet we would like to see an all-inclusive government to attract people to pay taxes,” she said.
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SADC advances the industrialisation agenda
Southern Africa is considering a series of bold measures to advance the aspirations of member states as outlined in the Industrialisation Strategy and Roadmap as the region moves to ensure that efforts to transform its economy gain traction.
SADC is developing a costed Action Plan for the Industrialisation Strategy and Roadmap 2015-2063, which was adopted in April 2015 to allow the region to harness the full potential of its vast and diverse natural resources.
The Action Plan seeks to establish a coherent and synergistic implementation scheme containing strategic options and general policies towards the progressive attainment of time-bound targets set out in the strategy and roadmap.
Senior officials from SADC member states met in Gaborone, Botswana in May to discuss the Action Plan with private sector, regional think tanks and International Cooperating Partners.
The plan will focus on the first 15 years of the strategy timeframe, and aims to create an enabling environment for sustaining industrial development as a driver of economic transformation; and establish an enduring alliance for industrialisation consisting of the public and private sectors as well as strategic partners.
The SADC Industrialisation Strategy and Roadmap was developed as an inclusive long-term modernisation and economic transformation scheme that should enable substantial and sustained economic development to raise living standards. It is anchored on three interdependent strategic pillars:
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industrialisation as champion of economic transformation;
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enhanced competitiveness; and,
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deeper regional integration.
A number of strategic interventions for each of these pillars are proposed in the Action Plan.
With regard to Industrialisation, major interventions proposed include an improved policy environment for industrial development, increased volume and efficiency of public and private sector investments in the SADC economy, creation of regional value chains and participation in related global processes, as well as increased value addition for agricultural and non-agricultural products and services.
In the area of an improved operating environment, there are plans to develop and operationalise a Protocol on Industry by 2020, which should lead to the development of industrialisation policies and strategies at national level.
Where member states already have such policies and strategies, these should be reviewed and aligned to the SADC Industrialisation Strategy and Roadmap.
Member states will be required to develop national Industrial Upgrading and Modernization Programmes (IUMPs) by 2018 and implement these by 2020.
These should be in line with the SADC IUMP, which provides the basis for a sector-specific approach to industrialisation in the region, focusing on upgrading existing manufacturing capacities, modernising productive facilities, reinforcing the institutional support infrastructure, and strengthening regional capacity for research and innovation.
There is also a target to progressively increase the share of gross domestic investment to Gross Domestic Product (GDP) to 25 percent by 2020 and to 30 percent by 2025.
To achieve these targets, there are plans to develop a SADC Investment Promotion Framework as well as a SADC Regional Action Programme on Investment to accompany it.
To encourage the creation of regional value chains and participation in global processes, the region has identified five priority areas where the value chains can be established and for which regional strategies should be developed by 2020.
These are in the areas of agro-processing, minerals beneficiation, consumer goods, capital goods, and services (see the table below).
A detailed value chain study is proposed for specific products or services in the priority areas.
As part of the process of promoting value chain participation, there are plans to develop model legislation and regulations for intra-SADC agro-processing, minerals beneficiation and other manufacturing activities and services.
Reduction or removal of structural impediments to industrialisation is another target being pursued by SADC. In this regard, there is need to improve power generation capacity and facilitate an increase in the development and use of renewable sources of energy as well as ensure adequate water supply.
There is also need to reduce delays at ports and border posts and shorten duration of movement of goods across borders in the SADC region. This will involve harmonization of border-crossing procedures in SADC by 2020.
The Action Plan also proposes an active role for Small and Medium Enterprises (SMEs) in the SADC industrialisation agenda.
SMEs are an important variable in the SADC development agenda, representing 90 percent of all businesses and accounting for more than 50 percent of employment.
Almost all SADC member states have policies to nurture and develop SMEs while dedicating institutional capacity to champion these programmes.
An intervention being proposed is the development of a framework for establishing and supporting regional industrial clusters to promote SMEs development. Specific activities under this intervention include studies to identify the potential, type and location for regional industrial clusters involving SMEs and the development of master plans for establishing the regional clusters including technology upgrading.
Among the initiatives proposed is the concept of a “Factory SADC” under which the region will strive to achieve increased production and use of SADC raw materials for downstream processing in agro-industries and other manufacturing industries.
The thinking is that a SADC Raw Materials Initiative/Strategy should be developed and implemented by 2020 to ensure that Member States cooperate on access to raw materials and use for value addition.
Interventions under the Competitiveness pillar are aimed at strengthening of both the macroeconomic and microeconomic environments in the region.
Initiatives proposed include development of industrial investment programmes to support SMEs by 2018; training for skills, entrepreneurial and managerial development; and centres of specialization for priority sectors.
The regional Integration pillar aims to widen the economic space for development and create incentives for industry to expand, thus providing opportunities for economies of scale, clustering and economic linkages.
Specific interventions under this pillar include full implementation of the SADC Free Trade Area to cover all member states; a common external tariff by 2025; gradual phase-down and abolition of rules of origin by 2025; liberalization of exchange controls to allow free movement of capital within SADC by 2030; and ratification of the SADC Protocol on Trade in Services for implementation by 2020.
Value Chain Potential Clusters
Value Chain | SADC Member States |
1. Agro-Processing Cluster | |
Livestock – beef, dairy, poultry | Botswana, South Africa, Zambia, Zimbabwe |
Soya | South Africa, Zimbabwe |
Sugar | Malawi, Mozambique, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe |
Forestry – wood products | Mozambique, South Africa, Zimbabwe |
Fisheries | Angola, Mauritius, Mozambique, Namibia, Seychelles, South Africa |
2. Minerals and Beneficiation Cluster | |
Diamonds | Botswana, Namibia, South Africa, Zimbabwe |
Copper | DRC, Zambia |
Platinum | South Africa, Zimbabwe |
Iron/Steel | Mozambique, South Africa, Zimbabwe |
Soda Ash | Botswana |
Oil and Gas | Angola, Madagascar, Mozambique, South Africa, Tanzania |
3. Manufacturing of Consumer Goods Cluster | |
Leather Goods and Footwear | Lesotho, Zambia, South Africa |
Clothing and Textiles | Botswana, Lesotho, Madagascar, Mauritius, Namibia, South Africa, Swaziland, Zimbabwe |
Pharmaceuticals | South Africa, Zimbabwe |
Leather Goods | Botswana, Zambia |
Fertilizer | Mozambique, South Africa |
4. Capital Goods Equipment and Machinery | |
Automobiles | South Africa, Lesotho, Mozambique, Zimbabwe |
Mining machinery | South Africa, Zambia |
5. Services Cluster | Botswana, Mauritius, Seychelles, South Africa, Tanzania, Zambia, Zimbabwe |
Source: Costed Action Plan for SADC Industrialisation Strategy and Roadmap (Compiled from National Reports)
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With planting season weeks away, millions in drought-hit southern Africa need support – UN
Some 23 million people in southern Africa are in need of urgent support to be able to produce enough food to feed themselves and avoid being dependent on humanitarian assistance until mid-2018, the United Nations agricultural agency has warned.
According to the Food and Agricultural Organization (FAO), if farmers are not able to plant by October, the result will be another reduced harvest early next year, severely affecting food and nutrition security as well as livelihoods in the region.
“The main way people are able to access food is through what they themselves produce. Assisting them to do this will provide lifesaving support in a region where at least 70 percent of people rely on agriculture for their livelihoods,” David Phiri, FAO Subregional Coordinator for Southern Africa, said in a news release issue by the agency.
“We must make the most of this small window of opportunity and make sure that farmers are ready to plant by October when the rains start,” he added.
To respond to this developing humanitarian situation, FAO aims to ensure that seeds, fertilizers, tools, and other inputs and services, including livestock support, are provided to small-holder farmers, agro-pastoralists and pastoralists to cope with the devastating impact of an El Niño-induced drought in the region.
The agency has estimated that at least $109 million is required to provide this urgently needed support.
The precarious situation has been brought on by the worst drought the region has witnessed in 35 years, with widespread crop failures exacerbating chronic malnutrition. Vulnerable families in rural areas have been hit hardest by the ensuing increase in prices of maize and other staple foods.
Furthermore, as the impact of El Niño continues to be felt in the region, FAO has projected that almost 40 million people could face food insecurity by the peak of the coming lean season, between January and March 2017, when the effects of the drought are expected to peak.
All countries in southern Africa are affected and more than 640,000 drought-related livestock deaths have been reported in Botswana, Swaziland, South Africa, Namibia and Zimbabwe alone due to lack of pasture and water as well as outbreak of diseases.
In the news release, FAO urged investments that equip communities with the ability to produce drought-tolerant seed and fodder, along with climate-smart agriculture technologies like conservation agriculture. The aim is to enable rural families to build resilience and prepare for future shocks.
Meanwhile, El Niño’s counter-phenomenon, La Niña, is likely to occur later this year and while it could bring good rains needed for agriculture, the agency noted that measures must be taken to mitigate the risk of floods which could destroy standing crops and threaten livestock. Such measures could include strengthening river banks and stockpiling of short-cycle crop varieties which can be planted after flooding subsides and still yield a decent crop
Separately, concluding a week-long visit to southern Africa, the Deputy UN Emergency Relief Coordinator Kyung-wha Kang called for increased efforts to help mitigate the impact of the La Niña weather phenomenon.
Coordinated regional response
Given the complexity and scale of the crisis, FAO is working closely with the Southern African Development Community (SADC) an inter-governmental organization that is working to promote socio-economic cooperation and integration as well as political and security cooperation among its fifteen southern African member countries. FAO is also collaborating with other UN agencies, humanitarian partners, regional authorities and national governments.
The agency’s call for more funding comes on the heels of an SADC regional humanitarian appeal, launched in Gaborone on 26 July by the SADC Chairperson and President of Botswana, Seretse Khama Ian Khama.
The SADC appeal put the overall price tag of helping all sectors of the region’s economy recover from the 2016 El Niño at $2.7 billion, of which $2.4 billion is yet to be funded.
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tralac’s Daily News Selection
The selection: Monday, 1 August 2016
Featured blog, by Richard Etemesi: Transforming trade in Africa (EMV)
For a continent as big and diverse as Africa, regional integration is a mammoth task. But the longer African nations delay it, the more slowly the continent will develop and intra-regional trade will fail to take off. For intra-regional trade to truly flourish, governments across Africa must create more ‘trade friendly’ regulation and reliable infrastructure(s). Regional economic integration, facilitating such trade across Africa, has made some significant contributions but the pace has been limited by notable challenges. For intra-regional trade to flourish, governments across Africa must create a more ‘trade friendly’ regulation and infrastructure, in particular: [The author is Standard Chartered’s CEO South Africa, Southern Africa]
South Africa’s trade with SACU states: June 2016 (SARS)
Trade statistics with the BLNS for June 2016 recorded a trade balance surplus of R9.43bn. The surplus for June is a result of exports of R12.16bn and imports of R2.73bn. Exports increased from May 2016 to June 2016 by R1.45bn (13.5%) and imports increased from May 2016 to June 2016 by R0.02bn (0.9%). The cumulative surplus for 2016 is R51.37bn compared to R51.39bn in 2015. [Brian Mureverwi: Intra-SACU trade data analysis (tralac), SACU: June inflation report (pdf)]
Uhuru urges EAC to finalise EPA deal with the EU (The Star)
President Uhuru Kenyatta has urged his East African Community counterparts to consider talks to discuss The Economic Partnership Agreements between the EAC and the European Union. State House spokesman Manoah Esipisu said Uhuru has reached out to Tanzania, Uganda, Rwanda and Burundi to ensure the EPAs are finalised.
East African Payment System update: EAC traders to use local currencies within region (The East African)
The use of the dollar in regional trade is expected to fall after the central banks of the five East Africa Community member states agreed on direct convertibility of national currencies, to protect them from weakening against the green buck. The move will enable traders transact without having to convert national currencies into dollars first as the central banks seek to cushion businesses from foreign exchange shocks that accompany dollar movements. The EAPS aims to enable the public to send and receive payments in real time in Kenya shillings, Ugandan shillings, Tanzanian shillings, Rwandan franc and Burundian franc. Convertibility of the East African currencies has been a major challenge to traders as regional central banks did not operate reciprocal accounts, meaning that traders had to rely more on buying and selling of the dollars.
IGAD: Kampala–Juba– Addis Ababa–Djibouti Corridor update (IGAD)
The Executive Secretary of IGAD, Amb Mahboub Maalim, last week signed a contract for the trade and transport facilitation study of the Kampala–Juba– Addis Ababa–Djibouti Corridor with Kagga & Partners Consulting Engineers, in association with AFRICON Universal Consulting. The study, to be completed in six months, is funded by the AfDB, through the NEPAD-IPPF.
COMESA: Zambia, Zimbabwe move the COMESA Free Movement Agenda forward
Zambia and Zimbabwe have set up National Monitoring Committees to monitor the implementation of the COMESA Protocol on the Free Movement of Persons, Services, Labour and the Right of Establishment and Residence. So far four member states (Burundi, Kenya, Rwanda, Zimbabwe) have signed the protocol on free movement. Only Burundi has fully ratified the protocol, while Rwanda is in the process of doing so. Although the Zambia and Zimbabwe have not yet ratified the protocol, they are the first to inaugurate the NMCs.
ECOWAS: AXIS steering committee approves reports (ECOWAS)
The ECOWAS Commissioner for Telecommunication and Information Technology, Dr Isaias Barreto Olimpio Da Rosa, informed participants that ECOWAS is moving for the implementation of a single digital market, with the needs of large, strong and fast broadband infrastructure which is essential for consumers and the development of industries and businesses. He said: “The Axis project, by carrying a lot of benefits as low cost, reduced latency and good quality of internet access, contributes to develop an African internet industry and increase the rate of internet penetration in our countries”.
South Africa-Mozambique dialogue: ‘Re-imagining the future towards African Union Agenda 2063’ (SABC)
Vice president of the Confederation of Business Associations of Mozambique, Rui Monteiro said local businesses were unaware of many developments between the two countries that affected them. Monteiro cited the recent removal of the need for authorisation from the South African Reserve Bank before Mozambican businesses can remit their earnings from that country. Sindiswa Mququ, Brand SA general manager for Africa and Middle East said the dialogue session, which, in part aimed to enhance the nation brand of South Africa and Mozambique would not be once off.
Rwanda-Kenya Women in Business trade mission: women entrepreneurs urged to deepen regional integration (Rwanda Focus)
The call has been made by the principal secretary for East African Affairs at the Kenya State Department for East African Affairs in the Ministry of East Africa, Betty Maina. While speaking at a three-day Rwanda-Kenya Women in Business trade mission held in Kigali, Maina emphasized how the promotion of cross-border trade among the EAC partner states must be cardinal among women entrepreneurs. Mary Muthoni, the Chairperson of Kenya National Chamber of Commerce and Industry said, governments in the region need to understand the general challenges entrepreneurs face in making trade work especially for women entrepreneurs.
Mauritius: 2016-2017 budget speech (GoM)
Geared on ushering Mauritius in ‘A new era of development’, the 2016-2017 budget is framed around ten key strategies meant to draw the economy and the country forward. These strategies are accompanied by a forceful and wide-ranging set of measures for implementation. The ten key strategies:
Zimbabwe trade an investment updates:
Mangudya: ‘Rand adoption not economic solution’ (The Chronicle)
Zimbabwe will not be rushed into adopting the South African rand overnight as that would be disruptive to the economy, Reserve Bank of Zimbabwe Governor, Dr John Mangudya, said in Bulawayo. The US dollar now accounts for 95% of all transactions following the weakening of the Rand whose circulation has diminished to about 5%. Dr Mangudya told delegates attending the CZI annual congress that the problem facing the country was not a currency issue but a production matter.
‘We need more than SI 64’ (Zimbabwe Daily)
As such, even with SI 64, many local companies can still not compete with their regional peers, prompting Confederation of Zimbabwe Industries vice-president Mr Sifelani Jabangwe to call for similar incentives to be provided here. He told The Sunday Mail Business: "There are rebates that are given to exporters to Zimbabwe by the governments of these exporting companies in South Africa. These rebates allow the exporting companies to export at a very low cost and then make their profits on the rebates which may be as high as 15% of export value, and we believe that there are some countries that give rebates equivalent to the cost of labour incurred in the production of the goods being exported. This can result in goods being cheaper in Zimbabwe than they are in the country of origin which is more or less a form of dumping. This is unfair competition, hence we should do more on top of bonus export incentives in form of bond notes or just give an incentive to all those exporting more goods across the country’s boarders in order to motivate our players in the industry.”
Govt loses revenue through tax incentives (NewsDay)
Secretary in the Macro-Economic Planning and Investment Promotion ministry, Desire Sibanda has said Zimbabwe is bound to lose a lot of revenue after it extended “too many tax incentives” to lure investors. Addressing a legislators’ workshop in Harare on Friday, Sibanda decried too many secret mining contracts and high incidences of tax evasion by mining companies in Africa, saying they stopped nations from benefitting from their mineral resources. “In Zimbabwe, mining contributes significantly to export earnings by over 60% and we need to improve transparency in the mining sector. We should invest heavily in exploration and need to partner with reputable international exploration companies to know, with confidence what is underground, as currently one can say with confidence, that we do not have knowledge of what is underground, to strengthen our negotiations to get good deals,” he said. [ZimTrade mulls one-stop shop]
Namibia: No road restrictions on truck drivers (New Era)
Namibia has taken a decision not restrict the movement of heavy motor vehicles on public roads. The decision was taken during a one-day national dialogue on Wednesday on the regulation of heavy motor vehicles and the working conditions of truck drivers. NRSC chairperson Eliphas !Owos-Oab said the restriction of driving of heavy motor vehicles would negatively affect the country’s economy and its competitive advantage in terms of trade and import and export with landlocked countries in SADC. He said self-regulation emerged as the preferred option going forward. In this respect, he said the Namibia Logistics Association and Private Sector Road Safety Forum representing transport operators pledged to come up with a self-regulation model within a week, to be considered in a tripartite arrangement involving the NRSC and truck drivers.
Advancing decent work in global supply chains in Africa: Abuja conference update (Daily Trust)
Last week, the Nigeria Labour Congress, in collaboration with ITUC-Africa, organized a regional conference on Advancing Decent Work in Global Supply Chains in Africa in Abuja. The confrence theme was 'Stop corporate greed'. The historic conference which had in attendance trade union leaders from target countries in Africa, namely Nigeria, Zambia, Ghana, South Africa, Kenya, Niger, Cote d’Ivoire and Senegal, brought to the fore the critical issues of decent work in the continent. [Text of opening speech: NLC's Ayuba Wabba]
StatsSA boss slams UN invoice-fraud report (Fin24)
Statistician-general Pali Lehohla disputed the accuracy of a United Nations report on invoice fraud, which states that there had been gross discrepancies in South Africa’s records of gold exports and that of its trading partners. Lehohla emphasised that he was not suggesting that misinvoicing didn’t exist, but he would have thought the United Nations would have consulted with South Africa first before releasing such a report.
FOCAC coordinators' meeting: follow-up actions of the Johannesburg Summit (MFA China)
Adhering to the concept of intensive development: Both sides agreed to combine the construction of infrastructure projects with the development of industrial parks and special economic zones so as to achieve sound interaction and mutual benefit between infrastructure projects and industrial development. Both sides will not only seek economic and social benefits of the projects themselves, but also focus on the self-sustainable development of Africa, and try our best to avoid risks of debt and financial burden for Africa. The African side highly appreciated the initiative made by China to kick off pioneering work in the demonstration countries and accumulate successful experience to guide comprehensive cooperation between China and Africa. [Remarks by SA's foreign minister]
Related: Trade between Uganda, China must be mutually beneficial, China-Ghana a marriage suitable for Africa’s industrialization, India and China: A scramble for Africa?
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EAC traders to use local currencies within region
The use of the dollar in regional trade is expected to fall after the central banks of the five East Africa Community member states agreed on direct convertibility of national currencies, to protect them from weakening against the green buck.
The move will enable traders transact without having to convert national currencies into dollars first as the central banks seek to cushion businesses from foreign exchange shocks that accompany dollar movements.
This will be the second major onslaught on the dollar in the region after the setting up of Chinese currency Renminbi – commonly known as the Yuan – clearing houses in key African capitals and the opening of individual yuan accounts by Standard Bank of South Africa which is 20 per cent owned by the Industrial and Commercial Bank of China (ICBC).
The central banks have already opened reciprocal accounts with each other, the basket from which payments of dues in a different currency are made.
“To facilitate the East African Payment System [EAPS] the central banks had to open a set of accounts in their respective jurisdictions,” a source privy to the operations of the EAPS told The EastAfrican.
This means that the Kenyan, Ugandan and Tanzanian shillings; Rwandan and Burundian francs will be freely inter-changeable.
Regional currency convertibility was one of the preconditions for the operationalisation of the EAPS launched in May 2014.
The reciprocal accounts are part of efforts by the East African monetary authorities to promote the use of regional currencies ahead of the implementation of a single currency under a Monetary Union by 2024.
“This project is part of the integration and convertibility of regional currencies before the monetary union.
Regional central banks have gone quite far on this project. It will facilitate intra-regional trade and support banks operating regionally,” said Kenya’s Principal Secretary in charge of EAC Affairs Betty Maina.
The EAPS links the real time gross settlement systems (RTGS) systems of the central banks of Uganda, Kenya, Rwanda and Tanzania via SWIFT to allow transfers of funds in regional currencies.
Burundi is yet to join this arrangement as the country has not developed its own RTGS system, while the new entrant South Sudan which joined the EAC bloc in March this year is yet to catch up with its counterparts in regional development initiatives.
Innovation
“It is an innovation to promote the use of regional currencies by making them easily convertible and reduce over reliance on the dollar,” the source said.
Previously a typical transaction involved the payer converting the money into dollars which would be sent to the payee through SWIFT.
Upon receipt, the payee would then convert the value into local currency. The transaction now involves the payer sending, through SWIFT at a fee of between $16.50 and $25 depending on the amount (in the case of Kenya) directly to the payee in the respective local currency.
This saves the recipient additional conversion costs. Under EAPS, money transfers will be pegged on the minimum fee.
The two-tier system, besides costing both parties more in terms of conversion costs also provided opportunities for arbitrage – margin trading in currencies – which monetary regulators have on occasion blamed for the weakening of local currencies.
The EAC system has edged past the Regional Payment and Settlement System (REPSS) of the Common Market for Eastern and South Africa (Comesa) in terms of easing transactions.
REPSS allows settlement of transactions in euros and dollar with reconciliation being done at the Bank of Mauritius. This eliminates the need for each commercial bank to have a correspondent bank in all 19 Comesa countries.
Currently seven out of 19 Comesa countries namely Mauritius, Rwanda, Swaziland, Malawi, Uganda, Kenyan, Democratic Republic of Congo (DRC) and Zambia have gone live with REPSS.
The EAPS aims to enable the public to send and receive payments in real time in Kenya shillings, Ugandan shillings, Tanzanian shillings, Rwandan franc and Burundian franc. All commercial banks in Kenya, Tanzania, Uganda and Rwanda are participants in the system.
Initially, money transfers throughout the region were done through international correspondent banks.
Convertibility of the East African currencies has been a major challenge to traders as regional central banks did not operate reciprocal accounts, meaning that traders had to rely more on buying and selling of the dollars.
The EAC integration policy is to create a single harmonised market in financial services which have seen member countries modernise and integrate payment and settlement systems to facilitate regional trade.
Intra-EAC trade fell from from $5.8 billion in 2013 to $5.63 billion in 2014 with Kenya, Uganda and Tanzania dominating. As a result the share of intra-EAC trade to the total trade declined to 10.1 per cent from 11.1 per cent in the same period.
EA currencies have been under pressure from a resurgent dollar especially with the fall in the prices of primary commodities in the international market which have eroded foreign exchange earnings.
The East African Monetary Union (EAMU) Protocol which was signed by the Heads of State in Kampala Uganda on November 30, 2013 outlines a 10-year road map towards a Monetary Union in 2024.
The EAMU Protocol provides for the creation of a single central bank and a common currency for the region.
It specifies that the primary convergence criteria becomes binding by 2021.
These convergence criteria include overall inflation of eight per cent, fiscal deficit including grants (3 per cent of GDP), gross public debt (50 per cent of GDP in net present value terms) and a floor on reserve coverage of 4.5 months of imports.
In addition, the countries are expected to comply with three indicative requirements including a ceiling on core inflation of 5 per cent, fiscal deficit excluding grants (6 per cent of GDP) and the tax-to-GDP ratio (25 per cent).
India and China: A scramble for Africa?
China’s presence in Africa as an investor and trading partner increased significantly from the early 2000s, as its economic rise rapidly increased the country’s demand for natural resources. According to UNEP, “China’s per capita consumption of materials grew from one third to over one and a half times the world's average levels” from 1970 to 2008, and Africa provides much of this supply.
But China’s role in Africa has evolved in recent years and is no longer solely focused on natural resource extraction. It is also diversifying its investment and even begun to play a role as a security provider, taking part in United Nations (UN) peacekeeping missions. However, China’s pre-eminent role in Africa has come to be challenged, at least in some areas, since Prime Minister Narendra Modi came to power in India.
Modi is the first Indian leader since Rajiv Gandhi in the late 1980s to take a serious interest in Africa. Former Foreign Secretary Lalit Mansingh, who served as high commissioner in Nigeria in the ’90s, tells ECFR the manifest reasons for this engagement: “The focus on Africa reflects the new priorities of our foreign policy, it is part of Modi’s drive to raise growth rates in India and he realises the importance of African countries in making it possible, we need oil, minerals, metals, food items, all sorts of raw materials.” But he also addresses the elephant in the room when it comes to India’s relationship with Africa: “An important factor for the current government is clearly China, that it has marched ahead in a continent we thought was ours by tradition. I think it came as a shock for India.”
China in Africa
China is Africa’s largest trading partner and the continent is also its largest source of imports. China mostly exports manufactured products to Africa, such as textiles, electronics, and machinery, and imports mostly oil, but also metals such as iron and copper. David Dollar writes in his recent study on Africa that China has provided about one-sixth of the external infrastructure financing for the continent so far. According to official Chinese figures gathered by the John Hopkins University, around 250,000 Chinese worked in African countries in 2014, though informal figures suggest the real number may be as high as one million.
Major state-owned Chinese companies have focussed their investments in energy (such as the oilfields in South Sudan), in African mining (with over $100-billion invested by the end of 2014), in infrastructure (such as the $13.8 billion railway in East Africa) and manufacturing (such as in labour intensive garment manufacturing in Ethiopia or Rwanda.
But Dollar notes that there are also increasing numbers of small- and medium-sized Chinese enterprises that invest in Africa, mostly in service sectors such as telecommunications. China’s largest telecommunication companies, Huawei and ZTE, already partnered with South Africa’s MTN, which operates in more than 20 African countries. Recently, China’s most popular mobile messaging platform WeChat, an upgraded Chinese version of WhatsApp, entered the e-commerce market in Africa.
Africa is the biggest recipient of China’s foreign aid, which amounted to roughly $30 billion from 2000 to 2013. This mostly took the form of concessional loans for large-scale infrastructure projects – a common practice in Chinese foreign aid policy. While many African countries have benefited from Chinese investment and aid, China’s actions have attracted significant criticism internationally as well as within Africa. Complaints range from Chinese companies underbidding local firms and not hiring Africans, to poor compliance with safety and environmental standards, to fuelling conflict. An ECFR policy brief this year argued that China’s “no strings attached” approach to arms sales and military cooperation “could undermine the defence of European values in Africa, namely human rights and liberal political systems”.
Despite those concerns, China is still more popular in Africa than in any other region. The 2015 Pew Global Attitudes survey found an average favourability rating for Beijing across nine African countries of 70 percent – compared with 41 percent in Europe and North America.
India in Africa
India is Africa’s fourth largest trading partner, with a trade turnover of $70 billion in 2014-15 (far outstripped by China’s $220 billion). It imports commodities and exports manufactured products, and has also provided much-need affordable medicine to the continent by selling generic drugs in violation of US intellectual property laws.
Indian engagement with Africa has recently undergone a step-change, which began with the third edition of the India-Africa Forum Summit in Delhi last year. The summit – an altogether bigger and buzzier event than its previous editions – generated plenty of goodwill.
This was built on during Modi’s visits this month of Mozambique, South Africa, Tanzania and Kenya. The four countries, which dominate sub-Saharan Africa’s eastern coastline, were obvious targets for Modi’s Indian Ocean diplomacy push, in which he has been promoting the idea of a ‘blue economy’. With the growing threat of China’s naval presence, its base at Djibouti, and its “One Belt One Road” initiative, India has felt the need to protect its stakes in the Indian Ocean Region. This is where the ‘blue economy’ comes in, by combining ocean-related economic cooperation with a maritime security agenda.
In all, 19 agreements were signed during the PM’s first tour of the African mainland, in areas as diverse as defence, information technology, small industry, sports, drug trafficking, water resource management and arts and culture. Food security, healthcare, mining and manufacturing emerged as key areas of cooperation, along with energy security – Indian firms have invested heavily in natural gas projects in Mozambique and are exploring the potential for others in Tanzania. India also pitched itself to South Africa as an attractive destination for defence production and gained South Africa’s endorsement for its bid for membership of the Nuclear Suppliers Group.
But to realise the extent of India’s charm offensive, Modi’s visit must be seen in conjunction with two others: President Pranab Mukherjee’s visit to Ghana, Cote d’Ivore and Namibia in June; and Vice President Hamid Ansari’s visit to Morocco and Tunisia in May. Both were long overdue – India has traditionally hosted African leaders at home rather than visiting the continent. “These visits correct the impression that India considers Africa as a great friend, but not as high priority,” says HHS Viswanathan, former ambassador to Cote d’Ivore and Nigeria in an interview with ECFR.
The aid and assistance provided by India is different from the Chinese model of large infrastructure projects. “Indians tends to do things softly and slowly and it’s not that visible.” Ruchita Beri, head of the Africa programme at the Institute for Defence Studies and Analyses tells us. Developing human resources through education, vocational training and skill development have been the cornerstones of India’s model. Indian policymakers call it a pro-people model that will help Africa upskill its people to prepare for its impending demographic challenges.
In other words, India, which cannot play catch up with China, plays to its strengths through a projection of soft power. This is not a new strategy, but it has been enhanced over time and in Modi it has found an enthusiastic proponent.
A stumbling block for the India government has been its occasional failure to deliver on promises, particularly in the developmental projects extended under Lines of Credit. Unlike the Chinese, who almost always deliver on time, Indian projects often suffer from that very Indian condition of indefinite delays. This was addressed at the India-Africa Forum Summit in Delhi last year, where India promised a joint monitoring mechanism to ensure implementation of projects.
Migration has been a big part of the Indian-African relationship. The Indian diaspora in Africa numbers nearly 2.5 million and is spread across 46 countries. Most of them migrated as indentured labour during the colonial period. Since independence, African students have been moving in the opposite direction in large numbers. There are nearly 25,000 African students currently residing in India, and at the last summit the number of scholarships was doubled to 50,000.
But recent events have dampened the goodwill generated by this gesture. There have been a spate of racially-motivated attacks on Africans in Indian cities in the last few years. Modi was expected to raise this issue on his tour and reassure the leaders he met, but he chose to ignore it.
There has been increased recognition of the fact that India needs Africa, for more than one reason. Apart from natural resources, it needs to ally itself with the fast-growing African market. India also needs to cultivate the powerful African bloc to support its growing aspirations at various fora and institutions, for example its bid to the UNSC and NSG.
A continent big enough for both
An editorial featured in the Chinese state-run newspaper Global Times after Modi’s recent Africa trip stated that China has no reason to be “jealous” of India’s growing influence. China may not be jealous yet, but it has certainly been watching closely as India sets out to reclaim space on a continent where it has enjoyed a historical and emotional connection.
Both countries are welcome players and a competitive engagement could be beneficial, with India complementing China in some areas and learning from it in others – and vice versa. But there is also the risk that the traditional rivalry between China and India will be staged in Africa to the detriment of African political and economic interests. Some call it the new “scramble for Africa”, but 21st century Africa is decidedly different from the Africa of 1884. It is also big enough to accommodate both powers.
Sunaina Kumar is a Delhi-based journalist and Medienbotschafter Fellow 2016. Angela Stanzel is Policy Fellow for the ECFR Asia and China Programme.
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South Africa Merchandise Trade Statistics for June 2016
South Africa posts second consecutive trade surplus in June
South Africa recorded a second consecutive monthly trade surplus in June as exports of vegetable products climbed, while oil imports also rose.
The surplus narrowed to 12.5 billion rand ($880 million) from a revised record 18.4 billion rand in May, the Pretoria-based South African Revenue Service said in an e-mailed statement on Friday. The median of nine economist estimates compiled by Bloomberg was for a surplus of 8.8 billion rand. The cumulative surplus for 2016 is 12.5 billion rand compared with a deficit of 22.95 billion rand in the same period last year.
The rand’s 18 percent drop against the dollar since the start of 2015 has boosted exports, which may help narrow the deficit on the current account that swelled to 5 percent of gross domestic product in the first quarter. Low metal prices and the worst drought in more than a century have weighed on Africa’s most-industrialized economy. GDP contracted 1.2 percent in the first quarter.
“The fact that the trade deficit has narrowed so much is obviously a positive thing for South Africa and perhaps it’s even one of the things supporting rand strength,” Kamilla Kaplan, an economist at Investec Ltd. in Johannesburg, said by phone before the release of the data. “Exports have done well, but if it wasn’t for the weak global growth we would have done even better.”
Exports rose 0.7 percent in June from a month earlier, while imports climbed 7.6 percent, led by a increase in mineral products, which includes oil.
The rand pared losses after the release of the data, and was 0.2 percent weaker at 14.1587 per dollar at 2:13 p.m. in Johannesburg on Friday. Yield on rand-denominated government bonds due December 2026 fell one basis points to 8.73 percent.
Monthly trade figures are often volatile, reflecting the timing of shipments of commodities such as oil and diamonds.
The South African Revenue Service (SARS) has released trade statistics for June 2016 recording a trade balance surplus of R12.53 billion. The cumulative trade balance surplus (01 January to 30 June 2016) of R12.52 billion is an improvement on the deficit for the comparable period in 2015 of R22.95 billion. These figures include trade data with Botswana, Lesotho, Namibia and Swaziland (BLNS).
Including trade data with Botswana, Lesotho, Namibia and Swaziland (BLNS)
The R12.53 billion trade balance surplus for June 2016 is due to exports of R105.22 billion and imports of R92.69 billion. Exports for the year-to-date of R556.41 billion are 11.3% more than the exports of R499.79 billion recorded in January to June 2015. Imports for the year-to-date of R543.90 billion are 4.0% more than the imports recorded in January to June 2015 of R522.74 billion.
May 2016’s trade balance surplus was revised downwards by R0.36 billion from the previous month’s preliminary surplus of R18.73 billion to a revised surplus of R18.37 billion as a result of ongoing Vouchers of Correction (VOC’s). Exports increased from May 2016 to June 2016 by R0.72 billion (0.7%) and imports increased from May 2016 to June 2016 by R6.56 billion (7.6%).
On a year-on-year basis, the June 2016’s R12.53 billion trade balance surplus is an improvement from the surplus recorded in June 2015 of R4.64 billion. Exports of R105.22 billion are 17.2% more than the exports recorded in June 2015 of R89.82 billion. Imports of R92.69 billion are 8.8% more than the imports recorded in June 2015 of R85.17 billion.
Trade highlights by category
The month-on-month export movements (R’ million):
Section: | Including BLNS: | |
Vegetable Products | + R1 174 | + 20.0% |
Machinery & Electronics | + R 359 | + 4.0% |
Precious Metals & Stones | - R 742 | - 3.0% |
Vehicles & Transport Equipment | - R 485 | - 3.5% |
Mineral Products | - R 390 | - 2.2% |
The month-on-month import movements (R’ million):
Section: | Including BLNS: | |
Mineral Products | + R2 190 | + 20.0% |
Machinery & Electronics | + R1 291 | + 6.1% |
Original Equipment Components | + R 779 | + 10.2% |
Vegetable Products | + R 691 | + 27.6% |
Chemical Products | + R 660 | + 7.2% |
Trade highlights by world zone
The world zone results from May 2016 (Revised) to June 2016 are given below.
Africa:
Trade Balance surplus: R18 950 million – this is a 22.6% increase in comparison to the R15 456 million surplus recorded in May 2016.
America:
Trade Balance deficit: R 761 million – this is a 21.7% decrease in comparison to the R972 million deficit recorded in May 2016.
Asia:
Trade Balance deficit: R11 654 million – this is a 111.4% increase in comparison to the R5 512 million deficit recorded in May 2016.
Europe:
Trade Balance deficit: R3 808 million – this is a 234.0% increase in comparison to the R1 140 million deficit recorded in May 2016.
Oceania:
Trade Balance surplus: R 84 million – this is an 18.0% increase in comparison to the R 71 million surplus recorded in May 2016.
Excluding trade data with Botswana, Lesotho, Namibia and Swaziland (BLNS)
The trade data excluding BLNS for June 2016 recorded a trade balance surplus of R3.10 billion. This was a result of exports of R93.06 billion and imports of R89.96 billion.
Exports decreased from May 2016 to June 2016 by R0.73 billion (0.8%) and imports increased from May 2016 to June 2016 by R6.53 billion (7.8%).
The cumulative deficit for 2016 is R38.85 billion compared to R74.33 billion in 2015.
Trade highlights by category
The month-on-month export movements (R’ million):
Section: | Excluding BLNS: | |
Precious Metals & Stones | - R1 726 | - 7.0% |
Vehicles & Transport Equipment | - R 718 | - 5.7% |
Mineral Products | - R 510 | - 3.1% |
Vegetable Products | + R1 125 | + 21.3% |
Machinery & Electronics | + R 351 | + 4.8% |
The month-on-month import movements (R’ million):
Section: | Excluding BLNS: | |
Mineral Products | + R2 175 | + 20.0% |
Machinery & Electronics | + R1 266 | + 6.0% |
Chemical Products | + R 968 | + 11.3% |
Original Equipment Components | + R 779 | + 10.2% |
Vegetable Products | + R 692 | + 28.4% |
Trade highlights by world zone
The world zone results for Africa excluding BLNS from May 2016 (Revised) to June 2016 are given below.
Africa:
Trade Balance surplus: R9 519 million – this is a 27.8% increase in comparison to the R7 449 million surplus recorded in May 2016.
Botswana, Lesotho, Namibia and Swaziland (Only)
Trade statistics with the BLNS for June 2016 recorded a trade balance surplus of R9.43 billion. This was a result of exports of R12.16 billion and imports of R2.73 billion.
Exports increased from May 2016 to June 2016 by R1.45 billion (13.5%) and imports increased from May 2016 to June 2016 by R0.02 billion (0.9%).
The cumulative surplus for 2016 is R51.37 billion compared to R51.39 billion in 2015.
Trade Highlights by Category
The month-on-month export movements (R’ million):
Section: | BLNS: | |
Precious Metals & Stones | + R 985 | + 1806.6% |
Vehicles & Transport Equipment | + R 233 | + 18.1% |
Mineral Products | + R 121 | + 7.2% |
Chemical Products | + R 69 | + 7.2% |
Textiles | - R 79 | - 14.2% |
The month-on-month import movements (R’ million):
Section: | BLNS: | |
Live Animals | + R 75 | + 24.1% |
Precious Metals & Stones | + R 65 | + 24.0% |
Prepared Foodstuff | + R 56 | + 14.2% |
Textiles | + R 46 | + 12.4% |
Chemical Products | - R 308 | - 51.4% |
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Mauritius Budget Speech 2016/17: A new era of development
The Mauritius national Budget Speech for 2016/17 was delivered by Hon. Pravind Jugnauth, Minister of Finance and Economic Development, on 29 July 2016. Below are extracts from his speech.
I would like to begin by thanking the Prime Minister for entrusting me the task of managing the finances of the nation and steering the economic development of our country. This Budget, which I am presenting today, will bear out my determination in living up to the trust that has been put in me.
Many organizations and professional groups have participated in pre-budget consultations. Men and women from all walks of life have made numerous proposals and shared their insights. Their contributions have been very helpful in the preparation of this Budget and I wish to express my deep appreciation to all of them.
We have analysed the current domestic and global context in which we had to prepare the budget.
The background is indeed fraught with uncertainty, adversity and tough challenges, while the expectations are many and the aspirations are high.
If we stay the course, the confluence of adversities and challenges will most certainly pull us back.
If we decide on a new course, we can change things for the better and come on top.
The choice is clear.
Today we choose to come on top - to move forward and up.
Today we choose to break with the past that has stifled development for the last decade and see the future in a new light.
The challenges of tomorrow cannot be met with our mindset, policies and actions locked in the paradigm of yesterday.
The current development model can no more deliver on our aspirations as a nation. This Government started its mandate with troubling economic and social indicators. It will take more than just traditional policies and approaches to turn them around.
In the past year, our economy has shown good resilience. But we need to do much better.
The GDP growth rate for the year 2015/16, would be 3.4 percent.
The unemployment rate went down to 7.6 percent in the first quarter of 2016 from 8.7 percent a year earlier.
The inflation rate is significantly down to 0.9 percent for 2015/16 and is forecast to be 2 percent for 2016/17.
The overall Balance of Payments was in surplus of Rs 20 billion, with the current account deficit, as a ratio of GDP, reduced to 4.6 percent for 2015/16.
The official reserves increased from 6.2 months of imports in December 2014 to reach 8.5 months at end June 2016.
And the Budget Deficit for the financial year 2015/16 is estimated at 3.5 percent, with total revenue and grants amounting to Rs 88.2 billion against a total expenditure of Rs 103.1 billion.
I would like to announce here that I am circulating a SUPPLEMENT to the Budget Speech that includes a comprehensive review of the economy and social indicators.
I would also like to announce that I am including an Annex as an integral part of the Budget Speech. It provides greater details on some of the measures, schemes and legislative amendments in this Budget.
It is clear that our economic performance has been an honourable one, considering the unfavourable international economic setting. Global GDP has in fact grown by 3.1 percent in 2015. For 2016, the IMF is now predicting that global growth will stay at 3.1 percent, down from its initial forecast of 3.7 percent. This reflects mostly lower than expected growth in the USA, Europe and OECD countries.
There are many reasons to think that the pressures of global trends on our economy will become more acute. The Brexit event is another staunch reminder of this reality.
We must therefore lift up the growth path before the 3 to 3.5 percent growth trend of recent years becomes the ‘new normal’.
Without stronger economic performances, the challenges on the social and environmental fronts will also become even more daunting.
However, moving to a higher growth path will require major changes in the way we do things as well as in the things we do.
Where we have to be bold we must be bold.
Madam Speaker, I have decided that Budget 2016/17 must indeed be about ushering in A NEW ERA OF DEVELOPMENT.
This new era of development will be centred on ten key strategies:
First, fostering a wave of modern entrepreneurs;
Second, creating more job opportunities for all;
Third, entering a new economic cycle focusing on innovation, boosting exports and private investments;
Fourth, moving towards a fully-fledged digital society;
Fifth, fundamentally reforming business facilitation and expanding our economic horizons;
Sixth, building the infrastructure that fits into the future;
Seventh, lifting the quality of life for one and all;
Eighth, addressing the root causes of poverty;
Ninth, launching a major public sector reform programme;
And tenth, ensuring macroeconomic stability and sound public finances.
Strategy three: Entering a new economic cycle focusing on innovation, boosting exports and private investments
To enter a new economic cycle focussing on innovation, and boosting private investment, exports and productivity, it is imperative that our productive sectors make a significant leap forward in embracing new activities and modern ways of doing business.
Advancing the manufacturing sector to new frontiers
The manufacturing sector which is the largest contributor to GDP must take the lead in this new cycle.
I would like therefore to announce the launching of three new niches.
Diversifying the manufacturing base
Firstly, an international private consortium is setting up a modular near shore mobile oil refinery and onshore storage facilities at Albion. Besides its impact on employment and growth, the project can make of Mauritius the first source of low sulphur bunker fuel (LS380) in the Indian Ocean region.
Secondly, we are opening our country to gold business that will encompass a wide spectrum of high value-added activities, ranging from refinery of gold, producing gold bars, setting up topend jewellery processing units, vault facilities and to trading of gold and bullions on our new commodity exchange. The exchange will also facilitate trade in diamond and other precious metals.
Moreover, an Indian Delegation presently in Mauritius has expressed an interest in setting up several manufacturing projects in Mauritius, one of which is the production of bicycles and motorcycles. This project aims mainly at exports to the African market and has the potential for creating a significant number of jobs.
To further diversify our manufacturing sector, a Pharmaceutical Village will be set up at Rose Belle to cater for local as well as African markets.
We must also embrace the new era of 3D printing that will transform manufacturing and other industries in the future. To this end, Government will introduce the application of 3D printing technology, by equipping the two technopoles at Rivière du Rempart and Rose Belle with 3D printers.
I am also removing VAT on 3D printers and providing customs duty exemptions on materials used in the manufacture of medical devices.
Modernising the manufacturing sector
As the manufacturing sector diversifies, it must also modernise.
The investment tax credit whereby a specified manufacturing company is able to offset against its tax liability 5 percent of the investment in new plants and machinery over 3 years, is being overhauled. The minimum eligibility requirement of Rs 100 million investment in a year is being removed to allow more businesses to benefit. And the tax credit can be recouped over a longer time period.
For manufacturers of textiles, wearing apparels, ships and boats, computers, pharmaceuticals and for film production the tax credit will be increased from 5 to 15 percent. This represents 45 percent of capital expenditure incurred on new plants and machinery over three years.
As we face the challenges of Brexit, we need to reposition our textile and apparel sector, improve its competitiveness and bring Mauritius nearer to the European markets. I am therefore announcing a major Air Freight Rebate Scheme which will entail a 40 percent reduction by our national carrier of the air freight cost to Europe. This significant reduction in cost will be a major game changer to give a new impetus to that industry. The scheme will be underwritten by Government over a two-year period.
To support the ‘Made in Moris’ initiative of the manufacturing industry, the Bid Price-Preference of 10 percent is being increased to 20 percent for locally manufactured goods in respect of the procurement exercise by public sector bodies. This will apply to such goods as shoes, uniforms, school books, printing materials and furniture which will be listed in a Schedule.
And I am also taking new measures to boost activities in the Freeport. These measures are described in the Annex.
Agri-business: Branching out
I now come to our plan to transition the agri-business sector from the traditional mould to the new economic cycle.
First, we must put agricultural land to modern and more productive use. In that context, the Mauritius Cane Industry Authority will set up an Agricultural Land Management System to bring unutilised abandoned cane lands of small planters under productive use.
Second, the grant facility for sheltered farming is being increased from Rs 250,000 to Rs 400,000 to encourage planters to undertake crop production under protected structures.
In the same vein, I am providing Rs 20 million for the setting up of an exclusive Bio-Farming/Organic zone with comprehensive modern infrastructural facilities at Britannia.
And a feasibility study will be undertaken on the setting up of a Bio-Technology Institute.
With regard to the tea industry, we are establishing a new tea nursery at La Brasserie, providing seedlings free to growers and giving a subsidy on fertilizers.
Moreover, the ex-Dubreuil tea factory which was closed in the late 1990s will be reopened to promote tea and other agroprocessing activities.
To boost dairy production, Rs 10 million are being earmarked for the setting up of a heifer farm at Melrose by the Ministry of Agro-industry, and for a cash incentive of Rs 5,000 to farmers for every new female calf (heifer) reared up to lactating phase.
I am making an additional provision of Rs 10 million to enable industrial milk processors to provide small cow keepers with essential support such as artificial insemination and other veterinary services, milk collection and animal husbandry.
I am providing Rs 7 million to support bee-keepers through the creation of bee-keeping zones in different regions.
To encourage exports, the subsidy on freight costs for horticultural products is being extended to flowers and exotic vegetables.
Let me announce our actions to support the men and women who are taking risks, making efforts and yet have to struggle to run their farms and agri-businesses.
Government is renewing all the schemes that are meant to support some 11,000 sugarcane planters. Thus, for the sugar crop year 2016:
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Planters producing up to 60 tonnes of sugar will benefit from an additional revenue of Rs 1,820 per tonne of sugar; and
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The 80 per cent advance provided to sugar cane planters will be maintained through arrangements with the Mauritius Sugar Syndicate.
We are providing Rs 25 million for acquisition of sophisticated equipment for the testing of fruits and vegetables by the Food-Tech Lab of the Ministry of Agro Industry and Food Security.
I am also pleased to announce that fifty per cent of the outstanding balances on loans, together with interest due, which were contracted by pig breeders, under the Pig Sector
Re-structuring Programme, will be waived, if they pay back the remaining balance before 30th June 2017.
In the same vein, all outstanding interests will be waived on start-up loans taken by planters, breeders and fishermen prior to 1st July 2012, under certain schemes, if they pay back all capital balance before 30th June 2017. Rs 30 million are being earmarked for setting up a new unit for mass rearing and sterilization of fruit flies; and Rs 16 million to litchi and banana growers for the purchase of protective nets and bags.
Concerning the cooperatives sector, I am providing for the upgrading of the building of the National Institute of Cooperative Entrepreneurship at Bois Marchand.
I am also exempting cooperative societies from the payment of corporate tax on all non-sugar agricultural activities.
And I am providing Rs 10 million to set up a contributory insurance scheme for non-sugar crops.
Madam Speaker, agricultural produce must be safe and clean for consumption.
To curb the excessive use of specific pesticides, herbicides and fruit ripeners, a 15 percent levy is being introduced on those products.
Moreover, the Ministry of Agro-Industry and Food Security will implement a system of quantitative restrictions coupled with a more rigorous and intensive testing of fresh produce.
Financial services: reaching out to new markets
Madam Speaker, the financial services industry also needs to branch out and reach out to new markets with a wider spectrum of products.
I am therefore announcing a new thrust to the development of our financial services sector.
First, GBC2 companies will now be allowed to invest in listed securities.
Second, companies holding a ‘Global Headquarters Administration Licence’ issued by the FSC will be granted an 8-year tax holiday.
Third, companies with the following licences issued by the FSC will be provided with a 5-year tax holiday:
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a ‘Treasury Management Centre License’;
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an Asset and Fund Managers license and managing a minimum asset base of USD 100 million;
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international law firms with a Global Legal Advisory Services License. To that effect, a ‘Limited Liability Partnership Bill’ will be introduced;
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an ‘Investment Banking and Corporate Advisory License’;
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an Overseas Family Corporation’ license.
Foreign Ultra High Net Worth Individuals investing a minimum of USD 25 million in Mauritius will be provided with a 5-year tax holiday.
These tax holidays will be subject to meeting conditions of employment creation and substance.
Furthermore, the ‘Rose Belle Business Park’ will host the new ‘Mauritius International Derivatives & Commodities Exchange’ (MINDEX). I am allocating Rs 50 million as seed capital for its initial setup.
In pursuit of that diversification thrust, we will also develop Mauritius as a full-fledged International Arbitration Centre with the capacity and expertise to resolve disputes.
As regards the banking sector, the Bank of Mauritius Act and Banking Act will be reviewed in the light of recent events and to adapt to change.
Tourism: blazing new trails
Madam Speaker, the tourism sector must ride on the crest of the wave of regained dynamism and seize the opportunity to blaze new trails and sustain its long term development. This entails the development of out-of-hotels activities, attraction-based tourism, the duty-free island, and a more open air-access policy.
At the same time, Government wants to achieve a greater integration of tourism development with the growing aspirations of our own population for more leisure activities and wider shopping opportunities.
To this end, the Ministry of Tourism, the Ministry of Arts and Culture, together with relevant private sector organisations will work out an annual calendar of national events to be known as the Mauritius Calendar.
To give an impetus to the duty free island while diversifying our tourism sources, we will intensify the marketing of Mauritius in Africa, in particular targeting the new rich. And we will also build up our marketing efforts in the Gulf regions, Scandinavian countries and Eastern Europe.
The newly launched Africa-Mauritius-Singapore-Asia Air Corridor positioning Mauritius as an aviation hub in the region will greatly contribute to improving accessibility for visitors from new markets in Asia and Africa. I am providing an additional Rs 40 million for marketing the Air Corridor initiative.
Government will also facilitate the setting up of a world class aquarium, a national museum and other new leisure attractions.
With a view to promoting access to leisure and leisure facilities, I am removing admission charges leviable by local authorities. The Local Government Act will be amended accordingly.
The Film Industry: Setting the Stage
Madam Speaker, the film-making industry is showing good potential for growth and for creating exciting new opportunities for our young people and artists generally.
To harness that potential we are increasing the refund on qualifying production expenditure under the Film Rebate Scheme up to a maximum of 40 percent and clarifying that production of films for export will be zero-rated for VAT purposes.
I am providing an amount of Rs 10 million to the Mauritius Film Development Corporation for the purchase of equipment which it will lease to film-makers.
I am also exempting the importation of lighting equipment for use in film-making from customs duty.
As part of the development of the Omnicane smart city project, Mauritius will be endowed with its first film city which will be located in the south of the island. The project also includes the setting up of a Film Training facility.
Realising the blue economy
Concerning the blue economy, the following initiatives will be undertaken:
First, the 31 sites which have been identified for aquaculture development will be fully surveyed by the Mauritius Oceanography Institute.
Second, Government will provide incentives for the setting up of common facilities on land for aquaculture and fish processing.
Third, two studies are being concluded with regards to the production of electricity through ocean waves and offshore wind.
Fourth, Government is signing an MOU with the National Institute of Oceanography Goa towards the setting up of a World Class Research Institute of Oceanography in Mauritius.
Fifth, to encourage outer-reef and bank fishing:
- I am providing Rs 20 million for the purchase of a multi-purpose vessel for research, surveys and training of fishermen and skippers.
- And a grant of 50 percent, up to a cap of Rs 4 million will be given to cooperative societies to enable them to acquire semi-industrial vessels.
Sixth, a new incentive scheme with a tax holiday of 8 years will be introduced to attract industrial fishing companies to operate from Mauritius and contribute to the development of our seafood hub.
Seventh, to promote small-scale aquaculture, a provision of Rs 12.5 million has been made in the Budget for the purchase of 10 floating cage structures to allocate to Fishermen Cooperatives.
Eighth, the Mauritius Ports Authority will construct breakwaters at Fort William to provide shelter for approximately 120 fishing vessels.
And ninth, to address the human resources constraint, the Mauritius Maritime Training Academy will increase its intake by 50 percent to 1,200 trainees annually.
Green economy: maximising investment opportunities
Madam Speaker, Government’s policy emphasis on developing local sources of renewable energy offers a unique potential for launching a green economy, with new high valueadded jobs, while at the same time addressing environmental issues and reducing future oil import bills.
To this end, the CEB will create a renewable energy company, which will ultimately become a special vehicle for the production of electricity from solar photo voltaic systems of up to 15 MW. It will subsequently open its shareholding to SMEs, cooperative societies and small investors.
Second, a feasibility study will be carried out on the production of electricity through solar panels placed on roof tops of houses. The aim is to involve some 10,000 households, over the next five years, who are benefitting from the social electricity tariff. The cost will be fully met by the public sector. These households will get the first 50 kwh monthly free of charge. All surplus production will go to the CEB.
Third, to accommodate the production of more electricity from intermittent renewable sources, it is necessary to increase the capacity of the grid for absorption of such power generation. To this end, the CEB will invest Rs 400 million to increase the grid absorption capacity of intermittent energy from 148 to 160 MW by 2018.
Fourth, furthermore, the CEB proposes to procure battery storage systems so as to become resilient to the intermittent nature of renewable energy.
Fifth, I am removing VAT on Photovoltaic Inverters and batteries.
Sixth, as regards hydro power, the CEB will invest Rs 200 million for the upgrading of the Sans Souci plant capacity and it has identified twelve sites on private land with potential hydro power generation.
Seventh, a major waste-to-energy project is expected to add up to 30 MW of electricity on the grid by 2019.
Eighth, Government will facilitate production of energy from bio-mass, including cane tops and trash and at the same time ensure that small planters will get their fair share of the revenue.
The Electricity Act and the CEB Act will be amended to accelerate the permit approval process of renewable energy investment projects.
Strategy five: Fundamentally reforming business facilitation and expanding our economic horizons
I now come to strategy number five: fundamentally reforming business facilitation and expanding our economic horizons.
For too long our economy has operated in an environment where obtaining approvals and permits to start and grow a business is complex, lengthy and onerous.
We have to free our economy from the stifling bureaucracy and get it out of the constraining mould of laws, regulations and administrative procedures that have not been able to adapt to the new exigencies.
Our first measure therefore is to cut drastically the time it takes to deliver Building and Land Use Permits (BLPs) and clearances for all construction related projects. To this end,
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the requirement for approval by the Executive Committee of the Local Authority concerned when determining a BLP is being abolished;
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the Local Authority will have only 8 working days to seek any additional information from an applicant; and
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we are requiring that all applications for constructions with a floor area exceeding 150 square meters be made on-line.
Second, the Property Development Scheme will be reviewed and the PDS regulations will be amended to:
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remove the maximum size limit of 50 arpents;
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remove the requirement to sell at least 25 percent of residential units to Mauritian buyers; and
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review the current maximum permissible land size for a villa, from half an arpent to 1.25 arpent.
Third, we will take onerous paper work out of the system. An e-licensing platform will be set up to provide a single point of entry for applications for permits and licences. This will bring down submission of documents in some cases from around 48 copies to just one copy.
Fourth, the Investment Promotion Act will be amended to authorise the BOI to issue the necessary clearances and approvals for a business to start operation in cases where the statutory deadlines for processing applications have lapsed. This is in line with the Silent Agreement Principle. It should unlock a significant number of projects which are in the pipeline, accelerate job creation, turn around the declining trend in private investment, increase FDI and boost up economic growth.
Fifth, some countries like the UK, Singapore and Australia have applied the concept of a Regulatory Sandbox Licence (RSL) which allows companies to invest in innovative projects within an agreed set of terms and conditions, even in the absence of a formal licencing framework. This can be an effective mechanism to speed up strategic investments. We are therefore introducing the Regulatory Sandbox Licence in Mauritius. The Board of Investment (BOI) may issue approvals, permits and licences to start an innovative project after consulting relevant ministries.
Sixth, to further open the economy we are allowing noncitizens, registered with the BOI, subject to security clearances, to acquire apartments and business spaces in buildings. The Noncitizens (Property Restriction) Act will be amended accordingly.
In the new era of development, where openness will be a core feature of our economic strategy, economic diplomacy will have a crucial role to address cutting-edge issues in foreign policy, in particular in the areas of trade, finance and investment, so as to open new opportunities for Mauritian businesses.
Now that the issue of DTA with India has been resolved, Government will revive and finalise the negotiations with New Delhi on the Comprehensive Economic Cooperation and Partnership Agreement (CECPA) including a Preferential Trade Agreement.
And we will continue to build on our Africa strategy where we have made concrete progress in the past year, with the signing of agreements with Senegal, Madagascar and Ghana for the establishment and management of Special Economic Zones.
Regarding the Special Economic Zone project in Senegal, I am pleased to announce that 40 hectares of land have already been allocated by the Government of Senegal. The project will be executed by a joint SPV where Mauritius Africa Fund holds 51 percent of the shares.
In 2014, the Honourable Prime Minister took the commitment that once elected, high priority will be given to the establishment of an Embassy in Saudi Arabia. I am pleased to announce that we are now going beyond this promise by setting up, not only an Embassy in Riyadh, but also a Consulate in Jeddah. This will significantly raise the visibility of the Republic of Mauritius in Saudi Arabia. These two diplomatic representations will further improve communication and contribute in providing greater security, comfort and opportunities to our citizens travelling to Saudi Arabia.
We are also proceeding with the opening of a consulate in Reunion Island to further facilitate trade and business relationships.
To support economic diplomacy, seven Counsellors (Economic Matters) will be recruited in addition to those already serving in Paris, New Delhi and Johannesburg.
Industrial Property Framework
With a view to modernising our Industrial Property Framework and consolidating the institutional arrangement to administer Industrial Property, a consolidated Bill will be introduced. It will encapsulate all aspects of industrial property as well as provide for the protection of patents, plant breeders’ right, industrial designs and marks including geographical indications and trade names.
In the same vein, Mauritius will adhere to a number of the World Intellectual Property Organisation (WIPO) Administered Treaties, namely, Patent Corporation Treaty (PCT), the Hague Convention and the Madrid Protocol to facilitate the registration of Patents, Trademarks and Industrial Designs.
Both the enactment of new legislation and the adherence to the Treaties will be completed by December 2016. Government will then come up with an attractive fiscal package to encourage innovation.
» Download: Supplement to the Budget Speech 2016/17: Economic and Social Review (PDF, 8.81 MB)
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Africa needs other revenue sources before removing import tariffs
South African High Commissioner to Mozambique Mandisi Mpahlwa on Friday warned that if Africa was to succeed in its plans to remove import tariffs to ease trade between countries, it first had to find alternative revenue sources.
“There is a very big inititative that is going on right now within the African continent. This is the coming together of SADC (Southern African Development Community), Comesa (Common Market for Eastern and Southern Africa) and the Economic Community Of West African States (Ecowas) to form a free trade area,” said Mpahlwa.
“This is a very, very large part of the African continent.”
The regional bodies were given three years to work out the modalities of how they were going to achieve a the envisaged free trade area, which is in line with the African Union (AU) Agenda 2063 development plan.
However, Mpahlwa said the ambitious plan had challenges because some countries relied on import tariffs for their revenue.
He said unless alternative sources of revenue were found for those countries it would be difficult for them to remove import tariffs, which are an impediment to trade.
The high commissioner said South Africa was of the view that working with its neighbours and regional bodies the desired goal of easier movement of people and goods was achievable.
Mpahlwa made his remarks during the South Africa-Mozambique dialogue session in Maputo aimed at deepening integration.
The round-table discussion attended by Mozambican government officials and business people organised by the SA embassy in Maputo and Brand SA was deliberately titled “Re-imagining the future towards African Union Agenda 2063”.
Vice president of the Confederation of Business Associations of Mozambique (CTA), Rui Monteiro said local businesses were unaware of many developments between the two countries that affected them.
Monteiro cited the recent removal of the need for authorisation from the South African Reserve Bank before Mozambican businesses can remit their earnings from that country.
“Many businesses are not informed about it… we need more communication,” said Monteiro.
Sindiswa Mququ, Brand SA general manager for Africa and Middle East said the dialogue session, which, in part aimed to enhance the nation brand of South Africa and Mozambique would not be once off.
“We need to continue to have these conversations.”
Mququ said while there were seven aspirations articulated in the AU Agenda 2063 development plan, the round-table discussions was only focusing on economic issues.
The first aspiration of Agenda 2063 is for a “prosperous Africa based on inclusive growth and sustainable development”. Other aspirations include; the eradication of poverty, good governance, democracy, respect for human rights, justice and the rule of law.
We want to work in ways that enhance mutual benefit
She said none of these aspirations were new, but Agenda 2063 “reinvigorated them” with a target of 50 years from 2013.
Mququ said South Africa had committed to implementing the desired developments within 10 years.
High Commissioner Mpahlwa said South Africa, which has about 300 companies operating in Mozambique, had a well developed physical infrastructure, a sound financial and legal system.
He said Mozambique had a lot of potential and was endowed with natural resources and mineral wealth. It also has the capacity to supply electricity to the region.
“If we bring them (SA and Mozambique) together we have the possibility of solving some of the problems in the region,” said Mpahlwa.
“We want to work in ways that enhance mutual benefit.”
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The EPA with Europe is bad news for the entire region, even Kenya
The EPA issue once again emerged when, in early July, Tanzania informed EAC member states and the European Union that it would not sign the Economic Partnership Agreement (EPA) between EU and the six EAC member states.
The European Commission had reportedly proposed the signing of the EPA in Nairobi, on the sidelines of the 14th session of the UN Conference on Trade and Development (Unctad XIV).
This is a major quadrennial event where all UN member states negotiate guidance for Unctad. For the European Commission, it would have been a propitious place for a signature ceremony as it would have projected the EPA as a “trade and development” agreement to the benefit of EAC.
Nevertheless, the agreement is antithetical to Tanzania’s as well as the region’s trade and development prospects.
The EPA for Tanzania and the EAC never made sense. The maths just never added up. The costs for the country and the EAC region would have been higher than the benefits.
As a least developed country (LDC), Tanzania already enjoys the Everything but Arms (EBA) preference scheme provided by the European Union.
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.
Threats to domestic producers and industries
The EPA is a free trade agreement. Under it, Tanzania would have to reduce to zero the tariffs on 90 per cent of all its industrial goods trade with the EU, according duty-free access for almost all the EU’s non-agricultural products into the country.
Such a high level of liberalisation vis-à-vis a very competitive partner is likely to put our existing local industries in jeopardy and discourage the development of new industries.
Research using trade data shows that Tanzania currently produces and exports on 983 tariff lines (at the HS 6 digit level.
The EU produces and exports on over 5,000 tariff lines). If the EPA were implemented, 335 of the 983 products we currently produce would be protected in the EPA’s “sensitive list,” but 648 tariff lines would be made duty-free.
So the existing industries on these 648 tariff lines would have to compete with EU’s imports without the protection of tariffs. Will these sectors survive the competition?
These 648 tariff lines include agricultural products (maize products, cotton seed oil cake); chemical products (urea, fertilisers); vehicle industry parts (tyres); medicaments; intermediate industrial products ( plastic packing material, steel, iron and aluminium articles, wires and cables); parts of machines and final industrial products (weighing machines, metal rolling mills, drilling machines, transformers, generating sets, prefabricated buildings etc); parts of machines (parts of gas turbines, parts of cranes, work-trucks, shovels, and other construction machinery, parts of machines for industrial preparation/manufacturing of food, aircraft parts etc).
Threatening regional industrialisation and trade
Statistics show that, in fact, for the EAC region, the African market is the primary market for its manufactured exports.
In contrast, 91 per cent of its current trade with the EU is made up of primary commodity exports (agricultural products such as coffee, tea, spices, fruit and vegetables, fish, tobacco, hides and skins).
Only a minuscule 6 per cent or about $200,000 of EAC exports to the EU is composed of manufactured goods. In contrast, of the total EAC exports to Africa, almost 50 per cent is made up of manufactured exports – about $2.5 billion.
These figures tell two stories. One, the importance of the African market for the EAC’s aspirations to industrialise.
In contrast, the EU market plays almost no role in this. Two, the EAC internal market makes up 60 per cent of its manufactured exports to Africa. Thus, the EAC regional market is extremely valuable in supporting the Community’s industrialisation efforts..
Removing an important industrialisation tool – not new export taxes
The other area where the EPA hits the heart of our industrialisation aspirations are its disciplines on export taxes.
The logic of export taxes is to encourage producers to enter into value-added processing, hence encouraging diversification and the gradation of production capacities. Developed countries themselves used these policy tools when they were developing.
The EU has a raw materials initiative aimed at accessing non-agricultural raw materials found in other countries.
According to the European Commission, “Securing reliable and unhindered access to raw materials is important for the EU.
In the EU, there are at least 30 million jobs depending on the availability of raw materials.” The EPA therefore prohibits signatories from introducing new export taxes or increasing existing ones.
For Tanzania and the EAC region with its rich deposits of raw materials including tungsten, cobalt, tantalum and so on, such disciplines in the long-run would be incongruent with our objective of adding value to our resources.
Losing important tariff revenue – shrinking the government coffers
The other area of loss resulting from the EPA is tariff revenue, and the numbers are not small.
Conservative estimates (assuming import growth of 0.9 per cent year on year) show that for the EAC as a whole tariff revenue losses would amount to $251 million a year by the end of the EPA’s implementation period Cumulative tariff revenue losses would amount to $2.9 billion in the first 25 years of the EPA’s life.
For Tanzania, the losses based on 2013-2014 import figures are about $71 million a year. Cumulatively, just for Tanzania, they come up to $700 million over the first 25 years.
The EPA to safeguard Kenya’s flower industry – a fair exchange?
The only area where the EPA is supposed to serve the interest of the EAC is by providing duty-free access to Kenya. As a non-LDC, Kenya does not have duty-free access via the EU’s EBA. Kenya’s main export item to the EU is flowers – total sales are worth just over $500,000 a year.
Without the EPA, Kenyan’s flowers would be charged a 10 per cent Customs duty. There are other Kenyan exports also – vegetables, fruit, fish – that will face tariffs.
However, the flower industry has thus far been the most vocal.
Nevertheless, all in all, Kenyan exports to the EU market (including the UK) amount to about $1.5 billion. If no EPA is signed, the extra duties charged to Kenyan exports amounts to about $100 million a year.
Is this worth signing an EPA for? The avoidance of duties of $100 million? The tariff revenue losses as the EPA is implemented (and more tariff lines are liberalised) would be comparable. This does not even include the tariff revenue losses of the other EAC LDCs, nor the challenges posed to domestic/regional industries.
Africa is a critical market for the EAC’s manufactured goods. Regional integration and trade is the most promising avenue for EAC’s industrial development. The EPA would derail us from that promise.
Benjamin Mkapa is a former president of United Republic of Tanzania.
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Zambia, Zimbabwe takes lead in moving the COMESA Free Movement Agenda forward
Zambia and Zimbabwe have set up National Monitoring Committees (NMC) to monitor the implementation of the COMESA Protocol on the Free Movement of Persons, Services, Labour and the Right of Establishment and Residence.
The establishment of the committee follows a decision made by the COMESA Council of Ministers aimed at expediting the implementation of the COMESA Free Movement and Visa Protocols.
Zimbabwe was the first to set up and launch the committee on 22 July 2016 in Harare while Zambia followed suit on Thursday 28 July 2016 in Lusaka. The Committees will oversee progress, identify challenges, and provide support for the improved implementation of all COMESA free-movement related programmes, directives and policies at national level.
So far four member States; Burundi, Kenya, Rwanda and Zimbabwe have signed the protocol on free movement. Only Burundi has fully ratified the protocol, while Rwanda is in the process of doing so. Although the Zambia and Zimbabwe have not yet ratified the protocol, they are the first to inaugurate the NMCs thus demonstrating their commitment to move the COMESA Free Movement Agenda forward.
Significant milestone
The establishment of the NMC represents a significant milestone for the COMESA free movement agenda, and for regional integration in general. The International Organization for Migration (IOM) and COMESA are supporting the inauguration and building the capacity of these National Monitoring Committees to fulfill their objectives.
Stressing the needs for States to implement the free movement protocols, the IOM Zambia Programme Officer, Annie Lane said: “Migration holds considerable potential for economic, social growth and development for countries of origin and destination alike, as well as for individual migrants and their families.”
COMESA Migration Expert Houssein Guedi congratulated the two States for taking the lead in implementing one of the decisions of the Council of Ministers.
“COMESA recognizes that for regional integration to be fully realized, citizens of COMESA Member States must be allowed to move freely in order to provide and enhance services, tourism, labour, cultural activities, among other aspects of the COMESA integration agenda,” he said.
Deputy Director General of Immigration in Zambia Mr Denny Lungu, who represented the Permanent Secretary of the Ministry of Home Affairs at the inauguration of the NMC meeting, said:
“The Government of Zambia shares with many other Africa countries the need for organized and well managed migration…so that the mobility of persons along Zambia’s borders is smoothened, while protecting the integrity and security of Member States.”
The meeting brought together representatives from a cross-section of government departments, such as Ministries of Home Affairs, Labour, Trade, Foreign Affairs, among others.
The IOM Development Fund supported the initiative through its project on building capacity and raising awareness for COMESA Member States to implement the COMESA Free Movement Agenda. This followed a request from the COMESA Secretary General, Mr Sindiso Ngwenya, as well as the Government of Zambia and Zimbabwe.
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Women entrepreneurs urged to deepen regional integration
Women entrepreneurs in the East African Community (EAC) have been encouraged to play a central role in deepening of the regional integration. They have been urged to this through the promotion of cross-border trade among the EAC partner states.
The call has been made by the principal secretary for East African Affairs at the Kenya State Department for East African Affairs (SDEAA) in the Ministry of East Africa, Betty Maina. While speaking at a three-day Rwanda-Kenya Women in Business trade mission held in Kigali, Maina emphasized how the promotion of cross-border trade among the EAC partner states must be cardinal among women entrepreneurs.
“It’s critical for you as women entrepreneurs from Rwanda and Kenya to take a central role as drivers of regional integration and to deliver that promise of East Africa as a people-centered and private sector driven,” Maina said.
She added that successful women entrepreneurships can be achieved through coming up with innovative products within the region.
She noted that it’s through robust and useful collaboration between business associations in the region that will make a difference in the East African integration.
She hailed the government of Rwanda and Kenya for creating a framework and an enabling environment for businesses to strive.
She urged the EAC member states to continue putting in place the right infrastructure, polices and frameworks that are geared towards the promotion of business growth and development in the region.
“Our largest market as Kenya is in East Africa and it’s something we value a lot and this collaboration with EAC member states such as Rwanda is critical in realization of increased welfare of East Africans. We call upon the governments in the region to raise the resources and put great investments in infrastructure development and social services. This will ultimately make our region more prosperous socially and economically,” Maina noted.
She further revealed that the greatest source of revenue, well-being and employment in any country comes from the citizen own production rather than just trading goods imported from other countries. She called upon governments in the region to remove the barriers affecting regional trade and harmonization of policies.
She also urged the EAC partner states to also address major competitive factors that are vital for the growth of high potential entrepreneurial activities. She mentioned a few like addressing constraints to innovations, business sophistication, technology and development of financial markets.
Speaking at the same event, the High Commissioner of Kenya to Rwanda, John Mwangemi said; “We continue to applaud the government and the people of Rwanda for being the leader in women empowerment in East Africa. This is something we always appreciate and we must emulate as East Africans.”
He encouraged women to stand tall and take advantage of the available opportunities provided by both the governments of Rwanda and Kenya under their private sectors.
Euegenie Mushimiyina, the president of the Chamber of Women at the Private Sector Federation (PSF), said her chamber aspires to increase the number of women with sustainable income in the country.
The women chamber at PSF is comprised of members from mainly 8 business sectors which include; tourism, art and crafts, industry, liberal professionals, ICT, commerce, services and finance.
EAC states urged on women economic empowerment
Women entrepreneurs in East African region have called upon partner states to come up with specific financial instruments tailored towards empowering women economically.
The call was made in Kigali by women entrepreneurs from Rwanda and Kenya during the opening of a three-day Kenya-Rwanda Business Trade Mission.
In her remarks at the forum, Mary Muthoni, the Chairperson of Kenya National Chamber of Commerce and Industry said, governments in the region need to understand the general challenges entrepreneurs face in making trade work especially for women entrepreneurs.
“When we thought of coming up with this trade mission, we looked at aspects where by women can find it very easy to trade with one another in the East African markets,” Muthoni said.
She noted that there is need for EAC governments to put in place policies to allow women access education, skills and capital which can make their businesses flourish.
She emphasized on governments investment in training and education to allow women to upgrade their entrepreneurship skills. She also called upon the governments in the EAC to understand the needs of small scale traders as well as the gender dimensions.
According to her, several African countries are part of the regional integration schemes but the implementation track record remains very weak. She added that investing in implementing the regional integration will make the region more prosperous socially and economically.
“Our coming here is to join hands as Kenya and Rwanda entrepreneurs because at the end of the day, if we want to go fast, we can only work alone but when we want to walk far we can join hands and work together and ensure that the woman of East Africa is one woman who is strong socially and economically,” Muthoni stated.
She noted that almost 50% of SMEs in Africa are constituted by women but a few of them survive the third year of their business existence.
Speaking at the same event, the President of the Chamber of Women at the Private Sector Federation (PSF), Eugenie Mushimiyimana said, the chamber was created in 2005 and it has since made a number of strides as regards to promotion of women entrepreneurship in the country.
“The primary mandate of our chamber is to empower women in business and to achieve that we focus on advocacy, networking, capacity building and forming partnerships with key stakeholders,” Mushimiyimana said.
She noted that the chamber’s strategy aims at improving the business climate and removing obstacles to doing business in order to reinforce economic growth of women in the country. She also highlighted how their mission is to improve socio-economic status of women in both urban and rural areas by creating opportunities for development through enhanced economic participation.
“Through this mission, the chamber of women aims at strengthening women entrepreneurship, development and business growth, increase capacity for women in entrepreneurship and increase the number of women enterprises in the country,” Mushimiyimana added.
The three-day workshop is held under the theme; “Unlocking business opportunities through women empowerment”
The Chief Executive Officer of the Private Sector Federation, Stephen Ruzibiza, said women play a critical role towards the government development agenda. He commended the trade forum between Rwanda and Kenya business women as being paramount in as far as deepening regional integration is concerned.
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tralac’s Daily News Selection
The selection: Friday, 29 July 2016
South Africa’s June trade balance figures will be released today. The Bloomberg consensus is for a narrowing of the trade surplus to R7.2bn in June, from R18.7bn in May.
Featured African trade policy process: ECOWAS moves to develop a regional services trade policy
ECOWAS has commenced a three day workshop aimed at developing a Regional Services Policy, strengthen policy formulation, and identify best-fit regulatory and institutional frameworks and negotiation capacity on trade in services. The ECOWAS Director of Trade, Dr Gbenga Obideyi said participants will also focus on issues concerning the formulation of an ECOWAS Common Trade Policy in services as well as the Continental Free Trade Area under the auspices of the African Union and the Economic Partnership Agreement services negotiations between the region and the EU. The ECOWAS Regional Services Policy Review will be formally launched as part of the Workshop.
President Mkapa: ‘EPA has never made much sense for Tanzania’ (Daily News)
Statistics show that in fact, for the EAC region, the African market is the primary market for its manufactured exports. In contrast, 91% of its current trade with the EU is made up of primary commodity exports (agricultural products such as coffee, tea, spices, fruit and vegetables, fish, tobacco, hides and skins etc). Only a minuscule 6% or about $200,000 of EAC exports to the EU is composed of manufactured goods.In contrast, of the total EAC exports to Africa, almost 50% is made up of manufactured exports - about $2.5 billion - according to 2013 – 2015 data. Of this, $1.5 billion are EAC country exports to other EAC countries. These figures tell two stories: [Brexit: scapegoat for EAC countries to back out of the EPA? (tralac)]
Kenya overtakes SA as biggest investor in African countries (Business Daily)
Kenya overtook South Africa to become the biggest investor in other African countries in terms of the number of projects in 2015. Kenya invested in 36 projects last year in other parts of the continent against South Africa’s 33, a new study by financial consulting firm Ernst & Young shows. It noted that most of Kenya’s intra-Africa investments went into countries within the EAC. The study said Kenya’s global ranking as a source of FDI to the African continent also improved strongly to the seventh position in 2015 from 13th in 2014. South Africa however beat Kenya in terms of the worth of the projects as it had Sh200 billion compared to Kenya’s Sh100bn.
South Africa: Davies awaits next move from Harare (Business Day)
Trade and Industry Minister Rob Davies is awaiting a response from his Zimbabwean counterpart for a meeting to resolve a dispute over Harare’s ban of certain imports from SA as a trade delegation from that country cancelled a visit to SA until "further notice". Davies — who conceded that the ban had taken him by surprise because it came amid trade negotiations centred on surcharges — on Wednesday said any trade mission visit between the countries would not be "fruitful" in light of the talks over Zimbabwe imposing a ban on South African goods.
COMESA: ‘Engage Zimbabwe on import ban’ (NewsDay)
The Common Market for Eastern and Southern Africa says it will not intervene in resolving the impasse created by an “import ban” imposed by Zimbabwe, urging member states to engage on bilateral grounds. Speaking at the third sensitisation workshop for business reporters in Livingstone yesterday, Comesa Competition Commission director and chief executive officer George Lipimile said Zimbabwe was a peculiar country and SI 64 was a remedy to the recovery of the economy. “It’s being looked at as a trade matter, it’s an issue of respecting the economic model of each country. Zimbabwe has its own peculiar situation that they are dealing with so that is one way of remedying their economy. I tend to think it’s unlikely that Comesa will get involved. It’s an internal matter so most countries will deal with it bilaterally,” he said.
Namibia: Economic Outlook July 2016 (pdf, Bank of Namibia)
Namibia’s real GDP growth is projected at 4.4% and 5.4% for 2016 and 2017, respectively. The projected growth for 2016 represents a slowdown from the preliminary national account estimates of 5.7% for 2015. The expected slowdown in 2016 is mainly attributed to the decline in growth of the construction sector, as well as, the diamond mining sub-sector. There are notable improvements in the uranium mining sub-sector and a lesser contraction in the agriculture sector; however, these developments may not be sufficient to avoid a slowdown in overall growth for 2016. Over the medium-term, growth will be supported by increased mining output from new and existing mines, and sustained growth in wholesale & retail trade.
Dangote signals slower pace of African cement expansion (Bloomberg)
Dangote Cement Plc signaled it may ease the pace of adding new capacity amid foreign exchange constraints in its home market of Nigeria, as Africa’s largest producer of the building material reported a decline in first-half profit. While the company remains committed to its ambitious growth plans, “we are taking a more measured approach to the roll-out of new capacity across Africa,” Chief Executive Officer Onne van der Weijde said.
Roger Williamson: 'Made in Africa: learning to compete in industry' (UNU-WIDER)
This book [the new UNU-WIDER and Brookings book Made in Africa] is a valuable resource with a distinctive message and realistic tone. Even though much can be done, the authors do not expect a replication of the East Asian take-off. There is a chance for Africa to “break in” as East Asia did in the 1980s, becoming the “world’s factory.” Changes in Asia such as rising labour costs and increasing demand for goods in Asia are among factors which provide the opportunity for Africa initially to pick up some of the basic manufacturing jobs and progressively to move up the value chain in manufacturing, agro-industry and services. The authors temper this optimism somewhat: “We would be very surprised if the most successful African economy in 2030 looked like Vietnam today”.
Building tax capacity in developing countries: IMF submission to G20 finance ministers (IMF)
An indispensable prerequisite to improving tax capacity is enthusiastic country commitment. While such political commitment must arise within the country and its government and cannot be created by external support, the report assesses ways in which such support can encourage and reinforce that necessary commitment. Given such commitment, the report points to several key enablers to building tax capacity: (i) a coherent revenue strategy as part of a development financing plan, (ii) strong coordination among well-informed and results-oriented providers, (iii) a strong knowledge and evidence base, (iv) strong regional cooperation and support, (v) strengthened participation of developing countries in international rule setting. [Jim Brumby: How can we build tax capacity in developing countries?]
Chinese, African companies ink $17bn deals (Xinhua)
The deals, involving financial institutions and enterprises, were signed on the eve of a meeting on delivering the outcomes of the Johannesburg Summit of FOCAC. More than 400 participants from government agencies, financial institutions, business associations and enterprises attended the Seminar on China-Africa Business Cooperation and Signing Ceremony in Beijing on Thursday. The seminar was hosted by the China Council for the Promotion of International Trade. [Malawi-China business forum bearing fruits as it has roped in 11 investors (Maravi Post)]
Peacebuilding in Africa: UNSC open debate, Presidential Statement (UN)
Smail Chergui, the AU’s Commissioner for Peace and Security, discussed lessons learned from recent relapses of post-conflict countries into violence. There needed to be a greater focus on coordination among all actors and integrating planning and operations. If properly calibrated, post-conflict reconstruction and development interventions would be critical to African Union conflict-prevention strategies, he said, calling for institutionalized annual meetings between the United Nations and African Union to share lessons learned. Among donor countries, the US representative said national ownership of peacebuilding processes must not be pretext for inaction on the part of the Council or the international community. Too often, she said, that was the case. Political leaders needed to be held to account to halt violence and uphold the rule of law, she added. The EU’s representative said regional integration initiatives had been undermined by the fact that States often belonged to regional groups with identical or overlapping mandates. Another challenge was that regions’ political ambitions were not sufficiently underpinned with operational capacity and resources, which, in turn, limited their absorption of aid. [IGAD: update on regional strategy on preventing and countering violent extremism]
Gender budgeting and gender equality database: study of 14 SSA national experiences (pdf, IMF)
Our review of gender budgeting in sub-Saharan African found that Rwanda, Uganda, and South Africa have achieved some successes with gender budgeting, chiefly through changes in fiscal policies or budget-making procedures. However, it is difficult to link gender budgeting directly to these changes, given the complex environment for fiscal decision-making in these and other countries. We found that, in the countries where gender budgeting seems to be most effective, Ministries of Finance are taking the lead. For example, Ministries of Finance in Rwanda and Uganda have mandated that other ministries or levels of government responsible for social welfare or women’s development try to address gender gaps and women’s needs in their budgets. Parliamentarians also played a catalytic role in these countries. [Access the full set of companion IMF studies]
Pradeep S. Mehta, Smriti Bahety: 'India-US trade: give some, take some' (LiveMint)
The reason for the slowdown in the negotiation momentum can be attributed to two factors. First, India and the US have had fallouts at the WTO pertaining to poultry imports, solar panels and more recently on visa fee hikes by the US. The second reason is attributable to the significant differences in India’s new model BIT and the US’ 2012 model BIT.
UK lagging behind ‘Digital Tiger’ economies (Barclays)
The Barclays Digital Development Index benchmarks 10 countries around the world on their readiness to compete in the digital economy. The study, which attributes an overarching ‘digital empowerment’ score to each nation, found that the UK came in just fourth place behind new and emerging ‘digital tiger’ economies Estonia, South Korea and Sweden. When it comes to individuals’ assessment of their own digital skills and confidence, the UK trails major economic rivals India, China and the USA. The findings are based on a survey of almost 10,000 working adults combined with analysis of policy frameworks and support for the development of digital skills in each country.
Greater Mekong Subregion Economic Corridors Forum (4 August, ADB)
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ECOWAS moves to develop a regional services trade policy
The Economic Community of West African States (ECOWAS) has commenced a three day workshop aimed at developing a Regional Services Policy, strengthen policy formulation, and identify best-fit regulatory and institutional frameworks and negotiation capacity on trade in services.
The workshop is also to ensure that the Trade sector plays it role in supporting ECOWAS to meet its development objectives.
In his opening remarks of the workshop on 27th July 2016 in Abuja, the ECOWAS Commissioner for Trade, Customs and Free Movement, Mr. Laouali Chaibou emphasized the need for an effective Regional Services Policy, which is necessary for the attainment of the ECOWAS mandate of economic integration.
Over the years, ECOWAS has committed itself to trade in services at various levels as it is important for the growth of different aspects of the economies of Member States, he said.
Furthermore, Commissioner Chaibou cited the workshop as an opportunity for building the capacity of Member States by sharing of experiences of experts in the trade sector in the region.
He stated that the objective of the training is to build capacity in the ECOWAS region with the aim of providing a pool of regional experts as a resource for policy-making and negotiations on trade in services.
The ECOWAS Director of Trade, Dr.Gbenga Obideyi disclosed that participants of the workshop will also focus on issues concerning the formulation of an ECOWAS Common Trade Policy (CTP) in services as well as the Continental Free Trade Area (CFTA) under the auspices of the African Union and the Economic Partnership Agreement (EPA) services negotiations between the region and the European Union (EU).
The ECOWAS Regional Services Policy Review (SPR) will be formally launched as part of the Workshop.
The representative of UNCTAD stressed the commitment of its Secretary General, Dr. Mukhisa Kituyi, to support African integration and pledged his support going forward.
The training, which is attended by representatives of Member States and the various Directorates of the Commission, is organised in the context of a partnership between UNCTAD and the ECOWAS Commission with support from GIZ.