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UNCTAD warns on debt: Africa should find new ways to finance development
African Governments should add new revenue sources to finance their development, such as remittances and public-private partnerships, and clamp down on illicit financial flows, an UNCTAD report said on Thursday, warning that debt looks unsustainable in some countries.
The UNCTAD Economic Development in Africa Report 2016 finds that Africa’s external debt ratios appear manageable, but African Governments must take action to prevent rapid debt growth from becoming a crisis, as experienced in the late 1980s and 1990s.
“Borrowing can be an important part of improving the lives of African citizens,” UNCTAD Secretary-General Mukhisa Kituyi says. “But we must find a balance between the present and the future, because debt is dangerous when unsustainable.”
At least $600 billion will be needed each year to achieve the Sustainable Development Goals in Africa, according to the report which is subtitled Debt Dynamics and Development Finance in Africa. This amount equates to roughly one third of countries’ gross national income. Official development aid and external debt are unlikely to cover those needs, the report finds.
A decade or so of strong growth has provided many countries with the opportunity to access international financial markets. Between 2006 and 2009, the average African country saw its external debt stock grow 7.8 per cent per year, a figure that rose to 10 per cent per year in 2011-2013 to reach $443 billion or 22 per cent of gross national income by 2013.
Several African countries have also borrowed heavily on domestic markets, the report finds. It provides specific examples and analyses of domestic debt in Ghana, Kenya, Nigeria, the United Republic of Tanzania and Zambia. In some countries, domestic debt rose from an average 11 per cent of gross domestic product in 1995, to around 19 per cent at the end of 2013, almost doubling in two decades.
“Many African countries have begun the move away from a dependence on official development aid, looking to achieve the Sustainable Development Goals with new and innovative sources of finance,” Dr. Kituyi says.
The report argues that African countries should look for complementary sources of revenue, including remittances, which have been growing rapidly, reaching $63.8 billion to Africa in 2014. The report discusses how remittances and diaspora savings can contribute to public and development finance.
Together with the global community, Africa must also tackle illicit financial flows, which can be as high as $50 billion per year. Between 1970 and 2008, Africa lost an estimated $854 billion in illicit financial flows, roughly equal to all official development assistance received by the continent in that time.
And while Governments should be vigilant of the borrowing risks, public-private partnerships have also started to play a more prominent role in financing development. In Africa, public-private partnerships are being used especially to finance infrastructure. Of the 52 countries considered during the period 1990-2014, Nigeria tops the list with $37.9 billion of investment, followed by Morocco and South Africa.
Introduction
Africa has major development aspirations in the broader context of a global and continental economic development agenda. This calls for substantial financial resources at a time when the global development finance landscape is changing, from a model centred on official development assistance and the coverage of remaining financing needs through external debt, to a framework with greater emphasis on the mobilization of domestic resources.
The Economic Development in Africa Report 2016 examines some of the key policy issues that underlie Africa’s domestic and external debt, and provides policy guidance on the delicate balance required between financing development alternatives and overall debt sustainability. This report analyses Africa’s international debt exposure and how domestic debt is increasingly playing a role in some African countries as a development finance option, and also examines complementary financing options and how they relate to debt.
Main Findings
The main findings of the report are as follows:
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Africa faces major challenges in meeting its development finance needs through public budgetary resources. It is estimated that financing the Sustainable Development Goals in Africa could require investments of between $600 billion and $1.2 trillion per year. Infrastructure alone would cost $93 billion, but Africa can only raise half of this amount.
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External debt in Africa is on the rise and is mainly related to reduced export revenues, a widening current account deficit and slower economic growth. In 2011-2013, the external debt stock amounted on average to $443 billion, compared with $303 billion in 2006-2009. Ratios of external debt to GNI are low, at less than 40 per cent in most African countries. While the combined stock of external debt fell over time – from 107 per cent of GNI in 2000 – several African countries have experienced an upward trend. However, these broad trends in absolute terms disguise the rapid rise of external debt levels in several African countries in recent years. Although debt-GNI ratios have not changed much since 2006, the external debt stock grew rapidly by an average 10.2 per cent per year in 2011-2013, compared with 7.8 per cent in 2006-2009. The main drivers of this debt accumulation are associated with a growing current account deficit and slower economic growth.
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The composition, terms and conditions of external debt are changing. First, the share of concessional financing declined in two thirds of the heavily indebted poor countries in Africa from 2005-2007 to 2011-2013. Second, these countries have experienced a marked, steady decline in the maturity and grace period of new external debt commitments on average since 2005. The average interest on their new external debt commitments has also worsened, although it remained below the average for non-heavily indebted poor countries in Africa, as well as for low-income countries. Third, public and publicly guaranteed debt from private creditors has not only risen in both heavily indebted poor countries and non-heavily indebted poor countries, but has also become more diversified. A lower share of concessional debt, higher interest rates, lower maturities and grace periods are most likely to increase the debt burden of African countries.
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The structure and composition of debt matters for debt sustainability and the Debt Sustainability Framework. The joint World Bank-IMF Debt Sustainability Framework for Low-income Countries is designed to help low-income countries achieve debt sustainability on their new borrowing from concessional official loans. The main rationale for the framework is to assess the sustainability of debt to avoid risks related to debt distress. The current framework needs to be revisited to prevent low-income countries from becoming locked into a low-debt low-growth scenario, and it should also reflect domestic debt exposure in its debt sustainability analysis. Maintaining external debt sustainability is a challenge for African countries in their efforts to finance national development strategies and in the context of the 2030 Agenda for Sustainable Development.
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Domestic debt is growing gradually and increasingly consists of marketable debt. The stylized facts emerging from the data analysis of five case studies reveal the gradual increase in domestic debt, from an average of 11 per cent of GDP in 1995 to 17 per cent of GDP in 2014. Furthermore, most Governments have increasingly met funding requirements through marketable debt, as opposed to non-marketable debt. Marketable securities include commercial paper, bankers’ acceptances, treasury bills and other monetary market instruments.
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Domestic capital markets have been deepening as international investor interest has grown. More and more countries have achieved the capacity to issue local-currency-denominated debt securities of long maturities over the past decade, suggesting that the problem of original sin could be gradually dissipating. In general, market depth has increased, maturities have lengthened and the investor base has broadened, making domestic borrowing much easier for Governments in the context of the global financial cycle that has led international financial investors to access markets that they had considered too risky in the past. Nevertheless, there is scope for further strengthening of the functioning of the existing domestic debt markets, including through a reform of the non-banking financial sector to widen the investor base for long-dated government securities. Further strengthening of the retirement benefits industry and the insurance sector could increase the amount of long-term savings available for the domestic debt markets. Although the interest burden of domestic debt is still higher than that of external debt, there is evidence that this is declining over time, in line with deepening domestic debt markets. However, external debt has foreign exchange risks to which domestic debt is not exposed; therefore, the interest cost on local-currency-denominated domestic debt should not be viewed as the only deciding factor for the use of domestic debt markets to raise resources for financing development. Rather, the risk-return profile of domestic and external debt instruments should also be considered. Lastly, the dynamic effects of financial deepening should not be underestimated in the context of pro-poor growth and transformative economic development, as financial deepening can greatly affect the provision of access to financial services for the unbanked, especially women – only 20 per cent of women have access to formal financial services in Africa.
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Public-private partnerships are spreading and warrant caution from a debt-management perspective. Compared with other geographical regions, infrastructure public-private partnerships in Africa are smaller in magnitude and number, but they are increasing. Public-private partnerships, especially those involved in infrastructure development, are complex undertakings with considerable risks. They are generally capital-intensive, long-term projects with complex contractual arrangements that make their proper evaluation and recording a challenge. Thus, setting up a public-private partnership policy framework that addresses and mitigates these risks is essential and requires a broad set of legal, managerial and technical capacities. A considerable risk of such partnerships relates to their treatment as off-budget transactions (contingent liabilities) and they can become a fiscal burden in the future. This treatment may also encourage countries to use them in order to circumvent national or IMF-agreed debt limits. Estimates of the impact of contingent liabilities on debt sustainability are not included in the current debt sustainability framework.
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Remittances and diaspora savings are an opportunity for development finance. Governments and financial institutions have designed financial instruments to tap diaspora savings and leverage remittances for development finance. The interest rate applied to diaspora bonds should be attractive to foreign investors to compensate for the political risk. Issuer countries might also struggle to tap the potential of diaspora bonds, owing to technical or bureaucratic requirements concerning their sale abroad. The use of formal remittance channels should be encouraged so that remittances can serve as collateral and lead to financial deepening.
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Illicit financial flows could become a source of development finance, as long as efforts to tackle them at the national and international levels are sustained. Africa needs continued continent-wide cooperation, and engagement and support from international organizations and their members in tackling illicit financial flows and debt relief. This is crucial, as Africa lost about $854 billion in such flows from 1970 to 2008. This sum is nearly equivalent to all official development assistance received during that period and only one third would have been sufficient to cover its external debt. On a global scale, the experience of the High-level Panel on Illicit Financial Flows from Africa could contribute to a global architecture or governance structure that combats illicit financial flows more effectively if such flows are addressed in a frank and open dialogue that contextualizes illicit financial flows in the broader setting of development, and ultimately development finance. It is imperative that all stakeholders interact and form part of this dialogue. Moreover, initiatives such as the Africa Mining Vision, the Extractive Industries Transparency Initiative, the Financial Action Task Force, the Global Forum on Transparency and Exchange of Information for Tax Purposes and the Stolen Asset Recovery Initiative should be fully brought on board to avoid duplication while leveraging on their experiences and best practices. Lastly, the vital role of civil society in monitoring transparency should be recognized and used to provide additional vigilance.
Main Policy Recommendations
Africa is at a critical juncture in its development. As a result of the high costs of financing the Sustainable Development Goals, which are unlikely to be covered by official development assistance and external debt alone, the importance of domestic debt in development finance has gained prominence. However, this also highlights the importance of maintaining debt sustainability and preventing debt distress. Clearly, achieving the Goals and maintaining debt sustainability is desirable. The difficult question is how African countries may achieve the dual goal of covering their development finance needs and maintaining debt sustainability.
1. Raise adequate levels of financing for development from domestic and external sources to meet development goals and achieve structural transformation
Given the complexity of Africa’s development challenges, the scale of its development finance needs and the severity of its capacity constraints, African countries need to leverage all possible sources of finance. Debt, both domestic and external, as well as other complementary sources, cannot be excluded from Africa’s list of development finance policy options. Therefore, debt channelled to investments for Sustainable Development Goals should be afforded more flexibility. For example, if debt is channelled to building resilience (Goal 9), this could contribute to lifting major productive capacity constraints, and thereby spur structural transformation. However, most of the investments needed for reaching the Goals cannot be financed through debt alone, as this would affect debt sustainability for most African States. Domestic resource mobilization for investment in the building of productive capacities will be key for Africa’s structural transformation.
2. Leverage domestic and external debt without compromising debt sustainability
Debt sustainability is never guaranteed. Any severe shock may push a given country over the limits of sustainable debt. It would not make sense to restrict new borrowing so drastically solely to guarantee long-term debt sustainability. A better balance must be reached between the benefits of new concessional and non-concessional borrowing from domestic and external sources and the benefits of restricting any such borrowing to achieve debt sustainability. Therefore, Africa needs to continue strengthening macroeconomic fundamentals and pursuing structural transformation to avoid a debt trap in the future. It is also important for African countries to achieve the following:
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Lower current account deficits;
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Lessen exposure to commodity price volatility through export diversification;
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Design sound investment programmes that contain carefully selected projects and identify key bottlenecks to ensure timely project implementation;
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Combat corruption and misappropriation of funds;
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Ensure greater efficiency in government spending and revenue collection;
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Develop a strategic approach to the identification of the best financing options in terms of financial costs, maturity and payment structures to be matched with new projects.
Ultimately, maintaining debt at sustainable levels is the responsibility of borrowers and lenders. In this regard, more efforts need to be made to encourage United Nations Member States to endorse the principles on promoting responsible sovereign lending and borrowing and reach an agreement on sovereign debt restructuring processes.
3. Support the revision of a debt sustainability framework that encompasses the achievement of debt sustainability and acknowledges country specificities in its analysis
In light of the growing development finance requirements of African and developing countries in general, it could be argued that there is a need to revisit current debt sustainability frameworks. Since the 1990s, despite various improvements in the debt sustainability frameworks and analyses, many still consider the framework to be unduly mechanical, backward-looking and restrictive by not differentiating sufficiently between capital and recurrent public spending. For many African countries, there remains a tension between accumulating external debt to finance national development strategies and the Sustainable Development Goals, and maintaining external debt sustainability.
Another problem is that there is undue emphasis on broad debt indicators such as debt-GDP or debt-exports, instead of a focus on debt service on domestic and external debt to government revenues. Mainly due to the commodity boom of the early 2000s and recent resource discoveries throughout Africa, many African countries experienced double-digit growth rates in exports. These led to low debt-export ratios, which may not properly reflect their longer term payment capacities, especially in cases where the resources extracted by mostly multinational corporations provided very little revenues to the Government. Fundamentally, the current debt sustainability framework may be too restrictive on those low-income countries with the capacity to take on more debt that could stimulate growth. There have been concerns among low-income countries in Africa that the Debt Sustainability Framework could lock them into a low-debt low-growth scenario.
There are some options to improve the current Debt Sustainability Framework to allow a limited increase in the debt financing of countries so that African countries can make progress in achieving the Goals without creating a debt overhang. A few elements of this revised framework are as follows:
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Make adjustments in the Framework for investments to finance the Sustainable Development Goals: A revised Framework should have a built-in surveillance system for monitoring the uses of debt, ensuring that countries are borrowing to finance productive investments rather than consumption and are contributing to the achievement of the Goals;
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Place greater emphasis on payment caps on debt service: Refocusing debt sustainability for low-income countries on public debt service payments to government revenues and implementing payment caps on debt service payments for those countries, with a proportional reduction in debt service payments to all creditors, including commercial creditors would be a significant improvement. These debt service limits would need to be part of binding collective action clauses. Given uncertainty regarding whether a debt problem reflects a temporary illiquidity or a more permanent debt overhang situation, debt service caps could be implemented on a temporary basis without reducing total debt stocks. If it becomes clear that a country faces a longer term debt overhang, a debt stock reduction would need to be implemented.
4. Foster domestic financial deepening to enhance domestic resources and attract diaspora savings
The report has noted that Africa has made important progress in domestic financial sector development and financial deepening. It is encouraging that countries have been able to issue bonds and various other more marketable and long-term instruments. Furthermore, African countries have adopted policies aimed at developing their domestic debt markets, with the active support of official international financial institutions such as the African Development Bank, IMF, OECD and the World Bank.
These are encouraging trends, but there is scope for further deepening. For example, the potential of the savings generated by the retirement benefit industry and the insurance sector should be further exploited. Also, facilitating and lowering the cost of formal remittance channels will allow the attraction of more remittances through these channels. Financial deepening will also make it possible to mobilize and use diaspora savings, for example through diaspora bonds, foreign-currency-denominated deposits and syndicated loans with remittances as collateral.
The rise in domestic debt as a component of domestic resource mobilization for development finance could help reduce Africa’s dependence on the volatility of foreign direct investment and official development assistance, and increase Africa’s policy space. This may also strengthen policy accountability and country ownership of development strategies, given that a greater reliance on domestic sources of development finance can reduce external debt vulnerabilities.
5. Harness the potential of public-private partnerships by strengthening public-private partnership policy frameworks at the national and regional levels while keeping debt sustainability in check
Governments should have adequate legal and policy frameworks to optimize the use of public-private partnerships for their development while minimizing the pitfalls of public-private partnership failure. In this regard, regulation and policymaking have yet to play a major role in establishing how such partnerships are to be treated, in terms of sustainable debt management and general economic development. Developing regulation that guides an appropriate valuation and recording of public-private partnerships should be accompanied by defined risk management principles and the consideration of a contingent liabilities fund to address failing public–private partnerships when these merit government intervention.
For better public–private partnership management, African countries could consider the use of the Debt Sustainability Framework template to design customized scenarios in both external and public debt sustainability analyses. One such scenario is a standardized stress test that resembles a generic contingent liability shock. Where information is available, a more country-specific scenario may be warranted to capture contingent liabilities arising from, inter alia, State-owned enterprises, subnational governments, public–private partnerships and weaknesses in the financial sector.
It is equally important for African Governments to be vigilant of the risk associated with contingent liabilities. Debt managers should ensure that the impact of risks associated with contingent liabilities on the Government’s financial position, including its overall liquidity, is taken into consideration when designing debt management strategies. Although clearly negotiations and arrangements between a Government (particularly in the case of State-owned enterprises) and private companies are bound to confidentiality, nonetheless information on general financial terms and conditions should be made public. If the Government proves insolvent, these liabilities may become a public concern.
This also requires scope for strengthening parliamentary scrutiny, with members of parliament responsible for approving arrangements on an ad hoc basis and not the entire envelope for new borrowing for the year. If approval on a loan-by-loan basis creates a bottleneck, scrutiny may be required for contracts above a certain threshold. Strengthening institutional capacities for rating, monitoring and managing debt, whether public or private, is critical for African countries, as this will help them manage their debt levels in a more sustainable manner. UNCTAD can assist African countries in developing statistical series and capacity in the areas of domestic debt, external private debt, debt composition and sovereign debt restructuring.
6. Enhance international and regional cooperation and build institutional capacity in addressing Africa’s financing needs
Regional integration could play a critical role in coordinating and mainstreaming key regulatory and institutional dimensions of broader financing for development initiatives in the context of Agenda 2063 and the 2030 Agenda for Sustainable Development. The African Union and the New Partnership for Africa’s Development should be supported in reinvigorating efforts to bolster national and regional strategies, build the necessary institutional frameworks and promote resource mobilization instruments such as regional stock exchanges, the African Credit Guarantee Facility and the Programme for Infrastructure Development in Africa. This will require significant political and effective pooling of continental resources.
Across all the financing flows, there is still scope to improve debt management; coordination within the African Union, coupled with a whole-of-government approach, could help strengthen medium-term debt management strategies. The promotion of the UNCTAD principles on responsible sovereign lending and borrowing could be particularly important in this regard. Africa will need to continue striving towards stronger debt management capacity. Several training programmes to strengthen debt-management capacity have been promoted in recent years, but this new complexity of financing options requires a new skill set towards private financial markets that government officials may not have developed yet. At the international level, cooperation in tax matters and illicit financial flows should be sustained and enhanced. Africa cannot combat illicit financial flows on its own; it would greatly benefit from multilateral support in building its institutional capacities to deal with such flows and international commitment to tackling this important issue. Capacities of public revenue authorities should therefore be strengthened in various areas, particularly with regard to tax issues and detailing and curtailing illicit financial flows.
7. Overcome data limitations and build analytical capacities for debt monitoring and management
There are still considerable problems related to data availability. After many initiatives, especially related to debt management in African countries, it is surprising how little data on domestic debt and government revenues are publicly available. While IMF and the World Bank possess such data for most countries, especially with respect to heavily indebted poor countries in Africa, which they monitor on a regular basis, most of this data are not readily available to the public. For example, the World Development Indicators and Global Development Finance databases contain no data on domestic debt and have considerable gaps with regard to government revenues. The unavailability of such data contributes to the use of less useful debt indicators such as debt-GDP and debt-export ratios. Improved institutional capacities for the collection, collation and analysis of debt data will be central to improved debt sustainability, particularly where developing countries are concerned. The Debt Management and Financial Analysis System of UNCTAD is a good illustration of how technical cooperation can support this process in Africa. It has developed a specialized debt management and financial analysis software to meet the operational, statistical and analytical needs of debt managers. This may help developing countries improve the quality of their debt database, contributing to better transparency and accountability, debt reporting and debt sustainability analysis.
The Economic Development in Africa Report analyses major aspects of Africa’s development problems and policy issues of interest to African countries. It makes policy recommendations for action by African countries themselves and by the international community to overcome the development challenges that the continent faces. The report has been published annually since 2000.
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How can the CFTA facilitate trade in services?
Regional trade and integration agreements should lead to development outcomes. They are not ends in themselves. The scope and coverage of the these agreements should reflect the collection of substantive disciplines that can serve as pathways to development outcomes.
The fact that trade liberalisation and regional integration will produce both winners and losers, takes on special significance in African. The challenges of integrating unequal partners will also manifest in Africa’s most ambitious integration project, the Continental Free Trade Area (CFTA), just as they have in all other regional integration initiatives on the continent.
The CFTA has been directly linked to the initiative of African Union member states to Boost Intra-African Trade (BIAT). Indeed, in January 2012 member states adopted BIAT and a decision to expeditiously establish the CFTA to support BIAT.
The CFTA does have other important development objectives too; these include the promotion of industrial development and diversification, employment creation and poverty eradication. The intent of AU member states to achieve development outcomes via the CFTA, BIAT and other initiatives, is abundantly clear.
The trade in services agenda in African integration, compared to the trade in goods agenda, can be described as nascent. African integration has been characterised by a predominant focus on trade-in-goods disciplines, with the import tariff commanding centre stage. Several regional economic communities (RECs) are, however, currently occupied with trade in services negotiations. And there is growing interest in services sector development and trade in services in many African countries.
This presents an excellent opportunity to leverage an African services agenda (encompassing services sector development as well as trade in services), to support development outcomes, from the platform of the CFTA.
Services feature prominently as inputs into all economic activities, across the sectoral spectrum as well as across the size distribution of firms, from micro/informal enterprises through small, medium and large scale enterprises.
Infrastructure services such as energy, transport and communication, and others such as financial services, deserve particular attention. These are a strong foundation for industrial development and diversification; taking into account the fact that the impact of sector specific industrial support initiatives will be decidedly limited, if enterprises do not have access to reliable supply, good quality and competitively priced transport, energy and communication services. They are essential to support competitive enterprises, and essential to facilitate trade in goods.
In addition, these services and others such as education and health care that are closely linked to the infrastructure services, provide important markers of development. Without access to the infrastructure services, access to education and health care will be compromised.
In short, services and especially infrastructure services matter for Africa’s sustainable development. How can we start connecting the dots in the CFTA to facilitate trade in services and support development outcomes?
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The trade in goods and trade in services agendas are closely connected. As an example, all services sector development (including health care, education, professional services) and trade in services requires inputs of information and communication technology (ICT) goods.
This makes the high tech deal in the World Trade Organisation such an important development – a great pity that so few African countries feature in the deal.
The goods-services linkages make it essential to ensure institutional links (via the technical working groups and the trade negotiating forum) between the trade in goods and trade in services negotiations.
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Movement of persons is necessary not only to facilitate cross border supply and consumption of services, but essential to support facilitation of trade in goods, cross-border value chain development and the establishment of commercial presence in other territories.
Temporary movement of persons is covered under mode 4 of the trade in services agenda, but there is no reference to the movement of persons in the CFTA.
This should be addressed. In addition linkages to African Union (AU) initiatives such as the recently announced AU passport should be developed synergistically in a rules-based framework.
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Trade in services negotiations should be closely connected to and informed by services sector development priorities so that they can support development outcomes from the CFTA. Financial services sector development priorities encompass, amongst others, broadening financial inclusion.
Despite many innovative developments related to mobile money, transfers and payment systems, many millions of Africans remain outside the formal financial sector. This has important development implications; access to finance is just one example.
Without access to finance through the formal banking system, individuals remain captive to high interest rates and associated debt servicing costs, their prospects for access to education, health care and entrepreneurial opportunities remain limited.
In short, they remain on the periphery of the formal economy and its opportunities.
Access to ICTs has become essential for access to other services including healthcare, education and financial services. ICT developments, for example, make possible the roll-out of distance learning to remote regions. This raises the importance of infrastructure development as well as regulatory reform, cooperation and harmonisation.
Services sector development priorities should inform this regulatory reform, cooperation and harmonisation agenda for the CFTA. Roll out of infrastructure is absolutely necessary, but not sufficient to ensure access to services for Africa's marginalised population.
This is where the CFTA can make a significant contribution.
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Given the interconnections between the substantive negotiating issues of the CFTA, it would make sense to dispense with the structure of the negotiations in two distinct phases; with phase one set to cover trade in goods and trade in services, and phase two covering investment, competition and intellectual property matters.
Negotiations to conclude an internally consistent CFTA, which leverages the linkages among substantive issues, and to do this expeditiously, makes this imperative.
Trudi Hartzenberg is Executive Director of the Trade Law Centre (tralac). The views expressed in this article are those of the author and do not necessarily represent those of UNCTAD.
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Experts weigh Brexit’s implications for Africa
The UK’s historic popular vote to leave the EU has prompted debate and reflection among a number of analysts on potential impacts on African economies.
While many long term political and economic consequences have yet to be determined, Britain’s departure from the bloc has raised questions around how it will now unilaterally define its trade policies with third parties, almost regardless of which “exit model” it pursues.
This dynamic has triggered concern among some camps that “Brexit” could have adverse impacts on African economies, in terms of the type of preference schemes the UK may grant, knock-on trade and investment impacts of economic slowdown and tumbling British pound, as well as potential changes in EU policies in light of London’s role in the formulation of international development policy in Brussels.
Others, however, are of the view that the vote could actually open a new chapter in UK-Africa economic relations with fresh opportunities for African exports and investment relationships, and a more focused and independent approach to development aid. This could, for example, involve a deepening of ties between the 53 members of the Commonwealth of Nations, which span across Africa, Asia, the Americas, and the Pacific.
For the time being many have nonetheless noted that nothing is certain given that the UK will in the coming months and years need to negotiate its new future relationship with the EU, normalise its status at the WTO, and craft a programme of trade relations with the rest of the world.
“The only certainty in all this is uncertainty. Uncertainty on the markets and uncertainty over the future of trade relations between the UK and Africa,” said Matthew Davies, editor of the BBC’s African Business Report, in a recent article.
Trade agreements: Substantial renegotiation?
Having entered into numerous trade deals as part of the EU, the UK will now have to renegotiate and/or potentially start negotiations on over 100 different types of preferential trade agreements globally, many with African trade partners.
An area likely to be closely watched relates to the Economic Partnership agreements (EPAs) negotiated between the EU and the seven African, Caribbean, and Pacific (ACP) regions – including five African regional groupings. Once signed and implemented, these trade agreements are expected to become the cornerstone of trade relations between the EU and the African continent.
Last June, the Southern African Development Community (SADC) became the first African region to sign its EPA with the EU. Other regional groupings, namely the Economic Community of West African States (ECOWAS) and the East African Community (EAC), have concluded EPA negotiations, but are still awaiting signature and ratification.
For these EPAs as with other trade deals more generally, experts have indicated that a potential option could consist of turning any agreement concluded by the EU into a UK trade deal with the same partner, essentially replicating existing arrangements.
According to Richard Baldwin, Professor of international economics at the Geneva-based Graduate Institute, this approach would constitute the “best outcome.” “When it comes to agreements with most developing nations, this may be possible,” said Baldwin in a recent blog post.
This conclusion has been shared by others. Moreover, Steve Barrow, Head of G10 research at Standard Advisory London, has highlighted that African and British firms are mostly not competing with each other, making this approach all the more plausible.
Many commentators warn, however, that the uncertainty likely to continue as deals take time to unfold could be damaging for African exports.
“Although it is unlikely that the UK will effect drastic departures in terms of trade deals with African countries, the process of re-negotiation will take a period of time during which African exports to the UK will be negatively affected due to the uncertainty in the limbo period,” trade economist Anzetse Were wrote in a blog post last month.
UK-Africa trade in unchartered waters
Several experts have cautioned that an economic slowdown within the UK could significantly reduce the volume of imports from African countries as consumer demand decreases. Some have also warned that, given the UK’s role as an entry point for African products into the EU single market, various businesses might need to adjust their export strategy should different rules, standards, and relevant regulations emerge as a result of the exit model eventually selected by London.
However, the UK is not Africa’s biggest trade partner considering it only represents about five percent of total African exports, according to Harvard University postdoctoral fellow Grieve Chelwa. Some countries and sectors might nonetheless be more impacted than others. Some analysts have said that the African economies which could be the most affected are those who depend heavily on the export of some specific commodities.
The global instability stemming from the referendum vote is another factor that experts fear could negatively impact UK-Africa trade relations. “Periods of instability are usually periods that are not conducive to expansion in trade,” Homi Kharas, Deputy Director for global economy and development at The Brookings Institution told media sources.
Others note that the same uncertainty might also negatively impact investment flows from the UK to the continent. “From an African point of view, the immediate aftermath of Brexit has exacerbated problematic trends in international markets which have already hit the continent’s growth prospects,” writes Were.
However, some commentators tending towards seeing the glass as half-full suggesting that many African economies have already demonstrated the ability to adapt to global economic fluctuations, such as recent downturns in emerging economy trade partners.
A new pattern of engagement?
According to another camp of experts, the Brexit may not be all bad news for the Africa, and instead also opens opportunities to redefine engagement with the continent. Remarks by James Duddridge, former UK minister for Africa prior to his resignation under the new UK leadership, in a recent interview suggested that a new chapter in UK-Africa relations could be beneficial for the latter.
“We’ll be able to focus more on our bilateral relationships with Africa and with our traditional partners,” Duddridge said. The ex-official also argued that without having to funnel aid through the EU the UK will be able to invest with greater efficiency in its global development efforts, especially in Africa, and contended that there would be a reassertion of the Commonwealth relationship.
“There will be an ability to reassert our relationship in genuine growth areas, rather than simply looking to Europe,” Duddridge told interviewers.
Economics lecturers based at the University of Witwatersrand, South Africa also suggested that the UK’s decision to leave the EU could open a new chapter for Africa relations, particularly through the negotiation of “more favourable agreements” with African partners generating new opportunities for various African stakeholders.
This view is shared by Anita Ntale, a research fellow at the Economic Policy Research Centre in Makerere University, Uganda. “It could even be argued that outside of the EU, Britain will have better trade agreements with Africa,” Ntale said in a national news article.
Aid and development efforts
Aside from the uncertainty surrounding UK-Africa future trade relations, various observers have commented on the potential implications of Brexit on development assistance and the important role played by the UK in defining European international development policy.
Since 2015, the UK has been part of the handful of developed countries which fulfil their long-standing commitment to devote 0.7 percent of gross national income to official development assistance (ODA). Notably, the country passed a bill last year which enshrines this commitment in law, becoming the first G7 economy to do so.
While some observers have warned that the UK vote might lead to a more inward-looking agenda, or the “end of British outwardness,” as Amadou Sy and Mariama Sow from Brookings’ Africa Growth Initiative put it, many others are of the view that the country will probably not renege on its ODA pledges.
This has been confirmed by Justine Greening, UK’s former Secretary of State for International Development, who reaffirmed in parliament the 0.7 percent target shortly after the vote. “We legislated for it, and we stand by that,” said Greening last month.
However, Brexit could negatively impact the quantity of funds on hand for development assistance, especially towards Africa. If the country experiences a protracted economic slowdown as a result of its decision to leave the EU, this would effectively reduce the amount of money available in aid coffers in absolute terms.
Moreover, some commentators have noted that damage has already been done as a result of the British pound’s devaluation following the vote.
“The pound dropped 10 percent after the vote, wiping £1bn (US$1.3 billion) off the UK’s nearly £12bn annual aid budget,” Clár Ní Chonghaile, editor on the Guardian’s global development desk, wrote earlier this month.
More generally, various experts have highlighted that, with regard to development assistance and cooperation, the most important implication of Brexit perhaps lies in the UK’s loss of influence on European development policy debates.
Ian Scoones, co-director of the ESRC STEPS Centre and research fellow at the Institute of Development Studies, argues that this influence has been particularly prominent “since the establishment of the UK Department of International Development in 1997 and the G8 Gleneagles agreement in 2005, and a commitment – amazingly across governments of different political hues – to a progressive aid agenda, particularly in Africa.”
Similar opinions have been expressed by others. “The danger posed by Brexit is that it would weaken Britain’s ability to strengthen Europe’s role in addressing the global development, security and environmental challenges that threaten to derail the Sustainable Development Goals. That would be bad for the world’s poor,” according to Kevin Watkins, Executive Director of the Overseas Development Institute.
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WTO launches new annual statistical publication
The WTO launched a new annual statistical publication – the “World Trade Statistical Review” – on 21 July. This new publication provides insights into how world trade has evolved in recent years by analysing the latest trade statistics within an economic context.
The publication opens with an overview of world trade developments in 2015 and an assessment of the trade outlook in early 2016. This is followed by an in-depth analysis of the latest trends in the global trade of goods and commercial services.
The publication contains an in-depth look at the participation of developing economies in world trade, analysing in particular the role of least-developed countries. It also provides a summary of the main developments in trade-policy making, highlighting the latest data on WTO members’ use of trade-restrictive and trade-facilitating measures. These analytical chapters are complemented by over 50 tables providing comprehensive data on various facets of world trade in goods and services.
“World Trade Statistical Review” replaces the WTO’s previous annual statistical publication, “International Trade Statistics”, which used to be published in October of each year. This new publication will be made available annually in July, bringing it closer to its reporting period. A print version in English, French and Spanish will be published in early September.
More extensive trade data can be found in the WTO Statistical database and in the International Trade and Market Access tool on the WTO website, which is regularly updated with short-term trade data sourced in cooperation with the United Nations Conference on Trade and Development (UNCTAD). Trade data based on finalised figures for 2015 will be made available in the WTO Statistical database at the end of October, as in previous years.
Other statistical output regularly provided by the WTO includes short-term data on merchandise trade and commercial services trade and the WTO’s new World Trade Outlook Indicator, which is designed to give an early indication of the future direction of world trade.
Later this year, the WTO will publish its annual “Trade Profiles” and “World Tariff Profiles”. The new edition of “Trade Profiles” will incorporate for the first time profiles on trade in services, providing handy two-page summaries of the most important trade data for more than 160 countries. “World Tariff Profiles”, which is produced in cooperation with UNCTAD and the International Trade Centre (ITC), will include an analysis of the latest developments in non-tariff measures as well as the latest data on tariffs. Both publications will be made available online and in a printed format.
General trends and drivers of world trade in 2015
Overview
Growth in the volume of world merchandise trade remained sluggish in 2015, at 2.7 per cent as measured by the average of exports and imports. This figure was revised downward from a preliminary estimate of 2.8 per cent released in April 2016 based on available data at the time. Slow global trade growth was accompanied by a modest increase in world GDP, which grew 2.4 per cent in real terms at market exchange rates in the same period.
Several factors contributed to the lacklustre performance, including economic slowdown in China, recessions in other large developing economies including Brazil, falling prices for oil and other primary commodities, strong fluctuations in exchange rates, and financial volatility driven by divergent monetary policies in developed countries. Faster economic growth and rising import demand in developed countries partly made up for weaker demand elsewhere, leaving trade growth and output growth nearly unchanged compared with the previous year (2.8 per cent and 2.5 per cent, respectively, in 2014). 2015 marked the fourth consecutive year with trade volume growth below 3 per cent, and the fourth year in a row with world trade growing at nearly the same rate as world GDP. Growth rates for trade and GDP in 2015 remained below their respective averages since 1990 of 5 per cent and 2.7 per cent.
The slow pace of trade growth relative to GDP growth over the past four years stands in contrast to the period from 1990 to 2008, during which world merchandise trade volume grew 2.1 times as fast as world GDP on average. The recent uninterrupted spell of slow trade growth is unusual but not unprecedented, and its importance should not be exaggerated. Overall, world trade growth was weaker between 1980 and 1985, when five out of six years saw trade growth below 3 per cent, including two years of outright contraction.
Unlike merchandise trade in volume terms, which recorded a modest increase last year, the dollar value of world merchandise trade declined sharply in 2015 as exports fell 13 per cent to US$ 16 trillion, down from US$ 19 trillion in the previous year. World trade in commercial services also registered a substantial decline in dollar terms (exports down 6 per cent to US$ 4.7 trillion). Larger declines were recorded in services categories closely linked to merchandise trade (e.g. transport services, down 10 per cent to US$ 876 billion) than in other types of services, in particular travel and other commercial services, both down 5 per cent to US$ 1,230 billion and US$ 2,495 billion respectively.
The discrepancy between trade growth in 2015 in terms of volume and value was mostly attributable to large swings in commodity prices and exchange rates. Fuels registered the largest price decline of any commodity group (down 63 per cent between June 2014 and December 2015), as a result of new sources of supply such as shale oil and an easing of world energy demand as economic growth slowed in Asia. The decline in metals prices (down 35 per cent over the same period) was smaller than the decline in fuels due to the fact that there was no increase in the supply of metals comparable to the development of shale oil in the United States. Prices of food and agricultural raw materials also fell, by around 22 per cent each between June 2014 and December 2015.
The appreciation of the US dollar contributed to falling commodity prices since most primary products are priced in dollars and a stronger US currency generally allows the same quantity of goods to be purchased with fewer dollars.
The dollar appreciated 13 per cent on average against the currencies of US trading partners in 2015 (i.e. in “nominal effective” terms), and was up even more (19 per cent) between June 2014 and December 2015. The Chinese yuan appreciated along with the dollar, rising 10 per cent on average in 2015 and 13 per cent between June 2014 and December 2015, due to the Chinese currency’s quasi-peg to the US dollar at the time. The appreciation of the yuan may have contributed to the economic slowdown in China to the extent that it made Chinese exports more expensive in foreign markets. Meanwhile, major natural resource exporters such as Brazil and the Russian Federation saw their currencies drop sharply in value in 2014 as falling prices for oil and other commodities reduced export earnings.
Developing economies’ participation in world trade
Merchandise exports – in terms of US dollar values – from developing economies and least-developed countries (LDCs) were badly hit by significantly lower prices for fuels and mining products in 2015. LDCs’ exports suffered the most, recording a 25 per cent decline, while exports from developing economies fell by 14 per cent. LDCs’ share of world exports dropped to below 1 per cent for the first time since 2007.
Exports of commercial services from developing economies contracted by 3 per cent in 2015. The decline in transport exports reflected weak merchandise trade while travel receipts fell only slightly. LDCs recorded growth in exports of commercial services, which rose by 1 per cent, assisted in particular by the continuing expansion of travel exports. However, LDCs’ participation in global exports of commercial services remained negligible at 0.8 per cent.
Spotlight on Africa: Trade in fuels and export diversification
Oil exporters in Latin America, the Middle East and Africa were negatively affected by an increased global supply of oil and the subsequent fall in fuel prices, which dampened growth in those regions. Declines in African exports followed closely the declines in fuel prices, with all eight African oil and gas exporters recording declines in exports in both 2014 and 2015. As a group, the eight African oil and gas exporters experienced a 52 per cent decrease in exports between 2013 and 2015.
One reason for the decrease in fuel exports was the increased oil production by the United States. Between 2012 and 2014 the United States reduced fuel imports from Africa by 59 per cent as a result of increased domestic production. This decrease in fuel imports contributed to a 47 per cent fall in the value of Africa’s total exports to North America during this period. In 2014, North America’s share of Africa’s total exports was only 7 per cent compared with 11 per cent in 2012.
However, among the eight oil and gas exporters, exports of manufactured goods continued to grow. For example, although Algeria’s exports of manufactured goods represent a very small percentage of its total exports, which are dominated by trade in fuels, its exports of manufactured chemicals grew by almost 150 per cent from 2013 to 2014. According to the latest data available, the percentage of manufactured goods as a share of African exports grew from 19 per cent in 2013 to 21 per cent in 2014.
Manufactured goods continued to experience positive trade growth (although at a decelerating rate) in 2013 and 2014 alongside trade of agricultural products, in contrast to exports of fuels and other mining products. The top four traders, which also represent several of the most economically diverse countries in Africa, weathered the downturn in the last few years better than the commodity-dependent oil and gas exporters.
» Download: World Trade Statistical Review 2016 (PDF, 6.86 MB)
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UNCTAD14 sees 90 countries sign up to UN roadmap for elimination of harmful fishing subsidies
Some 90 countries backed an UNCTAD-FAO-UNEP initiative on Wednesday, signing up to a roadmap towards ending harmful fishing subsidies.
Fishing subsidies are estimated to be as high as $35 billion worldwide, of which $20 billion directly contributes to overfishing. According to FAO data, the share of fish stocks within biologically sustainable levels continues to decline, falling from 90 percent under sustainable levels in 1974 to 69 percent in 2013.
Linked to this precipitous decline in fish stocks, global leaders agreed last September a new sustainable development goal (SDG) on fisheries, Goal 14, to conserve and sustainably use the oceans, sea, and marine resources. Target 14.6 addresses the harmful subsidies directly. It has re-energised efforts to reduce subsidies on fisheries.
“Getting 90 countries to sign up to a new initiative in such a short period of time shows both the need for this initiative and the power of UNCTAD in building consensus for meaningful change,” UNCTAD Secretary-General, Dr. Mukhisa Kituyi said.
“I welcome this collaboration with our colleagues at the FAO and UNEP, and look forward to engaging the fisheries sector with our trade and economics expertise,” he said.
The roadmap includes a four-point plan:
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Require countries to provide information on what subsidies they are providing.
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Prohibit those subsidies which contribute to overfishing and illegal fishing.
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Introduce new policies tools to deter the introduction of new harmful subsidies.
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Provide special and differential treatment to developing countries.
Fisheries are a key source of protein and livelihoods for the millions in coastal communities, who are powerless by themselves to tackle the heavily subsidized industrial fishing boats and the overfishing that these involve.
At the launch, UNCTAD Deputy Secretary-General Joakim Reiter said: “The status quo means that we have been watching a tragedy unfolding, without taking sufficient action. It is, frankly, a scandal”.
“This roadmap is a strong and unequivocal plea by all those supporting the joint UNCTAD-FAO-UNEP statement that elimination of harmful fisheries subsidies must be achieved by the next WTO Ministerial Conference in 2017. What we are saying, with one voice, is that decisive action in this area is long overdue,” he said.
UN Environment Executive Director Erik Solheim said: “The time for short-term thinking is over if we are to secure human health and prosperity for centuries to come. After all, if there are no fish left in the sea, there will be no fishing industry.”
Kosta Stamoulis, Assistant Director General of the FAO, said the roadmap manifests joint resolve to move “from decisions and proclamations to action” in line with UNCTAD14’s theme. He expressed FAO’s readiness to support developing country fishing nations to strengthen capacities of their national authorities to introduce and implement effective fish management.
Pascal Lamy, former Director-General of the WTO and former Global Ocean Commissioner, who was present at the launch, welcomed the use of UNCTAD14 to get more countries to sign up and create more pressure for a robust solution in the WTO. “That’s what politics is about,” he said. “Building a coalition.”
The joint UNCTAD-FAO-UNEP roadmap also has support from 4 international and regional governmental organisations, including the Commonwealth and African, Caribbean, and Pacific Group (ACP). It also has support from 10 global civil society organizations, including WWF, Oceana, CUTS International and International Institute of Sustainable Development.
Regulating fisheries subsidies must be an integral part of the implementation of the 2030 Sustainable Development Agenda
UNCTAD-FAO-UNEP Joint Statement, 20 July 2016
With the adoption of the 2030 Agenda for Sustainable Development (September 2015), a Sustainable Development Goal (SDG 14) is exclusively dedicated to the conservation and sustainable use of oceans, seas, and marine resources. This marks the first time in which achieving sustainable management of fisheries and marine resources has been included in the global governance agenda. This goal encompasses a specific target (SDG 14.6) to prohibit by 2020 those fisheries subsidies that lead to overcapacity and overfishing, to eliminate subsidies that contribute to illegal, unreported and unregulated (IUU) fishing and to refrain from adopting such subsidies.
Goal 14 and its targets are vital to ensure domestic and international food security. In FAO’s State of World Fisheries and Aquaculture (2016), FAO estimates that the proportion of assessed marine fish stocks fished within biologically sustainable levels has declined from 90 percent in 1974 to 68.6 percent in 2013, whereas 31.4 percent of fish stocks were at biologically unsustainable levels and, therefore, overfished. The existence of harmful forms of fisheries subsidies remains one of the principal factors that contribute to such overfishing and depletion of fish stocks.
Fisheries subsidies have been roughly estimated to be as high as $35 billion worldwide, of which about $20 billion have been categorized as capacity-enhancing subsidies that directly contribute to overfishing. However, the issue of addressing and removing fisheries subsidies has been a complicated and thorny one. The lack of information concerning countries’ activities and comprehension of the magnitude and impact of such support are persistent problems. Another complication is that there are many types of subsidies. Certain subsidies are associated with development actions focused on developing countries. As such, some subsidies, coupled with development programmes and effective management frameworks, could be instrumental in achieving SDGs. A particular area of concern is the continuation of those subsidies that undermine sustainable development, as noted in the outcome document of the United Nations Conference on Sustainable Development, held in 2012. Failure to address these subsidies will jeopardize the livelihoods of coastal populations, particularly in countries and communities most dependent upon fish production.
Tackling the fisheries subsidies issue through the multilateral and regional trade frameworks has faced difficulties and failed to produce concrete results. However, the opportunity costs of inaction are particularly high. A positive negotiation outcome in the WTO subsidies negotiations, aligned with the SDG’s stated objectives and targets will improve international efforts to address many of the negative impacts of fisheries subsidies, leading to improved transparency on specific governmental subsidy programmes. The recent UNCTAD-Commonwealth’s Ad Hoc Expert Meeting on Trade in Sustainable Fisheries (2015), as well as the International Seminar on Oceans Economy and Trade: Sustainable fisheries, transport and tourism (2016), confirmed that the immediate question facing the international trade community is how to operationalize these global commitments.
The SDG 14 creates new momentum at the multilateral level to address unsustainable practices in the marine capture fisheries sector. Regulating fisheries subsidies cannot be seen as a stand-alone issue. It is vital to adopt a holistic approach for the sector’s development that also addresses market access (tariffs and non-tariff measures) and capacity constraints in implementing sustainable fisheries-related measures.
UNCTAD, FAO and UNEP stand ready to support international efforts to achieve the SDGs and have identified the following minimum outcomes that could contribute to the members’ efforts to meet Target 14.6:
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accurate, additional, practical and feasible provisions for the transparent notification of all relevant fisheries subsidies;
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clear prohibition of subsidies that contribute to overfishing and overcapacity, including subsidies linked to IUU fishing, and those that undermine sustainable development, food and nutritional security, jeopardizing the livelihoods of coastal populations;
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adequate and appropriate instruments and tools to deter introduction of new harmful subsidies; and
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special attention and treatment to developing countries, in particular, the least developed ones and Small Islands Development States (SIDS), so that they can continue to use their marine resources sustainably.
The SDGs and their specific targets represent a comprehensive avenue for advancing sustainability. International Organizations, such as UNCTAD, FAO and UNEP, are ready to support Members States in achieving policy coherence and provide capacity building and technical assistance.
With the FAO Agreement on Port State Measures to Prevent, Deter, and Eliminate Illegal, Unreported, and Unregulated Fishing coming into force on 05 June 2016, an important tool has been launched in the global fight against IUU fishing. We welcome the Agreement’s entry into force and encourage more States to deposit their instruments of adherence to the Agreement. We invite the international community to demonstrate similar determination in prohibiting those fisheries subsidies that lead to overcapacity and overfishing and to eliminate subsidies that contribute to IUU fishing. The entry into force of the Port State Measures Agreement and concerted efforts to eliminate harmful fisheries subsidies represent key elements in a global strategy to protect our oceans and their valuable natural resources for the benefit of current and future generations.
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IMF cuts global growth forecasts on Brexit, warns of risks to outlook
The International Monetary Fund cut its forecasts for global economic growth this year and next as the unexpected U.K. vote to leave the European Union creates a wave of uncertainty amid already-fragile business and consumer confidence.
“The Brexit vote implies a substantial increase in economic, political, and institutional uncertainty, which is projected to have negative macroeconomic consequences, especially in advanced European economies,” according to the IMF’s World Economic Outlook Update released on 19 July 2016.
“Brexit has thrown a spanner in the works,” said Maurice Obstfeld, IMF Chief Economist and Economic Counsellor. And with the event still unfolding, the report says that it is still very difficult to quantify potential repercussions.
The economies of the United Kingdom (U.K.) and Europe will be hit the hardest by fallout from the June 23 referendum, which prompted a change of government in Britain. Global growth, already sluggish, will suffer as a result, putting the onus on policy makers to strengthen banking systems and deliver on plans to carry out much-needed structural reforms.
In particular, policymakers in the U.K. and the European Union (EU) will play a key role in tempering uncertainty that could further damage growth in Europe and elsewhere, the IMF said. It called on them to engineer a “smooth and predictable transition to a new set of post-Brexit trading and financial relationships that as much as possible preserves gains from trade between the U.K. and the EU.”
Global growth remains muted, blow to UK growth
The global economy is projected to expand 3.1 percent this year and 3.4 percent in 2017, according to the IMF (see table). Those forecasts represent a 0.1 percentage point reduction for both years relative to the IMF’s April World Economic Outlook.
The U.K. economy will expand 1.7 percent this year, the IMF said, 0.2 percentage point less than forecast in April. Next year, the nation’s growth will slow to 1.3 percent, down 0.9 point from the April estimate and the biggest reduction among advanced economies. For the euro area, the Fund raised its forecast by 0.1 point this year, to 1.6 percent, and lowered it by 0.2 point in 2017, to 1.4 percent.
Had it not been for Brexit, the IMF was prepared to leave its outlook for this year broadly unchanged as better-than-expected euro area performance offset disappointing U.S. first-quarter growth. The IMF also had been prepared to raise its outlook for 2017 slightly, by 0.1 percentage point, on the back of improved performance in a few big emerging markets, in particular Brazil and Russia.
The IMF said its forecasts were contingent on the “benign” assumptions that uncertainty following the U.K. referendum would gradually wane, the EU and U.K. would manage to avoid a large increase in economic barriers, and that financial market fallout would be limited.
Likelihood of negative outcomes: two scenarios
Even so, the IMF warned that “more negative outcomes are a distinct possibility.” “The real effects of Brexit will play out gradually over time, adding elements of economic and political uncertainty,” said Obstfeld. “This overlay of extra uncertainty, in turn, may open the door to an amplified response of financial markets to negative shocks.”
Because the future effects of Brexit are exceptionally uncertain, the report outlined two scenarios that would reduce world growth to less than 3 percent this year and next.
In the first, “downside” scenario, financial conditions are tighter and consumer confidence weaker than currently assumed, both in the U.K. and the rest of the world, until the first half of 2017, and a portion of U.K. financial services gradually migrates to the euro area. The result would be a further slowdown of global growth this year and next.
The second, “severe” scenario, envisages intensified financial stress, particularly in Europe, a sharper tightening of financial conditions and a bigger blow to confidence. Trade arrangements between the U.K. and the EU would revert to World Trade Organization norms. In this scenario, “the global economy would experience a more significant slowdown” through 2017 that would be more pronounced in advanced economies.
Outlook in other advanced, emerging markets
Brexit’s fallout is likely to be felt in Japan, where a stronger yen will limit growth. The IMF cut its 2016 growth forecast by 0.2 percentage point, to 0.3 percent. Next year, Japan’s economy, the world’s third-largest, is expected to expand 0.1 percent, 0.2 percentage point more than predicted in April, due to postponement of the consumption tax increase.
In the U.S., weaker-than-expected growth in the first quarter prompted the IMF to reduce its 2016 forecast to a gain of 2.2 percent, 0.2 percentage points less than the April outlook. The IMF left its 2017 forecast for U.S. growth unchanged at 2.5 percent.
China’s growth forecast for 2016 is up 0.1 percentage point, to 6.6 percent, and is unchanged for 2017 at 6.2 percent. Brexit fallout is likely to be muted for China, the world’s second-largest economy, because of its limited trade and financial links with the U.K.
“However, should growth in the European Union be affected significantly, the adverse effect on China could be material,” the IMF said.
The outlook for other emerging and developing economies remains diverse and broadly unchanged relative to April. That said, gains in the emerging group are matched by losses in low-income economies. Indeed, low-income countries saw a large downward revision in 2016, in large part driven by the economic contraction in Nigeria, and also worsened outlook in South Africa, Angola, and Gabon.
Risks across the world
The IMF cited other risks to its outlook, which could be further exacerbated by Brexit. It cited “unresolved legacy issues in the European banking system, in particular in Italian and Portuguese banks.”
“Protracted financial market turbulence and rising global risk aversion could have severe macroeconomic repercussions, including through the intensification of bank distress, particularly in vulnerable economies.”
The Fund also warned that “political divisions within advanced economies may hamper efforts to tackle long-standing structural challenges and the refugee problem” and that “a shift toward protectionist policies is a distinct threat.”
Geopolitical tensions and terrorism are also taking a heavy toll on the outlook in several economies, especially in the Middle East, with further cross border ramifications.
Policy implications: more growth and stability needed
Turning to policy implications, the IMF said a “combination of near-term demand support and structural reforms to reinvigorate medium-term growth remain essential” in advanced economies, which continue to suffer from “significant economic slack and a weak inflation outlook.”
The IMF urged advanced nations to avoid relying too heavily on monetary policy to spur their economies and to exploit synergies among a range of policy tools.
“Stronger reliance on measures to support domestic demand, especially in creditor countries with policy space, would help reduce global imbalances while contributing to stronger world growth,” it said.
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tralac’s Daily News Selection
The selection: Thursday, 21 July 2016
Trade negotiators close to a deal as battle of wording continues (Business Daily)
The developed world is opposed to the strengthening of UNCTAD’s mandate to a decision making organ of the UN and prefers it to remain a technical assistance institution. “The question is how far UNCTAD shall work. Is UNCTAD an advisory body, a capacity building organisation or a law making organisation, that is the issue,” the chair of the European Parliament’s INTA-DEVE Bernd Lange told journalists, adding that the EU’s position is that there is the WTO and there are other bodies that advice on international trade. The Group of 77, a group of 134 developing countries and China, want a stronger UNCTAD with the statistical capacity to measure South-South Co-operation, offer technical assistance and whose analysis translates to concrete policy advice and with a role in driving intergovernmental monitoring and implementation, especially in the developing world.
Developing countries lose 10% of exports on non-tariff measures (UNCTAD)
“These kinds of measures are becoming increasingly widespread,” said UNCTAD Deputy Secretary-General Joakim Reiter. “For example, measures on the cleanliness and pathogen-free status of food – known as sanitary and phytosanitary measures – cover more than 60% of agricultural trade. Such regulatory measures disproportionately increase trade costs for small and medium-sized enterprises and developing countries, particularly the least developed. We estimate, for example, that the impact of the European Union’s sanitary and phytosanitary measures comes to a loss of about $3bn for low-income country exports. That’s equal to 14% of their agricultural trade with the European Union."
Aiming to enhance transparency on non-tariff measures, UNCTAD also launched on Tuesday a database to list the non-tariff measures of 56 countries, covering 80% of world trade. The database allows policymakers to search by country and product to find out quickly the relevant non-tariff requirements. The African Union has already requested that UNCTAD support them with the Continental Free Trade Area by setting up a similar database. This database will provide the necessary information on non-tariff measures so that negotiators can harmonize their regulations, cutting the costs of trade.
Kenya mulls how to bridge trade gap with South Africa (Business Daily)
Kenya is seeking to offset trade imbalance with South Africa by focusing on services where the East African country has a comparative advantage. Industrialisation secretary Adan Mohamed on Tuesday met South Africa’s minister of Trade and Industry Rob Davies to discuss a framework for engagement before the end of the year. According to the Export Promotion Council, Kenya’s imports from South Africa have increased from $287.7m in 2003 to $477.4m in 2007, a rise of about 66% while exports have been decreasing from $51m in 2004. Mr Davies said South Africa was keen on building trade in services with its African counterparts which it has not explored. “We want to have measurable and tangible progress because countries meet sign frameworks but have very little follow-up activity,” he said.
EU legislators push for new EPA deadline to ‘save Kenya’ (Business Daily)
Bernd Lange, the chairman of a joint EU delegation of Trade and Development Committee attending the 14th United Nations Conference on Trade and Development in Nairobi, said Kenya would be the biggest casualty should the standoff persist. “Our first proposal is to have the October 1st deadline extended to allow for more time and see whether Tanzania will agree to sign or if Burundi will improve her democratic situation and evade sanction from the European Union. If none of these happen then I expect that Kenya will apply for the GSP [Generalised System of Preferences] Plus and when it is received then we can begin the market access regulations and save Kenya,” Mr Lange said. [Kenya sees regional trade deal with EU on time, despite Brexit: minister]
SADC: Corridor development and trade facilitation (pdf, Southern Africa Business Forum)
This Working Group aims to facilitate regional trade – a prerequisite for economic transformation, value chain development and growth in the region. During the next meeting of the Working Group (26 July), members will be updated on developments in three projects of the Group: (i) Kasumbalesa border cooperation to enhance trade facilitation along the North-South Corridor, (ii) Impact-based industry lobbying at the Beit Bridge Border Post to improve North-South linkages, and (iii) the development of a SADC Simplified Trade Regime to assist small traders. [Related working group meetings: Agro-processing, Pharmaceuticals and health, Mining]
Traders vow to shut down Beitbridge border (eNCA)
The International Cross Border Traders Association on Tuesday warned it would bring the Beitbridge border post between South Africa and Zimbabwe to a standstill. The association, with over 15,000 members, said it would give Zimbabwean President Robert Mugabe’s government a week to lift a ban on certain imports. Its president Dennis Juru was addressing the media in Braamfontein together with members of the #Tajamuka movement.
Mozambique: Trade Facilitation Agreement update (SPEED)
Mozambique has actually made a lot of progress on customs modernization and implementing systems to improve trade – but many reforms already on the table may gain momentum and be financed through the TFA process. Partly in order to access such funding, Mozambique recently underwent a ‘categorization process’ – effectively, going through all the various provisions of the TFA and establishing whether they are already being implemented (‘Category A’), easily implementable internally by the government within a certain transition period (‘Category B’) or would require donor technical and/or financial support (‘Category C’). Unsurprisingly, given that Mozambique has been implementing reforms in customs for many years, the country has already reached Category A for a large number of provisions. For 24 out of 41 provisions, the country is already compliant. For a further 7 provisions, the country can become compliant without donor support, within 1-2 years. There are ten provisions that require donor support and will take some time to implement.
Related: Trade facilitation and regional integration in Africa: blog by Jan Hoffmann (UNCTAD), Essays on regional integration dynamics in Africa (GREAT Insights), UNCTAD Transport and Trade Facilitation Newsletter: Second Quarter (pdf, UNCTAD)
East African central banks to rebuild forex reserves (Daily Monitor)
The Eastern African Community central bank governors have agreed on the policy of increasing their foreign exchange reserves to guard against any external shocks/risks facing the region’s economies. In a joint communique issued by five governors of EAC member states at the end of the 20th ordinary meeting of the Monetary Affairs Committee (MAC) of EAC at Kampala Serena Hotel last week, they said global financial and economic developments continue to impact on the EAC economies. “Governors reiterated the need to rebuild international reserve buffers and strengthen their financial sector regulatory frameworks to ensure financial stability,” the joint communiqué reads, in part. [Harmonise economic policies, says EAC]
Thomas Lassourd, Alexandra Readhead: ‘Treasuries in Africa’s mining hubs under pressure’ (IPPMedia)
The bust in mineral and oil prices has left many resource producers with budget shortfalls. The cuts in public spending that are likely to ensue threaten social spending and development plans. With $35bn worth of Eurobond debt maturing between 2021 and 2025, African mineral producers have only a few years to right the ship. As finance ministers weigh options to balance their budgets, they will want to ensure that taxpayers pay their due. But this is easier said than done. Tax administration in many countries is weak, and tax policies suboptimal. This leaves governments vulnerable to manoeuvring by multinational companies – in the mining sector in particular – whose complex corporate structures allow them to make the most of the many loopholes and peculiarities of the global tax system. Subsidiaries of global mining companies in Africa mostly trade with companies with which they are affiliated. [Transfer pricing and tax base erosion in Africa: NRGI report, case studies from Zambia, Tanzania, Sierra Leone, Ghana, Guinea]
The 2016 High-Level Political Forum on Sustainable Development closes (ECOSOC)
The 2016 High-Level Political Forum on Sustainable Development concluded with the adoption of a declaration that committed ministers from around the world to leaving no one behind in implementing the 2030 Agenda for Sustainable Development. Through the text, Forum ministers stressed that the 2030 Agenda was a plan of action for people, planet and prosperity that also sought to strengthen universal peace in larger freedom. In its final day of proceedings for its 2016 session, the Forum heard voluntary national reviews from 10 countries, spanning many regions of the world. Presenters discussed steps that had already been taken to integrate the 2030 Agenda into national plans, while also outlining challenges they faced in implementing the future development framework.
Bill Gates’s Nelson Mandela Lecture: 'Here are the four things that will determine Africa’s future...'
Young people are better than old people at driving innovation, because they are not locked in by the limits of the past. I was 19 when I founded Microsoft. Steve Jobs was 21 when he started Apple. Mark Zuckerberg was 19 when he created Facebook. So I’m inspired by the young African entrepreneurs driving startup booms in the Silicon Savannahs from Johannesburg and Cape Town to Lagos and Nairobi. The real returns, though, will come if we can multiply this talent for innovation by the whole of Africa’s growing youth population. In my view, there are four things that will determine Africa’s future: health and nutrition, education, economic opportunity, and good governance. [Kigali Innovation Village: update]
Unleashing the power of e-commerce for development: UNCTAD ministerial round table summary (UNCTAD)
In the ensuing discussions, a number of participants highlighted the challenges facing developing and transition economies in reaping the gains from e-commerce. These challenges included, for example, poor infrastructure, inadequate logistics, low adoption rates of information and communications technology, outdated legal and regulatory frameworks, and lack of payment solutions and financing, as well as of relevant digital skills. The capacity and ability to engage successfully in e-commerce varied significantly by country. Indeed, the e-commerce divide was even wider than the digital divide. As the digital economy was increasingly part of the real economy, digital and e-commerce divides could readily translate into real economic divides. [Ashly Hope: 'E-trade and electronic payments' (tralac), USTR Froman announces new digital trade working group (USTR)]
The 50 Million Women Speak platform: appraisal report (AfDB)
The project will create and deploy a social media platform, 50 Million Women Speak platform, that will enable women to access business training, mentorship, financial services and locally-relevant business information, while building their own networks of contacts. It will build on the ubiquity and popularity of mobile phones so that the burden of learning and accessing information and services is limited, allowing women to manage their businesses and their social circumstances. Given that the project seeks to cut across three regional economic communities comprising 3 RECs with a population of about 977 million, the impact would be felt. Cross border policy-regulatory and institutional reforms in the financial sector to support the platform coupled with better coordination, harmonization and synchronization mechanisms would create inclusiveness and set the appropriate environment for growth. In doing so, it will address the key development challenges: [Appraisal report: Nelson Mandela Institutes – African Institutions of Science and Technology Project (pdf)]
Tanzania: Chinese bank approves Sh16tr for Central Line (The Citizen)
China Exim Bank has approved a loan of $7.6 billion (about Sh16 trillion) to Tanzania for upgrading the Central Railway Line into standard gauge. China Exim Bank president Liu Liang told President John Magufuli at Chamwino State Lodge in Dodoma yesterday that the loan would finance the construction of the 2,190-kilometre railway. [TAZARA wins another big fuel transport deal (Daily News)]
Rwanda: Coffee export revenue drops by 5% during 2015/16 FY (New Times)
Rwanda’s coffee export revenues dropped by 5.17% to $60.7m last fiscal year, from $64.03m registered the previous year, a new National Agricultural Export Board report indicates. This represents a decline of over $3m in revenue, or 5.17%, compared to the same period the previous year. The year’s earnings were also way below $76.2m target NAEB had projected. The agro-export body attributed the decrease to the drop in global coffee prices over the reporting period. However, the volumes exported increased to 19.6 million kilos over the period, up from 16.5 million kilogrammes exported the previous year.
Somalia: crime and deterrence on the high seas (World Bank)
Mapping rural Mozambique: findings from a World Bank mission (World Bank)
Angola's intention to join SADC Free Trade Zone reaffirmed (Daily News)
Justice ministers, attorney generals discuss SADC legal instruments (Daily News)
Shoprite jumps most since 1997 as African sales growth increases (Bloomberg)
Nile Equatorial Lakes countries: interconnection of electric grids (pdf, AfDB)
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Developing countries lose 10 percent of exports on non-tariff measures
Least developed countries lose an estimated $23 billion per year, equal to about 10 per cent of their exports to the Group of 20 (G20) through failure to comply with G20 non-tariff measures, according to new data published by UNCTAD on Tuesday.
Non-tariff measures cover a broad range of legitimate and important policy instruments, including measures to protect the health of a country’s citizens and its environments, too. For example, non-tariff measures may limit the use of pesticides in food.
But as tariffs have fallen to historic lows, non-tariff measures have replaced them as a key brake on faster global trade growth. And the expansion of the middle classes in many countries is expected to increase demand for safer, cleaner products. This, in turn, may require Governments to introduce more non-tariff measures.
“These kinds of measures are becoming increasingly widespread,” said UNCTAD Deputy Secretary-General Joakim Reiter. “For example, measures on the cleanliness and pathogen-free status of food – known as sanitary and phytosanitary measures – cover more than 60 per cent of agricultural trade.”
“Such regulatory measures disproportionately increase trade costs for small and medium-sized enterprises and developing countries, particularly the least developed. We estimate, for example, that the impact of the European Union’s sanitary and phytosanitary measures comes to a loss of about $3 billion for low-income country exports. That’s equal to 14 per cent of their agricultural trade with the European Union.”
But, Mr. Reiter added: “We certainly don’t expect G20 countries to drop all their non-tariff measures, which serve important policy objectives such as health and safety, but we do need to manage this issue better.”
“Non-tariff measures are the new frontier in our quest for greater global trade,” he said, noting that better information would reduce the costs of non-tariff measures. “It’s all about transparency and harmonizing regulations.”
Aiming to enhance transparency on non-tariff measures, UNCTAD also launched on Tuesday a database to list the non-tariff measures of 56 countries, covering 80 per cent of world trade. The database allows policymakers to search by country and product to find out quickly the relevant non-tariff requirements.
“This database will improve countries’ ability to understand the regulatory requirements, helping them to comply more easily and at less cost,” said Guillermo Valles, Director of the Division on International Trade in Goods and Services, and Commodities.
Policymakers can use the database, for example, to harmonize their regulations and accelerate the growth of regional trade.
The African Union has already requested that UNCTAD support them with the Continental Free Trade Area by setting up a similar database. This database will provide the necessary information on non-tariff measures so that negotiators can harmonize their regulations, cutting the costs of trade.
Low-income countries tend to be disproportionately affected by non-tariff measures. Their companies are smaller and so the non-tariff measures, which have fixed costs, become disproportionately more expensive.
Non-tariff measures have a valuable contribution to make in achieving the Sustainable Development Goals, by protecting health and the environment.
“The use of non-tariff measures in the world will increase but this should be done in a smart way, for example by using international standards to a maximum extent,” said Ralf Peters, Chief ad interim of the Trade Analysis Branch. “Use non-tariff measures to protect your citizens, but don’t let them compromise trade because that will block economic growth and job creation.”
Launch of the largest global Non-Tariff Measures database: TRAINS
On the occasion of its fourteenth Ministerial Conference, UNCTAD launched the largest global database on Non-Tariff Measures during the Ministerial round table ‘Lowering hurdles for Trade: Trade Costs, Regulatory Convergence and Regional Integration’.
TRAINS covers 56 countries accounting for 80 per cent of world trade. It is the most comprehensive NTMs data base containing more than thirty-eight thousand measures.
The information covers a broad range of policy instruments, including traditional trade policy instruments such as quotas or price controls, as well as regulatory and technical measures that stem from important non-trade objectives, related to health and environmental protection (Sanitary and Phytosanitary (SPS) measures and Technical Barriers to Trade (TBT)).
NTMs become increasingly important for policy makers as tariffs have been reduced significantly in trade agreements as well as unilaterally. In fact, the ability to gain and to benefit from market access depends increasingly on compliance with regulatory measures such as sanitary requirements and goods standards. These NTMs represent a challenge for exporters, importers and policy makers. Systematic information about NTMs has been scarce and difficult to obtain.
The objective of the TRAINS database is to increase transparency and understanding about regulations and trade control measures. UNCTAD coordinates the international effort to reduce the transparency gap. Key partners are the African Development Bank, ALADI secretariat (from Latin America), ERIA (ASEAN), ITC, the World Bank and WTO. UNCTAD is also grateful for financial support from Canada, the European Commission, Germany, GRIPS (from Japan), Japan, the Russian Federation and the United States.
Among many other useful functions, TRAINS enables policy makers, companies and researchers to view the incidence and types of NTMs by product. For instance, which labelling is required for exports of canned fruits exported from country A to country B? Researchers can use the data to assess the impact of NTMs on international trade.
The data has been collected from official sources, mainly national laws and regulations. Measures are classified according to the International Classification of NTMs (developed by UNCTAD and the MAST group) at the most detailed level and the Harmonized System (HS) classification at the national tariff line level. It includes links to original documents and descriptive statistics. The data is provided systematically by country, type of NTM, affected product and partner country and has about 30 variables including the source of information, dates, textual descriptions etc. The interface is a version of WTO’s I-TIP, which has been developed by the WTO for notifications.
Available countries: Afghanistan, Argentina, Australia, Benin, Burkina Faso, Bolivia, Brazil, Brunei Darussalam, Canada, Chile, China, Cote d’Ivoire, Colombia, Cape Verde, Costa Rica, Cuba, Ecuador, Ethiopia, European Union, Ghana, Guinea, Gambia, Guatemala, Honduras, Indonesia, India, Japan, Kazakhstan, Cambodia, Lao People’s Democratic Republic, Liberia, Sri Lanka, Mexico, Mali, Myanmar, Malaysia, Niger, Nigeria, Nicaragua, Nepal, New Zealand, Pakistan, Panama, Peru, Philippines, Paraguay, Senegal, Singapore, El Salvador, Togo, Thailand, Tajikistan, Uruguay, United States of America, the Bolivarian Republic of Venezuela, Vietnam.
Lowering Hurdles for Trade: Trade Costs, Regulatory Convergence, and Regional Integration
Statement by the Deputy Secretary-General of UNCTAD, Joakim Reiter
As tariffs have fallen to historic lows, non-tariff measures are increasingly the more significant hurdles to developing country exporters.
But because many regulatory measures serve primarily non-trade-related purposes, they cannot be readily abolished like tariffs. They often serve a range of public health, labor, or environmental concerns – such as Sanitary and Phytosanitary measures or Technical Barriers to Trade.
They are needed to respond to the concerns of our citizens. And when based on international standards, they can promote trust between nations and a common language between traders.
These kinds of measures are also becoming increasingly widespread. Sanitary and Phytosanitary measures, for example, cover more than 60% of agricultural trade. Technical Barriers to Trade cover almost 70% of world trade.
Such regulatory measures disproportionately add to trade costs of SMEs and developing countries, particularly the LDCs. According to our estimates, for example, the trade impact of the EU’s SPS measures amounts to a loss of about US$3 billion for low-income country exports. That’s equivalent to 14 percent of their agricultural trade with the EU.
Similarly, according to our calculations, the non-tariff measures applied by the G20 countries reduce LDC exports by $23 billion. To put that in perspective, that is more than twice the effect of current tariffs.
Small firms – those that are incidentally most likely to create jobs – are often the most affected. It's no secret that highly technical regulations often deter small firms from global markets.
We must do much to mitigate such effects:
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We can do more to coach and train small developing-country exporters.
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we should be better at fostering regulatory convergence, especially at regional level, based on international standards.
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we must also work at the multilateral level to simplify and improve the transparency of procedural and regulatory requirements.
The ability of developing country exporters to comply with non-tariff measures, and in particular with SPS measures and TBTs, hinges at the very least on the relative clarity of the measure in question.
And even on this basic point, serious hurdles emerge.
Despite the widespread use of non-tariff measures, there remains a significant “transparency gap.”
This is where UNCTAD fills the gap.
In collaboration with several partners, we collect comprehensive data on non-tariff measures. Our hope is that we can bridge the transparency gap and make it easier for developing country exporters to navigate these obstacles to trade.
And it is my pleasure to announce that UNCTAD is launching today, during this session, the largest single global database on Non-Tariff Measures. The database covers 56 countries accounting for 80 per cent of world trade.
In UNCTAD, we aspire to reduce the costs that prevent developing countries from capitalizing fully on the opportunities of greater trade and investment. Non-tariff measures, therefore, is a key priority for us.
Let me stop here, wish you a productive and engaging session and turn over the floor to our moderator, Kevin McKinley of ISO.
Thank you for your attention.
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Trade negotiators close to a deal as battle of wording continues
The United Nations Conference on Trade and Development’s (UNCTAD) Nairobi meeting closed its fourth day closer to a deal on a final declaration even as intense lobbying continued on the wording of the text.
The differences are centred on developing countries’ quest for a deal with better trading terms that will boost their economies while their developed counterparts remained focused on stability of the international trading system.
“We are seeking an outcome that will amount to meaningful action that moves the developing nations and I think no one, including the EU, is against that,” Kenya’s Foreign Affairs principal secretary Monica Juma said, adding that differences remained on how the text is structured and nuanced.
Delegates said negotiations were particularly intense on how to frame segments of the final declaration on debt management, tax, gender and technology transfer.
Kenya’s Foreign Affairs and International Trade secretary Amina Mohamed said the talks had entered a hard bargaining phase that stretched well past midnight on Tuesday and would be concluded before Friday.
The EU said it supported the use of trade as the main instrument through which least developed countries (LDCs) that are lagging behind will be lifted from poverty.
Some 48 LDCs control only one per cent share of the global trade, making improvement of trading terms critical to their advancement.
Differences however remain on how any new trade deal will sit within the many existing frameworks, including the WTO and UNCTAD.
The European Union (EU) has also taken issue with the segments of the text on Overseas Development Assistance (ODA) and the developing world’s quest to strengthen UNCTAD’s mandate.
The developed world is opposed to the strengthening of UNCTAD’s mandate to a decision making organ of the UN and prefers it to remain a technical assistance institution.
“The question is how far UNCTAD shall work. Is UNCTAD an advisory body, a capacity building organisation or a law making organisation, that is the issue,” the chair of the European Parliament’s INTA-DEVE Bernd Lange told journalists, adding that the EU’s position is that there is the WTO and there are other bodies that advice on international trade.
The Group of 77, a group of 134 developing countries and China, want a stronger UNCTAD with the statistical capacity to measure South-South Co-operation, offer technical assistance and whose analysis translates to concrete policy advice and with a role in driving intergovernmental monitoring and implementation, especially in the developing world.
Besides, the developing nations want implementation of the Principles on Sovereign Debt Restructuring Processes hinged on a UN law related to debt contracts.
That should result in a single legally-binding process to negotiate all sovereign debt similar to how corporations use insolvency law to resolve their debt issues.
The European Union has however led efforts to block the text outlining principles of debt restructuring insisting that it prefers debt management.
The two camps have also disagreed on how to treat tax policies with developing countries demanding equal say in how taxes are set, dealing with tax avoidance, misinvoicing and illicit financial flows.
UNCTAD released a report revealing that commodity dependent developing countries are losing as much as 67 per cent of their exports worth billions of dollars to trade misinvoicing.
Mr Lange said the EU supported measures to get companies to pay their fair share of taxes to developing nations as this was crucial to their development.
“Tax is crucial for development and tax avoidance that takes money out of these countries is unacceptable. We have to respect how we create a new system and build capacity that enables everybody to collect the tax due to them,” he said.
Some countries are also uncomfortable with gender clauses which they say are stretching the mandate of UNCTAD given the limited resources.
On ODA, the Group of 77 is asking the developed world to pay ‘commitment debt’.
“We reiterate the importance of achieving particular targets for official development assistance of 0.7 per cent of gross national income to developing countries and 0.15 per cent to 0.2 per cent of gross national income to least developed countries as well as further enhancement of resources for the least developed countries,” the draft Group of 77 Ministerial Declaration text reads.
UNCTAD released a report indicating that if the developed world kept promises made in Mexico in 2002 to put 0.7 per cent of their gross national income into oversees aid, the developing South would have been $2 trillion better off.
Ms Mohamed said the negotiators had dealt with about 100 paragraphs of the 200 plus paragraph document and stood to have an agreeable ministerial declaration on time.
“We are not there yet but the document is 60 per cent done, we are hopeful to complete the 40 per cent soon,” CS Amina said.
Kenya will also deliver a political declaration prepared by the country’s diplomats called Azimio - Kiswahili for resolution.
Ms Mohamed said the draft was almost ready and would be shared among the ministers on Thursday before being presented on Friday for adoption along the technical Nairobi consensus.
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Ministers adopt declaration to include everyone in efforts for achieving sustainable development agenda, as High-Level Political Forum concludes
The 2016 High-Level Political Forum on Sustainable Development concluded today with the adoption of a declaration that committed ministers from around the world to leaving no one behind in implementing the 2030 Agenda for Sustainable Development.
Prior to the adoption, the representative of Nicaragua had requested a recorded vote to delete paragraph 19 from the declaration. By 141 votes in favour to 1 against (Nicaragua), with 3 abstentions (Egypt, Myanmar, Russian Federation), the Council rejected the proposal.
Through the text, Forum ministers stressed that the 2030 Agenda was a plan of action for people, planet and prosperity that also sought to strengthen universal peace in larger freedom. While reaffirming that eradicating poverty in all its forms was the greatest global challenge and an indispensable requirement for sustainable development, they welcomed early efforts to address unfinished business from the Millennium Development Goals.
Speaking before the vote, the representative of Nicaragua said that during negotiations, there was no respect for General Assembly resolution 67/290, which guided the work of high-level meetings under the Council’s auspices. Certain things had been imposed on sovereign countries, he said, recalling that Nicaragua had rejected the Paris Agreement, a fact that should be respected.
Expressing support for including the paragraph in the text, a number of delegates underscored the need to truly reflect the views of all while others recognized that each State had the sovereign right to make its own decisions.
“It was only through active engagement and commitment that the High-Level Political Forum could fulfil its mandate,” said Wu Hongbo, Under-Secretary-General for Economic and Social Affairs, emphasizing that it provided political leadership, guidance and recommendations for follow-up and review. Congratulating 22 Member States for presenting national reviews, he stressed that they had showcased national actions and identified gaps.
Similarly, Council President Oh Joon (Republic of Korea) stressed that the implementation of the Sustainable Development Goals required a transformative leadership, describing national development plans as the starting point. Such strategies must focus on reaching out to the most vulnerable, eradicating poverty and addressing discrimination.
In its final day of proceedings for its 2016 session, the Forum heard voluntary national reviews from 10 countries, spanning many regions of the world. Presenters discussed steps that had already been taken to integrate the 2030 Agenda into national plans, while also outlining challenges they faced in implementing the future development framework. Countries providing national assessments were Togo, Estonia, Philippines, Colombia, Egypt, France, China, Venezuela and the Republic of Korea.
Prime Minister Sélom Klassou of Togo, said the country faced significant development challenges requiring new solutions. He recalled that Togo had participated in the consultations leading up to the adoption of the 2030 Agenda, and had been selected as one of two pilot countries for the Sustainable Development Goals. Since then, the Government had taken a number of steps to integrate the global Goals into existing development strategies, he said, adding that, as Togo awaited the adoption of its updated national sustainable development plan, it would continue with a number of flagship projects for the most disadvantaged and seek to mobilize both domestic and international resources.
Hanno Pevkur, Minister for Internal Affairs of Estonia, said his Government was already implementing measures and taking actions in the field related to all 17 of the Goals, although it would be a challenge for Estonia to provide the data needed to measure progress at the global level. Ensuring productivity, developing an energy- and resource-efficient economy, addressing the needs of low-income citizens and decreasing the gender pay gap were other challenges. To preserve Estonia’s rich biodiversity, one fifth of the national territory enjoyed protected status, he said, pointing out that e-services were also in place to help make taxation processes and business start-ups extremely easy and efficient.
Choi Jong-moon, Deputy Minister for Multilateral and Global Affairs of the Republic of Korea, recalled that the country had experienced significant increases in its gross national income per capita and export volume over the last 50 years. Still, the country was facing challenges, such as the slowdown of economic growth, polarization of society, and low fertility rates. To address such issues and to implement the Sustainable Development Goals, the Committee on International Development Cooperation coordinated official development assistance (ODA) policies, he highlighted, while the Presidential Commission on Green Growth promoted the development of low-carbon and green technologies and industries.
In a parallel meeting under the main theme of “ensuring that no one is left behind”, the Forum continued its general debate where speakers discussed national efforts, synergies and partnerships between actors, and the use of reliable and aggregated data. Also today, the Forum held a panel discussion titled “prospects for the future (projections, scenarios and new and emerging issues)”.
Participating in the general debate were representatives, ministers and other senior Government officials of Libya, Croatia, Luxembourg, Germany, South Africa, Ukraine, Brazil, Jamaica, Syria, Romania, Guatemala, Ecuador, Kazakhstan, Ireland, Nepal, Slovakia, Papua New Guinea, Singapore, United Kingdom, Mali, Sudan, Lebanon, Bolivia, Indonesia, Trinidad and Tobago, United Arab Emirates, Pakistan, Myanmar, Azerbaijan, Albania, Cuba, Tunisia and Jordan, as well as the Holy See.
Also delivering statements were speakers and other stakeholders, including organizations representing the major groups for children and youth, indigenous people, business and industry, workers and trade unions, older persons and persons with disabilities.
Also speaking were representatives of the World Bank, International Telecommunications Union (ITU), Food and Agriculture Organization (FAO), International Labour Organization (ILO), United Nations Entity for Gender Equality and the Empowerment of Women (UN-Women), United Nations Office for Disaster Risk Reduction and the Joint United Nations Programme on HIV/AIDS (UNAIDS).
Taking the floor as well were representatives of the Inter-Parliamentary Union, International Organization of the Francophonie, League of Arab States and the Organisation for Economic Co-operation and Development.
Speaking during the action on the Ministerial Declaration were the representatives of Nicaragua, Algeria, Egypt, Ecuador, Slovakia, Cuba, Bolivia, Venezuela, Russian Federation, Algeria, Iran and the United States.
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Kenya mulls how to bridge trade gap with South Africa
Kenya is seeking to offset trade imbalance with South Africa by focusing on services where the East African country has a comparative advantage.
Industrialisation secretary Adan Mohamed on Tuesday met South Africa’s minister of Trade and Industry Rob Davies to discuss a framework for engagement before the end of the year.
According to the Export Promotion Council, Kenya’s imports from South Africa have increased from $287.7 million in 2003 to $ 477.4 million in 2007, a rise of about 66 per cent while exports have been decreasing from $51 million in 2004.
This means that the share of Kenya’s total exports in the South Africa’s global imports has remained below one per cent.
During bilateral talks with Mr Davies, Mr Mohamed agreed to hold match making meetings between business delegations from Kenya and South Africa during a state visit later in the year.
Mr Davies said South Africa was keen on building trade in services with its African counterparts which it has not explored.
“We want to have measurable and tangible progress because countries meet sign frameworks but have very little follow-up activity,” he said.
The South African minister said the country had come up with Trade Investment African arm to encourage the countries companies to expand trade into the continent.
Kenya is also seeking access into the South African market for mainly tea and avocado exports.
Mr Davies said this could happen if the countries speed up implementation of the tripartite free trade agreement that would bring together the East African Community, the Common Market for Eastern and Southern Africa (Comesa) and Southern African Development Community.
“I know Kenya wants a bilateral with us on tea and avocado but how do we do it, it will be addressed under the tripartite,” he said.
Mr Mohamed has also been holding sideline bilateral talks with governments to build networks for future engagements.
Yesterday, he was scheduled to meet Sri Lanka minister of Industry and Commerce Risad Badhiutheen and International Trade Centre chief executive Arancha Gonzalez and hosted a high level CEO matchmaking breakfast and textile sector.
Kenya is also backing African Union intra-African trade where President Uhuru Kenyatta called for the establishment of a Continental Free Trade Area.
The President said boosting intra-African trade would accelerate integration, develop larger markets and foster competition which will help in poverty reduction, growth and sustainable development.
“Equally, pooling economies and markets through regional integration will provide a sufficiently wide economic and market space to make new economies of scale,” said President Kenyatta.
He expressed concern that while 40 per cent of North American trade is with other North American countries and 63 per cent of trade by countries in Western Europe is with other Western European nations, only about 12 per cent of African trade is with other African nations.
State Department of Trade PS Chris Kiptoo also called on the wealthy commonwealth nations to increase investment in vital infrastructure that would make a substantial impact on exports and strengthen the resilience of Africa’s member countries’ economies to shocks.
He said increased trade partnerships with African member countries would boost their integration to the global economy as capital intensive infrastructure are a trade barrier between to increased trade between the partner nations.
“While the continent is spending over $131 billion on infrastructure-related construction which is expected to grow to $200 billion by 2015, there’s an existing funding gap that needs to be addressed,” said Dr Kiptoo said during the Commonwealth ministerial meeting.
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Ministerial round table on unleashing the power of e-commerce for development
The ministerial round table on unleashing the power of e-commerce for development was opened by the Deputy Secretary-General of UNCTAD and brought together Ministers, business executives and leading representatives of the development community to share their views on what policies were needed to unleash the full potential of e-commerce in developing countries.
Several speakers noted that more economic activities were increasingly going online. For large and small enterprises alike, this made it important to engage in e-commerce to access global value chains and to reach customers within national borders and abroad.
There was broad agreement on the potential role of the digital economy in creating new economic opportunities empowering women and youth, and traditionally disadvantaged communities. It was no longer the case when only big corporations had the economies of scale to operate on a global level. Digitalization not only lowered entry costs, it could also reduce information asymmetries and be exploited to bridge the urban-rural divide in many countries.
Some participants observed that e-commerce – like other technology-induced changes – was transformational in nature, creating opportunities and challenges, winners and losers. And in this case, the transformation had been dramatic. For instance, new UNCTAD estimates suggested that global business-to-business e-commerce sales in 2015 had amounted to almost $20 trillion, and business-to-consumer e-commerce sales, to more than $2 trillion. Most of the growth was in emerging economies, with China representing the largest business-to-consumer e-commerce market in the world. Brazil, the Russian Federation, the Republic of Korea and India now ranked among the top 10 business-to-consumer markets.
Moreover, in only two years, the number of online shoppers in the top 10 business-to-consumer e-commerce markets had surged from 600 million to 850 million – an increase of 40 per cent. This illustrated the rapid pace at which this market was expanding. Unless developing countries grasped the rapidly growing opportunity of e-commerce, they risked falling further behind.
In the ensuing discussions, a number of participants highlighted the challenges facing developing and transition economies in reaping the gains from e-commerce. These challenges included, for example, poor infrastructure, inadequate logistics, low adoption rates of information and communications technology, outdated legal and regulatory frameworks, and lack of payment solutions and financing, as well as of relevant digital skills. The capacity and ability to engage successfully in e-commerce varied significantly by country. Indeed, the e-commerce divide was even wider than the digital divide. As the digital economy was increasingly part of the real economy, digital and e-commerce divides could readily translate into real economic divides.
In this context, policy initiatives from Rwanda (Smart Rwanda 2020 Master Plan, Made in Rwanda), Costa Rica and Pakistan were designed to promote e-commerce as an important tool for economic diversification, export growth, employment generation, the development of small and medium-sized enterprises and overall national development. Several speakers drew attention to the low participation rate of small and medium-sized enterprises, especially those from the least developed countries, in the digital economy. They suggested that e-commerce policy initiatives should have targeted support for small and medium-sized enterprises. When designing these policy initiatives, it was necessary to embed them in the national innovation ecosystem.
At the global level, it was important to explore globally compatible systems, including legal frameworks, standards, payments, online consumer protection and dispute settlement, as well as to address the implications of e-trade enabled by new digital development for trade policy and trade facilitation.
There was a call for global partnerships, involving public and private sector stakeholders, to remove obstacles and raise awareness of e-commerce as a driver for sustainable development. Speakers from the private sector spoke about ongoing partnerships with other private sector companies and international institutions to foster the participation of small and medium-sized enterprises in global e-commerce. Furthermore, these experiences could be easily replicated in other countries.
A number of speakers called on UNCTAD to assist developing countries in their efforts to leverage e-commerce for their development strategies. Many commended UNCTAD for having taken the lead in creating the eTrade for All initiative as a positive step in this direction.
The official launch of the eTrade for All initiative, opened by the Secretary-General of UNCTAD, followed the ministerial round table. The initiative was a multi-stakeholder tool for providing more coherent, efficient and transparent support to developing countries in policy areas that were key to building e-commerce readiness in support of the implementation of the 2030 Agenda for Sustainable Development.
Ministers from the Governments of Cambodia, Costa Rica and Pakistan welcomed this timely and collaborative effort to help developing countries, including least developed countries, to benefit more from e-commerce.
Most of the 15 founding partners were present at the launch, including the Economic and Social Commission for Asia and the Pacific, the Economic Commission for Europe, the Enhanced Integrated Framework, eResidency (Estonia), the International Trade Centre, the Islamic Development Bank Group, UNCTAD, the World Bank Group, the World Customs Organization and the World Trade Organization. They all expressed their commitment to engage in the initiative.
The Governments of Finland, Sweden and the United Kingdom of Great Britain and Northern pledged financial support to the initiative, and the Governments of Japan and the Republic of Korea expressed their general support to eTrade for All.
Many private sector representatives expressed support for the initiative, stressing the importance of ensuring an effective public–private dialogue to address remaining challenges in developing countries.
Related News
tralac’s Daily News Selection
The selection: Wednesday, 20 July 2016
Nairobi trade negotiators fight over debt management text (Business Daily)
Sources said the disagreement particularly arose from the European Union’s quest to block the developing world-backed text outlining the principles of sovereign debt treatment – and which referred to debt restructuring as opposed to the EU debt management. Debt restructuring, which is being pushed by the Group of 77, a group of 134 developing countries, seeks the passing of a new legal regime for sovereign debt management. The quest is to have a single legally-binding process through which to negotiate all sovereign debt similar to the insolvency law used by corporations.
Geingob tears into rich nations (New Era)
The President said the United Nations Conference on Trade and Development (UNCTAD) could be the perfect platform to discuss issues such as tax avoidance. Geingob warned African leaders to be vigilant against attempts by some countries to downgrade the mandate of UNCTAD or outsource its responsibilities to other multilateral agencies such as the “World Bank and IMF which are famous for their destructive structural adjustment programmes in African countries”.
Seychelles government predicts changes in economic relations with UK after Brexit (Seychelles News Agency)
Seychelles Minister for Foreign Affairs Joel Morgan delivered a statement in the National Assembly on Tuesday detailing the immediate, mid-term and long-term implications of the so-called Brexit on the 115-island archipelago in the western Indian Ocean. Minister Morgan said it is possible to see a reduction in financial contributions given to developing nations such as Seychelles through the European Development Fund, with the UK being its third-largest contributor. “Although EU countries have committed themselves to fund the 11th EDF until 2020 discussions are already underway to decide what kind of relationship will exist after 2020,” said Morgan. “Our prediction indicates that there will be an impact on the economic relations between Seychelles and UK but politically and other bilateral relations will not be affected. However, it is clear that in the short and long term, there will be important changes in the economic relations between Seychelles, UK and EU,” Morgan concluded.
Uganda takes a dice on AGOA initiative (Daily Monitor)
In a meeting last week with the US Ambassador to Uganda, Ms Deborah Malac, to discuss the progress of the African Growth and Opportunity Act programme in Uganda, the trade, Industry and Co-operatives minister, Ms Amelia Kyambadde, made a case for expansion of the list of eligible products under the AGOA to include products such as sugar, peanuts, dairy, and tobacco. Ambassador Malac said the US embassy, in conjunction with the EA Trade and Investment Hub, was doing an assessment to find new businesses and new value addition sectors that could be supported under AGOA. Uganda Export Promotion Board executive director Mr Elly Twineyo while sharing his view last week on Uganda’s quest for AGOA renegotiation, said: “AGOA is an important market that if renegotiated will not only be one of the best news but benefits accrued from it will be immense.” [Africa doesn't need AGOA – AU (Ghana Business News)]
Donald Kaberuka: ‘Development banks should not be political’ (Daily Monitor)
Uganda has been warned against letting political interference take shape in the operations of the development bank. The warning came from Mr Donald Kaberuka, former executive director of the African Development Bank last week in Kampala at a panel debate hosted by Bank of Uganda to mark 50 years of existence. Mr Kaberuka noted that the African continent had, in the past, suffered the consequences of having poorly run development banks. “We do not need the kind of development banks we had in the 1960s and 1970s. These banks caused us (African governments) fiscal problems. We need a new breed of development banks that are operated on better principles,” he said. Mr Kaberuka noted that development banks should be operated using a private sector model.
Moono Mupotola: 'The African passport as a turning point for an integrated and prosperous Africa' (New Times)
Labour mobility is highly beneficial and can help fill Africa’s labour needs in the education, health and industrial sectors. Ultimately, this should also address the technical skills deficit that is prevalent on the continent. The education sector can also profit from a borderless continent. In July 2013, the Bank announced the creation of a new $154.2 million multinational science, innovation and technology Pan African University (PAU) in the next five years.
The question we should ask ourselves is what skills, labour policies and training facilities are needed at regional level to enable SADC to bring the estimated 800,000 diamond cutters jobs back to the region. The Bank is supporting a number of key initiatives to work on harmonising regulations and policies with a view of facilitating labour mobility, an important enabler for the regional integration and economic development of the continent. One such initiative is the drafting of a new migration policy for the Economic Community of West African States (ECOWAS) which should enhance talent mobility in the region. [AU Summit comes to a successful end with a concerted call for togetherness]
David Lipton: ‘Bridging South Africa’s economic divide’ (IMF)
But now, the cost of insufficient action has reached the critical point. The present trajectory is simply not good enough. What is needed is a fresh and energetic review of South Africa’s policies—followed by action. The litmus test must be that the policy response fosters fundamental change that opens doors for the young people who will be the workers, entrepreneurs and innovators of the next generation; those who can power the economy upward.
Angolans threaten to cancel grazing rights...for being denied access to Namibian markets (New Era)
Since May, thousands of Angolan traders have been flocking to Namibia’s border towns of Oshikango, Rundu and Outapi to sell produce such as sugar cane, tomatoes, mahangu grain and chickens, among others, at relatively low prices. Very few bother to obtain legal documents from the Namibian authorities and most of the traders enter Namibia through unauthorised areas along the border to in fact smuggle their goods into the country. Some traders come from as far as beyond Lubango. Frustrated Namibian street vendors have now started to threaten Angolan traders with violence. Angolans, on the other hand, have also made a tit-for-tat threat, saying if locals continue being hostile to them the tens of thousands of cattle in Angola belonging to Namibians should be brought back to Namibia. [Transport minister highlights cross-border logistics platforms (Angola Press)]
Angola: Foreign traders in Angola will have to pay taxes (Macauhub)
Angola’s Ministry of Trade will register and license the commercial activity carried out by foreigners in the country, including those that are currently illegal, according to a government order establishing a working group responsible for the operation. The government admitted in 2015 that the shadow economy in Angola represents 60% of the economy as a whole, putting the country among the sub-Saharan nations with the biggest shadow economies.
Uganda's Juba traders told to explore alternative markets (EA Business Week)
Uganda's Minister of Trade, Industry and Cooperatives Amelia Kyambadde said the war has affected Uganda’s trade balance sheet with South Sudan. Kyambadde said South Sudan had become Uganda’s leading export destination in 2008 following the signing of the Comprehensive Peace Agreement of 2005. She said total exports (formal + informal) had peaked at $1.18bn in 2008. However, the fighting that broke out in December 2013 resulting to the then subsequent a civil war in South Sudan, caused a steady decrease in Uganda’s exports from $414m in 2013, to $385m in 2014, and $353m in 2015.
Mozambique: budget review focuses only on spending (Macauhub)
Finance Minister Adriano Maleiane mentioned as reasons for the government to propose a revision of the state budget: the slowdown in economic growth from 7.0% to 4.5%, the increase in the inflation rate to an estimated annual average of 16.7% and the increase of the 10.2% budget deficit to 11.3% of GDP, a percentage that is equivalent to US$77.8bn
Zimbabwe: launch of national standardisation strategy (NewsDay)
“The development of the national standardisation strategy will be driven by the Standards Association of Zimbabwe and is key to improving the capacity of SAZ to perform their mission effectively and efficiently. This will be accomplished by relating the development of standards with economic, social, environmental and other priorities of the country in line with existing government policies such as ZimAsset, the industrial development policy and the national trade policy, as well as regional development agendas under Comesa, Sadc and the African Union,” Industry and Commerce minister Mike Bimha said.
Tanzania: Leather industry faces bleak future (Daily News)
Tanzania's leather industry faces bleak future as global commodity price slump lowered demand for value added leather products from major importers. “The situation is worse as very little is being exported due to fall of demand from the most importing countries including China and Pakistan thus leaving most godowns full of packed semi processed leather products,” Mr Joram Wakari of the Leather Association of Tanzania said. [PM to grace forum on local content in industrialisation (IPPMedia)
Rwanda: BRD chief says to focus on key drivers of economic growth (New Times)
The New Times’ Collins Mwai sat down with the CEO of Development Bank of Rwanda, Alex Kanyankole, on the new role of the restructured development bank: Export financing is one of the key priorities for the bank. There is need to do more of export promotion projects to reduce the gap between imports and exports. Under the patronage of the Ministry of Trade and Industry, there is an initiative of export growth facility which will help exporters deal with issues of guarantees in projects, prohibitive interest rates and accessing licenses and markets.
Namibia: New Investment Promotion Bill at advanced stage (New Era)
The New Investment Promotion Bill has progressed to its final stages and was submitted to legal drafters for scrutiny before tabling in parliament. Furthermore, the Ministry of Industrialisation, Trade and SME Development has revealed that it started drafting the regulations for the new Investment Promotion Act, which will form part of the governing structure under which investments will be admitted into the country. This information is contained in the ministry’s 2015/16 annual report (pdf). During the period under review, the ministry facilitated 13 new investments worth N$2.8 billion and committed to create 836 permanent jobs. These investments are from South Africa, Germany, Zimbabwe, Portugal, Belgium, Italy and Dubai.
Mapping mining to the sustainable development goals: an atlas (UNDP)
Large-scale mining has the potential to play a critical role in helping to achieve the Sustainable Development Goals in resource-rich countries, according to a new report released during the UN High-Level Political Forum in New York. The report, 'Mapping mining to the Sustainable Development Goals: an atlas' (pdf) is a joint effort of the UNDP, WEF, CCSI and the Sustainable Development Solutions Network. It is expected that the new report will help the mining industry to: [UN chief launches first report to track Sustainable Development Goals]
Evolving agricultural policies and markets: implications for multilateral trade reform (pdf, OECD)
This study focuses on developments in world agricultural markets and in the policies (defined as domestic support policies and trade policies) of major agricultural producing regions that have occurred since 2000. The impacts of these policies on global production, trade and welfare (proxied by private household consumption) are assessed along with the effects of possible multilateral trade reform scenarios. [How can trade policy promote sustainable agricultural development in Nigeria?]
Ban welcomes African Union’s fund for peace and security operations (UN)
Russian Federation, the World Trade Organization, and the Eurasian Customs Union: tariff and non-tariff policy challenges (World Bank)
DAC temporary working group on refugees and migration: terms of reference (pdf, OECD)
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Nairobi trade negotiators fight over debt management text
Sovereign debt management took centre-stage as the fourteenth session of the Nairobi UNCTAD conference entered its third day, pitting the developed world against their developing counterparts over the wording of the proposed text on the subject.
Sources said the disagreement particularly arose from the European Union’s quest to block the developing world-backed text outlining the principles of sovereign debt treatment – and which referred to debt restructuring as opposed to the EU debt management.
Debt restructuring, which is being pushed by the Group of 77, a group of 134 developing countries, seeks the passing of a new legal regime for sovereign debt management.
The quest is to have a single legally-binding process through which to negotiate all sovereign debt similar to the insolvency law used by corporations.
Negotiators said such a law is particularly important at this point in time when many developing nations have increased their uptake of bilateral and private debt.
Bodo Ellmers, the European Network on Debt and Development Policy and Advocacy manager, said the text as proposed by developing countries sought to protect them from hedge funds – better known as vulture funds – which buy bad debts and end up suing defaulters leading to unfair outcomes and prolonging those countries’ periods under debt.
“Some countries end up paying billions of dollars and as it is they have legally enforceable rights to pay without looking at the impact of their actions on human rights issues such as starvation or pensions,” Mr Ellmers said.
The hedge funds that have been lending tonnes of money to the developing world are mostly domiciled in Europe and North America, making the wording of the text critical to the host nations.
It is estimated that about 80 per cent of the private debt held by the developing world are issued in New York and London stock exchanges.
“Debt restructuring has no contentions as it involves things like technical support by the United Nations Conference on Trade and Development (UNCTAD) who can advise on how to handle debt portfolios like getting cheap loans at the right maturities,” said Mr Ellmers.
The EU, US and Australia were part of the six that voted against the draft resolution on “Basic Principles on Sovereign Debt Restructuring Processes” adopted by the UN in New York at its Sixty-Ninth Session on 10 September, 2015.
Some 136 member states voted for the resolution while 41 abstained.
Argentina initiated the draft in the wake of the vulture funds (hedge funds) lawsuit against the country. Puerto Rico has since faced a similar problem with the casino capitalists.
UNCTAD Secretary- General Mukhisa Kituyi had earlier expressed hope that the Developed North and Developing South would agree on a debt restructuring framework, especially after the recent commodity bust threatened to send many developing nations into default.
“We have been engaging them to follow up on the first resolutions that were made at the General Assembly in September 2014 and we hope we can revisit the matter in a constructive way here in Nairobi,” Dr Kituyi said, adding that the goal is to have an agreed text ready for announcement by the close of the conference on Friday.
Foreign Affairs and International Trade secretary Amina Mohamed told the media that the contentious issues were being worked on and refused to give details of the issues at the centre of the disagreement.
“As you know it is not a best practice to talk about the contentious issues but you should know that as we speak, some of the issues are being resolved. I think there is a very healthy debate and negotiations going on,” she said.
Director of Economic Affairs and International Trade at the Ministry of Foreign Affairs Nelson Ndirangu, however revealed that eight issues had been flagged although some were already resolved.
“They came to the table with eight issues some of which have been discussed and resolved,” he said. The Business Daily has, however, learnt that equal say in setting tax policies has also become a thorny issue as presented in the text.
Some countries are also uncomfortable with gender clauses, which they say are stretching the mandate of UNCTAD beyond the limits given the limited resources in its hands.
The developing world is also opposed to the proposed strengthening of the UNCTAD mandate to turn it into a decision making organ of the UN preferring instead to stick with the current mandate as a technical assistance institution.
Dr Kituyi had earlier on indicated that it would also be difficult to convince the developed world to pay the ‘commitment debt’ although there was no indication that it had become a thorny issue.
UNCTAD on Monday released a report indicating that the developing world would be $2 trillion richer had the developed world kept the promise they made in Mexico in 2002 to put 0.7 per cent of their gross national income into oversees aid.
“The 0.7 per cent will be a hard sell for many rich countries but these are the daring ambitious set of goals we have set for ourselves and which require an equally ambitious response,” Dr Kituyi said.
Ms Mohamed expressed hope that an agreed text could be ready by close of business on Wednesday ready for presentation during the final session on Friday.
Civil Society groups are also calling for definite clauses on ‘irresponsible’ lending, which they want classified as ‘illegitimate debt’.
“Irresponsible borrowing and lending and debt related to corruption or advanced for geostrategic influence should be classified as illegitimate debt under the set of UNCTAD principles,” Mr Ellmers said.
The demand came in the wake of revelations that the Mozambican government of Armando Guebuza took on more than $2 billion debt in secret that was responsible for the economic crisis that hit the country this year.
The IMF, which several countries have now turned to for relief, issued a general warning in its Africa ‘Regional Economic Outlook’ that African countries will need to cut their budget deficits to get support.
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UN chief launches first report to track Sustainable Development Goals
Launching the first-ever Sustainable Development Goals report on the new global development agenda adopted last year, Secretary-General Ban Ki-moon on 19 July 2016 said that the 15-year undertaking is “off to a good start” but will require all parts of the UN family and its partners to work together.
“We have embarked on a monumental and historic journey,” the Secretary-General told the UN High-level Political Forum on Sustainable Development (HLPF), which opened on 11 July and ends on 20 July, at the UN Headquarters in New York.
“We must all learn, in national governments, in local authorities, in business and civil society, and also at the United Nations, to think differently,” he said, also underscoring the need to break down silos, not only between the economic, social and environmental aspects of development, but also between government institutions, between different levels of government and between the public and private sectors.
The Forum is the UN’s central platform for the follow-up and review of the 2030 Agenda for Sustainable Development and the Sustainable Development Goals (SDGs), adopted last September by 193 Member States.
With his speech, Mr. Ban launched the first SDG report, which will serve as a benchmark for the 15-year implementation period of the 2030 Agenda.
“It provides an accurate evaluation of where the world stands on the 17 Goals, using data currently available to highlight the most significant gaps and challenges,” he said.
“We are off to a good start,” he added, calling on the international community to “pledge never to rest until we have achieved a world of peace, dignity and opportunity for all.”
The latest data shows that about one in eight people still lives in extreme poverty and nearly 800 million people suffer from hunger, the top UN official said. The births of nearly a quarter of children under 5 have not been recorded, and 1.1 billion people are living without electricity, and water scarcity affects more than 2 billion.
The data also underscore the imperative of targeted action in support of the furthest behind, he said, stressing the importance of data and indicators on all groups, especially those that are often unaccounted for.
“The SDGs address the critical challenges of our time,” he said, including immediate action on climate change.
The UN chief said he will convene an event on 21 September for countries to deposit their instruments of ratification on the Paris Agreement on climate change, an accord that was adopted in December last year and will enter into force when 55 countries ratify, and 55 per cent of global greenhouse gas emissions are accounted for.
In April, 178 countries signed the Paris Agreement at the UN Headquarters, and 19 countries have so far ratified. But these 19 countries accounted for less than 1 per cent of greenhouse gas emissions.
Mr. Ban encouraged at least 40 countries who committed that they will ratify this Paris Agreement before the end of this year, including the United States, China, Australia, Indonesia, Mexico, and Argentina.
He noted that a key feature of this year’s Forum is the voluntary national reviews, a mechanism that allows Governments to voluntarily present what they and their societies are doing to implement the 2030 Agenda. This year, 22 countries will share their experiences.
“Ensuring progress in achieving the SDGs will be greatly enhanced by making sure that lessons are shared and best practices are replicated,” he explained, calling on Member States to intensify efforts at follow-up and review through a participatory process, with the full engagement of the business sector and civil society.
Thomas Gass, UN Assistant Secretary-General for Policy Coordination and Inter-Agency Affairs and Francesca Perucci, Chief of the Statistical Services Branch in the UN Department of Economic and Social Affairs will brief reporters on the report on Wednesday morning in New York.
Also on Tuesday, Mr. Ban met with Erna Solberg, the Prime Minister of Norway. They discussed issues related to the High-level Political Forum on Sustainable Development, as well as climate change, and movements of refugees and migrants.
2030 Agenda needs stronger, better-integrated, more strategic United Nations Development System – Ban
Remarks by UN secretary-General Ban Ki-moon to the HLPF in New York, 19 July 2016
I am pleased to address this High-Level Political Forum on Sustainable Development. This is your first meeting. I want to thank the President of the ECOSOC [Economic and Social Council], the ECOSOC Bureau, Member States and major groups for your enthusiastic engagement in the work of the Forum.
As the global central platform for follow-up and review of the Sustainable Development Goals (SDGs), the High-Level Political Forum depends on your active support and participation. Together, we have embarked on a monumental and historic journey.
In recent months, I have listened to many people, including refugees, youth and children, indigenous people, persons with disabilities, and women entrepreneurs. I heard the common message: the SDGs represent their hope for a better future. They are an action plan for people, planet, peace and prosperity.
We live in an interconnected world. That is why the SDGs are universal and indivisible. Today, I am launching the first SDG report. It is based on official data provided on the indicators developed by the Inter-Agency and Expert Group on SDG Indicators and agreed by Member States.
The Sustainable Development Goals report 2016 will provide a key benchmark throughout the implementation period of the 2030 Agenda. It provides an accurate evaluation of where the world stands on the 17 Goals, using data currently available to highlight the most significant gaps and challenges.
The latest data show that about one person in eight still lives in extreme poverty. Nearly 800 million people suffer from hunger. The births of nearly a quarter of children under 5 have not been recorded. [Some] 1.1 billion people are living without electricity, and water scarcity affects more than 2 billion.
The data also underscore the imperative of targeted action in support of the furthest behind. For the Agenda to be fully implemented, those who are the furthest behind will have to be reached first. This will not be possible without data and indicators on all groups, especially those that are often unaccounted. Coordinated efforts worldwide will be indispensable to supply reliable and timely data for systematic follow-up and progress reviews.
The SDGs address the critical challenges of our time. One challenge that calls for immediate action is climate change. Every day, the headlines speak of more climate-related disasters: mass coral bleaching on the Great Barrier Reef; soaring temperatures in the Arctic; wildfires, multi-year droughts and floods.
In April, a record-number of Member States signed the Paris Agreement on climate change. Now we need to bring that Agreement into force this year. To help advance this process, I will convene an event on 21 September, in the morning, this year, from 8 to 9 o’clock, for countries to deposit their instruments of ratification. We have 178 countries who have signed this Paris Agreement, and 19 countries have deposited their instrument of ratification. As you are well aware, we need the 55 countries to ratify, and 55 per cent of global greenhouse gas emissions accounted. So we need to do much more. These 19 countries all accounted for less than 1 per cent of greenhouse gas emissions. We very much encourage those countries, like United States and China, Australia, Indonesia, Mexico, Argentina, many countries, at least 40 countries who committed that they will ratify this Paris Agreement before the end of this year. It would be much better and desirable – I may be too ambitious to ask you – if we can ratify, make it enter into force, before we go to Marrakesh in November – that would be even much better. If not, by December this year, so that we can really make an accelerated process in implementing this climate change Agreement. That’s why I am going to convene this meeting, summit meeting, for those ratifiers. All who are committed to ratify. And please make sure that your country makes an accelerated process of ratification of this Agreement.
Tackling climate change is essential for sustainable development, without any doubt. The actions needed to reduce emissions and build climate resilience are the very same that are needed to lay the foundation for prosperity and security for all, and set the world on a sustainable footing for generations to come.
A key feature of this year’s Forum is the voluntary national reviews. I commend the 22 countries who have submitted their reports voluntarily to present what their Governments and societies are doing to implement the 2030 Agenda. Ensuring progress in achieving the SDGs will be greatly enhanced by making sure that lessons are shared and best practices are replicated. I call on Member States to intensify efforts at follow-up and review through a participatory process, with the full engagement of the business sector and civil society. And I pledge the full support of the United Nations family in this undertaking.
The 2030 Agenda requires a stronger, better-integrated and more strategic United Nations development system. The United Nations Development Group (UNDG) has been actively engaged in making this happen. An independent team of advisers recently offered ECOSOC a vision of a stronger system working as one. I trust we will all benefit from this bold diagnostic work and consider their wide range of proposals.
We must all learn – in national Governments, in local authorities, in business and civil society, and also at the United Nations – to think differently. We need to learn how to transform our policies and strategies to address the challenges of sustainability. To reach the poor and vulnerable, we need targeted policies, active outreach, and disaggregated information to inform decision-making. We need to recognize and understand the multiple dimensions of poverty and vulnerability, and how they interconnect. And we need to break down silos, not only between the economic, social and environmental aspects of development, but also between Government institutions, between different levels of government and between the public and private sectors.
Member States have pledged in the 2030 Agenda to leave no one behind. Everybody should be on board. We have already taken important steps. We have started to implement the Technology Facilitation Mechanism, and held the first Multi-stakeholder Forum on Science, Technology and Innovation for the Sustainable Development Goals. We have inaugurated the ECOSOC Forum on Financing for Development. We have published the Global Sustainable Development Report.
UNCTAD [United Nations Conference on Trade and Development] XIV is now under way, focusing on going “from decision to action”. I just participated in the opening session of UNCTAD XIV, in Kenya.
Preparations are advanced for Habitat III, in October in Quito, Ecuador.
I now urge Member States, the United Nations family and major groups to accelerate the momentum. To achieve the Sustainable Development Goals, we need comprehensive financing and broad, inclusive and innovative partnerships. I look forward to the Development Cooperation Forum that will start on Thursday as part of the High-Level Segment of ECOSOC.
The Addis Ababa Action Agenda has given us a holistic framework for mobilizing resources and aligning all financing flows with sustainable development. Every effort should be made to meet official development assistance (ODA) targets. The quality of ODA also needs to improve. South-South cooperation should also continue to complement traditional development assistance and cooperation flows.
Over the past nine-and-a-half years as Secretary-General, I have given top priority to laying the foundations for a sustainable future for people and planet. I am grateful for your strong support and engagement and leadership. We are off to a good start. Let us pledge never to rest until we have achieved a world of peace, dignity and opportunity for all.
I thank you for your leadership. Thank you very much.
The Sustainable Development Goals Report 2016
This inaugural report on the global Sustainable Development Goals (SDGs) is a first accounting of where the world stands at the start of our collective journey to 2030. The report analyses selected indicators from the global indicator framework for which data are available as examples to highlight some critical gaps and challenges. The list of SDG indicators agreed upon by the UN Statistical Commission in March 2016 will be subject to refinements and improvements as methods and data availability improve.
Every journey has a beginning and an end. Plotting that journey and establishing key milestones along the way requires accessible, timely and reliable disaggregated data. The data requirements for the global indicators are almost as unprecedented as the SDGs themselves and constitute a tremendous challenge to all countries. Nevertheless, fulfilling these requirements through building national statistical capacity is an essential step in establishing where we are now, charting a way forward and bringing our collective vision closer to reality.
Ensuring that no one is left behind
In launching the 2030 Agenda for Sustainable Development, Member States recognized that the dignity of the individual is fundamental and that the Agenda’s Goals and targets should be met for all nations and people and for all segments of society. Furthermore, they will endeavour to reach first those who are furthest behind. Going beyond rhetoric in this regard will be no simple matter because disaggregated data tell us that the benefits of development are far from equally shared.
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In 2015, the youth unemployment rate (among people aged 15 to 24) globally was 15 per cent – more than three times the rate for adults (4.6 per cent).
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Globally in 2015, births in the richest 20 per cent of households were more than twice as likely to be attended by skilled health personnel as those in the poorest 20 per cent of households (89 per cent versus 43 per cent).
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Children from the poorest households are more than twice as likely to be stunted as their richest peers.
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Almost 80 per cent of urban inhabitants have access to piped water versus one-third of the rural population.
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The LDCs, landlocked developing countries and small island developing States all reported a prevalence of undernourishment that was substantially higher than that of developing regions as a whole (13.6, 9.8 and 5.1 percentage points higher, respectively) in 2014-2016.
Leaving no one behind is the overarching principle of the 2030 Agenda. However, without data and indicators that address specific groups within a population, including the most vulnerable, full implementation of the commitments made in the SDGs will not be possible. A global effort to improve data availability and use, including through improvements in the integration of data sources, has already begun. But much work lies ahead. The global statistical community stands ready to transform and modernize the way this work is undertaken in order to fully meet current needs and to fulfil our promise to present and future generations.
» Download: The Sustainable Development Goals Report 2016 (PDF, 5.07 MB)
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New report shows how mining can contribute to achieve the Sustainable Development Goals
Large-scale mining has the potential to play a critical role in helping to achieve the Sustainable Development Goals (SDGs) in resource-rich countries, according to a new report released on 19 July 2016 on the occasion of the UN High-Level Political Forum in New York.
The report, Mapping Mining to the Sustainable Development Goals: An Atlas is a joint effort of the United Nations Development Programme (UNDP), the World Economic Forum (WEF), the Columbia Center on Sustainable Investment (CCSI) and the Sustainable Development Solutions Network (SDSN).
It is expected that the new report ’Mapping Mining to the Sustainable Development Goals: An Atlas’ will help the mining industry to:
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Map its roles, responsibilities and opportunities across the 17 Sustainable Development Goals;
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Demonstrate how the mining industry can ensure that social and economic benefits of mining are widely shared and environmental impact minimized;
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Map the relationship between mining industry and the SDGs by using examples of good practice in the industry and existing knowledge and resources in sustainable development.
The 2030 Agenda and the SDGs, endorsed by all UN member states in 2015, represent the world’s plan of action for social inclusion, environmental sustainability and economic development. Meeting the SDGs by 2030 will require unprecedented cooperation and collaboration among governments, non-governmental organizations, development partners, the private sector and communities. It will require all sectors and stakeholders to incorporate the SDGs into their own practices and operations.
“Congratulations to the United Nations Development Programme, World Economic Forum, Columbia Center on Sustainable Investment, and Sustainable Development Solutions Network on this invaluable report,” wrote Jeffrey Sachs, Special Advisor to UN Secretary-General Ban Ki-Moon. “The mining industry has an enormous role to play in sustainable development, and this report will help the industry to map its roles, responsibilities, and opportunities across the 17 Sustainable Development Goals. Not only is this a key tool for the mining industry; it is a model for other sectors of the economy as they search for ways to align their activities with the SDGs.”
UNDP Director for Sustainable Development Nik Sekhran stated, “Implementing the SDGs requires the full engagement of the private sector alongside all other societal actors. This pioneering Atlas demonstrates how the mining industry can take practical action to ensure social and economic benefits of mining are widely shared and environmental impacts are minimized. We hope the report will stimulate wide dialogue and cooperation among stakeholders to make mining a driver of sustainable development. UNDP stands ready to support in this pursuit.”
The new report maps the relationship between mining and the SDGs by using examples of good practice in the industry and existing knowledge and resources in sustainable development that if replicated or scaled up could make useful contributions to the SDGs. Mining companies, their staff, management and boards are the primary audience for the Atlas. The Atlas is also intended to advance the conversation about how mining companies, can work collaboratively with governments, communities, civil society and other partners to contribute to achieve the SDGs.
‘The Atlas’ has a chapter for each of the SDGs focusing on the contribution the mining industry can make to that goal, through its business operations, as well as, identifying opportunities for how mining companies can collaborate with other stakeholders to draw on building innovative, systematic and sustained collaborative efforts.
Some overall conclusions that can stimulate action as well as further debate and research include:
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The mining industry has the potential to positively contribute to all 17 SDGs;
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While the mining industry is diverse, the scope and nature of typical mining activities can have a particularly significant impact on some SDGs;
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The mining industry must ramp up its engagement, partnership and dialogue with other industry sectors, government, civil society and local communities to address the challenges of the SDGs.
This report was initially launched as a draft for public consultation on January 13, 2016. The revised, final version takes into consideration hundreds of comments submitted by dozens of organizations and individuals, as well as several in-person discussions of the document with multi-stakeholder groups.
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East Africa investors call for speedy conclusion of EAC-EU trade talks
East African Business Council (EABC), a regional business lobby on Tuesday called for the speedy conclusion of the ongoing East African Community (EAC)-European Union (EU) trade talks.
EABC Executive Director Lillian Awinja told Xinhua in Nairobi that the delay in signing the agreement is causing anxiety among the EAC business community.
“We are concerned that if the agreement is not reached before the Oct. 1 deadline, Kenyan exports into the EU will begin to pay import duty,” Awinja said during the Financial Services Sector Forum that took place as part of the UNCTAD 14.
If an agreement is not reached, Kenyan goods will be subjected to import duty in order to access the EU market while goods and services from the other EAC member states will still access the EU duty free because they are considered Least Developed Countries (LDCs).
Awinja noted that lack of a trade deal will not only affect Kenyan goods because Kenyan exporters currently have working arrangements with the companies in the other EAC nations in order to meet quantity requirements.
She noted that some of the EAC member states are reluctant to sign the EU-EAC trade deal because they will not get additional benefits from the agreement.
“We therefore need to bring on the table, the contentious issues and renegotiate as soon as possible in the spirit of the EAC,” Awinja said.
She added that some of the EAC states will take about two years to graduate into becoming developing countries and will soon be in the same situation as Kenya.
Awinja said that it will be beneficial if all the EAC partner states signed a trade agreement as a bloc because it will portray the region as a single working customs union.
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Bridging South Africa’s economic divide
In a speech in Johannesburg on 19 July 2016, IMF First Deputy Managing Director, David Lipton, said South Africa urgently needs reforms to lift growth and provide jobs to millions.
Introduction
Thank you very much for your kind introduction and the warm welcome from the Witwatersrand community. It is a pleasure to be back in South Africa.
Let me begin with a tribute to South Africa’s achievements. This country offers an extraordinary legacy of freedom and reason that is a model to the world – as was so clear yesterday as Nelson Mandela’s birthday was commemorated both here and abroad.
But now it is a generation since the end of apartheid, and regrettably there remains a large and growing gap between South Africa’s accomplishments and its concrete economic needs.
South Africa is grappling with growth that is too slow to raise average living standards, which is deeply problematic when one-third of the working population is effectively excluded from the economy. So far, there has been only limited progress on reforms to remedy that situation.
What does this mean? The prospect of falling per capita income and increases in a jobless rate already among the world’s highest. That would spell tough times ahead, particularly given the difficulties facing the global economy.
I know this is a blunt message. But anyone who admires South Africa’s many accomplishments has to worry about what it will mean if these economic problems are not tackled soon. Of course, some of these issues – particularly exclusion and income inequality – are legacies of the apartheid era. But with the passage of time, unaddressed issues can become obstacles.
So today I would like speak about those obstacles facing your economy and what needs to be done.
Fortunately, the bottom line is that, as is often the case in economics, the root of your problems contains the seed of their solutions. Inclusion of the excluded one-third of South Africans could and should be a source of growth and dynamism for the generation to come. Of course, much thought and effort has gone into that challenge, and many good ideas remain untested.
But now, the cost of insufficient action has reached the critical point. The present trajectory is simply not good enough. What is needed is a fresh and energetic review of South Africa’s policies – followed by action. The litmus test must be that the policy response fosters fundamental change that opens doors for the young people who will be the workers, entrepreneurs and innovators of the next generation; those who can power the economy upward.
Positives and Negatives
Before looking at what might be done, let’s begin with South Africa’s many positive economic accomplishments.
While income inequality is a profoundly difficult problem, it also is true that living standards have improved significantly. An estimated 3.6 million people have been lifted out of poverty – that is to say, those living on less than 2.5 U.S. dollars a day. The rate of extreme poverty has been more than halved to 16.5 per cent of the population. Access to infrastructure and to education and healthcare has improved remarkably, and social grants benefit over 16 million people.
South Africa has a highly diversified economy and world class companies with a footprint on the African continent and beyond. Your financial sector is deep, sophisticated and resilient. You have a strong corporate governance framework – Number 2 in the World Economic Forum’s rankings.
South Africa should be proud of its world class public institutions, including in the realm of economic management. This includes the Treasury and Reserve Bank, who have well-deserved reputations for expertise in formulating and implementing economic policy; those institutions that would be the envy of many emerging market and developing countries. And we can point to the judiciary, the Public Protector, the Auditor General, and many others. South Africa’s institutions should be revered and protected.
However, strong macroeconomic policies and a diversified economy are not enough to generate the growth that can drive sustained gains in living standards and lift all South Africans out of poverty.
In the Fund’s latest annual report on the South African economy, released earlier this month, we forecast just 0.1% growth in 2016 and only about 1 percent next year. This is not enough growth to raise per capita income, given the annual population increase of 1.7%. And it implies weak enough job creation that we see unemployment continuing to rise.
The implications of this are not good: if our projections for the economy materialize, per capita income in 2017 is set to fall to 2010 levels.
Why is growth so weak? What economists call external shocks are part of the problem. Most importantly, the rebalancing of the Chinese economy is reducing demand for exports throughout the world and contributing to the steep fall in commodities prices. This includes South African exports – iron ore, coal, and platinum. The fact is that China’s growth now matters more to South Africa than growth in the EU and U.S.
On top of this, the normalization of U.S. monetary policy, generally tighter financial conditions worldwide, and more recently Brexit have added elements of uncertainty. Keep in mind that a large share of South Africa’s bonds and equities are held by foreign investors, which makes the country more vulnerable to rising interest rates and shifting sentiment.
But external shocks are only one part of the story – and, in fact, it is the rest of the narrative that has assumed paramount importance. The South African economy is also reeling from the effects of some misfortune as well as some home-grown problems. The recent drought was the worst in decades. The leadership changes at the National Treasury last December and other political developments had an adverse impact. They heightened concerns about governance – a point I will return to in a moment – deepened policy uncertainty, and shook investor confidence.
The Dynamics of Exclusion and Inclusion
But there is something else going on that has developed with the evolution of the economy. This involves issues that I know are very familiar to you: infrastructure bottlenecks; skills mismatches in the work force; regulations that stifle competition and entrepreneurship and keep that one-third of the labor force unemployed or too discouraged to seek work.
The end result is that a huge part of the labor force is left on the outside looking in, undereducated and with no opportunities for advancement. I’m told, for example, that there are township youth who not only cannot find work, but who grow up without knowing anyone in their circle of family and friends with a job either!
The formal economy is not absorbing them, nor are they able to strike out on their own. There is a crucial structural issue at play here: those included and successful in the advanced economy – large businesses, banks and unionized workers – maintain entry barriers against their potential competitors – small and medium-sized enterprises and the unemployed.
In situations like this, the government should represent the interests of the excluded. However, some policies, regulations or actions only raise higher barriers. And sometimes government services may not meet the needs of the excluded; witness the deficiencies of the educational system. Some government policies may make sense in a truly advanced economy. But in South Africa they create a situation in which the developed economy is not lifting up and absorbing those excluded from the economy.
There is another, extremely important element to the governance issue: corruption. Your National Planning Commission, in the National Development Plan, has said that South Africa suffers from high levels of corruption. What is particularly relevant here is the commission’s finding that both the private sector and the public sector are reported to engage in it. This only reinforces the dynamics of exclusion.
The current slowdown exacerbates many of these issues. When the economic pie is not growing, then it is inevitable that too much energy is spent fighting for a larger slice – and not on growing the pie. All of this is damaging to investor confidence – as well as to the trust that must be woven into the fabric of society. And without confidence and trust, it will be very difficult to put in place the reforms needed to make the economy work for all South Africans.
Let’s take a moment to examine some of the policy issues in greater depth.
One of the issues that keeps the one-third on the outside is the impact of wage bargaining practices involving big businesses and big labor. The present approach serves well the interests of both established businesses and employed workers. But, wage agreements using extension to bind entire sectors to what has been agreed present a huge obstacle to small and medium-sized enterprises, which in other countries typically employ the most people, thus suppress competition for established businesses and employed workers alike. In reality, these agreements keep low-skilled workers out of the work force; and the unemployed have no say. Small and medium-sized enterprises, which commonly produce with less machinery and equipment and thus may be justified in paying lower wages, have no place at the table, yet they have to live with the deals that are struck.
Privileged Markets
At the same time, the private sector – supported by government regulation – has been supported in ways that create privileged markets working against the interests of consumers. They also damage competitiveness by keeping business costs high.
In the finance sector, there are only a few retail banks in operation, and their fees are high. Small enterprises have trouble accessing banking services, though there has been some improvement of late. Barriers to entry into the industry favor existing institutions.
It is reasonable to be concerned about a sudden proliferation of new banks: recent experience with the collapse African Bank is a cautionary tale. But other countries have achieved a balance between oversight and innovation that has resulted in higher rates of financial inclusion. See, for example, the success of mobile banking in Kenya, a development mirrored in many other countries.
Many South African companies enjoy very high profit margins, often 50 percent higher than in other countries. But these margins are often built upon barriers that both hurt consumers and block potential competitors.
For example, tariffs on poultry imports – in this case cheaper Brazilian chicken – were raised a few years ago to protect South African producers. But chicken is the meat most accessible to the poor. So those who are most vulnerable end up paying more.
Or look at the transport industry, which provides a service that most South Africans rely on. In other countries, transportation is fiercely competitive and can provide poor people with a leg up in the job market. However, taxi and bus cartels in South Africa are highly organized and deter new entrants, including with violence.
Such extreme measures to deter competition may be the exception. But anti-competitive behavior is common in other industries, including construction, maize and wheat milling, and telecommunications. Government regulations can reinforce these practices, both by entrenching vested interests or through inefficiencies that limit enforcement of anti-competitive behavior.
Then there is the matter of state-owned enterprises. They play a crucial role in the economy, but they are plagued by inefficiencies, poor management, and weak balance sheets. Support for money-losing companies is a growing drain on government coffers. Moreover, the private sector is unable to enter key sectors dominated by SOEs. This only fortifies the bottlenecks in the economy.
Even some of the best-performing SOEs pose problems that reverberate through the economy. For example, container-handling costs at South Africa’s ports are some 175% higher than the global average. Those fees function as import tariffs and raise the cost of South Africa’s exports, undermining the country’s competitiveness.
A New Approach
What is needed now is a new approach. It is just not a matter of tax cuts or spending increases. Rather, it is a question of fundamental, transformational reforms that can boost employment – particularly for young people – reduce inequality, and promote economic inclusion.
This approach should focus not just on leveling the playing field, but opening up the playing field – for individuals and businesses. This will not be easy. Tackling vested interests and promoting a truly inclusive economy will require buy-in from all stakeholders, and require stakeholders to take a long term view of their interests in a more dynamic South Africa of the future.
It is clear from my conversations with your senior officials that they fully understand the challenge. That was the core purpose of your National Development Plan. And there have been important steps:
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On the infrastructure front, electricity output finally has begun to rebound with new power plants coming on line, including independent producers of renewable energy that are linking to the national grid.
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The Employment Tax Incentive Act has brought 270,000 youths into the workforce in its first year. But that is just a beginning.
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The Competition Committee’s proactive market inquiries show promise facilitating market entry for smaller businesses.
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Recent procurement reforms should help increase the efficiency and effectiveness of government spending, reduce the potential for corruption, and give all smaller companies access to public sector contracts. They could reduce government costs dramatically.
However, there also have been counterproductive measures; for example, recent restrictions on temporary employment and stricter visa requirements. While some of these restrictions have been partly scaled back, general uncertainty about South Africa’s regulatory environment remains – particularly in the mining sector.
Some well-intended policies have unintended consequences: take the proposed national minimum wage. It could help reduce inequality, but if the wage is set too high or with no sub-minimum for young people and small enterprises, it risks creating more unemployment.
So what we see are blueprints for change and some steps in the right direction. But South Africa’s core economic problems have not been tackled in a comprehensive fashion.
There are several specific policies and measures that can help build confidence and lift growth, even in the short run:
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The first and foremost priority must be job creation. With public finances already stretched, the priority must be on private sector jobs, including temporary and informal jobs.
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In this regard, the dialogue between government, labor, and business is encouraging, but the talks need to produce substantive action. One solution to the employment problem a may lie in a social bargain: build on the ongoing government-business-labor negotiations to agree on wage restraints in exchange for job retention and hiring commitments. And as I mentioned earlier, it is important to exempt small and medium enterprises from collective bargaining agreements to create space for hiring.
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The introduction of a single employment contract also could help open up jobs. The main features would be the elimination of a distinction between fixed-term and open-ended jobs, along with gradual, continuous increases of rights and benefits that would accrue with tenure. These reforms would be important to allow young people to get that first job that gives them a foothold in the economy. In the absence of quality education, on-the-job learning is crucial.
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A commitment to a “do no harm” approach in government policies would be very important. It could help to reduce business uncertainty and make policies more consistent. This might begin with centralized evaluations of all policy proposals to ensure that they do not undermine job creation.
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Improved SOE governance and operations would send an important signal about accountability, including greater transparency in board appointments and remuneration of executives and board members. It would also enhance the efficiency of South Africa’s public investment in infrastructure. This could reduce costs in key areas; for example, by ensuring reliable electricity supply and lowering port tariffs. Similarly, action to open up the telecommunications spectrum would increase broadband speed, and reduce business costs. Taken together, these actions could increase competitiveness.
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Product market reforms and allocation of more resources to the Competition Authority to detect cartel behavior and excessive market power would be another important step to level the playing field for businesses.
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And then there is crime, which the World Bank has found is the single biggest obstacle to economic activity in the townships. It is every government’s responsibility to ensure the daily security of its citizens.
Conclusion
Many of these policy ideas fly in the face of established interests that sometimes strive for privilege as much as principle. The challenges facing South Africa call for reforms that create opportunities and enable all people to successfully pursue them – particularly the excluded one-third.
The primary goal must be to re-energize growth by seeking inclusion and job creation. As I have outlined, that will require filling infrastructure gaps, encouraging more competition, reaching agreement on sensible labor market policies and industrial relations, improving education and training, and insisting on better governance.
These reforms must be undertaken with the same commitment that this nation brought to democratic change. This is how South Africa can build stronger, inclusive growth – with jobs for its young people. This is how South Africa can serve as a beacon of economic change, just as it once emerged as a model for political change. While the politics of the moment may favor the status quo over sweeping change, it is helpful to recall Nelson Mandela’s wise reminder that: “After climbing a great hill, one only finds that there are many more hills to climb.”
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AU Summit comes to a successful end with a concerted call for togetherness
The 27th African Union Summit came to a successful conclusion on Monday 18 July 2016, with Heads of State and Government from AU Member countries making a common call for togetherness, inclusive growth and economic development through Agenda 2063.
The Heads of State also adopted recommendations of the retreat on financing the Union, which seeks to empower the Union by driving it towards financial independence and from external influences.
H.E Dr. Nkosazana Dlamini Zuma presented the Gender Scorecards in various categories ranging from socio-economic and political performance to development at national level. Rwanda, Algeria, South Africa and Tunisia were awarded honorific prizes in recognition of their outstanding efforts in the promotion of women rights and gender equality.
According to the AUC Chairperson, almost all AU Member States have achieved at least one of the AU gender-related goals, such as promotion of health, education, employment and social welfare of women in their countries.
“African countries should maintain this spirit of togetherness and start working together on action plans to foster economic development for the entire continent. This Summit has indicated that we can achieve great things and overcome all challenges if we work in unity,” said Dr. Dlamini Zuma.
H.E. Mr. Idriss Deby Itno, Chairperson of the African Union (AU) and President of the Republic of Chad, also called on African States to focus on implementing Agenda 2063, as well as to reaffirm their commitment to the principle of gender equality as enshrined in Article 4 (l) of the Constitutive Act of the African Union.
“Our commitment to develop the continent and make it independent must continue. As we go forward, we should learn from one another and accelerate efforts to promote gender equality at all levels. We can all learn from success stories, such as that of Rwanda our host, to build on the progress that we have achieved in addressing issues of major concern to the women of Africa,” underlined the AU Chair.
“Major challenges and obstacles to gender equality still remain, however, and require concerted and collective leadership and efforts from all of us including networks working on gender and development. We should be always aware of the fact that low levels of women’s representation in social, economic and political decision-making structures have a negative impact on women’s ability to derive full benefit from the economies of their countries and the democratisation process”.
H.E. the President Paul Kagame of Rwanda also called for full and effective participation and representation of women in peace processes including the prevention, resolution, management of conflicts and post-conflict reconstruction.
“We cannot run away from our responsibility. We have to fulfil them the best way we can. We as leaders are obliged to work together, as foot soldiers to reinforce mechanisms that will protect women at the national level and end impunity of crimes committed against women in a manner that will benefit the African society,” underscored the Rwandan President.
Election of AU Commissioners, Postponed
The much awaited elections of the new Chairperson of the African Union Commission has been postponed to January 2016 after no contender gathered the required two-thirds of the votes, as stipulated in the AU Constitutive Act. The current Chairperson of the AUC, H.E. Dr. Nkosazana Dlamini Zuma, and her team have been requested by the AU Heads of State and Government at the close of the 27th AU Summit in Kigali, to continue their work until January 2017 when the next Summit will hold at the Union headquarters in Addis Ababa, Ethiopia.
The three candidates in the race were: the Minister of Foreign Affairs of Botswana, Dr. Pelonomi Venson-Moitoi; the Foreign Affairs Minister of Equatorial Guinea, Mr. Agapito Mba Mokuy, and the former Vice President of Uganda, Dr. Speciosa Kazibwe.
The 27th AU Summit ended at the Kigali Convention Centre with a press conference addressed by the Chairperson of the AU, H.E. Mr. Idriss Deby Itno, the Chairperson of the AU Commission, H.E. Dr. Nkosazana Dlamini Zuma, and the President of Rwanda, host country of the Summit, H.E. Mr. Paul Kagame.
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African blocs fail to agree on Free Trade Area
Twenty-six African countries have failed to agree on how traders would access a market of more than 600 million people through the proposed Tripartite Free Trade Area (TFTA), blurring expansion plans by companies.
The EAC, Common Market for Eastern and Southern Africa (Comesa) and Southern African Development Community (SADC) have differed on the kind of preferential treatment sensitive goods and services from one bloc would be offered in another.
The 12-month period for negotiations expired on June 30.
“We were to complete this work by last month (June) but we did not reach an agreement. There are still challenges,” said Mark Ogot, a senior assistant director in-charge of economic affairs at Kenya’s Ministry of East African Affairs.
It is understood that though the blocs have reached a common position on the proportion of tariff lines to be liberalised they have broken ranks over a common tariff to be applied on sensitive products such as maize, wheat, sugar, textile and cement which are considered essential in spurring the growth of domestic industries.
The EAC countries have agreed to liberalise 37 per cent of the tariff lines estimated at 5,600 items. This would allow about 2,000 items excluding sensitive items to enter member countries at zero duty.
The other goods would be charged duty at the rate of 10 per cent for intermediate goods and 25 per cent for finished goods.
Southern African Customs Union – the SADC Customs union – has agreed to remove duty on 60 per cent of its 7,000 tariff lines, offering opportunity for 4,200 goods to be exported to southern Africa.
TFTA protocol had targeted the removal of duty on between 60 per cent and 85 per cent of the tariff lines. The remaining 15 per cent of the tariff lines were to be negotiated over a period of between five and eight years.
Comesa has 5,000 tariff lines but its members who are neither in EAC or SADC have been allowed to negotiate individually because the bloc does not have a customs union.
A trade framework agreed upon by heads of state during the TFTA launch last year required countries to exchange tariff concessions based on reciprocity.
Mr Ogot said plans are underway to extend the negotiation period but the duration is still not yet clear.
The EastAfrican has learnt that the protracted discussions have been complicated by South Africa, which is keen on protecting its key markets from competition.
It is understood that South Africa is wary of opening up its domestic market and its export market in Botswana, Lesotho, Namibia and Swaziland, which are members of the SACU to the selected items, especially maize, wheat, electronics and equipment from other blocs.
“South Africa does not appear to be keen on this arrangement because they dominate the market and are cautious of losing part of it,” said Ogot.
Under the TFTA pact the members of the three trading blocs agreed to ignore sensitive products and subject them to duty and quota restrictions in order to ensure fair competition.
The products earlier listed for protection until 2017 included, maize, cement sugar, wheat, rice, textiles, milk and cream, cane and beet sugar, secondhand clothes, beverages, spirits, plastics, electronic equipment.
The implementation of the agreement would effectively open the door for EAC goods, to markets such as South Africa, Egypt, Ethiopia and Eritrea and vice versa.
The TFTA agreement is expected to serve as the basis for the completion of a Continental Free Trade Area by 2017 which South Africa appears to be more keen on. The CFTA aims to boost trade within Africa by up to 30 per cent in the next decade, and eventually establishing an African Economic Community.
South Africa has said that implementing the TFTA would complicate its trade with Europe because EAC is yet to sign an Economic Partnership Agreement with the European Union.
Spanning the continent from Cape Town to Cairo, the grand FTA encompasses 26 Countries with a combined population of nearly 625 million people and a total gross domestic product (GDP) of approximately $1.2 trillion.