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UK firms could get trade boost with rapidly developing African nations thanks to Brexit
Brexit could be the ideal time for UK companies to begin trading with Africa, particularly Ethiopia, and opportunities should be seized upon, according to experts.
Free of the European Union (EU) framework, post-Britain Brexit is set to give Africa a fresh opportunity to negotiate future trade and cultural deals from a position of strength.
Speaking to Express.co.uk, African social and political commentator, Levi Kabwato, said: “A weak pound is good for Africa as it strengthens its negotiation power at the table, that is a good thing.
“Also the UK can get into direct agreements with countries of its choice without having to engage within the EU framework. So it’s a win-win situation for both.”
This comes as more British companies are choosing to invest in Ethiopia, which also boasts the cheapest electricity in the world. The Ethiopian Embassy has named Diageo, Unilever, Heineken and Tesco as some of the companies investing in the prosperous African country.
UK leather company, Pittards, has been trading in Ethiopia for a century and has invested there for 11 years as the sheep in the African nation are well-suited to make gloves for them.
The company’s CEO, Reg Hankey, said: “With a weaker pound, we can capitalise on it and we can export more. We have five factories in Ethiopia employing 1,700 people and hope to employ 5,000 people in five years.
“We hope that many other retailers see Ethiopia as a potential supply source. The fact that Brexit has happened is making everyone consider what is going on and thinking about changing their supply chains. The uncertainty makes companies look at what else there is.
“There is opportunity in Africa and retailers should consider it.”
Mr Hankey said that there is a time advantage to trade with Africa compared with other places as the continent has a similar time zone to the UK and English is widely spoken.
The Ethiopian Embassy has cited the country as a good place to invest as the economy is growing, the population is the second biggest in Africa, the health system has improved, corruption levels are low and there is a growing middle class.
Press officer at the embassy, Gail Warden, added: “People are realising that there are real investment opportunities there.”
Foreign Secretary Philip Hammond visited Ethiopia weeks before the monumental Brexit vote to discuss ways of strengthening economic ties.
Head of G10 Research at Standard Advisory London, Steve Barrow, has said that any trade deals with Africa would be re-negotiated on the same terms following Brexit.
He said: “They’re not going to be whacking big tariffs on imported Kenyan roses, for example.”
Although Mr Kabwato said that aid initiatives will suffer following Brexit, he said: “Less aid is a good thing for Africa, it will force us to become more innovative and less dependent.”
Karen Taylor, the CEO of the Business Council for Africa, which supports 400 businesses in Africa, said: “Here at the Business Council for Africa, we are working closely with our partners in the UK Government, Europe and the private sector to ensure that building and deepening business relationships with Africa remains a priority in the post-referendum environment, irrespective of whether these relationships are developed on a bilateral or multilateral basis.
“We expect that there will be a period of uncertainty whilst the UK’s political leadership begins to address the enormous task ahead both at home and abroad. We are encouraged by the ongoing support being provided to UK businesses in Africa by our embassies, High Commissions and Prime Minister’s Trade Envoys.
“We very much hope that this support will continue over the coming months and years ahead.”
In recent years, Ethiopia has attracted investment from France for wind power, Iceland for Geothermal power and Italy for Hydroelectrics.
A spokesman for the Foreign and Commonwealth Office said: “While the nature of the UK’s relationship with the EU is still to be determined, we will want the strongest possible economic links with key partners across the world.
“Ethiopia remains a very valuable partner for the UK and we hope that this relationship will continue to go from strength to strength. Our trade and investment relationship is already well established; we currently have around 200 British companies operating in Ethiopia and the UK is the largest foreign investor in the country’s food and beverage industry.”
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New report finds that stronger bridge between science and policies is needed to achieve sustainable development goals
Understanding of the scientific basis for action will be needed to achieve the ambitious and transformative goals of the 2030 Sustainable Development Agenda, according to a new report issued by the United Nations on 12 July 2016 during the High-level Political Forum on Sustainable Development.
According to the Global Sustainable Development Report 2016, key elements of the 2030 Agenda – such as what it will take to ensure that no one will be left behind – have yet to be thoroughly scientifically researched. The Report finds that the new Agenda requires asking different questions, many that have not yet been answered by the research.
The Report, an assessment of a broad array of scientific literature pertaining to the sustainable development agenda, was prepared by the UN Department of Economic and Social Affairs and draws on the technical expertise of 245 scientist and experts.
But the Report concluded that “if no one is to be left behind in 2030, the notion of inclusiveness cannot be treated as an afterthought. Rather, it should be an integral part of institution design and functioning; of research and development, and of infrastructure planning and development, to mention only topics covered in this report.”
UN Under-Secretary-General for Economic Wu Hongbo said the GSDR “underscores the importance of preserving a window for the interaction between science and policy at the High Level Political Forum.” He added, “This was one of the ground breaking innovations from Rio+20. Science is needed more than ever to inform the implementation of the ambitious new Agenda. In turn, science needs to be responsive to the questions that this new Agenda puts forward. There is need for dialogue, and the HLPF should remain a central platform for such dialogue.
“To ensure that no one is left behind, the Report found that it is necessary to determine who exactly is being left behind – often thought of as people affected by poverty, a lack of inclusiveness, discrimination and inequality. It is important to take into account the dynamic nature of deprivation and inequality; in this respect, preventive policies are critical to ensure that new people or groups do not fall behind at the same time as others escape poverty and deprivation.”
According to the Report, whether particular strategies succeed in reaching those left behind depend on many factors, from country-specific circumstances, to their design, targeting methods and practical implementation. Examples of interventions reviewed for the report that aim to reach the furthest behind first include targeting those suffering the most from stunting, area-based interventions targeting the poorest locations, and strategies to provide shelter for homeless people.
The Report also explores an extensive amount of scientific research on the interlinkages between infrastructure, inequality and resilience, finding possible links between infrastructure and inequality, as well as on how people’s resilience is affected separately by infrastructure resilience and by inequality.
“As in any nexus, harnessing synergies and addressing trade-offs is critical for policy-making. The research reviewed for the report emphasizes that a focus on both efficiency and equity is needed to harness the synergies between infrastructure, inequality and resilience.”
Other issues that the Report investigated include the role of technology for the achievement of the Sustainable Development Goals, which is essential for achieving the Goals, and the need for inclusive institutions for sustainable development.
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Ecobank names SSA investment winners
Ecobank Research has identified the top 5 destinations in Sub-Saharan Africa which, despite market volatility and the fall in commodity prices, provide good opportunities for investment.
Côte d’Ivoire, Kenya, Ghana, Senegal and Ethiopia top the list.
“Our priority was to select countries that have a good track record. You can have a country that has 15% growth one year – but it might be just because of a single mining project – and then three years down the line, it’s in a mess again,” Edward George, the bank’s head of group research, tells GTR.
When selecting the top-performing countries, the first step was to exclude what George calls the “bad boys” of Africa (Nigeria, South Africa and Angola). “There has been way too much negative press out there about Africa – certainly in the first half of this year. And if you look at these three countries, you would believe that. They’re all suffering dramatic slowing in growth in response to slumping oil and metals prices, as well as some local factors,” he explains.
As such, although these countries represent the three biggest economies in Africa, they have been omitted from the list of top investment destinations. “I’m not suggesting you totally discount these three countries. But if you want to start – or increase – your investment in Africa at this precise moment, we would not recommend South Africa, Nigeria and Angola as your top priorities,” he adds.
Country profiles on these – and all Sub-Saharan nations – are included in the recently-launched fourth edition of Ecobank’s Middle Africa (FICC) Guidebook 2016.
The guidebook is intended as a reference tool for investors interested in doing business in Africa. “The problem with information about Sub-Saharan Africa is that it’s very fragmented, and as a pan-African bank, we wanted to demonstrate the depth and spread of our local knowledge,” says George.
“The guidebook has two primary uses: first, it provides an overview of the region, what the key economies are, what you need to understand about the key sectors; and second there is a detailed country-by-country guide of 41 markets in Sub-Saharan Africa,” he explains.
Côte d’Ivoire and Kenya
George identifies Côte d’Ivoire and Kenya as his top picks for investment in the region because of their political stability and domination of intra-regional trade flows.
“The more intra-regional trade countries engage in, the more they spread their economic relationships, and the less susceptible they are to sudden swings in a particular commodity or market,” he says, lauding the two countries’ diversity of commodities and services: Côte d’Ivoire is the world’s largest producer and grinder of cocoa and West Africa’s leading exporter of palm oil, rubber and cashew nuts, while Kenya is Africa’s largest exporter of horticultural goods, tea and coffee, and is a major processing hub for food and palm oil products. “They have not been negatively affected, as has Nigeria for example, by the slump in oil prices,” George explains.
What’s more, over 40% of Côte d’Ivoire and Kenya’s trade flows are with other African countries – almost three times the average for African countries for intra-regional trade. “However you’re investing in these countries, you’re doing so in markets which are growing strongly: they have the rule of law, strong government, and a vast array of different means of making money. There’s a lot of opportunity,” says George.
The following factors assisted Ecobank Research in its decision-making process for the remaining three countries:
Ghana: economy has turned a corner, but there is still work to do
“Since the start of the IMF programme Ghana has made significant progress with controlling public spending, curbing inflation and stabilising the currency. After the oil-fuelled boom gave way to economic slump, real GDP growth has started to regain pace amidst an improving investment environment.”
Senegal: under the radar
“Senegal’s real GDP growth, while not stellar, has been gathering pace since 2012. The CFA Franc’s peg to the Euro has kept inflation low, while the fiscal deficit is improving.
“Senegal is a major intra-regional trader, with its port at Dakar acting as an entry point for goods and services going into and out of the Sahel.”
Ethiopia: the long-term play
“Although Ethiopia’s annual growth rate has fallen from over 10% to around 6% now, CAGR remained at over 20% in 2011-15, around double the rate of Kenya & Tanzania.
“Ethiopia has one of the highest rates of investment of any country in Africa.
“It is Africa’s largest producer and consumer of coffee, as well as being the region’s largest wheat producer.
“Ethiopia and Kenya are Africa’s two largest exporters of vegetables, cut flowers and live plants to world markets.
“The government has strong control over all sectors of the economy, but is opening up new sectors to investment.”
» Download: Middle Africa FICC Guidebook 2016: Fixed Income, Currency and Commodities – SADC (PDF, 7.11 MB)
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tralac’s Daily News Selection
The selection: Tuesday, 12 July 2016
The SADC Heads of State and Government Summit will take place in Swaziland, 30-31 August. The theme: ‘Resource mobilization for investment in sustainable energy infrastructure for an inclusive SADC’
AU Kigali Summit: 32nd Ordinary Session of the PRC opens, documentation
Dr Celestin Monga has been appointed as the AfDB’s Chief Economist and Vice President, Economic Governance and Knowledge Management
Featured interactive chart: The world’s youngest populations are in Africa (World Bank)
Structural transformation in Africa: a historical view (World Bank)
Focusing on African economies, the paper presents a country-by-country historical analysis of structural change over the past four decades. Given the varied patterns and trends in structural change across African countries, it is difficult to characterize structural change from a single, continent-wide perspective. Some countries saw an early transition of labour out of agriculture, with manufacturing absorbing this labour in the decades prior to the 1990s, while another group of countries saw a later transition out of agriculture, where the services sector played a large role in labour reallocations in the 1990s and 2000s. Finally, the paper provides a country-by-country structural transformation scorecard to assess patterns of structural change in jobs and growth. [The authors: Maria Enache, Ejaz Ghani, Stephen O’Connell]
G20 Trade Ministers’ Statement, Annexures (Ministry of Commerce, China)
To help address the global trade slowdown, we agree to improve global trade governance and remain committed to an open global economy, and will further work towards trade liberalization and facilitation. We endorse the G20 Strategy for Global Trade Growth (Annex II). Under the strategy, we will lead by example to lower trade costs, harness trade and investment policy coherence, boost trade in services, enhance trade finance, promote e-commerce development, and address trade and development. We recognize that these activities, by promoting trade opening and integration and supporting measures for economic diversification and industrial upgrading will contribute to global prosperity and sustainable development. [G20 Guiding Principles for global investment policy making]
Civil Society 20 China 2016: communiqué
We, representatives from 54 countries and regions attending the Civil Society 20 (C20) China 2016, gathered in Qingdao, China on 5-6 July for candid and in-depth discussions on the theme of "Poverty eradication, green development, and innovation: role of civil society". We share the view that, the world economy currently remains sluggish and growth lackluster; major economies lack sufficient coordination in policies and develop on different tracks; in some countries, inequality and imbalance in all their forms are increasingly prominent as unemployment rates remain high.
Investment Climate Statements for 2016 (Bureau of Economic and Business Affairs, US State Department)
The Investment Climate Statements include examples of countries and economies expanding openness to foreign investment and investor protections, as well as challenges and barriers that may exist. Topics covered for each country and economy include: openness to investment, legal and regulatory systems, dispute resolution, intellectual property rights, transparency, performance requirements, the role of state-owned enterprises, responsible business conduct, and corruption, among others. The Investment Climate Statements and related surveys of our posts highlight a variety of policies and practices that can negatively impact the environment for cross-border investment, including: rules on market access or operation and capacity and governance issues. [Uganda: Misty politics hampers trade – US (Daily Monitor]
Daniel Mminele: 'The role of BRICS in the global economy' (SA Reserve Bank)
This (topic) may have been a much easier topic a few years ago when the successes of the BRICS economies far overshadowed their weaknesses. As the challenges facing the BRICS economies have mounted, there are now many question marks over the economic power of the BRICS grouping and the ability to realistically challenge and change the global economic order to one which is more representative and fair. Indeed, BRICS is not alone in the many challenges that it faces. Both advanced and emerging economies have slowed with each facing their own set of dynamics adversely impacting growth and which inter alia require bold actions in the implementation of much needed structural reforms.[The author is Deputy Governor at the SARB. Speech delivered to the Bundesbank Regional Office] [What's going on in Europe? A view from the Deutsche Bundesbank]
Starting tomorrow, in Dakar: ECOWAS workshop on WTO’s Dispute Settlement System
ECOWAS, in line with its vision of regional economic integration, will hold a workshop, 13-15 July, in collaboration with DFID’s Trade Advocacy Fund and GIZ on identifying and resolving trade concerns that affect Member States in the context of the WTO legal system. The workshop will also introduce the Advisory Centre on WTO Law, which provides legal support to Developing and Least Developed countries in defending their legal interests in the WTO legal system.
COMESA launches virtual trade facilitation system in DR Congo
COMESA has launched the COMESA Virtual Trade Facilitation System in the DRC. The launch was conducted on the Matadi-Kinshasa Corridor which has traffic volumes of more than 1000 trucks in a month. CVTFS is an electronic system developed by COMESA not only for monitoring consignments along different transport corridors but also for integrating other COMESA trade facilitation instruments on one online platform. It constitutes a Single Regional Window that connects all Customs Offices in a transit corridor from the office of Customs, at the commencement of a journey, to the Customs office of destination. As a Single Regional Window, all customs administrations in different countries are able in real time to monitor the movement of trucks and cargo. “I look forward to the eventual rolling out of the CVFTS in the Lubumbashi to Dar es Salaam Corridor, the Central Corridor and Northern Corridor” said Director General of Excise Duty and Customs, Mr Deo Magera.
SADC: Failure to implement hampers regional integration (Mmegi)
Botswana's Investment, Trade and Industry minister, Vincent Seretse, has expressed concern at the failure by some SADC member states to implement the 15-point action matrix, saying it hampers deeper regional integration. The 15-point action matrix focuses on the review of rules of origin, completion of tariff phase downs, removal of non-tariff barriers, and facilitation or development of a mechanism to assist those member states that are not yet in the Free Trade Area to participate therein. According to Seretse, the need to finalise the trade in services negotiations has become paramount in view of SADC’s efforts to industrialise as a region. “We all know that access to cheaper services inputs is a key factor in building competitiveness of our industrial sector,” he said.
Mozambique: Providing information about trade and transport fees (SPEED)
The assignment objective was to develop communication content to enhance knowledge and information on due trade and transport related fees in Mozambique, for incoming trucks and commercial vehicles at the border port. The goal was to support the enforcement of good practice in cross-border trade in the country, curb petty corruption and reduce instances for small extortions on the main trading routes. This is expected to contribute to improve cross border trade. [Various campaign downloads, report]
Swaziland leads in cross-border trade facilitation (COMESA)
Swaziland has been named top in Africa in the management and facilitation of the Cross Border Trade, dubbed the Big Bang. It is currently ranked number 30 in the world. This is according to the World Bank, Investor Road Map rating on trading across borders. This was revealed during the 2nd Steering Committee meeting for the Automated System for Customs Data (ASYCUDA) that took place at the Royal Swazi Sun Hotel, in Ezulwini, Swaziland on 4th July 2016. The meeting brought together members of the steering committee drawn from the Swaziland Revenue Authority, the Ministries in charge of Commerce and International Trade, Finance and Economic planning.
Zimbabwe digs in heels over imports (IOL)
The country’s industry minister, Mike Bimha, however, said yesterday that the import restrictions would be reviewed, although at the moment “there is no room for reversing” the new measures. “It will take long to evaluate the impact of the new measures; we still have to give time to roll out. The private sector has been calling for this for a long time and how can you have a rethink when you have come up with a policy that supports your industry,” Bimha said. But Zimbabwe has softened on the new regulations. [SA Investment and Trade Initiative to Zimbabwe, 7-11 November]
Uganda: Trade minister outlines her 2021 Agenda (EA Business Week)
The newly reappointed Minister of Trade, Industry and Cooperatives, Amelia Kyambadde has clearly set out the agenda and areas of focus for her ministry in the period 2016-2021. Kyambadde said going forward, the priority for MTIC will include among others, expeditious completion of bills, policies and strategies under development such as Uganda Export Strategy enforcement, evaluating performance of Agencies. [Middle-income status not attainable with current growth, says NPA boss (Daily Monitor)]
SADC’s Regional appeal for humanitarian and recovery support (SADC)
The SADC Chairperson, Lt. General Dr Seretse Khama Ian Khama, President of Botswana will this month declare a Regional Disaster and launch a Regional Appeal for Humanitarian and Recovery Support (pdf) amounting to US$2.7bn. The Appeal will be a formal request to the international community to provide assistance to affected Member States. Five Member States, Lesotho, Malawi, Namibia, Swaziland and Zimbabwe have already declared national drought emergencies. South Africa has declared a drought emergency in 8 of the country's 9 provinces, while Mozambique declared a 90-day institutional red alert for some southern and central areas. [Various downloads available]
Farm input subsidy programmes: a benefit for, or the betrayal of, SADC’s small-scale farmers? (pdf, African Centre for Biodiversity)
This paper reviews the farm input subsidy programmes within countries belonging to SADC, to ascertain whether input subsidies have benefited small-scale farmers, have increased food security at the household and national levels, and have improved the incomes of small-scale farmers.
South Africa: Labour market dynamics and inequality (IMF)
Next we examine the role of unemployment in explaining the high levels of inequality in South Africa, using data from the third wave of the National Income Dynamics Study (NIDS) conducted in 2012. Our analysis (pdf) suggests that reducing unemployment by 10 percentage points would lead to a fall in the Gini coefficient from 0.665 to 0.645. This may appear small, but to achieve a similar reduction in Gini solely through fiscal transfers would require an increase in transfers by about 40% (equivalent to 3.3% of GDP in 2012 or about 11.1% of government expenditure). Therefore, without progress on reducing unemployment, reduction in inequality may be difficult to achieve through fiscal transfers alone. [The athors: Rahul Anand, Siddharth Kothari, Naresh Kumar]
Botswana: Services sector anchors economic rebound (Mmegi)
The domestic economy grew by 2.8% in the first quarter of 2016, with growth in the services sector outweighing the continued decline in mining activity. Data released by Statistics Botswana shows that the growth in Real GDP was attributed to real value added of trade, hotels and restaurants, finance and business services and transport and communications, which increased by 5.8, 5.2 and 4.6% respectively. “All other industries recorded positive growth with the exception of agriculture and mining which decreased by 3.1 and 5.6 percent respectively during the quarter under review,” said SB.
Launched: LPI's 30 percent campaign for women’s land ownership (UNECA)
On the eve of the Kigali 27th African Union Summit, the Land Policy Initiative - an initiative of the AUC, ECA and the AfDB - launched a campaign aiming at documented allocation of 30% of land to African Women by 2025. According to Ms Joan Kagwanja, Chief of Land Policy Initiative (LPI), African women have a significant role in agriculture where they contribute more than 60 percent of their labour towards food production, yet a complex set of circumstances constrain their access to and control of land under both customary and statutory realms of land governance and management.
Nepad's Ibrahim Assane Mayaki: 'The condition of women in Africa reveals the sorry state of the human condition on the continent' (WorldPost)
ECOWAS Commission workshop on climate change
Strengthening fish trade information system in Africa: AU-IBAR communique
Enhancing trade and food security in CILSS member states (FAO)
The trampling of African elephants: a matter of East, Central and North Africa versus SADC (Southern Times)
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G20 Trade Ministers’ Meeting Statement – Shanghai, July 2016
The Group of 20 (G20) Meeting of Trade Ministers concluded in Shanghai, China on 10 July 2016. Ministers endorsed the central role of the WTO in global trade governance and reiterated their support in further strengthening its functioning. Along with the G20 Trade Ministers’ Statement, the G20 Strategy for Global Trade Growth and G20 Guiding Principles for Global Investment Policymaking were also endorsed.
G20 Trade Ministers’ Statement
1. We, the trade ministers of the G20, met on 9-10 July 2016 in Shanghai, China under the chairmanship of H.E. Mr. Gao Hucheng, Minister of Commerce of the People’s Republic of China.
2. The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth. Downside risks and vulnerabilities persist. We agree that we need to do more to achieve our common objectives for global growth, stability, and shared prosperity. Trade and investment should continue to be important engines of global economic growth and development, generating employment, encouraging innovation and contributing to welfare and inclusive growth.
3. G20 members agree to provide political leadership by acting with determination to promote inclusive, robust and sustainable trade and investment growth, which is integral to achieving our ambition of 2 per cent additional growth by 2018 set by G20 Leaders in Brisbane in 2014.
4. More broadly, we resolve to step up our efforts to better communicate the benefits of trade and investment openness and cooperation to a wider public, recognizing their important contribution to global prosperity and development. We welcome the continuing inputs from relevant international organizations, which have provided strong analytical support to members, and from the B20 and T20.
Strengthening G20 trade and investment mechanism
5. In Antalya, G20 Leaders reaffirmed their strong commitment to better coordinate efforts to reinforce trade and investment, asked Trade Ministers to meet on a regular basis, and agreed on a supporting working group. We welcome the establishment of the G20 Trade and Investment Working Group (TIWG), and endorse its Terms of Reference (Annex I). We encourage officials to make good use of the TIWG to better support Trade Ministers Meetings and to further strengthen G20 trade and investment cooperation.
Promoting global trade growth
6. According to the WTO statistics, global trade growth has slowed significantly since 2008, from an average of over 7 per cent per annum between 1990 and 2008, to less than 3 per cent between 2009 and 2015. 2015 marked the fourth consecutive year with global trade growth below 3 per cent.
7. To help address the global trade slowdown, we agree to improve global trade governance and remain committed to an open global economy, and will further work towards trade liberalization and facilitation. We endorse the G20 Strategy for Global Trade Growth (Annex II). Under the strategy, we will lead by example to lower trade costs, harness trade and investment policy coherence, boost trade in services, enhance trade finance, promote e-commerce development, and address trade and development. We recognize that these activities, by promoting trade opening and integration and supporting measures for economic diversification and industrial upgrading will contribute to global prosperity and sustainable development.
8. We welcome the World Trade Outlook Indicator released by the WTO for the first time at the G20 Trade Ministers Meeting. This can serve as an important leading indicator to help guide the recovery and growth of global trade.
9. The G20 welcomes further joint work by the WTO, World Bank and OECD, in collaboration with other relevant international organisations, within their existing mandates and resources, to measure trade costs and assess the determinants and impacts of those costs, to help improve economic trade modelling and strengthen the evidence base on the link between structural measures, trade, investment and GDP.
10. We recognize that the structural problems, including excess capacity in some industries, exacerbated by a weak global economic recovery and depressed market demand, have caused a negative impact on trade and workers. We recognize that excess capacity in steel and other industries is a global issue which requires collective responses. We also recognize that subsidies and other types of support from governments or government-sponsored institutions can cause market distortions and contribute to global excess capacity and therefore require attention. We commit to enhance communication and cooperation, and take effective steps to address the challenges so as to enhance market function and encourage adjustment. The G20 steelmaking economies will participate in the global community’s actions to address global excess capacity, including by participating in the OECD Steel Committee meeting scheduled for September 8-9, 2016 and discussing the feasibility of forming a Global Forum as a cooperative platform for dialogue and information sharing on global capacity developments and on policies and support measures taken by governments.
Supporting the multilateral trading system
11. We reaffirm the central role of the WTO in today’s global economy. The WTO provides the multilateral framework of rules governing international trade relations, an essential mechanism for preventing and resolving trade disputes, and a forum for addressing trade related issues that impact all WTO members. We remain committed to a rules-based, transparent, non-discriminatory, open and inclusive multilateral trading system and are determined to work together to further strengthen the WTO.
12. We note with concern that despite the G20’s repeated pledges, the stock of restrictive measures affecting trade in goods and services has continued to rise, with about three quarters of the measures recorded since 2008 still in place, and the number of new trade-restrictive measures imposed by G20 economies affecting both goods and services has reached the highest monthly average registered since the WTO began its monitoring exercise in 2009. In response, we recommit to our existing pledge for both standstill and rollback of protectionist measures, and to extend it until the end of 2018. We also commit to improve the track record of notifications related to standstill and rollback efforts, including making better use of existing WTO bodies. We ask the WTO, OECD and UNCTAD to continue, within their respective mandates, their regular reporting on restrictive measures affecting trade in goods and services, and investment.
13. We note the important role that bilateral and regional trade agreements (RTAs) can play in liberalizing trade and in the development of trade rules, while recognizing the need to ensure that they are consistent with the WTO rules and provisions and contribute to a stronger multilateral trading system. We encourage future RTAs by G20 members to be open to accession and include provisions for review and expansion. We appreciate the factual overview of RTAs developments given by the WTO Director-General. We will work with other WTO members towards the transformation of the provisional Transparency Mechanism on RTAs into a permanent one and commit to lead by example in fully fulfilling related notification obligations.
14. In Antalya, Leaders emphasized the importance of the prompt ratification and implementation of the TFA. In the current climate of continuing moderate economic and trade growth, G20 leadership in implementing the TFA could make a significant contribution to lowering trade costs and freeing up world trade. We therefore commit to ratify the TFA by the end of this year and call on other WTO members to do the same. We reaffirm our commitments to providing resources to Trade Facilitation assistance mechanisms designed to help least-developed countries and developing countries most in need in implementing the TFA.
15. Building on the WTO’s successful Bali and Nairobi Ministerial Conferences, we commit to implement rapidly the Bali and Nairobi outcomes. To guide and shape the WTO’s post-Nairobi work, with development at its center, and acknowledging that provisions for special and differential treatment will remain integral, we reaffirm our strong commitment to advance negotiations on the remaining DDA issues as a matter of priority, including all three pillars of agriculture (i.e., market access, domestic support and export competition), non-agricultural market access, services, development, TRIPS and rules We agree to work with all WTO members to set the direction together towards achieving positive outcomes at MC11 and beyond in a balanced, inclusive and transparent way with a sense of urgency and solidarity. We also note that a range of issues, such as those addressed in various RTAs and by the B20, may be of common interest and importance to today's global economy, and thus may be legitimate issues for discussions in the WTO, without prejudice to respective positions relating to possible negotiations in the future. Any decision to launch negotiations multilaterally on such issues would need to be agreed by all Members.
16. G20 members recognize that WTO consistent plurilateral trade agreements with broad participation can play an important role in complementing global liberalization initiatives. In this regard, we note the Information Technology Agreement and its Expansion Agreement, and negotiations on the Trade in Services Agreement and the Environmental Goods Agreement (EGA). WTO members who share the objectives of participants in such plurilateral agreements and negotiations should be encouraged to join. In particular, we note the confirmation by all G20 participants in the expanded Information Technology Agreement of their commitment to implement it without further delay. G20 EGA participants recognize the substantial progress made to date in the negotiations on an Environmental Goods Agreement, and aim to conclude, using best efforts, an ambitious, future-oriented EGA that seeks to eliminate tariffs on a broad range of environmental goods by an EGA Ministerial meeting to be held by the end of 2016, having achieved a landing zone by the G-20 Summit in September in Hangzhou, after finding effective ways to address the core concerns of participants.
Promoting global investment policy cooperation and coordination
17. Global investment is an engine of economic growth and sustainable development. It should contribute to building productive capacity, facilitate wider dissemination of technology, creation of employment and, including through Global Value Chains (GVCs), help to connect economies to world trade. Today, however, global investment flows remain well below pre-crisis peak levels. Policy attention and cooperation is required to put investment growth back on track. We welcome efforts to promote and facilitate international investment to boost economic growth and sustainable development, and agree to take actions in this regard, including promoting investment in Low Income Countries (LICs). This in turn should support a recovery of trade growth. We commit to maintaining a supportive business environment for investors, and agree to collectively play a proactive and catalytic role in this regard.
18. We value discussions on investment promotion and facilitation, and encourage UNCTAD, the World Bank, the OECD and the WTO to advance this work within their respective mandates and work programmes, which could be useful for future consideration by the G20.
19. With the objective of fostering an open, transparent and conducive global policy environment for investment, we endorse the G20 Guiding Principles for Global Investment Policymaking (Annex III). These principles will help promote coherence in national and international policymaking and provide greater predictability and certainty for business to support their investment decisions.
20. We are committed to ensuring that trade, investment and other public policies, at both national and global levels, remain coherent, complementary and mutually reinforcing. We welcome further research and analytical work in UNCTAD, WTO, OECD and the World Bank, in consultation with the IMF, within their existing mandates and resources, to identify ways and means to enhance coherence and complementarity between trade and investment regimes. In this context, we take note of the B20’s recommendation for the WTO Working Group on the Relationship between Trade and Investment to resume its work.
Promoting inclusive and coordinated global value chains
21. We recognize that GVCs, encompassing regional value chains (RVCs), have become an important feature of the global economy, and are important drivers of world trade. We support policies that allow firms of all sizes, including SMEs, in countries of all levels of economic development to participate in and take full advantage of GVCs. In particular, we support policies that encourage greater participation and value addition by business in developing countries, particularly in LICs, in GVCs. We will continue to promote responsible business conduct.
22. G20 members will continue their efforts to enhance capacity building to promote inclusive and coordinated global value chains, and will continue to seek to develop and implement initiatives to assist developing countries, particularly LICs, and SMEs in the areas that matter most to GVCs. Such initiatives could include appropriate infrastructure, technology support, access to credit, supply chain connectivity, agriculture, innovation and e-commerce, skills training and responsible business conduct. Additionally, G20 members with capacity to do so will continue to: assist developing countries’ and SMEs’ ability to adopt and comply with relevant national and international standards, technical regulations, and conformity assessment procedures; facilitate developing country and SME access to information on trade and investment opportunities, including via increased utilization of information technologies; and provide further information that would help them participate in GVCs and move up the value-chain. We welcome further work, within their mandates and resources, by the ITC, OECD, World Bank and other relevant international organizations in this regard.
Toward the Hangzhou Summit
23. In a continuing environment of low global economic growth, the role of the G20 in strengthening trade and investment remains vital. We recommend that G20 Leaders consider these important issues further at the Hangzhou Summit and we look forward to our leaders’ instructions on ways to further intensify G20 efforts on trade and investment. We believe firmly that pursuing robust international trade and investment growth can play a vital part in achieving strong, sustainable and balanced growth.
Annexes
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Terms of Reference of the G20 Trade and Investment Working Group
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G20 Strategy for Global Trade Growth
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G20 Guiding Principles for Global Investment Policymaking
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32nd Ordinary Session of the PRC opens with a call for solidarity, pan-Africanism, self-reliance and independence for a united Africa
The Permanent Representatives Committee (PRC) of the African Union officially opened on 10 July 2016 at the Kigali Convention Center in Rwanda in the presence of H.E Dr Nkosazana Dlamini Zuma, Chairperson of the African Union Commission, H.E Mr. Erastus Mwencha, Deputy Chairperson of the AUC, the AUC Commissioners, the Representatives of the host Government, the UNECA, Heads of AU Organs and Missions abroad, AUC Directors and Officials, the Media and invited guests.
Holding under the theme “2016: African Year of Human Rights with a particular focus on the Rights of Women”, the 32nd Ordinary Session of the PRC opened with a call by H.E. Dr. Nkosazana Dlamini Zuma for solidarity and self-reliance so as to “build an African Union of people”.
The AUC Chairperson expressed satisfaction for the good working relationship between the PRC and the Commission and hoped that such cooperation will lead the continent to “The Africa We Want”. She further urged the Ambassadors to continue to work very closely with the AU Commission for the implementation of the development agenda for the continent.
While welcoming the delegates, the AUC Chairperson also expressed appreciation to the Government and people of Rwanda for the warm welcome extended to her and her delegation and for the good arrangements put in place to ensure a successful organization of the meetings.
“It is always a pleasure to visit the city and to witness the changes, to see how progress is being made in transforming the lives of the African people. We thank the President, the Government of Rwanda and the People for their legendary hospitality and impeccable organization of this Summit.”
The Chairperson further stressed on the symbolic importance for hosting a summit with particular focus on the rights of women in Rwanda, a country which she said, has done everything to make sure that women are treated as equal citizens, where men and women work side by side to ensure the progress of the country and of the continent.
“This Summit is an important milestone in our Union, as it will mark the end of the term of this Commission and the election of a new leadership,” noted Dr. Dlamini Zuma.
She highlighted that the Summit will provide an opportunity to reflect on the journey undertaken by the AUC leadership during the past four years of their mandate, and the role they have played in their respective functions towards taking forward the mission and the vision of the African Union with the view to build an integrated, peaceful and prosperous Africa, driven by its own people and playing a dynamic role in the world arena.
AUC Chairperson reiterated that the continental Organisation has abided by its mission which are informed by the core Pan African values that define the Union: unity, cooperation, solidarity and self-reliance as well as thinking and acting Pan African.
“The issue of unity and cooperation remains critical for all the programmes and initiatives of Agenda 2063,” underlined Dr. Dlamini Zuma. She added that, it would be difficult for Africa to move forward on the transport corridors that connect countries; on the regional energy pools that must power industries and homes; on free movement of people; on regional value chains in beneficiation and manufacturing, without cooperation amongst countries and with the Regional Economic Communities (RECs).
According to the AUC Chairperson, the Permanent Representative of Member States in Addis Ababa are in a unique position, as they are based in the capital of Africa, Addis Ababa where the Commission is headquartered, to advocate for that balance between the national interests and the continental common good. Moreover, the Agenda 2063 programmes and priorities also require a great amount of solidarity, to support initiatives.
H.E. Cherif Mahamat Zene, Chairperson of the PRC and Ambassador of the Republic of Chad to Ethiopia expressed his profound gratitude to the Government and people of Rwanda for their hospitality and for accepting to host the 27th AU Summit. He congratulated the Rwandan government for the progress made through national reconciliation after the 1994 genocide experience.
Amb. Cherif highlighted that the PRC meeting will consider issues related to the activities of the AU Commission including the AU budget for 2017. He commended the PRC Sub-Committee on Administrative, Budgetary and Financial Matters and the Staff of the AUC for preparing the budget in a bid to promote and enhance the efficiency of the Institution. The PRC Chairperson also mentioned that the meeting is expected to deliberate on the reports presented by the Representatives of AU Organs among others.
Amb. Cherif appealed to members of the PRC to be precise and prioritize the discussions to give more consideration to the most important items on the agenda so as to finalise the PRC report to be submitted to the Executive Council scheduled for the 13-14 July 2016 for their consideration and adoption. He called on his peers to reflect further on ways to strengthen the collaboration between the PRC and the Commission urging them to be realistic and action driven so that they can produce a constructive document that will further monitor progress by the Member States.
Representing the host Government at the opening ceremony, Amb. Jeannine Kambanda, Permanent Secretary, Rwanda Ministry of Foreign Affairs and Cooperation, warmly welcomed all the delegates to Rwanda for the 27th AU Summit. She indicated that this Summit is a memorable for Rwandans, and that the people and Government of Rwanda are honored and thankful to the AUC for co-organising this important event.
Amb. Kambanda underlined that this summit will help to further popularize the Africa Agenda 2063 to be assimilated by the people of Rwanda and beyond, therefore creating awareness on AU activities. She reaffirmed the commitment of the Government of Rwandan to enhance integration within the continent as stipulated in Agenda 2063. She concluded by wishing the delegates a fruitful deliberation.
The PRC opening ceremony was marked by a minute of silence in memory of the loss of the Director and Ag. Director of the AUC Strategic Policy Planning, Monitoring and Evaluation and Resource Mobilization (SPPMERM).
Unity and market liberalization will spur African economic growth – Chairperson Dlamini Zuma
Opening up the market for Africa, liberalization of the economies and facilitating free movement of people across the continent are among the identified factors that will drive continent’s economic growth and development.
H.E Dr. Nkosazana Dlamini Zuma the Chairperson of the African Union Commission while addressing the 32nd Ordinary Session of the Permanent Representatives Committee (PRC) of the African Union observed that it was imperative for countries to cooperate and open up the market.
“The world is moving towards mega trading blocks, that all exclude us, and the Doha development round of negotiations have failed to even start. Unless we unite to form our African common market, the little bit of preferential trade we have at the moment, will be further eroded,” she said while addressing the session as the African Union summit kicked off at the level of the PRC in Rwanda.
The AUC Chairperson mentioned that business operators, farmers, and entrepreneurs are still hungry of the free market and this has created a negative impact on the continent’s economic growth since competing at international market is still a challenge.
“If we continue building momentum on the continental free movement of people and on the Continental Free Trade Area it will create better conditions for our traders, farmers, business, entrepreneurs and innovators to invest trade with each other and build Pan African companies and brand,” she further noted.
The AUC Chairperson’s opinion comes in as a strong backing to the yet to be launched African Union (AU) Passport that will create a favorable condition for free movement of African people within the continent.
This flagship project, first agreed upon in 2014, falls squarely within the framework of Africa’s Agenda 2063 and has the specific aim of facilitating free movement of persons, goods, and services around the continent – in order to foster intra-Africa trade, integration, and socio-economic development.
Rwanda continues to be on the forefront of facilitating the movement of people across the continent. In fact, Rwanda has taken a lead in ensuring easing Intra-Africa travel by relaxing visa restrictions. The travelers access the travel visas at the entry point and this has led the country to be on the right track to achieve the dream of visa-free travel for African citizens within their own continent by 2020.
Amb. Jeannine Kambanda, Permanent Secretary, Ministry of Foreign Affairs and Cooperation while giving her opening remarks, mentioned that Summit ponders a huge opportunity to popularize the African Union and its agenda 2063 among member states.
She observed that, by the time the AU Summit ends on 18th July, the understanding of the majority of Rwandans about the African Union will completely be different adding that they will have a deeper knowledge of the African Union and its member states.
Amb Kambanda observed that it was vital for African countries to embark on women empowerment and working together as a tool to foster African democratization.
“I, therefore, stand before you as one of the many proud Rwandan women today who have been given the opportunity to serve their country in a leadership capacity. Thanks to the Leadership of President Paul Kagame for putting woman rights at the center in all we do in Rwanda,” she said.
She added: “Human Rights, especially the Rights of women will remain central as we implement Africa’s Agenda 2063 and that is why I believe you choose this theme.”
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Reserve Bank addresses Germany on future of BRICS
Deputy Governor of the South African Reserve Bank Daniel Mminele said there were many questions that needed to be answered about the future of BRICS as an economic bloc.
Speaking to delegates at the Bundesbank Regional Office in Dusseldorf this week, Mminele explained that the BRICS relationship had become significantly more complicated than it was when the bloc was first established.
When BRICS first became a reality, the economies of the five countries involved were all thriving, to one degree or the other. However, they have since encountered considerable turbulence, which has created a bout of uncertainty.
Mminele does not think it is all doom and gloom though.
“The role of BRICS in the global economy. Admittedly, this may have been a much easier topic a few years ago when the successes of the BRICS economies far overshadowed their weaknesses,” said Mminele.
“As the challenges facing the BRICS economies have mounted, there are now many question marks over the economic power of the BRICS grouping and the ability to realistically challenge and change the global economic order to one which is more representative and fair,” added Mminele.
He highlighted the fact that BRICS was not the only economic bloc which had encountered considerable difficulty during the past 12 to 18 months. The developments in the European Union, for example, have been well documented this year.
“Indeed, BRICS is not alone in the many challenges that it faces. Both advanced and emerging economies have slowed with each facing their own set of dynamics adversely impacting growth and which inter alia require bold actions in the implementation of much needed structural reforms.
“It seems appropriate to be delivering this speech in the heart of Europe, a region which has vast trade linkages with the BRICS economies and where the economic influences are strong.
“I would imagine that developments in Europe and the many challenges that this region has been confronted with lately, have occupied more of your attention than BRICS matters have.
“European developments have certainly occupied the attention of policymakers in BRICS countries since, as we all know, we live in a highly interconnected and interdependent world with significant spill-overs across countries,” added Mminele.
The reality is that, while BRICS does have its own agenda at this juncture, it simply cannot ignore the agenda of Europe and the United Kingdom; such is the nature of the global community we live in.
“South Africa takes a keen interest in Europe, given large trade linkages and therefore significant implications for our economic prospects. The relationship between South Africa and Germany in particular, has been a long and fruitful one and certainly the contribution to South Africa’s development has not been insignificant,” he said.
The automobile sector is probably the most important for both countries.
“Approximately 600 German companies have operations in South Africa, employing over 90,000 workers. Such a presence contributes significantly to employment and skills-building, and no doubt, towards technological advancement in South Africa,” Mminele added.
On the future of BRICS itself, there are many questions that need to be answered, which will have significant implications for both regions and both economies.
“Increased globalization has meant that BRICS has become an important source of global growth and political influence. BRICS economies have grown rapidly with their share of global GDP rising from 11 per cent in 1990 to almost 30 per cent in 2014. BRICS account for over 40 per cent of the world population, hold over US$4 trillion in reserves and account for over 17 per cent of global trade,” he said.
“Financial markets in the BRICS countries have similarly expanded in a rapid manner. For example, in the 20 years until 2010, Brazil’s market capitalization increased from a very low 4 per cent of GDP to 74 per cent, India from 12 per cent to 93 per cent, Russia and China from almost zero to 70 per cent and 81 per cent, respectively. In South Africa, market capitalization has more than doubled from 123 per cent to 278 per cent. According to S&P Global Market Intelligence global bank rankings, banks from these five countries figured among the top 100 banks in the world, with the top 4 banks headquartered in China.
“It therefore comes as no surprise then that these economies became the new engines of global demand. Having been victims of the global financial crisis, and suffering the impact of large and volatile capital flows and what Mohamed El Erian has referred to as “tourist dollars”, the BRICS countries were propelled into a common objective of reforming the international financial and monetary system, with a strong desire to build a more just, and balanced international order that reflects the dynamics of today’s global economy and serves the interests of all in a fair manner. To this end, the five countries in the BRICS community play an important role in the G20, in shaping global economic policy and promoting financial stability.”
“The role of BRICS in the global economy”
Extracts from the address by Deputy Governor Daniel Mminele, 7 July 2016
BRICS and South Africa
The BRIC countries, as the grouping was initially known, admitted South Africa as a member to the club in December 2010. There were many criticisms levelled towards the inclusion of South Africa in this grouping, with the perception that South Africa’s economic size was just too small for it to have any benefits for the BRIC. However, if one considers the country’s large mineral resources; very well developed, deep and sophisticated financial markets; strong institutions and robust and expanding infrastructure programme, then surely South Africa’s presence in this grouping is not misplaced. In addition to South Africa being the only African member of the G20, its inclusion into the BRIC group provides it with a more representative structure and further emphasises the BRIC countries commitment to strengthening their presence and engagement in Africa. 2 Indeed, within the Sub-Saharan Africa (SSA) region, South Africa is the second largest economy, accounting for 21 per cent of SSA GDP. SSA is an important export market, and there are significant financial linkages in terms of foreign direct investment and a strong presence of South African firms in the South African Development Community.
South Africa’s trade with BRIC countries has expanded in recent years, as exports to BRIC countries grew from R20 billion in 2005 (EUR1 billion), to R154 billion (EUR9 billion) in 2013 (although this has since slowed to R147 billion (EUR8.5 billion) in 2015). Imports have similarly increased from R48 billion (EUR2.8 billion) in 2005 to R277 billion (EUR16 billion) in 2015.4 Much of the exports are destined for China, which accounts for 64 per cent of South Africa’s exports to BRIC, followed by India accounting for close to 30 per cent. The bulk of exports to BRIC countries consist of mineral products, although the percentage of mineral products in total exports in China, for example, has declined from levels of close to 80 per cent to 60 per cent in 2015. This most likely reflects to some extent the slowdown in China. In terms of imports from BRIC countries, China accounts for 72 per cent of South Africa’s imports from BRIC, followed by India with approximately 20 per cent. Most of the imports from China relate to machinery products and in India’s case, mineral products. Thus, while trade with BRIC countries has expanded, there has been a slowdown in export growth more recently, with a consequent increase in the trade deficit with BRIC countries.
BRICS in the global context
Increased globalisation has meant that BRICS has become an important source of global growth and political influence. BRICS economies have grown rapidly with their share of global GDP rising from 11 per cent in 1990 to almost 30 per cent in 2014. BRICS account for over 40 per cent of the world population, hold over US$4 trillion in reserves and account for over 17 per cent of global trade. Financial markets in the BRICS countries have similarly expanded in a rapid manner. For example, in the 20 years until 2010, Brazil’s market capitalisation increased from a very low 4 per cent of GDP to 74 per cent, India from 12 per cent to 93 per cent, Russia and China from almost zero to 70 per cent and 81 per cent, respectively. In South Africa, market capitalisation has more than doubled from 123 per cent to 278 per cent. According to S&P Global Market Intelligence global bank rankings, banks from these five countries figured among the top 100 banks in the world, with the top 4 banks headquartered in China.
It therefore comes as no surprise then that these economies became the new engines of global demand. Having been victims of the global financial crisis, and suffering the impact of large and volatile capital flows and what Mohamed El Erian has referred to as “tourist dollars”, the BRICS countries were propelled into a common objective of reforming the international financial and monetary system, with a strong desire to build a more just, and balanced international order that reflects the dynamics of today’s global economy and serves the interests of all in a fair manner. To this end, the five countries in the BRICS community play an important role in the G20, in shaping global economic policy and promoting financial stability.
The future role of BRICS
Following an impressive performance in the aftermath of the global financial crisis, BRICS countries have recently started to slow. In this respect, there seems to be an awful lot of doom and gloom bandied about the BRICS in some quarters. Some have referred to the BRICS bubble bursting, others have noted that BRICS “instead of propelling the global economy into calmer waters, now risk capsizing it” and others question “why the mighty BRICS nations have broken?”
This slowdown has been reflected in a number of areas. Exports from BRICS to developed markets and investments into their respective economies have declined, while the collective contribution to global growth has fallen from a peak of nearly 50 per cent in 2013 to around 36 per cent in 2015. Real GDP growth of BRICS, which was over 8 per cent in 2010 declined to just over 4 per cent in 2015. In addition, the local currencies of BRICS, with the exception of China, has experienced varied levels of volatility following the onset of the global economic crisis.
As Christine Lagarde noted in a recent speech there have been three particular challenges confronting the global economy and also the BRICS countries. First is China’s growth transition and the rebalancing of its economy from industry to services, from exports to domestic markets, and from investment to consumption. In the short run, this will lead to slower growth with spill over effects through trade and lower demand for commodities. Global trade, which fell to 20 per cent below its precrisis trend, was driven by sluggish growth in advanced economies, and the maturation of global value chains which has further reduced the elasticity of trade flows to economic activity and exchange rate changes. Furthermore, higher capital requirements and tightened financial regulations have reduced banks’ willingness to extend trade finance, and the pace of trade liberalization slowed. Secondly, declining commodity prices has placed many commodity-exporting emerging economies under severe stress with very large currency depreciations in some cases and has set back growth in commodity-exporting BRICS. Third, asynchronous monetary policies has contributed to an appreciation of the U.S. dollar, putting considerable strain on emerging market currencies. Meanwhile, net capital flows to BRICS have undergone significant bouts of volatility, which have weighed on investment growth.
Until 2013, the slowdown was predominantly driven by external factors, however, the role of domestic factors has increased in the past two years and have come to the forefront as the predominant forces behind slowing growth in BRICS. This reflects declining potential growth, compounded by a deterioration in fiscal positions of BRICS and political dynamics which have dented confidence and increased pressure.
The question then is, does BRICS still matter and should it occupy so much of our attention? BRICS account for about two-thirds of emerging market GDP. The World Bank has estimated that in the event that growth in BRICS economies fell one percentage point below expectations, this would knock 0.8 percentage points off growth in other emerging markets over a period of two years and reduce global growth by 0.4 percentage points. The effects of a BRICS slowdown on other emerging markets and the global economy are significantly worse if one assumes that financial sector turbulence will also accompany the slowdown.8 These effects are a result of unintended knock-on effects, in the form of financial, trade and economic spill-overs. In this context, the BRICS are at an important juncture and the question is how does BRICS emerge from the current dismal conjuncture? It should be noted that the slowdown of BRICS hampers the scope for a speedy recovery of the world economy given the much greater weight of BRICS in the global economy.
As we have heard time and again, a combination of proactive countercyclical policies and structural reforms are needed to reinvigorate domestic economies and economic growth. While the recipe for success are of course not the same for all, the ingredients for success are mostly the same and include inter alia encouraging greater private sector investment, labour market reforms, stronger protection for intellectual property rights, and addressing infrastructure bottlenecks, amongst others. Given the sheer size, vast resources and youthful populations of the BRICS countries, the potential of this grouping for both domestic and global outcomes is beyond question. Indeed, recessions in Brazil and Russia and slower growth in South Africa are expected to bottom out this year, while China may experience only a modest slowdown and India continues to expand at a robust pace.
Conclusion
Let me then conclude by saying that the challenging times we face as the BRICS are by no means unique to us. Indeed, the entire global economy is at a difficult juncture at present. While we may have emerged from the global financial crisis, the recovery has by no means been as robust as one would have liked.
The challenges we face need to be tackled decisively and provide us with the opportunities to implement meaningful reforms, which ultimately can lead to strong, sustainable and balanced growth. Such efforts are well underway. What has been broken can certainly be fixed, and I have no doubt that the BRICS, along with the rest of the global economy, through better co-ordination and collaboration will emerge stronger.
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Increase people’s purchasing power to attract more foreign investors, experts say
Encouraging Rwandans to consume locally-produced goods as well as putting in place strategies that boost people’s purchasing power are crucial in attracting more foreign investors into the country.
According to Tatsuya Narahara, the director for Africa, Middle East and Asia at Mayekawa, a Japanese firm that manufactures construction and mining equipment, increasing local consumption is an essential ingredient that serves as an incentive to woo investors in any given country.
He, however, said boosting local consumption requires investing in the sectors that would help increase the per capita income and purchasing power. Rwanda has for the past two years been encouraging consumption of locally-produced goods under the Made-in-Rwanda campaign.
The initiative aims to help reduce the trade deficit and boost the local manufacturing sector, particularly the small-and-medium enterprises (SMEs).
It also seeks to enhance quality, standards, branding and packaging of local products. The country seeks to raise the per capita income to $1,240 by 2020, up from $644.
Narahara said increasing people’s purchasing power will assure investors of a ready market.
He pointed out that Mayekawa is targeting to increase its presence in Africa, and considers Rwanda as best option.
“We are looking at Africa as a potential market and are ready to work with local investors to expand our presence on the continent,” Narahara said.
He noted that the decision for many investors to commit to the continent is informed by market availability.
According to Japanese experts, low demand and low purchase power on the continent scare away investors, noting that increase in local consumption is what largely developed Japan after the Second World War and trade embargo.
“Therefore, what countries like Rwanda are doing in regard to encouraging local consumption is critical for economic sustainability of the continent as it will attract more investments to Africa,” Narahara said in an interview with The New Times in Osaka, Japan.
According to Yuuichi Itou, the general manager of Komatsu Limited, which produces refrigerators and air conditioners, low purchasing power partly explains the minimal foreign direct investments in Africa.
“Therefore, by championing consumption of locally-make products, Rwanda is helping create a bigger market that will attract more investors to the country,” he said.
Meanwhile, at the sixth Tokyo International Conference on Africa Development in Nairobi, Kenya, scheduled to open on August 27, Rwanda will be looking to market its investment potential to more than 300 Japanese firms expected to attend the summit.
The summit, which will be co-hosted by JICA and the African Union, is expected to bring together over 6,000 trade experts, investors and policy-makers from across Africa, Japan and elsewhere to deliberate on strategies to promote industrial development for sustainable growth.
Many of the investors, according to Noria Maruyama, the director general in charge of African affairs at the Japanese Ministry of Foreign Affairs, will be seeking investment opportunities in countries like Rwanda to widen their presence in Africa.
JICA global chief tips Africa on sustainable industrial development
Africa will host the sixth Tokyo International Conference on Africa Development (TICADVI) in Nairobi, Kenya on August 27, the first such meeting to be held in Africa. The summit will be co-hosted by JICA and the African Union, and is expected to bring together over 6,000 trade experts, investors and policy-makers from Africa, Japan and elsewhere to deliberate on strategies to promote industrial development for sustainable growth.
Prof Shinichi Kitaoka, the global president of the Japan International Cooperation Agency (JICA), discussed the opportunities the TICAD initiative offers to Africa, and what Africa can do to achieve sustainable and inclusive growth with The News Times’ Peterson Tumwebaze in Tokyo, Japan last week:
Africa will host the Tokyo International Conference on Africa Development (TICAD) for the first time. What is the contribution of the initiative toward Africa’s development?
Through the TICAD initiative, we hope to strengthen and foster trade relations with Africa as one of the efforts to support development on the continent. Remember, the world’s stability partly depends on the economic strength of this continent.
Many African countries have sustained high growth rates for a decade, weathering the global financial crisis of 2008 that wrecked havoc on many economies, including the US and Europe. Yet, despite this performance, Africa still faces various economic challenges affecting its growth potential.
The continent, therefore, needs to accelerate the pace of poverty reduction, narrow income gaps, create more jobs, especially for the youth, as well as build infrastructure, and promote intra-regional trade. Reliance on commodity price booms for growth has also emerged as one of the main challenges facing many African countries. Therefore, to address these development challenges, the continent should promote strategies that ensure transformation and build economic resilience.
Therefore, the sixth Tokyo International Conference on Africa Development (TICADVI) in Nairobi, Kenya next month will be seeking ways, including pursuit of industrial development that will help transform and strengthen the resilience of African economies. We are encouraged by the international community’s recognition of the pivotal role industrial development and trade can play in Africa’s development agenda, especially under the Sustainable Development Goals (SDGs) framework.
These targets will enable the continent to achieve inclusive and sustainable industrialisation by 2030 as envisaged under Goal 9 (Build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation).
How can Africa achieve these industrialisation targets?
First of all, there is need to increase efforts geared at poverty reduction and narrowing income inequality, particularly by increasing labour productivity. This, however, calls for reallocation of labour and capital from subsistence agriculture and informal service sectors to more productive sectors, like manufacturing.
The second aspect is to create more jobs, especially for the youth. Africa needs to meet growing demand for youth employment. In fact, the IMF estimates that 18 million new jobs need to be created every year in Africa between 2010 and 2035. There are few sectors, besides labour intensive manufacturing, that are capable of absorbing such large numbers of workers.
Thirdly, the continent needs to mitigate the impact of external economic shocks, such as sharp declines in commodity prices, like oil and metals.
The mining sector has been the main driver of Africa’s economic growth over the last decade, but falling commodity prices over the past year have affected growth. Such challenges can be addressed by emphasising economic diversification, as well as promotion of value addition in agriculture, and manufacturing sectors. Therefore, industrialisation will play a big role in helping African countries address these challenges. African policymakers and development partners can pick a leaf from the Asian Tigers’ journey to become industrial powers. Otherwise, TICADVI will be held on African soil is a clear indication of our commitment to fostering development in Africa. Toward TICADVI and beyond, JICA and partners will remain dedicated to working with Africa to turn the continent’s long-term development vision into reality.
TICAD was launched, what is your assessment of the initiative’s performance so far?
Japan launched TICAD in 1993 to promote political dialogue between Africa and development partners through mobilisation of resources for the continent’s development initiatives. Japan was the first country to start dialogue with African countries after the cold war to strengthen economic and bilateral relationships. It was not until we launched TICAD that America and the European countries started similar dialogue with Africa.
At the 5th Tokyo International Conference on African Development in Yokohama in 2013, the Japanese government committed to supporting Africa through stronger public-private partnerships.
Prime Minister Shinzo Abe also announced the African Business Education Initiative for the Youth, a five-year strategic plan to give 1,000 African youths opportunities to study at Japanese universities, and do internships at Japanese enterprises to foster sustainable industrial development on the continent.
The TICADV targeted increasing private sector investments and private capital flow to Africa which has also encouraged more investors to invest in Africa. We hope to continue supporting Africa on its development and industrialisation journey.
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Structural transformation in Africa: a historical view
This paper presents evidence suggesting that the relationship between income and economic structure is shifting over time, with countries across the income distribution uniformly increasing the share of labor in service sectors and an increasingly less stark relationship between manufacturing intensity and gross value added per capita.
The paper then assesses historical patterns of productivity convergence at a more detailed sector disaggregation than has been previously available. The analysis finds suggestive evidence that, at least in recent decades, convergent pressures in services industries are stronger than in manufacturing. Focusing on African economies, the paper presents a country-by-country historical analysis of structural change over the past four decades.
Given the varied patterns and trends in structural change across African countries, it is difficult to characterize structural change from a single, continent-wide perspective. Some countries saw an early transition of labor out of agriculture, with manufacturing absorbing this labor in the decades prior to the 1990s, while another group of countries saw a later transition out of agriculture, where the services sector played a large role in labor reallocations in the 1990s and 2000s.
Finally, the paper provides a country-by-country structural transformation scorecard to assess patterns of structural change in jobs and growth.
Introduction
A new and a more optimistic narrative on Africa’s growth and structural transformation has emerged from a series of high level reports – the 2014 African Transformation Report, the African Union’s Agenda 2063, the African Development Bank’s Long Term Strategy, the UN Economic Commission for Africa’s Economic Report on Africa 2013, UNCTAD’s 2012 report on structural transformation, multiple recent IMF papers, among others, which point to the fact that Africa’s recent progress is not based solely on natural resources. A recent report by the World Bank on economic transformation and poverty reduction in Africa found that the region’s economies are developing in unexpected ways. The region is largely “bypassing industrialization as a major driver of growth and jobs”. The demographic dividend will make the region’s labor force much larger and better than that of any nation, including China or India, if the young children in Africa could be better educated than in the past.
Africa’s recent economic performance has vastly improved: its annual growth rate approached 3% in per capita terms after 2000. Rodrik (2014) claims this growth is not just driven by investment, but also by total factor productivity growth – seen for the first time since the 1970s. While there was growth during the 2000s, the economic decline prior to this decade was so profound that many countries have yet to catch up to post-independence income levels.
The historical empirical reality shows that with the exception of the European periphery and East Asia, convergence has been the exception rather than the norm. Growth theory has adapted to empirical realities by differentiating between conditional and unconditional convergence: growth in developing countries is dependent on overcoming several obstacles or country characteristics, such as weak institutions, poor infrastructure, disadvantageous geography and inadequate economic policies. Consequently, Rodrik (2014) concludes that developing countries converge to rich country income levels conditional on these problems being overcome.
An ongoing debate is whether improvements in growth fundamentals can be expected to improve economic stability. Multiple studies have shown the relationship between good policy and economic growth is not particularly strong, though Acemoglu, Gallego, and Robinson (2014) suggest that differences in institution quality account for 75% of the variation in income levels around the world. This latter work points to a long run effect in levels, rather than an insight into short- or medium-term growth rates.
It is now well-established that the modern organized manufacturing sector exhibits unconditional convergence, contrary to other economic sectors; that is, manufacturing industries converge to the global productivity frontier regardless of the condition of growth fundamentals. The question is whether Africa can generate a “growth miracle” based on the manufacturing industry. In a model that incorporates this unconditional convergence, structural change – the shift of labor from low productivity industries to high productivity industries – plays an essential role.
The level of employment shares across sectors in developing countries conditional on income level shows that African countries fit into a global pattern: shares of employment in the different sectors are what one would expect them to be. So just like elsewhere, structural change in sub-Saharan Africa has been through a decline in the share of labor employment in agriculture, the least productive sector in sub-Saharan economies. Unlike other developing countries, African countries (generally) have not seen a significant increase in the share of labor force employment in manufacturing – instead, the shift in employment share has been towards the services sector.
Thus African structural change is unlike the pattern exhibited by Asian and European industrializers: labor is currently largely shifting towards the services industry, which historically has been less productive than manufacturing in other countries. Additionally, the manufacturing sector is dominated by informal firms, which are less productive than the formal organized firms required for unconditional convergence. Rodrik (2014) notes that African countries are de-industrializing much faster than Asian and European countries did in the past. African countries thus need to assess what type of growth model is both suitable and feasible.
A Historical Lens
Using a recently available data set from the Groeningen Growth and Development Centre’s 10-sector database (hereafter “GGDC data”) that provides employment and value added for ten disaggregated product sectors for a large set of countries historically, we begin the paper with high-level analyses investigating cross-country trends in sectoral productivity convergence and how the relationship between levels of development and economic structure has changed over time.
The GGDC data “provides a long-run, internationally comparable dataset on sectoral productivity performance in Africa, Asia, and Latin America. Variables covered in the data set are annual series of value added, output deflators, and persons employed for 10 broad sectors”. These ten sectors comprise agriculture, mining, utilities, construction, manufacturing, wholesale and retail trade, FIRE industries, transport, government services, and other services (restaurants, hospitality, etc.). Among Sub-Saharan African countries, it contains data from Ethiopia, Botswana, Ghana, Kenya, Malawi, Mauritius, Nigeria, Senegal, South Africa, Tanzania and Zambia.
These data allow a more nuanced look at the role of specific sectors in structural change, particularly separating construction and mining from manufacturing aggregates, and FIRE industries, government services, transport, and utilities from services aggregates, allowing greater specificity in understanding which sectors are drivers of structural change. Many of the countries in the recent release have reliable data going back to the 1970s or earlier, so we are able to build a long historical quantitative view of structural change. This, in turn, allows us to place economies’ current and recent trends in comparative historical context.
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Failure to implement hampers regional integration
Investment, Trade and Industry minister, Vincent Seretse has expressed concern at the failure by some Southern African Development Community (SADC) member states to implement the 15-point action matrix, saying it hampers deeper regional integration.
The 15-point action matrix focuses on the review of rules of origin, completion of tariff phase downs, removal of non-tariff barriers, and facilitation or development of a mechanism to assist those member states that are not yet in the Free Trade Area (FTA) to participate therein.
At the 28th meeting of the committee of ministers of trade, Seretse said SADC ministers of trade continue to be confronted and meeting over the same issues, with very little progress made in resolving them.
“This is becoming a concern as some of the issues that continue unresolved on our agenda, can, with a high level of commitment, and in the spirit of give and take, be easily resolved to the benefit of all parties concerned,” he said.
He noted that the issues such as failure to implement or finalise implementation of tariff commitments by some of the committee members, failure to finalise the review of SADC rules of origin, particularly for some of the key products in the region such as textiles and clothing, and continuous introduction of non-tariff barriers within the trading regime, not only negatively affect any efforts made to create a conducive trading environment in order to increase intra-SADC trade in the region, but also continue to undermine the credibility of the SADC free-trade area.
Seretse indicated that the ministerial task force on regional economic integration observed that there was need to consolidate the SADC free-trade area and make it more effective for SADC to progress its integration agenda beyond the FTA.
“It is in this regard that a 15-point action matrix was agreed upon. It should be noted that there is little progress made on the above priority areas and this hampers deeper regional integration,” he said.
He further said in 2014, committee of ministers approved a comprehensive monitoring, reporting and evaluation mechanism for the protocol on trade.
He urged the Secretariat to spare no effort in keeping regular checks on all implementation aspects and to report progress or a lack thereof.
Where necessary, we should explore as ministers, what programmes could be put in place to support those members that need to be assisted to meet their obligations towards the trade protocol.
According to Seretse, the need to finalise the trade in services negotiations has become paramount in view of SADC’s efforts to industrialise as a region.
“We all know that access to cheaper services inputs is a key factor in building competitiveness of our industrial sector,” he said.
He said the sooner these negotiations are completed and the protocol on trade in services operationalised, the better chance committee of ministers stand to inject the necessary impetus to SADC entrepreneurship and industrialisation.
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UNCTAD facilitates G20 consensus on Guiding Principles for Global Investment Policymaking
The G20 Trade Ministerial Meeting, held on 9 and 10 July 2016 in Shanghai under the China Presidency, has agreed a set of non-binding Guiding Principles for Investment Policymaking.
The Guiding Principles are the outcome of six months of intensive discussions held in the G20’s newly established Trade and Investment Group, which aims to enhance global trade and investment policy cooperation, and constitute a priority deliverable for the 2016 G20 Summit. Work on the Principles was facilitated by UNCTAD’s Division on Investment and Enterprise.
What are the objectives of the Guiding Principles?
The G20 Guiding Principles aim to provide general guidance for investment policymaking in order to (i) foster an open, transparent and conducive global policy environment for investment, (ii) promote coherence in national and international investment policymaking in the absence of a global governance regime, and (iii) promote investment for inclusive economic growth and sustainable development.
What do the Guiding Principles say?
The G20 Guiding Principles for Investment Policymaking cover nine areas: (I) Anti-protectionism, (II) Non-discrimination, (III) Investment protection, (IV) Transparency, (V) Sustainable development, (VI) the Right to regulate, (VII) Investment promotion and facilitation, (VIII) Responsible business conduct, and (IX) International cooperation.
The Principles urge governments to avoid protectionism and to establish open, non-discriminatory, transparent and predictable conditions for investment. They call for strong protection of investor interests and fair and transparent procedures for the settlement of disputes. At the same time, the Principles call for safeguards to prevent abuse of such mechanisms by investors. They confirm the right of governments to regulate for public policy purposes, and they make explicit the need for consistency of investment policies with sustainable development objectives. The Principles call for transparent policymaking and for efficient and effective policies for investment promotion and facilitation. They address the need to promote responsible business conduct by investors, and they set the stage for future further cooperation in the international investment community to address shared investment policy challenges.
Why are the Guiding Principles important?
The adoption of the Guiding Principles is a landmark event. It is the first time in more than five decades of international investment policymaking that consensus has been reached between such a varied group of developed, developing and transition economies – representing over two thirds of global foreign direct investment – despite numerous attempts over the years.
Reaching consensus on international investment policy has proven elusive in the past because of the diverse interests and concerns of business, investor home and host states, and the public at large. Still today, many attempts at reaching agreement or concluding treaties on investment provoke fierce debate and strong concerns among the public related to possible limitations on the right of governments to regulate in the public interest on health, safety or the environment.
The G20 Principles aim to strike a delicate balance between the interests of developed and developing countries and between the promotion and protection of investment and governments’ right to regulate. They constitute a first tentative step in the direction of broad multilateral consensus and as such could have far-reaching systemic implications.
What is the role of UNCTAD?
UNCTAD played a key role as facilitator for the discussions on the Guiding Principles and provided an initial draft based on its Investment Policy Framework for Sustainable Development. UNCTAD also played a role as coordinator of the interagency working group to provide substantive support to the G20 on other investment related issues.
Factors that allowed UNCTAD to be instrumental in helping the G20 find common ground included (i) UNCTAD’s work on improving the international investment agreements regime (including its Roadmap for IIA Reform), (ii) UNCTAD’s experience over the years building consensus on investment policy through the annual IIA Conference and the biennial World Investment Forum, and (iii) UNCTAD’s technical assistance work advising numerous countries on national investment policies and on their approach to investment agreements.
UNCTAD will continue to support the international investment community in its efforts to work towards promoting investment for sustainable development. The next milestone event in the process will be the upcoming World Investment Forum 2016, taking place from 17-22 July in Nairobi, Kenya.
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Swaziland leads in cross-border trade facilitation
Swaziland has been named top in Africa in the management and facilitation of the Cross Border Trade dubbed “the Big Bang”. It is currently ranked number 30 in the world. This is according to the World Bank Doing Business rating on trading across borders.
This was revealed during the 2nd Steering Committee meeting for the Automated System for Customs Data (ASYCUDA) that took place at the Royal Swazi Sun Hotel in Ezulwini, Swaziland on 4th July 2016.
ASCYUDA is a computerized system designed by the United Nations Conference on Trade and Development (UNCTAD) to administer a country’s customs.
The meeting brought together members of the steering committee drawn from the Swaziland Revenue Authority, the Ministries in charge of Commerce and International Trade, Finance and Economic planning. Others were the Federation of Swaziland Employers and Chambers of Commerce the European Union Commission, UNCTAD and COMESA.
Commissioner General of the Swaziland Revenue Authority, Dumisani Masilela said the implementation of ASYCUDA World would enhance Swaziland’s efforts to remain in the lead or even improve on the world standing and set the country on the path to meet obligations under WTO Trade Facilitation Agreement.
He said significant progress had been made in the implementation of the project since the last meeting of the Committee in May 2015.
“The system went live in Swaziland as scheduled in all commercial border posts and Inland Customs clearance offices on the 1st February 2016. To date all noncommercial borders, save for only one and the post office, have been connected,” the Commissioner General said.
The meeting took stock of the progress made thus far on the implementation of the project and to reflect on any challenges in the implementation of the system after its launch in February 2016.
“The outcome should enable us to determine a way forward on the rollout program of the system and to ensure that the benefits of the system are effectively realized,” he said.
“Unlike many administrations which have implemented a similar system ahead of us, we opted for a “Big Bang” instead of a “Phased” implementation approach.”
He said despite a few connectivity challenges which were experienced during the first few days of implementation, this approach presented a number of advantages as reporting information was sourced from one system instead two separate systems.
COMESA Secretary General Sindiso Ngwenya congratulated the country for the successful rollout of the project and urged for further improvement of the information and Communication Technology sector if the country is to sustain the various automated projects which have been implemented recently.
He urged other COMESA member States to emulate Swaziland success on the ease of doing business. He said the key benefits of the ASYCUDA system was the reduction in the border waiting time as traders could clear their consignment before it physically arrived at the points of entry.
He applauded the European Union, the UNCTAD and the Government of Swaziland for the invaluable contribution made towards the implementation of the project.
The ASYCUDA Project was initiated in October 2014 immediately after the approval of the €947,411 funding by the COMESA Council of Finance Ministers under the Regional Integration Support Mechanism (RISM), COMESA Adjustment Facility (CAF).
“Swaziland should now start working on the possibilities of moving into creating a Virtual One Stop Border Post and introduce an eapplication which will embrace all the stakeholders and ensure that the ease of doing business is achieved,” he advised.
Permanent Secretary in the Ministry of Commerce and International Trade, Mr. Jinno Nkhambule said the Big Bang approach was received with mixed feeling by various stakeholders and was happy to see it succeed as most business people are now happy with the system.
He said legislation should be passed to allow members of the business community to do business in Swaziland with ease and safety
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Uganda trade minister outlines 2021 agenda
The newly reappointed Minister of Trade, Industry and Cooperatives (MTIC), Amelia Kyambadde has clearly set out the agenda and areas of focus for her ministry in the period 2016-2021.
“I reiterate the critical role of MTIC as the nucleus of our economy. It is important that we fully maximize efforts towards the respective sectors under our jurisdiction. Confidentiality is key and critical thinking is vital,” Kyambadde said. She asked new ministers and staff to work towards achieving the outlined goals.
Kyambadde said her ministry had covered projects like TRACE, QUISP, DICOSS and EPATAPPS which have since expired. She however, tasked the new team to think of other projects.
Kyambadde said going forward, the priority for MTIC will include among others, expeditious completion of bills, policies and strategies under development such as Uganda Export Strategy enforcement, evaluating performance of Agencies.
“There is need for close working relations with the Councils and Boards, ensuring regular quarterly Top Management Meetings and Reports, Close monitoring and supervision of the following industrial subsectors: sugar, tobacco, tea, textiles and leather; and establishment of sector associations, including holding quarterly meetings with them, launch and operationalization the MSME Directorate, as well as effective operationalization of UNCE,” she said.
Kyambadde said they will also prioritise active and constructive engagement with regional bodies like RECs – EAC, AU, COMESA and the Tripartite FTA, Revive and develop cooperatives especially in terms of capacity building, close monitoring and supervision of Unions to ensure democratic, accountable and transparent governance, promotion of value addition and including expansion of the OVOP program to cover the whole country.
“We need to carry out feasibility studies for strategic bankable industrial projects either for PPP or for international and domestic investors, which she said UDC is expected to take the lead in the matter and support local investors including Jua Kalis,” she said.
She said implementation of Border Markets program, carrying out regional programs to increase the capacity of DCOs, MSMEs and cooperatives and enhancing horizontal linkages with key MDAs e.g. MAAIF, MoFPED, UIA, and URA; and regular consultations with apex private sector organizations will be at the forefront in this new office term.
She said her ministry is faced with challenges for example a number of service providers are still demanding payments for the supplies and services provided to the ministry, limited office space for the new incoming Directorate of MSMEs remains a challenge, Low cash ceiling of the ministry, Inadequate funding which said constrains coordination of sector programs specifically the Sector Working Groups, monitoring and evaluation of activities and that the IT infrastructure in the ministry need to be overhauled.
Kyambadde said they are keen in following up pending issues that were left uncovered during their previous term and these include among others mobilizing funds for the construction of the Ministry of Trade, Industry and Cooperatives Headquarters. To which she said will go a long way in addressing the challenge of limited office space.
She asked the newly appointed ministers and members of staff serving under her docket to fully maximize efforts towards achieving the required performers in the respective sectors under their jurisdiction.
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tralac’s Daily News Selection
The selection: Monday, 11 July 2016
ATPC’s David Luke: ‘Brexit: Africa’s trade and development implications’ (pdf, UNECA)
Brexit has thrown up uncertainties in many areas relevant to development; the most pertinent to Africa’s trade and development cooperation that I would like to identify are: (i) the impact on the UK economy (ii) the UK’s formal trade arrangements (iii) Brexit lessons for African integration (iv) the UK’s trade and development assistance.
The UK should consider a continental approach to Africa. The goal should be for a comprehensive single trade agreement with all 54 countries that incorporates limited reciprocity, immediate access to the UK market, and phased-in access to the African market. This would be similar to the EU’s EPAs, which would likely form the basis for discussions. A single continental approach would reduce the multiplicity of new arrangements the UK would have to negotiate while also being aligned with Africa’s plans for continental regional integration plan as per Africa’s Agenda 2063. Such an Agreement could learn from the best practices of other development-oriented trade agreements as well as the experience of the EPA negotiations. It should, for instance, consider aspects such as:
Brexit and development: how will developing countries be affected? (ODI)
This briefing discusses the actual and potential economic impact of Brexit on developing countries. Brexit will have major implications for developing countries, whether or not the UK actually leaves the EU. Different countries will be affected in different ways, depending on how the UK exits. There are mostly negative effects for developing countries, but some positive ones too: In the short-term, the threat of Brexit has led to currency and stock market fluctuations, which have not spared emerging markets and poorer countries. The long-term effects depend on UK trade deals, any changes to aid allocation, new global collaborations, financial markets and the way in which migration and remittances are maintained. [The authors: Max Mendez-Parra, Phyllis Papadavid, Dirk Willem te Velde] [Sue Onslow: 'What Brexit means for the Commonwealth' (The Conversation)]
Why SA is most exposed to Brexit impact – Moody’s (Fin24)
Another result of the Brexit vote, according to Moody's, could be the possible need for governments to create new trading agreements with the UK and renegotiate some of the key trade agreements with the EU. This will further raise the uncertainty faced by SA businesses. Subdued growth in the UK would also have a moderately negative impact on SA’s trade and growth. Although the UK accounted for only for 4% of SA’s total merchandise exports in 2015 (with platinum making up a large share), Britain accounts for about 20% of South Africa’s exports to the EU. "If the UK slowdown or new trade arrangements were to weigh on EU growth more than currently expected, the SA economy, which contracted in the first quarter of 2016 due to both external shocks and domestic structural bottlenecks, would be under more pressure," explained Moody's. Furthermore, in 2015, UK residents represented 17% of overseas tourists visiting SA. "With the UK and the EU focused on their negotiations, they are unlikely to prioritise trade agreements with SSA (sub-Saharan Africa) sovereigns. That said, the main impact of Brexit on all SSA sovereigns that have close trade ties with the UK and the EU will be felt via reduced export demand," said Moody's.
Reminder: tomorrow’s hearing on Brexit implications for UK’s Africa Free Trade Initiative
Improving the perspective for regional trade and investment in West Africa: scoping report (ASC Leiden)
In order for support to regional integration and cooperation in West Africa to be effective and calibrated to the specific needs of the region, there is a need to build a more comprehensive understanding of the diverse and complex regional dynamics and to gain insight into the opportunities and challenges to regional integration in West Africa. Commissioned by the Food & Business Knowledge Platform, the overall objective of the study underlying this scoping report was to contribute to a more contextualized comprehensive picture of The Netherlands’ government's ongoing cooperation with West Africa and the perspective in terms of policy options for strengthening its effectiveness and coherence by giving more emphasis to the promotion of intraregional trade and investment.
South Africa’s ‘Trade Africa’ initiative to launch on Friday (dti)
The Minister of Trade and Industry, Dr Rob Davies will, Friday, launch Trade Africa (formerly known as the Africa Export Council), a unit established within the Department of Trade and Industry to promote South Africa’s trade relations with the African continent. The initiative will be launched together with the Guidelines for Good Business Practice by South African Companies operating in the rest of Africa, at a roundtable discussion on intra-African trade. The purpose of the initiative is to leverage the state’s capacity to unlock the bottlenecks experienced by South African businesses when operating in the rest of Africa, through deliberate, targeted and well-defined financial and non-financial interventions as described in the Industrial Policy Action Plan (IPAP) and other government policies.
SA engages Zimbabwe on latest trade restrictive measures (dti)
The Department of Trade & Industry notes with concern the range of trade restrictive measures that the government of Zimbabwe has introduced. These measures include import bans, surcharges, increases in import duties, requirements for import permits and other forms of restrictions that have negative implications on intra-regional trade. At the recent meeting of the Southern Africa Development Community Committee of Trade Ministers South Africa and Zimbabwe were requested to report to SADC on the implications of these measures for the coherence of the SADC Trade Protocol.
Import restrictions temporary, says Zimbabwe VP (The Herald)
Speaking during the Buy Zimbabwe annual summit in Mutare last Thursday, VP Mnangagwa said while the legislation was meant to protect local companies from unfair competition, enhancing competitiveness remained a long-term solution. He also underscored the need to develop a robust import substation strategy meant to replace imported products with local goods while urging consumers, including the Government, to embrace local commodities. “We need to appreciate that restrictions are not permanent and that in the long term, pressure from trading partners will always force us to open our markets again,” said VP Mnangagwa. “Industry must appreciate the important role that competition plays in the global economy. We risk closing ourselves out of the global market and fail to develop in line with global trends.” [Zimbabwe: 'Retail businesses in imports syndicates']
SA advises Zimbabwe to adopt the rand (IOL)
However, ordinary Zimbabweans increasingly resorted to the stronger dollar because of the fall in the value of the rand. Official sources said that policy had now been demonstrated to have failed. And Zimbabwe could not print its own money again as this would have no credibility now with ordinary Zimbabweans. They said switching to the rand would boost Zimbabwe’s exports as the US dollar made its exports too expensive on international markets. This could revive Zimbabwe’s flagging manufacturing sector. The sources said that if Zimbabwe switched to the rand, Pretoria would encourage its state-owned enterprises already in the country, such as the Development Bank of Southern Africa, the Industrial Development Corporation, and the Public Investment Corporation, to inject more money into the Zimbabwean economy. This would be easier for them to do in rands than in US dollars.
SACU Ministerial Retreat: ‘Lesotho should retain SACU revenues’ (Lesotho Times)
Trade and Industry Minister Joshua Setipa said while the revenue sharing formula was expected to be reviewed in the near future, the government wanted to ensure Lesotho’s share would not be reduced after the negotiations were completed. “Our position as the government is that whatever happens during the review of the revenue-sharing arrangement, we should not be left worse off in the end,” he said. “We hold this view because our share of the revenue has declined significantly in recent years due to the weak economic performance of the region.” Lesotho’s share of SACU revenue has been steadily declining over the preceding years due to a slowdown in the performance of the global economy. The 2016/2017 SACU revenue share is estimated to account for 32 of Lesotho’s budget – down from 42% in 2014/15.
Lesotho: CBL urges economic resilience (Lesotho Times)
The Central Bank of Lesotho chief [Governor Dr Retšelisitsoe] also said Lesotho needed to identify underlying opportunities that were being presented by the global economic slowdown. She said the current shift in the Chinese economy from industry to services was an opportunity that Lesotho could seize by building its production base so that manufacturing companies in China can consider relocating to Lesotho. Dr Matlanyane also called for value addition in the wool and mohair industry in order improve the country’s foreign currency earnings.
‘Modi in Africa’ – selected Tanzania and South Africa postings:
How Modi can help Africa achieve a blue economy (Daily O)
It is noteworthy that the accent on Africa’s maritime capacities aligns well with "Sagarmala", the prime minister’s mega-modernisation project, which involves coastal area development, port infrastructure building, connectivity and sea-based industrial capacities. As India strives to be a defence and logistical partner for Africa’s eastern states, Modi’s domestic prioritisation of maritime development signals a positive intent, which African governments are likely to read favourably. Meanwhile, Africa’s own efforts to improve its maritime economy and develop a harmonising vision for the subcontinent have been significant. In 2013, the AU announced an Integrated Maritime Strategy 2050 and "plan of action", outlining a blueprint to address the continent’s maritime challenges for sustainable development and competitiveness. The strategy, meant to systematically address Africa’s maritime vulnerabilities, marked a declaratory shift away from a period of self-imposed sea blindness. More significantly, it sought to integrate individual maritime strategies of Africa’s other security communities and develop a unique vision of comprehensive maritime development.
PM’s Africa trip: Concessional loans, hosting AfDB meet on agenda (The Hindu)
Discussions will also focus on India hosting for the first time the AfDB’s annual meeting during May 22-26, 2017, they said. Besides, India — having become a member of the African Development Fund in 1982 and of AfDB in 1983 — will be looking to host the AfDB annual meet in 2017 to ensure that, among other things, there are opportunities between Exim Bank of India and AfDB to co-finance large projects. India is keen to host the AfDB’s (52nd) annual meet in Ahmedabad (Gujarat) especially because the Vibrant Gujarat investor summits had attracted several African businesspersons and companies for doing business with Indian firms.
Tanzania: Indian PM ends tour on high economic note (Daily News)
During yesterday talks, India agreed to fund commercial production of peas in Tanzania. But, India too offers immense market for Tanzanian cashew nut, with over 90 per cent of the produce exported in raw form to India for processing. However, under the country's new industrialisation drive, which envisages among other things to add value to agricultural produce, Tanzania stands to benefit greatly from Indian expertise in agro-processing. "We have invited our Indian friends to come and assist us in sustainable exploitation of our resources, we want a win-win situation," President Magufuli said in Dar es Salaam yesterday.
The entourage of over 50 businesspeople that Premier Modi came with denotes the seriousness of the Indians to invest in Africa, especially in Tanzania. Already, India is the third, after Britain and China, largest source of foreign direct investments to Tanzania. According to records from the Tanzania Investment Centre, the centre has registered 426 Indian projects worth $2.4bn (about 5 trillion/-), with 54,176 new jobs on offer. Following the visit, more investments are expected from the Asian nation in the industrial sector, especially in sugar and medicine manufacturing that has attracted the interest of the visiting businesspeople. [India signs five agreements with Tanzania (The Hindu), Tanzania-India Business Forum inaugurated (Daily News)]
South Africa: SA investors looking to India (IOL)
South African defence, food retail, airlines, private security, and pharmaceutical companies are gearing up to take advantage of India’s lifting of its caps on foreign investment in these industries. President Jacob Zuma welcomed India’s change of policy in a joint statement on Friday with Indian Prime Minister Narendra Modi after they met in Pretoria. Zuma also invited Indian private sector investment into South Africa. The two leaders also discussed intensified collaboration in the sectors of defence, energy, agro-processing, human resource development, infrastructure, mining, renewable energy, science, technology, and innovation.
Related India-SA: Joint statement on bilateral issues, WTO, BRICS, IBSA, G20 (GCIS), Modi’s vision for India-SA partnership: an interview with the Prime Minister (IOL), President Jacob Zuma: South Africa-India Business Forum (GCIS)
Consultancy: Impact assessment of the East African harmonized standards on the business community (EABC)
Objective: to undertake an impact assessment of the EAC harmonized standards on 7 of the most 20 most traded product in the EAC region products on the overall business environment. The products are: alcoholic beverages, steel products, surface active agents, edible fats and oils, paper and paper board, tea and coffee
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G20 seeks to enhance trade growth in face of protectionism: China
In the face of a “worrying” rise in protectionism, trade ministers from the world’s major economies have agreed to cut trade costs, increase policy coordination and enhance financing, China’s Commerce Minister Gao Hucheng said on Sunday.
The Group of 20 trade ministers, who wrapped up a two-day meeting in Shanghai on Sunday, approved a broad trade growth strategy aimed at reversing a slowing in global trade, and backed guiding principles for global investment policy-making.
“The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth. Downside risks and vulnerabilities persist,” the ministers said in a joint statement.
“We agree that we need to do more to achieve our common objectives for global growth, stability and prosperity.”
The specter of protectionism has loomed large over global trade amid sluggish economic growth and is a pressing concern for China.
The country’s huge but struggling steel sector has relied on exports to offset the impact of slowing domestic demand, but it has been accused of using unfair pricing to push foreign competitors out of business.
The ministers discussed the need to address overcapacity, particularly in the steel sector, but some disagreed about the need for specific new commitments to resolve the problem, said one senior trade official involved in the talks, declining to be identified because details of the discussions had not been made public.
The joint statement reflected China’s concerns that the country was being singled out for blame for a glut that has led to a collapse in global prices, noting instead that excess capacity in steel and other industries is “a global issue which requires collective responses”, and that subsidies and government support could cause distortions.
The United States has been a vocal critic of China’s excess capacity, saying its pledges have not gone far enough to resolve the problem.
U.S. Trade Representative Michael Froman said in a statement that the G20 had “added to the chorus of voices calling for tackling the root causes of excess capacity for the benefit of both developing and developed countries”.
Chinese trade officials have repeatedly stressed that the country has been the victim of overzealous anti-dumping actions by foreign countries, which fail to take into account Chinese efficiency or its low labor and production costs.
The trade growth strategy adopted by the ministers spelled out broad principles for stimulating trade, including lowering costs, boosting trade finance and stimulating the service sector.
The investment policymaking guiding principles urged governments to avoid protectionism in relation to cross-border investment and establish “non-discriminatory, transparent and predictable” conditions for investment.
Global foreign exchange rates, in flux since Britain’s referendum to leave the European Union, were not mentioned in the joint statement, and the senior trade official involved in the talks said the issue had not been discussed.
On Britain’s exit vote, UK and EU representatives in Shanghai were at pains to stress that they would come up with a “sensible and mature new arrangement”, South Africa’s Minister for Trade and Industry Rob Davies told Reuters on Saturday.
» Download: G20 Trade Ministers’ Statement (with Annexes)
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Reclaim UNCTAD to uphold Africa’s structural economic transformation
An African Civil Society Call to Governments at UNCTAD 14
Governments at the 14th session of the United Nations Conference on Trade and Development (UNCTAD 14) must rise up to the fundamental challenge of equitable development in and for Africa within the global order. This inter-governmental forum, to be held in Nairobi, Kenya in July 2016, must clearly call for global economic institutions to bolster initiatives by Africa’s peoples and their governments towards Africa’s structural economic transformation.
These are challenging times in the global political economy. The ramifications of the 2008 global financial and economic crisis, the worst in the post-war period, still haunt the world. Economic performance remains sluggish in all regions, further reducing opportunities for addressing the material needs of the vast and growing majorities of the poor and vulnerable. The phenomenal levels of inequality among and within nations, linked to the very types of economic activity that led to the crisis, have grown even sharper in its aftermath and through the inequitable measures adopted by many governments in response to the crisis. Added to this is climate change, arising from global systems of production and patterns of consumption, which threatens the very survival of humanity. Here too, it is poor and vulnerable societies – least responsible for climate change and least able to cope – that are suffering the worst effects of climate change.
These global challenges evidence the dynamics at the very core of the international economic system, and of the global order and policy regimes built thereupon. They also highlight the fundamental constraints to equitable economic development across the world. In Africa, they have exposed the limited nature and shaky foundations of recent economic progress – based largely on rising prices of global demand for primary commodity export – and the related “Africa Rising” optimism.
Three decades of neo-liberal policies have served to reinforce the structures that Africa’s economies inherited from colonialism: dependence on the export of (a narrow basket of hardly processed) primary commodities, with little or no domestic manufacturing industrial capacity, and the stagnation of the rural economy. African economies thereby remain vulnerable to external shocks while internally, unremitting rural collapse continues to drive levels of urbanisation unrelated to the expansion of economic opportunity and/or investment in social and economic infrastructure.
For the majorities of the people, especially the marginalised groups, this has meant joblessness, precarious and degraded livelihoods, and diminished opportunities for self-fulfilment. At the same time fabulous wealth continues to concentrate in the hands of narrow circles of national elites and global corporate forces who together dominate political processes and exercise control over economic resources. These extremes of inequality have exacerbated pre-existing inequities and inequalities, including along the lines of class, gender, race, age, ethnic formations, and other status; played havoc with bonds of social solidarity within and across national boundaries; and have driven conflict-laden tensions to the fore of societal interactions.
In the face of these, and in response to growing concerns among their peoples, African governments have, with a greater sense of urgency, spearheaded collective initiatives aimed at the structural economic transformation of their countries and their continent: towards improved investment in agriculture and the rural economy; more domestic processing of the export commodities; rebuilding domestic manufacture, developing their industrial and services sectors; and enhancing overall domestic productive capabilities. These engines of structural economic transformation are required to create decent jobs, increase incomes and other means of livelihood, improve living conditions, recognize, reduce and redistribute the burden of unpaid care work shouldered by women, and overcome poverty in Africa.
African governments have set long-term visions to reinforce the imperatives of structural transformation: the African Union’s Agenda 2063, and sectoral and cross-cutting continent-wide frameworks: the Comprehensive African Agricultural Development Programme (CAADP); the African Mining Vision (AMV); the decision to fast-track the establishment of Continental Free Trade Area (CFTA); and the Report of the High Level Panel on Illicit Financial Flows from Africa (adopted by African Heads of State).
These initiatives and policy frameworks can be strengthened, their internal coherence and alignment with each other improved. Above all, the external conditions for their realisation can be greatly enhanced by ensuring that commitments undertaken by African governments in international agreements are coherent with the imperatives of these measures, and that African governments retain the policy space necessary for their realisation.
Why UNCTAD Matters for Africa’s Structural Economic Transformation
UNCTAD provides a critical institutional framework and a unique forum for taking up the challenges of equitable development, thanks to its make-up and orientation, its rich history of policy interventions on behalf of African and other developing countries, and the abiding relevance of the issues for which it was founded.
The organisation’s foundational vision is as critical today as 50 years ago, when it was established as a platform for thinking and action on broad issues of trade and development explicitly formulated around the challenges and perspectives of the vulnerable and marginalised majority of nations within the international system.
The specific developmental challenges which UNCTAD sought to address are still here with us, and in the case of Africa have become more acute. These are the challenges posed by the structural imbalances of the global order characterised at one pole by a concentration of highly industrialised economies, and at the other pole, by a mass of primary commodity export dependent economies feeding the needs of the industrial economies. This structure produces immense prosperity for some, while generating poverty and constraining the economic well-being for vast majorities in the developing world.
Especially valid for Africa is the agenda which has formed UNCTAD’s work: to promote industrialisation for countries emerging from colonialism, and thus to address the primary commodity export dependent economic structures; to counter-balance the so-called free-play of economic forces and their effects on the developing economies; and to ensure different treatment and obligations for structurally different types of economies.
Above all, the values, understandings, principles, perspectives and outcomes accumulated through 50 years of UNCTAD initiatives form the critical point of departure upon which to build UNCTAD’s work for the coming period – to enable the organisation to support African and other developing countries to meet the challenges of today.
Paradoxically, however, the advanced industrial countries seek the exact opposite agenda for UNCTAD’s future. As is clear from the positions they have taken in the negotiations towards UNCTAD 14 – which will determine UNCTAD’s work mandate for the next four years – these countries continue with their project to curtail UNCTAD’s ability to provide independent and critical policy perspectives. If they succeed, UNCTAD will be undermined in its role of providing the much-needed corrective and balance to the chorus of positions that usually emanate from dominant players like the World Bank, IMF, the WTO, the OECD, and the like.
Instead, UNCTAD will end up as a pale reflection of these dominant frameworks and policies, with its task reduced essentially to supporting poorer countries of Africa and other parts of the world to implement and live within this dominant paradigm as best as they can. UNCTAD’s foundational mission and role will be finally silenced at the very time when it is most needed in global affairs. African countries, whose peoples and economies have suffered the worst results of this dominant dogma and its policy prescriptions, cannot remain indifferent to such a possible outcome of the contestation over UNCTAD’s work programme and position in global economic governance.
At UNCTAD 14 – taking place on African soil – African and other developing countries must
ensure, and developed countries must support, the adoption of a work mandate that:
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Provides UNCTAD with the necessary space and means to articulate the policy requirements of Africa’s structural economic transformation and work in support of their realisation;
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Reflects the elements of the changing global trade and development agenda as it affects the positions and fortunes of African countries in meeting the challenges of this landscape; and
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Addresses the specific constraints that African countries face in meeting their development challenges.
UNCTAD must support African countries to:
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Address the negative effects of the imbalances of the international trade regime, including the WTO agreements, Economic Partnership Agreements, bilateral and international investment agreements, and protecting the space for policy initiatives against further encroachment.
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Adopt financial, fiscal, and other relevant policies that stop the net transfer of capital, illicit financial flows and other leakages of economic resources from Africa; and enable African countries to retain the investible resources generated in their economies for domestic investment and economic development.
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Adopt policies to access technology (through adoption, diffusion, and technology transfer) to support the development of productive capacities and domestic enterprise, and to meet the needs of sustainable development.
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Adopt gender-sensitive trade and development policies that promote equitable and rights-based development. UNCTAD’s ongoing work in this regard must continue and be enhanced.
It is important above all for African countries to reimagine UNCTAD beyond their narrow expectations of technical assistance and capacity building, and to reclaim the role of UNCTAD to shape global policy frameworks that uphold developmental imperatives.
This call was prepared by the following organizations: Third World Network-Africa, Tax Justice Network-Africa, Regions Refocus, Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI), African Women's Development and Communication Network (FEMNET), Economic Justice Network of the Fellowship of Christian Councils in Southern Africa (FOCCISA), and African CSOs Coalition on African Development Bank.
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WTO launches new World Trade Outlook Indicator
The WTO has launched a new World Trade Outlook Indicator (WTOI) designed to provide “real time” information on trends in global trade. The WTOI was unveiled in Shanghai, China on 8 July, ahead of a meeting of G20 trade ministers.
Combining a variety of trade-related indices, the WTOI is designed to give an early signal of the current direction of world trade and where it is likely to go in the near future. In this way the WTOI should signal turning points in world merchandise trade volume. It complements existing tools such as the WTO’s longer-term trade forecasts, and other statistical releases.
The WTOI gives a headline figure to show performance against trend. A reading of 100 would indicate trade growth in line with recent trends, a reading greater than 100 would suggest above trend growth, while a reading below 100 indicates below trend growth. The WTOI will be updated on a quarterly basis.
Latest data suggest trade growth to remain sluggish into the third quarter
For the current period, the WTOI came in slightly below trend, with a reading of 99.0, and with a downward tendency in the most recent data, signalling that trade growth will continue to be sluggish in July and August.
WTO Director-General Roberto Azevêdo said:
“In serving as a quarterly signal of current and short-term trade conditions, the World Trade Outlook Indicator responds to strong interest from policymakers and the business community for more immediate, real time information on trade and trading conditions. The WTOI should provide an early signal if trade is likely to slow or accelerate in the near future. At present it suggests that trade growth will remain weak into the third quarter of 2016.”
The reading was slightly more positive than that for merchandise trade, which declined in the first quarter 2016, as noted in the WTO’s recent quarterly trade statistics. The WTOI therefore suggests that world merchandise trade may rebound in the second quarter, but that the underlying weakness will persist into the third quarter.
Components of the WTOI give a mixed picture. Export orders in leading traders have rebounded above trend and continue to pick up. Meanwhile, international air freight data from IATA and container throughput data from major seaports remain weak but show signs of stabilizing. Automobile sales and production have fallen back to trend after rising sharply earlier in the year. Electronic components trade has dipped sharply and is losing momentum, while trade in agricultural raw materials trade has picked up.
Background on the methodology
The WTO’s approach in calculating the WTOI is similar to that used in other composite leading indicators (CLIs) and purchasing managers’ indices (PMIs), except that it focuses on six key trade-related indices:
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Export orders reported by central banks and national statistics agencies in leading manufacturing economies;
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International freight tonne kilometres reported by the International Air Transport Association (IATA);
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Total container throughput from a dozen major shipping ports, in twenty-foot equivalent (TEU) units;
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Automotive vehicle sales and/or production figures in major markets;
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Customs data on electronic components trade, in physical units; and
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Customs data on trade flows for agricultural raw materials.
The WTOI uses a technique that separates high frequency fluctuations from the general tendency of a data series to produce a smoothed trend. All data in the WTOI are of monthly frequency and are seasonally adjusted and rebased to 100.
Further details on the methodology are contained in a technical note, available below.
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Brexit: impact on developing countries
In a surprise outcome for many in Europe and beyond, British people have voted to leave the European Union.
The macroeconomic implications of this decision are already being felt, not the least by emerging and developing countries. Global stock markets have been hit by around a $2 trillion loss and risk aversion has set in, exposing developing markets to volatility without much liquidity to absorb the shock. Already, countries for whom Britain is a significant market are seeing their currencies weaken or borrowing costs rise.
What are the ramifications of an impending Brexit for developing nations and their economies? How can the UK exit the EU in such a way that does not undermine global economic development? And what opportunities might this hold for deeper cooperation within such existing alliances as the G20 and the Commonwealth?
On 7 July 2016, the ODI hosted an expert panel consisting of Kevin Watkins, Executive Director, ODI (Chair); David Luke, Coordinator of the African Trade Policy Centre, UNECA; Vicky Pryce, Economist and former Joint Head, UK Government Economics Service; Mohammad Razzaque, Adviser and Head of the International Trade and Regional Cooperation Section, Commonwealth Secretariat; and Phyllis Papadavid, Team Leader in International Macroeconomics, ODI to explore some of these issues. Watch the video stream below.
Brexit: Africa’s trade and development implications
Extracts from the Speaking Notes for Mr. David Luke
Brexit has thrown up uncertainties in many areas relevant to development; the most pertinent to Africa’s trade and development cooperation that I would like to identify are:
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The impact on the UK economy
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The UK’s formal trade arrangements
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Brexit lessons for African integration, and
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The UK’s trade and development assistance
Brexit will present the UK with many challenges and it is clear that these will spill-over into impacting Africa and beyond. Such challenges may manifest through different channels: those which I have focussed on here are trade and trade-related development assistance. These are significant points of the relationship between the UK and Africa, and going forward we must ensure that all opportunities to set a development-friendly and conducive trading environment between these partners are sought. Key amongst this will be the development of a comprehensive continental trade arrangement between Africa and the UK, as well as continuing the UK’s excellent support in Aid for Trade.
The UK’s formal trade arrangements
When the UK joined the European Economic Community 43 years ago it transferred all authority for its trade agreements to the Community. In 2014, much of the UK’s 1.1 trillion dollars in trade was channelled through these clear and predictable legal and institutional frameworks.
The EU has FTAs inforce with 96 ountries representing more than a third of world GDP. Early WTO announcements have been made for FTAs with a further 35 countries, worth another 38% of world GDP. Once concluded the EU would have FTAs with 131 countries representing about 70% of world GDP. And at least another 20 countries are involved in EU trade negotiations which have not yet been given early WTO announcements.
The EU also offers its Everything But Arms (EBA) to Least Developed Countries and a Generalized System of Preferences (GSP) arrangement to further Developing Countries.
As for Africa, as well as the Caribbean and Pacific, the UK’s formal trade relationships were set to have been secured within the Economic Partnership Agreements (EPAs) between the EU and regional country groupings, including West Africa, Central Africa, the East African Community, Eastern and Southern Africa, the South African Development Community, the Caribbean, and the Pacific.
Most of the EPAs, which the UK fought hard to conclude, are in the process of being signed following more than a decade of negotiations between the EU and the respective country blocs. They mark the evolution of trading arrangements between these countries which have developed from the Lome Conventions beginning in 1975 and the Cotonou Agreement in 2000.
It is notable that a centrepiece of the Brexit campaign was to reassert stronger trading relationships with its Commonwealth countries. Yet even if the UK can prioritise such negotiations, the UK will be unable to secure arrangements preferable to the EU due to an EPA clause which requires the EPA countries to also share with the EU any preferable conditions granted in other agreements.
The UK will now need to re-consider the post-Brexit alternatives to the approximately 151 countries with which the EU now has, or is currently negotiating, trade agreements, including the EPAs, as well as its place within the WTO.
Continental Approach to a Comprehensive African Trade Agreement
The UK should consider a continental approach to Africa. The goal should be for a comprehensive single trade agreement with all 54 countries that incorporates limited reciprocity, immediate access to the UK market, and phased-in access to the African market. This would be similar to the EU’s EPAs, which would likely form the basis for discussions.
A single continental approach would reduce the multiplicity of new arrangements the UK would have to negotiate while also being aligned with Africa’s plans for continental regional integration plan as per Africa’s Agenda 2063.
Such an Agreement could learn from the best practices of other development-oriented trade agreements as well as the experience of the EPA negotiations. It should, for instance, consider aspects such as:
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The environment and climate change, and in particular facilitating green technology transfer;
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Removing subsidies to ensure that Britain competes fairly with the African agriculture sector;
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Include partnerships in services to help African countries learn from the UK and build capacity.
Such an agreement could potentially form the model for how the US engages with Africa after AGOA, and even for the rapidly developing emerging markets with increasing interest in Africa.
The UK has the opportunity to set a high standard for developed-oriented trade agreement with Africa.
African Initiative
African governments should themselves be proactive in approaching the UK re-negotiations. Indeed Mauritius has already set up a Ministerial Committee to look into the repercussions of Brexit. That the UK does not yet have its own plans in this respect leaves a gap for African initiative. This is especially pressing given the amount of urgent negotiating priorities which Britain faces; Africa will not be at the top of the list, and African countries will need to press for their place. As such African countries should take the initiative and start developing proposals for early talks with London.
The same will certainly apply to the Caribbean countries, who while notionally trading with the EU, actually send most of their exports to the UK. Yet as a collection of especially small markets will need to fight for a place amongst British negotiating priorities.
Taking the initiative can help these countries press for more development-friendly opportunities including:
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The UK’s withdrawal from the EU’s Common Agricultural Policy, which subsidizes European farmers at the detriment of Africa’s agricultural output.
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And opportunities will be present to relax technical-barriers to trade, which protect some in the EU market, and especially southern European producers, from products in which Africa has a comparative advantage, such as tropical fruits and vegetables, and meats.
Indeed, the South African Citrus Growers Association has already suggested that revised UK plant health regulations on citrus imports could be easier to comply with than present EU regulations.
Similar benefits could be arranged for beef, of which African exports to the EU have fallen following compulsory and expensive regulations, such as those to prevent Mad Cow, which are applied to African countries in which Mad Cow has never been diagnosed.
Transitional Trade Arrangements
Transitional trade arrangements will however be required while such a continental agreement is arranged. The UK will have many negotiating priorities during Brexit and such transitional arrangements must bridge the gap to a more comprehensive and progressive trade agreement, which is likely to take more time.
One suggestion is for the UK to ratify and begin implementing concluded EPA agreements prior to activating Article 50 of the Lisbon Treaty, which will start the stopwatch on the 2 year process through which the UK leaves the EU. Up until the final moment, the UK remains part of the EU and is bound by EU law.
Another is that the UK works through the scope of Article 50 to incorporate transitional arrangements itself for leaving EU Agreements such as the EPAs. Article 50 does not define the scope and content of the withdrawal arrangements, and so it is feasible that the UK could negotiate to retain transitional membership of certain Agreements in some way.
Alternatively, a standstill may be necessary on EPA implementation with the EU more broadly. This may be required pending clarification of EU and UK future trade relations with third countries.
Brexit and development: how will developing countries be affected?
On 23 June 2016, the UK voted to leave the European Union (EU) after 43 years of membership. Whether or not the UK eventually leaves the EU, the economic fall-out is already considerable, including the fall-out for developing countries.
This briefing discusses the actual and potential economic impact of Brexit on developing countries. Brexit will have major implications for developing countries, whether or not the UK actually leaves the EU. Different countries will be affected in different ways, depending on how the UK exits. There are mostly negative effects for developing countries, but some positive ones too:
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In the short-term, the threat of Brexit has led to currency and stock market fluctuations, which have not spared emerging markets and poorer countries.
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The long-term effects depend on UK trade deals, any changes to aid allocation, new global collaborations, financial markets and the way in which migration and remittances are maintained.
Policies at various levels can help to mitigate the shock or mitigate the impact of the shock.
Brexit and developing countries: pathways of impact
The impact of Brexit on developing counties depends on the shock and the transmission channels of that shock. The first element we consider is the shock – the shock of both the vote to leave the EU, and the policy of actually leaving. Secondly, we consider the potential effects of the Brexit shock on developing countries, which countries might be affected, and why. Figure 1 lays out the following pathways of impact:
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Trade: a lower value of the pound and lower UK growth will reduce imports in the short-term. Least developed countries (LDCs) as a group would see their exports decline by 0.6% (or $500 million). The most acutely affected countries will be those that export in relative terms a lot to the UK, such as Bangladesh, Kenya, Mauritius and Fiji. In the long-term, the trade effects will be on the types of deal between the UK and the EU, and between the UK and developing countries. There will be separate issues for deals on goods trade and on services trade.
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Financial markets and investment: there have already been weaknesses in currencies and stock markets of affected countries (global equities are 2% lower than on 24 June; on 5 July the pound was 12% lower, while currencies in emerging markets had already devalued by 4-6%). In the long-term, there might be effects through lower FDI flows because of smaller GDP, and financial sector activity may be relocated to the EU and elsewhere.
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Migration and remittances: while the outlook for immigration appears negative, we cannot rule out that migration might actually increase. Lower immigration into the UK will mean less UK growth which will affect development negatively. In addition, the development effects through UK remittances are undoubtedly negative because of the 10% devaluation of the pound. The countries most dependent on UK remittances include LDCs such as Uganda, and other countries such as Kenya, Mauritius, South Africa, Nigeria, St Lucia, India, etc. The loss would be equivalent to $1.4 billion of spending in developing countries, which includes a $370 million loss in both Nigeria and India (data on the value of bilateral remittances from the World Bank).
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Aid, development finance and global collaboration: a reallocation of aid away from EU channels (around 10% of UK aid) and through non-EU channels has yet unidentified implications. Commonwealth countries such as small and vulnerable middle income countries might become the new beneficiaries, but we cannot be sure as aid through EU pooled instruments might still be an option where it remains effective. For example, we have previously argued that pooled EU aid or trade has been effective (Holland and te Velde, 2012). More significantly, UK aid was $18.7 billion in 2015 (OECD DAC data), which will now decline in value by at least 10% because of devaluation of the pound. In other words, this amounts to a loss of $1.87 billion in value of UK aid. Other development finance channels such as the European Investment Bank (EIB) will also be affected. The UK is the biggest investor in the Juncker investment plan and holds 16% of the EIB’s capital. If the UK leaves the EIB, it will not have a public investment bank, becoming an outlier in G20 terms. Moreover, it would have no say on how the EIB invests in developing countries (around 10% of total EIB investments) and volumes of investment in poor countries may drop. It is also not yet clear how global negotiations on issues like climate and security will be affected. Can the EU maintain an influence on climate negotiations that may benefit the poorest countries? The EU may face a unknown period of disintegration, instability and rebranding. On the other hand, there may be a strengthening in the fight for the global ideals the UK and the EU stand for: human rights, justice, equality, free trade and investment and open societies, but this is not guaranteed. The UK would need to seek new alliances (e.g. G20, Commonwealth, UN) in promoting the provision of global public goods that cannot be served by EU structures alone.
Figure 1 introduces a number of policy areas, which are important when determining the ultimate impact on developing countries:
The impact on trade with developing countries
The UK alone takes around 5% of LDC exports. The effects of Brexit on trade will vary by country. However, the effects may be particularly important for some countries. For Belize, exports to the UK is 30% of total exports; for Mauritius and Fiji, it is 20%; and for Bangladesh and Kenya, it is 10%.
While the UK may not represent an important destination for all developing countries, the impact of Brexit is yet another negative trade effect affecting developing countries after the fall in commodity prices, the slowdown of emerging economies such as China, and increased protectionism in G20 countries. Again, there are short and long-term trade effects.
Short-term effects on trade
Brexit has increased uncertainty in the UK economy. UK economic policy has not changed, apart from the interventions to stabilise markets associated with the shock, and abandoning the objective of achieving balanced budgets. However, the potential long-term effects of Brexit in terms of structural adjustment in the UK economy (i.e. contraction of the services sector) has generated immediate instability. The fall in the pound translates into a decrease in UK wealth (lower price of assets including housing), with uncertainty reducing investment and increasing income insecurity. The combination of a negative wealth effect, the fall in incomes and the changes in expectations will depress UK aggregate demand. Imports will be directly affected, and will fall as a result of the negative income and expectations effects, and as a direct result of the fall in the pound. Imports, regardless of the origin, after Brexit have therefore become more expensive. This negative effect is expected to affect trade immediately.
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Effects on developing country exports to the UK
The structure of the UK economy is heavily oriented towards the provision of services and the production of high-tech intermediates to regional value chains. The UK does not import large amounts of raw materials from LDCs. Rather, the UK is a major importer of final or consumer goods. Almost 70% of the UK goods imports from LDCs are consumer goods such as garments.
We expect that imported products from developing countries, such as basic food staples will not be substantially affected as they are less price sensitive (e.g. tea and beans from Kenya or tea from Malawi). However, demand for imported goods that are more sensitive to income and price changes is expected to be harder hit. Flowers, certain gourmet foods (i.e. high quality coffee) and garments will be affected. Durable consumer goods such as toys, bicycles and other light manufactures are also likely to be affected substantially. This suggests that those countries that export price sensitive goods to the UK are expected to see a drop in their exports. For example, Bangladesh and Cambodia in textiles and garments, and Kenya in flowers, will be among the countries most directly affected. The observed fall in the pound and the forecast effect of Brexit on GDP (3% within 18 months) sheds some light on the effect on exports in LDCs. The fall in the pound will create a total fall in exports in LDCs by roughly $370 million (value of exports multiplied by the change in the pound). While the fall in UK economic activity will cost LDCs around $111 million in exports. Together, we therefore suggest that the cost in terms of LDC exports will be closer to $500 million, or 0.6% of LDC exports. This does not include the price and income effect coming from the rest of the EU. Consequently, this actually presents a conservative estimation of the short-term trade effect.
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Effects on EU exports to the UK
Brexit may affect important UK trade partners, including other EU countries that will be negatively affected in their demand from the UK; while countries such as Ireland, the Netherlands, Belgium and Germany may also be affected. Around 7% of EU exports goes to the UK. Assuming a unit elasticity of demand, the effect of the fall in the pound by 10% should reduce EU wide exports by 0.7%.
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Effects on EU imports from developing countries
The euro has fallen in relation to the US dollar in the last week (around 2%) making EU imports more expensive. Consequently, exporters of non-basic consumer goods from developing countries to other EU member states may also be hit. For example, Ethiopia may be affected in its exports of flowers to the EU. The UK and the EU represent 30% of the LDCs exports and for some countries such as Bangladesh, they represent above 50% of their total exports.
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European supply chain effects and developing countries
The UK and EU are linked through European supply chains (trade and investment) where components and intermediates products are traded, forming a big ‘European factory’. It is likely that there will be disruption in these value chains. The fall in the pound may generate adjustments that could affect developing countries, particularly those providers of raw or semi-processed materials such as those like South African vehicle-parts being exported to the EU. The effects on these value chains will be larger in the long-term, once the trade policy implications of Brexit become effective or at least known.
Long-term effects on trade
The long-term effects of Brexit will depend on a newly defined UK trade policy. This is determined by the kind of economic and trade relationship that the UK will eventually establish with the EU and the rest of the world. Some 43% and 33% of UK goods and services exports, respectively, are exported to the EU. The trade effects will depend on two changes: the trade policy that the UK will apply after leaving the EU, and the ultimate UK economic structure after the agreement is finalised with the EU.
The effects on developing countries from the type of relationship the UK will have with the EU will depend on three potential outcomes:
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The UK retains access to the EU single market
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The UK maintains a customs union with the EU
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The UK adopts its own trade policy in line with WTO principles.
UK, EU single market and developing countries
The continuity of access to the EU single market may be key in determining both dimensions. If the UK remains part of the single market (this would mean joining the European Economic Area), the structure of the import demand of the UK from developing countries is unlikely to change significantly. The UK will continue to take part in European value chains and its services sector will keep its access to the EU market. Consequently, very little will change in terms of the structure of the UK economy, and consequently its import demand.
In addition, if the UK remains part of a customs union with the EU, there will be no changes in terms of tariffs and preferences applied by the UK to the rest of the world. The continuation of the preference margins in developing countries’ access to the UK will, despite the short-term negative effects explained, secure that demand will recover and major structural adjustments will not be necessary in the affected developing countries.
The situation will be different if the UK does not maintain its access to the EU single market. This will imply a major adjustment in the UK economy. The services sector is likely to contract and the participation in regional value chains will be severely affected. Consequently, the UK will adopt a different production and trade structure. The loss of access to the single market may imply changes in UK consumption patterns as well. These will constitute large challenges, but also opportunities for developing countries.
One outcome is the possible divergence in product standards. Developing countries will find that instead of supplying a single European value chain, they will be in the position of supplying two different markets. Standards and regulations may start to differ between them and developing countries will find that their compliance cost will increase. Moreover, the supply relationships established with European-wide retailers may be affected. As a result, some adjustment in the trade patterns of developing countries may be necessary.
At the same time, new opportunities may be created. The UK may substitute away the products previously sourced within the EU, which could present an opportunity for developing countries. However, it is worth considering that in the case of agricultural products, it is likely that large developing countries (Argentina, Brazil) or other developed countries (US, Canada, Australia) will be the main beneficiaries. LDCs are not expected to benefit substantially.
A new UK trade policy
Depending on the agreement that the UK may reach with the EU, we can identify two scenarios:
i. UK-EU customs union
Here we assume that the UK does not have access to the single market but mantains a customs union with the EU. This would imply a scenario similar to the trade relationship between Turkey and the EU. Although still speculative, under this scenario the UK would maintain the same Most Favoured Nation (MFN) tariffs and preferences that are currently applied by the EU. This would be less disruptive for trade with developing countries. However, again it should be noted that there might still be some implications with respect to the cumulation of rules of origin, which are unclear at this stage. In this scenario, although the structure of the UK economy might change as a result of the lack of access to the single market, tariff and preferences would not be affected in principle.
It is very important to highlight that if the UK remains in a customs union with the EU, the need for and the complications of renegotiating over 50 free trade agreements (FTAs) that the EU has negotiated, will be smaller. Although some renegotiation may be necessary, the liberalisation schedules will remain. For example, in terms of market access, the UK could continue to offer duty free under the same conditions as under current Economic Partnership Agreements (EPAs). However, African, Caribbean and Pacific states countries (ACP), by virtue of the MFN clause under EPAs, would not extend additional concessions to the UK.
ii. Autonomous trade policy
A further scenario is that the UK would apply its own trade policy. This means that, although the UK may maintain a free trade area with the EU, its trade policy will be independent. The UK will need to define a new MFN tariff and its own system of preferences. The level and structure of MFN tariffs will depend on whatever is conceded in the very complicated negotiations with the rest of the World Trade Organization (WTO) members. In this case, there are also several implications for developing countries, and there may also be opportunities. It is unclear what the MFN tariffs would be. Based on suggestions of some Brexiters (e.g. Minford, 2016) and on the pre-EU trade policy, the UK may apply very low (even zero) MFN tariffs. This will facilitate the negotiations with WTO partners but will complicate the negotiation of future FTAs and the renegotiation of the existing ones. The UK would lose the tariff bargain chip i.e. the UK would not be able to negotiate lower tariffs abroad by lowering UK tariffs.
However, while several countries will gain from lower tariffs, there will be a loss of preference margins for preference-dependent developing countries, such as the Everything But Arms (EBA), ACP, and the GSP countries. In a scenario where the UK applies zero tariffs, preferences no longer exist. Developing countries, particularly LDCs dependent on the existence of positive preference margins may struggle to compete with other efficient producers.
In this zero tariff scenario, only efficient suppliers will manage to continue exporting to the UK. Only the lowest priced suppliers will be able to compete, as the preference margins that offset high production and trade costs previously would now disappear. The quality and competitiveness of soft (e.g. regulatory issues) and hard (physical) infrastructure in the poorest countries will become even more important as countries can no longer rely on preference margins to offset the deficiencies in infrastructure. On the other hand there will also be opportunities for developing countries as a whole if the UK’s new trade policy is more welcoming to imports from developing countries through better rules of origin, better preferences in services and more targeted Aid for Trade that improves infrastructure and reduces the costs of trade.
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Minister Davies to launch initiative to support trade in Africa
The Minister of Trade and Industry, Dr Rob Davies will launch Trade Africa (formerly known as the Africa Export Council), a unit established within the Department of Trade and Industry (the dti) to promote South Africa’s trade relations with the African continent.
The initiative will be launched together with the Guidelines for Good Business Practice by South African Companies operating in the rest of Africa, at a Roundtable Discussion on Intra-Africa Trade. The discussion will take place at the CSIR International Convention Centre in Pretoria on Friday, 15 July 2016.
Minister Davies says the creation of the Trade Africa initiative is premised on the need to have a dedicated unit responsible for driving South Africa’s exports of manufactured goods and services whilst creating sourcing relationships from the Continent to promote intra-Africa trade. He says the purpose of the initiative is to leverage the state’s capacity to unlock the bottlenecks experienced by South African businesses when operating in the rest of Africa, through deliberate, targeted and well-defined financial and non-financial interventions as described in the Industrial Policy Action Plan (IPAP) and other government policies.
“The Roundtable Discussion which is themed Collective Action to Enhance Intra-Africa Trade, is intended to promote collaboration between government and private sector, as well as key stakeholders in fostering trade and optimising economic benefits on the African continent,” adds Minister Davies.
He says the discussion is also aimed as a platform for information sharing on regional economic integration initiatives to support enhanced intra-Africa trade as well as discuss the private sector’s role in fostering regional economic integration and intra-Africa trade, among others.
On launching the Guidelines for good business practice for doing business in Africa, Minister Davies highlights that the guidelines were a proactive initiative by government to promote responsible business practice and good corporate governance by South African companies in the rest of the Africa. He says these guidelines aim to ensure alignment between government and the private sector when engaging with the continent.
“The guidelines aim to encourage South African business to be responsible corporate citizens and to continuously work to minimize operations that have a negative social, economic or environmental impact. This will in turn improve their public image and reputation in the countries and societies in which they operate,” he adds.
Representatives from government departments, business, and other key stakeholders will attend the discussion.
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SA, India set trade target of $18bn
South Africa and India were pushing to accelerate bilateral trade between the two countries to $18 billion (R261bn) by 2018, President Jacob Zuma said on Friday.
Trade between the two members of the Brics grouping stands at R94bn.
Addressing the SA-India Business Forum in Pretoria, Zuma said South Africa and India should seek ways and means to increase and diversify trade and investment between the two economies.
The business forum was part of Indian Prime Minister Narendra Modi’s maiden official visit to the country.
“Our countries are major players in the global economy and share a common vision at shaping the development agenda through (India-Brazil-South Africa Dialogue Forum), Brics and other related trade platforms.
“In this vein, we have set ourselves ambitious goals, including a bilateral target of advancing trade to the level of $18bn by 2018. Achieving this target will require an increase in private sector deliberations, as well as government focusing on the resolution of barriers that are impeding the expansion of trade, among others,” Zuma said.
Zuma said beneficiation of iron ore and steel, platinum group metals, polymers, titanium, upstream mining inputs and the energy value chain offered opportunities for synergies between the two countries.
Co-operation
He said the South African government would consider various instruments in order to increase co-operation between South African and Indian businesses. Such instruments included the envisaged launch of the South African-Indian joint trade committee.
“Beyond bilateral co-operation, our partnership extends to the Brics and (the India-Brazil-South Africa Dialogue Forum). In this context, active processes are underway to facilitate and implement plans on expanded trade and investment flows and to identify and address barriers to trade and investment,” Zuma said.
Modi told the business forum that the two countries should cement trade ties and punted India as an attractive investment destination for South African businesses.
“India is suited to help South Africa in technology and skills. We can work together in many ways, from defence to milk, hardware to software, medicine to medical tourism.”
He said bilateral trade between South Africa and India had increased by about 380 percent in the past 10 years.
He said in the past two years India had worked hard to boost its economy, and this had enabled the country to see growth even in a slow growth global environment.
“India is a bright star in the global economy,” he said.