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NSA launches Informal Cross Border Trade report
The Namibia Statistics Agency conducted an Informal Cross Border Trade Survey (ICBTS) in September 2015. This is the second ICBTS with the first one conducted in November 2014. NSA is therefore delighted to release the ICBTS report for the year 2015.
The Informal Cross Border Trade (ICBT) Survey is an economic survey covering transactions in merchandise across selected border posts. Such transactions are not captured under official statistics by Customs Authorities due to their values that are below the N$5 000 threshold required by Customs. However, when aggregated, these small transactions become significant due to their frequent occurrence. If properly harnessed, ICBT have the potential to support Namibia’s on-going efforts of poverty alleviation.
The results from the survey enhances compilation of merchandise trade statistics which feeds into the country’s balance of payment and national accounts. Additionally, the results influence the creation of a policy, regulatory, institutional and business environment which enhances the role of informal cross border traders and gradually mainstreams them into the formal economy.
The major objective of the survey was to establish the magnitude of unrecorded trade between Namibia and her neighbours (Angola, South Africa and Zambia) in order to improve the coverage of external trade statistics. The survey generated sufficient information on trade transactions including the commodities involved, their direction of trade and values of those commodities. The survey covered six border stations in 2015. However, it was not possible to cover every entry/exit point for Namibia, therefore some of the informal cross border trade transactions were not captured since border observation was only concentrated at selected border sites that experienced large informal trade flows.
Previously, the contribution of informal cross border trade to overall trade was understated by International Merchandise Trade Statistics compilers, thus, the findings from the survey will supplement the merchandise trade statistics data from customs and thus enhancing compilation of merchandise trade statistics which will aid comprehensive decisions for policy making.
Background
The 2015 informal Cross Border Trade Survey is the second ICBTS since inception, the first one was conducted in 2014. The survey aims at supplementing the merchandise trade statistics data from customs and thus enhancing compilation of merchandise trade statistics.
Informal cross border trade in general plays a significant role in avoiding widespread food insecurity in neighbouring countries. However, due to the unavailability of information relating to informal trade, its contribution towards redressing supply/demand imbalances has not been adequately quantified in many countries, Namibia included. In the absence of this crucial data, decision making by Government, Aid Agencies and Traders about the appropriate levels of commercial imports and exports of food aid becomes difficult.
Informal cross-border trade is an important component of a country’s informal sector as it has spill-over effects on trading countries, in particular the border towns. Informal Cross Border Trade have positive macroeconomic and social effects such as food security and income creation particularly for rural populations who would otherwise suffer from social exclusion. If properly harnessed, ICBT has the potential to support Namibia’s on-going efforts at poverty alleviation.
The ICBTS was jointly conducted with the Bank of Namibia (BoN) and the Ministry of Finance (MoF) who provide both technical and human resource support towards its implementation. The survey also benefited from support at various border posts by Customs officials and members of the Namibian police force who ensured the compliance from traders.
Survey Objectives
The broad objective of the ICBTS is to establish the size of unrecorded/informal trade flows between Namibia and her neighbouring countries with the exception of Botswana. Within this broad objective, the specific objectives of the survey were to:
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Determine the nature and composition of commodities transacted under informal trade;
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Establishing the direction of informal cross border trade by country of origin/destination;
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Determine the volume and value of informal trade flow; and
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Provide a comparative analysis of recorded and unrecorded trade including net trade balances.
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To supplement official customs data by capturing transactions below customs threshold and aggregating this to formal IMTS for the particular month.
Overview of ICBTS
In most countries, Customs administrative documents are the primary source for formal trade data. However, the UN recommends all member states to supplement Customs data with non-Customs data to ensure full coverage of International Merchandise Trade Statistics (IMTS). Supplementary data can be obtained from various sources e.g. enterprise surveys, aircrafts and shipping registers, foreign shipping manifests, informal cross border trade etc.
In an effort to execute the UN’s recommendation, the NSA began by undertaking the Informal Cross Border Trade Surveys of which the first one to be done in Namibia was conducted in 2014.
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Mixed fortunes in Foreign Direct Investments
The COMESA region recorded relatively flat Foreign Direct Investment (FDI) in 2014 at US$16 billion, registering a marginal decline of less than 1% compared to 2013. The inflows were concentrated in a few economies, with the top six destinations accounting for 76% of the flows.
This is according to the latest COMESA Investment Report issued in Lusaka.
The six countries are divided into two groups; those that recorded positive and growth and those in the negative growth. Inward FDI was recorded in Egypt, Ethiopia and Uganda while negative growth was noted in Zambia, Sudan and the Democratic Republic of Congo.
“The combined impact of these countries accounts for the observed marginal growth in overall COMESA inward FDI,” according to the report.
Egypt had the highest market share at 30% among the countries that recorded positive growth. This was largely attributed to the increase in flows for Greenfield Investment and investments in the oil sector and purchases of real estates by non-residents.
The DRC, Zambia and Sudan had each a market share of 13%, 10% and 8% respectively in 2014. They posted declines in inward FDI flows of 28%, 24% and 2% respectively. The reduction in Zambia was partly attributed to the increase in the mineral royalty tax and reduced commodity prices such as copper which affected expansion plans among investors.
Other countries such as Kenya, Malawi, Zimbabwe and Mauritius all recorded positive growth in inward FDI flows with the exception of Madagascar.
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tralac’s Daily News Selection
The selection: Thursday, 28 April 2016
Featured trade policy review processes:
Malawi’s TPR is underway at the WTO: download reports by the WTO Secretariat, the Government of Malawi
The APPG-TOP inquiry into the UK’s Africa Free Trade initiative: download nine written submissions
Featured perspectives on African manufacturing policy issues: Deborah Brautigam: 'Chinese manufacturing investment in Nigeria - surprises from our CARI Working Paper', Dirk Willem te Velde: 'Why African manufacturing is doing better than you think' (ODI)
Featured blog: Competition law tightens up across Africa (African Law & Business)
Carlos Lopes: 'Addressing corruption in Africa with the right focus' (UNECA)
It is arguable that the greatest challenge to Africa’s structural transformation agenda is not corruption of the sort that has come to light in corporate and public sector scandals - issues of fraud and bribes can be effectively tackled with improved supervision and more stringent enforcement of governance rules. In general, fundamental economic governance problems are to be found on an entirely different level – the inability of management in both the public and private sectors to act effectively and enhance programme delivery and optimize results. Furthermore, effective regulatory frameworks should strike a balance between fostering private sector development and enhancing social transformation anchored on better service delivery.
Mozambique: Better corporate governance for a better economy (SPEED)
The African Corporate Governance Network finds that lack of legal knowledge and the absence of a strong judicial system are major challenges for the business environment in Mozambique. “Despite the reforms that have been introduced, including the Commercial Code, there is still considerable lack of public knowledge of laws and regulations related to the business environment and corporate governance” ACGN notes in its recent report about corporate governance. One of the key issues identified was political will. The report suggests that Mozambique should focus on implementing a series of recommendations made by the African Peer Review Mechanism which include a national corporate governance regulator, building capacity to implement legislation and ensuring that companies understand more about corporate governance and the benefits of improving their transparency. [The ACGN report] [The author: Carrie Davies]
At the intersection of digital economy and industrial policy in Africa (Africa at LSE)
With the publication of UNECA’s excellent new report on Transformative Industrial Policy for Africa and with the release of some new critical books on ICTs and Economic Growth in Africa, now is a good time to take stock of past scholarship on ICTs and economic development in Africa and think more strategically about how African economies might capture more value from deepening their digital infrastructures. First of all, we need to clearly distinguish between the consumption of ICTs by African consumers and the production of value through ICTs by African businesses. When people cite impressive rates of growth in ICT usage in African countries, that does not necessarily tell us much about where that economic value is being produced and captured, and by whom. [The author: Laura Mann]
Data moving across borders: the future of digital trade policy (E15 Initiative)
The paper begins by outlining the core enablers of the digital economy and the intersection between cross-border data flows and policy measures with non-trade objectives, such as privacy. The main focus is on how digital and digitally enabled businesses operate domestically and across borders. The paper then examines the WTO’s substantial past and present contributions to laying the foundation of digitally enabled trade and investment, including the WTO’s established legal acquis in its agreements as interpreted since 1995. Finally, the authors discuss how the WTO could support digital trade going forward, the TPP’s significance for digital trade, and the challenges for negotiations on a plurilateral Trade in Services Agreement. [The authors: Amy Porges, Alice Enders]
What the SA Reserve Bank thinks of Bitcoin (News24)
BSA releases rankings of global cloud policies (BCN)
The 24 countries ranked in the research account for roughly 80% of global ICT revenues. Each country is ranked depending on its strengths and weaknesses in seven policy areas; data privacy, security, cybercrime, intellectual property right, support for standards, promotion of free-trade and IT readiness and broadband deployment.
US keeps China, India on intellectual property shame list (Reuters)
The annual list, released by the US Trade Representative's Office, carries no threat of sanctions, but aims to shame governments into cracking down on piracy and counterfeiting and updating their copyright laws. The trade agency said that the value added of U.S.-held intellectual property was approximately $5 trillion in 2010, contributing 34% to US GDP that year and supporting 40 million jobs in IP-intensive industries. It said China has undertaken some intellectual property law reforms, but the highest level of scrutiny was still warranted due to trade secret theft, rampant piracy and counterfeiting of online and physical goods, as well as newer requirements that condition market access on use of intellectual property IP developed in or transferred to China. Overall, the agency has 11 countries on the "Priority Watch List". There are 23 other countries on the "Watch List" that highlights other IP problems. [Download: USTR's Special 301 Report], [KEI response]
Nigeria’s real GDP declines to $493bn (Nigeria Today)
Nigeria's real GDP declined significantly from $573bn in 2014 to $483bn in 2015, representing more than 14% drop in one year. This was as import/export trading activities slowed down with export dropping by 32% from $82.6bn in 2014 to $50.7bn in 2015 and import dropping by 21% from $61.6bn in 2014 to $48.4bn in 2015. Besides GDP decline, purchasing power parity, however rose from $1.03 trillion in 2014 to $1.11 trillion in 2015. Speaking at the Nigerian Logistics and Supply Chain: Industry Report 2016 in Lagos, Lead Consultant, ECOWAS Commission for Industry and Private Sector Development, Prof. Ken Ife, said that logistics sector is estimated at well over N200 billion and is growing at annual rate of 10%. [NLS brochure]
South Sudan updates: South Sudan in EAC: what are Uganda's trade prospects? (Daily Monitor), Why Juba? (World Bank), Riek Machar’s arrival in Juba should ‘open a new chapter (UN)
REC updates: New EAC boss warns of serious cost-cutting (Daily Monitor), Reviving Central Africa’s consensual transport master plan (UNECA)
Tanzania: Rice import permits suspended (Daily News)
The Prime Minister, Mr Kassim Majaliwa, has ordered security organs to tighten security in border points and along coastal areas to curb smuggling and illegal importation of rice. Winding up debate on his office‘s budget estimates, Mr Majaliwa told the National Assembly hat the government has suspended all permits for importation of rice in the country because of the current increase in local production. According to him, in the 2014/15 financial year, local rice production stood at 1,936,909 tonnes against the target of 926,096 tonnes. Therefore, he said, there was an excess of 1,010, 813 tonnes which is equivalent to 47.8%. On the other hand, following shortage of sugar in the country, Mr Majaliwa has said the government will import sugar to tackle the scarcity. [Singapore to use Dar port as gateway to East Africa]
Prices for poverty analysis in Africa (World Bank)
This paper reviews the academic literature and similar analytic work about prices for poverty measurement in Africa with a focus on temporal price adjustment to measure trends in poverty. While this paper is concerned with poverty measurement in Africa, much of the reviewed literature comes from other parts of the world. Section 2 reviews sources of price data available for poverty analysis in Africa, while section 3 describes commonly used price indexes and related approaches to price-adjust poverty lines over time. Section 4 concludes with a set of recommendations for research and policy. [The author: Isis Gaddis]
The GATT's starting point: tariff levels circa 1947 (World Bank)
How high were import tariffs when GATT participants began negotiations to reduce them in 1947? Establishing this starting point is key to determining how successful the GATT has been in bringing down trade barriers. If the average tariff level was about 40 percent, as commonly reported, the implied early tariff reductions were substantial, but this number has never been verified. This paper examines the evidence on tariff levels in the late 1940s and early 1950s and finds that the average tariff level going into the first Geneva Round of 1947 was about 22 percent. It also find that tariffs fell by relatively more in the late 1940s and early 1950s for a core group of GATT participants (the United States, United Kingdom, Canada and Australia) than they did for many other important countries, including the set of other (non-core) GATT participants. [The authors: Chad P Bown, Douglas A Irwin]
Mozambique's new industrial property code (ENS Africa)
Dubai Chamber finalises preparations for trade mission to South Africa, Mozambique (Zawya)
South Africa: Downgrade fight - business and state make headway (Business Day)
South Africa’s Pick n Pay to enter Nigeria, weeks after Truworths threw in the towel (M&G Africa)
Rajeev Kher: 'A trade policy agenda for India' (Business Standard)
No schedule yet to restart negotiations on India-EU free trade pact: EU official (Livemint)
UNSC resolution on peacebuilding architecture (UN)
José Antonio Ocampo: 'Global macroeconomic cooperation and the exchange rate system' (UNU-WIDER)
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Trade Policy Review: Malawi
The third review of the trade policies and practices of Malawi takes place on 27 and 29 April 2016. The basis for the review is a report by the WTO Secretariat and a report by the Government of Malawi.
Malawi is situated in Southern Africa, surrounded by Mozambique in the south and southeast, Tanzania in the northeast and Zambia in the west. Malawi comprises of an area of almost 118,500 square kilometres out of which about 24,420 square kilometres is covered by Lake Malawi. According to a 2008 population census, currently the country has a projected population of about 16 million, with about 80% of the population residing in rural areas and the rest living in urban areas. Malawi’s economy is dependent on agriculture and exports of primary commodities.
The overriding goal of the Malawi government has been to provide a coherent and consistent economic framework that underpins the developmental objectives outlined in the Malawi Growth and Development Strategy II (MGDS II). Malawi’s economic policies continue to be aimed at reducing poverty through sustainable economic growth and infrastructure development as espoused in the MGDS II.
To achieve sustainable levels of economic growth, Malawi requires strong macroeconomic management accompanied by both private and public investment in infrastructure and productive real sectors that improve productivity to address supply-side constraints identified in the areas of energy supply, and (cross-border) transport and trade facilitation. To undertake this, Malawi requires external support through grants and highly concessional financial assistance as well as prudentially crafted fiscal and monetary policies.
As a Member of the WTO the country participates in the Trade Policy Review Mechanism (TPRM) with a view to achieve greater transparency and understanding of its trade policies and practices and to ensure improved adherence to rules, disciplines and commitments made under the WTO Agreements. The third Trade Policy Review (TPR) for Malawi follows the second (2010) TPR.
Since the last Trade Policy Review in 2010, Malawi has continued to participate in the multilateral trading system through participation in: domestic trade police reforms to align to international trade best practices; the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA), the African Caribbean and PacificEuropean Union (ACP-EU) Economic Partnership Agreement (EPA) negotiations and the World Trade Organization (WTO) Doha Development Agenda (DDA).
Report by the Secretariat: Summary
Malawi's economy has grown strongly in most years since its last trade policy review (TPR) in 2010. While annual GDP growth rates peaked at 9.5%, the period under review also included a marked slowdown of the economy in 2012. Total merchandise trade increased rapidly during the period under review, from 60% of GDP in 2010 to 102% in 2014. Malawi is a least developed country with a largely agricultural economy; as a result, its performance remains vulnerable to adverse weather conditions and terms of trade shocks.
Despite some improvements in recent years, Malawi remains one of the world’s poorest countries in terms of most development indicators. Gross national income per capita is estimated at some US$250. Annual population growth is very high and has even been increasing over the last years. The labour market is largely informal. Malawi has traditionally been highly dependent on donor support. However, during the period under review it has had an on-off relationship with many of its donors.
The cost of doing business in Malawi remains very high, due to significant challenges related to transport, communication, energy, and administrative barriers. This impacts on Malawi's competitiveness in international markets as well as its ability to attract meaningful foreign direct investment, in spite of an investment regime that is generally open. Malawi's fiscal situation has continued to face challenges during the review period. Public debt has strongly increased which partly reflects recourse to domestic financing in the wake of external financing shortfalls arising from the suspension of external budget support.
The main objective of monetary policy is to achieve price stability. Until 2012, the Malawi kwacha was pegged to the US dollar, but strong overvaluation led to a parallel market with significant departures from the official exchange rate. This contributed to chronic shortage of foreign exchange and imported inputs, low international competitiveness, and a high cost of doing business. In May 2012, the Government adopted a floating exchange rate regime. This was accompanied by a strong devaluation of the kwacha, a recovery of foreign reserves, and a surge in inflation which peaked at over 28% in 2013. Since then, inflation rates have followed a slow downward trend, but surged again to attain 26% in December 2015.
During the period under review, Malawi's current account deficit increased steadily, mostly because of a strong increase in merchandise imports, while export growth could not keep pace. The deficit has largely been financed by FDI inflows and current transfers. Transfers consist to a large extent of official development assistance flows, while remittances only play a limited role.
Agricultural exports continue to dominate, but their share has been falling. Tobacco has remained by far the most important export commodity, although its share fell from 67% in 2008 to 47% in 2014. Other goods that have continued to be of relevance for export include tea, sugar, and uranium. Imports are largely dominated by manufactures. Malawi exports the bulk of its products to other African countries and the EU, while imports are mainly sourced from South Africa, Mozambique, India, the EU and China.
The Malawi Growth and Development Strategy 2011-16 is the overarching medium-term development strategy. Its main objective is to continue reducing poverty through sustainable, private-sector driven economic growth and infrastructure development. The Government recognizes that its success will largely depend on sound macroeconomic management and a stable political environment in order to attract investment and finance the state budget.
During the period under review, Malawi launched several trade facilitation initiatives, including the opening of one-stop border posts, enhancement of the COMESA Simplified Trade Regime, the adoption of a national single window programme, and migration from its current Automated System for Customs Data (ASYCUDA++) to the web-based version ASYCUDA World. However, the submission of customs declarations in hard copy remains the norm. Malawi has not yet ratified the Agreement on Trade Facilitation and has not notified its Category A commitments to the WTO. According to the authorities, the relevant technical work has been completed and the ratification process is in its final stage.
Malawi maintains preferences under bilateral trade agreements with Mozambique, the Republic of South Africa, and Zimbabwe, as well as a customs agreement with Botswana that dates from the colonial period; bilateral preferences have largely been matched by those granted in the context of COMESA and SADC. Whenever there is an overlap in terms of trading partners and tariff concessions, importers may choose which certificate of origin to obtain, depending on the terms they identify as more advantageous. Malawi also maintains rules of origin for non-preferential purposes, although its notification to the WTO indicates otherwise.
Malawi has bound 31.6% of its tariff lines at ad valorem rates ranging from 20% to 125%; by and large, it retains considerable flexibility for autonomous tariff increases. On six tariff lines, Malawi's applied rates exceed the corresponding bound levels by 75 percentage points; the authorities have indicated their intention to address these breaches in the budgetary deliberations for FY 2016-17.
The simple average applied MFN tariff in FY 2015-16 is 12.7%, down from 13.1% in FY 2009-10. The tariff comprises eight bands: zero, 5%, 7.5%, 10%, 15%, 20%, 25%, and 200%, against six bands (zero, 5%, 7.5%, 10%, 20%, and 25%) in FY 2009-10. Malawi applies no tariff quotas. Agriculture remains the most tariff-protected sector: the average applied tariff on agricultural products (WTO definition) is 18.8% (up from 17.3% in 2009), whereas the corresponding average for non-agricultural products stands at 11.6% (down from 12.5% in 2009).
Malawi maintains licensing requirements and a system of trade permits for the importation and exportation of certain goods; permits typically specify the total quantity and value of a particular product that can be traded. In June 2013, the number of items controlled on exportation was reduced from 25 to 10. The importation or exportation of certain goods, such as agricultural products, requires both a trade permit and a licence. The submission and processing of applications for permits and licences remains non-computerized and must be carried out in the capital, Lilongwe.
Malawi has not taken any anti-dumping actions during the period under review; it has yet to establish an authority competent to conduct anti-dumping investigations. Malawi also lacks the legal and institutional frameworks for the application of countervailing measures and safeguards.
Malawi should gain a lot from a simplification of import procedures relating to standards and technical regulations. The Malawi Bureau of Standards (MBS) retains sole responsibility for the testing and certification of goods and services subject to technical regulations; it carries out periodic inspections on the domestic market and, under the so-called Import Quality Monitoring Scheme (IQMS), the compulsory testing of all consignments of such goods entering Malawi. Malawi does not recognize certificates and test reports from certification bodies accredited overseas, including those from the SADC/COMESA region. Owing to a lack of international accreditation of its facilities, the certificates and test reports issued by the MBS under its Export Quality Certification Scheme are generally not accepted in foreign markets.
There has been little change to Malawi's SPS regime during the period under review; the legislation in force remains outdated and a range of capacity weaknesses are yet to be addressed. One notification was made to the WTO SPS Committee during the review period. While a general import ban on genetically modified organisms (GMOs) remains in place, authorizations for experimental purposes have been granted on two occasions.
The registration and customs clearance procedures for exports are similar to those for imports; in addition, exports require a currency declaration. Malawi levies a tax of 50% on exports of wood in a rough state; the stated purpose of this tax is to encourage local value addition. During the period under review Malawi maintained export prohibitions on certain goods, including maize and maize products, and raw hardwood timber. Malawi's exports benefit from unilateral preferences in major export markets.
As regards export support and promotion, Malawi has created the Malawi Investment and Trade Centre, and set up an Export Development Fund, which has so far been predominantly active in the provision of trade finance. On the domestic market, agro-processing and electricity generation, transmission and distribution have been designated as priority industries and have been granted fiscal incentives.
State involvement remains prevalent in many sectors of the Malawian economy and, in some cases, continues to crowd out private entrepreneurs. Besides soft budget constraints, some SOEs have benefitted from tax concessions on the acquisition of motor vehicles, equipment and machinery, as well as from preferential access to land. During the period under review, Malawi revisited its privatization programme with a view to prioritizing public-private partnerships as a means of attracting strategic investors. Nevertheless, progress on privatization has apparently been slow.
There have been no changes to the intellectual property (IP) regime in Malawi during the period under review. The authorities have drafted an IP policy that should guide the review of outdated laws with a view to integrating the IP system into government development strategies. Implementation of the IP policy faces a number of challenges, including lack of human resources and finance; inadequate infrastructure for managing and administering IPRs; absence of IPRrelated training and educational institutions and services; and lack of awareness among major stakeholders.
Agriculture continues to play a central role in the Malawian economy; it contributes around 30% to GDP and 75% to export earnings. However, sectoral GDP shares have gradually shifted away from agriculture while mining and various service sub-sectors have increased their contribution. Maize is the country's staple food. Food security is the main policy objective for the agriculture sector, and a programme that provides subsidized fertilizer to maize farmers is the main instrument to achieve this. The fisheries sector is important as a source of employment, food, and biodiversity. Deforestation continues at very high rates.
The mining sector contributes about 5% to GDP. The bulk of fuel is imported. Malawi's manufacturing sector is relatively small, with agro-processing being the dominant activity. Less than 10% of Malawi's population has access to electricity. Electricity prices remain under government control and, despite some recent price increases, remain amongst the lowest in the world, which strongly discourages investment in the sector. The shortfall in electricity supply has been recognized as a major growth constraint, and a factor in deterring investors and weakening the competitiveness of local industries.
Services constitute about half of GDP. Malawi has made only a few commitments under the GATS. The services balance has traditionally posted a deficit. Malawi undertook a number of financial services sector reforms during the period under review with a view to increasing financial inclusion. The telecom sector has grown strongly since the last review, mainly driven by mobile subscriptions. Road transport remains the dominant mode of transport, and transport prices remain high. Privatization and partial liberalization of air transport services have led to increased competition and lower prices on regional routes. The tourism industry is still in its infancy, but offers great potential for development both as a foreign exchange earner and for the provision of employment.
As a landlocked country, Malawi depends heavily on the efficiency of transit corridors and ports in neighbouring countries. Although some progress has been achieved over the past six years, the corridors still lack efficiency. Transport time to the nearest maritime port is usually still several days. This increases the cost of trading and also limits the range of exportable products, effectively excluding most types of perishables.
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WTO members gear up for implementing Nairobi agreement on preferential rules of origin
WTO members held their first discussions on 22 April regarding implementation of the Ministerial Decision on Preferential Rules of Origin for Least Developed Countries (LDCs). The Ministerial Decision was one of the key outcomes of the WTO’s 10th Ministerial Conference in Nairobi last December.
The provisions set out under the Nairobi Decision aim to facilitate least-developed countries’ export of goods to both developed and developing countries under unilateral preferential trade arrangements in favour of LDCs. Key beneficiaries will be countries of the LDC Group, the proponent for the Nairobi Decision.
The Nairobi Decision builds on the earlier 2013 Bali Ministerial Decision on preferential rules of origin by providing more detailed directions on specific issues, such as methods for determining when a product qualifies as “made in an LDC”, and when inputs from other sources can be “cumulated” – or combined together – into the consideration of origin. The provisions also call on preference-granting members to consider simplifying documentary and procedural requirements related to origin as well as other measures to further streamline customs procedures.
At a meeting of the WTO’s committee on rules of origin, the chairman, Christian Wegener (Denmark), reminded delegations that the Nairobi Decision contains an obligation for members to inform the committee about efforts they are making to implement the decision. Members thus need to start preparing this submission.
The chairman noted that, for developed countries, a notification on implementation is due by the end of 2016, while for developing countries with preferential schemes, the notification is due when they decide to start implementing the Nairobi Decision, in line with the flexibilities set out in paragraph 4.1 of the Decision.
“Because of the broad scope of the Decision and its provisions, I would urge all members to start preparing their communication as early as possible, so that all efforts are made to ensure a smooth implementation of the Decision,” Mr Wegener said.
Speaking on behalf of the LDC Group, Benin raised several issues to move the discussions forward, including questions set out in a written submission to the committee meeting. Benin said it was important to have information on the present status of notifications on preferential rules of origin and how the preference-granting members would abide by their commitments. Benin also noted that an obligation already exists to provide trade and tariff data to the WTO but that some members have provided incomplete data or no data at all. The data will be used by the WTO Secretariat to calculate preference utilization rates, in accordance with modalities to be agreed upon by the committee.
Switzerland, the United States, China, Canada, the EU, Japan and Chile all outlined efforts currently under way or already completed to bring their practices in line with the Nairobi Decision. The EU said it always notified all regulations on rules of origin in the context of its Generalized System of Preferences (GSP) programmes and that it submits relevant import data on a regular basis. The US said it considered its preferential rules of origin well-positioned in terms of consistency with the Nairobi Decision as well as the notification requirements contained therein. China added that effective implementation of the Nairobi Decision will help LDCs increase their exports and integrate into global value chains.
Background
Rules of origin are the criteria used to determine where a product was made. Products that are deemed under such rules to be made in LDCs would qualify for preferential market access schemes for LDCs.
The 2013 Bali Decision set out, for the first time, a set of multilaterally agreed guidelines to help make it easier for LDC exports to qualify for preferential market access. The Bali Decision recognizes that each country granting trade preferences to LDCs has its own method of determining rules of origin, and it invites members to draw upon the elements contained in the Decision when they develop or build on their individual rules of origin arrangements applicable for LDCs.
The Decision also requires that members notify their preferential rules of origin for LDCs to the WTO to enhance transparency, make the rules better understood, and promote an exchange of experiences as well as mainstreaming of best practices. The WTO’s relevant bodies shall also annually review these rules of origin.
A briefing note on preferential rules of origin and other issues of interest to LDCs addressed at the Nairobi Ministerial Conference is available here.
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Ahead of the curve – the AfDB at the World Bank-IMF Spring Meetings
The African Development Bank may be smaller by numbers than other multilateral development banks (MDBs), not least the World Bank, but its voice is loud, its expertise is ground-breaking, and its local character is defining.
One of the constant threads of the 2016 World Bank-IMF Spring Meetings was the acknowledgement that other MDBs can learn from the AfDB, and not just in Africa. It leads the field in three particular areas: MDB exposure exchange; support for fragile states; and using funds designated for private-sector lending, in poorer countries.
MDB exposure exchange
For instance, the meetings examined the MDBs’ ability to scale-up their development financing activities through innovative mechanisms. At the Global Infrastructure Forum, the heads of MDBs praised the benefits of the MDB exposure exchange led by the AfDB, Inter-American Development Bank (IADB) and the International Bank for Reconstruction and Development (IBRD) as an innovative way to reduce sovereign concentration risks and unlock new lending capacity. Similarly, at the G20 seminar on MDB balance sheet optimization, representatives of the Ministries of Finance acknowledged the value of the MDB exposure exchange and encouraged other MDBs to explore such measures. Both the heads of MDBs and the G20 delegates also emphasized the importance of mobilizing private capital to enable MDBs to scale-up substantially non-sovereign lending in developing countries. (The AfDB has grown its private sector lending by a factor of 10 in 10 years.) Innovations such as synthetic securitizations and programmatic syndication – already being explored by AfDB – were strongly encouraged.
Support for fragile states
The World Bank-IMF Spring Meetings also showed how the AfDB leads global development discourse and practice in the area of support for fragile states. This was recognized by partners during the forum on Conflict and Violence. The Bank approaches fragility from a risk perspective, which is good for public and private investments. The AfDB is the first development finance organization to abandon the binary view of fragile versus non-fragile countries. Under its 2014 Strategy, it recognizes that no country is immune to issues of fragility, and that these are not limited by state borders.
Through a dedicated financing facility – the Transition Support Facility – the Bank has mobilized more than USD 2.1 billion of concessional financing in support of public sector investments in countries with fragile situations, since 2008. As a legally distinct entity, the Facility has flexibility in the way it operates. It is made up of three complementary financing pillars that can provide additional financing to infrastructure and governance operations, while leveraging resources for regional operations. It also provides the Bank with flexibility to engage in countries which have arrears, notably Somalia, Sudan and Zimbabwe, and to support their Governments in their efforts to normalize relationships with international financial institutions. The Facility also provides technical assistance.
Meanwhile a number of the Bank’s knowledge products on fragility were cited at the Meetings, including Taking AfDB’s development impact to scale in fragile situations; Special Economic Zones in fragile situations – a useful policy tool?; and From Fragility to Resilience – managing natural resources in fragile situations in Africa.
Using funds designated for private-sector lending
In a year in which the African Development Fund is being replenished – alongside the World Bank’s International Development Association (IDA) Fund – a topic at the meetings was the way that the development community collectively seeks optimal ways of using scarce resources. It seeks out best practice. One way in which the AfDB leads the MDB community is in using funds allocated to private-sector lending, in countries experiencing fragility.
Launched in 2015, the Private Sector Facility (PSF) is the African Development Bank Group’s credit enhancement initiative to increase private financing in low-income countries. During its pilot period, the PSF participates in the credit default risk of the ADB’s non-sovereign guaranteed operations, enabling the ADB to stretch prudently its risk capital in more risky markets. The PSF’s credit enhancement capacity is backed by the liquidity of a USD 230 million reserve pool seeded by a grant from the African Development Fund (ADF) to cover potential losses. The facility has been structured to enable a “BBB” equivalent level of credit enhancement to cover risk exposures amounting to USD 700 million.
At the end of 2015, approximately USD 225 million had been allocated to exposures in 15 private sector transactions at diverse stages of implementation. Of this, more than 50% are in fragile states. Examples of approved projects include power generation projects in Kenya, Côte d’Ivoire and Sierra Leone, agribusiness and other industrial plants in the Democratic Republic of the Congo and Mali. IDA is considering following the AfDB’s path in its own replenishment this year.
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Done sensibly, agricultural development can reduce poverty in Africa
The recovery and acceleration of economic growth in sub-Saharan Africa since about 1995 has been widely recognised. But less is known about the extent to which this growth has led to improvements in welfare and poverty reduction in particular.
In our recently published, open-access book, we attempt to provide a comprehensive assessment of growth and poverty on the sub-continent. We researched 16 detailed country case studies. Together, these represent nearly three-quarters of the population of sub-Saharan Africa.
An important message from ten of the countries we looked at is that there are potentially high returns to policies that take agriculture seriously. Countries that place a particular emphasis on upgrading the capabilities of small-scale farmers are more likely to achieve broad-based development objectives. And failure to take agriculture seriously, particularly smallholder agriculture, will leave people behind. It will also drive up food prices and imports, and dim growth prospects.
The Asian experience is instructive. The rapid economic ascents of China, Vietnam and others began in agriculture, with major contributions continuing for decades. Rapid agricultural growth helped rapid industrialisation by making food, the principal wage good, cheaper. This took place even as rural populations migrated to urban industrial zones.
In Ethiopia, a similar story seems possible. There, a number of successful industrialisation efforts are following successes in agriculture.
Classifying the African Experience
We found a broad diversity of experience, leading us to classify the 16 countries into four groups:
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Relatively rapid economic growth and corresponding poverty reduction.
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Relatively rapid economic growth but limited poverty reduction.
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Uninspiring or negative economic growth and corresponding stagnation or increases in poverty.
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Low information countries.
Our focus here is on the countries categorised within the first two groups and the role of agriculture. The first group comprised Ethiopia, Ghana, Malawi, Rwanda and Uganda. The second group consisted of Burkina Faso, Mozambique, Nigeria, Tanzania and Zambia. These two groups highlight the fundamental role agriculture plays in achieving broad-based economic growth and welfare gains.
We found that in the first group an extended period of broad-based, and sometimes rapid, agricultural growth had been a substantial driver of growth and poverty reduction.
Ethiopian case
Ethiopia is particularly interesting. It has explicitly pursued agricultural development-led industrialisation. The Ethiopia case chapter documents very strong efforts by the government to stimulate agriculture. One example of this commitment is the number of agricultural extension agents whose job is to hasten adoption of improved technologies and farming practices, mainly among smallholders. There were about 45,000 agents in 2010, compared with about 15,000 in 2000. This is one of the highest ratios of extension agents to farmers in the world.
Ethiopia has also invested heavily in infrastructure, like roads and communications. This has resulted in an impressive increase in spatial connectivity. The length of roads more than doubled from 1993 to 2008, from an estimated 19,000km to 44,300km. Between 2000 and 2010 this reduced travel times between spread-out wholesale markets and the Addis Ababa wholesale market by 20% on average.
In addition, mobile phone subscriptions rose exponentially, from 50,000 in 2003 to more than 10 million in 2011. For these and other reasons, real transportation costs fell by 50%.
These and other efforts appear to be yielding fruit in terms of human welfare. Comparing data from the mid-1990s with the most recent array of indicators points to broad-based improvements.
The following indicators have all improved, often substantially:
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infant mortality rates;
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stunting rates for children under five years old;
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primary school enrolments; and
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access to electricity, safe water and sanitation facilities.
Headline monetary poverty rates – defined as those consuming below a basic needs poverty line – roughly halved, from about 50% of the population in 2000 to about 25% in 2011.
Ethiopia remains a poor country by almost any measure and much remains to be accomplished. Yet real and often rapid gains have been registered in recent decades.
The countries in the second group – those with relatively rapid growth and limited poverty reduction – provide an interesting counterpoint. Solid evidence of sustained and substantial growth in agriculture, particularly smallholder agriculture, does not present itself in any of them.
In these cases, the substantial potential of agricultural production is broadly recognised and often accompanied by lots of policy rhetoric. In the cases of Burkina Faso, Mozambique, Nigeria and Tanzania, weak agricultural productivity growth is identified as an underlying factor to the relative stagnation of monetary poverty rates.
Powerful lever
These results highlight the importance of agricultural growth. More specifically, they emphasise productivity growth within smallholder agriculture. Agricultural productivity growth remains a powerful lever for achieving poverty reduction. This applies especially where large parts of the population are mired in low productivity subsistence agriculture.
Exhortation to improve agricultural performance is not new. And historical experience indicates it is possible to waste substantial resources on poorly designed agricultural interventions. Even where there is relatively clear success, as in Ethiopia, it is difficult to know which sets of interventions contributed most. Plus, policies that work in one location may not yield the same results in a different place. Finally, agricultural development is certainly not the only element of a coherent development strategy.
Prolonged and rapid growth in the sector, driven by increases in productivity, should be seen as critical to the industrialisation aspirations of the sub-continent.
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Data moving across borders: The future of digital trade policy
This paper examines how trade policy institutions can mobilise to support the new digital economy of the 21st century. The paper begins by outlining the core enablers of the digital economy and the intersection between cross-border data flows and policy measures with non-trade objectives, such as privacy. The main focus is on how digital and digitally enabled businesses operate domestically and across borders.
The paper then examines the WTO’s substantial past and present contributions to laying the foundation of digitally enabled trade and investment, including the WTO’s established legal acquis in its agreements as interpreted since 1995. Finally, the authors discuss how the WTO could support digital trade going forward, the TPP’s significance for digital trade, and the challenges for negotiations on a plurilateral Trade in Services Agreement (TiSA).
Executive Summary
In the last months of 2015, two trade policy events demonstrated the increasingly central role of the digital economy in the future of trade policy. First, 12 countries, comprising almost 40 percent of world trade, concluded the ambitious Trans-Pacific Partnership (TPP) Agreement, featuring digitally enabled trade and data flows as a central theme. Second, in spite of almost total disagreement at the World Trade Organization (WTO) Ministerial Meeting in Nairobi, all WTO members agreed to renew the WTO’s moratorium on tariffs on data – and members representing 90 percent of information technology (IT) trade agreed to expand the WTO’s Information Technology Agreement.
This paper examines how trade policy institutions can mobilise to support the new digital economy of the 21st century. Because data flows and digitally enabled trade are essential to global trade and investment, measures to support their growth should be a sine qua non for any trade policy and any new trade agreement.
We start by sketching the core enablers of the digital economy – such as the rapid adoption of connected devices and the skills to use them on the consumer side – and the intersection between cross-border data flows and policy measures with non-trade objectives, such as privacy. Our focus is on how digital and digitally enabled businesses operate domestically and across borders, because it is business that drives economic growth and international trade and data flows. We then lay out the WTO’s substantial past and present contributions to laying the foundation of digitally enabled trade and investment, including the WTO’s established legal acquis in its agreements as interpreted since 1995. Finally, we discuss how the WTO could support digital trade going forward, the TPP’s significance for digital trade, and the challenges for negotiations on a plurilateral Trade in Services Agreement (TiSA).
Our core focus is on cross-border flows of data, which can be divided into three categories:
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Information data (e.g. financial) and company data to support production, marketing, sales, after-market service, and functionality of goods, including personal data;
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The export and import of digitally enabled services and goods, as well as goods ordered through digital means;
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The export and import of digitised content – including software, music, and audio-visual content.
Our view is that trade policy institutions must address obstacles to cross-border data flows as a priority matter.
In the 21st century, all enterprises that trade depend on the ability to move data. Every company that has an office, a customer, a supplier, or a contractor outside its home country depends on cross-border access to data. As Rentzhog (2015) points out, modern manufacturing, most goods trade, and many essential services simply cannot function without a digital component. As a corollary, there is no surer way to stop trade and handicap a national economy than to cripple data flows.
Increasingly, “Internet” means mobile, accessed through smart devices; applications (apps); and broadband. The flourishing app economy, as well as the burgeoning Internet of Things, depends on cloud-based data aggregation and processing, involving data flows to and from data centres, wherever these may be located. The requirement for personal data to be stored in the territory of its collection (Vietnam, Brazil) is a new form of trade barrier.
We ask which obstacles to digitally enabled activities are distinctive to these activities’ use of data transfers, the Internet, or software. We then examine the contribution that the WTO has made, and can make, to freeing data flows. WTO rules and institutions have provided essential support for digitally enabled investment and trade to flourish in the past decades, and they must continue to do so.
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The Information Technology Agreement (ITA) agreed in 1996 made personal computer (PC) hardware; mobile phones; and other information and communication technology (ICT) equipment duty-free in most markets; the ITA expansion agreed in 2015 added advanced technology products worth US$1.3 trillion in trade, facilitating communication, transfer, and consumption of data and further integration of global digital value chains.
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The General Agreement on Trade in Services (GATS) Annex on Telecommunications recognises the importance of data communications to all services. It obligates governments to let service businesses transfer data – to use telecommunications networks and services to move information within and across borders and to access databases or other information stored abroad – in order to supply a service protected by a GATS commitment. The GATS concessions of the 1997 Basic Telecommunications Agreement guaranteed market access and opened markets in digital infrastructure services.
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The WTO has applied the GATS and the General Agreement on Tariffs and Trade (GATT) in disputes to facilitate some digital and digitally enabled trade. Panels and the Appellate Body have correctly understood that GATS commitments are technologically neutral – indeed, limiting rights under the GATS by tying them to the technology of the early 1990s would condemn the GATS to increasing irrelevance. Cutting off data flows amounts to a rollback of bargained-for market access under the GATS.
As we discuss, important questions remain unresolved in the WTO. Multilateral agreement in the WTO to open more markets and increase competition in services would be desirable, particularly for mobile telecommunications, mobile data, and other infrastructure services for the digital economy. Further work in the WTO to achieve better understanding of the benefits could be very constructive, particularly if it builds agreement on important issues of principle. To the extent that the WTO cannot achieve consensus on these building blocks for digital trade, governments that wish to push ahead can and will do so in plurilateral negotiations or in regional trade agreements, such as the recent TPP.
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Competition law tightens up across Africa
A more active and interventionist competition law regime is developing for investors in Africa, as their involvement has sparked the creation of new laws and regulators.
Competition law regimes are now established throughout Africa and are becoming increasingly active and interventionist in terms of regulating what is regarded as anti-competitive conduct on the continent.
As an example, Kenya has become one of the most active competition regimes in Africa and has recently conducted dawn raids at the offices of fertiliser companies and the fertiliser trade association to which the companies belong.
The Competition Authority of Kenya has issued two voluntary disclosure programmes applicable to trade associations in the financial, agriculture and agro-processing sectors, allowing for contraventions to be reported in exchange for immunity from prosecution. The authority also published additional guidelines on the substantive assessment of mergers; the balancing of public interest considerations and the control of unwarranted concentrations of economic power.
In addition, Ethiopia now has an active competition law regime and regulator and is accepting merger filings, although not if a COMESA (Common Market for Eastern and Southern Africa) filing is made, as Ethiopia is a COMESA Member State.
Meanwhile Botswana has recently issued guidelines on refusals to deal, market definition, predatory conduct and discriminatory conduct. The country is also conducting market inquiries into shopping malls and charter flights. In addition, Ghana’s draft Competition Bill is expected to be published as a revised draft later this year.
In Malawi, the president has approved reforms in relation to the competition and consumer protection regime of the country, including amendments to the Competition and Fair Trading Act. These amendments are intended to eliminate perceived gaps in the legislation and to align sectoral laws with the country’s competition legislation.
In Mozambique, the competition legislation came into effect in July 2013 and progress has been made towards the establishment of the Mozambican Competition Authority, which is expected to be in operation in 2016. Merger regulations became operational in the country in December 2015.
In Namibia, new revised merger thresholds have been published, although they are not yet effective and a review process is underway to bring the law in line with developments in the fields of competition, economics, law and policy.
In South Africa, the Economic Development Minister Ebrahem Patel has said that his department intends to introduce legislation to further strengthen efforts to tackle anti-competitive practices that impose unnecessary costs on consumers, undermine industrial policy objectives and reduce the competitiveness of the economy.
Certain provisions of the Competition Amendment Act will come into effect on 1 May 2016.
These provisions effectively introduce criminal liability for individuals to South African competition law and, in particular, allow for directors and managers to be held criminally liable for causing a company to engage in, or “knowingly acquiescing” to a company’s involvement in price-fixing, market division or collusive tendering. Individuals may face personal penalties of up to ZAR 500,000 (approximately USD 35,000) or 10 years’ imprisonment. Patel also said his department would explore the possibility of consolidating regulators to balance the specialist expertise of sector regulators with the broader economic and legal capacity that the competition authorities have built up over the years.
Three market enquiries are ongoing in South Africa (in the healthcare, liquefied petroleum gas and retail sectors). The inquiry into the liquefied petroleum gas market is expected to be completed by the end of September and the inquiry into the private healthcare sector is expected to be completed by the end of the year.
The Swaziland Competition Commission published the final guidance on market inquiries, which set out the parameters within which the Commission will conduct market inquiries. The Commission announced a market enquiry into the retail banking sector in August 2015. In addition, Zambia's Competition and Consumer Protection Commission recently issued merger guidelines.
The COMESA Competition Commission is also going from strength to strength, especially with regards to the amendments to the COMESA competition rules – including a substantial reduction in filing fees payable for mergers and the introduction of meaningful thresholds for mandatory merger notification.
Further, the Tripartite Free Trade Area (TFTA) was officially launched in June 2015 and consists of the member states of COMESA, the East African Community and the South African Development Community. At this point it covers the largest trading bloc in Africa, incorporating approximately 57% of its population. The TFTA agreement has been signed by most of the members. Competition policy is being discussed as part of the current phase two of TFTA negotiations. The expectation is for these negotiations to be completed by 2017.
A functioning competition regime has come to be seen as a requirement for a market-based economy in Africa that incentivises investment. It is quite clear that the continued investment interest in Africa has spurred the amendment of competition law and the adoption of stricter competition controls around the continent.
Derek Lotter is head of competition in Bowman Gilfillan’s Africa Group.
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East Africa on course to eliminating non-tariff barriers
East Africa is winning the war against elimination of non-tariff barriers (NTBs), says a report by TradeMark East Africa.
Over last five years, the cost of doing business and the time taken to get goods cleared and transported in the region went down significantly, the Evaluation Report by the multi-donor organisation says.
The cost of transporting a standard 40-foot container from Mombasa to Kigali went down by $1,700 from $6,500 in 2011 to $4,800 in 2015. Transporters and businesses have saved $7 million on the Mombasa-Kigali route alone within the timeline, says the report.
Time taken to export goods from each country in the region has reduced by 20 per cent to 26 days from the previous average time of 33 days while time taken to import goods from each country in the region also went down by 14 per cent to 31 days.
NTBs are trade barriers arising from rules and regulations that are poorly designed or implemented. According to the report, the trade barriers can be intentional or unintentional. It is estimated that in 2010 trade barriers led to a cost of $490 million in the region.
Frank Matsaert, CEO, TradeMark East Africa (TMEA), said that a reduction of these barriers will invariably lead to more trade in the region, which is ultimately TradeMark’s goal, of growing prosperity through trade.
Burundi reduced the time taken to import goods from 43 to 60 days, the highest performance in the region.
Tanzania experienced a 99 per cent reduced time (from five days to one hour) in application and processing of the Electronic Certificates of Origin. Inland transportation from Dar es Salaam to Kigali also dropped to 3.5 days.
“This is a significant milestone in the growth and development of our region. Non-tariff barriers remain a stumbling block in growing prosperity in the EAC region.
TMEA invested around Ksh789 million ($7.89m) in the NTBs project and total programme benefits are expected to be in the range of Ksh3.5 billion to Ksh4.5 billion ($35m to $45m) at constant trade volumes,” he said.
EAC Bound Programme on Elimination of NTBs by the lobby has helped resolve 87 barriers up from 19 resolved in 2010. In the Northern Corridor (Kenya) the number of police checks have gone down while weighbridges have reduced from six to four.
In Uganda, efficiency in dealing with NTBs has also improved after the country introduced a reporting system in July 2014. More than 54 cases have been resolved out of the 64 reported incidents since the system was introduced.
In Tanzania, the number of weighbridges reduced from 15 to eight while road blocks went down from 58 to eight.
The electronic NTB reporting system introduced in mid-2015 has helped Tanzania in dealing with the reported NTBs (181) cases. Rwanda has a reporting system but only 12 registered cases.
Dealing with trade barriers in the region also needs supportive structures. The enactment of EAC Elimination of NTB Act, for instance, will help in the removal of trade barriers within the region as Council of Ministers can make recommendations to the summit.
The council of ministers can, for instance, recommend to the summit to impose trade sanctions to a partner State “which fails to comply with any directive, decision or recommendations of the Council.”
The Act will, for example, help in dealing with partner countries like Kenya, Rwanda and Tanzania that have the highest reported cases of NTBs and are slow to act.
Despite working towards the elimination of NTBs most partner countries remain guarded about goods getting into or passing through their respective countries.
For instance, the report says that there is a growing discontentment with Tanzania regarding its Food and Drugs Authority which requires EAC companies exporting to the country to register with them first for retesting and re-labelling of products while it is still charging a $200 transit fee on containers with chemical products.
Kenya has not aligned the elimination of NTBs with national priorities unlike other EAC partners where there are national strategies in place for the elimination of NTBs.
There are no clear guidelines in Kenya to help in the elimination of barriers, the report says.
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Addressing corruption in Africa with the right focus
Governance and corruption are controversial issues of great significance for sustainable development.
Fostering structural transformation requires more than a national policy and strategy in order to operate effectively in an increasingly globalized world. Globalization continues to alter countries’ growth trajectories, with grave implications for the poor by affecting their access to assets and markets. African countries need to translate opportunities offered by globalization into inclusive growth, increased poverty reduction and sustainable development. However, integration into global markets has some risks as countries become more susceptible to global trends, including corrupt practices by multinational corporations and other vested external interests.
A number of indicators have been developed to assess levels of corruption in Africa. Some of these measurements, such as the Corruption Perceptions Index, World Governance Indicators, Ibrahim Index of African Governance and Afrobarometer, are influential because they have shaped foreign policy, investment decisions and aid allocation, as well as country risk analysis on the continent. African countries are being “named and shamed”. However, given the limitations of the measurement methodologies no single indicator of corruption should be used. There is a need to address the corruption problem in Africa in its totality, including asset repatriation and money laundering. Indeed, it should be made clear that those who steal funds and assets and the receivers of such goods are equally guilty of fuelling corruption on the continent.
The current tendency in measuring corruption on the continent is to focus on individuals’ perception of the extent of corruption. Although addressing individual and heterogeneous experiences is important, a focus on individuals alone overlooks a fundamental cause of corruption for many people: the deliberate exclusion, current or historical, of particular social groups from effective participation in society. It is thus important to address these power-related features of deprivation by empowering the poorest members of society, including women, as a means of combating corruption and weak economic governance. There is unanimous agreement that this process is better achieved through democratization and civic engagement.
Delivering social equity as a means of combating corruption demands governance reforms that empower poor and marginalized groups and give them a voice, and that enhance accountability to increase service providers’ incentives to respond to the needs of the poor. Responsible and accountable service provision, in turn, enhances government revenue thus expanding fiscal space, as this spurs citizens’ willingness to pay taxes. Investing in the social capital of the most vulnerable is also paramount. Another core pillar of the inclusion effort is guaranteeing access to and protection of property rights. However, providing property rights is a complex issue given that they are derived from many sources (Government, customs and religious laws), and the history of access-rights is usually context-specific. Strategies for legal and other reforms need to take these complexities into account to help provide for marginalized groups, combat corruption and expand access to essential services.
It is important for Africa to focus on the importance of measuring corruption and understating its international dimensions. We need to challenge the traditionally narrow notion of corruption as the “abuse of public office for private gain”. This definition places too much emphasis on public office and on the ostensible legality of the act, neglecting the corrupt tendencies prevalent in the private and non-State sectors. Policymakers must understand the importance and implications of viewing corruption as a broader phenomenon where private agents share significant responsibility, and where many unethical acts, which can be regarded as corrupt, may not necessarily be illegal or located within the public sector. For example, many powerful domestic and foreign private firms engage in undue influence to shape State policies, laws and regulations for their own benefit. Sometimes, these private entities make election campaign contributions, which may be legal but unduly undermine democracy. Moreover, favouritism of particular firms in the awarding of public procurement bids and contracts is widespread in Africa. Equally, many corrupt practices taking place on the continent are generated and abetted by non-African players.
It is arguable that the greatest challenge to Africa’s structural transformation agenda is not corruption of the sort that has come to light in corporate and public sector scandals – issues of fraud and bribes can be effectively tackled with improved supervision and more stringent enforcement of governance rules. In general, fundamental economic governance problems are to be found on an entirely different level – the inability of management in both the public and private sectors to act effectively and enhance programme delivery and optimize results. Furthermore, effective regulatory frameworks should strike a balance between fostering private sector development and enhancing social transformation anchored on better service delivery. In this regard, a wider approach to the structural transformation agenda needs to be adopted by focusing on actions that not only tackle corruption but also enhance wider economic governance.
In this context, the fourth edition of the African Governance Report published by ECA implores all stakeholders to rethink corruption measurements in general, and in the African context in particular. As the report shows, there is a strong need for such a rethink. For example, current approaches for measuring corruption completely ignore the international dimension of corruption in Africa. There is ample evidence that the operations of foreign players on the continent are causing significant illicit financial outflows. Such omissions present serious gaps in current measurements.
In my view, African countries and partners should move away from pure perception-based measures of corruption and focus on alternative approaches, which are fact-based and built on more objective quantitative criteria and include the international dimensions of corruption. The present report makes the case for such a shift. In the interim, while possible quantitative criteria continue to be explored, it is necessary to ensure that perception-based methods are better anchored on more transparent and representative surveys. These measurements should also be complemented, where possible, with quantitative country/case-specific indicators to produce more sophisticated and useful assessments. Instead of “naming and shaming” the culprits on the basis of some perceived levels, it is necessary to deeply reflect on the problems of measuring corruption in Africa, with special attention to the roles of international players. It is also vital that African policymakers and partners focus on the big economic governance issues critical for the continent’s structural transformation and sustainable development in order to effectively address the problems of corruption.
The above article is taken from Preface to the new ECA Report dedicated to Corruption: African Governance Report IV: Rethinking how we measure corruption
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Trade data discrepancies: South African exports to the USA versus US imports from South Africa
The South African Revenue Service puts the value of SA exports to the US in 2014 at ZAR 70.4 billion, or around $6.1 billion based on that year’s average exchange rate of ZAR 11.20 to the dollar. The US International Trade Commission’s Dataweb values US imports from SA in 2014 at $8.3 billion. That’s a $2.2 billion difference.
The phenomenon isn’t new, as the chart indicates, but the gap does seem to be widening. Is there an innocent explanation, asks IZWI.com? Or is this evidence that SA exporters are under-invoicing to get money out of the country and/or to hide income from SARS? According to the Washington-based NGO Global Financial Integrity, illicit financial flows out of SA were the seventh highest in the world 2004-13, averaging $21 billion a year and trailing only the other BRICS, Malaysia, and Mexico.
Comment from Ron Sandrey, tralac Associate
The table below shows data ($ millions) for the last three years. It is sourced from the USITC database, who in turn source it from the country authorities. Note that 2015 data is included. The aggregate data seems close to that given for the 2013 and 2014 years.
HS codes and products at an aggregated level on left
Then trade as South Africa to USA (exports)
Followed by USA from South Africa (imports)
Differences expressed as % of imports relative to exports. Note that we would expect this to be perhaps 110% as imports includes transport and related costs. The levels are ‘relatively’ consistent. Note also some big differences further down. Especially HS 99, commodities not elsewhere specified (Generally looks as though it is exports of gold as gold is not reported by South Africa, and this would possibly also impact on the next trade line of precious metals and stones).
Next is the difference expressed in $ millions. Here the two big differences are precious stones etc and vehicles.
Finally on the right hand side the cumulative $ million ‘discrepancies’ are shown. The first two entries account for 79% of the total.
Note at the bottom of the table there are some lines where exports are more than imports. Aircraft stands out, although one has to be careful with aircraft as sometimes they are leased and not purchased and maybe should not be in trade data (rather balance of payment data)
This is the big picture profile. To get more information one would need to look at respective trade volumes at the detailed level. Trade data says nothing about the legality or otherwise of the monetary flows.
Find out more in a recent tralac Working Paper by Cyril Prinsloo and Ron Sandrey: Black holes in African trade data
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Inquiry into UK’s Africa Free Trade initiative: Written submissions
The All-Party Parliamentary Group on Trade Out of Poverty (APPG-TOP) received written submissions supporting the Inquiry into UK’s Africa Free Trade initiative from the following individuals and organisations. The Hearings took place on 19 April 2016.
Trade Law Centre (tralac)
We would like to comment of the following topics:
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Key opportunities and challenges for boosting trade in Africa, and promoting regional integration
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Suggestions for development partners like the UK in boosting trade and investment in Africa
Key opportunities for boosting trade in Africa and promoting regional integration
The capacity to produce tradeables competitively is a fundamental challenge for African countries. Industrialisation requires innovative policy support, but, the market integration agenda already adopted by RECs, to support industrialisation and specifically value chain development, which features as a specific objective in this context, should not be neglected. This agenda provides the scope for achievement of economies of scale, attracting foreign direct investment and the associated learning and technology transfer processes – the dynamic benefits of regional integration.
The broader scope of competitiveness development should infuse the negotiations to establish the CFTA. This requires, for example, recognizing the inter-connections between the trade-in-goods and the trade-in-services agenda’s, as well as a trade facilitation agenda that complements the WTO Trade Facilitation Agreement. The design and scope of the CFTA should be such as to facilitate progress by willing partners in specific priority areas, while others may take longer to achieve such progress.
More work on an African services agenda is essential; we may have to re-visit the approach of the General Agreement on Trade in Services (GATS) with its strong focus on market access. The agenda needs to reflect the important connections between services sectors; the collection of ICT services is closely related to financial services innovation and provision, to education and health care services. These connections have to be accommodated and supported by an appropriate services governance regime. The role of regulation in services sectors should enjoy central focus. Shaping a sui generis services agenda for Africa; embedded in services sector development strategies, with key focus on appropriate levels of regulatory intervention, and regulatory cooperation or harmonization should be an integration priority.
Successful trade facilitation initiatives are built on policies implemented by governments as solutions to specific barriers to trade experienced by firms, service providers and traders operating in their economies. This involves national and regional action and reforms. Increased risk management at borders, and stronger coordination among border agencies will reduce the time spent at border posts, and hence costs. Improved access to trade information through trade portals will reduce the scope for rent seeking and corruption related to cross-border trade which impinge particularly heavily on small traders, many of whom are women.
Suggestions for support by development partners
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Enhancing rules-based governance by i) supporting regional courts, ii) assisting private parties to access these courts (e.g. access to information)
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Supporting a practical trade facilitation agenda (e.g. inter-agency cooperation and national and cross-border levels, computerisation of processes and single window facilities, reduction of duplication of documentation and processes)
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Regional integration for competitiveness (support at enterprise-level; access to information on regional agreements, regional market opportunities)
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Infrastructure services regulatory reform (transport, energy, communication, water – identification of appropriate regulatory interventions to support cross-border economic activities (cooperation/harmonisation) through access to reliable supply, quality and competitively priced services)
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Standards and technical regulations (technical and institutional capacity for quality assurance and compliance with requisite standards for public policy objectives)
Overseas Development Institute (ODI)
This brief is a submission from Neil Balchin, Linda Calabrese and Max Mendez-Parra (Overseas Development Institute). We have organised this brief in three sections, following the questions outlined in the terms of reference.
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Trade Policies and trade facilitation systems in Africa and their effects on wealth creation, employment and poverty reduction
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Findings from recent work on vulnerable groups and informal cross-border trade
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The role of development partners in boasting trade and investment in Africa
Trade facilitation promotes productivity growth, employment creation and poverty reduction by raising volume and diversification of exports, reallocating resources to more productive activities, improving access to inputs and enabling participation in value chains.
Physical (hard) and regulatory (soft) infrastructure are both important, and are in fact complementary in order to facilitate trade. The indirect effects of regional infrastructure on households, firms and governments need to be considered.
Aid for Trade has been effective in raising exports and improving the investment climate. Future Aid for Trade interventions need to aim at reducing the cost of trading; address binding constraint to growth; ensure effective coordination between donors and recipients; address the transnational and regional level constraints and; improve M&E of impacts, outcomes and outputs.
Paul Brenton, Lead Economist, Trade and Competitiveness Global Practice, World Bank Group
This submission outlines three aspects of the importance of regional trade integration in Africa for development and poverty reduction.
First, there are great challenges, but consequently there is enormous untapped potential through regional integration in Africa to deliver poverty reduction and development gains. Second, we must take a fresh look and reinvigorate some regional integration initiatives if the continent is to become better integrated. Finally, that the World Bank Group and other development partners should be ready to intensify support for those governments and regional communities that are committed to use deeper regional integration as a key tool to drive economic diversification and poverty reduction.
The challenge being faced – and the opportunities that exist if these challenges can be overcome
Regional trade integration has long been a strategic objective for Africa yet, despite some success in eliminating tariffs within regional communities, the African market remains highly fragmented. A range of non-tariff and regulatory barriers still raise transaction costs and limit the movement of goods, services, people and capital across borders throughout Africa.
United Nations Economic Commission for Africa
Trade facilitation reforms must be considered a priority for Africa to increase its trade competitiveness. The United Nations Economic Commission for Africa has estimated significant benefits for Africa if it implements trade facilitation reforms in addition to agreeing a Continental Free Trade Area.
Despite recent progress on general trade facilitation reforms, Africa has made limited progress on implementing paperless trade. The average African country ranks in the worst performing 25 percent of all emerging and developing countries on the cost of border processing and document requirements.
LDCs will require assistance so that they can benefit from the 2013 Trade Facilitation Agreement. Development partners should focus their support on the most vulnerable countries, particularly landlocked countries, and the fast-tracking of trade facilitation measures in agriculture and agro-processing.
New technologies and tools can help to support trade facilitation, but there is a need to provide knowledge on e-customs and digital trade to less-informed LDCs and assist Governments to upgrade their countries’ infrastructure and enact legislation on electronic signatures and transactions.
In order to ensure inclusive and gender sensitive growth, structural transformation policies should first focus on transforming the agricultural sector through promoting value addition and agro-processing and creating avenues for African countries to compete in agro-based global value chains.
There is a need to strengthen social safety nets and safeguards for those who lose their jobs or livelihoods as a result of trade liberalisation, particularly vulnerable rural communities.
Trade facilitation would help intra-African trade and integration and is an important target for UK Aid-for-Trade. However African countries require assistance in formulating bankable Air-for-Trade projects. Aid-for-Trade to Africa is currently highly concentrated on certain countries.
The UK should consider technical cooperation with African countries on regulatory reform drawing from the UK’s expertise in designing regulations and institutions that balance improved business environment with the environmental and social imperatives behind regulation.
Light Years IP & African IP Trust
A time-sensitive set of opportunities!
At a time when consumers report that they believe that only 28% of established brands add value to our quality of life and wellbeing, new African-owned brands have a better opportunity than at any time in the last 50 years.
The greatest impact on trade, poverty and employment comes from positioning African export businesses and cooperatives in control of retail brands and with some control of the supply chain up to the door of the final retail store where brand-intensive consumption occurs.
This submission gives practical examples of positioning showing much higher impact than any other method at surprisingly modest cost, therefore, more cost-effective.
African Centre for Economic Transformation (ACET)
The UK’s Africa Free Trade initiative (AFTi) focuses on three key issues which stand in the way of Sub-Sahara Africa’s (SSA) capacity to benefit from trade; namely, trade barriers, both tariff and non-tariff, and poor “hard” infrastructure. Overcoming them requires continued commitment from African governments and donor support.
Thankfully, the All-Party parliamentary Group inquiry raises questions beyond the issues presently covered by AFTi. Two such questions are the focus of our submission; namely, “What are the key opportunities and challenges for boosting trade in Africa, and with the rest of the world, in specific sectors such as agriculture, manufacturing and services?” and “What is the role for development partners like the UK in boosting trade and investment in Africa… through promoting two-way trade and investment with African countries?
For SSA to fully unleash its export potential two issues, presently not covered by AFTi, need to be tackled. On both issues the UK, as an influential Member of the EU could help ensure EU’s trade policies support, or at least “do not harm” Africa.
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Market access to rich consumer markets, in view of the potentially adverse impact of the Transatlantic Trade and Investment Partnership (TTIP), presently negotiated between the EU and the US on Africa’s exports. This submission advocates not just preventing negative impact, but using TTIP to improve Africa’s access to both the US and the EU market;
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The need for Africa to increase trade within the region. Given the limited institutional trade capacity of most SSA countries, Africa’s already overburdened trade negotiators urgently need to focus on deeper integration within the African market. This submission advocates that trade negotiators are given the breathing space to do so, by proposing a moratorium on all trade negotiations with third parties that would require reciprocity, including on the implementation of the EPAs.
Salamat Ali and Chris Milner, University of Nottingham
It is now widely recognised that trade costs need to take account of both policy barriers and non-policy or natural barriers. The former includes tariffs and non-tariff measures, shipping line connectivity, and infrastructure performance, whereas the later comprises geographical or natural factors, such as distance and the lack of common language, etc.
The main focus of research to-date has been on the trade volume effects of trade costs. One area which has received much less attention is the impact of trade costs on the composition of trade.
The compositional effects of high trade costs on developing countries’ manufactured exports
Trade costs in Africa are relatively higher than those in other developing regions. These high trade costs affect not only the export volume but also the export mix of African countries. Reducing these costs would not only increase the volume of Africa’s manufacturing exports, but would also help countries in this region to diversify their manufacturing exports and increase the share of more complex and trade cost-sensitive, manufactured exports.
Oliver Morrissey, University of Nottingham
This brief submission, from Oliver Morrissey, Professor of Development Economics at the University of Nottingham, in a personal capacity, has two aims:
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To clarify that while trade can support a poverty-reduction strategy, trade policy cannot ensure that trade is pro-poor and gender equitable because trade is not targeted on either the poor or specific genders.
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Growing and processing agricultural products remains the largest sector in terms of employment in sub-Saharan Africa and food accounts for the largest share of consumption spending, so agricultural trade is the most important sector for poverty reduction.
International Trade Centre
The International Trade Centre (ITC) is a joint technical cooperation agency of the World Trade Organisation (WTO) and the United Nations dedicated to supporting the internationalisation of small and medium-sized enterprises (SMEs), a mandate that combines focus on expanding trade opportunities with fostering of inclusive sustainable development through economic empowerment and job creation. ITC is 100% Aid for Trade agency, helping translate trade opportunities into trade impact for good.
ITC’s three objectives are to (i) strengthen the integration of the business sector of developing countries into the global economy, (ii) improve the performance of trade support institutions for the benefit of SMEs, and (iii) improve the international competitiveness of SMEs.
Trade, aid and investment play a critical role in generating the means of transformative change required to end extreme poverty by 2030. The Sustainable Development Goals adopted September 2015, reaffirm this position and have put trade, as well as technology, at the centre as an enabler of inclusive sustainable economic growth, job creation and poverty reduction, with equal opportunities given to all, in particular women empowerment.
ITC is responding to the 2030 Agenda. It’s SME Competitiveness Outlook, which combines analysis, thought leader insights and case stories about developing country SMEs in international markets together with the supporting country profiles, emphasises that SMEs are the ‘missing link’ to inclusive growth and a key element of development policy. For the gains from trade to be distributed equitably and benefit the economically vulnerable – and the majority of employees – SMEs have to be at the heart of our development efforts.
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tralac’s Daily News Selection
The selection: Tuesday, 26 April 2016
Featured blog: 'Measuring the pulse of Africa one phone call at a time' (Alvin Etang Ndip, World Bank)
Northern Corridor Integration Projects summit: communiqué
The Summit welcomed the progress made in the implementation of the various projects and reiterated their resolve to continue fast tracking the Northern Corridor Integration Projects in order to accelerate regional integration and improve the livelihood of citizens. The Heads of State stressed the need to implement the projects with a sense of urgency and resolve outstanding issues by the 14th Summit [in Kenya, at a date to be determined].
DRC eyes membership of East African railway project (StarAfrica)
DRC first hinted on the possibility of joining the SGR project during the 11th summit held in Nairobi. Sections of the Ugandan stretch of the SGR line from Pakwach will go through Goli Customs in Nebbi District and Vurra Customs in Arua District. Both customs are vital entry points into north-eastern DRC. Kabila said his country has already made an international call for feasibility studies on the SGR and expressed optimism that by the end of May the company to conduct the study would be selected. [Atanas Maina: SGR will spur economic development in East Africa]
The Intra-African Trade Finance and Payment Systems Conference (Afreximbank)
Leaders of Africa’s top financial institutions will gather in Abidjan (2-3 May) for the first ever continental conference looking at the current state of intra-African trade finance and payment systems and at their impact on the drive to achieve enhanced trade among the countries of the continent. Dr Benedict Oramah, President of Afreximbank, said the conference was a concerted effort by Afreximbank to ensure the immediate and effective implementation of its recently-launched Intra-African Trade Strategy.
African firms cut investments as business confidence wanes - survey (Vanguard)
More than half of African businesses reduced investments in capital projects in the first quarter of the year due to gloomy economic outlook and declining business confidence. This was one of the highlights of the latest Global Economic Conditions Survey. At the global level, the GECS showed that in Q1 businesses were less optimistic about their prospects than at any other time in the past four years. [Download]
Zimbabwe: AfDB approves $25m trade finance facility to boost local firms
Including roll-overs, it is projected that the facility will finance approximately $150m of trade over a three and half year period. This facility contributes to scaling up of AfDB’s interventions in supporting the economic turnaround necessary to reposition Zimbabwe as a major productive centre in the Southern African region.
Tanzania: Industrialists root for huge cuts on five major taxes (IPPmedia)
The Confederation of Tanzania Industries has proposed lowering of five key taxes by over 50% in this year’s budget, including the Railway Development Levy, which was introduced last year to raise funds for mega projects in the sub-sector. According to its proposals to the Task Force on Tax Reform for 2016/17, cutting the charges would have multiple benefits to households, the local manufacturing sector and the national economy at large.
Soybean Challenge Fund: update (EA Business Week)
FoodTrade East and Southern Africa (FoodTrade ESA), has launched a maximum £800,000 ($1.14m) Soybean Challenge Fund that is open to applicants in Tanzania and eight other countries across East and Southern Africa.
AGOA extension ‘aims to develop ties’ (Business Day)
Speaking on the sidelines of a function to celebrate the return of US meat products to SA, Mr Gaspard said the extension of AGOA by 10 years was aimed at giving time and space for a "more dynamic" trade relationship. The US was hoping to leverage its strengths in information technology and renewable energy as it broadened its trade with SA, he said. This could include investments in SA infrastructure such as ports, and in general getting SA’s goods to market.
University of Johannesburg launches industrial policy degree programme (GCIS)
The Master of Philosophy Degree Programme on in Industrial Policy is a joint initiative between the African Institute for Economic Development and Planning and the University of Johannesburg. It is aimed at serving the needs of African countries at a time when industrial policy has re-emerged alongside national development planning and regional integration as core strategies for achieving structural transformation across the continent. The objective of the course is to strengthen the capacity of African policy officials and other development actors to conceptualise, design, implement, monitor and evaluate industrial policies and strategies in an age of intense multi-level globalisation.
More cash in support of Africa-focused case studies at UCT business school (Business Day)
A case study centre that aims to contribute to the "decolonisation" of the business school curriculum in Africa, will be set up in Cape Town as a result of a R1m investment by the University of Cape Town’s Graduate School of Business and a similar amount by the Harvard Business School alumni club of SA. Prof Baets said the GSB case study centre aims to create a library of material on emerging market business and social innovation that will be the largest of its kind on the continent.
South Africa: Tourism and migration, February 2016 (StatsSA)
The breakdown of the tourists by region is as follows: 234 707 from overseas; 553 013 from the SADC countries; 15 149 from 'other' African countries and the country of residence of 901 tourists was classified as unspecified. [Egypt tourism revenue down 66% in Q1 2016]
Chinese given insight into Uganda labour laws (EA Business Week)
The Federation of Uganda Employers (FUE) has conducted a one day labour laws education seminar to all Chinese companies operating in Uganda to help them understand labour laws of Uganda. According to Medard Lubega Sseggona, the FUE lawyer and who conducted the sensitization seminar, Chinese investors/companies are supposed to employ people on contract. The seminar also coincided with the launching of a simplified guide of labour laws that were written in English and translated into Chinese. The Guide was also launched in Kenya and Tanzania other East African Community partner states.
Nigeria-China Business Forum: President Buhari's address (Nigerian Bulletin)
We are committed to supporting investors looking to set up manufacturing and processing facilities in Nigeria. This is evident by the appointment of a former investment banker and private equity specialist as my Minister of Industry, Trade and Investment. As someone with experience of investing in Nigeria, he has first-hand knowledge of the challenges investors face when coming to Nigeria. Already, the Ministry of Industry, Trade and Investment is working on projects and programs that will correct the wrongs of the past and enhance the ease of doing business in Nigeria. This will be complemented by investment tax incentive programs, our public sector reform initiatives as well as our zero tolerance stance on corruption.
South Africa, Iran Business Forum: President Zuma's address (The Presidency)
I welcome the Memorandum of Understanding on the establishment of the Joint Investment Committee which puts in place, a measured and pragmatic form of cooperation. I am of the firm belief that these measures will enable us to significantly increase our levels of trade. I believe the MoU on Cooperation in the Field of Trade and Industry that we signed today, which was one of eight MoUs that were signed, and the accompanying Roadmap provides a good departure point for strengthening our economic cooperation. It aptly outlines the objectives that both our sides wish to achieve. I, however, believe that this would not be optimally realized in the absence of your involvement, as the Captains of Industry. It is in this regard that I welcome the establishment of the envisaged South Africa-Iran Business Council. It is imperative that the Council members streamline their planning so as to complement the objectives of the Roadmap. [Joint communiqué]
UNSC debate: Rising crime in Gulf of Guinea contrasted with declining East Coast pirates (UN)
The Security Council (Monday) expressed its deep concern over piracy and armed robbery at sea in the Gulf of Guinea, and stressed the importance of a comprehensive approach — led by States of the region, with international support — to address the problem and its root causes. Issuing presidential statement S/PRST/2016/4, the Council strongly condemned acts of murder, kidnapping, hostage-taking and robbery by pirates in the Gulf, and underlined the importance of determining any links between piracy and armed robbery at sea, and terrorist groups in West Africa and the Sahel subregions. It encouraged regional organizations — including the AU, ECCAS, ECOWAS and the Gulf of Guinea Council — to enhance cooperation on maritime safety and security, calling upon States in the region to criminalize piracy and armed robbery at sea under their domestic laws. It welcomed the Extraordinary Summit of the AU to be held in Lomé, Togo, on 15 October, which was expected to adopt a charter on maritime safety and security, as well as economic and social development in Africa. [Nigeria loses $1.5bn monthly to robbery, piracy at sea]
Africa-Arab Partnership: senior officials meeting (AU)
The 4th Africa-Arab Summit [to be held in November] will review developments in all sectors elaborated in the Partnership Strategy. It will also monitor implementation of the 8 Resolutions it adopted during its 3rd Session in Kuwait in November 2013. The Summit will, however, give special emphasis to the following five priority areas: political developments/terrorism, development financing, agricultural development and food security, disaster response fund, migration.
Cheap oil means a new reality for Middle East, North Africa region (IMF)
The IMF’s Regional Economic Outlook Update for the Middle East and Central Asia projects that growth this year will be about 3%. Although slightly higher than in 2015, the modest pick-up largely reflects increased oil production in Iraq and post-sanctions Iran. Growth in most other oil exporters, however, is projected to slow further this year as they tighten public spending in response to lower oil prices. The latest report has downgraded 2016’s growth projections in almost all MENAP oil exporters relative to the projections made last October. “The fall in oil prices has led to large export revenue losses: a staggering $390bn last year and the expectation of a further $140bn this year,” Ahmed told reporters.
BRICS Bank: activists worried about lack of transparency (The Wire)
Activists from the BRICS countries, however, are dissatisfied with the way things are functioning at the NDB, and have called for transparency as well as clear and stringent social and environmental protections. “This is an unhappy beginning for a development institution,” stated Bonita Meyersfeld, director of the Centre for Applied Legal Studies at the University of the Witwatersrand, South Africa, in a press release issued by civil society organisations. In a letter signed by five activists (each from a different BRICS country) sent to the president of the NDB on April 4, they state:
Improve coordination, partnership in geospatial information management, conference concludes (UNECA)
Nyusi agrees to Shire-Zambezi waterway – Malawian press cheers (Club of Mozambique)
Kenya: 2015 Citizen Report Card (SID)
Uganda: Traders petition Parliament over Kenyan debt (New Vision)
Barclays Africa may end up in private hands (Moneyweb)
Bob Diamond could face grilling by shareholders over Barclays Africa bid (The Guardian)
Kenya in fresh search for consultant to audit Tullow’s operations (Business Daily)
New technologies boost efforts to cut down on environmentally harmful “ghost fishing” (FAO)
UNCTAD multi-year expert meeting on commodities and development
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Nigeria-China Business Forum: Speech by President Buhari
President Muhammadu Buhari on Tuesday, 12 April 2016 in Beijing called on the Nigerian and Chinese business communities to work harder to reduce the trade imbalance between both countries which is currently in China’s favour.
Speaking at the opening of a Nigeria-China Business / Investment Forum, President Buhari said that trade and economic relations between both countries must be mutually-beneficial and conducted with reciprocated respect and trust.
Nigeria-China Business Forum 2016
Speech by President Muhammadu Buhari
It is a great pleasure for me to address this special gathering of the Nigeria-China Business Forum. Indeed, business and trade between Nigeria and China has seen astronomical growth in the last decade alone with bi-lateral trade volumes rising from USD2.8 billion in 2005 to USD14.9 billion in 2015.
Ladies and gentlemen, Nigeria accounted for 8.3 per cent of the total trade volume between China and Africa and 42 per cent of the total trade volume between China and the Economic Community of West African States (ECOWAS) countries in 2015. This is a clear reflection of Nigeria’s position as the largest economy and most populous country in Africa.
Of course, I must congratulate many of you in this room for making this happen.
The relationship between the Governments of Nigeria and China over the years has been mutually beneficial guided by trust, respect and friendly relations. I therefore hope that the relationship between businesses from both countries will also be conducted in the same spirit.
Although the Nigerian and Chinese business communities have recorded tremendous successes in bi-lateral trade, there is a large trade imbalance in favour of China as Chinese exports represent some 80 per cent of the total bilateral trade volumes. This gap needs to be reduced.
Therefore, I would like to challenge the business community in both countries to work together to reduce this large trade imbalance. You must also imbibe the spirit of having a mutually beneficial relationship in your business transactions. You must not see Nigeria as a consumer market alone, but as an investment destination where goods can be manufactured and consumed locally.
Last year during our meeting in New York, President XI Jinping and I agreed to explore ways of practical cooperation in trade, investment, finance, human resources, agriculture, and fishing. We also agreed to strengthen industrial capacity cooperation in the manufacture of cars, household appliances, construction materials, textiles, food processing, and others. This is in line with federal government’s focus on import substitution through the creation of a diversified and inclusive economy that will meet most of our consumption needs.
We are committed to supporting investors looking to set up manufacturing and processing facilities in Nigeria. This is evident by the appointment of a former investment banker and private equity specialist as my Minister of Industry, Trade and Investment. As someone with experience of investing in Nigeria, he has first-hand knowledge of the challenges investors face when coming to Nigeria.
Already, the Ministry of Industry, Trade and Investment is working on projects and programs that will correct the wrongs of the past and enhance the ease of doing business in Nigeria. This will be complemented by investment tax incentive programs, our public sector reform initiatives as well as our zero tolerance stance on corruption.
We also have an aggressive but realistic infrastructure development program that forms the backbone of our economic diversification policy. We are embarking on major power, road, rail, seaport and airport development programs. Our budget and borrowing plans have made significant provisions for these capital projects that will enhance the competitiveness of manufacturing businesses in Nigeria.
Ladies and gentlemen, the future is bright and I am very confident that our policies will make Nigeria the investment destination of choice.
Of course, many of you will have concerns about the security situation in Nigeria. The Boko Haram insurgency, at its peak, controlled over 14 local governments in the North East. Today, I am pleased to announce that this administration, working with our friends and allies, is winning the war against Boko Haram. We have reclaimed all the lost territories in the North East and have significantly weakened the enemy.
We have done our best to accommodate the displaced persons and have started working on strategies for post conflict rehabilitation and resettlement of the affected communities.
To consolidate on these successes, we allocated close to 20 per cent of our total 2016-budgeted expenditure to the Ministries of Defence and Interior and as well as other security agencies. We are committed to protecting all lives and property within our borders. You can therefore rest assured that your investments in Nigeria will be safe and secure.Already, the Chinese “Go Global” strategy has encouraged large influx of Chinese companies into Nigeria in recent times to take advantage of investment opportunities in various sectors of our economy. It is therefore my hope that our interactions here today will further enhance Nigeria-China business relations in a mutually beneficial manner.
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African firms cut investments as business confidence wanes – Survey
More than half of African businesses reduced investments in capital projects in the first quarter of the year due to gloomy economic outlook and declining business confidence.
This was one of the highlights of the latest Global Economic Conditions Survey conducted by the Association of Chartered Certified Accountants (ACCA) and the Institute of Management Accountants (IMA). The Global Economic Conditions Survey (GECS) is the largest regular economic survey of accountants in the world.
Among other things the survey revealed that 55 percent of African businesses said that they were less confident about the economy, while 61 percent cut back on capital investment.
The report stated, “China’s investment slowdown and the resulting collapse in commodity prices have hit business confidence in Africa hard. In Q1, 55 percent of businesses said they had become less confident about the outlook – well above the global average of 48 percent.
“More firms in Africa than anywhere else (61 percent) were cutting investment in capital projects, and the continent is also the region where businesses have the biggest problems with rising costs and foreign exchange movements, with many of the region’s economies suffering sharp falls in their currencies in recent quarters.
“The region’s largest economy, South Africa, is going through a particularly disastrous spell. President Zuma is under pressure to resign, and a once-in-a-century drought is sending food prices soaring.
“The situation is not much better in Nigeria, Africa’s second-largest economy, where speculation of currency devaluation is mounting and the government is struggling to cope with a collapse in its revenue as oil prices have fallen.”
At the global level, The GECS showed that in Q1 businesses were less optimistic about their prospects than at any other time in the past four years. Almost half of the firms surveyed said that they were more pessimistic about their prospects than they were three months earlier. Less than one quarter had become more optimistic.
It also showed that more than half of firms are either cutting or freezing employment, while only 14% are increasing investment in staff. As many as 42 percent of firms are cutting back on investment, up from 40 percent in Q4 2015. Almost every region saw an increase in the number of businesses cutting capital expenditure last quarter, with North America the most notable exception.
Commenting on the outcome of the survey, Toyin Ademola, Country Head ACCA Nigeria said, “The economic issues facing the world are not limited to Nigeria, it is the emerging markets more generally that are suffering most from bottom lines being squeezed. Wages are rising rapidly in many parts of the world and businesses are finding it harder to cope as revenues come under increasing pressure. The sharp drop against the dollar experienced by many currencies will also have pushed up costs, making imports more expensive and raising the value of dollar-denominated debts. All these mean that firms in emerging-market economies are very pessimistic about their prospects.”
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Abidjan to host Africa’s first-ever Intra-African Trade Finance and Payment Systems Conference
Leaders of Africa’s top financial institutions will gather in Abidjan from 2 to 3 May for the first ever continental conference looking at the current state of intra-African trade finance and payment systems and at their impact on the drive to achieve enhanced trade among the countries of the continent.
Organised by the African Export-Import Bank (Afreximbank), the Intra-African Trade Finance and Payment Systems Conference will provide a platform for industry participants to exchange information on intra-African trade finance and payment systems and to identify solutions to the financing challenges confronting intra-African trade.
“This conference is borne out of the overwhelming consensus on the pivotal role that intra-regional trade has played in the development of other regions of the world, but, in particular, on the critical role it could play in the process of driving growth and structural transformation in Africa,” said Dr. Benedict Oramah, President of Afreximbank.
Dr. Oramah said that the conference was conceived as part of a concerted effort by Afreximbank to ensure the immediate and effective implementation of its recently-launched Intra-African Trade Strategy.
According to him, the opportunity to share innovative solutions in the area of trade finance and payment systems is critical at a time when international Banks are either leaving African markets or are scaling-down their financing of trade in the region where access to trade finance remains a major constraint.
Participants in the conference will include chief executives and senior representatives of banks, law firms, think tanks, export credit agencies, logistics companies, regional economic communities, the African Union, central banks and other financial institutions involved in supporting trade in Africa.
Also in attendance will be trading companies engaged in intra-African trade for whom effective trade financing mechanisms and payment systems remain a major challenge.
New Afreximbank strategy to increase intra-African trade to $250 billion by 2021
The African Export-Import Bank (Afreximbank) is to implement a new strategy aimed at driving industrialization across Africa and increasing intra-African trade by at least 50 per cent in the next five years.
The Afreximbank Intra-African Trade Strategy, approved by the Board of Directors at its quarterly meeting in Johannesburg on Saturday, will see the Bank work with partners to ramp up trade among African countries to $250 billion from its current level of about $170 billion by 2021.
The strategy will involve expanding existing trading activities within Africa’s regional economic communities, integrating informal trade into formal frameworks, reducing trade barriers and minimizing the foreign exchange costs of intra-African trade.
“Intra-regional trade will drive value addition in Africa and help reduce the continent’s dependence on commodities,” said Dr. Benedict Oramah, President of Afreximbank, following the approval of the strategy. “It would also allow for the expansion of domestic trade value chains, thereby strengthening the capacity of African economies to resist economic shocks”.
“The fact that about 40 per cent of intra-African trade is done in the informal sector shows that there are institutional gaps,” continued the President. “Afreximbank intends to play a significant role in reducing these barriers, by promoting the emergence of export trading companies and by helping to resolve regulatory and policy issues through a deepening of partnerships and bilateral trade arrangements.”
Information released by Afreximbank after the approval of the strategy showed that it will be centered on three core pillars, namely, Create, Connect and Deliver.
Under the create pillar, the Bank will support the expansion of the production, processing and export capabilities of African economies with trade finance instruments, for import of investment goods, project finance, lines of credit, export development finance and guarantees, and will provide project financing to construct infrastructure for the services sectors and for the development of industrial parks.
The connect pillar will consist of initiatives to provide a facilitative environment to increase the flow of goods and services, including facilitation of linkages with public and private entities, institutions, agents and entrepreneurs along the trade value chain. It will also involve support for export trading companies the launch of an Intra-African trade payment platform using a clearing arrangement operated by the Bank that will reduce foreign currency costs of the trade.
For the deliver pillar, Afreximbank will deepen access of traders to African markets by creating effective and cost-efficient distribution mechanisms through the financing of transport logistics and storage infrastructure.
To support the Intra-African Trade Strategy, the Board of Directors also approved a revised local currency programme that will allow the development of yield curves via African currencies, which will encourage greater use of local currencies, thereby further reducing the foreign exchange cost of intra-African trade transactions.
Afreximbank plans to hold a formal unveiling of the Intra-African Trade Strategy during the Intra-African Trade Forum scheduled to hold in Abidjan in May.
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UNCTAD Multi-Year Expert Meeting on Commodities and Development
Under the Doha Mandate, the eighth session of the Multi-year Expert Meeting on Commodities and Development was held from 21 to 22 April 2016, in Room XXVI of the Palais des Nations, Geneva.
The Accra Accord (para. 208) mandated the Trade and Development Board to establish a multi-year expert meeting on commodities. The topic of the eighth session was decided at the fifty-sixth executive session of the Trade and Development Board in 2012. The terms of reference of the eighth session were approved at the meeting of the extended Bureau of the Board held on 30 November 2012. As set out by the Doha Mandate (paras. 4 and 5), the purpose of the meeting is to enable commodity-dependent developing countries to identify measures in order to secure, as a priority, adequate access to food and energy, to use commodity revenues for economic growth and poverty reduction and to cope with the challenges of commodity price volatility.
The meeting was expected to provide a forum for sharing country experiences in terms of identifying and implementing appropriate policies at the national, regional and international levels; addressing the impacts of declining commodity prices on vulnerable groups; and helping commodity-dependent developing countries formulate sustainable and inclusive development strategies, including those that promote value addition and economic diversification. The meeting also identified the ways and means for these countries, particularly the least developed countries, to maximize development benefits from commodity production and trade, including the promotion of diversification and the integration of natural resources policies into national development strategies (Doha Mandate, para. 31(i)).
In accordance with paragraph 56 (g) of the Doha Mandate, the meeting offered developing countries an opportunity to share their experiences in order to achieve more sustainable and strengthened agricultural production and food security and increase investment in agriculture and export capacity, taking into account the special needs of African countries, least developed countries and net food-importing developing countries, as well as the needs of small-scale farmers. The meeting will generate lessons learned from experiences and identify practical options and actionable outcomes for harnessing opportunities and addressing the challenges of longstanding commodity trade and development issues at the national, regional and international levels. The meeting will also review the contribution of UNCTAD in assisting developing countries in the area of commodities.
Key issues
The UNCTAD secretariat prepared a document entitled “Recent developments and new challenges in commodity markets, and policy options for commodity-based inclusive growth and sustainable development”. The paper reviews recent developments in key commodity markets, including agriculture, minerals, ores and metals, and energy. It highlights price trends and driving forces of price movements and identifies emerging developments in the global commodity economy that are set to change the commodity landscape and pose new challenges for commodity-dependent developing countries. The document concludes with policy recommendations to address those challenges and ensure inclusive growth and sustainable development in those countries.
The secretariat further issued a background note entitled “Review of UNCTAD efforts to strengthen commodity production in commodity-dependent developing countries and improve food security and export competitiveness in light of the post-2015 Sustainable Development Goals”. The note reviews recent activities of the UNCTAD Special Unit on Commodities in support of commodity-dependent developing countries under the three pillars, namely research and analysis, consensus-building and technical cooperation. It highlights the continued decline in commodity prices and its negative implications on the socioeconomic sector of commodity-dependent developing countries. The note ends with some policy suggestions that could be pursued to mitigate those effects.
Opening Statement by the Deputy Secretary-General of UNCTAD
21 April 2016
Good morning,
Thank you all for coming today.
Commodity markets are anything but predictable. But on top of this, the main challenge for many countries is the downward trend commodity prices that have followed since 2011.
These downward trends can have important implications on the development efforts of many countries. And it is therefore important to find answers to one question: how can our policy responses address these challenges and foster inclusive growth?
This expert meeting is the right place to seek those answers.
In a few minutes, you’ll be hearing more detailed assessments of trends in commodities markets and suggested policy responses.
With the time remaining to me, I’d like to leave you with three messages.
First, commodities prices are low, and there should be no assumption that this will change any time soon. Spring may still be a long way off.
We can’t say anything with certainty, but what we know from previous cycles is that the busts typically last longer than the booms.
Last year, the slump in commodity markets continued. The UNCTAD Non-Oil Commodity Price Index averaged 182 points in January this year – down from 219 points last January. That’s a significant 17% decrease.
The reasons were varied: Increased supply stemming from the US shale revolution, flagging Chinese demand, weak recoveries in Japan and in the EU, a strong US dollar lagging recovery of global economic output. Further, large investments in production capacity that were made during the boom years have kept a lid on prices.
In recent months, prices have gone up, but they could easily dip again.
This poses challenges for developing countries that are dependent on commodities. Macroeconomic imbalances are symptoms of this: widening fiscal deficits, eroding currencies, and looming sovereign risk. Where governments inadequately anticipated the reversal of economic fortunes after a decade-long boom, did not build the necessary firewalls, these symptoms are increasingly acute.
The second message I’d like to leave you with is that developing countries must not let a serious crisis go to waste.
For years, many commodity-dependent developing countries lost out on the opportunity to harness the commodity boom. Most of them did not succeed to accelerate structural transformation and to build productive capacities.
While it’s true that some countries acted with foresight, for example to establish sovereign wealth funds, not all of these have produced the results anticipated.
What this means is that countries that did not make sufficient reforms during the boom years will have little choice but to implement them now.
This task will not be easy. Borrowing costs for commodity-dependent countries are high – despite the historically low interest rates that prevail in the developed world.
But the current market conditions should be seen as an opportunity to make decisions that have been avoided for too long.
This leads me to my third message: there is a broad consensus, or at least convergence, on the reforms needed in commodity-dependent developing countries. But a consensus in theory is not the same as a consensus in practice.
With shrinking revenues from commodities, governments will have to make hard choices about budget priorities.
But what sound leadership demands may be different from what political expediency requires – especially when a government is under stress.
The list of requirements is long: They need to diversify away from commodities, promote productivity growth and private sector development and cut trade cost. They need to become leaner and more efficient in their administration while protecting social spending. They need to borrow more responsibly and better manage the volatility of markets. And they need to adopt the right accompanying policies to realize trade’s potential for sustainable development.
This list is by no means exhaustive. But already, it suggests the magnitude of the challenge ahead.
Thank you again for joining us today to tackle these important issues. We are grateful for your time and look forward to the discussions to follow.
Thank you for your attention.
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New technologies boost efforts to cut down on environmentally harmful “ghost fishing”
Growing concern for impacts of lost and abandoned fishing gear – marking guidelines being developed
Modern technologies that make it easier to recover lost fishing gear are giving a boost to efforts to reduce so-called “ghost fishing” and its harmful impacts on fish stocks and endangered species. Growing concern over this problem, coupled with the increasing availability of these technologies, has led FAO to begin developing international guidelines on the effective tagging of fishing gear as a way to cut down levels of troublesome sea trash.
What is known as abandoned, lost and otherwise discarded fishing gear (ALDFG) makes up a significant portion of all marine debris, a growing problem in marine ecosystems.
Levels of ALDFG have gone up significantly in recent decades as a result of increases in the scale of fishing operations and the extensive use of long-lasting synthetic materials. At present, it accounts for about one-tenth of all marine litter, translating into hundreds of thousands of tonnes annually.
This abandoned gear is one of the most problematic types of marine debris, since it can remain in the oceans for years, often continuing to carry out the capture process it was designed for, entangling fish and other marine animals in its nets and killing them – a phenomenon known as ghost fishing.
“The effective marking of fishing gear in busy multi-user sea areas is key to preventing its loss and protecting marine ecosystems,” according to FAO Fishery Industry Officer Petri Suuronen. “Fishers can also benefit from the use of new gear tagging technologies which will allow them to minimise loss of potential catch and expensive equipment, and save time searching for lost gear,” he said.
Abandoned and lost gears are also a hazard to safe navigation due to fouling of ship propulsion systems and propellers, and marking can help prevent accidents and fatalities.
It can also be a tool in the fight against illegal, unreported and unregulated (IUU) fishing, allowing control authorities to monitor how fishing gear is being used in their waters and who is using it.
New technologies for tracking lost gear
Today, advances in marking technology are offering new possibilities for efficient tracking and recovery of lost gear and are changing the way the problem is being tackled.
For example, coded wire tags (CWTs) are being tested as a potential tool for reducing entanglements of marine mammals, turtles and other large marine animals. The nano sized, laser-etched CTWs are implanted in fishing ropes with no effect on fishing performance but making them detectable to special sensors.
Satellite buoys with solar power are now commonly used in industrial purse seine operations, providing unlimited range and extra-long operating time. Other sensors, like GPS receivers, can be attached to a radio buoy and used to transmit data.
Acoustic technology, which takes advantage of the sound transmission properties of seawater, also has applications in locating lost gear. Active pingers emit sounds at certain frequencies once in the water, whereas passive sonar reflectors capture and reflect sound energy back to its source.
Lights have long been an integral part of fishing gear markers for the night but today energy-efficient LEDs are being fitted with solar panels, amplifying their effectiveness.
Guidelines in the works
Past efforts to develop international guidelines have been largely fragmented. There are few systematic requirements by governments for ownership marking of gear, and no international regulations, guidelines or common practices exist for marine areas outside of national jurisdictions. But that is starting to change, due to growing concerns of congestion in coastal waters, risks to safe navigation and accidental deaths of marine life.
To help tackle the problem, FAO has begun a consultative process aimed at developing a set of International Technical Guidelines on the Marking of Fishing Gear. An initial set of draft guidelines was discussed during a meeting of experts held at FAO’s Rome headquarters in early April. The results will be presented to FAO’s Committee on Fisheries in July 2016 for review and direction regarding next steps.
“What we need is a simple and affordable system that permits easy identification of ownership of gear, fishery of origin and position of gear in the water,” said Suuronen. “The development of internationally recognised standards on marking all fishing gear will help us to better understand the reasons for gear loss and identify appropriate preventive measures.”
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Cheap oil means a new reality for Middle East, North Africa region
Growth in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region remains subdued owing to persistently low oil prices and deepening regional conflicts, said the IMF in its latest regional assessment.
The IMF’s Regional Economic Outlook Update for the Middle East and Central Asia, released on April 25, projects that growth this year will be about 3 percent. Although slightly higher than in 2015 (see table), the modest pick-up largely reflects increased oil production in Iraq and post-sanctions Iran.
Growth in most other oil exporters, however, is projected to slow further this year as they tighten public spending in response to lower oil prices. The latest report has downgraded 2016’s growth projections in almost all MENAP oil exporters relative to the projections made last October.
Economic recovery among MENAP oil importers, meanwhile, remains fragile and uneven. Growth is projected to slow to 3.5 percent in 2016 because of adverse spillovers from slowing growth in oil-exporting neighbors and intensifying regional conflicts.
“Therefore, it is crucial that all countries step up their efforts to design and implement reforms to boost economic prospects, create jobs, and improve inclusiveness of growth, before they run out of time,” IMF Middle East and Central Asia Department Director Masood Ahmed said at the report’s launch in Dubai.
The cost of conflicts
Conflicts – particularly in Iraq, Libya, Syria, and Yemen – continue to intensify, resulting in massive numbers of displaced people and severe economic damage. Since October 2015, more than 600,000 people have fled Syria alone, bringing the total number of Syrian refugees to almost five million. The mounting costs of conflicts have put enormous pressure on government budgets and infrastructure, driving up inflation and diverting resources away from much-needed social spending, the report mentioned. The conflicts are also having repercussions in neighboring countries, who are hosting large numbers of refugees, and tackling disruptions in trade and tourism, worsening security, and decreasing levels of investor confidence.
Ahmed emphasized that the international community needs to scale up and better coordinate its support to help refugees and stabilize the affected countries. “There are large financing needs, with host countries requiring additional financing on affordable terms to fund crisis-related projects,” he said.
Lost revenues for oil exporters
The second factor shaping the region’s outlook is the continued slump in oil prices. The oil-exporting countries enjoyed large fiscal and external surpluses and rapid economic growth in recent years because of booming oil prices. Since mid-2014, however, the persistent decline in oil prices has turned surpluses into deficits, slowing growth and raising concerns about unemployment.
“The fall in oil prices has led to large export revenue losses: a staggering $390 billion last year and the expectation of a further $140 billion this year,” Ahmed told reporters. Many countries have taken significant steps to consolidate their budget positions, focusing mostly on capital expenditure cuts, but also on substantial energy price reforms.
However, for Algeria and the Gulf Cooperation Council (GCC), fiscal deficits are still expected to average 12¾ percent of GDP in 2016, and remain at 7 percent over the medium term. The deficit for other oil exporters in the region – those generally less reliant on oil revenue – is projected to be 7¾ percent of GDP in 2016 (see Chart 1).
Despite the concerted efforts to rein in deficits, “further and substantial deficit-reduction measures will be needed over a number of years to ensure that fiscal positions are sustainable and oil wealth is shared equitably with future generations,” Ahmed said. In many countries, there is room to cut public spending further, widen ongoing energy pricing reforms, and raise new revenues by designing broad-based tax systems, including value-added taxes. The GCC countries are already planning to introduce such taxes in the coming years.
The report suggests that countries need to reduce their dependence on oil and accelerate reforms to manage the new reality of low oil prices. Policymakers are encouraged to implement reforms to promote economic diversification and non-oil sector growth, such as reducing the public-private sector wage gap, and better aligning education and skills with the needs of the market.
“An equally important priority is to ensure that the private sector can create enough jobs for a young and growing population, a process that will require deep structural reforms to improve medium-term growth prospects,” Ahmed said.
Uneven and fragile growth for oil importers
The region’s oil importers saw a pickup in growth from 3 percent in 2011-14, to 3¾ percent in 2015. Growth is expected to remain around that level in 2016-17, based on the report’s assessment. Lower oil prices and improved confidence levels, owing to progress from recent reforms, have supported this recovery. However, security disruptions and adverse spillovers from regional conflicts and, more recently, lower remittances, trade, and financial assistance arising from the slowdown in the GCC, strain the outlook.
The effects of energy subsidy reforms, coupled with low oil prices, have helped to reduce government deficits to about 6½ percent of GDP in 2016 from a 2013 peak of 9½ percent. The report recommends additional fiscal consolidation measures – designed in a growth-friendly way – to put public debt on a sustainable path and preserve macroeconomic stability (see Chart 2). For some countries, greater exchange rate flexibility would support fiscal consolidation by helping them to absorb the impact of external shocks, and improve external positions by strengthening competitiveness.
Despite this mild economic recovery, “medium-term growth prospects of the oil-importing countries are still insufficient to address their long-standing problem of high unemployment,” Ahmed said. The region’s unemployment rate remains high at 10 percent, with youth unemployment reaching a staggering 25 percent.
In the report, the IMF encourages policymakers in these countries to step up structural reforms that strengthen the quality of education, improve the functioning of labor and financial markets, and increase trade openness to help boost economic growth and create jobs.