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IMF Executive Board 2015 Article IV Consultation with Botswana
On March 16, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Botswana.
After a rapid recovery from the 2009 downturn, GDP growth is estimated to have turned slightly negative in 2015 owing to a decline in the global demand for diamonds and copper. Non-mining activities, while recording positive growth over the year, remained subdued owing to spillovers from lower mining activity, a regional drought, and electricity and water shortages. Inflation has been declining over the past few years and is now close to the lower bound of the Bank of Botswana’s objective range of 3-6 percent, reflecting a successful monetary policy, lower fuel prices, and an appreciation of the Pula against the South African Rand.
After three years of surpluses, the government balance has turned into a deficit, reflecting lower mining revenues, a decline in revenues from the South African Customs Union (SACU), and higher fiscal spending, part of which is related to the Government Stimulus Program. The deficit has been financed by drawing on previously accumulated savings and incurring a small amount of domestic debt. The external current account surplus has also been declining, but is estimated to be in positive territory. As Botswana entered the current downturn with large fiscal and foreign reserve buffers, the country is well positioned to deal with the decline in export demand.
A gradual economic recovery is projected in the next three years, based on an expected gradual increase in diamond prices and fiscal stimulus, while inflation is expected to remain within the BoB’s objective range. The 2016/17 budget submitted to Parliament in February envisages a fiscal deficit of about 4 percent of GDP as a result of lower mining and SACU revenues and higher capital expenditures. In the medium-term, the macroeconomic framework envisages fiscal consolidation based on a gradual recovery of the mining sector and expenditure rationalization (the authorities plan to contain the growth of wages and salaries and reduce transfers to state-owned enterprises).
Lastly, the external current account surplus is projected to narrow further this year, but gradually reverse to trend thereafter along an expected recovery in export prices. Botswana’s diamond endowment and its track record of good macroeconomic policy management and political stability contributed to high average economic growth and strong fiscal and balance of payments positions in recent years.
Beyond these achievements, the authorities see a need to reduce unemployment, eliminate water and electricity shortages, and improve the efficiency of government operations. In addition, given the limits of the diamond and public sector-based growth model (diamond reserves could be exhausted by 2050 and inefficiencies in the public sector), a wave of reforms is called for to foster the development of the private sector, diversify the economy, and improve the skills of the labor force.
Staff Report
Real GDP growth is estimated to have turned negative in 2015 owing to weaknesses in the global demand for diamonds and a deceleration of activity in the non-mining sector, driven mainly by spillovers from lower mining activity. Inflation has been low and is now near the lower bound of the Bank of Botswana objective range of 3-6 percent.
The economy is expected to recover gradually over the next three years, driven by a gradual pick up in global diamond prices and fiscal stimulus. The main risks to the outlook are a slowdown in economic activity in major advanced and emerging markets and delays on restoring reliability and self-sufficiency in water and electricity and in implementing other structural reforms.
The 2016/17 budget presented to Parliament in February envisages high levels of public investment and a higher fiscal deficit. The stimulus is justified in the face of a negative output gap, strong fiscal buffers, and the need to close the infrastructure gap. However, its scale may be ambitious given past difficulties in implementing infrastructure projects. The Bank of Botswana’s accommodative monetary policy stance is appropriate, although the space for further monetary easing will be constrained by the fiscal expansion. The financial sector is stable but requires continued monitoring.
In the near-term, the priorities are to increase the efficiency of public investment, reform the water and energy sectors, and improve workers’ skills and the business environment. In the medium-term, the growth strategy needs to be focused on a few areas and backed by bold reforms to mobilize domestic revenues, rationalize government spending and state-owned enterprises, implement a well-prioritized public investment program and consider adopting a sound fiscal rule, and improve education and labor market policies.
Recent Developments
The economy has entered a period of weakness connected to a decline in the global demand for diamonds which have also affected the country’s fiscal and external positions, while successful monetary and financial policies have kept inflation in check and the financial sector stable.
The economy has been slowing down, while inflation has been within the Bank of Botswana’s objective range of 3-6 percent. Following a healthy recovery after the 2009 downturn, economic growth slowed down in 2014 and is estimated to have come to a halt in 2015. Both external and domestic factors contributed to the slowdown. Mining GDP was affected by a decline in the global demand for diamonds and copper, while non-mining GDP decelerated owing to spillovers from lower mining activity, a regional drought, electricity and water shortages, and less favorable domestic credit conditions. The decline in non-mining GDP growth was cushioned by an expansionary fiscal policy. Inflation has also been in decline (the 12 month-rate of inflation was 2.7 percent in January 2016), reflecting a prudent monetary policy, lower fuel import prices, and a recent appreciation of the Pula against the South African Rand.
After three years of surpluses, the government balance has turned into deficit. The fiscal deficit for FY 2015/16 (the fiscal year runs from April 1) is estimated to be in the order of 3 percent of GDP on account of lower mineral revenues, reduced receipts from the Southern African Customs Union (SACU), higher wages and transfers to state-owned enterprises, and higher capital expenditure. The latter reflects an “Economic Stimulus Program” that began to be implemented in the second half of 2015 to counteract the economic slowdown and includes higher capital expenditures targeting the tourism, transport, and agriculture sectors. As Botswana entered the downturn with sizable fiscal savings, the deficit is being primarily financed by government deposits.
The current account surplus has declined, but foreign reserves remain high. The current account surplus is estimated to have fallen from a peak of 16 percent of GDP in 2014 to about 9 percent in 2015 on account of (i) lower prices and volumes of diamonds and copper exports; and (ii) lower SACU revenues. Despite a small decline in 2015, the stock of foreign exchange reserves remain comfortably high at US$7.5 billion (65 percent of GDP), well above the upper bound of the optimal range estimated by the Adequacy of Reserves Assessment metric (Appendix I).
Minor adjustments were made to the exchange rate framework. To better reflect trading partners’ trade weights and inflation differentials (particularly an increase in South Africa’s projected inflation), the Bank of Botswana (BoB) increased slightly the target rate of crawl of the Pula from a downward crawl of 0.16 percent in 2014 to zero in 2015 and to 0.38 in 2016, and reduced the basket weight for South Africa from 55 to 50 percent in 2015.8 The real effective exchange rate remained virtually unchanged in 2015, and the staff assessment of the real value of the Pula suggests that it is consistent with economic fundamentals (Appendix II).
Monetary policy has been eased but transmission through the credit channel has been weak. In the context of declining inflation, the BoB reduced its policy rate from 7.5 in 2014 to 6 percent in 2015. These cuts have been consistent with cyclical developments as confirmed by a standard Taylor rule. Even though the prime lending rate fell in response to policy easing, credit growth declined as commercial banks adopted a cautious approach to lending in the context of slow growth in customer deposits and increasing competition to raise funds. To further ease liquidity conditions, the Primary Reserve Requirement on Pula denominated deposits was reduced from 10 percent to 5 percent in 2015.
The financial system is stable, but some vulnerabilities remain. There are 11 banks in the system alongside several non-bank financial institutions providing a variety of modern services. Banks are well capitalized, with an average capital adequacy ratio of 21 percent and a low share of non-performing loans (4.5 percent of total gross loans). Nevertheless, asset quality deteriorated during the past year, profitability declined slightly, and funding conditions became more challenging, especially for smaller institutions. While the system remains sound, a major economic contraction could raise stability risks given lenders’ relatively large exposure to households (59 percent of total bank loans), which is mainly in the form of unsecured lending (about 65 percent of total credit to households).
Outlook and Risks
Armed with ample savings and foreign reserves, the authorities are well-positioned to weather the current slowdown. The economy is expected to recover gradually, driven by a pick up in the global demand for diamonds and fiscal stimulus, while custom receipts are expected to remain subdued. The main risks to the outlook are sluggish external demand for minerals and slow or insufficient reforms.
The baseline scenario assumes a gradual recovery in the next three years and modest growth in the longer term. The projection is based on the assumption of a measured recovery in global diamond and copper prices (Box 1). It also reflects the impact of higher government spending and investments in the energy and water infrastructure, together with gradual reforms to improve the business environment, which could bring real GDP growth towards 5 percent by 2019. Subsequently, the baseline projects annual average real GDP growth of around 4 percent based on the withdrawal of the fiscal stimulus and continued prudent macroeconomic policies and economic reforms. Inflation is projected to remain within the BoB’s objective range.
The fiscal and external positions are expected to deteriorate further in 2016 and improve thereafter. The 2016/17 budget entails a fiscal deficit of about 4 percent of GDP, the result of lower mining and SACU revenues and the continued implementation of the government’s stimulus program. Fiscal consolidation is expected over the medium-term, based on a gradual recovery of the mining sector and expenditure rationalization. On the latter, the authorities envisage containing the growth of wages and salaries and lowering transfers to state-owned enterprises, especially electricity and water. Regarding the external position, the current account surplus is projected to narrow further from 9 percent of GDP in 2015 to about 2 percent in 2016 and reverse trend thereafter, alongside a projected recovery in diamond prices and volumes (supported by a gradual pickup in global demand).
An alternative scenario entailing a stronger reform effort and prioritized public investment has a better chance to address Botswana’s challenges. Staff prepared an alternative scenario that suggests that, with accelerated reforms, a gradual and well-prioritized public investment program, and improved efficiency in the public sector, the country will be in a better position to achieve economic diversification, higher growth, and a transition to high-income status.
There are important risks to the outlook. In the near term, the main downside risks are: (i) sluggish growth in key advanced and emerging economies, that could lead to continued weakness in the demand for diamonds (and copper); (ii) unresolved economic problems in South Africa and continued depreciation of the Rand, which could lower SACU receipts and have a negative impact on regional investors’ sentiment; and (iii) delays in plans to restore reliability and self-sufficiency in the water and electricity sectors, which would have adverse impact on costs, the fiscal balance, and the business environment; as well as delays on other structural reforms (e.g. deregulation and removal of red tape).
On the upside, a faster than expected recovery in the global demand for minerals could enable a faster recovery. In the longer term, the main risks relate to insufficient or ineffective actions to improve the efficiency of public investment and foster fiscal consolidation, economic diversification, and inclusive private sector-led growth.
Box 1. Botswana: Developments in the Diamond Industry
Diamond production is concentrated in two major country groups: a northern one, which includes Russia and Canada, and a Southern one that includes mainly Southern African states. There is another, less significant, group that produces diamonds of lower value and includes the Democratic Republic of Congo. The top three producing countries are Botswana, Russia, and Canada, accounting respectively for 25.5, 24.1, and 13.7 percent of world output, respectively. The rough diamond market is dominated by two companies: De Beers and ALROSA, each accounting for 34 and 25 percent of the world market. On the demand side, the U.S. represents about 40 percent of the global market for polished diamonds, followed by China/Honk Kong/Macau (15 percent), India (8 percent), the Gulf Region (8 percent), and Japan (6 percent).
The global demand for polished diamonds started to fall in the second half of 2014 prompted by a slowdown in China’s economy and signaling a reversal from a period of high growth (which had led to overly optimistic market expectations). This, together with a slowdown in other markets, led to an accumulation of inventories of polished diamonds and lower demand for rough diamonds. Between mid-2014 and September 2015, prices for polished and rough diamonds decreased by 12 and 23 percent respectively. Consequently, major producers started cutting production beginning in the second half of 2015. In Botswana, De Beers reduced production by about 20 percent in 2015 and announced further cuts for 2016. Debswana – the 50/50 joint venture between De Beers and the government of Botswana – put its Damtshaa mine on care and maintenance status and plans to scale down production at the Orapa 1 mine for the period 2016-2018.
Notwithstanding these negative developments, market observers coincide that with a careful management of supply, diamond prices may rebound as excess inventories clear, although uncertainties remain as to whether the recent decline in demand is transitory or structural (as diamonds are not a exchange traded commodity, information on prices and volumes is limited, which constrains the scope for analytical work on developments and prospects). For instance, Bain and Company (2015), expects demand to return to a long-term growth trajectory of 3-4 percent per year, relying on strong fundamentals in the US and continued growth of the middle classes in India and China. At the same time, the U.S. market is largely saturated, and while demographic changes in the faster growing countries would in principle favor increased demand for diamonds, consumer preferences in younger generations across the globe may be shifting. On the supply side, output is expected to decline by 1-2 percent per year through 2030, based on an analysis of existing and prospective volumes inferred from publicly announced plans by producers. Other factors that could affect market developments are, on the one hand, the recycling of diamonds and the emergence of synthetic stones and, on the other hand, the fact that new diamond deposits could be further underground and much more costly to extract.
Lastly, the industry faces other challenges in its value chain. Cutting and polishing firms may not be robust enough to cushion against short-term fluctuations in the retail market, given their constrained bargaining power over producers and retailers and limited access to financing. In fact, lower margins are driving weaker firms out of business, most of them in Africa (in 2015, the combined market share of cutting and polishing firms in China and India rose to 85 percent while the share of African companies declined, reflecting insufficient competitiveness of the latter).
Policy Discussions
The discussions focused on the near term policy mix to counter the economic downturn, contain fiscal risks, and preserve financial stability as well as on selected medium-term issues, namely measures to improve the efficiency of public investment, strengthen the frameworks for managing mineral revenues and the financial sector, and foster job creation and private sector-led growth.
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Policy Mix, Fiscal Risks, and Financial Stability
As the fiscal stimulus is rolled out, additional monetary easing may not be required, but the authorities need to be cautious with public investment projects and consider reforms to mobilize revenue in order to limit fiscal risks. Financial sector risks call for continued close monitoring of the sector.
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Enhancing the Framework for Economic and Financial Stability
Building on a good track record of fiscal soundness and macroeconomic stability, there is scope to strengthen the framework for managing mineral revenues and safeguard financial stability.
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Diversification and Inclusive Growth
Progress with economic diversification has so far been limited and high levels of unemployment persist, with most employment creation coming from an oversized public sector. Looking ahead, well-prioritized investments in education, energy, water, and other infrastructure will be critical, supported by reforms to improve the business environment and the efficiency of the public sector.
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Trading into sustainable development: Trade, market access, and the Sustainable Development Goals
The 2030 Agenda for Sustainable Development and the Sustainable Development Goals (SDGs) suggest that countries achieve sustainable development in all three dimensions, that is, economic, social and environmental, simultaneously. In this context, international trade is expected to play its role as a means of implementation for the achievement of the SDGs.
“Means of implementation” include factors that facilitate countries’ progress towards the achievement of sustainable development, such as public and private financial resources, capacity‐building, and transfer of environmentally sound technologies.
Recognizing international trade as a means for achieving socioeconomic development is not a new phenomenon. At the establishment of the United Nations Conference on Trade and Development (UNCTAD) in 1964, the international community acknowledged that:
“Economic and social progress throughout the world depends in large measure on a steady expansion in international trade. The extensive development of equitable and mutually advantageous international trade creates a good basis for the establishment of neighbourly relations between States, helps to strengthen peace and an atmosphere of mutual confidence and understanding among nations, and promotes higher living standards and more rapid economic progress in all countries of the world” (UNCTAD, 1964).
In practice, however, it remains a considerable challenge to trade policymakers to map out interlinkages between trade policy and sustainable development, let alone to ensure that trade policy outcome positively influence sustainable development. In this increasingly globalised world, achieving the SDGs as universal agenda requires policy coherence at all (national, regional and global) levels, where trade policy and its policy and institutional interfaces with all the SDGs is one part of the jigsaw.
This report examines various interactions between trade policy, with a specific focus on market access conditions, and factors that constitute the basis for achieving sustainable development. Market access conditions vis-à- vis imports are determined by a combination of border measures and “behind the border” measures, both of which add costs to the price of an imported product. By generating significant impact upon consumer welfare and the competitiveness of domestic industries, market access conditions in international trade thus are a key determinant of the effectiveness of trade as a means of implementation.
Chapter I provides an overview of the report by examining to what extent sustainable development concerns are integrated into today’s trade policymaking. The chapter first looks into how those concerns are treated in trade agreements at multilateral, regional and bilateral levels. It then discusses opportunities as well as challenges in using market access conditions to meet sustainable development objectives.
Chapter II discusses the use of tariffs for trade and development purposes, and provides comprehensive statistical information on the trade-related “indicators” for the reviewing and monitoring of the implementation of the 2030 Agenda.
Chapter III discusses how NTMs can act as an important “policy interface” within the trade-SDG nexus at home as well as that of trading partners. The majority of NTMs are domestic regulations that cater for social and environmental development objectives. The chapter discusses ways to achieve synergies between policy measures for achieving the SDGs and enhancing trade flows across countries.
Chapter IV presents recent evidence on the importance of connectivity, especially maritime connectivity, to international markets. Enhancing physical connectivity to markets is one of the most effective policy actions to complement market access improvement for both exports and imports.
This report will be discussed at the UNCTAD Briefing: Realizing trade potential to contribute to Sustainable Development, taking place on 15 April 2016 in Geneva.
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84% of World Bank’s private investments in Sub-Saharan Africa go to companies using tax havens
Fifty-one of the 68 companies that were lent money by the World Bank’s private lending arm in 2015 to finance investments in sub-Saharan Africa use tax havens, Oxfam revealed on 11 April 2016.
Oxfam’s new analysis focused on the International Finance Corporation’s (IFC) investments in Sub-Saharan Africa. It shows that together these 51 companies, whose use of tax havens has no apparent link with their core business, received 84 percent of IFC investments in that region in 2015. It also reveals that the IFC has more than doubled its investments in companies that use tax havens in just five years – from $1.2billion in 2010 to $2.87billion in 2015.
The findings come ahead of the annual IMF-World Bank Spring meetings starting on Wednesday in Washington DC, and in the wake of the Panama Papers scandal which revealed how powerful individuals and companies are using tax havens to hide wealth and dodge taxes. The issue of tax havens is also expected to be high on the agenda at the UK government’s Anti-Corruption Summit in London next month.
In Oxfam’s study, the most popular haven for IFC’s corporate clients was Mauritius; 40 percent of IFC’s clients investing in Sub-Saharan Africa have links there. Mauritius is known to facilitate “round-tripping.” This is where a company shifts money offshore before returning it disguised as foreign direct investment, which attracts tax breaks and other financial incentives.
Sub-Saharan Africa is the poorest region in the world. It desperately needs corporate tax revenues to invest in public services and infrastructure. For example, the region lacks money to provide enough skilled birth attendants, clean water or mosquito nets, resulting in high rates of child mortality; one child in 12 dies before their fifth birthday.
Oxfam’s Head of Inequality, Nick Bryer, said: “It’s crazy to be giving with one hand and taking away with another – the UK government donates to the World Bank to encourage development, but by allowing investments in tax havens the World Bank’s lending arm is ultimately depriving poor countries of much-needed revenues to fight poverty and inequality.”
“The World Bank Group should not risk funding companies that are dodging taxes in Sub-Saharan Africa and across the globe. It needs to put safeguards in place to ensure that its clients can prove they are paying their fair share of tax.”
The IFC invested more than $86billion of public money in developing countries between 2010 and 2015; 18.6 percent of it spent in Sub-Saharan Africa. The IFC has a significant focus on financial markets, infrastructure, agribusiness and forestry, among other sectors.
While the IFC arguably leads the private sector with its disclosure, environmental and social standards, the public still has no access to information about where over half of the institution’s financing ends up, because it is done through opaque financial intermediaries. It also continues to face major challenges in measuring its overall development impact, and ensuring that the projects it funds do not harm local communities. This latest Oxfam research shows that the organisation also has a long way to go in ensuring that its clients are responsible tax payers.
Oxfam is calling for the IFC to develop new standards to ensure it only invests in companies that have responsible corporate tax practices. For example, companies should be transparent about their economic activities so it is clear if they are paying their fair share of tax where they do business.
The international agency is also calling on David Cameron to show strong leadership in tackling tax havens, beginning by intervening to ensure that the UK’s Overseas Territories and Crown Dependencies publish public registers revealing the true owners of companies based there, ahead of the Anti-Corruption Summit in May.
Oxfam is urging the World Bank and IMF to work with governments around the world to further reform the international tax system and help prevent tax dodging by wealthy individuals and companies, including action to end the era of tax havens. Tax dodging using tax havens is estimated to cost poor countries $100billion in lost revenues every year.
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Third Africa Think Tanks Summit: Communiqué
Creating a Sustainable Future for African Think Tanks in Support of Agenda 2063 and Sustainable Development Goals
Preamble
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We, the African think tanks, have met in Victoria Falls, Zimbabwe, on April 8-9, 2016 in the framework of the Third Africa Think Tank Summit. As we conclude our 2016 Summit on the theme “Creating a Sustainable Future for African Think Tanks in Support of Agenda 2063 and SDGs”, we would like to express our deepest and sincere appreciation to the African Capacity Building Foundation (ACBF) for organizing this Summit in partnership with the African Union Commission (AUC), the New Partnership for Africa's Development (NEPAD) and the United Nations Economic Commission for Africa (ECA).
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We note the convergence of Agenda 2063 and Agenda 2030 and the importance of building the necessary capacity for their effective implementation. This is because despite over a decade-long history of development planning, many African countries continue to experience challenges in designing, implementing and monitoring their development planning frameworks.
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We also note that think tanks would play a critical role in supporting the continental and global agendas through their support to evidence policy design, implementation and monitoring based on their research and analysis; their capacity development activities for state and non-state actors and through their provision of platforms for stakeholder engagement and dialogue and advocacy.
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We therefore reiterate the need for pan African institutions including the Africa Capacity Building Foundation (ACBF), African Union Commission, UN Economic Commission for Africa (UNECA), New Partnership for Africa's Development (NEPAD), African Development Bank (AfDB) as well as African countries to involve think tanks in their decision making processes through provision of development/economic intelligence around development planning and domesticating of the Agendas. This is critical for the successful implementation of the Agendas and achieving structural transformation in the continent.
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We note that the key challenge facing many think tanks within the continent has to do with their sustainability and the diversity of their source of funding. Therefore, the resource mobilization capacity of Africa’s think thanks needs to be strengthened.
African think tanks and the domestication of Agenda 2063 and Agenda 2030
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We recognize that thinks tanks can and should play an important role in actively engaging and developing methodologies to guide member states in integrating Agenda 2063 and Agenda 2030 in their national planning frameworks. The AUC should provide Guidelines and toolkits that could promote standardized methods of integration of the global and regional agendas and enhance cross country comparisons of performance.
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We reaffirm that think tanks should contribute to the analytical work around the inter-linkages across the global and African Agendas’ goals and targets and identifying the areas of convergence and divergence that need attention.
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We reiterate that successful implementation of Agendas 2063 and 2030 must be supported by the think tanks and underpinned by evidenced-based policy-making, including evaluating the interactions between economic, social and environmental policies through policy simulations, ex-ante and ex-poste impact studies, and compiling the datasets needed for further work in this area.
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We note that think tanks can enrich the monitoring and evaluation of both Agendas 2063 and 2030 based on their respective areas of expertise. Monitoring and evaluating progress of both Agendas will be vital in ensuring that corrective actions are taken to keep implementation on the right track.
Sustainability of think tanks: capacities, networks and partnership
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We recognize that think tanks can fully carry out their role in supporting the implementation of Agenda 2063 and Agenda 2030 only if they have the necessary capacities and resources, and are able to effectively channel well-packaged, relevant, timely and quality outputs to policymakers.
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We reaffirm our conviction that the sustainability of African think tanks begins with the quality of its soft, human, institutional and leadership capacities. We, therefore, undertake to work towards the strengthening of their capacities through networking, partnership and exchange programs and trainings. Moreover, we agree on having think tanks innovative use of Information and Communications Technology (ICT) in communicating their research work and reaching out to policy makers.
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We encourage African think tanks to make more effective use of their interactions using platforms such as the Africa Think Tank Network (ATTN) and Africa Think Tank Summits.
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We also reaffirm that the Africa Think Tank Summit should be institutionalized and organized regularly on a yearly basis to get African think tanks the opportunity to discuss their common issues together with the potential solutions, exchange knowledge, ideas and best practices, build stronger networks and partnerships, peer-learn, monitor and evaluate their impact in the delivery of the two Agendas.
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We strongly commit ourselves to support the implementation of Agenda 2063 and Agenda 2030, while creating a sustainable future for our respective think tanks. We are also committed to collectively share best practices, enhance partnerships, networking and synergies in the spirit of pan-Africanism.
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We welcomed the creation, on November 12, 2015, of the Africa Think Tank Network (ATTN) by ACBF. We acknowledge that the launch of the ATTN is considered as a first and important step towards the effective implementation of the recommendations of the Africa Think Tank Summits. Moreover, the establishment of the ATTN is a critical step to the isolationist tendencies within the think tanks’ community.
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We reaffirm our conviction that the sustainability of African think tanks is ultimately the responsibility of Africans themselves. It is therefore crucial that think tanks not only serve the public sector but also private sector without neglecting other potential contributors such as international partners and civil society.
Moving forward
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We express our profound concern that the resources allocated by donors to African think tanks are shrinking along the years. We therefore stress the need to build our individual and collective capacities towards our sustainable existence and call upon AUC, NEPAD, ACBF, UNECA and other supporters of think tanks to help in mobilizing resources towards building this essential capacity in order to sustainably and effectively contribute to the successful implementation of Agenda 2063 and Agenda 2030.
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We call for continued support to ACBF and other supporters of think tanks to enable them create new think tanks where needed, strengthen the capacities of existing ones and ensure that platforms such as the Africa Think Tank Summits are organized and networks sustained.
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We resolve to support ACBF to continue providing leadership in coordinating our efforts towards staying engaged and working together in order to efficiently contribute in tackling Africa’s development challenges and ensure our sustainability.
Presented on 9 April at Victoria Falls in Zimbabwe.
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Trade facilitation and regional integration in Africa
On 21 July 2016, UNCTAD and Trade Mark East Africa (TMEA) will host a joint side event at UNCTAD 14. The panel will discuss linkages between trade facilitation reforms and regional integration, with a special focus on the East African Community (EAC). The following article aims at providing some initial considerations for this discussion.
This article discusses two linkages between regional integration and Trade Facilitation in Africa:
First, Trade Facilitation is increasingly important for regional integration, competitiveness and development. Intraregional trade is far lower in Africa than in most other regions and Trade Facilitation should be among the priority areas for policy action and international support.
Secondly, this article also discusses Trade Facilitation measures in view of their regional dimension. For several specific Trade Facilitation reforms, collaboration and cooperation among regional partners is helpful or even necessary. Such collaboration and cooperation itself can provide an additional impetus to further African integration.
The African continent and its Regional Economic Communities (RECs) record less intra-regional trade than most other regions of the world. According to UNCTAD data, intra-African trade amounts to only about 13.8% as compared to intra-regional trade among Latin America countries (22%), Asian countries (52%) and Europe (about 70% for the EU). One of the major factors behind this low level of trade integration is the low level of Trade Facilitation implementation. Africa has a roughly comparable size in terms of population and output as India, yet African countries are separated by 104 international borders between them. Facilitating crossborder trade is key for any further economic integration.
Trade facilitation implementation is also necessary for over-seas trade. It is particularly relevant for the participation of African countries in global value chains and trade in manufactured goods. Especially small and medium-sized enterprises (SMEs) and perishable, time sensitive and intermediate goods sectors in least developed and landlocked developing countries benefit from reduced transaction costs and times. Many Trade Facilitation reforms are in themselves positive steps towards human, enterprise and institutional development. They help small traders- often women- to enter the formal sector, make economic activities more transparent and accountable, promote good governance, generate better quality employment, strengthen IT capabilities, and generally help modernize societies by bringing benefits in terms of administrative efficiency.
Many Trade Facilitation solutions also have a regional dimension in their implementation. By requiring collaboration and cooperation among partner countries, their implementation itself can be a positive step towards further regional integration. It is thus recommended that ambitious Trade Facilitation measures are incorporated into regional integration schemes, including arrangements such as the Continental Free Trade Area for Africa (CFTA) and African Regional Economic Communities (RECs).
Facilitating regional integration and development in Africa
Most African countries are part of regional integration schemes. From the perspective of Trade Facilitation, having more Regional Trade Agreements (RTAs) can lead to a “spaghetti bowl”, requiring more certificates of origin and possibly other documents so as to benefit from preferential tariffs. Obtaining and submitting these documents, in turn, requires more paperwork and potential waiting times. To counter this potentially negative impact of RTAs it is crucial that African countries engage in ambitious Trade Facilitation reforms that contravene the possible additional paperwork.
The Action Plan for Boosting Intra-Africa Trade of the African Union specifically aims at deepening Africa’s market integration and significantly increasing intra-African Trade. To achieve this, the plan is composed of seven clusters, of which Trade Facilitation is one. Other examples of regional programmes that cover Trade Facilitation are the Common Market for Eastern and Southern Africa (COMESA) strategic medium plan, the West African Economic and Monetary Union (UEMOA) Trade Facilitation programme, and the regional indicative strategic development plan of Southern African Development Community (SADC). The Africa Trade Fund by the African Development Bank (AfDB) also specifically targets Trade Facilitation programmes in Africa’s regional organisations.
Compared to other regions, Africa records among the least favourable trade and transport facilitation indicators. The World Bank’s Doing Business 2016, for example, reports the highest documentary compliance time to export (108 hours) and to import (123 hours) for Sub-Saharan Africa. The World Bank’s Logistics Performance Index reports the lowest regional average for SubSaharan Africa. And research by UNCTAD shows that African countries have the lowest level of implementation of Trade Facilitation measures as recorded by the World Trade Organization’s category A notifications under the TFA.
The relationship between Trade Facilitation and development is dynamic. African countries with more capacities, higher trade volumes and financial resources, are in a better position to invest in reforms that make trade faster, easier and more transparent. At the same time, if Africa invests in programs that modernize Customs administrations and trade procedures, it will reap the benefits of more trade, revenue collection and institutional development. African countries that trade more will find it easier to attract financial resources to invest in Trade Facilitation as larger trade volumes help to achieve a higher rate of return on trade related investments. And those African countries that invest in Trade Facilitation will help their trade to grow further.
The regional cross-border movement of goods also requires the facilitation of its transport. This includes the border crossing of vehicles, their drivers, and containers. Transhipment of cargo at the border is costly, as is an empty return voyage if market restrictions do not allow transport companies to pick up cargo in both directions. Efficient transit requires functioning Customs guarantee schemes. Transport infrastructure needs to be planned regionally to take into account cross-border trade flows, vehicle standards, and axle loads. There needs to be mutual recognition of permits, insurances and drivers’ licences. All of the above requires regional collaboration and coordination.
Choosing the right Trade Facilitation measures for regional collaboration
It will be critical that African countries use their existing REC mechanisms to identify which Trade Facilitation measures could benefit from regional coordination or collaboration. The following six criteria are proposed for consideration in the identification process:
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The measure itself requires or benefits from bilateral cooperation, as is the case for example for border agency cooperation (see Box 1).
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There are similar needs for technical assistance. For example, large number of countries in the REC may have the same TFA measure notified as category C.
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A small or weak member of a regional grouping can benefit from the experience and strength of more advanced fellow-members possibly through intra-regional technical assistance and support. Experiences gained in a regional “pilot” country can be passed on to the next country within the region.
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Implementation could benefit from regional standards and mutual recognition. Examples here can include Customs automation and other technological solutions, as well as AEO schemes.
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There already exist regional agreements such as common Customs codes. It can also be beneficial to pool resources for updating such regional codes.
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On-going regional programmes exist to support broader transport and Trade Facilitation integration. Examples here may include trade hubs, TMEA, corridor programmes et al.
In order to support regional aspects of TF implementation, a regional coordinating mechanisms, such as a regional TR Committee should be considered. Hosted within an appropriate regional intergovernmental structure, the Regional Trade Facilitation Committee (RTFC) could be assigned, inter alia, the following mandates.
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To support, coordinate and monitor the establishment of national Trade Facilitation committees (NTFCs) with the region.
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To provide a regional platform for the exchange of experiences and expertise
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To develop and compare KPIs to benchmark and benchmark successful TF implementation.
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To serve as a regional platform for UNCTAD’s NTFC empowerment programme and other technical assistance projects.
Box 1: TFA Articles with a potential regional dimension
The implementation of several Articles of the WTO Trade Facilitation Agreement (TFA) may have a regional dimension. They may allow for collaboration, or they may require or benefit from working with neighbouring countries or trading partners.
Article 1 (Publication) can be implemented jointly to provide traders with a common platform. Article 1.3 (Enquiry Points) specifically, allows members to “establish or maintain common enquiry points at the regional level”.
Article 5.1 (Notifications for enhanced controls or inspections) could also help traders in neighbouring countries if implemented regionally. Under Article 5.3 (Test Procedures), a “Member may, upon request, grant an opportunity for a second test”; this second test could be undertaken in a third country, possibly under a scheme of mutual recognition of test results.
A number of Customs related measures included in Articles 7 and 10 require regional coordination if the country is member of a Customs union. Pre-arrival Processing as per Article 7.1 can benefit from regional cooperation, especially when involving land-transport. The EAC Revenue Authorities Data Exchange (RADEX), for example, provides advance information to allow Customs to process data before the goods arrive at the land-border. Article 7.6 on the Establishment and Publication of Average Release Times becomes more relevant and interesting if comparable standards and benchmarks are established on a regional level. Article 7.7 (Measures for Authorized Operators) can involve mutual recognition of authorized operators within a region. Article 10.3 encourages the use of international standards. Data models, codes, and document lay-outs should all be harmonized globally. At times, a first step can be harmonization on the regional level.
Article 8.2 (Border Agency Cooperation), specifically requests WTO Members to coordinate procedures at border crossings to facilitate cross border trade. This may include aspects such as working hours, aligned procedures and formalities, common facilities, joint controls and the establishment of one stop border post controls.
Article 11 (Freedom of Transit), as well as several other articles that make reference to transit, aim at facilitating transit trade. Their implementation would ideally take place within broader regional transit or corridor programmes that may also involve infrastructure investments, regional transport markets, or the mutual recognition of licences and certificates.
Article 12 (Customs Cooperation) provides for a wide range of possibilities for cooperation, including through technical assistance, capacity building and information exchange.
Conclusions and the way forward
The special and differential treatment (SDT) provisions included in Section II of the WTO TFA provide a unique opportunity to take Africa’s development into consideration when planning for Trade Facilitation implementation. Developing countries have the opportunity to notify specific Trade Facilitation measures as category B (to be implemented later) and C (requiring financial or technical assistance), and there is a commitment by the international community to provide financial and technical assistance towards TFA implementation.
Given the importance of Trade Facilitation for regional integration, trade competitiveness and development, Trade facilitation should be among the priority areas for policy action and support by the international community.
In addition, there is also a regional dimension in the implementation phase of Trade Facilitation reforms. For several specific Trade Facilitation measures, collaboration and cooperation among regional partners is helpful or even necessary. Such collaboration and cooperation itself can provide an additional impetus to further African integration.
This article was published in the UNCTAD Transport and Trade Facilitation Newsletter No. 69, First Quarter 2016. Updates on the UNCTAD14 side event will soon be posted on http://unctad14.org.
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“Africa Feeding Africa”: New mega initiative to transform agriculture in Africa is focus of international meeting
More than 200 research and development partners and experts will meet at the International Institute of Tropical Agriculture (IITA), Ibadan, Nigeria, in a three-day workshop to discuss a new initiative known as “Africa Feeding Africa”, or the Technologies for African Agricultural Transformation (TAAT) program.
The TAAT program is a critical strategy for transforming agriculture on the continent that would ensure that Africa is able to feed itself through agriculture.
The goal of the TAAT Program includes eliminating extreme poverty, ending hunger and malnutrition, achieving food sufficiency, and turning Africa into a net food exporter as well as setting Africa in step with global commodity and agricultural value chains.
Adopting modernized, commercial agriculture is the key to transforming Africa and the livelihoods of its people, particularly the rural poor.
To carry out these objectives, the African Development Bank (AfDB), working with IITA and other partners, has identified eight priority agricultural value chains relating to rice sufficiency, cassava intensification, Sahelian food security, savannas as breadbaskets, restoring tree plantations, expanding horticulture, increasing wheat production, and expanded fish farming.
The Forum for Agricultural Research in Africa (FARA) and the CGIAR Consortium and 12 of its 15 international agricultural centers active in Africa support this initiative by the Bank and the co-sponsors to revitalize and transform agriculture through the TAAT program within the shortest possible time while restoring degraded land and maintaining or strengthening the ecosystems that underpin agriculture. The April 12-14 workshop is being organized by IITA in partnership with the Support to Agricultural Research for Development of Strategic Crops (SARD-SC) project for the African Development Bank, which is funding this mega initiative.
The identification and preparation workshop is a preliminary step to establishing and operationalizing the program. It will be attended by leading agricultural experts from Africa and beyond, development institutions, research agencies, the private sector, financial institutions, academia, and civil society. The workshop is a response to the Action Plan for Agricultural Transformation in Africa resulting from the AfDB-led high-level conference held in Dakar, Senegal, in October 2015. The major objective is to execute a bold plan to achieve rapid agricultural transformation across Africa and raise agricultural productivity.
This initiative will be led by IITA, the Forum for Agricultural Research in Africa (FARA), CGIAR, national agricultural research systems, and the Alliance for a Green Revolution in Africa (AGRA). This will involve close partnerships among AfDB, the World Bank, and major development partners to ensure increased funding for agricultural research and development along the value chains in Africa. CGIAR, FARA, The World Vegetable Center (AVRDC), Africa Harvest, and other partners will provide the technical and developmental support for the Bank’s quest of widespread agricultural transformation.
“IITA supports AfDB and partners in ensuring that TAAT is effectively set up,” said IITA Director General, Nteranya Sanginga. “The whole CGIAR system is backing this huge initiative with its research infrastructure in collaboration with FARA, AGRA, Africa Harvest, and the national partners. Everybody wants to ensure that this initiative succeeds.”
To date, about 22 African countries have been identified as potential partners with the CGIAR centers in the planning, content, and evaluation of investments in agricultural transformation. This workshop gives an opportunity for more Regional Membership Countries (RMCs) of AfDB to join in this effort.
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Africa’s $30 billion rail renaissance holds ticket for trade
On a sweltering Kenyan morning on the outskirts of a national wildlife park, Chinese and local workers maneuver a massive concrete rail-bridge structure onto towering support piers. In the distance, trucks loaded with shipping containers rumble down a highway.
The bridge at Voi, northwest of the port of Mombasa, is the latest construction frontline for the initial 327 billion-shilling ($3.2 billion) stretch of an ambitious railway project to link the East African country with landlocked neighbors including Rwanda and Uganda. As a faster alternative to the trucks clogging the only road running inland to the capital, the Chinese-built and -financed standard-gauge railway, known as the SGR, has the potential to transform trade in the region.
Kenya’s rail line, the country’s biggest investment since independence in 1963, is among the most advanced of the more than $30 billion of African rail projects planned or under way. Together, they span more than 11,000 kilometers (6,835 miles), enough to connect Cape Town to Copenhagen. It’s one of the bright spots on the world’s least developed continent, where governments are wrestling with drought-induced food shortages, weakened currencies and shrinking budgets following the plunge in commodity prices.
Held Back
“Infrastructure constraints are one of the major things holding back Africa and this standard-gauge railway will make a big difference,” said Mark Bohlund, an Africa and Middle East economist with Bloomberg Intelligence.
Not all the projects will be built on time, if at all, especially with the commodity-price slump weighing on those designed to move raw materials from mines to ports. And with Chinese growth slowing, the nation’s central role in African infrastructure development may diminish. Countries including Kenya and Ethiopia are also borrowing heavily to fund projects.
Already, though, U.S. and European and companies such as General Electric Co., Alstom SA and LafargeHolcim Ltd. are poised to benefit, along with Chinese builders and African suppliers such as Transnet SOC Ltd. GE is investigating opportunities in countries including Kenya, Ethiopia and Nigeria and will have almost tripled its number of service personnel on the continent from 2015 to the end of this year.
West Africa
“The overall bed of opportunities around the region remains strong, at least 50 percent higher than it was 10 years ago,” said Thomas Konditi, GE’s head of transportation for Africa. “Those opportunities are still going to be strong for another five to 10 years.”
Besides the East African line, others on the continent include Bollore SA’s plan to develop a 2,700-kilometer West African rail corridor. The project, which has faced legal challenges from rival developers, would link Ivory Coast, Burkina Faso, Niger and Benin.
Also in West Africa, Senegal signed an agreement in December with China Railway Construction for the renovation of 645 kilometers of railroads. Projects are also planned in Tanzania, Mali and Egypt, while Ethiopia recently completed a line connecting Addis Ababa to Djibouti and has another 4,000 kilometers of projects planned.
Economic Growth
Rail infrastructure is vital to improve trade between African countries, which stood at just 13 percent of the total last year, according to the African Union.
Kenya, which moves about five percent of freight by rail, predicts the new project will add to economic growth. The government sealed agreements in March with Chinese partners to build the rest of the track up to the border with Uganda, which itself has signed construction agreements for the first phase.
Kenya’s initial stretch, from Mombasa to Nairobi, will be ready to start operating by June 2017, Kenya Railways Corp. Managing Director Atanas Maina said in an interview at the Voi bridge. The line will have daily capacity for eight freight trains in each direction, each with the ability to carry the equivalent of more than 100 containers. It’ll also run as many as two daily passenger trains each way.
Colonial Tracks
Besides the often-clotted Mombasa-Nairobi road, the only other land transportation option is the century-old railway completed by the British colonial authorities in 1901. The line operates at a leisurely pace of about 30 kilometers per hour, compared with 120 kilometers per hour for passengers and 80 kilometers per hour for freight that Kenya Railways is predicting for the SGR.
The railway design also accounts for local wildlife movements, said Kenya Railways social environmentalist James Chimera. Kenya Wildlife Service provided locations of animal-crossing corridors so elevated overpasses could allow elephants and giraffes to pass underneath safely, he said.
The Export-Import Bank of China has agreed to fund 90 percent and 85 percent respectively of the first two phases of Kenya’s project, with the government covering the rest.
Chinese History
China has a history of successful railway projects in Africa. The 1,870-kilometer Tazara railway, which linked landlocked Zambia to Tanzania’s Dar es Salaam port, was funded and built by China in the 1970s. Nigerian President Muhammadu Buhari plans to visit China to get funding for railway projects, Vice President Yemi Osinbajo said this week.
Nigeria will struggle to meet its agricultural development targets and improve fuel distribution without “robust" rail infrastructure, Osinbajo said.
Some African mine-related freight rail and port projects have been delayed because of low commodity prices and there has been evidence of a shift towards investing in passenger rail instead, said Maria Leenen, CEO at Hamburg-based transportation consultancy SCI Verkehr. The S&P GSCI index of raw materials has dropped 24 percent in the past year.
Transnet, the South African rail and port operator marketing its train equipment and expertise across the continent as well as investing in rail at home, has seen pressure on its order book from the decline in commodity prices. However, the company continues to see opportunities, according to the head of its engineering and manufacturing unit, Thamsanqa Jiyane. Contracts the company is working on include supplying wagons to Swaziland and passenger coaches to Botswana.
For some African governments, the tougher economic conditions are requiring more imagination for funding rail investments, GE’s Konditi said.
“I’m seeing more interest in creative financing – leasing – and I’ve seen more interest in letting the private sector drive some of the maintenance and service of the rail companies,” he said. “This environment is actually helping people to see things more creatively, in a very modern way.”
Demand for World Bank lending on the rise as countries face headwinds
IBRD/IDA* Support to top $150 billion between FY13 and FY16
As developing countries continue to face strong economic headwinds, demand for lending from the World Bank has risen to levels never seen outside a financial crisis, and is on track to climb to more than $150 billion in support between FY13 and the current fiscal year.
“We are in a global economy where growth is expected to remain weak, so it is critically important that the World Bank play our traditional role of helping developing countries accelerate growth,” said World Bank Group President Jim Yong Kim. “We have an historic opportunity to end extreme poverty in the world by 2030 but the only way we can achieve this goal is if developing countries – from middle-income to low-income nations – get back on the path of faster growth that helps the poorest and most vulnerable.”
Global economic growth is projected at 2.9 percent in 2016, picking up at a slower pace than previously expected from an estimated 2.4 percent in 2015. However, conditions have generally deteriorated further since the start of the year.
In the face of these challenges, demand from middle-income countries for IBRD lending in our last fiscal year, FY15, was the highest it has ever been outside a financial crisis at $23.5 billion. The Bank expects that FY16 will easily eclipse that record, with lending projected to rise above $25 billion.
![Demand grows for World Bank loans April 2016](/images/News/Demand_grows_for_World_Bank_loans_April_2016.jpg)
A decade ago, in FY06, IBRD lending was at $14 billion; demand from middle-income countries rose to $44 billion in FY10, the peak lending year of the financial crisis. When management reviewed IBRD’s financial capacity in FY10, during the crisis, it was predicted that by FY13, post-crisis lending would drop to pre-crisis levels of $15 billion, which was the average level in real terms for the decade prior to the crisis. IBRD lending hit roughly $15 billion in FY13, but the Bank expects to see demand rise at least $10 billion higher than that in our current fiscal year, FY16, to more than $25 billion. Further, thanks to a record replenishment during the last round of fundraising for the poorest countries, support from IDA, the World Bank Group’s fund for the poorest, this year is also expected to be near historic levels. And demand for non-lending advisory services, to help clients implement important policy changes, is also higher than ever.
An important portion of current lending support has been in the form of Development Policy Financing (DPF), which has backed important reforms client countries have been implementing to help diversify sources of growth and buffer against future shocks. Reforms countries are seeking to implement vary according to the client’s needs and the challenges they are facing.
“Developing country governments are feeling the pressure to find additional ways to accelerate growth, in the current downturn,” said Jan Walliser, Vice President for Equitable Growth, Finance, and Institutions. “Improving long-term growth trends now calls for a broad set of legal, regulatory, institutional, and even logistical reforms that make investing more attractive. Focusing now on structural reform is the recommendation of both mainstream economists and of G20 governments.”
The World Bank Group has longstanding experience in advising on and supporting implementation of country-driven reforms. The Bank offers a unique mix of deep country knowledge, sectoral expertise, and distilled global experience.
“The use of these types of loans are important because the Bank is basically signaling to the financial markets that a country’s reforms are technically solid, the country will follow through on these commitments, and the reforms will help and not hurt the poor and vulnerable,” Kim said. “This is highly complementary to the IMF’s stabilization efforts.”
The World Bank helps support countries’ reforms because they often help accelerate growth, and economic growth has accounted for roughly two-thirds of global poverty reduction in the last half-century. The demand for the World Bank Group’s advice and financing to support those reforms have followed cyclical patterns. Today, with weak growth, the World Bank Group is observing a sharp increase in the demand for DPFs and associated reforms throughout our continuum of clients – from upper middle-income to low-income countries including both commodity exporters and commodity importers.
“The World Bank Group is a cooperative of countries and our role is to work with our clients so that they can achieve their highest aspirations,” Kim said. “But it is now exceedingly clear that we will never end extreme poverty and boost shared prosperity if we don’t tackle global threats like pandemics, climate change and forced displacement in partnership with our member countries – one region, one country and one person at a time.”
* The World Bank’s International Development Association (IDA), established in 1960, helps the world’s poorest countries by providing grants and low to zero-interest loans for projects and programs that boost economic growth, reduce poverty, and improve poor people’s lives. IDA is one of the largest sources of assistance for the world’s 77 poorest countries, 39 of which are in Africa. Resources from IDA bring positive change to the 1.3 billion people who live in IDA countries. Since 1960, IDA has supported development work in 112 countries. Annual commitments have averaged about $19 billion over the last three years, with about 50 percent going to Africa.
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tralac’s Daily News Selection
The selection: Monday, 11 April 2016
The SACU-Mercosur FTA entered into force on 1 April: a Swazi perspective (Times of Swaziland)
Textile companies of Swaziland which were hard hit by the loss of the lucrative duty free market under African Growth and Opportunity Act of the US Government, have found another preferential market that is ready for textile products. The market was opened on 1 April 2016 when the Preferential Trade Agreement between Mercosur and the Southern African Customs Union entered into force, the Times of Swaziland has reported. [Perspective from Uruguay]
India-Mercosur Preferential Trade Agreement: questions and answers (WTO)
The Committee on Trade and Development discussed, 16 March, a goods agreement between Mercosur and India, which the parties are hoping to expand so that it covers a larger share of trade. The trade agreement, which entered into force in 2009, covers over 450 tariff lines for each party according to a factual presentation prepared by the WTO Secretariat. The deal is described as the first step towards the creation of a free trade area among the parties, consisting of Argentina, Brazil, Paraguay, Uruguay and India. Venezuela, a Mercosur member, is not a party to the agreement. The representative of India said that parties to the agreement have agreed on the need to “significantly increase” the number of tariff lines so that it covers a “sizeable portion” of bilateral trade. The latest exchange of request lists to expand the deal's coverage — undertaken in 2013 — is still under review by all sides, said India and Uruguay speaking on behalf of Mercosur.
Ghana: Exports’ bleak future over govérnment's uncertainty on EPA (GhanaWeb)
Currently, the EU leaders are awaiting their ECOWAS counterparts to complete the signing of an EPA they endorsed two years after negotiations on the agreement closed. However, players in the export trade business believe the uncertainty over government’s stance with signing of the EPA before the deadline could be the final nail in the coffin. Major exporters - Pioneer Food Cannery (PFC), Cosmo Seafood Company, West African Fisheries, Golden Exotics, Volta River Estate, Jei-River Farms, Barry-Callebault, ADM and Cargill - whose main market is the European Union are therefore calling on government to sign the EPA in order not to be hit by a tariff hike of approximately 20% on their goods. It will be recollected that while negotiations for a regional EPA were still on-going, an interim agreement was initialled in December 2007 by Ghana and the EU for goods only to avoid paying these tariffs.
China seeks free trade pact with East Africa region (The East African)
Recently, China wrote to the EAC Secretary-General proposing to negotiate with the EAC partner states a comprehensive free trade agreement (EAC-China FTA). China also requested to undertake a joint feasibility study with the EAC on the proposed FTA, outgoing Secretary-General Richard Sezibera informed the Council of Ministers at a meeting in Arusha. The Council directed the Secretariat to undertake a comprehensive cost-benefit analysis on the implications of negotiating FTAs with third parties. “We are working on the directive of the Council,” EAC spokesperson Richard Owora said. He said they expect to conclude the work by June 30. However, East African Business Council executive director Lillian Awinja cautioned that free trade with China would hinder EAC industrialisation. [Made in China, counterfeited for Nigeria (The Guardian)]
COMESA Transporters and Logistics Services Industries Dialogue: recommendations (CBC)
The following are some of the key outcomes of the meeting (17-18 September, Nairobi): The meeting recognised the strength of political will that has seen the fast tracking of infrastructure corridors along Eastern and Southern Africa. The great need to form a regional sectoral workgroup to increase collaboration amongst the private sector stakeholders for development of common positions and sharing of information and best practices on trade and transport facilitation was acknowledged. Member states are requested to support the request for a Pan African Logistics Information Hub which will be a depository of documentation requited for movement of goods between countries. The facility should be accessible to all corridor users and other stakeholders, ranging from manufacturers, logistics services.
Tanzania: Govt outlines plans for infrastructure overhaul (IPPmedia)
President John Magufuli's administration has unveiled its blueprint for a radical overhaul of the country's infrastructure, including the construction of standard-gauge railway lines, multi-lane roadways, and strategic bridges that could potentially transform Tanzania into a regional transport hub. The government is figuring to finance the projects by borrowing $800 million from international financial markets, and is also considering issuing an infrastructure bond. The Ministry of Finance and Planning released the new development plan this [past] week as part of its draft 2016/17 budget proposals where the government is targeting to spend a total of 29.53 trillion/-.
Dakar-Abidjan Highway: ECOWAS ministerial
The Ministerial meeting, scheduled to take place on 14 April 2016 in Banjul, would involve member states of the Dakar-Abidjan corridor of Senegal, The Gambia, Liberia, Sierra Leone, Guinea, Guinea Bissau and Cote d’Ivoire. The Dakar-Abidjan corridor has a high level of economic importance in the region and will serve to complement the Abidjan-Lagos corridor which is part of a larger African Union project- the Trans-African Highways Network. Technical experts from the roads/infrastructure/works/transport sectors and the Justice ministries from Member states involved in this phase of the project will assess the feasibility, detailed designs, funding options as well as the appropriate legal framework which will govern the development of the highway.
ECOWAS Corridor Development and Management Strategy and Action Plan: EOI from USAID Trade and Investment Hub
The study shall: i) design an ECOWAS Corridor Development and Management Strategy, ii) draft an Action Plan for implementing the strategy over a period of 20 years, iii) through a hierarchy of corridors, identify corridors where Corridor Management Institutions (CMI) can be established, iv) advise on a regional approach to establish CMIs and propose a regional coordination mechanism for all corridors, drawing from lessons learnt in other regions and adapting implementation modalities to West Africa, v) define the viability of identified corridors and corridor projects and establish a short, medium and long-term financing plan, vi) advise how a pilot CMI can be established on selected corridors such as the Tema– Ouagadougou and Abidjan–Bamako Corridors as test cases.
Tanzania's tax paradox: 'When beer is worth more than gold' (IPPMedia)
But according to a new report by the state-run Tanzania Minerals Audit Agency, the total taxes paid by the top companies dealing in gold mining in 2015 was 355.33 billion/-; a measly sum compared to the 476bn/- paid by TBL as tax during the same year. In other words, last year the country’s top beer producer alone paid 34% more tax than the entire large-scale gold mining industry, despite the latter being one of the country’s key economic sectors. Similarly, while the total value of minerals sold by major gold mines in Tanzania last year was worth $1.63bn (3.56 trillion/-), the total tax paid by the mining firms represents less than 10% of their revenues. On the other hand, TBL said in its 2015 annual report that it posted total sales of 1.07 trillion/- last year, with the total taxes paid to the government in 2015 representing 44.5% of its revenues.
Panama Papers: statement by Thabo Mbeki, Chair of HLP on Illicit Financial Flows (UNECA)
Kenya got oil: what next? (World Bank Blogs)
And finally, on the third, implementation, two mechanisms are paramount: designing a sovereign wealth fund, following a rule-based framework to prevent political interference, and managing expectations around oil revenue-sharing at three levels: intra-county (within Turkana); inter-county (Turkana and other counties); and between Turkana and the national government. Are these arguments overly cautious? Perhaps yes, but for a good reason. The figure below provides a tale of three oil producing countries: Malaysia, Republic of Congo, and Angola. [Kenya's oil production goals keep shifting (Daily Nation)]
Nigeria: 2016 Article IV Consultation (IMF)
The large permanent terms-of-trade shock requires a significant macroeconomic adjustment. It is important to initiate urgently an integrated package of policies centred around: (i) a fundamental change in the nature of government; (ii) reducing external imbalances (including real exchange rate realignment); (iii) further safeguarding the resilience and improving the efficiency of the banking sector; and (iv) implementing structural reforms for inclusive growth. The policy measures envisaged in the draft 2016 budget with aggressive revenue mobilization efforts and a shift from recurrent to capital spending are in the right directions, though more is needed. Outward spillovers via regional trade channels: The foreign exchange restrictions are impacting exporters in trading partners such as South Africa, while the growth slowdown is adversely impacting growth in neighbouring countries, mainly through informal trade and rapidly growing cross-border bank channels—for example, it is estimated that a 1% reduction in Nigeria’s growth generates a 0.3% reduction in Benin’s growth. [Related: Selected Issues paper]
ECOWAS: Why and when to introduce a single currency (AfDB)
The creation of a single currency in West Africa remains a timely and relevant project, despite post Euro zone crisis uncertainties and the postponement, for the fourth consecutive time, of the introduction of a single currency in member countries of the West African Monetary Zone. To reduce the likelihood of a new postponement which could dent the credibility of this important project, the authorities should prioritize the Big Bang option in 2020, consisting in all ECOWAS member countries adopting the single currency as from 2020. West Africa’s heavyweights, namely Cote d’Ivoire, Ghana, Guinea, Nigeria and Senegal, could assume a leadership role and encourage all stakeholders to take ownership of the project. [The authors: Ferdinand Bakoup, Daniel Ndoye]
Appointment of Marcel Alain De Souza as new ECOWAS President
West Africa Trade and Investment Hub: Chief of Party opportunity (Abt)
Profiling South Africa-China’s agricultural trade relationship (AGBIZ)
Traditionally, South Africa has had a net deficit in terms of the agricultural trade balance. South Africa has imported more agricultural products from China than it exports in 13 of the last 15 years. It is only in the last two years that South Africa has attained a positive trade balance for agriculture with China. Bilateral trade in agricultural products has been relatively small in terms of share of total trade, ranging between 2% and 6% of total trade over the past decade and a half. The share of total trade has, however, averaged 3% between 2012 and 2015. The drop in South Africa’s agricultural imports from China was mainly attributed to the decline in apples (-30%), kidney beans (-70%), glucose and glucose syrup (-17%), animal feed preparations (-33%), sugar confectionary (-12%), and plain weave cotton fabrics (-17%), among others. South Africa’s agricultural exports have increased over the same period by 24% - from $295m 2012 to $366m in 2015. Driving this growth are several products, which include macadamia nuts, grapefruit, peaches, oranges, fine animal hair and grape wines, among others. [The author: Tinashe Kapuya] [FAO Food Price Index]
China goes global with development banks (Bretton Woods Project)
Two of China’s policy banks, the CDB and the C-EXIM, already hold more assets than the combined sum of the assets of the Western-backed multilateral development banks. Table 1 shows that the C-EXIM and the CDB have over $1.8 trillion in assets, whereas the Western-backed banks hold just over $700bn. That said, the CDB’s international holdings are just 30% of total assets, putting the two banks’ international assets at around $0.5 trillion. These banks provide concessional and non-concessional (in the case of the C-EXIM) finance in virtually every corner of the world. China has also pioneered a host of bilateral and regional development funds. These funds combine to add upwards of $100bn in development finance provided by the Chinese in recent years. Table 2 exhibits the major funds that we were able to confirm. [The authors: Rohini Kamal, Kevin P Gallagher]
Kebs faults international standards (Daily Nation)
Kenya on Friday sought to be included in the international standards-setting committee for electrical and electronic items. Kenya Bureau of Standards Managing Director Charles Ongwae said some finished products imported into Kenya are below par as their standards ignore local environmental conditions. The MD urged professionals in electro-technical fields to seek positions in international committee saying Kenya has representatives in four committees but is not represented in four other committees.
Kenya to get Sh6bn Chinese loan amid concern over heavy debt
BRICS Dispute Resolution Shanghai Centre: update
IFPRI's 2016 Global Food Policy Report will be launched tomorrow.
CII's Naushad Forbes: 'We will push for an outward-looking trade policy to boost global access'
US and Turkish agencies team up to target African business
Jubilee Debt Campaign: 'World’s poorest countries rocked by commodity slump, strong dollar'
Kevin Watkins: 'Africa's great opportunity for reform'
Humanitarian response in Africa: the urgency to act (UN)
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Swaziland textile companies get a lifeline
Textile companies of Swaziland which were hard hit by the loss of the lucrative duty free market under African Growth and Opportunity Act (AGOA) of the US Government, have found another preferential market that is ready for textile products.
The market was opened on April 1, 2016 when the Preferential Trade Agreement between MERCOSUR and the Southern African Customs Union (SACU) entered into force, the Times of Swaziland has reported.
MERCOSUR is South America’s leading trading bloc. Known as the Common Market of the South, it aims to bring about the free movement of goods, capital, services and people among its member States. Its members are Argentina, Brazil, Paraguay and Uruguay. Bolivia, Chile, Colombia, Ecuador and Peru are associate members; they can join free-trade agreements but remain outside the bloc’s customs union.
The MERCOSUR-SACU Agreement was signed on December 15, 2008 by the MERCOSUR States Parties and on April 3, 2009 by the members of SACU (South Africa, Botswana, Lesotho, Namibia and Swaziland). The Agreement sets out preference margins of 10 per cent, 25 per cent, 50 per cent and 100 per cent on 1,050 tariff lines on both sides. By virtue of being a preferential trade agreement, it means all the SACU member States are eligible to export and pay lower rates of import Customs Duty and or levy charge, or none at all, on their goods to every member of MERCOSUR.
The productive sectors of MERCOSUR/SACU which will benefit from tariff preferences include chemical, textile, steel, plastic, automotive, electronics and capital goods, in addition to agricultural products. Brazilian exports to the South African bloc totalled $1.36 billion in 2015, with a Brazilian trade surplus of about $720 million. The beneficial impact of the Agreement may be felt mainly in the industrial sector, since two thirds of the Brazilian exports to SACU countries ($ 908 million in 2015) consist of manufactured products.
The entry into force of the Preferential Trade Agreement will contribute to the promotion of trade exchange in the South Atlantic. The MERCOSUR countries are expected to have easier access to a potential market consisting of about 65 million consumers.
Another preferential market that is expected to open for Swazi products is the European Union (EU).
Swaziland’s textile industry is looking to make the most of an Economic Partnership Agreement (EPA) with the EU that would allow duty free access to the country’s products.
Swaziland is in the process of ratifying the EPA with the assistance of the EU. Once the EPA is ratified, the country will benefit through shipping its goods to the EU without delay.
Swaziland’s textile industry had taken a hit after it was excluded from the list of countries eligible to get benefit under the AGOA from January 1, 2015.
The decision to withdraw Swaziland’s AGOA eligibility came after years of engaging with the Government of the Kingdom of Swaziland on concerns about its implementation of the AGOA eligibility criteria related to worker rights.
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Preferential Trade Agreement between Mercosur and India discussed by WTO Committee on Trade and Development
The Committee on Trade and Development discussed on 16 March a goods agreement between MERCOSUR (the Southern Common Market) and India, which the parties are hoping to expand so that it covers a larger share of trade.
This regional trade agreement and other trade agreements involving developing country members were taken up in a dedicated session and a regular committee meeting as part of the efforts to address development concerns and enhance transparency at the WTO.
The trade agreement, which entered into force in 2009, covers over 450 tariff lines for each party according to a factual presentation prepared by the WTO Secretariat. The deal is described as the first step towards the creation of a free trade area among the parties, consisting of Argentina, Brazil, Paraguay, Uruguay and India. Venezuela, a MERCOSUR member, is not a party to the agreement.
Several WTO members raised questions about the MERCOSUR-India agreement at the meeting and in writing relating to, for instance, the limited coverage of the agreement, whether more members would be included in the deal, how mutual recognition of measures for food safety and animal and plant health is implemented, and when pending submissions for the parties’ non-notified agreements would be ready.
The representative of India said that parties to the agreement have agreed on the need to “significantly increase” the number of tariff lines so that it covers a “sizeable portion” of bilateral trade. The latest exchange of request lists to expand the deal’s coverage – undertaken in 2013 – is still under review by all sides, said India and Uruguay speaking on behalf of MERCOSUR. In line with the procedures of the committee, the parties will be providing written responses to any outstanding questions submitted by members.
The Chair, Ambassador Juan Esteban Aguirre Martínez (Paraguay), additionally urged members with other agreements due to be taken up at the committee to provide the necessary information in a timely manner. The committee, in the regular session that followed, went on to consider notifications by Japan and the United States concerning updates to their Generalized System of Preferences. It also addressed a report submitted by the Latin American Integration Association.
Besides regional and preferential trade arrangements, the committee also heard updates on several development-related initiatives. The Least Developed Countries (LDC) Group, for instance, will be submitting a proposal on what could be covered by a study on the possible impact of full duty-free quota-free implementation. The Chair, meanwhile, invited delegations to submit written proposals on how to move forward the e-commerce work programme. The committee was also informed that SAANA Consulting had been selected to conduct an external evaluation of WTO technical assistance.
Finally, the committee formally elected Ambassador Christopher Onyanga Aparr (Uganda) as the new Chair and re-elected Ambassador Roderick van Schreven (Netherlands) as the Chair of the sub-committee on LDCs for another year.
Preferential Trade Agreement between Mercosur and India: Questions and Replies (Revision)
Questions from the delegation of Ecuador
Question 1
Paragraph 4.3 (Accession and Withdrawal) states that there is no provision for accession by third parties to the Agreement.
Has consideration been given to the possibility of Venezuela, as a MERCOSUR member, acceding to the Agreement? What would be the procedure to follow?
The signatories Parties to India-MERCOSUR PTA are Brazil, Argentina, Paraguay and Uruguay, and India as per Article 1 of Chapter 1 of the Agreement. Venezuela is a member of MERCOSUR but is not a signatory Party of this Agreement. So far it has not expressed any interest to join the PTA. In case, Venezuela evinces any interest in joining the PTA, the conditions of accession shall be subject to the understanding between India and MERCOSUR members who are Parties to the Agreement.
The procedure would be, first of all discussing the issue in the Joint Administrative Committee of the Agreement which is responsible for the administration of this Agreement (as contained in Chapter XII: Administration of the Agreement). This Committee is composed of the MERCOSUR Common Market Group or their representatives and the Secretary of Commerce of the Republic of India or his representatives.
As mentioned in paragraph 4.3 of the Factual Presentation, the Agreement MERCOSUR-India does not include accession clauses of third Party. Therefore, the conditions of accession should be subject to the Agreement of India as counterparty. As this is a fixed preference Agreement with limited coverage in terms of products, it is expected that a new member of MERCOSUR who wish to join the Agreement of this block with India, respects the terms of the Agreement entirely.
Question 2
Paragraph 3.13 (MERCOSUR’s liberalization schedule) states that “[c]hart 3.2 illustrates the average tariff reduction, and the equivalent MOP, by HS Section and by MERCOSUR member country (…). Overall, the highest MOP is provided by Brazil, followed by Argentina, Uruguay and Paraguay, with the average effective MOP varying from 0.64% to 0.48%.”
Could you please explain to us how the different MOPs between the MERCOSUR member countries were determined if the Agreement was negotiated as a bloc?
The Agreement was negotiated effectively in block and preferential margins that MERCOSUR granted to India in the PTA make up a single list (preferential margins of 10%, 20% or 100% of the MFN rate applied to 452 tariff lines).
The indicator “margin of preference equivalent” is the difference between the preferential tariff and the MFN tariff applied by each country and is built based on preference margins established in the Agreement (single list), the MFN applied by each country and national tariff lines of each MERCOSUR member corresponding to 452 tariff codes MERCOSUR Common Nomenclature (MCN).
The variation in these preferential margins by country is associated with the MFN tariffs applied by different countries members of MERCOSUR in 2009 and to the difference in the number of tariff lines in the national nomenclatures associated with the 452 MCN codes (8 digits of SA).
Paragraph 3.6 of the report provides information on this point.
It should be considered that the Common External Tariff (CET) is not the same for all positions to the tariff applied by countries members of MERCOSUR since there are exceptions to the CET on some products.
Question 3
According to paragraph 4.11, (Relationship with other agreements concluded by the Parties), “Article 8 provides that, in case of the conclusion of preferential agreements by the Parties with third parties, the other Party shall upon request afford adequate opportunity for consultation on any additional benefits granted therein; as of August 2015, no consultations were requested.”
What is the purpose of the consultations on additional benefits granted in agreements with third parties? Has there been any thought of harmonizing the additional benefits from other agreements for the benefit of the Preferential Agreement MERCOSUR – India?
Both paragraph 3.4 and paragraph 4.11 mentions about Article 8 of the PTA which provides that if a Contracting Party concludes a preferential Agreement with a non-Party, it shall upon request from the other Contracting Party, afford adequate opportunity for consultations on any additional benefits as granted therein. The PTA does not provide an MFN clause regarding the preferential treatment granted in other agreements signed by the members of PTA MERCOSUR-India due to which there is no real obligation of any of these Parties to extend to each other the preferences granted to third countries.
Question 4
Regarding Table 4.1 – India and MERCOSUR: Participation in other RTAs (notified and non-notified in force), as of 18 August 2015:
Why is the Economic Complementarity Agreement between the Andean Community and MERCOSUR not included in the mentioned table?
In Table 4.1 is included the Economic Complementation Agreement CAN-MERCOSUR appearing as Economic Complementation Agreement No. 59. In addition, also in the table is the Economic Complementation Agreement No. 58 MERCOSUR-Peru.
Questions from the delegation of the United States
Question 1
Paragraph 2.2 on page 5 of the Factual Presentation notes that Venezuela, which later acceded to MERCOSUR, is not party to the Agreement. Does Venezuela plan to become a party to the Agreement? Are there plans in the future to expand the Agreement to other MERCOSUR to the associate member countries including Bolivia, Chile, Peru, Colombia, Ecuador and Suriname?
According to Article 1 of Chapter 1 of the Agreement, the Signatory Parties to the Agreement are Argentina, Brazil, Paraguay, Uruguay and India. Although Venezuela is a member of MERCOSUR, till date it has not communicated its interest to join the Preferential Trade Agreement MERCOSUR-India.
As mentioned in paragraph 4.3 of the Factual Presentation, the MERCOSUR-India Agreement does not include accession clauses for third parties. Therefore, the conditions of accession must result from previous understanding with the Indian counterpart. As this is a fixed preference Agreement with limited coverage in terms of products, it is expected that a new member of MERCOSUR willing to adhere to this Agreement with India should respect the terms of the Agreement as a whole.
The accession process consists, first of all, of discussing the issue in the Joint Administration Committee of the Agreement which is responsible for the administration of this Agreement (according to Chapter XII: Administration of the Agreement). This Committee is composed of the MERCOSUR Common Market Group or its representatives and of the Secretary of Commerce of the Republic of India or its representatives.
With regard to the Associated member countries of MERCOSUR - Bolivia, Chile, Peru, Colombia and Ecuador, have Economic Complementation Agreements with MERCOSUR within the framework of the Latin-American Integration Association (LAIA) (as specified in Table 4.1 of the Factual Presentation), which has not provided any mechanism for associated member countries to join the agreements that MERCOSUR has with third countries or groups of countries. It is worth mentioning that Chile has a separate PTA with India.
On 11 July 2013, Surinam signed a Framework Partnership Agreement with MERCOSUR. In turn, Decision No. 13/13 of the Common Market Council assigns to Surinam the status of Associate State of MERCOSUR. The aforementioned Framework Agreement aims at promoting closer ties between Surinam and MERCOSUR, but there is no free trade agreement in sight between the Parties.
Question 2
Paragraph 3.1 on page 6 of the Factual Presentation states that “Preferential treatment under the Agreement is granted through margins of preference (MOP) on applied customs duties”. How do the Parties approach the variety of taxes and custom fees imposed on imports by India such as landing charge, countervailing duty, CEX, and CESS that are excluded from the Agreement but can be manipulated to marginalize any preferential/liberalization gains from the Agreement?
The preferential treatment in various trade agreements is granted with reference to the Basic Customs Duty i.e. customs duty leviable on imported goods under the First Schedule to India’s Customs Tariff Act, 1975.
In addition to Basic Customs Duty, an additional duty of customs is leviable on imported goods under section 3(1) of the Customs Tariff Act, 1975 (commonly known as CVD). This duty is equivalent to excise duty which is leviable on like goods manufactured or produced in India.
Further, additional duty of customs is leviable on imported goods under section 3(5) of the Customs Tariff Act, 1975 (commonly known as special additional duty or SAD) @ 4%. This duty is levied so as to counter balance internal taxes such as sales tax, value added tax, local tax or any other charges leviable on a like article on its sale, purchase or transportation in India.
Cesses levied as excise duty on domestically manufactured goods are also levied on imported goods.
Hence, duties other than the Basic Customs Duty, are levied on domestic goods also and therefore, provide a level playing field to the domestic manufacturers vis-à-vis imported goods.
Therefore, these duties are excluded from the trade agreements.
Question 3
Paragraph 3.1 on page 6 of the Factual Presentation notes only very limited concessions on market access, 452 lines (at HS-8 digits) in the case of MERCOSUR and 450 lines in the case of India, and limited number agricultural products are included in this Agreement. What is the volume and value of two way trade in agricultural products between the Parties? What’s the percentage of agricultural products in the bilateral trade between the two Parties? How do the Parties anticipate that the agricultural trade will be liberalized in the future?
As per statistics of Directorate General of Commercial Intelligence and Statistics (DGCI&S), India, the total agriculture & allied trade between India and MERCOSUR was US$1862.92 million in 2013-14 and US$2809.43 million in 2014-15. Percentage share of agri & allied trade in total mercantile trade between India and MERCOSUR during 2013-14 and 2014-15 was 16.20% and 19.73% respectively. In terms volume, India’s bilateral trade in agriculture & allied trade was 2280.19 million units during 2013-14 and 3898.60 million units during 2014-15.
Unlike Free Trade Agreement (FTA), under Preferential Trade Agreement (PTA), signatory trading partners allow to reduce import tariffs partially on mutually agreed selected tariff lines.
The value of agriculture exports from MERCOSUR to India are as follows (The definition of agricultural products is according to Article 2 of the Agreement on Agriculture of the WTO; source: Penta Transaction, for Paraguay: Central Bank of Paraguay (BCP) and UN Comtrade):
Question 4
Section 3.4 on page 14 of the Factual Presentation states that the Parties agreed to cooperate in the areas of animal health and plant protection, food safety, mutual precognition of SPS measures. It also notes cooperation in the area of standards, technical regulations and conformity assessment procedures and that the Parties endeavor to conclude mutual equivalence agreements. When do the Parties anticipate completing agreements in each of these areas?
As indicated in Section 3.4 of the Factual Presentation, both Parties have not exchanged any proposal so far in this regard.
Question 5
Paragraph 3.5, page 6 of the Factual Presentation states that 3,111 HS 8-digit lines for India and 1,287 HS 8-digit lines for MERCOSUR are under review for further liberalization. Which HS lines or product categories are under review? When do the Parties anticipate completing the next round of liberalization?
At the moment there is no formal proposal under discussion between India and MERCOSUR with regard to the expansion of the Agreement.
Question 6
Table 4.1 on pages 19 and 20 list over 30 RTAs that have not been notified to the WTO, as required under WTO rules. When do the Parties plan to notify each of these agreements so that the required transparency process on them can begin?
In the case of Regional Trade Agreements (RTAs) mentioned in table 4.1, MERCOSUR considers that these are concluded by MERCOSUR or MERCOSUR Member States within the framework of ALADI agreements which are not new agreements or autonomous, but legal instruments that apply the 1980 Treaty of Montevideo that established ALADI.
In that sense, the Treaty of Montevideo has been notified to the WTO as a Regional Trade Agreement (“RTA”) signed under the “Enabling Clause” (Decision of 28 November 1979 on “differential and more favourable treatment, reciprocity and fuller participation of developing countries”).
In turn, the Latin American Integration Association (LAIA) Secretariat presents a list of the agreements to the WTO Secretariat biannually.
Regarding non-notified RTAs mentioned against India in the table 4.1, India-ASEAN Agreement on Services has already been notified [S/C/N/822 dated 24 August, 2015]. Other two RTAs are in the process of Notification.
Question 7
Paragraph 28 of the Nairobi Ministerial Declarations states that:
We reaffirm the need to ensure that Regional Trade Agreements (RTAs) remain complementary to, not a substitute for, the multilateral trading system. In this regard, we instruct the Committee on Regional Trade Agreements (CRTA) to discuss the systemic implications of RTAs for the multilateral trading system and their relationship with WTO rules. With a view to enhancing transparency in, and understanding of, RTAs and their effects, we agree to work towards the transformation of the current provisional Transparency Mechanism into a permanent mechanism in accordance with the General Council Decision of 14 December 2006, without prejudice to questions related to notification requirements.
Given that this language was proposed in Nairobi by Brazil, could Brazil please explain how WTO Members will be in a position to “discuss the systemic implications of RTAs for the multilateral trading system and their relationship with WTO rules” when such a large number of Mercosur’s RTAs have not been notified to the WTO, and thus WTO Members are unable to evaluate the contribution of these non-notified RTAs to the system?
The Doha Round negotiations resulted in the progress on transparency in preferential trade agreements under the GATT, GATS and the Enabling Clause (L/4903). In that context, the following Decisions were adopted: Decisions WT/L/671, of 14 December 2006 – applicable to regional trade agreements – and Decision WT/L/806 of 14 December 2010 – applicable to preferential trade agreements. The spirit that guided these two decisions was to increase the transparency of all preferential trade mechanisms that deviate from the core principle of the multilateral trade system: the Most Favored Nation principle. Brazil remains fully committed to the goal of transparency as a means to ensure compatibility of regional and preferential trade agreements with the multilateral trade system.
Brazil observes its notification commitments directly together with other members of the agreements in which it participates or through the Secretariat of LAIA for agreements to which the provisions of the Treaty of Montevideo 1980 apply, as indicated in the previous response. Finally, Brazil reiterates its expectation that the commitments made by all Members are fully met, particularly when those Members that have increased participation in global trade flows and whose agreements have consequently greater potential systemic impact are concerned.
Question 8
According to Table A1.4 on page 26, under the Agreement MERCOSUR received no preferential treatment for their 25 top exports and India only gained preferential treatment on a few lines. What is the overarching goal, in terms of economic benefit, if the products with the greatest competitive advantage from either party is excluded from the Agreement and, thus, liberalization?
This Agreement is a first step between MERCOSUR and India. Both sides recognize that there is a need for expanding the preferences granted by the Agreement with the aim of achieving greater trade liberalization, to be negotiated between the Parties.
Question from the delegation of Canada
With respect to Section 3.4.1.1 of the Secretariat’s report:
Canada notes with interest that India and MERCOSUR have agreed to cooperate in the area of mutual recognition of sanitary and phytosanitary (SPS) measures by way of the PTA. Canada would be interested in learning about any cooperation related to mutual recognition of SPS measures that may have taken place since entry into force of the PTA, including through recent discussions to expand the agreement.
As indicated in Section 3.4 of the Factual Presentation, both Parties have not exchanged any proposal so far in this regard.
Questions from the delegation of Colombia
3.1 PROVISIONS ON TRADE IN GOODS
3.2 Import duties and charges, and quantitative restrictions
3.2.1 General provisions
Paragraph 3.1. Preferential treatment under the Agreement is granted through margins of preference (MOP) on applied “customs duties” (Article 5). Annexes I and II list the products and the MOP granted respectively from MERCOSUR to India and from India to MERCOSUR (Article 3). These MOP – at 10%, 20% or 100% of the applied MFN rate – are granted for (originally) 452 lines (at HS-8 digits) in the case of MERCOSUR and 450 lines in the case of India; they are listed on the basis of the Harmonized System (HS).
Paragraph 3.5. In the context of the second meeting of the Joint Administration Committee, held in India in June 2010, discussions on further liberalization under the Agreement were held on the basis of “wish lists” of India and MERCOSUR (of respectively 3,111 and 1,287 HS 8-digit lines). As of August 2015, these lists are under review with a view to further discussion on the subject.
Question 1
Could the Governments of India and MERCOSUR please indicate whether in the discussions regarding “wish lists” for the deepening of the Agreement in respect of 3,111 and 1,287 lines, for India and MERCOSUR, respectively, consideration is being given to margins of partial preference (10%, 20%, etc.) or total elimination with a timetable for annual reduction.
At the moment there is no formal proposal under discussion between India and MERCOSUR with regard to the expansion of the Agreement.
Question 2
Could the MERCOSUR Governments please indicate whether the 1,287 lines of the “wish list” will have “equal” preferential treatment for the four countries if the respective negotiations with India are concluded.
As stated in Chapter II, Article 3 of the Agreement, the list of products in relation to which the MERCOSUR grants tariff preferences to India was en bloc. It is expected that there will be a common list for the four countries if the current agreement is expanded.
4.7 GENERAL PROVISIONS OF THE AGREEMENT
4.8 Other
Paragraph 4.13. The Agreement does not cover issues such as trade-related intellectual property rights nor government procurement.
Question 3
Could the Governments of MERCOSUR and India please indicate whether they plan to negotiate trade-related intellectual property and government procurement in the future.
No negotiations on trade-related intellectual property and government procurement have taken place.
Question 4
If not, does MERCOSUR have any legal limitation on negotiating the issues of intellectual property and/or government procurement in the Agreement with India?
MERCOSUR has no legal limitations on negotiating these issues.
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Illicit Financial Flows and Africa’s path to development
The Panama Papers shed crucial light on how illicit financial flows work. It’s essential for Africa’s development, but any hope of change is still distant.
When African Union (AU) Commission Chairwoman Nkosozana Dlamini-Zuma was asked about the Panama Papers, which detail how the wealthy exploit offshore tax regimes, she was unequivocal: big corporates that are guilty of corruption and tax evasion must be targeted and return their ill-gotten gains to Africa.
It sounded great. “Why aren’t you talking to the people who are holding the illicit flows to repatriate them back to our continent?” she asked at the Conference of Ministers, a joint AU and United Nations Economic Commission for Africa (Uneca) meeting held in Addis Ababa on Tuesday. “Everyone talks about corruption but when we say let those corrupt resources that were brought to your continent illegally be sent back to our continent we don’t see any movement there and I think that’s where now the debate must be taken.”
And that’s where the conversation must go. Action, however, will be harder to achieve.
According to Global Financial Integrity, Sub-Saharan Africa suffers the highest loss of illicit capital compared to GDP, losing an average of US$81.7-billion a year between 2004 and 2014 to illicit financial flows. The Panama Papers, which feature 11.5-million documents, or 2.6 terabytes of leaked information from Mossack Fonseca, a law firm that assists in creating accounts in offshore jurisdictions, could be key in our understanding of illicit financial flows, and future development.
“Illicit financial flows are the most damaging economic problem facing the developing world,” said Global Financial Integrity Managing Director Tom Cardamone this week. As Daily Maverick's Simon Allison pointed out after the documents were released, “The value of the Panama Papers is that they illustrate exactly how this system works: with numbers, names and time lines.”
To put it simply, African states need cash for development, but their tax revenues are lower, by the billions, than they should be because of illicit financial flows. The largest component of illicit financial flows is trade misinvoicing, says Global Financial Integrity, a key institution on the issue. Companies use offshore accounts to manipulate the price, quantity or quality of goods to funnel through funds and pay lower taxes when they avoid paying taxes where they operate.
Africa has already been pushing for reforms, but the Panama Papers could offer the next step. Former President Thabo Mbeki led an AU panel on the issue, which was often cited during this week’s AU-Uneca conference, offering the continent’s leaders a revenue target to boost funds for their often sputtering development.
“The best part of increasing revenue is to block these illicit outflows because what is outflowing Africa illicitly is equal to or more than our official earnings,” said AU Commissioner for Economic Affairs Dr Anthony Maruping at this week’s conference. “So if we can block these leakages, there will be a lot of resources at our disposal for development.”
“Banks and law firms routinely conspire to hide their clients’ money and fail to follow through on required customer due diligence checks. The governments of the US and other major financial centres particularly need to make corporate ownership information public through corporate registries. The Panama Papers investigation must be the nail in the coffin of anonymous companies,” explained Global Financial Integrity lawyer Liz Confalone.
The Sustainable Development Goals (SDGs), the successor to the Millennium Development Goals, make targeting illicit financial flows a priority. “The inclusion of a specific target to reduce illicit financial flows under the Sustainable Development Goals makes clear that curbing such flows is also essential for creating an enabling environment for sustainable development,” said UN independent expert on the effects of foreign debt and other related international financial obligations of states Juan Pablo Bohoslavsky recently. The Millennium Development Goals didn’t. “This can be considered a remarkable progress.”
Like many others, he cited the Addis Ababa Agreement on financing for development, which calls for measures to combat illicit financial flows. Uneca this week called for “strengthening international co-operation on tax matters to stem the tide of illicit financial outflows”.
But international tax dodging requires international solutions as many illicit financial flows exploit legal rather than illegal tax loopholes. The Organisation for Economic Co-operation and Development (OECD) is pushing its Base Erosion and Profit Shifting (BEPS) reforms aimed at preventing multinational companies registered in tax havens from tax avoidance. US President Barack Obama has called it a massive global issue and South African Finance Minister Pravin Gordhan has called on those with off shore assets to make full disclosures.
But as the Addis Ababa agreement on financing development showed, the powers that be offer questionable solutions. The OECD represents the world’s wealthiest countries and despite efforts from African states, support for the status quo from the United Kingdom and United States mean it will continue to regulate international tax regimes rather than pass the responsibility to an international, democratic, body.
And developing countries are partly to blame. This week, Democratic Republic of Congo Minister of Planning Georges Wembi Lwambo denied his country is a haven for IFFs even though Uneca has said, “The Democratic Republic of Congo is an especially relevant case in the fight against illicit financial flows because its mining sector is regarded as the economic foundation for the country’s post-conflict reconstruction.”
It is hoped the Panama Papers can blow the lid on such denials and efforts by wealthy countries to maintain their ill-gotten gains. But Dlamini-Zuma’s hopes to repatriate those funds are still a long way away.
Panama Papers: High Level Panel’s Warnings are Not Just another Recommendation
Statement by Thabo Mbeki, Chair of the High Level Panel on Illicit Financial Flows from Africa
Over the past few days, there has been a furore in the global community regarding reports on “the Panama Papers”, an enormous leak of more than 11 million documents which are said to date back up to four decades and are allegedly connected to a Panama law firm. According to the International Consortium of Investigative Journalists (ICIJ), this firm has, in all that time and possibly longer, helped establish secret shell companies and offshore accounts for the rich and the powerful globally. On an even graver note, data from these documents show that that the firm worked with more than 14,000 banks, law firms, company incorporators and other middlemen to set up companies, foundations and trusts for customers. In a time such as this when the issue of curbing Illicit Financial Flows, brought on by practices such as tax evasion and the use of Tax Havens, is one of Africa’s priorities, the release of these Panama Papers is most welcome.
The Panama Papers elaborately bring to light issues that the African Union (AU)/United Nations Economic Commission for Africa (ECA) High Level Panel (HLP) on Illicit Financial Flows (IFF) from Africa vigorously underscored in the Findings in its Report released and endorsed by African Heads of State and Government in January 2015. Not least significant in these Findings were matters relating to Tax Havens and/or Financial Secrecy Jurisdictions and the lack of transparency with regard to the Beneficial Ownership of firms. The information released in the Panama Papers thus far strongly confirm the Findings in the HLP Report. More so, they confirm the existence of a network of offshore accounts and complex investment vehicles that drive tax avoidance and evasion. Until now warnings against such vehicles have been taken lightly. The staggering amount of illicit practices and the large number of global actors exposed by the Panama Papers demonstrate that Governments of Africa and the rest of the world cannot avoid firm action against the Tax Havens/Financial Secrecy Jurisdictions.
The undeniable fact is that the Illicit Financial Flows which derive from tax evasion deserve our full attention both continentally and globally. As revealed within the Panama Papers, the fourth most used Tax Haven by this firm is an African country. Worse still, the reports show that this firm only knew the identities of the real owners of just 204 of 14,086 companies it had incorporated in this very country. Indeed, we must not rest under the illusion that the issue of Tax Havens does not directly affect Africa and the world at large.
Several countries in the world including South Africa, Britain and France have vowed that any of their citizens mentioned in the Panama Papers will be investigated by the relevant agencies to ensure they comply with the laws regarding tax evasion. It is a decent start to the efforts required. Now all countries within and outside Africa must follow suit and begin their own investigations. These investigations should not only be limited to the findings in the Panama Papers but should go further to uncover other possible destinations of the proceeds from tax evasion. The exposures contained in the Panama Papers is a massive blow to financial secrecy, which must be encouraged.
Specific efforts must continue to put political pressure on the countries that enable a high level of financial opacity or that have laws enabling banking secrecy and the registration of shell companies. This is extremely important to all countries. Otherwise harmful tax practices and high levels of opacity in financial transactions as exposed by the Panama Papers will continue to be a scourge that we find ourselves discovering only when there are people bold enough to expose them.
As stressed in the AU/ECA HLP Report on IFFs, the global community in all of its institutions, including parliaments must take all necessary steps to eliminate secrecy jurisdictions, introduce transparency in financial transfers and crack down on money laundering. Until all countries begin to work together to combat IFFs in all its forms, including by closing down Tax Havens and combating the lack of transparency of ownership and control of companies that can hold assets and open bank accounts, there will always be a cavernous opportunity for the exploitation of tax laws at all levels and in all countries for negative purposes.
The Panama firm in question, which all would hope to see receive the deserved justice if found guilty, has responded to the exposures by stating that nothing in the documents released suggests that it has been involved in any illegal practices. Sadly, this may very well be the case legally given the current incomplete global architecture for tackling IFFs, which should include binding international Treaties.
We should not misconstrue the release of the Panama Papers as a time for celebration or an end in itself. To the contrary, it is rather a time for deep reflection and regret that we have allowed the practice to persist which is made possible among others by the existence of Tax Havens/Financial Secrecy Jurisdictions.
Now is the time for the global community to act in a firm and comprehensive manner to end the Illicit Financial Flows and close down the Tax Havens/Financial Secrecy Jurisdictions which serve as the domicile of these Illicit Financial Flows.
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FAO Regional Conference boosts Africa Solidarity Trust Fund
Calls for renewed vision and expanded Africa-for-Africa cooperation and South-South Cooperation
Results achieved through Africa Solidarity Trust Fund (ASTF) financed projects are adding momentum to the vision of Africa- Africa cooperation to achieve food security across the continent.
The fund, which was set up in 2012, is widely seen as an innovative mechanism for mobilizing resources from one African country for the benefit of another, promoting intra-Africa collaboration, also known as South-South Cooperation.
Since 2013, contributions have reached $40 million, with Equatorial Guinea and Angola being the major financial contributors. To-date, the fund has allocated $ 34.5 million to 15 regional programmes and national projects which are being implemented in 36 countries to boost efforts to eradicate hunger and reduce malnutrition and poverty.
“Based on the successes and lessons learned to-date on ASTF implementation, which are many and for which documented evidence is available at this conference, I would like to express our deep appreciation to those African governments that committed the funds,” said Maria Helena Semedo, FAO Deputy Director-General and Coordinator of Natural Resources, during the Ministerial Roundtable of the 29th Session of the FAO Regional Conference for Africa, held in the commercial capital of the Côte d’Ivoire, Abidjan.
Semedo called for expanded partnerships and encouraged other African nations to share their expertise and make additional financial contributions to fund initiatives involving knowledge exchange across Africa.
New beneficiary countries
During a side-event at the Regional Conference it was announced that three more countries will benefit from the fund. These include the Democratic Republic of the Congo, Gambia, and Swaziland, which have each been awarded a budget of $ 250 000 to support national agricultural priorities.
For the DRC, these funds will complement and scale-up successful FAO participatory interventions that promote rural women and men’s socio-economic empowerment.
The project will scale-up Dimitra Clubs that use solar-powered radios as a means to share best practices between local communities. The clubs have demonstrated outstanding results in the areas of rural women and men’s socio-economic empowerment, improved food and nutrition security, better access to information.
They have also been credited with increasing women’s participation in decision-making and leadership, both at household and community level.
The Gambia project will build on enhancing the agricultural component of the Gambia Women’s Empowerment Programme (GAMWEP) on improving the access of women’s groups to productive resources and ensuring sustainable management.
Through the Rural Poultry Farmers Association, comprised of more than 450 family poultry farms, the project focuses on poultry feed production at village level. It will support the establishment and management of small enterprises led by women entrepreneurs, by building poultry feed mill structures, providing equipment and teaching women’s groups how to operate the mills.
In Swaziland, the funds will support the commercialization of sweet potatoes. The project is expected to expand FAO’s work thus far by increasing rural women’s access to productive resources such as improved seeds; advancing women’s agricultural know-how and entrepreneurial skills in order to enhance their role in the sweet potato value chain.
Next steps
In addition to country-level projects, the renewed Trust Fund will also aim to support the establishment of an African Centre of best practices, capacity development and South-South Cooperation (SSC). FAO is working with regional bodies such as the African Union (AU) and the New Partnership for Africa’s Development (NEPAD) as key partners to document, catalogue and expand African cooperation and support the development of such a Centre.
The African Centre will serve as a SSC mechanism for increasing learning and innovation through connecting national, regional and global policy makers and practitioners. It will provide a global platform to highlight African development solutions, best practices and the continent’s strengths and capacities. Thus the renewed ASTF aims to better showcase and mobilize African expertise to achieve food security across the continent.
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China seeks free trade pact with East Africa region
China is negotiating for the creation of a free trade agreement with the EAC.
The EAC has already signed co-operation agreements on trade with the US and the EU.
Recently, China wrote to the EAC Secretary-General proposing to negotiate with the EAC partner states a comprehensive free trade agreement (EAC-China FTA).
China also requested to undertake a joint feasibility study with the EAC on the proposed FTA, outgoing Secretary-General Richard Sezibera informed the Council of Ministers at a meeting in Arusha.
The Council directed the Secretariat to undertake a comprehensive cost-benefit analysis on the implications of negotiating FTAs with third parties.
“We are working on the directive of the Council,” EAC spokesperson Richard Owora said.
He said they expect to conclude the work by June 30.
However, East African Business Council executive director Lillian Awinja cautioned that free trade with China would hinder EAC industrialisation.
“EAC shouldn’t rush to negotiate an FTA with China. We need to study, consult a wide range of stakeholders, and establish the impact of such a deal on the EAC industrialisation blueprint,” Ms Awinja told The EastAfrican.
She said the EAC needs to protect its investors in the manufacturing industry rather than expose them to unfair competition.
Ms Awinja said that already China floods the EAC market with its products.
“China has the capacity to flood the whole world with their products. If we are to protect our industries, let’s choose only a few products from China,” said Gasper Mpehongwa, a development lecturer at Tumaini University.
China plans to develop free trade areas with African countries to increase its exports.
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UN officials urge boost in development action to meet humanitarian challenges in Africa
Greater efforts in preparedness response, recovery and development interventions are needed from humanitarian actors for African nations to meet the immediate needs of their citizens, become more resilient to shocks and crises, and ultimately achieve food security, senior United Nations officials stressed on 8 April 2016.
Speaking at an informal meeting of the UN General Assembly held on Friday afternoon at Headquarters in New York on addressing humanitarian needs in Africa, particularly the needs of refugees, World Food Programme Executive Director Ertharin Cousin, who served as the event’s moderator, highlighted that every refugee crisis is by nature also a food and nutrition crisis. At the same time, she said, food and nutrition crises often drive conflict and displacement.
Moreover, growing levels of conflict and violence, coupled with the impact of changing climates, even El Niño, have not only protracted existing crisis, but have also created new displacements both within Africa and neighbouring regions, she stressed.
“The resulting increasing needs, as well as capacity and resource constraints, threaten our collective solidarity, which demands, at the very least, we respond to the basic needs of people in distress,” Ms. Cousin said.
The Executive Director said it was necessary to warn the General Assembly that meeting both the needs of new refugee populations as well as refugees in protracted situations is “increasingly challenging.”
She noted that WFP provides food assistance to more than 3.1 million displaced persons of concern in 25 countries across Africa. This past year, in East and Central Africa funding constraints forced WFP to cut rations by up to 30 per cent in five out of seven operations.
“While collective global solidarity demands making additional resources available, our primary duty is to galvanize innovation and new ways of working not only because of increased efficiency but also because of the improvements in well-being they offer. In practical terms, it means shifting our focus towards activities promoting self-reliance and income generation.”
The meeting today would be beneficial in identifying priority actions to meet the immediate humanitarian needs of refugees, as well as to examine the necessary collective actions to support continent-wide resilience and achieve food security, Ms. Cousin said.
The meeting, titled “Humanitarian Response in Africa: The Urgency to Act,” included interventions from a number of panellists, followed by an interactive discussion between UN Member States, members of the UN system and other stakeholders.
Also speaking at the meeting was the President of the UN General Assembly, Mogens Lykketoft, who encouraged participants to move beyond a diagnosis of the problem and towards identifying real solutions.
“What we really need is to reform our overall approach to humanitarian response – take a long-term approach both in terms of financing and in terms of building resilience; investing in disaster risk reduction; breaking barriers between the development and humanitarian response so that we move forward within the 2030 Agenda together; and improving the efficiency and effectiveness of our overall response,” he said.
This is precisely the task facing the World Humanitarian Summit next month, Mr. Lykketoft said, adding that he hoped today’s meeting could inform deliberations at the Summit and build momentum for “real commitments and real reform.”
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World’s poorest countries rocked by commodity slump and strong dollar
Jubilee Debt Campaign warns that developing countries are struggling to make debt payments as revenues deteriorate
The collapse in global commodity prices and a stronger US dollar have depleted the public coffers of some of the world’s poorest countries and will leave them as much as $61bn (£43bn) worse off this year, a report has warned.
The Jubilee Debt Campaign said that countries that relied on exports of commodities such as metals and oil had seen government revenues hit by a global markets rout last year that knocked the prices of crude oil, iron ore, copper and other raw materials to multi-year lows.
At the same time, a drop in their currencies against the US dollar were making it harder for governments in poor countries to make debt payments in dollars, the anti-poverty campaigners said.
“Many impoverished country governments are being hit by the fall in prices for the commodities they export, and large depreciations of currencies against the dollar,” said Tim Jones, economist at the Jubilee Debt Campaign.
“This is reducing government revenue, and increasing the relative size of debt payments in foreign currencies. On top of this, less tax is being collected than had been expected.”
Commodity collapse
The analysis of low and lower middle income country governments showed their external debt service payments in 2016 will on average be 10.8% of government revenue, compared with 6.1% predicted three years ago.
Publishing the findings ahead of the International Monetary Fund (IMF) and World Bank’s spring meetings later this week, the campaigners called for more help for poor countries struggling with high debts.
“In the 1980s commodity prices crashed and the US dollar rose, and the result was 20 years of debt crisis and large increases in poverty. To ensure history is not repeated, urgent global action is needed to cancel debts owed to reckless lenders, tackle tax avoidance and evasion, and change global trade rules to enable countries to diversify out of basic commodities,” said Jones.
The authors calculated the figures by comparing IMF and World Bank predictions made in 2012 and 2013 for GDP, government revenue and debt payments with those produced between August and December 2015.
Numbers were available for 18 countries and the average losses calculated from those 18 were then applied to a further 33 countries. Taken together, the blow from lower commodity prices and weaker currencies left the 51 countries analysed as much as $61bn worse off in 2016 and $53bn worse off in 2017.
For comparison, that 2016 shortfall was $13bn more than the $48bn of aid spent in the 51 countries, Jones said citing figures from the Organisation for Economic Co-operation and Development.
Jones highlighted the case of Sierra Leone’s economy, hit both by the Ebola crisis and the collapse in the price of iron ore. Government revenue in 2016 is now expected to be $470m, compared with a prediction of $760m three years ago. However, debt payments in 2016 will be lower than previously predicted, primarily because of a suspension of debt payments to the IMF in response to the Ebola outbreak.
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12th CAADP Partnership Platform Meeting
The 12th CAADP PP is being organised on 11-15 April 2016 in Accra, Ghana, under the theme “Innovative Financing and Renewed Partnerships to accelerate CAADP Implementation”.
Its objective is to discuss on the ways of accelerating the CAADP implementation to transform African agriculture in the face of emerging trends that have a direct bearing on our abilities to deliver results and impact. The 12th CAADP PP comes 20 months after the Malabo declaration and the overriding assumption for this year’s event is that the issues that are really key in transforming agriculture are better known and understood today because they have been extensively reviewed by the previous CAADP PPs.
The theme reflects the urgency being placed on implementation by the African Union and its members. The PP meeting will serve as an important platform to take stock of success, how best this can be replicated and how existing gaps in the continent’s capabilities to attain the goals and targets as set in the Malabo Declaration can be filled. The PP meeting will generate a number of key actionable activities that will have to be addressed by AUC and NEPAD Agency.
Background
The 11th CAADP PP meeting focused on practical implementation, the connections between CAADP and the results framework, the Malabo Declaration and the Africa Union (AU), and “Agenda 2063”. This was done taking into account that it was the first CAADP PP after the Malabo Declaration and designed to help shape, resolve and translate into action, results and impact.
CAADP aims to address the remaining challenges in order to consolidate and accelerate progress towards agricultural transformation in Africa. It is in light of these challenges that the AU Heads of State and Government, in their Malabo Declaration on Accelerated Agricultural Growth and Transformation, committed to:
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Upholding the Principles and Values of the CAADP Process;
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Enhancing investment finance in agriculture;
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Ending Hunger in Africa by 2025;
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Halving poverty, by 2025, through inclusive agricultural growth and transformation;
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Boosting intra-African trade in agricultural commodities and services;
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Enhancing resilience of livelihoods and production systems to climate variability and other related risks; and
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Adhering to mutual accountability to actions and results.
The CAADP Results Framework was adopted and recognized as the reference yardstick to track progress and report performance towards achieving the set targets.
CAADP remains an important component of Africa’s development, its core principles and values remain a relevant. It was for this reason that African leaders recommitted to the CAADP Agenda through the Malabo Declaration which is now guiding and framing all continental undertakings in agriculture transformation for the next decade.
The 2025 vision and goals of Africa Accelerated Agricultural Growth and Transformation into concrete results and impacts is the 10-year Agriculture Implementation Plan within the broader continental vision. Agenda 2063 which was launched within the 23rd Summit in Malabo constitutes Africa’s common position towards attaining the recently adopted Sustainable Development Goals. It is in this regard that it is expected that all key actors and partners are advanced in aligning own strategies and efforts to the Result framework and broader transformation agenda.
The 12th CAADP PP will help build a shared understanding of country and regional needs and expectations to roll out the Implementation Strategy and Road Map including launching efforts to form technical partnerships to align with and support implementation. CAADP faces new implementation challenges that will require evolving partnerships, including partnerships to integrate major initiatives and flagship efforts that are now in place making contributions to the areas and targets of the Malabo Declaration.
Tapping these efforts will be critical for success in achieving results and impact. The Public Private (PP) partnership will play a key role in understanding what are the systemic, institutional and policy changes that are required to increase the efficiency, effectiveness and sustainability of development efforts. The PP will be an important milestone in helping to shape actions to advance important commitments around cross cutting issues such as gender, inclusiveness, access to finance, regional trade, entrepreneurship development and youth employment.
The 12th CAADP PP Meeting theme and sub-themes
The 12th CAADP PP meeting will focus on innovative finance and renewed partnership but also recognizes 2016 as the “Year of Human Rights with special focus on Rights for Women”. The meeting will seek to highlight how best to speed up implementation through financial innovation and partnerships to deliver the Malabo Declaration and the Africa Union (AU) “Agenda 2063”.
The 12th CAADP PP is organised around the theme “Accelerating Implementation of CAADP through Innovative Financing and Renewed Partnership”. The theme reflects the urgency being placed on implementation by the African Union and its members. The PP meeting will serve as an important platform to take stock of success, how best this can be replicated and how existing gaps in the continent’s capabilities to attain the goals and targets as set in the Malabo Declaration can be filled. The PP meeting will generate a number of key actionable activities that will have to be addressed by AUC and NEPAD Agency.
The meeting has been structured to address seven (7) specific areas relevant for the acceleration of CAADP implementation through innovative finance. The sub-themes include the following:
Sub-theme 1: Funding the African Agricultural Investment to attain Malabo commitments
Sub-theme 2: Agricultural Finance Landscape and Policy Environment
Sub-theme 3: Inclusive Access to Finance to empower women and Youth
Sub-theme 4: Innovative Delivery of Financial Services
Sub-theme 5: Value Chain Finance
Sub-theme 6: Agriculture and Food Insecurity Risk Management
Sub-theme 7: Renewing Partnership for Accelerated Development
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IMF Executive Board 2016 Article IV Consultation with Nigeria
On March, 30, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Nigeria.
The Nigerian economy is facing substantial challenges. While the non-oil sector accounts for 90 percent of GDP, the oil sector plays a central role in the economy. Lower oil prices have significantly affected the fiscal and external accounts, decimating government revenues to just 7.8 percent of GDP and resulting in the doubling of the general government deficit to about 3.7 percent of GDP in 2015. Exports dropped about 40 percent in 2015, pushing the current account from a surplus of 0.2 percent of GDP to a deficit projected at 2.4 percent of GDP. With foreign portfolio inflows slowing significantly, reserves fell to $28.3 billion at end-2015. Exchange restrictions introduced by the Central Bank of Nigeria (CBN) to protect reserves have impacted significantly segments of the private sector that depend on an adequate supply of foreign currencies.
Coupled with fuel shortages in the first half of the year and lower investor confidence, growth slowed sharply from 6.3 percent in 2014 to an estimated 2.7 percent in 2015, weakening corporate balance sheets, lowering the resilience of the banking system, and likely reversing progress in reducing unemployment and poverty. Inflation increased to 9.6 percent in January (up from 7.9 percent in December, 2014), above the CBN’s medium-term target range of 6-9 percent.
The recovery in economic activity is likely to be modest over the medium term, but with significant downside risks. Growth in 2016 is expected to decline further to 2.3 percent, with non-oil sector growth projected to slow from 3.6 percent in 2015 to 3.1 percent in 2016 before recovering to 3.5 percent in 2017, based on the results of policies under implementation – particularly in the oil sector – as well as an improvement in the terms of trade.
The general government deficit is projected to widen somewhat in 2016 before improving in 2017, while the external current account deficit is likely to worsen further. Key risks to the outlook include lower oil prices, shortfalls in non-oil revenues, a further deterioration in finances of state and local Governments, deepening disruptions in private sector activity due to constraints on access to foreign exchange, and resurgence in security concerns.
Staff Report
The Nigerian economy is facing substantial challenges. Low oil prices, a lengthy period of policy uncertainty, and ongoing security concerns, have produced: a widening fiscal gap with salary arrears at state and local governments; a weaker external current account and the introduction of exchange restrictions as international reserves declined; lower financial sector resilience; and sharply slower growth. These shocks have compounded an already challenging development environment – inadequate infrastructure, high unemployment (9.9 percent) and a high poverty rate (above 50 percent in the northern states).
Growth is expected to slow further in 2016 before a modest recovery over the medium term, but with significant downside risks and reduced buffers. Some components of the policy package to adjust to the permanent terms of trade shock are now in place but with little improvement expected in external conditions and large policy distortions remaining, growth is likely to remain well below historical averages. There are significant risks to this outlook: uncertainty on the path of oil prices and oil production; the impact of reforms to raise non-oil revenues; late disbursement of external financing or less-than-desired access to international markets; a further deterioration in the fiscal position of state and local governments; and disruption to private sector activity due to exchange restrictions. Meeting fiscal slippages through additional domestic borrowing could raise the Federal government interest payment-to-revenue ratio to an unsustainable level and crowd out lending to the private sector. The combination of wide fiscal deficits and accommodative monetary policy with an overvalued exchange rate could widen the current account deficit further, add pressure to the exchange rate and international reserves, and result in further delays in much needed foreign capital inflows and investment.
In light of the significant macroeconomic adjustment needed, it will be important to initiate urgently a coherent package of policies anchored on: (i) safeguarding fiscal sustainability; (ii) reducing external imbalances (including real exchange rate realignment); (iii) enhancing resilience and further improving the efficiency of the banking sector; and (iv) implementing structural reforms for sustained and inclusive growth.
Background: A Challenging Environment
Nigeria’s economy has been hit hard by global developments that have aggravated longstanding development weaknesses. Three major economic transitions – the slowdown and rebalancing of the Chinese economy, lower commodity prices, and tightening financial conditions and risk aversion of international investors – have impacted the Nigerian economy through trade, exchange rates, asset markets (including commodity prices), and capital flows. These shocks compounded an already challenging development environment – inadequate infrastructure, high unemployment (9.9 percent), and a high poverty rate (above 50 percent in the northern states).
Macro-financial outcomes are closely linked with the price of oil. While the non-oil sector accounts for 90 percent of GDP, the oil sector plays a central role in the economy. With the fiscal and external accounts highly dependent on oil receipts, lower oil prices reduce aggregate demand from the public sector and affect growth in the non-oil sector through consumption, investment, asset (including equity) prices, and cost channels. A lower supply of foreign exchange adversely impacts corporate sector activity, and combined with high costs of doing business (inadequate infrastructure, low access to credit, and high interest rates) weakens balance sheets in corporate and banking sectors and lowers investment and growth. Although the banking sector is relatively small (about 20 percent of GDP), the transmission of shocks has widespread impact as conditions in the formal sector have trickle-down effects on informal credit and trading activities.
Policy uncertainty amplified the impact of global developments. President Buhari was inaugurated in May 2015, having led the All Progressives Congress (APC) – a merger of four opposition parties – to victory in the March 28 elections, the first democratic transition of government in Nigeria’s history. The administration has listed fighting corruption, enhancing transparency, improving security, and creating jobs as key elements of its policy agenda. While progress has been made against Boko Haram, in addressing corruption, and strengthening governance, the delay in appointing a cabinet until November 2015 limited the scope for a timely and comprehensive policy response to the oil price shock.
Capacity constraints have also limited the policy response. Following the recommendations of the 2014 Article IV consultation, progress has been made in improving capacity, in particular in public financial management (PFM) at the federal government level, helping to strengthen fiscal discipline and accountability. This effort is now being extended to the State and Local Governments (SLGs).
Policy Discussions: Urgency in Dealing With the Impact of the Oil Price Shock
Changing the Nature of Government
The urgently needed near-term fiscal adjustment should be used to jump start medium-term fiscal policy goals – delivery of key public services. The new reality of low oil prices and low oil revenues means that the nature of government – all tiers of government – needs to fundamentally change. The fiscal challenge is no longer about how to divide the proceeds of Nigeria’s oil wealth, but what needs to be done to effectively deliver public services, be it in education, health, or infrastructure. In this context, immediate fiscal adjustment is unavoidable. With the lowest non-oil revenues among major commodity producers (Figure 4) and consolidated government spending already relatively low (11½ percent of GDP in 2015), the fiscal adjustment should be tilted to raising revenues.
A fiscal adjustment of about 3 percent of GDP is needed to ensure medium-term debt sustainability. While public debt is low at 14.4 percent of GDP, the FGN interest payments-to-revenue ratio has increased significantly to about 32 percent. With the sharp decline in the growth rate and despite the recent reduction in domestic real interest rates, the overall primary balance required to keep debt on a sustainable path is now at about -1 percent of GDP (see Annex III). This implies that the primary balance (currently at about -4 percent of GDP) needs to be adjusted by 3 percent of GDP. The 3-percent fiscal adjustment will also ensure that the long-term management of the oil wealth remains sound and sustainable (SIP on fiscal rules). Efforts toward fiscal consolidation in the draft 2016 budget are in the right direction, but with oil prices expected to remain low (and below oil price in the draft budget) more will be needed.
The composition of the adjustment should reflect a realistic pace for raising non-oil revenue, which is critical to allow budget to be implemented. At just 4 percent of GDP, non-oil revenues are simply too low for the government to be able to meet its expenditure priorities, including addressing lagging indicators for infrastructure and social development (Figure 4). Reforms could target a non-oil revenue-to-non-oil-GDP ratio that is more in line with that of peers and yet achievable, such as 8 percent over the medium term (against a target of 6.4 under the current policies). Such an objective could be achieved, as a priority, by raising the standard VAT rate initially from 5 percent to 7.5 percent and further over the medium term to provide a strong revenue base for SLG s (85 percent is distributed to SLGs), in addition, broadening the base (from currently 16 percent of GDP to about 50 percent of GDP), and revamping the design to allow the offsetting of input tax credits. Another priority is the strengthening of tax administration for corporate income tax and customs taxes and excises, which can increase collection efficiency by 20 percent by closing loopholes, reducing tax exemptions, and improving compliance. In particular, as an immediate revenue protection measure government could announce a moratorium on new tax incentives, which would stem revenue losses until an overall review of the Nigerian income tax system is concluded. While the draft 2016 budget prioritizes early action on administrative improvements – and steps are underway – adjustment in tax rates could provide greater certainty that revenue objectives could be achieved.
Authorities’ views: The authorities acknowledged the importance of non-oil revenue mobilization, especially in the context of permanently lower oil prices. They are open to consider an increase in the VAT rate over the medium term, but believe that a sufficient increase in revenue effort can result immediately from strengthening collection efficiency, with a focus on broadening the base, improving compliance, closing loopholes, and reducing tax exemptions.
Streamlining recurrent expenditure is key to ensure the efficiency of public service delivery and foster fiscal adjustment.
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The establishment of an Efficiency-Unit is a promising and important initiative to streamline the cost of government and improve efficiency of public service. A mechanism could also be introduced to promote cooperation with SLGs, strengthening expenditure rationalization across tiers of government. The broader streamlining review could also incorporate a strategic prioritization of spending towards high sustained growth and social development.
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Tax expenditures could be reduced to create space for higher-priority spending. Tax exemptions/incentives should be streamlined and phased. Where they exist, sunset clauses should be well-specified, and there should be a strict cost-benefit assessment, with strong monitoring of outcome-based performance indicators.
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Transfers should be well targeted. In particular, continuing the move (in the draft 2016 budget) to eliminate resources allocated to fuel subsidies would allow spending on innovative social programs for the most needy and for other public services. With regulated prices only just covering current costs, any increases in international prices (and/or currency depreciation) will require a decision on whether to discontinue the subsidy regime or request a supplementary budget (as occurred in 2015).
Authorities’ views: The authorities indicated that in the Medium Term Expenditure Framework (MTEF) for 2016-18, recurrent expenditure as a share of nominal GDP is projected to be broadly contained, from 2.6 percent of GDP in 2015 to 2.3 percent in 2018 (based on authorities GDP numbers). The authorities see scope for streamlining further, beyond measures reflected in the draft 2016 budget. They noted that they have already taken steps to contain recurrent expenditure at the Federal level through a Zero-Based Budgeting approach. On fuel subsidies, they noted that no provision is needed, given low oil prices. They stressed, however, that they would be clearing arrears to oil marketers, and reviewing product pricing on a quarterly basis.
Implementing Structural Reforms
Nigeria suffers from a serious infrastructure deficit. Without power and transportation, Nigeria’s cost of production remains high and domestic production uncompetitive. Various efforts are ongoing and will require a sustained effort over the long term to bridge the substantial deficit. In that regard, prioritization and cost-benefit analysis of potential infrastructure projects are critical. Reducing the cost of production by ensuring functioning transportation and power supply networks will help offset the impact of the appreciation of the real effective exchange rate that occurred over the past five years. Authorities’ views: Relevant ministries such the Budget and Planning, Power, Works, and Housing, and Transportation have started planning for the development of much needed infrastructure. The authorities acknowledge the constrained environment they have to work under and are focusing on prioritizing near-completed, high-impact projects that are consistent with the government development strategy, and on creating an enabling environment to attract investment. They are also reviewing projects suitable for PPPs, and have completed some feasibility studies. The authorities recognize also the importance of monitoring and evaluation (M&E) of projects and to continue publishing those reports periodically to enhance transparency and regain confidence in the government.
Access to credit remains poor, especially for Micro, Small, and Medium Enterprises (MSMEs). It is important to continue providing support for MSMEs, promoting the use of financial services, and improving financial infrastructure. Efforts to increase financial inclusion, however, have become more challenging, given that both the corporate and banking sectors are leveraged and impacted by the oil price shock and the consequent slowdown in economic activity.
Authorities’ views: The authorities acknowledged the challenges faced by MSMEs in accessing credit. They noted that a number of steps are already being implemented to address these challenges, including establishing the Development Bank of Nigeria (DBN) and the Movable Asset Collateral Registry (MACR) at the CBN. The DBN has received funding commitments of over $1.5 billion (N300 billion) from international finance institutions (IFIs) and the Federal Government of Nigeria and is expected to commence operations by mid-2016. The DBN is expected to provide MSMEs with loans of up to 10 years and up to 18 months moratorium. The MACR is to be launched by the CBN in the first quarter of 2016 and will enable individuals to obtain loans from financial institutions using movable assets and intellectual property as collateral.
Given demographics, the pace of job creation needs accelerating. Key initiatives have focused on supporting the agriculture industry, which could reduce migration of youth to the urban areas and lower youth unemployment. Subject to review, it will be important to scale-up recent government pilot programs to improve access to agricultural inputs, the use of conditional cash transfer schemes linked to girls’ enrolment in schools, and delivery of gender-based initiatives (Annex V).
Plans to improve governance, in particular of the oil sector, should be implemented expeditiously. At the Nigeria National Petroleum Corporation (NNPC), the senior management was replaced and financial management improved by migrating accounting processes to the Treasury Single Account (TSA). The passage of the revised Petroleum Industry Bill (PIB) is also expected to strengthen governance in the sector. The government also took initiatives to strengthen policies against corruption and oil theft. Targeted Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) measures can play an important role in tackling theft and corruption in the oil sector by tracing the associated financial flows. Efforts to improve the understanding of the pattern of such flows should be pursued, notably by completing the national risk assessment to enhance the effectiveness of banks’ AML/CFT controls and CBN’s supervision. Further, AML/CFT risks of BDCs need to be properly mitigated (see Appendix II).
Authorities’ views: The authorities highlighted the new administration’s commitment to fighting corruption. They view the plan to restructure the NNPC as a promising step forward to enhance transparency and accountability of the oil sector. They concur that effective implementation of targeted AML/CFT measures, including tracing financial flows, could facilitate detection and investigation and help tackle economic crimes such as oil theft and corruption.
Box 3. Nigeria: Non-oil Revenue Mobilization[1]
Nigeria’s non-oil revenue is one of the lowest among major commodity producers. In 2014, non-oil tax revenue was estimated at only 4 percent of GDP, far below the average of 15 percent of GDP for other oil exporters. Increasing fiscal space through more non-oil revenue collection holds the keys for a growth and social-friendly orientation of the Nigerian economy.
There is scope to improve Nigeria’s revenue-to-GDP fourfold. Crivelli and Gupta (2014) study the non-resource tax effort in 35 resource-rich countries (including Nigeria) over 1992-2009 and find that each additional percentage point of GDP of resource revenue reduces non-resource revenues by 0.3-0.4 percentage points of GDP. In addition, the share of agriculture in GDP is negatively related to tax revenue, with magnitude similar to the impact of resource revenue, while inflation is positively related. Applying their estimated elasticities to Nigeria’s current economic conditions suggest that non-oil tax potential could be about 18 percent of GDP.
The low tax performance in the non-oil sector reflects a combination of tax rates, exemptions, and enforcement issues on VAT, CIT, and customs and excises. VAT collection efficiency is low compared to other oil exporters, owing to the rate and design. At 5 percent, Nigeria has one of the lowest VAT rates in the World, well below the regional ECOWAS requirement of 10 percent. In addition, the current VAT is not neutral, as it disallows input tax credits to businesses on purchases of capital goods, thereby imposing a consumption tax on real investments and undermining competitiveness. CIT performance is below peers. Despite a rate slightly above comparators, CIT revenue is much lower (1.5 percent of GDP against an average of 5 percent in other oil exporters). The wide use of exemptions and poor compliance are two important factors explaining the relatively low CIT collection.
In the medium term, fiscal reforms should focus on increasing collection efforts on various taxes, including improving compliance across the board. Raising the standard VAT rate and permitting the offsetting of input tax credits could be early actions, while a tax on mobile phone transactions could be introduced gradually. In addition, CIT collection could benefit from the closing of loopholes, reducing tax exemptions, and improving compliance, while excise taxes could be increased on alcohol and tobacco.
[1] Prepared by S. Tapsoba and K. Young.
Selected Issues
Options and strategies for a fiscal rule for Nigeria’s oil wealth management
Despite a diversified economy, Nigeria’s fiscal policy is heavily dependent on the oil sector. With oil price falling, Nigeria’s fiscal authorities are faced with significant challenges. Oil revenues have declined, limiting fiscal spending and fiscal buffers have been almost depleted. Setting Nigeria’s fiscal policy on a more sustainable course is needed going forward. In the presence of sizeable revenue derived from oil, the near-term priority should focus on better and effective management of oil wealth. To that effect, a sound fiscal framework is needed.
In this chapter, options for a formalized rule-based approach to setting a “depoliticized” budget oil price are being explored. This formula is designed to be consistent with long-term fiscal sustainability, while ensuring needed accumulation of fiscal buffers. Options for the appropriate accompanying institutions are also examined. The paper finds that a budget rule using a combination of past 5-year average oil price, the current year oil price, and forward looking 5-year oil-price, together with a structural primary surplus target of 2½ percent of non-oil GDP, is one option (subject to pre-announced exceptions) that could provide a basis for long-term sustainability and the preservation of oil wealth, while limiting the effect of oil price volatility.
Enhancing the effectiveness of monetary policy in Nigeria
Two episodes of a boom and a bust since early 2000 have highlighted the challenges in the current monetary policy framework. In particular, the sharp decline in oil production in 2013, followed by a sharp decline in oil prices in 2014, have severely tested the current framework. This paper reviews the effectiveness of the current framework and makes a number of policy recommendations to enhance the resilience of Nigeria to future shocks of a similar nature.
Capital flows to Nigeria: recent developments and prospects
This paper examines recent developments in capital flows to Nigeria, and prospects for flows in the near term. While data on capital flows is subject to limitations, especially on capturing outflows, Nigeria has enjoyed increased international capital flows from a broad array of sources in recent years, though these have declined since 2014. Key drivers of capital inflows have been Nigerian and external interest rates, oil prices, and risk aversion among international investors. Some of these factors, including recent monetary easing, low oil prices expected for a long period, administrative measures inhibiting activity in the interbank foreign exchange market, and market participants expecting the naira to weaken, are likely to weigh on the outlook for capital flows in the near term.
Financial deepening and the non-oil sector growth in Nigeria
Nigeria’s recent growth has been supported by the strong growth in the non-oil sector. It is important to investigate how much of the non-oil growth was associated with the oil price boom. In particular, it is important to understand how the growth in the oil sector was transmitted to the non-oil sector growth, both by raising aggregate demand in the economy but also by raising aggregate supply and potential output of the non-oil sector. The channel of transmission through the aggregate demand channel was analyzed in the 2014 Article IV using the input-output table. The transmission through the aggregate supply channel, in particular by financing investment (both fixed capital formation and working capital) in the non-oil sector is less understood.
Better understanding of the magnitudes of spillovers through the aggregate supply side of the economy is important at this juncture as the reversal of oil price boom observed since summer 2014 could result in not only a decline in the aggregate demand but also in the aggregate supply and potential output which could have a lasting effect on the long-run growth.
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Harvesting the sun: Scaling up solar power to meet Africa’s energy needs
In Niger’s eastern region of Diffa in the south of the Ténéré Desert – a vast sandy area across Niger and Chad up in the Sahara desert – are the ruins of a century-old colonial fort. The area around it, an oasis called Agadem, is one of the sunniest spots on earth, behind only a patch in the middle of the Pacific Ocean around Hawaii and Kiribati Island, according to the US National Aeronautics and Space Administration (NASA).
From 1983 to 2005, data from NASA researchers showed that Agadem received sun radiation averaging a sweltering 6.78 kilowatt hours per square metre per day, enough energy then to produce electricity to heat water each day in a typical American home.
Niger, and by extension the Sahara desert, is like a giant solar panel, and now experts say the discovery will be a bonanza for the region’s energy prospects. Harvesting solar energy, including through the use of large-scale photovoltaic panel installations, could help power much of Africa.
However, except for the Ouarzazate Solar Power Station in Morocco, no other major projects have emerged to exploit the huge energy potential in the Sahara. To some extent the Nigerien case illustrates the paradox of a continent where relatively little is harvested although sun radiation abounds.
Africa has 7 of the 10 sunniest countries on earth: Chad, Egypt, Kenya, Madagascar, Niger, South Africa and Sudan. A few solar projects have sprung up in the last few years on other parts of the continent, and interest in building new projects has been growing steadily. But solar power development in Africa remains modest.
Desperately short of electricity
According to HIS Technology, a US-based economic and energy market research company, Africa’s total solar power–generating capacity, estimated at 312 megawatts in 2013, grew to 1,315 megawatts in 2015, and is projected to reach 3,380 megawatts by 2017–a tenfold increase over a period of four years.
“The big jump occurred in 2014,” Josefin Berg, the IHS Technology senior solar power analyst, told Africa Renewal. “Around 900 megawatts’ additional capacities were added in that year alone.”
Power shortages remain common throughout Africa mainly in the main urban centres, while vast swaths of rural areas have no electric power at all.
“Sub-Saharan Africa is desperately short of electricity,” the Africa Progress Report 2015, an annual publication of the Africa Progress Panel chaired by former UN Secretary-General Kofi Annan, reported in June 2015. “The region’s grid has a power generation capacity of 90 gigawatts (GW) and half of it is located in one country, South Africa,” the report added. That is less than the capacity in South Korea, where the population is only 5% that of sub-Saharan Africa.
Across sub-Saharan Africa, only a couple of countries, such as Togo, provide uninterrupted electricity supply all year round. As a consequence, the region is losing 2–4% of its annual gross domestic product. And while South Africa has half of all sub-Saharan electricity, residents have not been spared load shedding. The power blackouts negatively affect economic productivity, and the situation is expected to last through 2017, with the South Africa Reserve Bank anticipating a loss of 0.6% in economic growth in 2015 and 2016.
Droughts that affect hydroelectric dams, higher fuel costs that make it more expensive to run thermal generators, poor maintenance of existing infrastructure and lack of investments are some of the causes of the poor state of Africa’s power sector.
Tapping the potential
More than other countries, South Africa is looking at solar energy as part of the response to its power crisis. Installed capacity is expected to reach 8,400 megawatts of solar power by 2030, and an additional 8,400 megawatts of wind power. Several solar photovoltaics have been commissioned, including the 96-megawatt Jasper Solar Energy Project, one of Africa’s largest photovoltaic power stations, which aims at providing enough solar power for 30,000 homes. The country has ramped up production capacities in the last two years, and the growth accounts for about 90% of the jump in continent-wide solar capacity from 312 megawatts in 2013 to 1,315 megawatts in 2015.
Morocco is building one of the world’s largest solar energy projects, having launched its first phase in February 2016. At the same time, the country embarked on the second phase of the project, which, once completed by 2018, would provide electricity to 1.1 million people and cover 14% of the country’s energy needs by 2020.
With its Nzema project, Ghana was supposed to lead the solar revolution in the region. An ambitious solar farm about 270 kms from the capital, Accra, it was to go online in 2015 and generate 155 megawatts – enough to power 100,000 homes. It was designed to be connected to the national grid and to strengthen Ghana’s energy exports to its neighbours. Its promoters touted it as a game changer for Africa. However, four years after the project was announced, Nzema has yet to materialize. According to reports, construction of the plant will commence soon, with a possible completion date in 2017.
Delays continue to affect most of Africa’s solar projects. In West Africa it takes five to six years on average for a solar project to be completed, Doug Coleman, the project director for the Nzema solar plant, told Africa Renewal. In contrast, the average turnover in South Africa is 9 to 24 months. Both Mr. Berg of IHS Technology and Mr. Coleman point out that this is because the South African market is more developed and mature. “Elsewhere, policies and regulations are still being developed,” said Mr. Coleman.
According to the World Bank, market fragmentation, high transaction costs, perceived risks and the cost of capital are some of the obstacles holding back private investors.
Earlier last year the World Bank launched the Scaling Solar initiative to reduce “the development time and uncertainty for bidders and investors, while lowering tariffs for utilities.” The programme, managed by the International Finance Corporation, an arm of the bank, will offer tendering and financing expertise and help make privately financed projects operational within two years. As the price of photovoltaic panels continues to decline on the international market and as solar projects start generating profits, new renewable energy markets will have a greater appeal for private investors, says the Bank.
In August the South African Council for Scientific and Industrial Research (CSIR) reckoned that the country saved the equivalent of $584 million – a tenfold increase over last year – from wind and solar energy just in the first six months of 2015. The CISR expects the savings to grow as more projects come online.
Fortunately, as Africa’s solar prospects continue to improve, several companies have shown interest in developing solutions. Last August, SkyPower, an American solar company, entered into an agreement with Kenya to build a gigawatt plant over the next five years.
“Such big announcements are very common,” Mr. Berg of HIS Technology says, however, they take time to materialize, if they ever do.
With other sub-Saharan African countries embarking on the solar journey, both the World Bank initiative and the South African experience show that renewable energy, despite today’s constraints, could have a bright future on the continent.
Solar power gaining a foothold in Africa
Roadside shops along the main highway from Ouagadougou, Burkina Faso’s capital, to the northwest offer diverse wares: leather goods, wooden furniture, colourful plastic buckets, grilled chicken, motorcycle parts and a relatively new product–solar panels.
The area, Bassinko, with its ongoing construction of affordable housing, is attracting a growing population. But power supply here remains insecure and there are repeated blackouts, hence a demand for additional sources of power. Merchants make brisk sales of replacing solar panels, and some businesses have emerged that specialize in installing and servicing solar systems for small businesses and households.
Development experts across Africa have long pointed to the potential benefits of solar energy. Although a few African countries have significant oil reserves, electricity is not always reliable, while their carbon emissions harm the environment. Some countries have the capacity to greatly expand hydropower generation, some have potential sources of thermal energy, and many could develop wind power. But all African countries have plentiful sunlight.
However, economic reality – the high cost of solar technologies – long conspired to keep solar power beyond the reach of ordinary Africans.
In Burkina Faso, Prime Minister Paul Kaba Thiéba says the government has decided to focus specifically on solar energy, as part of a planned transition “toward clean and renewable energies.”
Besides building solar plants and encouraging businesses to install solar units, the government is working with banks and financial institutions to develop new lines of credit for purchasing solar installations.
World Bank vice-president for Africa Makhtar Diop – whose institution is helping to finance Burkina Faso’s solar efforts – believes that the country’s solar generating capacity will eventually reach “dozens of megawatts.”
By Ernest Harsch
This article appears in the April 2016 edition of Africa Renewal, published by the United Nations.
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Robust outlook for global cereal supplies in 2016
FAO Food Price Index up slightly in March as sugar prices jump
World cereal production in 2016 is set to amount to 2 521 million tonnes, just 0.2 percent off last year’s large output and the third-highest global performance on record, according to FAO’s first forecast for the new season, released on 7 April 2016.
Large inventory levels and relatively sluggish global demand mean that market conditions for staple food grains appear stable for at least another season, the agency’s latest Cereal Supply and Demand Brief predicts.
Food prices rise
The FAO Food Price Index for March was also released on Thursday. Overall, the Index rose by 1.0 percent compared to February, as soaring sugar prices and continued increase in palm oil quotations more than offset plunging dairy product prices.
The Index averaged 151.0 points in March, its highest level in 2016, but still some 12.0 percent below its level of a year earlier.
The FAO Food Price Index is a trade-weighted index tracking international market prices for five key commodity groups: major cereals, vegetable oils, dairy, meat and sugar. Its decline over the past year reflects ample food supplies, a slowing global economy and a stronger US dollar.
The keystone FAO Cereal Price Index fell slightly in March – marking the fifth straight month of decline – amid a favourable supply outlook in the new season. The drop was far more pronounced if compared to last year, as the sub-index is down 13.1 percent below its March 2015 level.
The FAO Sugar Price Index rose 17.1 percent from February, reaching its highest level since November 2014. The sharp increase reflects mainly expectations of a larger production deficit during the current crop year, but likely also reported higher use of raw sugar for the production of ethanol in Brazil.
The FAO Vegetable Oil Price Index also rose notably, jumping 6.3 percent from February, as international palm oil prices surged on the back of prolonged dry weather in Malaysia and Indonesia, by far the world main producers. Soy oil prices were stable, while sunflower and rapeseed oil prices declined.
The FAO Dairy Price Index dropped 8.2 percent to its lowest level since June 2009, led by plummeting butter and cheese prices. The FAO Meat Price Index was broadly unchanged from last month.
First harvest forecasts for the year ahead
The small decline in 2016/17 world cereal production portended by FAO would largely result from a lower worldwide wheat production, which is now expected to amount to 712.7 million tonnes, some 20 million tonnes less than in 2015. The decline mostly reflects smaller plantings in the Russian Federation and Ukraine, both affected by dry weather.
Global output of coarse grains is projected at 1 313 million tonnes, up about 11 million tonnes from 2015, with expected increases in maize production more than offsetting declines for barley and sorghum.
Maize output is seen growing by 1.1 percent to 1 014 million tonnes, driven by recovering yields in the European Union and expanding plantings in the United States. At the same time, maize production is expected to fall in Southern Africa and Brazil, due to drought and adverse growing conditions associated with El Niño.
World rice production is predicted to recover with a return to normal weather conditions in northern-hemisphere Asia, where erratic rains have affected planting activity for the past two seasons. Global output, although impacted by unattractive prices, is predicted to rise 1.0 percent to 495 million tonnes.
International trade in cereals in 2016/17, however, is poised to decline for the second consecutive season – by 1.4 percent to 365 million tonnes – due to ample stockpiles and modest demand growth in many importing countries.
Global cereal utilization in 2016/17 is foreseen to grow only modestly, rising by around 1.0 percent to 2 547 million tonnes, according to very preliminary new estimates.
As utilization is anticipated to exceed production, cereal reserves would need to be drawn down to fill the gap. FAO’s first forecast for world cereal stocks at the close of seasons ending in 2017 points to a likely 3.9 percent annual decline to 611 million tonnes. However, the resulting world cereal stock-to-utilization ratio would still approach 23 percent, well above the historical low of 20.5 percent registered in the 2007/2008 season.