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Seven essential guiding principles to boost financial inclusion laid out in new report
Seven guiding principles to help countries increase financial inclusion were set out in a report released on 5 April 2016 by the Committee on Payments and Market Infrastructures (CPMI) and the World Bank Group.
The Payment aspects of financial inclusion report builds on a document that underwent public consultation in late 2015 and seeks to tackle barriers to the adoption and usage of transaction accounts, which sit at the heart of retail payment services.
A transaction account is an essential financial service that can serve as a gateway to other financial services such as savings, credit and insurance. However, nearly 40% of the world’s adult population – about 2 billion people – still have no account with a bank or authorised non-bank servicer provider.
In addition to outlining principles to help countries advance financial inclusion, the report suggests possible key actions, including providing basic accounts at little or no cost, stepping up efforts to increase financial literacy, and leveraging large-volume payment programmes, such as government payments, by adopting electronic payment services. Financial inclusion efforts are beneficial not only for those who will become financially included, but also for the national payments infrastructure and, ultimately, the economy.
These guiding principles are:
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Guiding principle 1: Public and private sector commitment: Commitment from public and private sector organizations to broaden financial inclusion is explicit, strong and sustained over time.
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Guiding principle 2: Legal and regulatory framework: The legal and regulatory framework underpins financial inclusion by effectively addressing all relevant risks and by protecting consumers, while at the same time fostering innovation and competition.
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Guiding principle 3: Financial and ICT infrastructures: Robust, safe, efficient and widely reachable financial and ICT infrastructures are effective for the provision of transaction accounts services, and also support the provision of broader financial services.
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Guiding principle 4: Transaction account and payment product design: The transaction account and payment product offerings effectively meet a broad range of transaction needs of the target population, at little or no cost.
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Guiding principle 5: Readily available access points: The usefulness of transaction accounts is augmented with a broad network of access points that also achieves wide geographical coverage, and by offering a variety of interoperable access channels.
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Guiding principle 6: Awareness and financial literacy: Individuals gain knowledge, through awareness and financial literacy efforts, of the benefits of adopting transaction accounts, how to use those accounts effectively for payment and store-of-value purposes, and how to access other financial services.
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Guiding principle 7: Large-volume, recurrent payment streams: Large-volume and recurrent payment streams, including remittances, are leveraged to advance financial inclusion objectives, namely by increasing the number of transaction accounts and stimulating the frequent usage of these accounts.
The CPMI and the World Bank Group believe that the guidance developed in this report will be essential to helping central banks and other stakeholders achieve effective financial access and broader financial inclusion. Given that safe, efficient and accessible retail payment systems and services are critical for greater financial inclusion, the report will be instrumental in supporting the goal of achieving Universal Financial Access by 2020.
The CPMI promotes the safety and efficiency of payment, clearing, settlement and related arrangements, thereby supporting financial stability and the wider economy. It is a global standard setter in this area. The CPMI monitors and analyses developments in these arrangements, both within and across jurisdictions. It aims to strengthen regulation, policy and practices regarding such arrangements worldwide. It also serves as a forum for central bank cooperation in related oversight, policy and operational matters, including the provision of central bank services.
Payment Aspects of Financial Inclusion (PAFI)
Having efficient, accessible and safe retail payment systems and services is necessary to be able to extend access to transaction accounts for the 2 billion worldwide people who are still unserved by regulated financial service providers.
The World Bank Group and the Committee on Payments and Market Infrastructures (CPMI) of the Bank for International Settlements convened a task force on Payment Aspects of Financial Inclusion (PAFI) to comprehensively examine how payment systems and services affect financial inclusion efforts.
The PAFI task force, convened in 2014, brought together experts from central banks, development banks and international organizations to examine this issue in a comprehensive manner.
Its mandate was to examine demand- and supply-side factors affecting financial inclusion in the context of payment systems and services, and to suggest what measures could be taken to address these issues. The demand side is comprised by payment service users, like consumers, businesses, and government agencies and the supply side are payment service providers, like banks and authorized and/or regulated non-banks, as well as payment system operators.
The task force’s objectives were to:
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Support the efforts of authorities to expand access to transaction accounts and the use of electronic payment services
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Contribute to the recognition that safe and efficient payment services are important for the well-being of individuals, households and businesses, as well as a gateway to a broader range of financial services
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Advance market efficiency, flexibility, integrity and competitiveness to support financial inclusion and stability
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Facilitate the establishment of a balanced and proportional regulatory environment to facilitate effective, reliable, safe and cost-efficient access to payment services.
The PAFI work is essential to worldwide financial inclusion efforts, particularly to the World Bank Group’s UFA2020 initiative, whose goal is ensure that all working-age individuals and businesses can have access to at least one transaction account operated by an authorized and/or regulated payment service provider to:
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Perform most, if not all, of their payment needs
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Safely store some value
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Serve as a gateway to other financial services
The task force found that certain financial and other relevant infrastructures are necessary for an efficient national payment system also form one of the basic foundations for financial inclusion. They include:
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A large-value interbank settlement system
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An interbank system for retail payments, in specific electronic funds transfers
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A payment card processing platform or platforms and
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An effective and efficient identification infrastructure
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Credit reporting and other data-sharing platforms also play an important role
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Finally, all a robust communications infrastructure and power supply system are essential.
Without these financial infrastructures, the efficient provision of various transaction accounts and electronic would be very difficult.
Public and private sector commitment, legal and regulatory framework, and financial and ICT infrastructures are the basic foundation that countries need to have in place to be able to expand access to transaction accounts. Designing useful payment and transaction accounts products which are made available through widespread access points, coupled with awareness and financial literacy efforts to inform and educate people on how to select and use them, as well as accelerating adoption of transaction accounts by shifting large volume use cases like wage or social benefit payments into those accounts constitute key elements that will make universal access to and frequent usage of transaction accounts possible.
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Mbeki panel ramps up war against illicit financial flows
Tax evasion by multinational companies, drug trafficking, smuggling, bribery and embezzlement are the main conduits
On matters pertaining to Africa’s socioeconomic and political development, former South African president Thabo Mbeki’s voice, tempered by age and experience, continues to be heard.
Seven years since leaving office, Mr. Mbeki doesn’t hide his impatience with Africa’s failure to fulfill its great potential. At the moment Mr. Mbeki is leading a war against illicit financial flows (IFFs) from Africa, as the head of African Union’s 10-member High-Level Panel on IFFs.
Africa is losing at least $50 billion annually to illegal transactions. Some reports suggest the continent may have lost up to $1 trillion in the past 50 years. Global Financial Integrity, a Washington, D.C based nonprofit research and advisory organization heavily involved in the IFF fight, lists the main channels for IFFs as: nefarious commercial activities of multinational companies, drug trafficking and smuggling, and bribery and embezzlement. Some companies also engage in over-invoicing or underpricing trade deals, transfer pricing (avoiding taxes by setting prices in trading between their divisions), offshore banking and the use of tax havens.
In view of the scale of IFFs from Africa, isn’t Mr. Mbeki swimming against the current?
Shared interest
“Illicit financial flows are a challenge to us as Africans, but clearly the solution is global. We couldn’t resolve this thing by just acting on our own as Africans,” Mr. Mbeki began, in an interview with Africa Renewal in New York.
The former president has laid bare his sharp criticisms in a provocative foreword written for a report published in 2015 by his panel. “Africa is a net creditor to the rest of the world,” he maintains, implying that illicit financial outflows from the continent far outstrip official development aid.
In February, Mr. Mbeki led his panel to the United States to promote its report and consequently raise global awareness about IFFs from Africa. A recurring theme in his speeches at the various forums in New York and Washington, D.C. was the urgent need to tackle these IFFs.
As billions are earned and extracted from the continent, more than 400 million Africans live on less than $1.25 a day (the threshold for absolute poverty), and the gross domestic product per person on the continent is just $2,000, which is a fifth of the global average, according to Mr. Mbeki’s panel’s report, titled Track It! Stop It! Get It!
Is the West ready to cooperate with Africa to fight IFFs? “Yes,” Mr. Mbeki responded, because “[cooperation] is of material relevance to the West; not so much that they have suddenly fallen in love with the Africans or the developing world, but because there is a shared interest between the developed and developing countries to deal with this matter.”
His panel has twice met with officials of the US government (in 2014 and in 2016), including Vice President Joe Biden. “The US government gave us their own reports regarding what they are doing about tax issues, corruption, and domestic legislation. So we agreed to work together in a structured way to pursue these issues and work is going on.”
In its advocacy for a global alliance to combat IFFs, the success of Mr. Mbeki’s panel will depend on how effectively it can communicate that a victory concerning IFFs is potentially a win-win for everybody. The former president is upbeat about progress made in enlisting the support of international institutions such as the United Nations, the World Bank, the International Monetary Fund, the Organisation for Economic Co-operation and Development (OECD) and so on.
In addition, “The G7 and the G20 have been discussing how to deal with the illicit financial flows because it is a matter of concern to everybody,” Mr. Mbeki said.
Picking up the gauntlet
While in the United States, Mr. Mbeki and his team held talks with the World Bank and IMF in Washington, D.C. They met with United Nations officials in New York, including Secretary-General Ban Ki-moon and the UN Economic and Social Council (ECOSOC). Earlier they had been in Paris, France, to meet with the OECD, and to the European Parliament in Brussels to engage with the World Customs Organization. The results of their outreach are impressive. The World Bank is currently preparing a programme of action on IFFs, the IMF has expressed its commitment to fighting IFFs, and the UN is ready to help.
“The UN Secretary-General Ban Ki-moon indicated the commitment of the whole UN system, not just ECOSOC, to make sure that at various levels they have a practical focus on this matter,” Mr. Mbeki confirmed.
The panel is soliciting global support, but Africans are also picking up the gauntlet, he said. “We have interacted with African civil society and there is a great enthusiasm to act on IFFs.” He referred to the “Stop the Bleeding” campaign to end IFFs, led by Trust Africa Foundation, as an example of civil society’s commitment to the cause. “It’s not that the African continent is saying to the rest of the world, ‘You do this about illicit financial flows.’ What we are saying is, ‘We as a whole have to act on this.’”
The former president said that Africa’s customs authorities, the police, central banks, the banking system, and financial intelligence units must step up, although he did not deny that a lack of capacity in these institutions will inhibit overall efforts.
“The capacity of these institutions is insufficient. The action agenda that came out of the Financing for Development Conference in Addis Ababa [in July 2015] calls on the rest of the world to assist the African continent to deal with this capacity issue,” he said, adding that tax information exchanged within the global financial system “may become of very little use without the capacity to process it.”
Notwithstanding this insufficiency of capacity, African leaders are determined to confront IFFs, Mr. Mbeki said. The establishment of his panel demonstrates a political will. “We are convinced that there is a keenness on the part of the African governments to act on this matter.”
How to safeguard recovered funds
An undeniable perception of corruption afflicts many governments and institutions in Africa. What would Mr. Mbeki say to critics who argue that monies tracked and recovered could be embezzled once back in Africa? “What drove this whole initiative was how to generate more resources to address development challenges,” he argued. Given that his panel is expected to submit to the AU an annual report on IFFs, in the future such reports could include information regarding the use of recovered funds.
“Let’s say that the continent is able to recover $25 billion. It would be natural to say that from that $25 billion, two bridges were constructed and 20,000 km of road were built,” he says.
Mr. Mbeki’s panel understands the enormity of the task ahead. Before the interview with Africa Renewal ended, he sought to highlight the relationship between IFFs and natural resources. “Natural resources are important sources of these illicit outflows. Remember that during the war in Liberia, illegal logging was one of the sources of funds to perpetuate the war. So the elected government hired an international firm to mark every log exported from Liberia and follow such a log until it is offloaded in Rotterdam [in Holland] or somewhere in Europe.
“It’s more challenging with other resources. For example, a country that produces copper may refine it to a certain degree, not completely, and then export it to somewhere else for final processing,” he said. “Such a country cannot know how much copper has been exported because it had not been completely processed locally. So we need a similar tracking system so that the country of origin knows exactly the quantity of exported copper.”
This article appears in the April 2016 edition of Africa Renewal, published by the United Nations.
Shippers’ lobby says trials on new cargo clearance system impressive
A new regional cargo clearance system, presently being piloted at the Mombasa port, has raised hope in the fight against undervaluing of goods and illegal imports.
A shippers’ lobby termed the initial results from the ongoing trials on the Advance Cargo Shipment Information (ASHI) System as impressive.
“We will use the information that we are receiving from shippers to analyse their experience. If positive responses outweigh the negatives we will lobby to have Kenya adopt it,” Mr Gilbert Langat, the CEO of the Shippers Council of East Africa, told Shipping & Logistics.
The system, also referred to as Electronic Cargo Tracking Notes (ECTN), is envisaged to reduce congestion at the port and cut operation costs resulting from demurrage and storage charges for imports.
The system is also meant to improve efficiency and curb revenue leakage.
Cargo heading to Kenya will be covered by Electronic Cargo Tracking Notes or Cargo Shipment Information – a maritime document issued by the shipper at the loading port providing information including its flows to destination country.
The document will also include details of the shipper, description of the cargo including its value, country of origin, weight, freight rate and other additional charges.
“The pre-declared information will be visible to Kenyan customs officials before the cargo arrives at the port, making it possible for government agents to do clearance and intervention long before the cargo arrives at the port while also making it difficult for anyone to make illegal changes on the electronic document,” he said.
The shippers’ council has partnered with Antaser Afrique, a Belgium-based company, for the system dry run.
Shippers are required to fill maritime documents on the Antaser Afrique website to provide details of the shipment while attaching necessary documents as per the requirements of the local regulatory and intervening agencies in charge of clearing the goods.
The information is then verified upon which an ASHI/ECTN number for the cargo is provided.
After verification, the regulatory and clearing agencies will receive the information within 48 hours after loading from the port of origin.
The shippers’ council says the information will then be available to local regulators and agencies like the Kenya Revenue Authority (KRA), Kenya Ports Authority (KPA), and Kenya Bureau of Standards (Kebs) readying the goods for pre-clearance.
Tests on the system were rolled out on March 18 and involve exporters, importers, government and regulatory authorities, service providers, interveners and shipping lines.
Mr Langat said users are at the end of the two month window expected to provide feedback on the performance of the system to help decide on whether to adopt it or not.
Member countries of the East African Community (EAC) are currently operating a joint cargo clearing system known as the Single Customs Territory (SCT) to help beat tax cheats.
The SCT system allows joint collection of customs taxes by the EAC. Under the SCT deal that began in 2014, clearing agents within EAC have been granted the rights to relocate and carry out their duties in any of the partner states as part of a strategy to improve the flow of goods and curb dumping.
Kenya, Rwanda and Uganda were the first to take up the SCT arrangement on a phased pattern starting April 1, 2014, with Tanzania joining the scheme two months later.
The system is expected to be fully implemented by June 2016. Importers of commodities covered under the SCT are required to lodge import declaration forms in their home country and pay the relevant taxes to facilitate the export process.
The tax authorities in the respective countries then issue a road manifest against the import documents submitted electronically by the revenue authority of the importing country.
An audit of the SCT showed it is already yielding fruits for traders who are saving up to $300 (Sh30,000) per transaction through more efficient joint clearance of cargo at Mombasa port by EAC partner states.
The study further showed that cargo clearance time at the port has dropped to an average of four to six days, from 18 to 22 in 2013.
“Customs documentation requirements have been reduced by over 50 per cent and one customs agent is required to clear goods right from the Port of Mombasa or Dar-es-Salam to the Ugandan destination,” the Uganda Revenue Authority revealed in a performance update.
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Joint AU-UNECA Ministerial on Finance and Integration concludes with an urgent call for domestication of the Agenda 2063 and 2030
African Union Ministers of Finance, Planning, Economic Development and Integration concluded their 9th annual meeting on 5th April 2016 with a strong call for the domestication of Agenda 2063 and 2030 for Sustainable Development, which they said offers a unique opportunity for Africa to achieve inclusive and transformative development with equity. The Ministers further recognized the role of Regional integration through the RECs in the implementation of both developments agendas.
In her closing remarks, H.E. Dr. Nkosazana Dlamini-Zuma, Chairperson of the African Union Commission, emphasized that the success of both Agenda 2063 and 2030 can only be guaranteed if the implementation processes includes women and the youth.
The AUC Chairperson called for a change of mindset. “We need to believe in ourselves, in our capacities and the capacities of our people.” She further addressed the issue of the continent’s resources which should be an advantage for rapid development, stressing on the need to make impactful change in not only policy reform but also administrative improvements and diligent implementation of existing policies.
The AUC Chairperson encouraged stakeholders to invest in the training of competent statisticians with the right skills to produce sound accurate, good quality and timely statistics for the continent. Most importantly, she highlighted that African programs must be inform by African solidarity, and the spirit of Pan Africanism, “so that we can celebrate our successes, and help to address our weaknesses”.
She called for synergies from international partners, to unite efforts for the common goal. Dr. Dlamini Zuma commended both the UNECA and the AU Commission for the quality work to ensure that the meeting was successful.
Addressing the ministers at the closing ceremony, H.E. Dr. Carlos Lopes, Executive Secretary of the Economic Commission for Africa, said the Conference was a fulfillment in relation to the expectations of both the UNECA and the AU Commission.
The Minister of Planning of the Democratic Republic of Congo, and Chair of the Ministerial meeting, Mr. Georges Wembi Lwambo saluted reiterated the need to harmonize the two development programs; Agenda 2063 and 2030. Minister Wembi stated that the greatest challenge will be at the level of financing the implementation of both agendas as well as the lack of human resource capacity which needs to be overcome by joining efforts to support the development agenda. He underscored the importance of reinforcing capacity in order to ease the achievement of all the recommendations adopted during the week long meeting at the UNECA Conference Center in Addis Ababa, Ethiopia.
Meanwhile, the Ministers exchanged views and shared best practices on the theme: “Towards an integrated and coherent approach to the implementation, monitoring and evaluation of Agenda 2063 and the Sustainable Development Goals (SDGs)”. They recognized that Africa has made considerable progress towards social outcomes, with poverty levels dropping in the various sub regions.
Report of the Joint Committee of Experts
The meeting of the Joint Committee of Experts of the ninth Joint Annual Meetings of the African Union Specialized Technical Committee on Finance, Monetary Affairs, Economic Planning and Integration and the Economic Commission for Africa Conference of African Ministers of Finance, Planning and Economic Development was held in Addis Ababa from 31 March to 3 April 2016.
Opening statements were delivered by Anthony Mothae Maruping, Commissioner for Economic Affairs, African Union Commission; Abdalla Hamdok, Deputy Executive Secretary of ECA; and Admasu Nebebe, Director, Ministry of Finance and Economic Cooperation of Ethiopia.
In his statement, Mr. Maruping thanked the experts for their attendance at a time of economic hardship on the continent, and noted that the meeting provided an invaluable opportunity for the exchange of views, sharing of experiences and collective decision on a way forward. He highlighted the decline in commodity demand and prices, which had led to cuts in production, increased unemployment, falling incomes, eroded tax bases and reduced foreign exchanges; the prolonged and severe drought that had affected agricultural production and disrupted the supply of hydropower, clean water and sanitation services; the floods which had displaced people, destroyed infrastructure and caused the spread of waterborne diseases; and the strengthening of the United States dollar, which had caused a jump in dollar-denominated external debt and had increased inflationary tensions. He indicated that, in combination, those factors had caused financial and macroeconomic imbalances, downward revision of growth rates, regressions in social and economic development, and an increase in poverty. He highlighted the importance, in that context of the ministerial round table to be held during the Conference on the theme: “Addressing the impact of drought; floods and declining commodity prices in Africa.”
He also noted that in 2015, amidst the adoption of key global initiatives such as the Addis Ababa Action Agenda of the Third International Conference on Financing for Development, the Sustainable Development Goals and the Paris Agreement on climate change, the African Union had adopted Agenda 2063 and its first 10-year implementation plan and highlighted the comprehensive bottom-up approach through which Agenda 2063 and the first 10-year implementation plan had been formulated. He noted that Agenda 2063 was a timely and relevant framework for increasing productive capacities, strengthening competitiveness, fostering diversification, engendering value addition and enabling intra-African trade and the effective participation of Africa in global value chains.
In his opening statement, Mr. Hamdok pointed out that Agenda 2063 had been developed and adopted through a consultative process among African people, pan-African institutions and the leadership of the continent. Africa was now confronted with two interconnected processes: Agenda 2063 and its 10- year implementation plan at the continental level, and the transition from the Millennium Development Goals to the Sustainable Development Goals at the global level. He stressed that a shared understanding of those continental and global frameworks, including their relevance to national development agendas and the relationship between the two, would be crucial to their effective implementation. That understanding would provide an opportunity to implement the two agendas without unduly burdening policymakers with multiple development frameworks, while at the same time minimizing the related coordination challenges. It would also ensure that benefits were widely shared, with a view to reducing poverty and raising living standards for all Africans.
Mr. Nebebe, speaking on behalf of his country’s federal authorities, welcomed delegates to the meeting. He highlighted Africa’s notable economic growth performance in recent years and the challenges facing the continent and stressed the need to explore bold and transformative options for sustained economic growth and inclusive and sustainable development. He also emphasized the need to leverage the synergies and complementarities of long- term global and regional development frameworks to facilitate the realization of the continent’s aspirations for structural transformation. To that end, it was vital for countries to implement both agendas in a coherent and integrated manner.
Turning to how African countries implement and monitor implementation of the global and continental agendas, he underscored the substantial convergence of Agenda 2063 and the 2030 Agenda for Sustainable Development, as the latter had taken on board many of Africa’s aspirations, as reflected in the common African position on the post-2015 development agenda. With a view to reducing the burden on national structures and ensuring coherent implementation, follow-up and review processes, he called for the development of an integrated results framework that embraced both the continental and global development agendas.
Turning to the experience of Ethiopia in integrating and mainstreaming global and continental development frameworks into its national development plan, he noted that the process required extensive consultations with a wide array of stakeholders, strengthened policymaking and statistical capacities, and the active participation of subnational institutions. He stated his expectation that the Conference would afford opportunities for sharing experiences, particularly on how sustainability could be integrated into national development plans, which was vital for the successful implementation of global and continental development agendas.
Account of proceedings*
Overview of recent economic and social developments in Africa
The representative of the secretariat provided an overview of recent economic and social developments in Africa, highlighting the main messages in the overview report in the background document. Despite the global economic slowdown, Africa’s growth was still relatively strong and would remain positive in the medium term, underpinned by domestic demand, improved macroeconomic management, increasing public expenditure and diversification of trade and investment ties. There were still internal and external risks, however, including the weak global recovery, low commodity prices, tightening of monetary policy in the United States and the European Union, weather-related shocks, and security and political instability. Africa was also making steady progress towards social goals. Improvements had been registered in terms of poverty reduction, universal education, gender parity, under-5 mortality and access to safe drinking water, but progress remained limited. Absolute poverty numbers were on the rise, and only a marginal decline in unemployment had been observed, amidst an increasing working-age population. Meanwhile, rapid urbanization offered opportunities for growth and transformation. Looking ahead, Africa had made major gains in economic growth. The region therefore needed countercyclical fiscal policies, intra-African trade and integration and strategies to harness urbanization and the youth bulge for industrialization.
Discussion
In the ensuing discussion, experts noted that strong continental and subregional financial institutions and organizations were essential to provide support for investment programmes. In that regard, innovative strategies for domestic resource mobilization were critical, including tax reforms, unused financial resources such as pension funds, capital markets and savings. The potential for Governments to borrow on international markets was also highlighted. The sharing of experiences across countries in respect of domestic resource mobilization was noted.
The threat to macroeconomic stability from rising inflation in some countries in 2016 and the need for appropriate policy instruments was noted. African countries had, however, managed inflation risks and weathered the impact of global economic shocks relatively well. They could therefore engage in countercyclical policies without risking macroeconomic instability. Reconciling short-term macroeconomic stabilization with long-term diversification strategies was thus possible with the right policy mix.
Employment creation was a core priority for Africa’s transformation agenda and new approaches were needed to address that challenge. In that regard, technology transfer was essential for the development of innovative enterprises for employment creation, especially in sustainable development. Skills development and investment in research and development were also necessary to support commodity-based industrialization, value addition and the realization of Agenda 2063 and the 2030 Agenda for Sustainable Development. Furthermore, the urgent need to shift from informal to formal economic activities and employment by leveraging existing opportunities in the informal sector was emphasized.
Although experts acknowledged the progress made in advancing the continent’s development agenda, they noted the need for domestic structural reforms to optimize development outcomes in the light of declining commodity prices and limited fiscal space. The commodities sector was also important in financing other industries and creating jobs.
In addition, a concern was raised that the report seemed to encourage a focus on traditional markets while market diversification might also be required. It was highlighted, however, that markets in both traditional and emerging markets were important.
Recommendations
In the light of the discussions, the Joint Committee made the following recommendations:
(a) Given the economic slowdown and Africa’s dependence on commodities, the region needs to diversify its economic sectors and markets and adopt the right policy mix to enable African countries to withstand the effects of the economic crisis;
(b) As intra-African trade is more conducive to industrialization, Africa needs to produce more consumer goods and services for national and regional markets to reduce import reliance;
(c) There is an urgent need to shift from informal to formal economic activities and employment by leveraging existing opportunities in the informal sector through appropriate policies, structural reforms, and skills development;
(d) Recommendations on structural transformation should take into account the experience of countries from the global South;
(e) Africa’s development model should be oriented in line with national contexts and priorities;
(f) Domestic resource mobilization should be the main strategy for financing Africa’s development in a sustainable manner. In addition, international development partners should be encouraged to honour their official development assistance commitments.
Assessment of progress on regional integration in Africa
The representative of the secretariat outlined the status of regional integration at the subregional and continental levels, including the major achievements of the regional economic communities along the steps identified in the Abuja Treaty. Tremendous efforts had been made by all the Regional Economic Communities in the area of regional integration, but the pace of integration was relatively slow. Despite the achievements, the implementation of regional integration continued to face challenges such as poor infrastructure, poor governance, conflicts and insecurity, concerns over sovereignty, barriers to trade and the movement of people and overlapping memberships of regional economic communities.
He outlined the synergies between the objectives of Agenda 2063 and the 2030 Agenda for Sustainable Development and observed that the two were complementary and that their implementation would therefore contribute significantly to the acceleration of the integration process on the African continent. He drew attention to the risk of prioritizing the implementation of global agendas rather than African ones, as had been done in the past. The adoption of Agenda 2063 and the 2030 Agenda brought new challenges to the regional economic communities and African countries. Countries should work towards aligning their respective strategic and development plans with Agenda 2063 and its first 10-year implementation plan, and the 2030 Agenda for Sustainable Development, and should mobilize and allocate the necessary domestic resources for their implementation.
Discussion
In the ensuing discussion, it was noted that the pace of integration in Africa was relatively slow and that increased momentum was needed to meet the milestones established in the Abuja Treaty. Participants observed that strong continental institutions were needed to enable Africa to roll out its development agenda.
Experts were informed about the challenges that some countries experienced in applying Agenda 2063 and the 2030 Agenda at the national level. An assessment of previous development agendas in terms of implementation and lessons learned could be critical to success in implementing the two agendas. Experts noted the need to implement the Agendas within national contexts, and that countries needed to adopt specific tools and mechanisms to successfully integrate the Sustainable Development Goals and Agenda 2063 into their national development plans. It was recommended that a road map be developed to facilitate the integration of the two agendas into national contexts.
Regarding the financing of Agenda 2063, it was noted that the dependency on partner funding represented a major impediment to the implementation of Africa’s development plans, as witnessed in past experiences. Although many initiatives and solutions had been proposed, the lack of implementation represented a major challenge. It was therefore necessary for countries to mobilize internally the required financing.
Recommendations
In the light of the discussion, the Joint Committee made the following recommendations:
(a) Member States should step up the operationalization of the three pan-African financial institutions, namely, the African central bank, the African monetary fund and the African investment bank, by signing and ratifying the respective founding statutes;
(b) The African member States should take ownership of their continental development agendas by, among other strategies, implementing alternative and innovative financing mechanisms, including domestic resource mobilization;
(c) The African Union Commission and ECA should be requested to assist member States in designing a road map for the implementation of both Agenda 2063 and the 2030 Agenda for Sustainable Development at the national level, and to put in place a common comprehensive and harmonized monitoring and evaluation framework for the two agendas.
Presentation on the theme of the ninth Joint Annual Meetings: towards an integrated and coherent approach to the implementation, monitoring and evaluation of Agenda 2063 and the Sustainable Development Goals
The representative of the secretariat presented the draft concept note on the theme of the Conference of Ministers, which focused on the background to Agenda 2063 and its objectives and outlined the objectives and thematic areas that would be considered by the Conference of Ministers. He stressed the need for harmonization, the harnessing of synergies, awareness-raising and a coherent development approach in the process of implementing Agenda 2063 and the 2030 Agenda for Sustainable Development.
A steering committee comprising representatives of the African Union Commission, the Planning and Coordination Agency of the New Partnership for Africa’s Development (NEPAD), ECA, the African Development Bank and the African Symposium on Statistical Development had been established to guide the process of developing a measurement framework for the first 10-year implementation plan of Agenda 2063 and to prepare progress reports on implementation for the African Union policy organs.
He highlighted the importance of convergence of the two frameworks, in particular since there were more goals in Agenda 2063 (20) than the Sustainable Development Goals (17) that were of particular relevance to Africa: Agenda 2063 also covered cultural, political and governance issues in addition to the social, economic and sustainability issues addressed by the Sustainable Development Goals. Work on integrating the frameworks into national planning systems had started in the fourth quarter of 2015, with a view to building awareness among State institutions and ordinary citizens, and promoting engagement and ownership of Agenda 2063 in order to catalyse and sustain momentum for transformation.
The African Union Commission, working together with the NEPAD Agency and the regional economic communities and supported by ECA and the African Development Bank, had started the process of developing a monitoring and evaluation system aimed at leveraging their respective strengths that would ultimately enhance their roles individually and collectively in the implementation of Agenda 2063. To that end, member States, regional economic communities and all implementing agencies had agreed to adopt a unified implementation, reporting and monitoring platform for continuous review of the findings of progress reports relating to both agendas, so as to avoid overburdening policymakers. In carrying out the pdf First 10-year Implementation Plan of Agenda 2063 (2.04 MB) , Africa would also be implementing the 2030 Agenda.
Since financing both agendas would require substantial financial and non-financial resources, he drew attention to the Addis Ababa Action Agenda, which, among other goals, called for the establishment of an infrastructure platform aimed at coordinating investments in infrastructure. That was in addition to a domestic resource mobilization strategy aimed at facilitating the development of the financial sector, with a view to widening the tax base. In conclusion, he called for the mobilization of resources to facilitate implementation of the two frameworks and their ambitious goals.
Discussion
In the ensuing discussion, experts recognized the need to harmonize Agenda 2063 and the 2030 Agenda and to ensure their effective implementation by incorporating them in national frameworks. Harmonizing the agendas would avoid placing an excessive burden on the human and financial resources of member States. At the same time, account should be taken of the specificities of the continent and of the differences in the context, resource endowment and development priorities of each individual country. Member States also requested technical support from the African Union and ECA to offset their inadequate capacity for implementation.
Experts stressed the need to harmonize the terminology of the two agendas and to align their goals, priority areas, targets and indicators at the regional level. They underscored the importance of clear monitoring and evaluation and reporting mechanisms, which would bring together the two agendas and national priorities, as articulated in national development frameworks and medium-to-long term visions. In that context, they noted that the current mapping exercise conducted between Agenda 2063 and the 2030 Agenda should be extended to align the harmonized framework with national development priorities. A clear reporting mechanism was recognized as being important for countries to assess progress, share experiences, learn from one another and improve implementation. They recognized that sound coordination between the different national sectors was essential to ensuring that the implementation, monitoring and evaluation of the two agendas were effected in an integrated manner.
Experts identified financing constraints as the primary impediment to the effective implementation of the two agendas at the national level. In that context, and in line with the Addis Ababa Action Agenda, they emphasized the need to reduce dependency on external resources by identifying alternative sources of financing, primarily by enhancing domestic resource mobilization efforts. In that context, they called for further clarity on how to take full advantage of commitments made in the Addis Ababa Action Agenda and stressed the need to curb illicit financial flows, which were costing the continent $50 billion each year, as reported by the High-level Panel on Illicit Financial Flows. The development by the African Union Commission and ECA, under the leadership of Thabo Mbeki, of measures to counter illicit financial flows was recognized.
Experts also identified the inadequacy and poor quality of data and statistics as constraints on the implementation of the two agendas, as good quality and easily available data were critical for the setting of baselines and measurement of progress.
Recommendations
In the light of the discussion, the Joint Committee made the following recommendations:
(a) Countries should take steps to incorporate the harmonized framework in their own development planning systems and to adapt it to the specific contexts of their countries;
(b) The African Union Commission, supported by ECA, the African Development Bank, the NEPAD Agency, the African Capacity-building Foundation, the regional economic communities and other partners, should harmonize the terminology relating to priority areas, goals, indicators and targets in the two agendas through the mapping exercise.
(c) At the continental level, the African Union Commission, supported by ECA, the African Development Bank, the NEPAD Agency, the regional economic communities and African statisticians, should establish a harmonized monitoring and evaluation and reporting framework for the agendas, while, at the national level, countries should coordinate their process of integrated reporting;
(d) The African Union Commission, supported by ECA and the African Development Bank and the NEPAD Agency, should continue to assist member States and regional economic communities in:
(i) Incorporating Agenda 2063 and the Sustainable Development Goals into national development plans and the strategic plans of regional economic communities;
(ii) Adopting an integrated and coherent approach to implementation, monitoring and evaluation of Agenda 2063 and the Sustainable Development Goals;
(iii) Completing the design of a monitoring and evaluation framework that caters for both Agenda 2063 and the Sustainable Development Goals;
(e) Measures to curb illicit financial flows should be intensified, including investment in a financial intelligence system in Africa; enhancing political commitment to fighting the problem of illicit financial flows; deepening engagement with receiving countries to tackle the unfavourable practices of multinationals by implementing the recommendations set out in the report of the High-level Panel on Illicit Financial Flows from Africa;
(f) The capacities of national institutions involved in revenue collection, including customs and revenue authorities, should be strengthened to improve domestic resource mobilization;
(g) Efforts should be made to rationalize national expenditures and the resulting savings should be redirected towards building and maintaining the good-quality infrastructure needed to enhance productive capacities on the continent;
(h) The capacity of national statistics systems should be strengthened to support effective implementation, monitoring and assessment of the two agendas.
* Download the report for full details.
Draft resolutions
Joint resolution of the African Union Commission and the Economic Commission for Africa
Mainstreaming the 2030 Agenda for Sustainable Development and Agenda 2063 into national strategic frameworks, actions plans and programmes
The Conference of Ministers,
Welcoming with deep appreciation the adoption by the African Union Assembly in January 2015 of Agenda 2063,
Welcoming the adoption by the General Assembly in September 2015 of the 2030 Agenda for Sustainable Development and the call for its full and effective implementation,
Mindful of the challenges associated with the implementation of the Millennium Development Goals, and aware that the implementation of Agenda 2063 and the 2030 Agenda for Sustainable Development will pose even greater challenges for member States owing to the larger number of goals, targets and indicators involved and the focus on multidimensional sustainability,
Taking note of the convergence of the two agendas and the need to ensure coherence and build synergies between them,
Concerned about the limited financial and human resources for implementing and monitoring development plans, in particular given the resource constraints already experienced by the national statistical offices,
Aware that the core set of continental indicators should be derived from the indicators in the 10-year implementation plan for Agenda 2063 and the global set of indicators in the 2030 Agenda for Sustainable Development, taking into account the commonalities and variations that exist between the two agendas,
1. Calls upon the African Union Commission, supported by the Economic Commission for Africa, the African Development Bank, regional economic communities and the Planning and Coordinating Agency of the New Partnership for Africa’s Development to create awareness among member States about the importance of a coherent and integrated approach to the implementation of and follow-up to Agenda 2063 and the 2030 Agenda for Sustainable Development;
2. Requests the African Union Commission, supported by the Economic Commission for Africa, the African Development Bank, regional economic communities and the Planning and Coordinating Agency of the New Partnership for Africa’s Development to foster the incorporation of both agendas into national strategic frameworks;
3. Requests the Economic Commission for Africa, the African Union Commission and the African Development Bank to develop an integrated monitoring and evaluation framework that will inform a single annual progress report on the implementation of both agendas.
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tralac’s Daily News Selection
The selection: Tuesday, 5 April 2016
Profiled trade and development policy conference alerts:
5-8 April, Kampala: COMESA Business Council training workshop 'Local Sourcing for Partnerships'
6-7 April, Dar es Salaam: REPOA’s 21st Annual Research Workshop 'Making industrialization work for socio-economic transformation'
7 April, Abidjan: FAO's regional conference for Africa, Ministerial Plenary. Access conference documentation.
7-8 April, Swakopmund: tralac’s Annual Conference 'Towards rules-based governance in African trade and integration?'
8-9 April, Victoria Falls: ACBF’s Third Africa Think Tank Summit
12-17 April, Washington: IMF-World Bank Spring Meetings
20 April, New York: The High-level Forum 'The Africa We Want in 2030, 2063 and Beyond'
Selected updates from #CoM2016:
Ha-Joon Chang's Annual Adedeji Lecture 2016: 'The industrialisation imperative: why does Africa (still) have to industrialise?'
Other #CoM2016 presentations can be accessed here.
Statement by Mr Carlos Lopes to the High Level Ministerial Segment of the Conference of Ministers (UNECA)
In 2016, with a barrel price of $30.8, Africa is going to earn $47.1bn less in trade surplus in 2016, relative to that in 2015. This difference is around 8% of the total value of Africa’s exports in 2014. While considerable, this is unlikely to change the development trajectory for the entire continent. The fall in oil prices is more likely to have large adverse impacts on the few African countries whose economy depends on oil exports. However, Governments can seize the opportunity offered by lower oil prices to scrape wasteful oil subsidies. IMF research shows that more than 40% of fuel price subsidies in developing countries accrue to the richest 20% of households, while only 7% of the benefits go to the poorest 20%. The volatility of most commodities excluding oil has been high in 2015, but, contrary to general belief, not far above historical trends. Uranium gold, coffee, cocoa or orange juice exported from Africa are experiencing record prices.
Luke Patey: 'Africa's petrostates are imploding' (Foreign Policy)
As growth in Africa’s petrostates fades, the persistent gains in the more robust economies of East Africa will increasingly attract the attention of multinational corporations and international investors in search of new opportunities. Overall, foreign direct investment in Africa fell by a third in 2015, but it continues to surge into sectors like telecommunications and financial services — and it is East Africa’s more diversified economies that are better positioned to cash in on rising private equity investment in these sectors.
African oil producers mull survival options amid low oil prices (ThisDay)
Eighteen African oil producing countries under the aegis the African Petroleum Producers Association have from their meeting at the last African Petroleum Congress and Exhibition (CAPE-VI) in Abuja, agreed to follow through 25 strategic goals they consider good enough to keep them up while the uncertainty in oil prices lasts.
Botswana: new trade policy framework (UNCTAD)
UNCTAD has been assisting Botswana to formulate a national trade policy framework, in order to make full use of the transformative power of trade for development. UNCTAD has committed to support the Government during the implementation period which is scheduled to start this year. To that end, UNCTAD has proposed a draft implementation matrix containing objectives, actions, and responsibilities and monitoring and evaluation mechanism. This proposal is being studied by the Government. The document was adopted by the Government and stakeholders at a workshop in Gaborone on 16 February 2016. The main recommendations of the TPF include the following:
Rwanda’s trade deficit widens, upsets earnings (The EastAfrican)
Rwanda’s economic managers face the daunting task of crafting new measures to bridge the ballooning trade deficit. The country continues to import more goods and services, eating up its narrow foreign-exchange earnings due to sluggish growth in exports. “If the current deficit becomes unsustainable, it will ultimately force the country’s currency to weaken; and if you have invested in the country, then obviously the value of your investment drops,” said Andre Roux, co-head of emerging market fixed income at Investec Asset Management Ltd, an asset management company based in South Africa and London. Mr Roux was in the country to attend a roundtable for the financial sector organised by the Rwanda Development Board. [More opportunity for investors as Rwanda financial services diversify (New Times)]
Rwanda targets $1.5bn in foreign investments (Bloomberg)
Foreign direct investment in Rwanda will probably rise 36% this year to $1.5bn, according to the East African nation’s development board. Projects financed by foreigners will rise from $1.1bn last year, Francis Gatare, chief executive officer of Rwanda Development Board, said in an interview on Thursday.
SA threatens to shut out Zim goods (The Zimbabwean)
South African manufacturers want their government to slap restrictions on Zimbabwean products in retaliation for measures by Harare to restrict imports from its southern neighbour. Bimha said he had to clarify to Davies that the measures were temporary and meant to resuscitate ailing industries that took a nosedive during the hyperinflation era back to competitiveness. “I had to explain to him that, the measures are not by choice but coming as a remedy to our industries that were affected by sanctions and the hyper-inflationary era,” said the [trade] minister. “So I informed him that we are only assisting local companies, in order for them to bounce back to productivity. After such a time, we will then open up our borders and the (local) manufacturers can compete with your products as before.” [SA considering emergency steel tariffs - WTO (IOL)]
Zambia: Oryx urges government to scrap import duty on LPG (The Post)
ORYX Energies says the government should consider scrapping the 25% import duty on liquefied petroleum gas because making the commodity available to the domestic market is difficult. And Oryx Energies managing director Dansel Sannigadu says the quality of LPG received from Indeni Petroleum Refinery has not been “up to scratch.”
Kenya’s China imports cross Sh300bn mark (Daily Nation)
China has become the first country to cross the Sh300 billion mark in exports to Kenya, underlying its growing economic significance in the country. The Asian nation’s exports to Kenya jumped 29 per cent to Sh320 billion last year compared to Sh248 billion a year earlier, according to Kenya National Bureau of Statistics (KNBS) data. This saw Beijing overtake India as Nairobi’s largest source of goods, opening a Sh67 billion lead in sales over New Delhi, largely on account of import for Standard Gauge Railway. [Cabinet sets in motion process to new laws for mining sector]
Namibia: Budget lacks aggressiveness for energy sector infrastructure development (New Era)
The private sector continues to be reluctant to lend to an already debt-laden infrastructure sector due to government’s lack of bold financial pronouncements – as a result many large energy projects continue to be stuck. Government guarantees could improve the attractiveness of private funding in this regard. [The author, Mally Likukela, is Standard Bank Namibia’s Economic and Market Research Manager]
West African Economic and Monetary Union: selected issues paper (IMF)
This paper empirically assesses public investment efficiency in WAEMU, and highlights its main determinants. While the literature on public investment efficiency for advanced economies is vast, such studies have been limited for sub-Saharan African countries and in particular for the WAEMU. This note therefore first assesses the infrastructure gap in WAEMU based on the efficiency frontier analysis. It then identifies the determinants of public investment efficiency through panel regressions. A concluding section presents the main findings and the policy implications.
El Niño good boy or bad? (IMF)
But what are the macroeconomic effects of an average El Niño event? Our research - taking into account the economic interlinkages and spillovers between countries - analyzed the macroeconomic transmission of El Niño shocks between 1979 and 2013, both on national economies and internationally, focusing on its effects on real GDP, inflation, and commodity prices. The results indicate that El Niño has a large but highly varied economic impact across different regions. Australia, Chile, India, Indonesia, Japan, New Zealand, and South Africa face a short-lived fall in economic activity in response to a typical El Niño shock. However, in other parts of the world, an El Niño event actually improves growth, in some countries directly - for instance, in the United States -and in other countries - such as in Europe - indirectly through positive spillovers from major trading partners.
Emerging economies affect global financial changes (IMF)
The IMF analysis, part of the Global Financial Stability Report, finds that rising financial integration, more than emerging economies’ growing share of global GDP and trade, is the key factor behind their increasing financial impact on other countries. For example, while economic news from China does affect global equity returns, spillovers from Chinese asset price shocks remain limited relative to those of financially more integrated emerging market economies including Brazil, Mexico, and South Africa.
Africa and China's UNSC April presidency (UN)
Providing an overview of the 15-member Council’s forthcoming work, he [Liu Jieyi (China)] said it would hold 30 meetings, considering Syria, Yemen, the Middle East, South Sudan, Mali, Western Sahara, Côte d’Ivoire and the Central African Republic. The Council would hold an open debate on 25 April - co-sponsored by China, Angola and Senegal - on piracy in the Gulf of Guinea, a growing problem that was disrupting international trade. It would aim to focus international attention and generate support for regional countries in combating piracy, he said, adding that it was likely that a presidential statement would be issued.
Building regulatory policy systems in OECD countries: draft analytical paper (OECD)
The rich dataset provided by iREG is now publicly available, but has yet to be fully exploited. In particular, the iREG provides detailed insights into the practices of countries in carrying out Regulatory Impact Assessments (RIA), stakeholder engagement when developing regulations and ex post evaluation. This detailed knowledge provides new insights into the way regulatory policy is carried out by countries, notably whether practices in the three areas tend to be developed simultaneously or not and what priorities countries put on the respective areas of methodology, systematic adoption, transparency and oversight.
The Africa Evidence Network invites submissions for its EVIDENCE 2016 conference.
Kenyans spent Sh117.6bn on imported cars last year (Business Daily)
Malawi government to support two development banks (Maravi Post)
Tuna and Gunships: how $850m in bonds went bad in Mozambique (Wall Street Journal)
RCM-Africa Plenary session: ILO input
Second Regional Technical Meeting on Health, Gender and Capital Projects in Africa: meeting report (AfDB)
Africa Energy Indaba: conference proceedings
World Humanitarian Summit must usher in new era of global solidarity (UN)
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African leaders open Conference of African Ministers of Finance, Planning and Integration with encouraging messages on economic transformation
“Our future rests in our hands,” declared Ethiopia’s Prime Minister, Mr. Haile Mariam Desalegn on Monday in his keynote speech at the opening of the Conference of the African Ministers of Finance, Planning and Integration, holding on 4 April 2016 at the Conference Center of the Economic Commission for Africa in Addis Ababa, Ethiopia.
Reflecting on harmonising and coordinating the different policies of the Sustainable Development Goals and Africa’s own Agenda 2063, Prime Minister Desalegn urged African states to be “strategic, ambitious, rigorous and disciplined” if they are to achieve sustainable and inclusive development for their people.
Dr. Nkosazana Dlamini Zuma, the Chairperson of the African Union Commission, implored African countries to improve young people’s skills in science and engineering. “With an average of over 90% of graduates in social sciences, Africa’s innovation and scientific skills lag behind.”
“There is general agreement on the skills crisis that we face on the continent: shortage of skilled personnel is amongst the concerns raised consistently by business leaders as undermining competitiveness and confidence. Africa’s contributions to innovation, science and technology and patents lag behind; and in the study by the African Capacity Building Foundation on capacity needs for Agenda 2063, the skills deficit in key areas such as engineers, scientists, including agricultural scientists run into the millions,” underlined the AUC Chairperson. She noted that with a burgeoning youth population, Africa has no choice but to look for solutions.
Dr Dlamini Zuma also spoke on industrialization, agricultural development and economic diversification, the development of infrastructure (transport, social, energy ICT) among others. “Africa imports over 83% of the processed food it consumes, putting pressure on our foreign currency reserve. As we therefore continue to talk about the need to industrialise, what are we doing as Ministers of Economic Planning, Finance and Integration to reverse this situation, product line by product line and working together to build regional value chains?”
The AUC Chairperson further called on the Member States saying, “as we deal with effects of extreme weather conditions, we must respond to the immediate humanitarian situation faced by farmers and rural communities, but at the same time not delay what should be done today to build resilience and climate smart agriculture”. She said this will help to reduce import dependency.
Mr. Carlos Lopes, the Executive Secretary of the Economic Commission for Africa, noted that “African current growth has not generated sufficient jobs and has not been inclusive enough to significantly curb poverty. Fluctuations in price has made such growth vulnerable.”
Therefore Africa should look into “structurally transforming, focusing on the potential offered by industrialization.” Mr. Lopes suggested Africa consider expanding commodities value chains, and attracting low-value manufacturing from Asia to Africa.
Mr. Lopes remarked that “transformation will not happen spontaneously but rather as a result of deliberate and coherent policies that are entrenched into a coherent development strategy, enlightened by a transformational leadership.”
Picking up on the theme of leadership, the Vice-President of Namibia, Mr.Nickey Iyambo, told the 800-strong audience “strong leadership is a prerequisite for fostering the continent’s development with healthy economies that grow and end poverty.”
He encourages African countries to learn from Namibia’s approach by cultivating the African spirit of self-reliance through a wise use of resources.
“Let’s take the torch in our own hand and develop our countries,” he said.
The Prime Minister of the Democratic Republic of Congo, Mr. Augustin Matata Ponyo, views government as having a crucial role to play in bringing about sustainable development.
“Many African countries are already on track with transforming their economies. The role of governments in Africa is to offer inclusive and sustainable development which is important in addressing climate change and economic growth.”
The Conference of Ministers is an annual event jointly organised by the Economic Commission for Africa and the African Union Commission. The 2016 conference concludes on Tuesday.
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Transforming Africa’s food systems for inclusive growth and shared prosperity
FAO regional conference for Africa lends impetus to implementation of Malabo Roadmap, Sustainable Development Goals
“Transforming African Agri-food systems for inclusive growth and a shared prosperity” is the theme of the 29th FAO Regional Conference for Africa, taking place this week in Côte d’Ivoire’s capital.
More than 50 African ministers of agriculture and related sectors, high-level technical experts, representatives of regional organizations and institutions and civil society are participating in the event (4-8 April) to take stock of progress made in improving the continent’s food security and nutrition security and agree on areas for priority action over the next two years.
“Global trends and issues are expected to have direct or indirect impacts on the food and agriculture sector, with specific manifestations and impacts in the region,” said FAO Assistant Director-General and Regional Representative for Africa Bukar Tijani in remarks made at the start of two days of technical talks that will be followed by a Ministerial Roundtable on 7 and 8 April.
“The national and regional actions that FAO can most effectively support will be firmly grounded in the Comprehensive Africa Agriculture Development Programme (CAADP) through the Malabo Implementation Strategy and Road Map and the commitments to the Sustainable Development Goals,” he added.
FAO’s work will continue to focus on food security and nutrition; the fight against poverty; climate mitigation and adaptation and the sustainable use of natural resources, including energy and water scarcity; protecting against transboundary animal and plant diseases and pests as well as food safety threats; developing strong agri-food systems and boosting employment and trade, with a particular emphasis on women and youth.
Tackling global trends and issues in food and agriculture
Three recent important global developments will frame national and regional action and FAO’s work in the future: the UN’s adoption of 17 new Sustainable Development Goals (SDGs), the Paris Agreement adopted as an outcome of the UN Global Climate Change Conference, and the Rome Declaration on Nutrition and supporting framework for action approved at the Second International Conference on Nutrition (ICN2).
“The eradication of hunger remains at the heart of FAO’s mission. To date, the organization has helped deliver more than 90 agriculture and food investment projects across 40 countries, and these figures will continue to grow,” noted Tijani.
The organization has provided substantial assistance in policy formulation – including the design and implementation of the ECOWAS Zero Hunger Initiative and the CAADP Regional and National Agriculture Investment Plans to address food security and nutrition – he noted.
FAO has also developed a number of successful relationships with partners in support of these efforts and is looking to expand its cooperation with the private sector. This week’s conference includes a tracked aimed at exploring opportunities for Public-Private Partnerships for Inclusive Growth.
Expanding regional initiatives for development
FAO has focused and integrated its work in Africa through three main regional Initiatives. These reflect the priorities of member States and FAO’s Strategic Objectives and aim to achieve demonstrable impacts in a timely manner. The initiatives were developed via an in-depth cross-sectoral and interdisciplinary review of regional issues. They call for accelerated action by Member countries in the fight against hunger (Africa’s Commitment to End Hunger by 2025); the promotion of proven, innovative, and sustainable production and post-production practices (Sustainable Production Intensification and Value Chain Development in Africa); and strengthening the resilience of vulnerable farming and pastoralist communities (Building Resilience in Africa’s Drylands).
“The experience of targeting specific actions for specific contexts has placed sharp focus on the critical role of policy, governance and institutional dimensions in successful programme implementation,” Tijani said, adding that “it has also highlighted the need for improved data and statistics and the importance of addressing cross-cutting issues such as gender, climate change, nutrition and resilience building against crises and shocks.”
In the same vein, the Africa Solidarity Trust Fund (ASTF) is an innovative Africa-led fund that provides financial regional development initiatives. Its main goal is to strengthen food security across the continent by assisting countries and regional organizations in eradicating hunger and malnutrition, eliminating rural poverty, and managing natural resources in a sustainable manner.
The fund has allocated $35.5 million to 15 regional programmes and national projects covering 39 countries to boost efforts to eradicate hunger, widen market access, and support income and employment generation. During this biennium, the ASTF will also support the establishment of an African Centre for best practices, capacity development and South-South Cooperation (SSC) in collaboration with the African Union and the New Partnership for Africa’s Development (NEPAD).
Through more regional initiatives of this kind, FAO will seek to accelerate and strengthen the programming, mechanisms, and capacity and delivery actions needed to translate into results the commitment to end hunger by 2025.
The conference’s opening session on Monday was chaired by the Ivorian Minister of Animal Resources and Fisheries, Kobenan Adjoumani, in the presence of the Ivorian Minister of Agriculture, Mamadou Coulibaly Sangafowa, and FAO Deputy Director-General for Natural Resources Maria Helena Semedo.
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Emerging economies affect global financial changes
Changes in emerging market asset prices explain over a third of the rise and fall in global equity prices and exchange rates, according to new research from the International Monetary Fund.
The IMF analysis, part of the Global Financial Stability Report, finds that rising financial integration, more than emerging economies’ growing share of global GDP and trade, is the key factor behind their increasing financial impact on other countries.
For example, while economic news from China does affect global equity returns, spillovers from Chinese asset price shocks remain limited relative to those of financially more integrated emerging market economies including Brazil, Mexico, and South Africa. Globally, the stocks of companies with more debt are also more likely to be hit by external shocks (see charts).
The role of financial integration and financial factors
The financial integration of emerging market economies into the global economy has affected international financial markets in both desirable ways – more efficient asset prices and resource allocation – and undesirable ones – amplification of shocks and transmission of excess financial volatility.
The IMF said two factors also reflect the importance of financial integration in driving the growth in financial spillovers from emerging markets. First, sectors that have higher debt levels and lower liquidity are subject to larger spillovers. Second, emerging market economies with larger financial institutions tend to emit larger spillovers. These emerging economies are also better able to absorb external financial shocks from other emerging markets.
The significant growth in global capital flows due to mutual fund investments is also affecting the nature and size of financial spillovers from emerging market economies. The decision by mutual funds to sell investments in multiple countries in response to losses in one or more countries, or because of withdrawals by their own investors, is called the portfolio channel of contagion. This channel has gained in importance as a source of financial spillovers from emerging market economies to equity markets in recent years, in line with the increase in asset allocation to these countries. The impact from the portfolio channel from advanced economies remains significantly larger, according to the IMF.
Financial spillovers from China will grow
The IMF research shows that among large emerging market economies, China is unique: news about its economic growth has an economically significant and rising impact on global equity prices. In the last five years alone, the impact of growth surprises from China on global equity prices has almost quadrupled. By contrast, changes in Chinese asset prices tend to have little effect on asset prices elsewhere.
“Purely financial spillovers from China are still very small, but likely to grow considerably as China gradually continues to integrate into the global financial system,” said Gaston Gelos, head of the Global Financial Stability Analysis Division at the IMF.
A case for greater policy cooperation, enhanced surveillance
The IMF said policymakers should act to safeguard financial stability in the wake of these changes.
“The evidence underscores the need for policymakers to take into account economic and policy developments in emerging market economies when assessing their own countries’ prospects,” said Gelos.
Enhanced international economic and macroprudential policy cooperation can also play an important role.
Other policy measures countries need to implement include:
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In emerging market economies, policymakers can foster the development of a domestic investor base to help dampen the effect of international financial contagion.
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As China’s role in the global financial system continues to grow, policymakers will need clear and timely communication of policy decisions, transparency about policy goals, and strategies to achieve them.
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The amplification of emerging markets’ financial impact on other countries due to corporate debt means policymakers should adopt measures to limit excessive increases in corporate debt that could threaten financial stability. Improving rules to limit systemic risks arising from mutual funds also remains important.
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Lastly, improving data on cross-border financial flows intermediated by banks, investment funds, and large institutional investors is a priority.
The IMF will release further research from the Global Financial Stability Report on April 13.
Related News
Rising tax revenues are key to economic development in African countries
Tax revenues in African countries are rising as a proportion of national incomes, according to the inaugural edition of Revenue Statistics in Africa.
The report, containing internationally comparable revenue data for eight African countries, accounting for almost a quarter of Africa’s total GDP, was launched on Sunday 3 April in Addis Ababa during a side event in the context of the 2016 African Union (AU)-Economic Commission for Africa (ECA) Conference of Ministers.
In 2014, the eight countries covered by the report – Cameroon, Côte d’Ivoire, Mauritius, Morocco, Rwanda, Senegal, South Africa and Tunisia – reported tax revenues as a percentage of GDP ranging from 16.1% to 31.3%. Since 2000, all of these countries experienced increases in their tax-to-GDP ratios. The size of these increases ranged from 0.9 percentage points in Mauritius to 6.7 percentage points in Tunisia. Morocco, Rwanda and South Africa had increases of around 5 to 6 percentage points. In comparison, the OECD average of 34.4% was only 0.2 percentage points higher in 2014 than in 2000.
Revenue Statistics in Africa is produced jointly by the African Tax Administration Forum (ATAF), the African Union Commission (AUC), the Organisation for Economic Co-operation and Development (OECD) and the OECD Development Centre. The data has been assembled and presented in close collaboration with the governments of the participating countries. The report was conceived as part of the AUC’s Agenda 2063, which aims to “develop and implement frameworks for Policies on Revenue Statistics and Fiscal Inclusiveness for Africa.”
The increases in tax revenues in African countries reflect continuing efforts to mobilise domestic resources, as well as the result of tax reforms and modernisation of tax systems and administrations. The biggest driver of tax increases since 2000 in countries covered by the report has been rising taxes on income and profits, and more specifically increases in corporate income tax revenue. There were also substantial increases in Value Added Tax (VAT) revenues.
Some African countries are significantly dependent on non-tax revenues, and more specifically on grants such as foreign aid and resource rents together with other property income. The countries with the lowest national incomes covered by the report had relatively higher non-tax revenues, which tend to be more volatile than tax revenues, making their finances less stable and predictable.
A special chapter in the report describes the benefits and limitations of collecting comparable data and how these issues relate to Africa. The new database responds to a demand from governments, citizens and policy makers for reliable and comparable revenue data to inform fiscal policy and provide a basis for the implementation of future reforms. The eight African countries covered by the new report will be added to the existing Revenue Statistics databases, which now cover 66 countries worldwide, allowing for greater international comparison, policy dialogue and co-operation between countries in Africa, Asia, Latin America and the Caribbean and the OECD.
Key findings
Tax to GDP ratios
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In 2014, the tax-to-GDP ratios in the eight African countries covered ranged from 16.1% to 31.3% (the OECD average is 34.4%).
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Tunisia had the highest tax-to-GDP ratio in 2014 (31.3%), followed by Morocco (28.5%).
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Cameroon and Rwanda had the lowest tax-to-GDP ratios in 2014, at 16.1%, followed by Côte d’Ivoire (17.8%).
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All eight countries saw increasing tax-to-GDP ratios over the 2000-14 period. These increases ranged from 0.9 percentage points in Mauritius to 6.7 percentage points in Tunisia. Morocco, Rwanda and South Africa had increases of around 5-6 percentage points.
Tax structure
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The share of taxes on incomes and profits in total tax revenues is highest in South Africa, at 51.2% in 2014. The share of personal income taxes in South Africa is higher than the OECD average, whereas it is lower for the other participating African countries.
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The shares of corporate income tax revenue to total tax revenues were significantly higher than the 8.5% OECD average. In six of the eight African countries these shares ranged between 13% and 18%.
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Consumption taxes yielded the largest share of the total tax revenue – over 55% – in Cameroon, Côte d’Ivoire, Mauritius, Rwanda and Senegal. With the exception of Côte d’Ivoire, more than half of this category of revenue is generated by VAT.
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Tunisia and Morocco displayed a more evenly spread tax mix compared with the other countries: around 30% of tax revenues came from taxes on incomes and profits; around 35% to 40% was from consumption taxes; and 20% to 28% was from social security contributions. The share of social security contributions to total tax revenue is far smaller in the six Sub-Saharan countries, ranging from 1.5% in South Africa to 11.3% in Côte d’Ivoire.
Non-tax revenues
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The total non-tax revenues collected as a percentage of GDP in 2014 ranged from 0.6% of GDP in South Africa to 9.5% of GDP in Rwanda.
Background
Revenue Statistics in Africa is a joint publication by the African Union Commission, the African Tax Administration Forum (ATAF), the OECD Centre for Tax Policy and Administration and the OECD Development Centre. It presents detailed, internationally comparable data on both tax and non-tax revenues for eight African countries who volunteered to be part of the first edition of the report. It examines changes in both the level and the composition of taxation plus the attribution of tax revenues by level of government between 1990 and 2014.
Its approach is based on the well-established methodology of the OECD Revenue Statistics database, which has become an essential reference source for countries in all regions of the world. Comparisons are also made with the average for OECD economies and for the economies featured in Revenue Statistics in Latin America and the Caribbean (LAC).
This work contributes to the financial chapter of the African Charter on Statistics in rolling out the Strategy for the Harmonisation of Statistics in Africa. It also supports the first ten-year implementation plan (2014- 2023) of the African Union’s Agenda 2063, which aims to “develop and implement frameworks for Policies on Revenue Statistics and Fiscal Inclusiveness for Africa.” At the global level, it will support the Sustainable Development Goals’ target 17.1 to “improve domestic capacity for tax and other revenue collection” and target 17.19 to “support statistical capacity building in developing countries.”
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New Trade Policy Framework for Botswana
UNCTAD has been assisting Botswana to formulate a national trade policy framework, in order to make full use of the transformative power of trade for development. The document was adopted by the Government and stakeholders at a workshop in Gaborone on 16 February 2016.
At the request of the Government, UNCTAD has been supporting Botswana to review and develop a Trade Policy Framework (TPF).
The objective of the review was to assist Botswana to:
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Diversify exports away from diamonds to other products, including processed foods, meat, vegetables and exports of services.
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Open new export markets both within Africa and internationally, while improving existing ones.
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Promote integration into world trade and global value chains, through a proactive trade policy.
Two initial stakeholder consultants supported by UNCATAD were held in 2015 to start the process. Finally, on 16 February 2016 in Gaborone, the Botswana National Trade Policy (NTP) was adopted by a group of around 50 participants from the Ministry of Trade and Industry, other Ministries dealing with trade-related issues, the private sector and civil society.
The stakeholders’ validation workshop was opened by Mr. P. Butale, Chief Negotiator, Ministry of Trade and Industry. Who, speaking on behalf of the Permanent Secretary, thanked UNCTAD for their support.
“We sincerely register our happiness and thank you for the support for this trade policy. However, we also wish to request for support in the implementation of this Trade Policy Framework and look forward to further UNCTAD’s support again,” he said.
The main recommendations of the TPF include the following:
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Improve institutional and regulatory frameworks and upgrade private sector competitiveness, in order that they may contribute more effectively to trade and development.
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Train officials involved in the formulation of national trade-related policies, in order that they may better understand the role of trade and its contribution to poverty reduction.
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Improve quality control and harmonization of standards and address trade barriers, including rules of origin.
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Enhance the business community's trade readiness so they may take advantage of market access opportunities within both regional and global markets.
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Improve the country’s investment policies through better incentives, to ensure that investment contributes more to trade and development.
UNCTAD has committed to support the Government during the implementation period which is scheduled to start this year. To that end, UNCTAD has proposed a draft implementation matrix containing objectives, actions, and responsibilities and monitoring and evaluation mechanism. This proposal is being studied by the Government.
UNCTAD’s Trade Policy Framework Reviews
UNCTAD has supported developing countries in assessing and formulating coherent national trade policy frameworks and in strengthening the linkage between trade, employment and development. Apart from Botswana, such support has been provided to Algeria, Angola, the Dominican Republic, Jamaica, Namibia, Panama, Papua New Guinea, Rwanda, Tunisia and Zambia.
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Rwanda’s trade deficit widens, upsets earnings
Rwanda’s economic managers face the daunting task of crafting new measures to bridge the ballooning trade deficit. The country continues to import more goods and services, eating up its narrow foreign-exchange earnings due to sluggish growth in exports.
Despite ongoing efforts to boost exports, the latest central bank figures released this past week show that Rwanda’s trade deficit widened by 12.7 per cent in the first two months of 2016, from $263.55 million to $297.02 million due to high import demand, which increased by 7.2 per cent in value.
Meanwhile exports decreased by 9.7 per cent.
There is growing concern that the widening current account deficit could discourage foreign investors worried about losing their money, while making it difficult for the country to pay its foreign debt as the currency depreciates further.
Figures show that formal exports covered 20.6 per cent of formal imports against 24.4 per cent in the same period of 2015. As a result, the deficit intensified pressure on the foreign exchange market with the franc depreciating against the dollar by 2.6 per cent on March 24 compared with December 2015.
The economy remains vulnerable to domestic and global shocks, in particular lack of foreign exchange, which could undermine growth.
“If the current deficit becomes unsustainable, it will ultimately force the country’s currency to weaken; and if you have invested in the country, then obviously the value of your investment drops,” said Andre Roux, co-head of emerging market fixed income at Investec Asset Management Ltd, an asset management company based in South Africa and London.
Mr Roux was in the country to attend a roundtable for the financial sector organised by the Rwanda Development Board.
While definite figures are not available, in 2015, Rwanda was targeting an increase in foreign direct investment to $1.2 billion. In 2013, the latest year for which figures are available, foreign direct investment in Rwanda stood at $257 million.
“I think investors are able to take on risks because high interest rates compensate for the risk of currency volatility, but a very large current account deficit is a weakness that every now and then translates into currency depreciation and hence loss of value of the investment,” Mr Roux said.
Rwanda’s export revenues dropped by 6.8 per cent to $558.8 million from $599.8 million in 2014, due to lower commodity prices mainly of mineral exports the value of which dropped by 42.1 per cent from $203 million to $117.8 million.
Minister of Finance and Economic Planning Claver Gatete said the country is now putting more effort into special economic zones to boost industrialisation that will in turn help boost exports.
He also revealed that the country has now identified export areas and has set up an export fund. “If you look at the composition of it is being imported, most of them are consumer goods, things that can be produced here and within the region,” he said.
However, Rwanda is also currently considering taking out a precautionary loan from the International Monetary Fund to reduce the country’s exposure to financial turbulence as well as the economy’s vulnerability to shocks arising from the current global slowdown.
But analysts say if the trade deficit is not contained it could also make it difficult for Rwanda to meet its debt obligations.
“If the country has borrowed in dollars, it has a very big current account deficits and if the currency depreciates then the cost of that borrowing goes up as well. It means you have to pay a lot more in terms of your local currency to finally repay what you have borrowed abroad,” Mr Roux observed, adding that a sharply weakening currency creates difficulties for investors as well as borrowers.
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El Niño: Good boy or bad?
El Niño has important effects on the world’s economies – and not all of them are bad
The current El Niño (Spanish for “The Boy”) – a band of above-average ocean surface temperatures that develops every 3 to 7 years off the Pacific coast of South America and lasts about two years – is causing major climatological changes around the world. Climate experts are continuously monitoring the developments of the 2015-16 El Niño, which is one of the most severe events in the past 50 years and, notably, the largest since the 1997-98 episode that shocked global food, water, health, energy, and disaster-response systems.
But what are the macroeconomic effects of an average El Niño event? Economists are increasingly interested in the relationship between climate – temperature, precipitation, storms, and other aspects of the weather – and economic performance, including agricultural production, labor productivity, commodity prices, health, conflict, and economic growth. A thorough understanding of this relationship can help governments design appropriate institutions and macroeconomic policies.
Taking the temperature
In a recent IMF study, we examined variations in weather-related events – with a special focus on El Niño – over time and across different regions to identify their impact on growth, inflation, energy prices, and nonfuel commodity prices, motivated by growing concern about their effects on commodity prices and national macroeconomies. These extreme weather conditions can constrain the supply of rain-driven agricultural commodities, lead to higher food prices and inflation, and may trigger social unrest in commodity-dependent countries that rely primarily on imported food.
Our research – taking into account the economic interlinkages and spillovers between countries – analyzed the macroeconomic transmission of El Niño shocks between 1979 and 2013, both on national economies and internationally, focusing on its effects on real GDP, inflation, and commodity prices.
The results indicate that El Niño has a large but highly varied economic impact across different regions. Australia, Chile, India, Indonesia, Japan, New Zealand, and South Africa face a short-lived fall in economic activity in response to a typical El Niño shock. However, in other parts of the world, an El Niño event actually improves growth, in some countries directly – for instance, in the United States – and in other countries – such as in Europe – indirectly through positive spillovers from major trading partners. Many countries in our sample experienced short-term inflation pressures following an El Niño shock (its magnitude increasing with the share of food in the consumer price index, CPI, basket), while energy and nonfuel commodity prices also rose around the world.
Defining El Niño
In an El Niño year, air pressure drops along the coast of South America and over large areas of the central Pacific. The typical low pressure system in the western Pacific becomes a weak high pressure system, moderating the trade winds and allowing the equatorial countercurrent (which flows west to east) to accumulate warm ocean water along the coastline of Peru. This phenomenon causes the thermocline – a transition layer between warmer mixed water at the ocean’s surface and cooler deep water below – to drop in the eastern part of Pacific Ocean, cutting off the upwelling of cold nutrient-rich ocean water along the coast of Peru.
An El Niño typically brings drought to the western Pacific (including Australia), rains to the equatorial coast of South America, and storms and hurricanes to the central Pacific (see Chart 1, which shows the climatological effects across two different seasons). These changes in weather patterns have significant effects on agriculture, fishing, and construction industries, as well as on national and global commodity prices.
One way to measure El Niño intensity is by using what weather experts call the Southern Oscillation index (SOI), which is based on air pressure differentials in the South Pacific between Tahiti and Darwin, Australia. Sustained SOI values below –8 indicate El Niño episodes (the warm phase of the Southern Oscillation). Likewise, sustained SOI values above 8 indicate the cold phase of the Southern Oscillation, dubbed La Niña. The 1982-83 and 1997-98 El Niño episodes were quite severe and had large adverse macroeconomic effects in many regions of the world, whereas other El Niño events in our sample period were relatively moderate: 1986-88, 1991-92, 1993, 1994-95, 2002-03, 2006-07, and 2009-10 (see Chart 2). The 2015-16 El Niño event has been one of the most severe of the past 50 years and the largest since that in 1997-98.
Climate and the global macroeconomy
We analyzed the international macroeconomic transmission of El Niño shocks, taking into account drivers of economic activity, interlinkages and spillovers between different regions, and the effects of unobserved or observed common factors such as energy and nonfuel commodity prices.[1]
The results show that while Australia, India, Indonesia, New Zealand, Peru, and South Africa face a short-lived fall in economic activity in response to an El Niño shock, other countries, such as Argentina, Canada, Mexico, and the United States may actually benefit (either directly or indirectly through positive spillovers from major trading partners – see Chart 3).
Good boy or bad?
On the negative side, in Australia El Niño causes hot and dry summers in the southeast, increases the frequency and severity of bush fires, reduces wheat export volumes, and drives up global wheat prices, leading to a drop in the country’s real GDP growth. New Zealand also experiences drought in places that are normally dry, and floods elsewhere, thereby lowering agricultural output and real GDP. El Niño conditions usually coincide with a weak monsoon and rising temperatures in India, which hurts its agricultural sector and increases domestic food prices and inflation. El Niño-induced drought in Indonesia is also harmful to that country’s economy and agricultural sector, pushing up world prices for coffee, cocoa, and palm oil. Furthermore, mining equipment in Indonesia relies heavily on hydropower; with deficient rain and low river currents, the world’s top exporter of nickel – used to strengthen steel – is able to produce less of the metal.
El Niño typically brings stormy winters to Chile and raises metal prices by disrupting the supply chain: heavy rain will reduce access to Chile’s mountainous mining region, where large copper deposits lie. Therefore, we would expect an increase in metal prices and lower output growth, which we estimate to be about –0.2 percentage point on impact – with an average effect over the first year that is positive but not statistically significant. South Africa experiences hot and dry summers during an El Niño episode, with adverse effects on its agriculture and real GDP growth. More frequent typhoon strikes and cooler weather during summers are expected for Japan, which could depress consumer spending and growth. Our analysis suggests an initial drop of about 0.1 percentage point in Japanese output growth. However, the construction sector experiences a boost following typhoons, which can partly explain the increase in growth after an initial decline.
On the other hand, in the United States, El Niño typically brings wet weather to California (benefiting lime, almond, and avocado crops, among others), warmer winters in the Northeast, increased rainfall in the South, diminished tornado activity in the Midwest, and a decrease in the number of hurricanes that hit the east coast, all of which leads overall to higher real GDP growth. Plentiful rains can help boost soybean production in Argentina, which exports 95 percent of the soybeans it produces. Canada enjoys warmer weather in an El Niño year, and in turn a greater return from its fisheries. In addition, the increase in oil prices means larger oil revenues for Canada, which is the world’s fifth-largest oil producer (averaging 3,856 million barrels a day in 2012). For Mexico we observe fewer hurricanes on the east coast and more hurricanes on the west coast, which generally brings stability to the oil sector and boosts exports. Although El Niño is associated with dry weather in northern China and wet weather in southern China, we do not observe any direct positive or negative effects on China’s output growth. Moreover, a number of economies – in Europe, for example – that are not directly affected by El Niño do benefit from the shock, mainly due to positive indirect spillovers from commercial trade and financial market links.
Although there are both winning and losing countries from an El Niño event, in the aggregate the detrimental effects on losing countries more or less balance out the positive effects on winning countries.
Commodity prices and inflation
The El Niño weather phenomenon can also significantly affect global commodity prices. The higher temperatures and droughts following an El Niño event, particularly in Asia and the Pacific, not only increases the prices of nonfuel commodities (by about 5½ percent over a year), but also boosts demand for coal and crude oil as lower output is generated from hydroelectric power plants, thereby driving up their prices.
Generally – but not always – El Niño events tend to be inflationary, with the impact on our sample of countries ranging between 0.1 and 1 percentage point. This reflects mainly higher fuel and nonfuel commodity prices, but is also a result of government policies such as holding buffer stocks of grain, persistent inflation expectations, and strong domestic demand in countries whose growth picks up following an El Niño episode. The largest increases in inflation in Asia are observed in India, Indonesia, and Thailand, probably due to the high weight of food in the CPI basket of these countries – 47.6 percent, 32.7 percent, and 33.5 percent, respectively. We investigated this hypothesis by looking at the weight of food in the CPI basket of the 21 countries and regions and their inflation responses and found a clear positive relationship between food share and increased inflation (see Chart 4).
Because growth, inflation, and commodity prices are sensitive to El Niño developments, governments should take into consideration the likelihood and effects of El Niño episodes when formulating macroeconomic policy, and implement policies that could help ameliorate the adverse effects of such shocks. For example, in India changing cropping patterns and sowing quicker-maturing crop varieties, rainwater conservation, judicious release of food grain stocks, and changes in import policies and quantities would help bolster agricultural production in low-rainfall El Niño years. On the macroeconomic policy side, governments should continue to closely monitor any upticks in inflation arising from El Niño shocks – and alter their monetary policy stance appropriately – to avert second-round inflation effects. And in the longer term, investment in the agricultural sector, mainly in irrigation, as well as building more efficient food value chains, would serve as valuable insurance against future El Niño episodes.
Paul Cashin is an Assistant Director and Mehdi Raissi is an Economist, both in the IMF’s Asia and Pacific Department; Kamiar Mohaddes is Senior Lecturer and Fellow in Economics at Girton College, University of Cambridge.
This article is based on the 2015 IMF Working Paper, “Fair Weather or Foul? The Macroeconomic Effects of El Niño,” by Paul Cashin, Kamiar Mohaddes, and Mehdi Raissi.
[1] See Chudik, Alexander, and M. Hashem Pesaran, 2016, “Theory and Practice of GVAR Modeling,” Journal of Economic Surveys, Vol. 30, No. 1, pp. 165–97; and Cashin, Mohaddes, and Raissi, 2015, for details.
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First-ever World Humanitarian Summit must usher in new era of global solidarity – UN chief
Briefing Member States on 4 April 2016 on preparations for the upcoming World Humanitarian Summit, United Nations Secretary-General Ban Ki-moon called on Heads of State and Government to come to the event and deliver a strong message that “we will not accept the erosion of humanity which we see in the world today.”
“We must not fail the people who need us, when they need us most,” said the UN chief, drawing particular attention to the leader’s segment and the roundtables, that will take place during the 23-24 May summit in Istanbul, Turkey.
“First, the best way to achieve bold, courageous change is to make sure that leaders are there to deliver it,” Mr. Ban said, noting that the leaders’ segment will be an opportunity to discuss the five core responsibilities of his Agenda for Humanity.
The five core aims are: political leadership to prevent and end conflict; uphold the norms that safeguard humanity; leave no one behind; change people’s lives – from delivering aid to ending need; and invest in humanity.
“History will judge us by how we use this moment,” Mr. Ban said, urging States to come to Istanbul at the highest level and to show leadership on the great challenges of the 21st century.
“We must not let down the many millions of men, women and children in dire need,” he added.
Mr. Ban said that seven roundtable sessions will be held over the two days to provide a space for leaders from Member States, civil society and the private sector to focus on a number of challenges crucial to achieving the 2030 Agenda for Sustainable Development and other shared goals.
The themes of the roundtables are: Preventing and Ending Conflict; Upholding the Norms that Safeguard Humanity; Leaving No-one Behind; Natural Disasters and Climate Change; From Delivering Aid to Ending Need; Gender Equality; and Investing in Humanity.
He said that proposed core commitments that reflect some of the changes necessary to turn the Agenda for Humanity into action were circulated last week for consideration and should be finalized by 18 April.
These are voluntary and non-binding, and can be individual or joint commitments. The Summit is not an end point, but the beginning of a new era of international solidarity to halt the terrible suffering of people affected by conflicts and disasters. The Summit’s success would make an enormous qualitative difference in advancing action on so many other fronts – not least the 2030 Agenda.
The summit outcomes will include a Chair’s summary that will be issued in Istanbul, and a “Commitments to Action” document that will follow some time later. Along with the Agenda for Humanity, these all constitute important elements to the framework for action and follow-up, he said.
Post-Summit follow-up
The follow-up will begin with the Humanitarian Affairs Segment of the UN Economic and Social Council in June. In September, Mr. Ban will submit his report to the General Assembly, presenting the outcomes of the Summit and further possible steps ahead, he said.
At that point, Member States can decide to take forward some or all of the report's recommendations through intergovernmental discussions and negotiations, he said. The annual General Assembly humanitarian resolutions in the autumn will likely be vehicles for many of these important discussions.
“Last year we achieved major victories for global solidarity,” he said, referring to Sendai Framework for Disaster Risk Reduction, Addis Ababa Action Agenda, the 2030 Agenda for Sustainable Development, and the Paris Climate Agreement.
“Let us make the World Humanitarian Summit a historic step forward for our common humanity,” he said.
The briefing was organized by the Office for the Coordination of Humanitarian Affairs (OCHA) at the UN Headquarters in New York.
Agenda for Humanity: five key actions the world needs
Not since the Second World War have global humanitarian needs been so high. From the crisis in Syria and the drought in Ethiopia, to the conflict in Sudan and the violence in the Lake Chad Basin, more than 125 million people around the world whose lives have been devastated by conflict and disaster desperately need humanitarian aid and protection.
The first-ever World Humanitarian Summit on 23 and 24 May 2016 in Istanbul, Turkey – a culmination of three years of consultations with more than 23,000 people in 150 countries – will be an opportunity for leaders from governments, aid organizations, crisis-affected communities, the private sector and academia to come together and commit to take action to prevent and end suffering, reduce the impact of future crises and transform financing to save lives.
Ahead of the Summit, the Secretary-General presented the Agenda for Humanity, which outlines five different areas requiring collective action that, taken as a whole, provides the key actions and strategic shifts the world needs.
Core Responsibility 1: Prevent and end conflict
Unless political leaders show the will to prevent and end crises, little will change for the millions of children, women and men who are caught up in these crises. Leaders – including UN Security Council members – must put compassion and courage at the heart of their collective decision-making. They must analyse the risk of conflict and act early to nip conflicts in the bud. They must use all the leverage they have – political, economic and otherwise – to prevent conflicts and find solutions. And they need to put aside divisions to invest in peaceful and inclusive societies.
Core Responsibility 2: Respect rules of war
Unless international humanitarian and human rights laws are respected and monitored, and unless violators are held to account each time they break them, civilians will continue to make up the vast majority of people killed in conflict and their hospitals, schools and homes will continue to be obliterated. In addition, civilians will continue to be trapped by fighting parties and aid workers will continue to be barred from accessing them and will be putting themselves in danger when they try to do so.
Core Responsibility 3: Leave no one behind
Imagine being one of the most vulnerable people in the world. You’ve been forcibly displaced, or drought has killed your harvest for a fifth year running. You are stateless, or you are being targeted because of your race, religion or nationality. Now imagine the world says that none of these people will be left behind – that the world’s poorest will be targeted in development programmes, that world leaders will work to halve displacement, that women and girls will be empowered and protected, and that all children – whether in conflict zones or displaced – will be able to attend school. All of this could be a reality if leaders abide by these commitments.
Core Responsibility 4: Working differently to end need
Sudden natural disasters will take us by surprise, but many of the crises we respond to are predictable. Imagine working with at-risk communities and partners to help them prepare for crises so they are less vulnerable when crises strike. Imagine if we not only collected better data on crisis risk, but also acted on it early. By doing this, we could reduce risk and vulnerability at a global scale.
Core Responsibility 5: Invest in Humanity
If we really want to act on our responsibility to vulnerable people, we need to invest in them politically and financially. This means increasing funding not only to response, but also to risk and preparedness, to protracted conflicts and to peacebuilding. It means boosting local response through more funding to national NGOs and to pooled funds. It means stopping blocks to crucial investments, such as remittances flows. And it means being more creative with funding, using loans, grants, bonds and insurance mechanisms; by working with investment banks, credit card companies and Islamic social finance mechanisms, as well as with donors. It requires donors to be more flexible in the way they finance crises, and aid agencies to be as efficient as possible and transparent about how they are spending their money.
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tralac’s Daily News Selection
The selection: Monday, 4 April 2016
Starting today, in Addis: the ministerial segment of #CoM2016
Extracts from Dr Nkosazana Dlamini Zuma’s opening statement: The Bahir Dar Ministerial Retreat of the Executive Council in January 2014 called for the establishment of an African Economic Platform (AEP) that will enable a strategic dialogue amongst governments, the private sector and academia on the role of each sector in moving forward these critical priority issues mentioned above. We are organising the first of these platforms at the beginning of June, back to back with the Assembly Retreat with Heads of State and Government and Ministers of Finance on the issue of the financing of Agenda 2063 and the AU.
As part of this drive, we must continue the push for integration. The reality is that the cost of non-integration is growing: in the aviation and other transport sectors, in the energy sector, in building viable regional value chains, in the blue economy and in our skills deficit. As a continent, we are making progress, if we look at the advances by the RECs such as EAC and ECOWAS on free movement of people and goods; all the RECs on their transport corridors, and in some on the regional customs unions, and intra African trade and investments. For example, intra-regional trade in intermediate and capital goods, grew at more than 11% annually between 1999 and 2013.
The January Summit of the AU adopted a decision that called on countries to introduce a 30-day visa on arrival for all citizens from African countries, so as to encourage intra-African trade, investments, business and tourism, and Member states are required to report on this by the time of the Summit in July this year.
#CoM2016 - a guide to the weekend’s key report launches:
Africa Regional Integration Index Report 2016
The report covers member countries from the eight RECs recognized by the AU. The dimensions and indicators chosen for the index are based on the Abuja Treaty and its operational framework. Regional integration is cross-border and multi-dimensional. Indicators that have a cross-border interaction, and where verified, quality data is available, have been used to make up the Index. Future editions of the Index will grow in scope as more data becomes available.
Assessing Regional Integration in Africa VII: innovation, competitiveness and regional integration
These three elements may not at first seem linked, and competitiveness seems more usually related to efforts to integrate national economies into regional arrangements. But closer review reveals several ways the three interact dynamically. By knitting together networks of institutions, people and markets – the essentials setting innovation in motion – even a loose connection between two or more nations is bound to facilitate innovation and related creative activities. The cross-pollination of ideas and experiences greatly benefits innovators, who can use their enhanced knowledge to adapt ideas and apply them to push beyond the current frontiers of innovation – contributing to competitiveness within the bloc.
Economic Report on Africa 2016: greening Africa’s industrialization
Africa cannot continue on a business-as-usual trajectory if it truly wishes to industrialize and scale up broad-based development. Looking forward to 2050, and using a set of green agenda policy tools, many of the supply-demand gaps in energy close considerably if major investments tap into Africa’s vast renewable energy resources. Even water scarcity becomes manageable, largely as a result of improved governance, regional integration and green infrastructure. Critically, urban populations generate big dividends where investment is made in green infrastructure, and enhanced skills and innovation. African governments have [8] clear policy options to follow:
Transformative industrial policy for Africa
Chapter 5 examines two changes in the global economic environment that are supposed to have made it impossible for today’s poor countries, including the African ones, to draw lessons from the experiences of the more economically advanced countries in the past. One is the shrinkage in ‘policy space’ that has followed the establishment of the WTO and the proliferation of bilateral (and some regional) trade and investment agreements. The other is the proliferation and the strengthening of global value chains controlled by giant global corporations that make ‘nationalistic’ industrial policy less effective and less productive. We examine these arguments and show that, while they have changed what industrial policy measures can be used and are the most effective, these changes have not invalidated all types of industrial policy. There are still many industrial policy measures that can be used. Moreover, if anything, these changes have made it even more necessary for developing country industrial policy-makers to be ‘smart’ about devising development strategy and designing industrial policy measures. [The authors: Ha-Joon Chang, Jostein Løhr Hauge, Muhammad Irfan]
Africa’s Blue Economy: a policy handbook
This Policy Handbook, offers a step by step guide to help African member States to better mainstream the Blue Economy into their national development plans, strategies, policies and laws. It is a timely contribution to help the continent harness its "New Frontier".
Measuring corruption in Africa: the international dimension matters
Carlos Lopes, in the foreword: 'In my view, African countries and partners should move away from pure perception-based measures of corruption and focus on alternative approaches, which are fact-based and built on more objective quantitative criteria and include the international dimensions of corruption. The present report makes the case for such a shift. In the interim, while possible quantitative criteria continue to be explored, it is necessary to ensure that perception-based methods are better anchored on more transparent and representative surveys. These measurements should also be complemented, where possible, with quantitative country/case-specific indicators to produce more sophisticated and useful assessments.
The profiles go beyond a description of economic and social performance to include an analysis of the most pressing transformational issues and policies on the continent. The profiles cover countries of different sub-regions. In Central Africa: Cameroon, Central Africa Republic, Congo and São Tomé and Príncipe. In East Africa: Kenya, Rwanda, Tanzania, and Uganda. In North Africa: Egypt, Morocco, and Sudan. In Southern Africa: Zambia, Zimbabwe, Botswana, Lesotho and Namibia. In Western Africa: Côte d’Ivoire, Guinea, Niger and Senegal.
Ministerial roundtable on the impact of drought, floods and declining commodity prices: Remarks by AU Commission Chairperson
The need for macro-economic policy that supports growth and industrialization, and stimulus packages aimed at high impact areas: this includes a common understanding of Africa’s debt situation, in relation to our own aspirations and in comparison with the rest of the world. The debt to GDP ratio in Africa is still low compared with other parts of the world. Whatever we borrow must go towards investment in productive capacity, rather than recurrent. The centrality of the integration agenda: this includes our collective food security, regional energy pools, regional agriculture, agro-processing and manufacturing value chains. We also need to change our mindsets and believe in ourselves.
Finally, all these require us to act strategically and in a coordinated fashion as we domesticate and implement the Agenda 2063 first Ten-year plan and its priorities, promote solidarity and together, work towards enlarging our policy space. We should not allow our economies to be continual victims of circumstances, but take charge of our destinies. The answers to these issues are critical, so that if there are bold and tough decisions to be taken, we can present it to our leaders at the Assembly retreat and the Summit in Kigali. [Remarks by ACBF's Prof Emmanuel Nnadozie]
#Com2016 press reports, from the UNECA: Financing Africa’s pharmaceutical industry, New types of bilateral investment agreements offer Africa a chance for meaningful investments
West African Economic and Monetary Union: IMF staff report
Box 2: We estimate the possible effects of identified domestic and external downside risks on the WAEMU outlook. First, we simulate the impact of (i) country-specific delays in structural reforms and (ii) tighter or more volatile global conditions which would result in higher financing costs for governments and (iii) we model the impact of a growth slowdown in key advanced economies, China, and Nigeria. Results show that the materialization of these risks would reduce real aggregate WAEMU GDP growth by up to 1.5% points through different channels. Aggregate numbers hide diverse situations across countries: the impact of shocks is larger in countries with higher trade openness (Benin, Senegal, and Burkina Faso) and benefitting from higher investment levels from China (Niger and Togo). Transit and informal trade are major spillover channels of regional shocks (Benin, Togo) while regional linkages increase through rapidly growing cross-border banks.
Increasing private sector investments in frontier markets in Africa through a regional approach (AfDB)
The services to be provided under the assignment include: a) identify which of the following regions in Africa have the greatest potential to attract investments from and increase trade with South Korean chaebol and SMEs: (i) Great Lakes; (ii) Horn of Africa; (iii) Sahel; and (iv) Mano River Basin. Also to be carried out is a survey of South Korean companies, to prioritize and cluster the main investment and trade sectors and match these with the economic and business potential of the regions; b) assess the main constraints for the Korean companies and the challenges of the identified African region to facilitate investment and trade; and assess to what extent spatial economic policies, such as SEZs, growth poles, corridors, clusters could be an appropriate tool at the country and regional level.
CEN-SAD unites against terror (Ahram Weekly)
The 27 defence ministers from the African and Arab countries agreed on 17 points, which made up the body of the closing statement of this year’s CEN-SAD meeting. According to Mohamed Abu Bakr, Egypt’s permanent envoy to CEN-SAD, the most important achievement of this year’s meeting was the progress made toward the creation of a CEN-SAD Peace and Security Council. The participants succeeded in overcoming outstanding differences on this matter and approving a mechanism for conflict resolution and a regional counter-terrorism centre with its headquarters in Cairo.
RECs, CAAST-Net Plus: workshop on Africa-EU research and innovation activities
Discussions took place at a workshop in Pretoria on 4-5 February, which included science programming and science strategy presentations by ECCAS, ECOWAS, IGAD and SADC. The 12 presentations are available for download. [Underway, in Addis: The EU-African High-Level Policy Dialogue on Science, Technology and Innovation]
South Eastern Kenya Economic bloc formed (The Standard)
The proposed economic bloc, spearheaded by governors Julius Malombe (Kitui), Alfred Mutua (Machakos) and Kivutha Kibwana (Makueni) was also endorsed by former Vice President Kalonzo Musyoka. Dr Malombe, who was endorsed the chairperson and the convener of the initiative, said the concept of the SEKEB bloc was intended to pool and leverage on regional resources, county synergies and economies of scale in order to spur trade and investment in the region.
APRM’s turnaround strategy: update (AU)
Strengthening SADC parliamentary engagement in the budget cycle: project update (AWEPA)
Eastern/Southern Africa: AfDB announces $549m drought response package (AfDB)
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Economic Report on Africa 2016 launched with emphasis on green, inclusive industrialization
The Economic Commission for Africa on Sunday launched its flagship Economic Report on Africa 2016 with the ECA’s Deputy Executive Secretary, Mr. Abdalla Hamdok, saying as a latecomer to industrialization, Africa should adopt the green pathway towards sustainable and inclusive development to avoid pitfalls and mistakes made by some developed nations.
Addressing close to 200 delegates gathered to witness the launch of the report titled ‘Greening Africa’s Industrialization’, Mr. Hamdok said the continent can define and design its own pathway to industrialization based on its own realities and learning from history and experiences of other regions to leapfrog traditional, carbon-intensive methods of growth, while championing a low-carbon development trajectory.
“There is now growing commitment among African countries to pursue inclusive green development,” he told the high level delegates in attendance. “Collective commitment from across the African Union would strengthen the speed and effectiveness of such a strategic shift.”
Mr. Hamdok said Africa can take advantage of new innovations, technologies and business models as it optimally and efficiently utilizes her natural resources as inputs to an industrialization process powered by domestic endowments of clean sources of energy.
“In this regard,” he said, “the ERA 2016 encourages the region to pursue a pathway to green industrialization that economic growth is sustainable and inclusive through the creation of green jobs and other positive spillovers.”
Mr. Hamdok said a strategy for green industrialization, in its many dimensions, will deliver a more competitive and resource-efficient industrial sector.
Greening industrialization, according to the report – which also provides governments with greening policy suggestions – provides the impetus for turning current supply chains linking natural resources to markets, into value chains that diversify Africa’s economies and ensure greater value added.
Discussants were in agreement that in this era of growing scarcity, resource-rich Africa must shift away from being a marginal supplier of raw commodities, to harness the full potential of its natural resources by diversifying into greater value addition, through processing and marketing.
The 2016 ERA, Mr. Hamdock said, heralds an era for Africa to pursue an alternative and sustainable path through green industrialization.
This year’s follows the adoption of landmark global agreements that align with Africa’s need to industrialize, by generating greener and more inclusive growth, he said.
ERA 2016 highlights that Africa is poised for growth through green industrialization.
Also covered in the report are issues related to how the continent can achieve green industrialization. It highlights projects in a number of countries, among them Kenya and Malawi, that show how countries can develop through green industrialization.
It, however, notes a lack of or inadequate infrastructure conducive for greening Africa’s industrialization process but adds there’s willingness on the part of governments to transition from coal to greener pathways of development.
Ultimately, reads the report, a greener future holds the key to making good of Africa’s long-term development plans.
The report was launched during the ECA’s inaugural African Development Week.
Executive Summary
Structural transformation in Africa’s economies remains the highest priority, and industrialization is the top strategy for achieving it in practice. Achieving the African Union’s Agenda 2063 and fulfilling the Sustainable Development Goals will demand a major re-design of growth strategies across the continent.
The big opportunity for Africa in 2016, as a latecomer to industrialization, is in adopting alternative economic pathways to industrialization.
This requires governments to take on-board the drivers, challenges, and trade-offs in pushing for a greening of industrialization – and to build them into the vision and route-map for action. Seizing the momentum of the Paris Climate Agreement and the SDGs provides the ideal timing for such a shift in economic strategy.
Dispelling the myths currently surrounding green growth will promote the re-shaping of Africa’s economic growth in favour of sustainable development. Investing in environmental standards should be seen not as an obstacle to competitive manufacturing, but as underpinning competitiveness, making more efficient use of energy, and de-coupling resource use from output growth. While some individual countries have taken the lead, there would be far greater benefits from a regional approach to greening the essential infrastructure, industrial structures, and major trade flows that span each region.
Africa’s growth has been characterized by heavy reliance on natural resources and low productivity across most sectors. It has been accompanied by high energy and material intensities, as well as waste generation. These factors drive the resource scarcity and contribute to the high production costs that undermine the global competitiveness of Africa’s industrial sector.
Greening industrialization is an opportunity for Africa to achieve the type of structural transformation that yields sustainable and inclusive growth, creating jobs while safeguarding the productivity of natural resource assets. Growth in the region has been largely jobless and associated with the degradation of Africa’s valuable natural capital. Structural transformation through industrialization will inevitably and justifiably increase the uptake of resources. But a strategy for greening this process, in its many dimensions, will deliver a more competitive and resource-efficient industrial sector – one that provides employment, is climate resilient and is decoupled from environmental degradation. There is now a growing commitment among African countries to pursue inclusive green development. A collective commitment from across the African Union would strengthen the speed and effectiveness of such a strategic shift.
Governments are central in mapping out the pathway to green industrialization. Long term, consistent, and clear directions are required of policy makers to provide the institutional design and credible incentives at the heart of this structural transformation. Such a shift in economic strategy requires not a marginal tweaking of current policy tools, but a step-change in direction. Leadership at the highest level of government is needed to confirm this step-change. In addition to the adoption of effective inclusive green economy policies and strategies, greening industrialization will need relevant measures to create a policy environment characterized by good governance and institutions, available financial resources and technologies, and high quality human capacities.
But this is not just a task for government. Indeed, it will be achieved only by a partnership between government, business, civil society, producer groups, neighbourhood organizations, municipal government, researchers and technical experts. Greening industrialization provides the impetus for turning current supply chains linking natural resources to markets, into value chains that diversify Africa’s economies and ensure greater value added. In an era of growing scarcity, resource-rich Africa must shift away from being a marginal supplier of raw commodities, to harness the full potential of natural resources by diversification into greater value addition, through processing and marketing. The Africa Mining Vision offers a good example for making this step-change.
Taking stock of current economic trends, global economic growth slowed in 2015, reflecting a range of problems in the euro area, China, Brazil, and the Russian Federation, combined with the collapse of oil prices. This slowdown among Africa’s largest trading partners has inevitably hit economic performance on the continent, with growth moderating from 3.9 per cent in 2014 to 3.7 per cent in 2015. Africa’s reliance on exports of raw materials to other regions of the world has led to falling revenues for government and a decline in investment. Growth in many African countries has been underpinned by increased private consumption over the last few years, due to rising domestic demand, stemming from increased government spending in infrastructure projects and growing incomes among the middle class. An increase in inward investment has also spurred growth, thanks to improvements in the commercial environment and lower costs of doing business. But falling commodity prices now mean that most countries are experiencing growing fiscal deficits, especially those reliant on oil and gas exports, and will have to revise government spending plans.
Africa’s vulnerability to these external shocks calls for a rethink of its growth and broader development strategy along four critical dimensions.
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First, economic growth in Africa has not been inclusive: the number of Africans in absolute poverty has risen, and inequality remains a major concern.
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Second, growth has been associated with increased exploitation of non-renewable natural resources, incurring heavy costs to the soils, water, forests and biodiversity which make up Africa’s rich and diverse natural resource base.
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Third, the structures of African economies have remained largely based on raw material extraction, with very little value addition and limited employment generation.
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Fourth, Africa trades more with other parts of the world than within the continent. A strategic re-think across Africa’s regions could build much stronger domestic and regional linkages – reducing large and growing food imports, greatly improving the use of renewable resources, particularly water and energy, and establishing competitive industrial activity.
The challenge facing African leaders is to transform their patterns of production, and to build system-wide infrastructure in order to ensure secure supplies of water, food and energy. Green and inclusive industrialization provides a pathway to attain such goals. And since most African countries share common environmental challenges, greening Africa’s development would promote regional integration, cooperation and the growth of continent-wide innovation capabilities, putting Africa’s development on a more robust, technologically smart and sustainable foundation.
The time has never been better for African countries to follow this route to development. The past year has seen three landmark global agreements that align well with Africa’s need to industrialize, by generating greener and more inclusive growth. The first was the 21st annual Conference of the Parties (COP21) during the United Nations Climate Change Conference in Paris in December 2015. At COP21 all nations signed an agreement that – if the terms are carried out – will lead to a worldwide low-carbon economy and a shift away from fossil fuels. The agreement puts the global economy on course for transforming its energy systems. All countries have pledged “to keep a global temperature rise this century well below 2°C and to drive efforts to limit the temperature increase even further to 1.5°C, above pre-industrial levels”. All countries of the world have submitted plans laying out their intended contribution to achieving the global target of less than 2°C, and those plans will be subject to five-year review to ratchet up the ambition gradually. The second agreement – on the Sustainable Development Goals (SDGs), in September 2015 – places equality, sustainability and universal basic needs at the heart of our common global economic strategy. The Addis Ababa Action Agenda, the outcome of the Financing for Development summit in Addis Ababa in July 2015, offers a comprehensive framework for financing Africa’s industrialization and structural transformation, with an emphasis on domestic resource mobilization.
Properly aligned, these global agreements set the stage for international and regional partnerships that can transform Africa’s growth prospects. They confirm a shift in the direction of the global economy towards a sustainable, low-carbon future based on green and inclusive growth.
Africa is blessed with abundant land, water and energy sources and with a young and increasingly better educated population. Such abundance, when combined with capital investment, can generate the prosperity, employment and sustainability needed to achieve the promise laid out in the African Union’s Vision 2063. Some African countries are making good progress, with a focus on water, energy and agriculture, systematically building low-carbon development and climate resilience into their plans and decision-making. But many countries have yet to focus on how best to harness the post-2015 momentum in climate and sustainability and use it to accelerate their own plans for growth, structural transformation and sustainable industrialization. The year 2016 is the ideal time to redesign long-term growth plans to deliver green and inclusive industrialization.
A low-carbon economic pathway must be followed worldwide if the world is to keep the mean global temperature increase to less than 2°C. A perspective to 2050 and beyond means that all countries should plan their routes to deep de-carbonization to achieve 80 per cent emission cuts by 2050 and net zero carbon by 2070. African nations have contributed very little to global greenhouse gas emissions, and perhaps should not, therefore, be expected to take the lead on low-carbon development.
African countries can stand back and watch others take the lead in building a green economy – or they can benefit from their current low-carbon position and leapfrog the process. Following the latter strategy means that many African economies can get it right the first time; infrastructure does not have to be retrofitted to make it climate resilient, and high dependence on volatile fossil fuels can be avoided, bringing significant co-benefits for health and energy security.
Africa’s move to greener industrialization is not just a step towards meeting global carbon emission targets – it is a precondition for sustainable and inclusive growth. The Intended Nationally Determined Contributions, prepared by each country in advance of COP21, offer the ideal framework for practical steps over the next 5 to 10 years, aligning with long-term goals of de-carbonizing, building climate resilience and delivering sustainable development.
Africa can explore many ways to achieve green industrialization – starting with existing enterprises. Because of current high levels of waste and inefficiency at the plant level, supporting business to become more resource-efficient provides multiple opportunities for win-wins. And working at the systems level offers big opportunities for greening supply chains, infrastructure and, above all, energy generation.
Government has the central role in taking the long view – out to 2030 and beyond. Policy stability, effective pubic institutions and consistent implementation make all the difference in creating credible incentives to unlock private investment by small, medium and large enterprises. And while government must take the lead, it cannot hope to design, fund and achieve a green and inclusive economy on its own. Strong, long-term partnerships are needed with business, civil society organizations, community groups, municipal government, finance and research sectors. Each one brings its own skills, networks and interests to construct a shared vision for an inclusive green economy. Africa has a bright future that is within reach. The continent is a ‘gold mine,’ a world region with very significant natural resource assets, and significant growth and industrialization opportunities.
Building on previous editions, this report emphasizes effective policy frameworks and actions that will enable Africa to leapfrog in the industrialization process, particularly through good resource use and governance and the construction of green infrastructure. This report’s work on alternative scenarios makes this starkly clear. Africa is also fortunate to have excellent examples of what bold, informed decisions about green industrialization can achieve.
How best to stimulate growth and ensure it is both inclusive and environmentally sustainable? Africa cannot continue on a business-as-usual (BAU) trajectory if it truly wishes to industrialize and scale up broad-based development. Looking forward to 2050, and using a set of green agenda policy tools, many of the supply-demand gaps in energy close considerably if major investments tap into Africa’s vast renewable energy resources. Even water scarcity becomes manageable, largely as a result of improved governance, regional integration and green infrastructure. Critically, urban populations generate big dividends where investment is made in green infrastructure, and enhanced skills and innovation.
African governments have clear policy options to follow.
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First, they need leadership at the highest level to achieve this structural change. This leadership needs to translate a broad vision into strategy and policies. A credible and long-term plan is vital, which is shared and communicated clearly.
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Second, while current capacity may be limited, steps should be taken to build the ability to deliver. This means investing in domestic resources and learning lessons on greening industrialization from elsewhere. Many other governments are pursuing similar challenges – so there is much to be learned.
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Third, if governments really seek a stepchange in economic strategy, some interests are bound to block progress. Inevitably, such a shift in strategy will not please everyone, and government needs to be ready for this.
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Fourth, the enormous size of the informal sector means it cannot be wished away. Instead, government needs to find ways of engaging and bringing its energy and innovative capacity on board.
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Fifth, it can sometimes be tempting to consider large-scale initiatives as the only ones that really count. But in practice, lots of small initiatives add up to a big impact. A decentralized pattern of economic innovation can also be more resilient to shocks than a small number of large enterprises.
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Sixth, if government policy is to be credible, some fundamental institutions have to be in strengthened – among them, local government administration, land and property rights, and access to law.
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Seventh, it is important to decentralize economic activity across the country to avoid having everything happen in the capital city. In practice, much of the innovation is likely to be at the local level, since this is the arena where people, enterprise and the government administration have the closest connection.
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Eighth, if policy is to adjust to circumstance, there must be means to assess progress through regular data collection, review and adjustment to the strategy.
Central in all this is an approach focused on decoupling energy. Many industrial energy decoupling programmes in Africa show the scale of savings achievable in energy use. In Tunisia and South Africa big savings offer profitable opportunities to industries, and broader targets for greening in government strategies.
At the heart of green industrialization is infrastructure investment. Greening Africa’s infrastructure enables leapfrogging in the green industrialization process. Decisions today will have long-lasting impacts on patterns of growth and consumption. So getting it right the first time is vital to avoid retro-fits, which are always more expensive. It is also a no-regret investment option under any scenario or growth pathway for Africa, since at a minimum it will build Africa’s resilience to climate change. Bold expansion of renewable energy can help resolve Africa’s energy deficit, providing a cornerstone for Africa’s industrialization.
Greening African cities is another cornerstone of Africa’s green industrialization and another opportunity to leapfrog the green industrialization process. Cities bring together social innovation, skills, infrastructure, and energy, food and water security, making them a natural focal point for fueling green industrialization while making urbanization inclusive.
The year 2016 offers a valuable opportunity for a step-change in the direction taken by any African economies, in favour of structural transformation which delivers green, inclusive growth which builds industrial capacity, value added and quality employment.
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Assessing Regional Integration in Africa VII: Calls for greater focus on human capital and science and technology
Most African countries agree that regional integration is a goal which they should all aspire to, in order to foster inclusive and sustainable economic growth and development.
The report Assessing Regional Integration in Africa VII: Innovation, Competitiveness and Regional Integration (ARIA VII) launched on 2nd April during the African Development Week states that integration can foster innovation and competition in African countries through investment in human capital.
Africa has spent much of the past decade investing in physical infrastructure, but it must not forget the development of human capital, the report urges. Investing in education, particularly in science and technology, will bring about great gains for the citizens of the continent.
Developed jointly by the Economic Commission for Africa, the African Union Commission and the African Development Bank, this seventh edition posits that regional integration can enable innovation to generate greater competitiveness and trade, boosting integration, growth and development.
“As countries grow in innovation capacities, they are likely to integrate even more with each other through investment, supply chains, trade, knowledge and mobility,” said Mr. David Luke, Coordinator of the African Trade Policy Centre at ECA.
As the Acting Chief Economist of the AfDB, Mr. Charles Lufumpa, pointed out “Africa’s regional integration has changed and improved over the past five years,” culminating in the formation of a tripartite free trade area, and negotiations on the establishment of a continental free trade area.
Mr. Lufumpa thinks Africa can do better. “A lot of progress has been made but we still have problems with energy shortages which pose serious constraints on businesses; lack of integrated infrastructure, and slow implementation of policy.”
Mr. Sidi Ould Tah, the Director General of the Arab Bank for the Economic Development of Africa reminded the audience that the private sector was not given a role in the past, as an engine of economic growth. “To foster innovation, the role of the private sector needs to be expanded,” he argued.
Africa can learn from other countries which have invested much in building talent for innovation. “Africa values regional integration a lot and it can take India’s example of the massive investments made in tertiary education,” suggested Mr. S Kuppuswamy, Representative of the Confederation of Indian Industry and Director of the Shapoorji & Pallonji Group.
The Head of Programmes at Third World Network-Africa’s Secretariat, Mr. Teteh Hormeku, concurs that “it’s not enough to create markets, we must focus on developing capacity and talent.”
He counselled African states to look at the “interface between policies and the commitments we take outside the continent. We must seize this to ensure policy coherence and a pro-development Pan-African intellectual property framework.”
Summary
Assessing Regional Integration in Africa VII (ARIA VII) reviews the relationship between regional integration, innovation and competitiveness. These three elements may not at first seem linked, and competitiveness seems more usually related to efforts to integrate national economies into regional arrangements. But closer review reveals several ways the three interact dynamically. By knitting together networks of institutions, people and markets – the essentials setting innovation in motion – even a loose connection between two or more nations is bound to facilitate innovation and related creative activities. The cross-pollination of ideas and experiences greatly benefits innovators, who can use their enhanced knowledge to adapt ideas and apply them to push beyond the current frontiers of innovation – contributing to competitiveness within the bloc.
Regional integration changes national incentive frameworks as well. In the hope of incentivizing innovation, modern free trade agreements aim to strengthen laws and regulations on the ownership of intellectual property rights. At the same time, anti-competitive and efficiency-reducing regulations and practices are targeted for reform, given the inherent tension between intellectual property rights and access to innovations. It is no surprise that the scope of the negotiations for Africa’s Continental Free Trade Area, launched in June 2015, include intellectual property (IP) and competition policy with a view towards establishing common rules and approaches among African countries.
The wider consumer base provided by the regional economy translates into more demand and ultimately greater returns on any investment in innovation. In addition to facilitating access to new markets and tying them together, regional integration can also have more profound effects on consumer preferences and behaviour. Larger consumer group sizes particularly benefit niche innovators. Deep regional integration between states also enables innovators to cluster more effectively, as seen from the tremendous growth of the electronics industry in the countries of the Association of Southeast Asian Nations (ASEAN). Such clusters are boosted by joint production networks and supply chains, which allow innovators to benefit from scale economies.
The deeper the integration and the larger the community created, the greater the potential benefits for innovation. For countries in the institution-building and catch-up stage, integration with more developed partners can help to facilitate convergence through enhanced technology diffusion.
The African continent registered an impressive average economic growth exceeding 4 per cent between 2000 and 2014. But over the long term (1975 to 2014) growth was far below the average among Asian developing countries. Africa’s recent growth spurt has hardly changed the underlying orientation towards commodity dependence in national economies. Innovation capacities are therefore crucial for transforming what the continent produces and trades. Industry’s contribution to exports is minimal, however, and the growth of Africa’s merchandise exports is still driven by commodities rather than technological progress and factor efficiencies, which account for perhaps half the economic growth in successful economies.
Evidence in this report for 15 African countries for 1995 to 2010 shows that growth in most of these countries was through factor accumulation and not through major gains in input combinations associated with innovation. Even South Africa – a regional hegemon in the Southern African Development Community (and the continent’s most scientifically and technologically advanced country – has been mired in low total factor productivity growth, achieving just 0.04 per cent growth in 2010. This could suggest that South Africa is caught in a “middle-income trap” where the advantages of “catch-up or late-comer” policies have been exhausted and it must now move to new areas driven by science, technology and innovation (STI), but that also take into account its excess labour and high unemployment.
The report examines how to harness the linkages between regional integration, innovation and competitiveness within the framework of Africa’s normative regional integration development model oriented to structural change. It demonstrates that, in a virtuous circle, innovation is both a driver and beneficiary of competitiveness, endogenous growth, development and transformation.
Key messages
Status of regional integration in Africa
African countries’ commitment to integrating their economies remains unwavering. Progress continues along the dimensions of integration identified in the Abuja Treaty, even if it is uneven across regional economic communities and countries.
The Tripartite Free Trade Area and Continental Free Trade Area are major milestones in Africa’s trade integration
Two key shifts in Africa’s trade integration occurred in 2015. First, the Tripartite Free Trade Area Agreement between the Common Market for Eastern and Southern Africa, the East African Community and the Southern African Development Community was signed in June 2015. While much work remains to put it into effect, it nonetheless marks a huge step towards rationalizing Africa’s regional trade arrangements. Second, also in June 2015, the Continental Free Trade Area negotiations were formally launched. They are expected to last until the end of 2017 and will cover trade in goods and services, investment, intellectual property rights and competition policy.
Africa’s regional economic communities continue to adopt formal trade measures
Africa is making progress in establishing legal frameworks to deepen trade integration among regional economic communities. In January 2015, the Economic Community of West African States launched its customs union, which eight of the bloc’s 15 member States began to implement through a common external tariff by April 2015. The Arab Maghreb Union is coming closer to launching its own free trade area. Its member States have already signed three out of the four protocols needed for the FTA, with the protocol on rules of origin remaining.
The share of intra-African trade in gross domestic product is rising but remains low against that in other regions
Intra-African imports as a share of the continent’s GDP rose from around 2.7 per cent in 1995 to around 4.5 per cent in 2013, but this is low compared with regions such as the Americas (6.7 per cent), Asia (17.9 per cent) and Europe (21 per cent). However, among the eight regional economic communities recognized by the African Union, only the Southern African Development Community (from 3.6 per cent of GDP in 1995 to 5.7 per cent in 2014) and the Common Market for Eastern and Southern Africa (from 0.8 per cent in 1995 to 1.8 per cent in 2014) have seen substantial increases in the share of intra-regional trade in GDP. The Southern African Development Community is Africa’s only regional economic community among the highest-performing regional trade agreements worldwide in 2013 (sixth out of 32; Africa’s other regional economic communities fall in the bottom half).
African countries have taken steps to boost trade in goods within the continent, but not enough
Several of Africa’s regional economic communities have reduced tariffs on intra-regional imports to a relatively low level: out of Africa’s regional economic communities with free trade areas, the East African Community has a zero average applied tariff on imports within the bloc, while the Economic Community of Central African States and the Common Market for Eastern and Southern Africa both apply tariffs averaging around 1.9 per cent. The Southern African Development Community’s and Economic Community of West African State’s intra-regional tariffs are higher, at 3.8 and 5.7 per cent. Common Market for Eastern and Southern Africa, East African Community, Economic Community of West African States and Southern African Development Community have all adopted measures to facilitate transport and reduce non-tariff barriers.
Rising intra-regional trade in intermediate and capital goods suggests the development of regional value chains
Africa’s intra-regional trade in intermediate and capital goods grew at more than 11 per cent annually between 1999 and 2013, greatly outstripping the continent’s real economic growth of 4.4 per cent. Southern and West Africa appear to be leaders on this metric.
Intra-African trade in services has untapped potential, especially as services now account for a large share of gross domestic product in some countries
Intra-African trade remains low, however, because of weaknesses in manufacturing. African countries are estimated to import around $98 billion in services from outside the continent. Lower barriers to services trade between African countries could potentially allow African firms to capture much of this business. But African countries have high barriers: 19 of 26 African countries studied fall in the bottom half of the global rankings for ease of trade in services.
Economic partnership agreements with the European Union and mega-regional trade agreements make it crucial for Africa to conclude, quickly, the Continental Free Trade Area
The economic partnership agreements are likely to undermine Africa’s regional integration and cause revenue losses for countries, and mega-regional trade agreements to undermine the continent’s trade performance, including through preference erosion. Implementing the Continental Free Trade Area before these agreements take effect would reverse most of these impacts.
Macroeconomic performance remains mostly sound, though the economic slowdown in China could pose difficulties for some countries
Africa’s macroeconomic performance remains largely solid, but China’s slowdown could be challenging for fiscal policy in some African countries. In particular, reductions in global commodity prices could pose problems for debt repayment in African countries with sovereign bonds.
Intra-African direct investment appears limited, but pan-African banks are emerging
Though data are limited on intra-African foreign direct investment, it appears that such flows represent only a fraction of Africa’s GDP. However, some African banks are opening branches across the continent, suggesting a potential for greater financial integration if barriers to cross-border lending are lowered further.
Africa’s regional economic communities have further liberalized movement of persons, but barriers remain
Some of Africa’s regional economic communities, including the East African Community (particularly Kenya, Rwanda and Uganda) and the Economic Community of West African States have facilitated their nationals’ movements among member countries. Progress in other regional economic communities is less advanced, however, and the average ratification rate for protocols on free movement of persons remains at 60 per cent. The continent’s infrastructure continues to improve Africa is employing innovative methods to raise infrastructure finance and to drive forward strategic infrastructure projects, including cross-border transport, communications and pipeline projects. The continent is also working on energy projects. Multiple African countries have made large strides in improving road density and quality as well as internet bandwidth. The Economic Community of Central African States, Southern African Development Community and some East African countries have created single-area mobile phone networks across several countries, reducing roaming costs.
Some regional economic communities are harmonizing mining policies and standards, but not others
The East African Community, Economic Community of West African States and Southern African Development Community have taken steps in this direction, but more need to follow the Africa Mining Vision, which provides a blueprint for mining standards across the continent.
African countries are demonstrating a strong commitment to peace and security cooperation
Over 45,000 African personnel were committed to United Nations and African Union peacekeeping missions in Africa. African leaders negotiated swift returns to civilian rule after coups d’état in Burkina Faso and Mali. And African forces from multiple countries have made substantial progress in combating the terrorism of Boko Haram in West Africa as well as Al-Shabab in Somalia.
Regional integration, innovation and competitiveness
Regional integration is a driver and beneficiary of innovation
As the countries in the bloc grow in innovation capacities, they are likely to integrate even more with each other through investment, supply chains, trade, knowledge and mobility. Innovation drives and is driven by accompanying changes in production capacities and competitiveness. Innovation generates greater competitiveness and trade, boosting integration, growth and development.
Innovation drives growth and structural transformation through increased productivity
The increase in output growth that cannot be associated with other measurable changes (such as labour and capital) is taken as innovation, which (technological or not) contributes to growth and structural change. The most obvious manifestation of structural change is the sectoral reallocation of activities, typically with movement towards higher links in the value chain. Innovation, in various forms, raises growth through at least four channels: technological progress, investments in knowledge-based capital, multi-factor productivity growth and creative destruction.
Africa’s recent growth spurt has been generated through factor accumulation and not through gains from input combinations linked to innovation
This finding applies to most of 15 African countries studied, and even South Africa – one of the 15 and the continent’s most scientifically and technologically advanced country – is mired in low total factor productivity growth.
Empirical evidence suggests a positive correlation between innovation and competitiveness
Worldwide, countries at the top of the Global Innovation Index are also at the top of the Competitive Industrial Performance index. African countries have very low rankings on both indices, and on the Global Competitiveness Index. Mauritius was Africa’s best performer on the Global Innovation Index in 2014 (40th out of 143 countries) and on the Global Competitiveness Index (39th out of 144 countries).
Research and development-generated intellectual property is necessary for innovation but not the only condition
Perhaps only 4 per cent of new innovations are based on research and development, and the rest on practice; the vast majority comes from routine learning and economic operations. In short, innovation is a new way of combining factors of production so that the resulting output has practical utility and commercial value, or addresses a consumer’s wants differently – or both.
Innovation is a potential vehicle for technological leap-frogging
Innovation offers unique opportunities to “late-developer” countries to leap-frog: they can seize opportunities not only in emerging but also mature industries. Forerunners maybe locked in current technologies due to large sunk investment costs, but late developers are not, benefiting from entering mature industries without having to bear the research and development costs. Late developers can adopt the most up-to-date products and services, processes, organizational methods and marketing tools as part of catch-up and leap-frogging. Like other world regions, Africa has particularly benefited from innovations enabled by information and communications technology – better take-up and use is imperative.
Innovation and the global intellectual property regime
The TRIPS Agreement constricted developing countries’ policy space
The Trade Related Aspects of Intellectual Property Rights Agreement under the World Trade Organization took away some policy space open to developing countries under World Intellectual Property Organization treaties. Yet it has “flexibilities” that developing countries should use in their intellectual property regimes. Least developed countries in particular have an extendable transition period to apply the agreement. However, all African countries – least developed countries and not least developed – can adopt strategies to maximize policy space in agriculture, manufacturing and public health and more broadly on access to knowledge. Historical conditions have changed but countries still have “freedom to operate.”
The Sustainable Development Goals include technology transfer provisions
The Sustainable Development Goals adopted by the United Nations in September 2015 includes one goal and two targets on technology transfer through a balanced approach to intellectual property rights. While the design and operation of the proposed technology transfer mechanism has not yet been agreed, African countries should keep pushing in this area.
African countries have been active in Geneva in intellectual property rule-making
African countries have been active at the World Trade Organization and World Intellectual Property Organization in Geneva in pursuing initiatives on intellectual property rule-making, and the Doha Declaration on the TRIPS Agreement and Public Health marks a rare example of their success. Conversely, their moves on global intellectual property rules for genetic resources, traditional knowledge and folklore, and geographical indications, which can help to counter bio-piracy, have yet to bear fruit.
At home, African countries need to be more strategic in harnessing intellectual property to enhance innovation and competitiveness for driving structural change and regional integration
Regional cooperation arrangements on intellectual property policy require reform. Ties between Africa’s intellectual property organizations – the African Regional Intellectual Property Organization made up mainly of Anglophone countries, and the Organisation Africaine de la Propriété Intellectuelle incorporating mainly Francophone countries – and science, technology and innovation policy frameworks at national, regional and continental levels are tenuous, and the two organizations’ mandates generally preclude them from helping countries to exercise their patent rights and counter intellectual property “mercantilism,” including the use of flexibilities. Nor do they have links to free trade and bilateral investment agreements with external partners.
Current African Union initiatives through the Continental Free Trade Area negotiations and the effort to establish a Pan-African Intellectual Property Organization provide an opportunity for Africa’s regional cooperation on intellectual property policy.
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Transformative Industrial Policy for Africa: Put manufacturing at the centre of development
“Countries can decide their development path. Countries become good at things because they want to excel at making those particular things,” renowned Development Economist Mr Ha-Joon Chang told delegates on 3 April 2016 at the second Annual Adebayo Adedeji Lecture during African Development Week.
Chang, popular author and University of Cambridge development economist, argued that industrialisation is imperative for Africa’s development and wealthy nations. Institutions who advise otherwise are distorting their own histories of development, he maintained.
Citing South Korea as an example of industrialisation success, Mr Chang declared that history is replete with examples of countries forging a different path from the one they were advised to follow by international institutions.
“Most developed economies have succeeded in growing their economies because of infant industries,” argued Mr. Chang. This allowed for the development of skills and protection of the domestic market until such time as industries had matured.
“Infant industry protection creates the ‘space’ for an improvement in productive capabilities, but does not automatically lead to productivity increases.” Chang explained that countries make the common error of not investing in productivity growth areas such as machines, research and skills.
Commodity dependence leaves countries vulnerable to shocks and decline in terms of trade and focusing on service industries won’t solve problems of poverty and inequality, argued Chang.
Manufacturing, however, helps to raise productivity, spreads learning and technological progress, and leads to innovations that can be transferred to other sectors.
“You have to learn from other countries,” Chang said, advising countries to develop strategies to locally produce goods and develop local skills to export. “Economic development requires export success.”
Despite prevailing economic orthodoxy, Chang said industrialisation must remain at the centre of African development. Manufacturing and agriculture can work to support each other, he said, and despite World Trade Organisation regulations and the penetration of monopoly producers across international and local global value chains, countries can still find space to reach high levels of development through industrialisation.
The annual lecture was launched in 2014 and named after Adebayo Adedeji, recognizing the former Economic Commission of Africa (ECA) Executive Secretary and United Nations Under-Secretary General for his commitment to development, Africa and humanity.
Adedeji’s son introduced Chang during Sunday’s lecture and the professor spoke on themes explored in his books, criticising the neo-liberal development policies African states have been pressured to adopt by the Bretton Woods Institutions, the Washington Consensus and foreign donors. Using the economic development of South Korea and the US as examples,
In his opening remarks, ECA Executive Secretary Carlos Lopes described Adedeji as a beacon for African development and a builder of institutions, saying that much of ECA’s inspiration for work on industrialisation comes from Mr Chang.
“He provides an excellent mix of history and economics by bringing to us the experience other countries have gone through in their development experience.”
Chang has authored two books, Kicking Away the Ladder and Things They Don’t Tell You About Capitalism, and Economics, and on Sunday launched a third, Transformative Industrial Policy for Africa, launched alongside the ECA’s 2016 Economic Report on Africa.
The inaugural lecture last year was delivered by Donald Kaberuka, former president of the African Development Bank, who left office in 2015.
This article is published in the African Development Week Roundup - Day 4 by IC Publications.
Transformative Industrial Policy for Africa
Africa is at a crossroad. After a long history of exploitation (slave trade and colonialism), violent conflicts (liberation struggles, civil wars, and military coups), and economic turmoil (the varied experiences of initial post-colonial economic development, devastation due to the Structural Adjustment Programmes of the 1980s and the 1990s), it has finally seen a decade of improved economic growth and greater political stability.
Once written off as a continent uniquely suffering from structural impediments to economic growth and development – poor climate, disadvantageous geography, varying degrees of ethnic diversity, poor institutions, cultural prejudice etc – there is now widespread optimism about the future of the continent. The talk of ‘African growth tragedy’ is being replaced by a talk of ‘Africa rising’, with metaphors like ‘African lions’ – in obvious homage to that of ‘Asian tigers’ – flying around.
However, it is not yet clear whether Africa can turn the recent economic recovery into sustained economic development. First of all, the acceleration in economic growth over the last decade in several countries in the continent is owed to one-off factors, like the finding of important oil or mineral reserves (e.g., Equatorial Guinea) or the end of a prolonged civil war (e.g., Chad). More importantly, most of the acceleration in economic growth has been based on high prices of primary commodities, and at that with relatively little upgrading within the commodity sectors themselves (e.g., making cocoa butter and powder instead of exporting cocoa beans). As such, the recent fall in commodity prices, likely to last for a while, is dimming the prospect of growth in the short- to medium-term. More importantly, the failure of most African countries to use the recent commodity-based growth to start a more sustainable growth based on the development of the manufacturing sector (including but not exclusively the processing of primary commodities) is making the continent’s long-term prospect worrisome – no country, except a few states exceptionally rich in oil (e.g., Qatar, Kuwait, Brunei) or very small financial havens (e.g., Monaco, Liechtenstein), has achieved high and sustainable standards of living without developing a significant manufacturing sector.
In light of this, it is important that African countries begin to think seriously about – and implement – ways to upgrade their commodity sectors and, more importantly, promote the development of higher-productivity sectors, especially manufacturing but also some highend services. This report is intended as a contribution to that thinking process.
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Ministerial Roundtable on the Impact of Drought, Floods and Declining Commodity Prices in Africa: ‘Africans must ask their leaders the difficult questions’
African leaders should not allow their respective economies to be continual victims of circumstances. They should take charge of their destinies to alleviate suffering and give people on the continent hope that the leadership is determined to and capable of changing the fate of the Africa and set it on a new path.
The challenge was made by Dr Nkosazana Dlamini-Zuma, AU Commission chairperson, in her address to the Ministerial Roundtable on the theme “Addressing the Impact of Drought, Floods and Declining Commodity Prices in Africa: What Coping Strategies and Capacities are required?”, on 3rd April 2016, jointly organized by the African Union Commission and the African Capacity Building Foundation (ACBF).
The event at the Conference Center of the United Nations Economic Commission for Africa (ECA) in Addis Ababa, Ethiopia was intended to tackle the issues of the drastic decline in demand for, and a sharp drop in the prices of, a wide range of commodities produced and exported by most African countries in recent months, causing adverse financial and economic effects on the continent. According to the organizers, this situation is worrisome in that most African economies are still heavily dependent on commodity exports. Rising United States interest rates have resulted in currencies depreciation and risen external indebtedness as well as mounting inflationary pressures.
The situation has been exacerbated by widespread and prolonged drought that has adversely affected agricultural production especially given that rain-fed agriculture remains the backbone of many African economies. Low river flows and drying reservoirs have rendered irrigation schemes inactive and led to increased hydro – power deficit. In a number of countries, floods have also been prevalent and have destroyed infrastructure, caused displacement of people and are leaving water borne diseases on their path.
As a consequence most African economies are navigating through stormy and rocky economic situations. Humanitarian, financial and macro-economic management as well as capacity challenges are immediate. Therefore the AUC-ACBF provided a platform for the participants to exchange views on effective mitigation measures and stimulus packages to urgently address these issues.
Dr Dlamini-Zuma said there was need for African leaders to “change our mindsets and believe in ourselves” if solutions were to be found to the challenges the continent was facing.
“The answers to these issues are critical, the practical solutions and actions we propose must alleviate suffering, but above all give our people hope that we are a leadership determined and capable to change the fate of Africa and set it on a new path, breaking the cycles of dependency and vulnerability,” she said.
She said since 2000, Africa had seen an impressive turnaround, with 5% average growth compared to about 2% during the ‘80’s and early ‘90’s. “We know that for this to be transformative, it has to be growth with industrialisation, and transformation of agriculture and African labour markets.”
Dr. Dlamini-Zuma said among the lessons that had been learned from trying to meet the goals set in the MDGs was the fact that Africa’s growth could not be stable if it was not inclusive, its economies could not be resilient if they were not diversified, its products not competitive if not processed and business and trade could not thrive on a continent that is fragmented.
“Since we are so vulnerable to the fluctuations of commodity prices, what are the real explanations for the cyclical collapse in prices, and are they always linked to what happens in the real economy in the world? Why, despite the dire situation, are we still recording growth of above 3.5% and are still home to among the fastest growing economies in the world? What drives this growth?” she asked.
It is imperative that the African economy be analyzed to understand why it is still vulnerable to weather fluctuations, and what needs to be done to build resilience in Africa’s agricultural products so as to make them more competitive in the world market, she said.
She also noted however the negative effect of climate change such as the El Niño phenomenal on the African economy leading to recurring droughts and floods in some part of the continent, which she said calls for emergency action each time they arise including many other challenges Africa is facing.
She went on to ask about the impact of the fall in earnings from commodities on production and revenues, and on the population in terms of jobs, incomes, consumption and poverty.
“What has happened with our tax base, the state of our fiscal deficits and debt? What impact on investments, domestic and foreign, is this having? Is it inevitable that these recurring phenomena constitute emergencies each time they arise? Are our difficulties with managing emergencies inevitable or is it in our power to adapt and build resilience to withstand these occurrences because we know they will recur?”
She said it was Africans’ responses to these questions that would allow them to make progress on the continent’s transformation agenda. “Africa must defend and expand investments in education, skills and science technology to further boost the economic growth of the continent,” she emphasized.
The ACBF’s executive secretary, Prof Emmanuel Nnadozie, noted the great significance of the ministerial round table discussion to the African Economy given that droughts, floods, and other hazards do have negative impacts on agriculture, food availability, infrastructure, assets, and productive capacity. Though studies over the past 20 years showed that Africa is the second fastest growing economy in the world, it is however witnessing a lot of issues related to Climate Change which also is the cause of droughts, floods and decline in commodity prices in Africa.
Professor Nnadozie highlighted that relatively low economic growth in the continent can partly be explained by the external environment, which is now becoming less supportive. He further explained that the impact of climate change is felt at all levels ranging from droughts and floods which also causes a decline in crops production which are an important source of revenue to many African countries, thereby worsening a situation that is already bad.
Meanwhile, the commodity index prices has declined from 210 in April 2011 to 90.73 in December 2015 signifying that more primarily commodities have to be produced for the same amount of revenue, reiterated Professor Nndozie. He added that the key challenge had been the lack of capacity to anticipate, prevent and mitigate these kinds of challenges facing the continent.
He said Africa’s vulnerability to sudden changes in commodity prices and external shocks is as a result of their heavy dependence on primary commodity export which also explains why in 2012/2013, out of 94 commodity dependent developing countries, 45 came from Africa with more than 60% of their exported merchandise made of primary commodities. It is important to mention that a decline in commodity price generally affects the pace of growth in household income, company profits and revenue for government.
Despite the negative impact of declining commodity prices and occurrence of droughts and floods in most parts of Africa, in some countries measures have been successfully developed to tackle the issues, he said.
“The issue of droughts, floods and decline in commodity prices can be addressed if Africa pays particular attention to the right policies and necessary capacities,” Professor Nnadozie concluded.
Water shortages
Giving country reports, a speaker from Lesotho lamented the shortage of water for the majority, at a time the commodity was being exported to South Africa. “Infrastructural development is lacking to enable us to supply our people with the precious commodity, which is in abundance in our country,” he said.
A speaker from Liberia said his country needed to make massive investments in the road network and in energy. “We are aware of what needs to be done for our country to move forward, but are constrained on how we balance conflicting issues,” he said.
A speaker from Benin said his country had addressed the shortage of funding by floating social impact bonds to harness domestic and Diaspora investors.
“We have decided to promote small and medium enterprises but have had to put in place the necessary infrastructure to enable them to operate. And we have seen an increase in our tax base as the SMEs are now part of the tax paying league,” he said.
“We convene this Roundtable to brainstorm what needs to be done, to defend the gains of the last decade, and create policy space to implement the ambitions programmes of transformation that we set for ourselves,” Dr Dlamini-Zuma said.
The event was attended by Dr. Ngozi Okonjo-Iweala, Economist and Former Finance Minister of Nigeria, Mr. Mohamed Beavogui, UN assistant Secretary General and Director of the African Risk Capacity, AUC Commissioners, Ministers and Representative from Member States as well as high level officials from various continental and international organisations.
With inputs from an article published in the African Development Week Roundup - Day 4 by IC Publications.
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African Governance Report IV: Rethinking how we measure corruption
Since the 1990s, perception-based measures have been influential in determining levels of corruption on the continent. The fourth Economic Commission for Africa (ECA) African Governance Review report, argues that such measures misrepresent realities in Africa and are misguiding policymakers and investors.
The report, titled Measuring corruption in Africa: The international dimension matters, says that many existing indicators are highly subjective and based on the opinions of elites. They are not suited for making country comparisons and ignore the international aspects of corruption.
“We are concerned that these existing perception-based and mixed indices measures of corruption are flawed,” said Namibian Minister of Finance, Calle Schlettwein, at the launch of the Report, which was held during African Development Week in Addis Ababa, Ethiopia.
A range of perception-based measures of corruption, such as Transparency International’s well-known Corruption Perception Index, compile information from sources and surveys, which are used to determine a country’s perceived level of corruption, and rank countries alongside each other.
Measuring Corruption in Africa argues that the measurements used to ‘name and shame’ countries can have a dire impact on development, sometimes negatively influencing aid allocations and foreign direct investment. Chantal Uwimana, Transparency International’s regional director for Sub-Saharan Africa, said that the Corruption Perception Index was designed as an awareness tool and was never meant to be used for policymaking. “It’s really like criticising a car for not flying,” she said.
Olajobi Makinwa, head of Anti-Corruption and Transparency Africa at the United Nations Global Compact, said: “Generally, measuring corruption is fraught with difficulties.” While perception-based measures don’t work, objective data is difficult to attain as, by nature, corruption is secretive.
“The issue of corruption, not only in Africa but the world, is like a cancer,” said Ugandan Finance Minister Fred Omach. Corruption is commonly cited as one of the continent’s key impediments towards achieving the goals of the 2030 Sustainable Development Goals and Agenda 2063.
One of the key issues raised in the report and during its launch was the international dimension of corruption in Africa. The issue has been in the spotlight since the release of the Report of the High Level Panel on Illicit Financial Flows from Africa last year, highlighted the vast sums leaving the continent through illicit outflows. The fourth African Governance Review report makes a number of recommendations, both to improve the measurement of corruption as well as fighting the scourge.
Transparency is crucial, it says, and governments could reduce corruption by making procurement data readily available. African governments should also approve freedom of information laws, seek to further involve citizens in policymaking, and support free media. Countries should build strong institutions in order to combat corruption and not simply mimic those from abroad. To combat international issues of corruption, the report encourages international and regional organisations to uphold their anti-corruption regulations and for African states to work closely with global partners to combat illicit financial outflows.
Distributed by African Media Agency (AMA) on behalf of IC Publications.
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ECA launches much-awaited Country Profiles, highlighting strengths and weaknesses of Africa’s economies
Numbers matter: ECA country profiles will assist member states to take more control of their own developmental narratives
As challenging as it is for many countries to produce reliable and up to date statistics, the need to do so is critical in order to enable them to not just own their numbers but to track their progress and development.
This was the prevailing sentiment at the launch of the Economic Commission of Africa’s (ECA) Country Profiles. The profiles, covering 20 African nations, were launched during the African Development Week. The profiles go beyond a description of economic and social performance to include an analysis of the most pressing transformational issues and policies on the continent.
Ms. Giovanie Biha, ECA Deputy Executive Secretary, told delegates at the launch that in the long run, country profiles would be used as a tool through which the ECA will monitor the pace of structural transformation on the continent.
The profiles cover countries in different sub-regions. In Central Africa: Cameroon, Central Africa Republic, Congo and São Tomé and Príncipe. In East Africa: Kenya, Rwanda, Tanzania, and Uganda. In North Africa: Egypt, Morocco, and Sudan. In Southern Africa: Zambia, Zimbabwe, Botswana, Lesotho and Namibia. In Western Africa: Côte d’Ivoire, Guinea, Niger and Senegal.
The ECA believes that country profiles will assist member states to take more control of their own developmental narratives, putting them in a better position to make evidence-based policy decisions. They are also intended to assist countries to identify niches for transformation.
The broad picture across these countries highlights the relative performance of each. For example, over the 2012-2014 period, 14 of the 20 countries recorded real GDP growth rate above the African average of 3.9%. “Cote d’Ivoire was the fastest growing economy in 2014 with real GDP growth of 8.5 percent. Rwanda and Tanzania registered the second highest real GDP growth rate of 7%,” said Ms. Biha.
The data shows that 19 out of the 20 countries examined had current account deficits in 2013 and 2014, with the exception of Botswana. They show varying poverty rates ranging from Morocco at the top end (0.3%) to Zimbabwe at the bottom (72.3%).
Seven countries profiled had inflation levels above the African average of 7%. Three of these had double digit inflation – Sudan at 36.3% in 2013, Guinea at 12.3% and Tanzania at 10%.
The analysis uses statistics and national data collected from credible domestic sources such as central banks, relevant ministries and others, in line with the push to build Africa’s statistical capacity and credibility.
The data reflects five years of analysis, from 2010 to 2015, with as much information collected in this timeframe as possible, although not all categories or years are covered in every instance. Estimates are made for 2015 figures, with projections for 2016.
Given that more than 60% of Africa’s population still works in agriculture, the country profiles provide broad coverage of this sector. The reports highlight the importance of accelerated structural change and they focus on the need to shift resources out of traditional agricultural into higher value-added activities in manufacturing and services, while not neglecting the importance of modernising the agricultural sector itself.
The ECA will update the country profiles on a quarterly basis, working with national statistical agencies and think tank organisations, as well as other institutions and leaders on the continent in their bid to help transform the African economy. By 2017, all African states will be covered by the survey.
Background
Country Profiles are flagship products of ECA, intended to serve as a vehicle for the production and dissemination of country- and region-specific policy analyses and recommendations, geared towards promoting sustainable growth and social and economic transformation, deepening regional integration, development planning and economic governance, and contributing to the mitigation of various risks that could impact on member States’ development efforts.
The ECA Country Profiles are intended to provide periodic assessments focusing on policy analysis, regional integration and economic transformation, and provide a tool for forecasting and risk analysis. The country profiles will also provide pertinent and strategic recommendations to national and regional institutions. They are envisioned as a valuable and unique source of comparative data for academics, civil society and analysts.
The Country Profiles offer an independent narrative of Africa’s economic and social development experience and prospects, provide assessments focusing on policy analysis, and countries’ move towards regional integration and economic transformation. The Country Profiles also provide a quality assessment of economic forecasting for featured countries.
Twenty Country Profiles were published in March 2016, covering the period September 2014 to September 2015. Countries covered have been selected from all five subregions and include: Kenya, Rwanda, Uganda and the United Republic of Tanzania for the East Africa subregion; Cameroon, the Central African Republic, the Congo and Sao Tome and Principe for Central Africa; Egypt, Morocco and the Sudan for North Africa; Côte d’Ivoire, Guinea, the Niger and Senegal for West Africa; and Botswana, Lesotho, Namibia, Swaziland, Zambia and (tentatively) Zimbabwe for Southern Africa.