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IMF regional consultation with the West African Economic and Monetary Union
On March 21, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the annual Discussion on Common Policies of Member Countries of the West African Economic and Monetary Union (WAEMU).
Background
Despite the fragile security situation in some member countries and a less favorable external environment in 2015, economic growth exceeded 6 percent for the second consecutive year, driven by ongoing infrastructure investments, solid private consumption, and favorable agricultural campaigns. Inflation has remained subdued around 1 percent in 2015, reflecting the exchange rate anchor and positive terms of trade developments. Monetary policy has remained accommodative, with the key policy rate unchanged at 2.5 percent since September 2013, and private sector credit grew by nearly 14 percent in 2015.
The overall budget deficit (including grants) increased to 4.8 percent of GDP in 2014, up from 3.3 percent in 2013, largely driven by ongoing large public investment programs to address countries’ infrastructure gaps. This deterioration increases public debt for the region to 44.7 percent of GDP in 2015 from 38.9 percent in 2014.
The drop in oil prices has lightened the energy bills for all WAEMU countries while cocoa and groundnut prices have remained buoyant, thereby improving the trade balance, notably of Cote d’Ivoire, the largest economy in the region. However, the surge of imports associated with public investment and private consumption has partly offset the impact of lower energy bills. As a result, in 2015 the region’s overall current account deficit reached 5.6 percent of regional GDP, compared with 6.1 percent in previous year, and gross international reserves rose to 5 months of imports from 4.7 months in 2014.
The medium-term growth outlook remains positive but entails significant downside risks. Growth should remain above 6 percent, owing to continued strong domestic demand, while inflation is expected to remain subdued. The overall fiscal deficit should gradually decrease while total public debt is projected to stabilize at moderate levels (about 40 percent of GDP). In the short term, security risks remain high. In the medium term, weaker trading partner growth, tighter global financial conditions, sluggish implementation of structural reforms, and difficulties delivering on the planned fiscal consolidation could weaken growth prospects.
WAEMU: Staff report on common policies of member countries
The region continues to experience strong growth in 2015, and the immediate outlook is positive. Inflation is projected to remain low, reflecting the exchange rate peg and positive terms of trade developments. However, risks are on the downside. In the short term, security risks remain high. In the medium term, weaker trading partner growth, tighter global financial conditions, sluggish structural reforms, and difficulties delivering on the planned fiscal consolidation could weaken growth prospects.
Policy recommendations
The challenge is to sustain the growth momentum while preserving internal and external stability in an uncertain global landscape.
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Fiscal policy. Pursuing fiscal consolidation while meeting development needs will require steadfast implementation of reforms to increase domestic revenue, rationalize current spending, improve public financial management, increase public investment efficiency and further strengthen debt management.
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Monetary policy. Macroeconomic conditions do not warrant a tightening of monetary policy. Action is needed, however, to enhance monetary transmission mechanisms. This will require improving liquidity management, deepening financial markets, and strengthening market-based operations.
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Financial sector. The authorities should pursue the reform agenda to strengthen risk-based supervision, align prudential limits with international standards and best practices, and avoid regulatory forbearance. Financial deepening will also be critical.
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Competitiveness, diversification, and inclusion. Strong resolve is needed to move ahead with long-awaited structural reforms to boost competitiveness and diversification, improve the business environment and enhance inclusion
Recent economic developments
Growth remains robust and inflation subdued. While average economic growth in Sub-Saharan Africa has been slower than expected, reflecting weak commodity prices and difficult financing conditions, economic activity in the WAEMU remained strong. Regional real GDP growth is estimated to have reached 6.4 percent in 2015, driven by ongoing infrastructure investments, solid private consumption, and favorable agricultural campaigns. Inflation remained subdued reflecting the exchange rate anchor and positive terms of trade developments.
The fiscal deficit widened further. The overall fiscal deficit has largely been driven by ongoing large public investment programs. It is estimated to have reached 4.6 percent of GDP in 2015 up from 3.4 percent in 2014. This deterioration brings the regional deficit more than 2 percentage points higher than the average of the last 10 years.
The current account deficit remains large in spite of lower energy prices. The drop in oil prices has lightened the energy bills for all WAEMU countries while cocoa and groundnut prices have remained buoyant, thereby improving the trade balance, notably of Cote d’Ivoire, the largest economy in the region. However, the surge of imports, associated with public investment and private consumption has partly offset the impact of lower energy bills. Thus, the region’s overall current account deficit has improved somewhat from 6.1 to 5.6 percent of regional GDP. Gross international reserves (GIR) have slightly increased, supported by a stricter implementation of the obligation to repatriate export receipts. The net foreign asset (NFA) position of commercial banks, however, has continued to deteriorate. This appears to reflect commercial bank sales of foreign currency to meet client needs, exceeding corresponding purchases from WAEMU central banks or from exporters.
The external position is sustainable but vulnerabilities remain. Model-based assessments indicate that the current account and real effective exchange rate are broadly in line with fundamentals. Regional reserve coverage, even after assuming that BCEAO reserves would be used to replenish commercial banks’ NFA drawing, remains adequate – provided the current account deficit stabilizes over the medium term – according to traditional metrics and under the zone’s monetary arrangement with France.
Outlook and Risks
The outlook remains positive. Over the projection period, growth should remain above 6 percent, owing to continued strong domestic demand and stronger agricultural production. Meanwhile, inflation is expected to remain subdued over the medium term. The overall fiscal deficit should gradually decrease while total public debt is projected to stabilize at moderate levels (about 40 percent of GDP). The current account deficit (including grants) would stabilize slightly above 6 percent of GDP over the medium term because of fiscal consolidation and rising exports. FDI and capital transfers are expected to remain the main source of external financing. Reserve coverage would remain stable.
The outlook is subject to significant downside risks.
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The projected economic growth assumes the realization of reforms to spur private investment. In particular, growth in most WAEMU countries anticipates progress in the efficiency of infrastructure investment, reforms of the energy sector, a more inclusive financial sector, and improvements in the business climate. If structural reforms fail to materialize, growth prospects could falter.
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Fiscal consolidation is required to maintain macroeconomic stability and thus the sustainability of the currency peg.
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Security-related risks remain high in several countries. Islamist groups remain active in Mali and Niger with potential spillovers to neighboring countries. Beyond the immediate human toll, security issues would affect economic activity, strain budgets and undermine foreign investment to the region.
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On the external side, a further slowdown in global growth, and/or tighter global financial conditions, could affect macro-fiscal stability, foreign direct investment, and other external flows (Box 2). Lower cocoa and groundnut prices would also adversely affect exports. Overall, external growth shocks could reduce WAEMU growth by up to 1.5 percentage point.
Box 2. WAEMU: Risks for the Regional Economic Outlook
We estimate the possible effects of identified domestic and external downside risks on the WAEMU outlook (See companion Selected Issues Paper). 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 percentage points through different channels.
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Delays in structural reforms. For most WAEMU countries, growth projections under the baseline scenario assume the realization of growth-enhancing structural reforms including improvements in PFM, better incentives for private sector activity, higher investment efficiency etc. Country assessments of a delay in those reforms show substantially lower domestic investment growth coupled with less external financing, reflecting mainly a significant reduction in private and foreign investment due to a less favorable business climate. This scenario would result in a lower WAEMU economic growth by about 1-1.5 percentage points compared to the baseline scenario.
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Tighter global and, therefore, regional financing conditions in 2016-17. While regional exposure to global financial markets remains limited, increased financing costs could affect the region through higher regional risks premia and availability of external and regional financing. Overall, WAEMU growth could be reduced by about 0.6 percentage points compared to the baseline scenario, owing to lower private investment.
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Lower growth in key advanced economies. Result show that a 1-percentage point lower growth in key advanced economies would reduce WAEMU real GDP by about 0.8 percent after two years and about 1 percent at the peak after five years.
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Lower growth in China. A slowdown in China would directly affect regional exports and investment flows. WAEMU countries could also be affected through cross-border spillovers from the Euro area and other emerging market partners. A 1-percentage point lower growth in China would lower WAEMU real GDP by about 0.5 percent in the short term. It is worth noting that the effects of a lower growth in China have increased over time, and also become more heterogeneous across all countries. Finally, lower growth, driven by a slowdown in the manufacturing sector has significant spillover effects suggesting a potential important role of China rebalancing process on the region.
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Lower growth in Nigeria. Spillovers from Nigeria are the lowest: a 1-percentage point lower growth in Nigeria would reduce WAEMU real GDP by only 0.2 percent after 3-4 years.
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.
Selected Issues Paper
Public investment efficiency in WAEMU: An empirical assessment
WAEMU countries are projected to increase public investment volumes significantly to close the region’s infrastructure gap. This gap is relatively large and has been widely identified as a growth bottleneck. The WAEMU’s infrastructure needs are substantial. In particular, WAEMU countries are lagging behind sub-Saharan African benchmark countries in electricity supply, paved road density and telecommunication infrastructure. Insufficient or inefficient infrastructure reduces the return to trade and economic activity and constrains growth prospects. To close this gap, many WAEMU countries are envisioning to significantly boosting public capital expenditure in the medium-term. On average, staff projects that public capital expenditures will increase to around 9.5 percent of GDP in 2015 to 2019, up from an average below 8 percent in 2011-14.
In addition to the infrastructure gap, however, the region’s infrastructure is also perceived as being of relatively low quality, and investment efficiency appears low. The most recent World Economic Forum’s (WEF) Global Competitiveness Indicators ranks WAEMU countries 110 out of 148 countries, behind the sub-Saharan African average and sub-Saharan African benchmark countries. The quality of electricity supply, railroads and roads scored below sub-Saharan benchmark countries’ average as well. At a comparable level of real public capital stock, WAEMU’s overall infrastructure quality is perceived as lower than that of regional peers.
There is substantial room to improve public investment efficiency in WAEMU, in particular by improving the quality of institutions. The analysis finds that WAEMU’s public investment efficiency seems weak relative to that of the best performers in SSA, using efficiency frontiers. The regression analysis suggested that stronger institutions could reduce the public investment efficiency gap in WAEMU. WAEMU countries need to evaluate the strength of their PIM practices and identify country-specific PIM institutional priorities for reform. Improving public investment efficiency, in turn, could help boost growth and speed up progress in realizing the development agenda.
Fiscal space in WAEMU
The Need for Scaling Up
WAEMU countries need to mobilize substantial financial resources to address the infrastructure gap, which has been widely identified as a growth bottleneck. Many studies find that inadequate infrastructure impedes growth. Infrastructure development was estimated to have contributed about 1 percentage point to per-capita growth in West Africa in 2001-05. For Benin, Domínguez-Torres and Foster (2011) estimate that infrastructure contributed 1.6 percent points to per capita growth; while in Senegal, Torres, Briceño-Garmendia, and Dominguez (2011) find the contribution was about 1 percent point. Also, raising the two countries’ infrastructure endowment to that of Africa’s middle-income countries could boost annual growth by 3.2 and 2.7 percentage points respectively. Recent reports also confirmed a continued infrastructure bottleneck in other WAEMU countries.
To finance the scaling up of public investment while preserving macroeconomic stability, WAEMU countries have to use their fiscal space efficiently. While WAEMU countries’ external debt levels declined owing to the heavily indebted poor countries (HIPC) multilateral debt relief initiative, leaving some scope for external borrowing, the availability of financing at attractive terms is limited. Also, some countries’ total government debt has increased considerably since those countries received the debt relief, which suggests that caution is warranted in additional borrowing.
Therefore, it is essential for the sustainable financing of scaling up infrastructure investment that the two major channels for creating fiscal space be used. These channels are increasing tax revenue and increasing the efficiency of spending.
Raising Tax Revenue
Improving tax collection remains the main channel for enlarging the fiscal space. This has been well recognized in the WAEMU, which has a convergence criterion of 20 percent for the tax-to-GDP ratio, even though several member countries have not been in compliance with this criterion for years.
The WAEMU’s relatively high indirect tax rates have not resulted in higher tax collection. Indirect tax rates in the WAEMU are higher than the average rates in sub-Saharan Africa and in low-income countries, especially for goods and services taxes and trade taxes. However, higher rates have not generated higher revenues. Roughly, the tax-to-GDP ratio has been below the sub-Saharan Africa average throughout the observation period (2000 to 2011), and just broadly in line with the low-income countries average. Looking at the trend over time, the WAEMU’s tax-to-GDP ratio improved from 11.7 percent of GDP in 2000 to 14.7 percent of GDP in 2011, driven by a broad trend in all member countries except Côte d'Ivoire, where results were affected by internal conflicts. However, the size of improvements varied considerably among the countries. For instance, Benin’s total tax revenue increased by 2.1 percent percentage points, while Togo’s total tax revenue rose by 6.6 percent percentage points.
Looking at the performance tax by tax, the improvement in the WAEMU’s tax ratio is driven by higher collection from income tax and goods and services taxes, while trade revenues are broadly flat due to limited trade liberalization.
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Trade taxes: In contrast with sub-Saharan African and low-income countries, where weighted average tariff rates declined, reflecting trade liberalization over the last decade, the WAEMU’s tariff rates dropped only marginally and the tax-to-GDP ratio has remained broadly stable over time. In the comparator groups, sub-Saharan Africa’s drop in trade tax revenues reflects the rate decline, while it seems that low-income countries were able to offset the rate decline by efficiency measures that allowed these countries to broadly preserve the trade- tax-to-GDP ratio.
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Personal income taxes: The WAEMU increased the tax-to-GDP ratio from about 3 to close to 4 percent of GDP, but it remained below the ratios for low-income countries and subSaharan Africa.
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Goods and services taxes: The francophone tradition of relying more on direct than on indirect taxation is reflected in the relatively higher rates. This translates into a higher level of tax revenues than is the case in comparator countries by around 0.6 to 0.8 percent of GDP. Also, the improvement in the WAEMU countries over the observation period was most pronounced in this tax category.
WAEMU countries show considerable variation in the drivers for revenue collection by tax categories. For example, in Togo, income tax revenue declined from 2.9 percent to 2.5 percent of GDP, but goods and service tax revenue rose sharply from 2 percent to 9.2 percent of GDP. In Benin, the revenue gain was driven by higher trade tax revenue, while goods and services tax revenue declined. In Cote d’Ivoire, however, the decline in tax revenue was mainly driven by falling trade tax revenues.
Our analysis suggests that WAEMU countries are ahead of comparator countries in their total tax collection, but have room to improve income tax collection. In 2011, total tax collection in the WAEMU exceeded the potential revenue by around 6 percent and 12 percent when compared with low-income countries and sub-Saharan African countries respectively. This shows an improvement compared to 2000 when the WAEMU’s total tax collection was below potential by around 4 percent compared with both low-income and sub-Saharan African countries. The following factors explain this trend:
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Goods and services taxes: The relative improvement between 2000 and 2011 was mainly driven by a more positive goods and services tax gap. However, higher tax rates in the WAEMU explain at least part of this positive tax potential.
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Trade taxes: Despite the higher average tariff, our tax potential analysis indicates only a moderately positive tax gap in 2011. However, improvements of the trade tax revenue compared 2000 range from below to slightly above potential for both benchmark groups.
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Income taxes: Revenue performance as measured by the tax gap deteriorated from around - 1½ percent to around -5½ percent compared with the gap in sub-Saharan African countries, and closed only slightly from around -3½ percent to around -2 percent with respect to the low-income country benchmark.
WAEMU countries have substantial room to improve domestic tax collection. WAEMU countries have recently initiated reforms towards trade liberalization, most notably, the introduction of a common external tariff for all Economic Community of West African States countries in January 2015. While the implementation will be gradual, it is expected that trade revenues will decline. Therefore, it is important for the WAEMU to enhance its domestic tax revenue base, in particular, income tax revenues, where both analytical approaches indicate room for improvement by around 0.8 to 2 percent of GDP.
Improving spending efficiency
Is there scope for creating fiscal space by improving the efficiency of public spending? Our analysis focused on the technical efficiency of translating public spending into the corresponding results by comparing WAEMU’s input-output performance in public spending to those of other sub-Saharan African countries with similar levels of development. In addition, to reflect WAEMU countries’ aspirations to accelerate growth, specific comparisons with the fast-growing non-resource rich sub-Saharan African countries were provided. Quantitative assessments were conducted through a nonparametric data envelopment analysis (DEA). While public spending covers many sectors, only the education and health sectors were analyzed because these are sectors in which public spending plays a major role, and consistent cross-country data are readily available. Furthermore, based on data for 2008-12, we estimated the potential budgetary savings from higher efficiency in education and health to better inform policy discussions.
Financial stability, development and inclusion in the WAEMU
Based on most recent indicators of stability, deepening and inclusion, this paper provides comparative evidence of the situation of WAEMU in several areas of financial development relative to groups of benchmark countries. A regression of the volatility of growth on financial development highlights that the volatility of growth in the WAEMU over the last decades could have been substantially lower if financial development was at the levels of Asian or African benchmark groups.
While growth of credit to the economy is robust, there are significant gaps in the financial development in the region. Credit to the economy continues to grow robustly at around 15 percent year on year and the average WAEMU country’s credit to GDP level is in line with its macroeconomic fundamentals. However, the region is facing challenges in other dimensions of financial development. On the regulatory and financial stability side, prudential standards in WAEMU are weak by international standards and not well enforced. Indicators of financial inclusion have improved recently but are lagging behind both a group of African (Ghana, Kenya, Lesotho, Rwanda, Tanzania, Uganda, and Zambia) and Asian (Bangladesh, Cambodia, India, Laos, Nepal, and Vietnam) countries with whom the WAEMU shared similar levels of development in the 1990s but which have since then experienced faster growth.
As these benchmark countries have also experienced a decline in the volatility of growth over the same horizon, the question arises in how far this observed stability has been driven by developments in the financial sector. Growth in the WAEMU has been volatile, even when excluding large movements in real GDP per capita growth in Cote d’Ivoire due to episodes of political instability. As African and Asian benchmark countries which have on average succeeded to increase financial development more strongly, have also witnessed lower volatility of growth over the last decade, the question arises to what extent further financial development in the region could mitigate these growth swings. To answer this question, this note uses the recently developed index of financial development by Sahay and others (2015), and tests for its economic and statistic significance in a panel regression, together with standard determinants of growth volatility. The results suggest that difference in financial development in the WAEMU compared to the African and Asian benchmark countries can account for 10 percent of the difference in the volatility of growth between the WAEMU and these groups in the last decades. In addition, as pointed out by Sahay and others (2015), a more developed financial sector could also boost growth itself.
Developments in Banking and Financial Stability
The WAEMU’s banking sector has been growing at a steady pace over the last few years, with variations across member countries. This growth which averaged 15 percent a year reflects the continuing development of banking activities and products and their reach in the WAEMU area. It also underscores an increasing contribution to finance the economy. While credit to the private sector remains one of the main banking activities, banks sovereign exposures appear to be on the rise reaching more than 26 percent of total assets in 2015.
Developments in Financial Access
Access to financial services has increased in most WAMU countries but remains lower than in benchmark countries. Access to financial services, as measured by the share of the population with a bank account, has increased significantly in most WAMU countries from 2011 to 2014. The share of the population with an account has more than doubled in Senegal from almost 6 to almost 12 percent, and Niger from a low level of 1½ percent to almost 3½ percent. Benin, Togo, and Mali have seen increases of more than 50 percent in these shares. Moreover not all groups of the population have benefited equally from this increase in access. Financial access gaps across gender, age, education and income remain relatively high, and have even increased in some cases. The share of the population in possession of a debit or credit card also remains multiple times lower in WAEMU countries as compared to the benchmark groups.
Developments in Microfinance
While micro-finance activities have been steadily increasing in WAEMU, they are still low relative to those of the banking sector. There were around 724 Micro-finance Institutions (MFIs) at end June 2015. Their deposits and credit activities witnessed a steady average annual increase of 12.2% and 9.9% respectively. However, the size of these activities is still very low compared to banking sector. While microfinance institutions have been a strong tool to promote financial inclusion in WAEMU, they have posed some challenges, including weak credit management, poor governance, lacking information systems and internal controls, weak application of prudential rules, and existence of some MFIs without proper licenses. In order to address these issues, WAEMU authorities have proceeded to liquidation and license revocation of many MFIs and closure of a large number of unlicensed MFIs. Some of the solutions taken by WAEMU authorities were also to regroup some small MFIs into networks, ensure a close monitoring of problematic MFIs and place some of them (13 as of June 2015) under temporary administration. Moreover, the initiatives taken by the BCEAO to establish a regional financial inclusion strategy and the creation of a credit information reporting system for MFIs are also additional tools to enhance the stability of this system and allow it to play its intended role.
Composite Measure of Financial Development
A composite measure helps rank the WAEMU’s performance in terms of financial development across several dimensions. The new broad-based index of financial development by Svirydzenka (2016) and Sahay and others (2015) helps benchmarking the WAEMU against benchmark groups according to its financial institutions and markets. The composite measure of financial inclusion suggests that the WAEMU lags behind benchmark groups with respect to the development of financial institutions and markets. While the WAEMU’s level of financial development was similar to that of other regions in the 1980s and 1990s, it was outperformed, especially by the Asian benchmark group in the 2000s and today. While there is a significant difference between the WAEMU’s performance in financial institutions compared to the Asian benchmark, the difference is even larger for the financial markets index. In particular, the financial market development appears insignificant in most WAEMU countries, except for Cote d’Ivoire. However, these low levels are comparable to the group of African benchmark countries.
Financial Development and Volatility of Growth in the WAEMU
This section tries to assess how further financial development could contribute to reduce the volatility of growth in the WAEMU. Building on Sahay and others (2015), we regress rolling standard deviations of growth (five-year period ending in current year) on the financial development index and a set of controls – initial GDP per capita (PPP), trade and financial openness, energy exports in percent of GDP, the volatility of foreign growth, gross capital inflows to the region excluding the country in question, terms of trade changes, the polity index, transition and offshore center dummies, growth of GDP per capita and the government balance. The results suggest that higher financial development is associated with lower volatility of growth and the relationship is weakening at higher levels of financial development.
Income inequality, gender inequality, and growth in the WAEMU
There is robust evidence that higher income inequality can impede growth. Lower net income inequality has been associated with faster and more sustained economic growth in both advanced and developing countries. With imperfect credit markets, income inequality prevents an efficient allocation of resources by decreasing poorer households’ ability to make investments into human and physical capital. Higher income and wealth inequality can also lead to socio-political instability and poor governance, thus discouraging investment.
The evidence that gender inequality is impeding economic growth is also growing. Gender inequality has been associated with worse growth and development outcomes. Gender gaps in economic participation restrict the pool of talent in the labor market and can yield a less efficient allocation of resources, lower productivity and hence lower GDP growth. Since women are more likely than men to invest a large proportion of their household income in the education of their children, higher economic participation levels and earnings by women translate into higher expenditure on school enrollment for children. IMF (2015) highlights reductions in gender inequality as one of the most promising avenues to boost growth in the region – together with closing gaps in infrastructure and education. It shows that decreasing income and gender inequality in sub-Saharan African countries to levels observed in the ASEAN 5 (Indonesia, Malaysia, the Philippines, Thailand and Vietnam) could increase real GDP per capita growth by about 1 percentage point on average.
This paper has shown that both lower income inequality and lower gender inequality could boost real GDP per capita growth in the WAEMU, in addition to previously identified policies. The results emphasize that gender inequality of outcomes and opportunities is very high, and policies to mitigate these inequality are particularly promising. In particular, closing gender gaps in education would not only stimulate growth from a more efficient allocation of resources, it would in addition increase total education in the region, thus boosting growth further. Lower gender inequality has also been associated with a more equal income distribution which in turn is also associated with higher growth. This note confirms previous findings that the region could benefit from boosting infrastructure and human capital and strengthening of institutions.
The following policies could help reduce income inequality and gender inequality:
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Remove legal inequalities between men and women. For example, Namibia equalized property rights for married women and granted women the right to sign a contract, head a household, pursue a profession, open a bank account, and initiate legal proceedings without the husband’s permission in 1996. In the decade that followed, Namibia experienced a 10 percentage point increase in its female labor force participation rate. Lower gender gaps in female labor force participation, in turn, have also been associated with lower income inequality.
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Foster education. This could not only increase productivity through a more efficient allocation of resources but in addition boost overall education levels, a pre-requisite for sustained growth.
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Boost infrastructure, including through improving access to water and increased electrification of the region. This could not only boost growth directly but in addition free women’s time to go to school and join the labor market since girls and women are most cases the main providers of household work.
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Reduce the regressivity of fiscal spending and taxes. In particular, replace across-the-board subsidies with well-target social transfer schemes.
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Foster financial inclusion, including for women (see SIP on financial inclusion and stability)
In promoting policies to reduce gender and income inequality, this paper does note pose any normative judgment on countries social and religious norms but argues for a level playing field, for all agents in the economy being able to explore their economic potential – if they so choose.
Assessing risks for WAEMU economic outlook
Risks to the regional outlook are skewed to the downside. As shown in the 2016 WAEMU Staff Report on Common Policies of Member Countries, the outlook for the region is positive but with downside risks. On the domestic side, delays in implementing structural reform may lower regional growth prospects. The positive outlook of the baseline scenario assumes, indeed, timely and effective implementation of several domestic reforms such as (i) enhancing the efficiency of spending and improving the quality of public investment; (ii) creating additional fiscal space to meet development needs while safeguarding macroeconomic stability and debt sustainability; (iii) increasing financial access and inclusion while preserving financial stability; and (iv) boosting competitiveness and diversification, improving the business environment and enhancing inclusion. On the external side, the growth slowdown in China or tighter or more volatile global conditions would also affect WAEMU members. While regional exposure to global financial markets remains limited, increased financing costs could influence the region through higher regional risks premia and availability of external and regional financing. A sharper-than-expected slowdown in China would directly affect regional exports and investment, flows. WAEMU countries could also be affected by cross-border spillovers from the Euro area and other emerging market partners.
Country-specific simulations indicate that delays in structural reforms would lower WAEMU economic growth by 1-1.5 percentage points compared to the baseline scenario. The domestic risk scenario assumes a delay in key reforms at each individual country level (and at the regional) level. These reforms can be related to fiscal consolidation, improvement in public finance management, infrastructure investment, the energy sector, the financial sector, or business climate. As these reforms are already – to the certain point – integrated in the countries’ baseline projections, their delay has an immediate impact on the consolidated WAEMU economic performance. Assuming inertia in structural reforms, domestic investment growth would be lower by about 2.5-3 percentage points compared to the baseline, reflecting mainly a significant reduction in private investment due to a less favorable business climate than assumed in the baseline scenario. Domestic consumption growth is projected to be lower by about 1.2 percentage points compared to the baseline. Lower domestic demand is expected to immediately reduce imports while export growth would decline more gradually reflecting lower competitiveness of the region. The current account balance (excluding grants) is projected to improve by about 0.5 percentage point of GDP, on average. The overall fiscal balance (excluding grants) is expected to improve by about 0.6 and 0.2 percentage point of GDP in 2016 and 2017, respectively, due to lower public investment. However, with falling fiscal revenue, the overall fiscal balance would deteriorate by about 0.1 percentage point of GDP over the medium term. Delays in structural reforms would put strains on external financing; lowering substantially current transfers and official loans up to about one percentage point of GDP in favor of more short-term portfolio inflows. This scenario would result in a small cumulative reduction in WAEMU official reserves of about US$ 0.2 billion.
Simulations show that tighter global conditions in 2016-17 would affect WAEMU growth mainly through lower investment. A global financial volatility scenario assumes a reassessment by investors of underlying risks and a disorderly overshooting in the normalization of risk premia across the globe, leading to higher corporate default rates, heightened money market spreads, and depressed consumer and investor demand throughout the world. Under this scenario, lower risk appetite among investors reduces the availability of both external financing and capital inflows to the region by about one percentage point compared to the baseline. While regional exposure to global financial markets remains limited, increased financing costs impacts financing at the regional sovereign bond market. Initially, the governments are expected to maintain investment efforts and face higher debt service, which would contribute to an increase in the overall fiscal deficit. Private investment growth on the other hand is projected to slow down by about 0.5 percentage point, on average, compared to the baseline. Over the medium term, as external financing for the region is expected to resume slowly, more costly regional financing would lead to lower public investment growth by about 0.8 percentage point compared to the baseline. Overall, this scenario would reduce WAEMU growth by about 0.6 percentage points, on average.
Global and regional growth shocks will impact economic growth in WAEMU countries. We model the impact of lower growth in key economic partners of the region:
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Lower growth in key advanced economies. Result show that a 1-percentage point lower growth in key advanced economies would reduce WAEMU real GDP by about 0.8 percent after two years and about 1 percent at the peak after five years.
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Lower growth in China. A slowdown in China would directly affect regional exports and investment flows. WAEMU countries could also be affected through cross-border spillovers from the Euro area and other emerging market partners. A 1-percentage point lower growth in China is estimated to lower WAEMU real GDP by about 0.5 percent in the short term. It is worth noting that the effects of a lower growth in China have increased over time, and also become more heterogeneous across all countries. Finally, lower growth, driven by a slowdown in the manufacturing sector has significant spillover effects suggesting a potential important role of China rebalancing process on the region.
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Lower growth in Nigeria. A 1-percentage point lower growth in Nigeria would reduce WAEMU real GDP by 0.2 percent after 3-4 years.
Spillover effects become more important with the strengthening of trade and financial linkages. The above results suggest that the impact of growth shocks in China and Nigeria is larger in countries with higher trade openness, less diversified export structure, and with larger investment from China. For instance, a 1-percent point lower growth in China reduces real GDP by 1.2 percent at the peak in countries with more trade openness as Benin, Senegal, and Burkina Faso compared to 0.4 percent for less open economies. The results also indicate that a lower growth in China reduces real GDP by 1.2 percent in WAEMU countries where Chinese investment has been above the regional average, such as Niger and Togo. However, spillover effects are smaller for countries with a more diversified export structure as Cote d’Ivoire and Senegal. Cross-border banking groups – with ten pan-African banks already present in the SSA region and, at least, three in the WAEMU and neighboring Nigeria – constitute another rapidly developing shock propagation channel.
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The Seventeenth Session of the Regional Coordination Mechanism (RCM) for Africa kicked off on 2nd April 2016 at the United Nations Economic Commission for Africa (UNECA) Conference Centre in Addis Ababa, Ethiopia, amidst reiterated calls for coordination in the implementation of the African Union’s Agenda 2063 and the global Sustainable Development Goals (Agenda 2030).
RCM-Africa – a platform for the UN system to support the African Union and its member countries to implement global, and continental development goals in Africa – will play a key role in making this a reality.
The meeting was highly attended by high officials from the African Union Commission (AUC) led by the Chairperson of the AU Commission, H.E Dr. Nkosazana Dlamini Zuma; the UN Under-Secretary General and Executive Secretary of the ECA, Mr. Carlos Lopes; the Representative of the UN Deputy Secretary General, Under Secretary General and UN Special Adviser on Africa, Maged Abdelaziz; high officials from UN agencies and Systems; the African Development Bank; the NEPAD Planning and Coordinating Agency; the World Bank and the IMF; and AU Member States.
The deliberations called for strengthening of partnership, accountability, progressive monitoring and evaluation system, and transformative path to the economic development of Africa through syncing the Agenda 2063 and the Sustainable Development Goals (SDGs).
Officially opening the meeting H.E. Dr. Nkosazana Dlamini Zuma, stated that one important lesson from the Millennium Development Goals (MDGs) in Africa is that initial conditions invariably influenced the pace of progress on global development agendas. However, each region has to consider both what it has and it’s aspirations in order to meet obligations to its citizens as well as global obligations.
She indicated that, it comes as no surprise in the technical analysis of the goals of Agenda 2063 and the Sustainable Development Goals that there is over 90% convergent. The implementation of the Agenda 2063 priorities will help in meeting the sustainable development goals. “The RCM in 2015 agreed on the need for joint implementation, and this 17th RCM must therefore focus on the practicalities of this at continental level with the Regional Economic Communities (RECs),” noted the AUC Chairperson. She further acknowledged the recommendations on the reconfigured RCM clusters based on the agenda 2063 10 year Implementation Plan, on the concrete joined programs for implementation at continental as well as regional level with the sub regional mechanisms.
“The implementation of Agenda 2063 will really help us meet the Sustainable Development Goals of ending poverty, zero hunger or quality education, water, sanitation, protecting the planet, gender equality, reducing inequalities and ensuring prosperity for all,” added Dr. Dlamini Zuma. “An integrated, peaceful, prosperous Africa that is driven by its own citizens is in the interest of the whole humanity.”
Mr. Carlos in his remark said the timing of the seventeenth session of the RCM is auspicious because it is occurring in the aftermath of the adoption of the Agenda 2063 which aims to support the vision of an integrated, prosperous and peaceful Africa, driven by its own citizens representing a dynamic force in international arena. He highlighted that both Agenda 2063 and 2030 contain global and regional specific interventions that if effectively implemented, can propel the continent on a transformative path for sustainable development.
Mr. Lopes noted that, though African countries also have their own development plans and strategies, the greatest challenge policy makers’ face is how to implement these frameworks in a coherent and integrated manner. Dr. Carlos further added that in order for support to be truly effective, UN bodies have outlined works for the priority of the AU in a coordinated and coherent manner which is a fundamental role of the RCM for Africa.
He emphasized on the need to strengthen engagement with the science community which may be a necessary solution to seek answers to some of the vexing challenges posed by climate change among others, underlining the need for global partnership which can also be a solution to tackle some of the key socio-economic development challenges facing the African continent.
“There is no doubt that global partnerships can provide the impetus for tackling the key socio economic challenges currently facing Africa. Global partnerships can work for Africa if they are aligned with the strategic objectives of the continent and buttressed by a unified continental voice… We have the opportunity to model what such a partnership could be,” said ECA Executive Secretary. He added that global partnership can therefore work for Africa if they are aligned with the strategic vision of the continent and backed by a unified voice from the continent.
Speaking on behalf of UN Deputy Secretary-General Jan Eliasson, Mr. Abdelaziz, UN Special Adviser on Africa said: “What is critical for us today is what the implementation of the UN-AU partnership and the implementation of Agenda 2063 and 2030 agenda for sustainable development entail: both agendas are wide and comprehensive, together they will be therefore addressing a range of political, economic, social, and environmental challenges for Africa.”
Mr Abdelaziz recommended that RCM Africa prioritize multi stakeholder and public-private partnerships, facilitate joint work to support national efforts to domesticate and implement both Agenda 2063 and Agenda 2030, help address the perennial problem of lack of resources.
He lauded the joint commitment and efforts of the AU and UN in achieving milestones with the RCM with the view of harnessing cooperation between both institutions the United Nations and the African Union through the cluster system. Enabling joint planning and programming of a range of issues including social, economic, agriculture, peace and security, governance, Human Rights and gender free values.
“Furthermore, the RCM has improve synergy and coordination, avoiding duplication, enabling a better use of resources and facilitating joint advocacy in communication and outreach,” he noted.
Held under the theme: “Toward an integrated and coherent approach to the implementation, monitoring and evaluation of Agenda 2063 and the sustainable development goals”, the 17th Session of the Regional Coordination Mechanism for Africa deliberated on the UN-African Union partnership for the implementation of Agenda 2063 and the Sustainable Development Objectives (SDGs); the African Year of Human Rights with a particular focus on the Rights of Women; Movement, Migration, Youth and Gender Empowerment; Regional Integration, Infrastructure and Trade; and Strengthening the Regional Coordination Mechanism for Africa for an effective Implementation of Agenda 2063 and the SDGs.
The RCM meeting ended on Sunday 3rd April 2016.
Background
The United Nations General Assembly (UNGA), through its resolution 1998/46, makes the holding of regular inter-agency meetings an imperative for all regions. Accordingly, regional coordination mechanisms (RCMs) were initiated in 2002 as frameworks for consultations among agencies, programmes, organizations, funds and offices of the United Nations working at the regional level. In the case of Africa, the RCM-Africa has evolved from serving as a consultative mechanism into holding formal, annual sessions at which organizations and agencies of the United Nations system operating in Africa share information on their respective activities and agree to coordinate their strategies for programme delivery in support of the African Union programmes.
Furthermore and based on the mandate derived from UNGA resolution 57/7, the United Nations system in Africa was called to coordinate its activities through the RCM-Africa, in line with NEPAD adopted as the overarching development framework for Africa and other priorities of the African Union and its organs and regional and subregional organizations. RCM-Africa serves as a vehicle for enhancing coordination and coherence by engaging, more and more, in the joint planning and programming of United Nations activities in order to deliver as one in response to the needs and priorities of the African Union and other regional and subregional partners.
The annual RCM-Africa sessions have become a forum for assessing effectiveness of cooperation, collaboration and coordination between the United Nations and the African Union organs and other regional and subregional organizations, with the aim of enhancing the effectiveness of United Nations support for Africa’s development. It is in the spirit of past sessions that the United Nations system working in Africa have chosen for the theme of the seventeenth session of RCM-Africa to be: AU-UN Partnership for the implementation of the Agenda 2063 and Sustainable Development Goals.
Africa’s economic performance over last decade has been very robust, growing in the last two years around 4 percent which is higher than the global average of 2.5 percent. Africa has also registered remarkable progress on several socioeconomic indicators despite low initial conditions. Despite the positive performance, much more needs to be done to increase employment for the youth, reduce poverty and improve access to health and education services.
Studies in ECA show that the relatively high level of poverty is linked to the structure of most African economies. African countries are largely dependent on commodities which are exported with little or no value added and therefore not much employment is generated. That is why Africa needs to embark on commodity-based industrialization and through that create decent job opportunities, which in tend will lead to substantial reductions in poverty and the minimization of income and wealth inequalities.
Agenda 2063 and the 10-year Implementation Plan
The Agenda 2063, a plan for Africa’s structural transformation, was agreed upon by African Heads of State at the African Union Golden Jubilee Summit of May 2013. Based on the Solemn Declaration, the Summit pledged to develop and pursue a transformational Agenda through eight key areas: (a) African identity and renaissance; (b) the struggle against colonialism and the right to self-determination of people still under colonial rule; (c) an integration agenda; (d) an agenda for social and economic development; (e) an agenda for peace and security; (f) democratic governance; (g) determining Africa’s destiny; and (h) Africa’s place in the world.
The Agenda is founded on the AU vision of “an integrated, prosperous and peaceful Africa, driven by its own citizens and representing a dynamic force in the international arena.” The Agenda also builds on the AU Constitutive Act and Regional frameworks. In addition, the process takes cognizance of and reviewed national, regional and existing and past continental frameworks such as PIDA, CAADP and MIP, including the Monrovia Declaration, the Lagos Plan of Action, and the Abuja Treaty among others.
The Agenda is also anchored on the AU vision and is based on the seven aspirations derived from the wide consultations, namely:
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A Prosperous Africa based on inclusive growth and sustainable development;
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An Integrated Continent, Politically United, based on the ideals of Pan Africanism and the Vision of Africa’s Renaissance;
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An Africa of Good Governance, Respect for Human Rights, Justice and the Rule of Law;
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A Peaceful and Secure Africa;
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An Africa with a strong Cultural Identity, Common Heritage, Values and Ethics;
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An Africa whose development is people-driven, especially relying on the potential offered by its women and youth; and
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Africa as a Strong, Resilient and Influential Global Player and Partner.
The aspirations reflect the desire of Africans for prosperity and well-being, for unity and integration, for a continent of free citizens and expanded horizons, with freedom from conflict and improved human security. They also project an Africa of strong identity, culture and values, as well as a strong and influential partner on the global stage making equal contribution to human progress and welfare – in short a different and better Africa. There are transitions to the aspirations and each milestone of the transition provides a step towards the attainment of the end goal of the aspirations by 2063.
The aspirations embed a strong desire to see a continent where women and the youth have guarantees of their fundamental freedoms and where they assume a leading role in the development of African societies. They are based on the conviction that Africa has the potential and capability to converge and catch up with other regions of the world and thus take her rightful place in the world community.
The Agenda 2063 is expected to be implemented in phases of ten years. The first phase of ten years has been crafted to cover the period 2013-2023 and addresses the following:
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Sustainable inclusive economic growth.
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Human capital development.
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Employment creation.
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Social protection.
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Gender/women development and youth empowerment.
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Good governance and capable institutions.
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Infrastructural development.
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Science, technology and innovation.
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Peace and security.
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Culture, arts and sports.
The First Ten Year Implementation Plan of Agenda 2063 (FTYIP) calls on African countries to fast track the implementation of flagship programmes identified to have immediate positive impact on growth: the integrated high-speed train network; the Great Inga Dam project; the single aviation market; the outer space programme; the Pan-African e-Network; an annual African consultative platform; the virtual university; the African passport and the free movement of persons; the Continental Free Trade Area; silencing the guns by 2020; the development of a commodity strategy; and the establishment of the continental financial institutions, including the African Central Bank by 2030.
In addition, the implementation strategy of Agenda 2063 spells out 20 goals and 34 priority areas. The goals and priorities include: poverty reduction; the expansion of education at all levels; improved maternal and child health, water and sanitation facilities; industrialization of the African economy; greater resilience to the effects of climate change and prioritized adaptation; modernized farming methods for increased production, productivity and value-addition; better and more sustainable management of natural resources, including mineral and agricultural resources; the establishment of a continental free trade and a significantly developed intra-African trade; and a well-developed infrastructure network.
Furthermore, the observance of good governance, the rule of law and human rights, and the cessation of all intercountry and intracountry conflicts on the continent are also goals to be attained by 2023. Also to be achieved are goals in the realm of culture – full engagement with the African diaspora, the development and wider use of African languages, and the growth of the creative arts and cultural industries. The greater empowerment of women and young people is also an important goal to be pursued as is the need to increase Africa’s presence and voice in global affairs.
The Sustainable Development Goals (SDGs)
The UN General Assembly has adopted sustainable development goals (SDGs). The SDGs come at a time when billions of people are living in poverty and inequalities within and among countries are on the ascendance as well as enormous disparities of opportunity, wealth and power. There is also recognition of the challenge of gender inequality, rising unemployment, particularly youth unemployment, threats to global health, conflict, violent extremism, terrorism and related humanitarian crises and forced displacement of people. Natural resource depletion and climate change, especially increases in global temperature, sea level rise, and their impact on coastal areas and low-lying coastal countries, including many least developed countries and small island developing States, are among the list of challenges that continue to reverse much of the development progress made in recent decades.
The SDGs are made up of 17 goals and 169 associated targets. The goals were globally agreed upon through an inclusive process of intergovernmental negotiations and takes account of different national realities, capacities and levels of development and respecting national policies and priorities. The targets are defined as aspirational and global, with each Government setting its own national targets guided by the global level of ambition but taking into account national circumstances. Each Government will also decide how these aspirational and global targets should be incorporated into national planning processes, policies and strategies.
Africa’s input into the development of the SDGs was through the Common African Position (CAP). The CAP, which has the same tenants of the Agenda 2063, is Africa’s consensus on the continent’s challenges, priorities and aspirations, and the strategies for dealing with them. It is the view of the African Union that the Agenda 2063 is in sync with the SDGs because most of the recommendations of the CAP were taken on board by the UNGA and therefore there is an alignment between the Agenda 2063 and the SDGs.
Need for a common approach to the implementation of the Agenda 2063 and the SDGs
African countries have committed to the implementation of the SDGs as well as the Agenda 2063. The countries also have their own development plans and strategies. It is therefore important to have a common strategy for the implementation of both framework so as to achieve the goals and targets and minimize the challenges associated with implementing both agendas.
Most of the SDGs are in congruence with the goals of Agenda 2063. For example, Goal 1 of the Agenda 2063 aims at: “A High Standard of Living, Quality of Life and Well Being for All Citizens.” The achievements of SDG 1 (end poverty in all its forms everywhere), SDG 2 (end hunger, achieve food security and improved nutrition and promote sustainable agriculture), SDG 6 (ensure availability and sustainable management of water and sanitation for all), SDG 7 (ensure access to affordable, reliable, sustainable and modern energy for all), SDG 8 (promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all), SDG 10 (reduce inequality within and among countries), and SDG 12 (ensure sustainable consumption and production patterns) is clearly consistent in achieving Goal 1 of the Agenda 2063. The alignment between most of the goals of the Agenda 2063 and the SDGs provide an opportunity to implement both within a single framework without unduly burdening policymakers with multiple development frameworks.
Equally important is a need for better coordination to ensure effective implementation and follow-up, addressing areas of convergence as well as those unique to Africa. That is why a coherent and common framework that integrates both Agenda 2063 and the SDGs into national planning framework is needed. The SDGs attempts to respond to the global dimensions of Africa’s development challenges while Agenda 2063 responds to the regional dimension. Implementation of both will therefore require: advocacy and sensitization about the details of both frameworks; strengthened capacities to integrate in a coherent fashion, such initiatives in national planning frameworks; and research to support evidence-based policymaking.
Accompanying a common framework for the implementation of Agenda 2063 and the SDGs should be a monitoring and evaluation (M&E) tools. These tools will reinforce the culture of managing for results with regards to the implementation of the common framework. An M&E framework, by setting targets/milestones, will also ensure that all parties involved work towards achieving the development goals. It also ensures that the causes of non-performance are identified and addressed through evaluation processes.
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Finding fortune at the bottom of the ocean: Africa’s Blue Economy prospects are exciting but not without challenges
Thirty-eight of Africa’s 54 states are at the coast and two-thirds of Africa’s equivalent land mass lies in its maritime zones under the sea. More than 90% of the continent’s trade is conducted by sea.
This highlights the enormous opportunity presented by water in the continent’s future, delegates at African Development Week.
The statistics supported the case for the continent and countries to develop “blue economies” to support their quest for sustainable growth and economic transformation.
The continent not only benefits from an extensive coastline, it also has some of the biggest fresh water sources in the world. The Great Lakes in central Africa contain the largest proportion of the world’s surface fresh water – 27%, a statistic that makes it a globally strategic resource.
Lake Victoria is the third largest freshwater lake in the world. By volume and depth Lake Tanganyika is the third largest. These are all strategic assets for Africa that are underutilised but represent enormous opportunity to develop new economic activity and more sustainable development.
The inherent opportunities for African in this undeveloped area led the ECA to take the vision for a Blue Economy a step forward with a new publication, Africa’s Blue Economy: A policy handbook, which was launched on 2 April at African Development Week 2016.
Leading the discussion at the launch, ECA Executive Secretary Carlos Lopes thanked Dr Nkosazana Dlamini-Zuma for her role in initiating the project and putting the blue economy in the mainstream of Agenda 2063.
In the African Union’s 2050 Africa’s Integrated Maritime Strategy (AIM) the Blue Economy is described as the “new frontier of African Renaissance”.
The African Union has indicated that the blue economy could be a major contributor to an Africa wide shipping industry.
“We have a hidden treasure under our seas which needs to be revealed and help us to transform the continent,” said Dr Lopes, adding that two-thirds of Africa’s equivalent land mass lies under the sea and large areas of these waters were part of countries’ territorial waters.
Mauritius, for example, had territorial waters that were more than a thousand times the land mass equivalent of the island.
But Africa is still facing multi-faceted challenges preventing it from fully optimising Blue Economy assets.
For example, the size of water resources makes their access, sustainable use and management, as well as preservation and conservation, a daunting challenge for most African states.
Geopolitical issues are also a challenge. The increasingly intense use of the oceans and seas in several economic sectors, combined with the impacts of climate change, has added to the pressure on the marine environment.
Rapid urbanisation is leading to increased pressure on coasts and marine resources. Other threats include: piracy and armed robbery, trafficking of people, illicit narcotics and weapons, weather issues, rising sea levels and ocean acidification, illegal and unregulated fishing, pollution and habitat destruction.
Insufficient knowledge of resources as well as related rights and obligations for African states leads to capacity gaps. A number of maritime and transnational aquatic boundaries are not formally delimited. Insufficient awareness of the applicable legal frameworks and dispute resolution mechanisms and other related capacity gaps exacerbate the problem.
The uncertainty created by undemarcated borders can lead to tension between neighbouring countries. Additionally, this uncertainty may discourage investment and leave countries reticent to move forward with cooperation or joint development activities.
This article is published in the African Development Week Roundup - Day 4 by IC Publications.
Foreword
Africa’s aquatic and marine spaces are an increasingly common topic of political discourse; its natural resources have remained largely underexploited but are now being recognized for their potential contribution to inclusive and sustainable development. This “Blue word” is more than just an economic space – it is part of Africa’s rich geographical, social, and cultural canvas.
Through a better understanding of the enormous opportunities emerging from investing and reinvesting in Africa’s aquatic and marine spaces, the balance can be tipped away from illegal harvesting, degradation, and depletion to a sustainable Blue development paradigm, serving Africa today and tomorrow. If fully exploited and well managed, Africa’s Blue Economy can constitute a major source of wealth and catapult the continent’s fortunes.
Africa’s economies continue to grow at remarkable rates, including through the exploitation of the rich endowment of land-based natural resources and commodity exports. Converting this growth into quality growth, through the generation of inclusive wealth, within environmental limits and respecting the highest social considerations, requires bold new thinking. It also involves the creation of jobs for a population on the rise.
The Blue Economy offers that opportunity. For example, the International Energy Agency estimates that ocean renewable energy has a power potential sufficient to provide up to 400% of global current energy demand. Other estimates indicate that in 2010 the total annual economic value of maritime related activities reached 1.5 trillion euro. It is forecasted that by 2020, this figure will reach 2.5 trillion euro per year. Surely, Africa needs holistic and coherent strategies to harness this potential.
All water bodies, including lakes, rivers, and underground water, in addition to seas and the coast are unique resources, yet neglected and often forgotten. The largest sectors of the current African aquatic and ocean-based economy are fisheries, aquaculture, tourism, transport, ports, coastal mining, and energy. Additionally, the Blue Economy approach emphasizes interconnectedness with other sectors, is responsive to emerging and frontier sectors, and supports important social considerations, such as gender mainstreaming, food and water security, poverty alleviation, wealth retention, and jobs creation. The Blue Economy can play a major role in Africa’s structural transformation.
The approach advocated in this Policy Handbook is premised in the sustainable use, management and conservation of aquatic and marine ecosystems and associated resources. It builds on principles of equity, low carbon footprint, resource efficiency, social inclusion and broad-based development, with the jobs agenda at the centre of it all. It is anchored on strong regional cooperation and integration, considers structural transformation as an imperative for Africa's development and advocates for a complete departure from enclave development models. Instead, through better linkages to other sectors of the economy, it situates the aquatic and marine economies as part of integrated ecosystem services based on the harvesting of living and non-living resources, benefitting both costal, island states and landlocked countries.
Biotic resources allow Africa to expand its fishing, aquaculture, mariculture sectors and foster the emergency of vibrant pharmaceutical, chemical and cosmetics industries. The extraction of mineral resources and the generation of new energy resources provide the feedstock to resource-based industrialisation and places Africa at the centre of global trade in value-added products, no longer a supplier of unprocessed raw materials. Central to this agenda, is the need to modernise Africa's maritime transport and logistics services, its port and railway infrastructure, improve its reliability and efficiency with the view to seamless link the continent's economies to national, regional and global value chains as well facilitate tourism and recreation activities, just to name a few.
Africa has salutary examples of maritime, riparian and river-based cooperation and dispute settlement. This includes examples of maritime and transnational aquatic boundary delimitation and demarcation. A collaborative approach for the development of the Blue Economy will create the foundation for the formulation of shared visions for transformation. The Blue Economy development approach is an integral part of African Agenda 2063. Building on the experience with implementing Green Economy principles for a transition to low-carbon development, we are seeing an increasing number of African member States formulating Blue Economy strategies to diversify their economic base and catalyze socioeconomic transformation.
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”.
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Africa Regional Integration Index: Report 2016
Integration Matters
Regional integration is a development priority for Africa. All Africans, not just policy makers and decision makers, have a role to play in making integration a reality for the continent.
Integration matters in Africa. It affects what people can buy; the variety of what is on offer at the local market; how easily citizens move between countries; where individuals travel for leisure or for work; how cost-effective it is to keep in touch; where people choose to study or look for a job; how to transfer money to family or get start-up capital for a business.
Regional integration is about getting things moving freely across the whole of Africa. This means getting goods to move more easily across borders; transport, energy and telecommunications to connect more people across more boundaries; people to move more freely across frontiers, and capital and production to move and grow beyond national limits.
Africa’s integration journey towards a more connected, competitive and business-friendly continent is underway and its roadmap is, in some areas, under construction. Africa’s Regional Integration Index is an action tool measuring the progress of an Africa on the move.
The Index
Measuring where Africa stands on regional integration gives an assessment of what is happening across the continent and is an important way of highlighting where the gaps are. It is a dynamic, evolving way to track integration by giving everyone access to verified, quality information to start a dialogue and take forward the next steps to integrate Africa.
Index Makeup
The Index is made up of five Dimensions, which are the key socio-economic categories that are fundamental to Africa’s integration. Sixteen Indicators (based on available data), which cut across the five Dimensions, have been used to calculate the Index. Further details are set out in Table 1.
The Index 2016 report covers Member Countries from the eight Regional Economic Communities (RECs) recognized by the African Union. 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.
Index Impacts
The Index aims to be an accessible, comprehensive, practical and results-focused regional integration tool that focuses on the policy level and on-the-ground realities.
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Accessible: a centralized data system on regional integration will be made publicly available to inform policy decisions and drive policy reforms on priority areas.
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Comprehensive: the 16 Indicators that make up the five Dimensions of the Index build an overview and dimensional view of Africa’s regional integration.
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Practical: at-a-glance rankings and scores for RECs, and for countries within a REC, overall and by Dimension. Countries are classed as high performers, average performers or low performers within each REC.
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Results-focused: comparative analysis within and among RECs takes into account the diversity in Africa’s integration process. A REC, and a country within a REC, can identify its strengths and gaps across each of the Dimensions.
RECs can be compared on overall integration scores and on scores in each of the five Dimensions. As the Index recognizes and uses the RECs as the building blocks for the African Economic Community, based on the Abuja Treaty, there are no overall country rankings.
A country’s classification within a REC shows (with a 95% confidence interval) when a country is a:
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High performer – score is higher than average of countries
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Average performer – score is within the average of countries
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Low performer – score is below the average of countries
As some countries are members of more than one REC, they have multiple rankings/scores. To see the distance they have to travel overall, as well as in particular Dimensions, countries can be compared against the average scores of the top performing countries in a REC. For a REC with six or more countries, the reference is the average of the top four countries.
The Regional Economic Communities (RECs) are regional groupings of African states. The RECs have developed individually and have differing roles and structures. Generally, the purpose of the RECs is to facilitate regional economic integration between members of the individual regions and through the wider African Economic Community (AEC), which was established under the Abuja Treaty (1991). The 1980 Lagos Plan of Action for the Development of Africa and the Abuja Treaty proposed the creation of RECs as the basis for wider African integration, with a view to regional and eventual continental integration.
The AU recognizes eight RECs:
CEN-SAD – Community of Sahel-Saharan States
COMESA – Common Market for Eastern and Southern Africa
EAC – East African Community
ECCAS – Economic Community of Central African States
ECOWAS – Economic Community of West African States
IGAD – Intergovernmental Authority on Development
SADC – Southern African Development Community
UMA – Arab Maghreb Union
Roadmap for the Future
To get the dimensions of regional integration to work together will take a series of actions on the ground, led by well thought-out strategies, matching policy reforms and backed up by capacity building.
It will take political commitment and leadership as well as resources and networks to be mobilized. At the same time it will take engagement from Africa-wide organizations, regional bodies, governments, policy makers, business, civil society, researchers, development partners, the media and the public.
Measuring where Africa stands on regional integration gives an assessment of what is happening across the continent and is an important way of highlighting where the gaps are. It is a dynamic, evolving way to track integration by giving everyone access to verified, quality information to start a dialogue and take forward the next steps to integrate Africa.
The Index is part of a central database and system for collecting data on regional integration. It will capture additional data for indicators that are not part of the Index but that play a role in regional integration, from the movement of workers across borders to trade corridor costs.
It is over to the Index user to make use of the information in the rankings and scores, by drilling down to priority areas, to drive concrete change at policy and operational level.
Regional integration overall in Regional Economic Communities
Index findings are in line with progress being made on RECs’ regional integration agendas. The RECs score highly on areas that they have prioritized on regional integration to date. The different RECs’ performance on the Dimensions reinforces how progress is being made through a regional approach to integration in Africa rather than through a continent-wide approach.
Index findings
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Average REC scores on Regional integration stand at 0.470 on a scale of 0 (low) to 1 (high). Average Regional integration scores for the eight RECs stand at below half of the scale from 0-1, showing that overall integration in the regions could significantly progress.
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EAC is the top performing REC on Regional integration overall. EAC has higher than average scores across each Dimension of Regional integration, except for Financial and macroeconomic integration.
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SADC and ECOWAS have higher than average REC scores on Regional integration overall. SADC has higher than average REC scores across the Dimensions of Regional infrastructure, Free movement of people and Financial and macroeconomic integration. ECOWAS has higher than average REC scores across the Dimensions of Free movement of people and Financial and macroeconomic integration.
Index: five Dimensions in Regional Economic Communities
There is a strong basis for every REC to build on and address other Dimensions, which can strengthen the integration agenda and drive up a REC’s overall regional integration score. To further support integration policy reforms across the continent, the eight RECs can share lessons and insights on each of the Dimensions where they score higher than the average.
Index findings
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Highest scores are on Trade integration, with average REC scores of 0.540. Trade integration has been a longstanding Regional integration priority across all RECs.
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Lowest scores are on Financial and macroeconomic integration, with average REC scores of 0.381. Financial and macroeconomic integration has been limited across the RECs, including ensuring the convertibility of currencies or coordination of macroeconomic policies.
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Average REC scores are closest together on Regional infrastructure and Productive integration. Regional infrastructure and Productive integration have recognized REC programmes and progress is ongoing across the regions.
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Average REC scores are furthest apart on Free movement of people and Financial and macroeconomic integration. Free movement of people protocols have been signed but their application on the ground has faced challenges in different regions. Ensuring the convertibility of currencies and the coordination of macroeconomic policies at regional level has also not been consistent.
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Every REC has higher than average scores in one or more Dimensions.
Regional integration in countries by Regional Economic Community
Integration is multi-dimensional for both RECs and for the countries within each REC. The majority of countries perform well on at least one dimension of Regional integration, even if their overall regional integration score is not high. With the exception of Somalia in CEN-SAD and IGAD, there are no countries that are marked as low performers across all the dimensions. Each country can share lessons and insights with other countries on the areas where they perform strongly and also identify how to address any gaps going forward.
‘Deeply integrated’ countries
Top performing countries on Regional integration overall, relative to other African countries, are considered ‘deeply integrated,’ with economies that are strongly integrated with others in the REC. These countries feature in the top four performers in a REC that has more than six member countries or they feature in the top two performers in a REC that has less than six member countries.
Economically powerful countries are not necessarily better integrated in their RECs, with the exception of South Africa in SADC and Kenya in EAC. There is a strong potential for Algeria, Angola, Democratic Republic of the Congo, Egypt, Ethiopia, Libya, Nigeria, Sudan and the United Republic of Tanzania to integrate more within their RECs by steering their economies towards the region.
CEN-SAD
- Nigeria represents 37% of regional GDP but is not in the top performers on Regional integration, neither is Egypt, which represents 18% of regional GDP.
- Côte d’Ivoire, which is the top performing country on Regional integration, represents just 3% of regional GDP.
COMESA
- Egypt is the first contributor of wealth creation in the region (with 35% of regional GDP) but is in fourth place on Regional integration.
- Sudan and Libya are respectively second and third contributors of wealth creation but are not top performers.
EAC
- Kenya and Uganda are in the top three contributors to wealth creation in the region with 39% of regional GDP and 21% of regional GDP respectively.
ECCAS
- Angola and Democratic Republic of the Congo are the principal contributors to wealth creation in the region with 36% and 19% of regional GDP respectively, but are not top performers.
- Cameroon is in first place and is the third contributor of regional GDP.
ECOWAS
- Nigeria is the first contributor of wealth creation in the region (75% of regional GDP), but does not feature in the top performing countries on Regional integration.
- Côte d’Ivoire is the top performer on Regional integration but only represents 6% of regional GDP.
IGAD
- Ethiopia, Sudan and Kenya are the principal contributors to wealth creation in the region (29%, 28.5% and 27.7% of regional GDP respectively).
- Only Kenya features as the top performer on Regional integration.
SADC
- South Africa represents 61% of regional GDP and is first of the top performing countries.
- The other top performers are not strong wealth creators in the region: Botswana, 2% of regional GDP; Namibia, 1.8% of regional GDP and Zambia, 2.5% of regional GDP.
UMA
- Algeria contributes to 42% of regional GDP but is not a top performer in Regional integration, with Morocco and Tunisia ahead in Regional integration scores.
‘Broadly integrated’ countries
Countries are considered ‘broadly integrated,’ when a country is strongly integrated on three or more of the dimensions, showing a breadth of diversity in their integration agenda.
Integration is ‘deep and broad’ when a country in a REC is strongly integrated (in the top four or top two countries in their REC) and performs strongly on three or more dimensions.
19 of the top performing countries that are ‘deeply integrated,’ can also be considered broadly integrated, performing strongly on three or more Dimensions.
The Dimensions
To get the dimensions of regional integration to work together will take a series of actions on the ground, led by well thought-out strategies, matching policy reforms and backed up by capacity building. It will take political commitment and leadership as well as resources and networks to be mobilized.
At the same time it will take engagement from Africa-wide organizations, regional bodies, governments, policy makers, business, civil society, researchers, development partners, the media and the public.
Dimension 1: Trade integration
Index of four indicators –
-
Level of customs duties on imports
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Share of intra-regional goods exports (% GDP)
-
Share of intra-regional goods imports (% GDP)
-
Share of total intra-regional goods trade (% total intra-REC trade)
Getting goods to move more freely across the continent matters for regional integration. When trade flows are faster and more cost-effective, business and consumers in the regions benefit. Trade impacts on people’s livelihoods and incomes to accelerate Africa’s development.
Trade links from Africa to the world can be more direct and efficient than trade between neighbouring regions due to infrastructure gaps or capital costs and non-tariff barriers. Facilitating Africa’s trade is in line with the AU decision on Boosting Intra-African Trade and the WTO Trade Facilitation Agreement, which puts soft infrastructure, from electronic customs systems to one-stop border posts, high up the agenda. That can start to make a significant difference for intra-regional traders through streamlining the queues of trucks at borders to supporting informal crossborder traders to go through the official channels.
The Continental Free Trade Area negotiations aim to make trade fully integrated across Africa. The Tripartite Free Trade Area (made up of COMESA, EAC and SADC) is making progress towards that bigger goal. Priority areas include connecting customs operations, liberalizing all tariff lines and making it simpler to measure how nontariff barriers are being lowered.
When trade is more interconnected Africa’s high number of small economies access larger markets and regional hubs source from the region and are able to use the imports to grow. All of this makes Trade integration a key element in the continent’s ongoing integration journey.
Index findings
-
EAC is the highest performing REC on Trade integration.
-
Trade integration has the highest score overall among RECs with a 0.546 average.
-
There are a total of 35 high performing countries across the eight RECs on Trade integration.
-
High performing countries on Trade integration in a particular REC that are not high performers on Regional integration overall in that REC:
CEN-SAD (Egypt, Sudan, Eritrea, Nigeria, Comoros, Ghana, Libya)
COMESA (Democratic Republic of the Congo, Libya)
ECCAS (Angola, Chad)
ECOWAS (Nigeria, Ghana)
UMA (Tunisia)
Dimension 2: Regional infrastructure
Index of four indicators –
-
Infrastructure Development Index: transport; electricity; ICT; water and sanitation
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Proportion of intra-regional flights
-
Total regional electricity trade (net) per capita
-
Average cost of roaming
Infrastructure development across the continent is the most visible face of regional integration. It includes highways being built across borders, flights taking passengers from one capital to another and more people on mobile phones on city streets and at rural outposts.
Countless connections made by road, by air or increasingly by airwaves have an important impact on Africa’s integration efforts, expanding horizons and concrete realities on the ground. When regional infrastructure works better, business costs fall as transport corridors speed goods across boundaries and more customers access services as mobile phone roaming expands.
A flagship project in Agenda 2063 is to connect Africa’s capitals and commercial centres through high-speed rail. Meanwhile, programmes, such as PIDA (Programme for Infrastructure Development in Africa), are helping regions to get infrastructure projects off the ground. Information technology costs are also falling and there are plans for internet to be beamed to the continent via satellite.
Regional hubs, as well as small or landlocked countries, have a lot to gain from promoting infrastructure to boost economic growth. Both traditional and new funding partners are continuing to invest in Africa’s infrastructure at regional level. To power the continent’s energy needs and build first-class networks, regions and countries need to encourage stronger ownership and involve the private sector. Going forward it will mean focusing on
green-friendly, growth opportunities that support communities and Africa’s next generation.
Index findings
-
IGAD is the highest performing REC on Regional infrastructure.
-
Regional infrastructure has average REC scores (0.461) closest to the average REC scores on regional integration overall (0.470).
-
There are a total of 30 high performing countries across the eight RECs on Regional infrastructure.
-
High performing countries on Regional infrastructure in a particular REC that are not high performers on regional integration overall in that REC:
CEN-SAD (Libya, Sudan, Guinea, Nigeria, Egypt, Ghana)
COMESA (Libya, Burundi)
EAC (Burundi)
ECCAS (Congo, Angola)
ECOWAS (Cabo Verde, Ghana, Gambia)
IGAD (Djibouti, South Sudan)
SADC (Seychelles)
UMA (Libya)
Dimension 3: Productive integration
Index of three indicators –
-
Share of intra-regional intermediate goods exports (% total intra-regional exports goods)
-
Share of intra-regional intermediate goods imports (% total intra-regional imports goods)
-
Merchandise Trade Complementarity Index: total absolute value of the difference between share of imports and share of exports of a member country in a REC
As consumer purchasing power rises, intermediate goods that are used by a business in the production of finished goods or services will be important for Africa’s internal market.
This links to industrialization, which is a key goal in the African Union's Minimum Integration Programme. Building industrial clusters goes together with access to regional trade corridors that get goods moving and with promoting more regional electricity to power production.
Making production work better for the continent across different sectors, by being part of regional and global value chains, will be at the heart of Africa’s economic success model. Whether on agriculture or industrial production, regions need to unlock their productive potential, inject investment, overcome bottlenecks and make sectors more competitive.
Productive integration matters for creating an economic base that is more resilient to shocks and more diverse, but also for building a more skilled regional labour force that adds value to goods and services while raising people’s incomes on the ground. That includes opportunities with mining and manufacturing that are now shifting to Africa’s advantage.
The priorities for the continent and the regions, from regional hubs to landlocked least developed countries, will be to move beyond low value production and deal with non-tariff barriers to make trade work faster and cheaper. That way, when commodity prices fluctuate and financial crises are nearby, the ‘made in Africa’ brand will become part of the solution.
Index findings
-
EAC is the highest performing REC on Productive integration.
-
There are a total of 30 high performing countries across the eight RECs on Productive integration.
-
High performing countries on Productive integration in a particular REC that are not high performers on regional integration overall in that REC:
CEN-SAD (Kenya, Djibouti, Gambia, Egypt)
COMESA (Madagascar, Djibouti)
ECCAS (Burundi, Rwanda)
ECOWAS (Gambia, Ghana, Liberia, Sierra Leone)
IGAD (Djibouti)
SADC (Zimbabwe, Mozambique)
UMA (Tunisia)
Dimension 4: Free movement of people
Index of three indicators –
-
Ratification (or not) of REC protocol on free movement of persons
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Proportion of REC member countries whose nationals do not require a visa for entry
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Proportion of REC member countries whose nationals are issued with a visa on arrival
Getting people to move freely across Africa represents a powerful boost to economic growth and skills development.
When people can travel with ease for business, tourism or education, everyone benefits, from the country opening up their borders as well as the country whose national is on the move, as seen in the growth in remittances in recent years.
Cross-border movement supports talent mobility and competitiveness. Skills gaps can be plugged and ideas are exchanged leading to entrepreneurship and innovation spreading out beyond borders. The free movement of people is a quick win on development for countries, regions and the continent as a whole. When visa or work permit restrictions are cut, gains in time and resources open up, which supports more competitive businesses and economies.
Early progress towards an increasingly borderless Africa has been made but there are still gaps. The idea has been at the foundation of the continent’s integration journey. Political dialogue is ongoing to make the reality of the experience for Africans travelling across the continent, whether or not they need a visa or can get one on arrival, to match up to these ambitions.
Looking ahead, countries and regions need to encourage positive reciprocity, applying the treatment they are receiving from more visa-open countries, look at promoting a visa-on-arrival approach or regional bloc visas. Leaders and policy makers need to work towards the goal of every African being able to scan an African passport at immigration controls continent-wide.
Index findings
-
ECOWAS is the highest performing REC on Free movement of people.
-
ECOWAS has the highest REC score here across all of the Dimensions.
-
There are a total of 53 high performing countries across the eight RECs on Free movement of people.
-
All ECOWAS countries score 0.8, having implemented the Free movement of persons protocol, which enables ECOWAS citizens to travel to all member countries without a visa.
-
High performing countries on Free movement of people in a particular REC that are not high performers on regional integration overall in that REC:
CEN-SAD (Guinea, Gambia, Guinea-Bissau, Nigeria, Sierra Leone, Ghana, Liberia)
COMESA (Zimbabwe, Swaziland)
EAC (Rwanda)
ECCAS (Sao Tomé and Principe, Central African Republic)
ECOWAS (Benin, Burkina Faso, Cabo Verde, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Sierra Leone)
IGAD (Eritrea, Ethiopia)
SADC (Seychelles, Mauritius, Zimbabwe)
UMA (Algeria)
Dimension 5: Financial and macroeconomic integration
Index of two indicators –
-
Regional convertibility of national currencies
-
Inflation rate differential (based on the Harmonized Consumer Price Index)
When capital flows more freely across Africa, investment increases and finance is allocated where it can generate the most productivity.
In addition, the continent’s investors get higher returns. In turn, as transaction costs of doing business fall and financial institutions work more effectively, companies, micro-,small and medium-sized enterprises and start-ups will benefit.
Financial integration has been promoting knowledge and technology transfer and greater innovation. The continent’s heavyweight economies to the small-sized players can make inroads from making financial cross-border flows smoother and reach further. Forward-looking island nations and landlocked countries have already blazed a trail on financial services.
The Abuja Treaty sets out the continent’s integration pathway and puts monetary union as a key priority. Yet many of the Regional Economic Communities have not made their currencies convertible and coordinating macroeconomic convergence needs a greater push. As the global financial crisis has shown, being more capital-connected comes with a risk. More data, information and transparency build confidence among national authorities and financial institutions, as does improving regulatory frameworks, safeguards and supervision.
A series of actions can make a difference, including promoting banking across borders, increasingly outside of the regional financial centres; standardizing regional payments; putting in place multilateral fiscal guidelines; and joining up policy on inflation, public finance and exchange rate stability. In turn, the continent will see more predictable conditions for cross-border trade and investment to thrive and it will help to light up Africa’s financial future.
Index findings
-
ECOWAS is the highest performing REC on Financial and macroeconomic integration.
-
Financial and macroeconomic integration has the lowest score overall among RECs with a 0.381 average.
-
There are a total of 37 high performing countries across the eight RECs on Financial and macroeconomic integration.
-
High performing countries on Financial and macroeconomic integration that are not high performers on regional integration overall:
CEN-SAD (Chad, Central African Republic, Guinea-Bissau)
COMESA (Comoros, Djibouti, Rwanda, Libya)
EAC (Rwanda)
ECCAS (Chad, Central African Republic, Congo)
ECOWAS (Niger, Burkina Faso, Guinea-Bissau, Mali, Benin)
IGAD (Djibouti)
Related News
tralac’s Daily News Selection
The selection: Friday, 1 April 2016
The 2016 Conference of Ministers conference: a guide to selected report launches taking place this weekend
On Saturday, 2nd April:
Measuring corruption in Africa: the international dimension matters (9:00-11:00)
The forthcoming Africa Governance Report IV raises the problem of credibility and reliability with existing predominantly perception-based measures of corruption. Such measures focus on country rankings or naming and shaming, but offer minimal policy insights and practical recommendations to inform policy reforms. The report calls upon African countries and partners to avoid perception-based measures of corruption and adopt approaches that are fact-based, objective and quantitative in criteria, to build robust economic governance institutions for sustainable development and structural transformation.
Assessing Regional Integration in Africa VII: Africa Regional Integration Index (10.30-12.00)
The report examines the nexus between regional integration, innovation and competitiveness in the broader context of development policy and strategy in Africa. Developed jointly by the African Development Bank, the African Union Commission and ECA, the Africa Regional Integration Index is the first systematic, continent-wide instrument for measuring the progress made by all 54 African countries in implementing the continent’s regional integration frameworks.
On Sunday, 3 April:
Economic Report on Africa (13.30-16.00)
The 2016 edition of the Economic Report on Africa, entitled 'Greening Africa’s industrialization', sets the tone for the future that Africa wants in its current wave of industrialization. It prescribes an inclusive path oriented to create jobs, generate income and wealth, lift millions out of poverty and improve human welfare. It seeks to cut down on wasteful consumption, resource depletion and environmental degradation. Ultimately, a greener future holds the key to making good of Africa’s long-term development plans. In addition, the side event will see the launch of a book by renowned economist Dr. Ha-Joon Chang, entitled 'Smart industrial policy for Africa in the 21st century', which was commissioned by ECA.
Revenue statistics in Africa (14.00-16.00)
The report presents detailed, internationally comparable data on both tax and non-tax revenues for eight African countries. The report examines changes in the level of both tax and non-tax revenues as a percentage of GDP and the structure of these revenue streams between 1990 and 2014.
AUC ACBF Ministerial Roundtable: 'Addressing the impact of drought, floods and declining commodity prices in Africa - what coping strategies and capacities are required?'
A full listing of policy discussions, other launches can be accessed here.
The Specialised Technical Committee met yesterday to prepare for the ministerial component. Three updates: Africa pushes to stand on its own feet again: but the continent just doesn’t do things the easy way (M&G Africa), Growth set to increase but progress could be hindered by lurking risks (UNECA), African Development Week: calls for green industrialization (UNECA)
Rwanda: Govt, civil society in joint regional integration drive (New Times)
Government and civil society officials have agreed to organise regular platforms where the Ministry of East African Community Affairs and civil society groups can meet to enhance a people-centered regional integration approach. This was recommended, yesterday, during the first such gathering in Kigali. The Minister for East African Community Affairs, Ambassador Valentine Rugwabiza, said: “But it should not simply be about meeting to talk only as it should also be a forum for accountability, so that we look at the progress of things we had agreed on earlier.”
So much in store: a review of SSA's retail and consumer goods sector (PwC)
PwC’s inaugural publication entitled ‘So much in store’, is an in-depth study into the make-up of SSA’s retail and consumer goods industries, and provides an outlook for the coming five years by focusing on 10 African economies that we believe offer some of the most compelling opportunities for retail and consumer businesses looking to expand into Africa: Cameroon, Ethiopia, Ghana, Côte d’ Ivore, Kenya, Nigeria, South Africa, Tanzania and Zambia. Trends shaping the retail and consumer sector in SSA: [Download] [DHL optimistic over Africa]
South Africa trade missions yet to benefit Zimbabwe (Financial Gazette)
Martin Moyo, the Bulawayo mayor, told the Financial Gazette’s Companies & Markets that despite Bulawayo’s proximity to South Africa, and the city’s twinning arrangements with Durban and Polokwane, it was yet to receive meaningful investment from the country. “Unfortunately, I would say there is no tangible investment from South Africa that has taken place in the city,” he said.Moyo said since he came into office in 2013, his office has hosted a number of business delegations from the neighbouring country, but that has not translated into investment on the ground. Harare mayor, Bernard Manyenyeni, however said some companies in the capital had signed agreements with South African firms over the years. But he could not mention any significant investment that had come into the country as a result of the South African investment and trade missions. [Buy Zim condemns govt’s move to shut down foreign-owned companies (NewsDay)]
Kenya: COMESA launches garment making factory for SMEs
Kisumu National Polytechnic received funding from the Technical Cooperation Facility for the formation of a Garment Making Cluster and establishment of a textile and garment incubation centre in Kisumu as part of Implementation of the COMESA Cluster Initiative Programme. The TCF is a facility funded by the European Union and managed by the COMESA Secretariat to provide member States with the necessary technical and financial resources to assist them in implementation the commitments made under the COMESA regional integration agenda. The project targets 430 small and medium enterprises at a cost of $200000. [DP Ruto calls for review of policies that hinder trade]
MCC: This is what Tanzania must do to lift aid suspension (IPPMedia)
“I think we’ve been very clear about what the situation was that led to the (aid) suspension,” said Beth Tritter, MCC’s vice-president for policy and evaluation, in an interview with Devex, a media platform for the global development community. "If Tanzania’s government wants to re-enter into partnership with MCC, it must take the lead, with a plan to address those specific concerns," Tritter added. She said Tanzania has to guarantee political inclusivity if it wants MCC aid money suspended largely due to the March 20 polls going ahead despite a boycott by Zanzibar’s main opposition party, the Civic United Front (CUF).
Great Lakes: UNSC Presidential Statement (UN)
The Security Council is gravely concerned that the continued illicit exploitation of and trade in natural resources in the eastern DRC. The Council urges the signatory states of the PSC Framework, regional organizations and the international community to coordinate their efforts to undercut the economic lifelines of armed groups that benefit from the illegal exploitation of and trade in natural resources, and prevent the exploitation of women and children in the trade of these resources.
The Security Council further stresses that the momentum generated by the Private Sector Investment Conference should be built upon through the operationalization of the ICGLR Private Sector Forum to realize investments, stimulate job creation and livelihood opportunities as effective tools for conflict prevention and the consolidation of peace and security in the Great Lakes region.
The Security Council underscores that solutions to the prevailing situation in the Great Lakes region should come within a regional perspective, by addressing the root causes of conflicts, many of which are regional in nature, with cross-border issues linked to the eastern DRC assuming crucial significance, due to the large flows of natural resources and migrants and refugees, and activities of armed groups and criminal networks across the borders.
Nigeria: 2016 Article IV consultation completed (IMF)
The Nigerian economy is facing substantial challenges. While the non-oil sector accounts for 90% of GDP, the oil sector plays a central role in the economy. Lower oil prices have significantly affected the fiscal and external accounts, decimating government revenues to just 7.8% of GDP and resulting in the doubling of the general government deficit to about 3.7% of GDP in 2015. Exports dropped about 40% in 2015, pushing the current account from a surplus of 0.2% of GDP to a deficit projected at 2.4% of GDP. With foreign portfolio inflows slowing significantly, reserves fell to $28.3bn at end-2015. Exchange restrictions introduced by the Central Bank of Nigeria to protect reserves have impacted significantly segments of the private sector that depend on an adequate supply of foreign currencies.
Nigeria-US Bi-National Commission: communiqué
The BNC established a Working Group on Economic Growth and Development and directed that it meet within six months to review progress on joint goals. The BNC noted the Governments' pledge to work together to ensure maximum utilization of current programs to promote trade and investment, including the African Growth and Opportunity Act and the Trade and Investment Framework Agreement.
Partnerships held the key to implementing the world’s new vision of sustainable development and could help root out the poverty that had spawned many of today’s global crises, said speakers at the Economic and Social Council today as the organ held its annual Partnership Forum. The representative of South Africa said the United Nations was in a unique position to strengthen cooperation in the context of the 2030 Agenda. Multi-stakeholder partnerships should recognize the plight of developing countries, especially African countries and least developed countries. North-South cooperation still lay at the heart of cooperation for development, while South-South and triangular cooperation could complement it. [Lengthy summary of the debate] [Downloads]
Financial integration in Latin America (IMF)
India, EU agree on framework to boost investments (Livemint)
India-European Union boost strategic partnership as free trade talks flounder (The Hindu)
US-Brazil agreement on trade and economic cooperation: third meeting update (USTR)
Forum for Economic and Trade Cooperation between China and Portuguese-speaking Countries: update (Macauhub)
China’s factories scent hint of Spring (IOL)
Peterson Institute assessments of the Trans-Pacific Partnership: Volume 1 (Market Access and Sectoral Issues), Volume 2 (Innovations in Trading Rules)
Emerging trends in mainstreaming climate resilience in large scale, multi-sector infrastructure PPPs (World Bank)
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African Development Week kicks off in Addis with calls for green industrialization
The inaugural African Development Week opened in Addis Ababa, Ethiopia, Thursday March 31, with various speakers urging participants to engage in constructive debates that will promote Africa’s structural transformation through green industrialization.
The week, which will have highlights including the launch of the Economic Commission for Africa’s flagship Economic Report for Africa 2016 report, began with a meeting of the committee of experts and is running under the theme “Towards and Integrated and Coherent Approach to The Implementation, Monitoring and Evaluation of Agenda 2063, and the Sustainable Development Goals.”
Deliberations will over the week evolve around the transition from the millennium development goals (MDGs) to the Sustainable Development Goals (SDGs) and Africa’s 50-year development plan; Agenda 2063.
“We will debate on how countries can adopt and implement effectively a common framework for meeting the goals of Agenda 2063 and the 2030 Agenda for sustainable development,” said Ms. Hamidi Mwinyinvua, Chair of the outgoing Bureau of the Committee of Experts and also Tanzania’s Ambassador to Ethiopia.
Commissioner for Economic Affairs at the African Union Commission, Mr. Anthony Mothae Maruping called on African countries to embrace an “integrated and coherent approach to implementation, monitoring and evaluation of Agenda 2063 and SDGs”.
“Current economic and financial challenges are spurring member states towards economic transformation,” he said as he urged member states to harmonise Agendas 2063 and 2030 for Africa’s transformation.
Deputy Executive Secretary of the Economic Commission for Africa, Mr. Abdalla Hamdok, called for constructive debate and thought provoking discussions that will lead to the formulation of strategies for the effective implementation for the continent’s collective developmental vision.
He cautioned, however, that “such strategies should not only focus on expediting the promotion of strong and sustainable long term growth but also ensuring that the benefits of such growth are widely shared in order to reduce poverty and improve African’s standards of living”.
Mr. Admasu Nebebe of the Ministry of Finance and Economic Development of Ethiopia said the full implementation of Agenda 2063 and Agenda 2030 will improve the lives of more than one billion people on the African continent.
The expert committee, which will run until April 2nd marks the start of the African Development Week. It will be followed by the annual meetings of the Conference of the AU Ministers of Economy and Finance and the ECA Conference of African Ministers of Finance, Planning and Economic Development on 4-5 April.
A number of meetings will also take place during the week, including the 17th Session of the Regional Coordination Mechanism for Africa (RCM-Africa), the annual meeting of the Group of African central Bank Governors as well as more than 20 events and the presentation and launch of a dozen reports and publications, including the Economic Report on Africa (ERA 2016), the ECA country profiles, the Africa Governance Report and the evaluation of regional integration in Africa.
More than 1,000 high level delegates are expected during the African Development Week, including current and former heads of State, Central Bank Governors, and representatives of member-states, civil society, private sectors, media as well as international academics and experts and development partners.
Related News
Govt, civil society in joint regional integration drive
Government and civil society officials have agreed to organise regular platforms where the Ministry of East African Community Affairs and civil society groups can meet to enhance a people-centered regional integration approach.
This was recommended, yesterday, during the first such gathering in Kigali.
The consultative forum, themed: ‘‘Engagement of the Rwandan civil society in the East African Community integration”, intended to, among others, introduce the local civil society fraternity to the EAC integration agenda and identify areas that require further awareness.
During the meeting, the Minister for East African Community Affairs Amb. Valentine Rugwabiza, asked for the initiative to be formalised with meetings scheduled once in a year.
Rugwabiza said: “But it should not simply be about meeting to talk only as it should also be a forum for accountability, so that we look at the progress of things we had agreed on earlier.”
The purpose of the forum was to set appropriate mechanisms for continuous active involvement of the Rwanda Civil Society Organisations (CSOs) in EAC integration efforts and thus be able to tap available opportunities.
The forum explored ways to ensure people’s participation in the bloc’s integration agenda as directed by the 16th EAC Council of Ministers’ meeting.
Dr Venuste Karambizi, an International Relations lecturer at Kigali Independent University, suggested that civil society should have a proper accountability system.
“Regarding the integration agenda, we in the civil society are ready and are skilled. What the government can help us with in terms of regional integration is to communicate to us the urgent areas of integration. You [government] are the ones who know the key areas requiring our involvement. But you should also help us get the means required to implement things and we report back and be accountable,” Karambizi said.
Anaclet Nsanzumuhire, of the Association Rwandaise pour la Promotion du Développement Intégré (ARDI) stressed that civil society groups can help in advancing the integration agenda.
Eric Mahoro, the secretary general of the Rwanda Civil Society Platform, emphasised the importance of coordination of civil society activities.
“Like all other associations involved with the intergration agenda, we should find a common ground in various umbrellas and in the Civil Society Platform so that we put ideas together. This doesn’t necessarily have to affect the independence and diversity of the various organisations. But we must have a coordinated way of entering the EAC integration process.”
Related News
Security Council calls for regional solutions to challenges facing Africa’s Great Lakes nations
The Security Council on 31 March 2016 expressed regret over the limited progress in implementing national and regional commitments under the peace, security and cooperation framework for Africa’s Great Lakes region, stressing that signatory States must carry out those obligations in order to achieve lasting peace.
Adopting a Presidential Statement, the 15-nation Council spotlighted, among other things, cross-border issues, including the large flows of natural resources, migrants and refugees, as well as the activities of armed groups and criminal networks in and around the eastern Democratic Republic of Congo (DRC).
“Solutions to the prevailing situation in the Great Lakes region should come within a regional perspective, by addressing the root causes of conflicts, many of which are regional in nature,” the Council underscored.
The Council expressed grave concern over the continued illicit exploitation of natural resources and their trade in the eastern DRC, urging coordinated efforts by the signatory States of the Peace, Security and Cooperation (PSC) Framework, regional organizations and the international community to undercut the economic lifelines of armed groups benefitting from those activities.
Thursday’s adoption of the text followed the 21 March Council open debate on the prevention and resolution of conflicts in the Great Lakes region, held under Angola’s presidency for the month.
On the security front, the Council reiterated the importance of neutralizing all armed groups in country’s eastern part, particularly the Forces Démocratiques de Libération du Rwanda (FDLR), Allied Democratic Forces (ADF), Lord’s Resistance Army (LRA) and the various Mai Mai groups, in accordance with resolution 2277 (2016).
Noting the announcement of the resumption of joint military operations between the DRC’s Government and the UN Organization Stabilization Mission in DRC (MONUSCO), the Council called for immediate restart of such activities in earnest to completely neutralize those armed groups.
Turning to the political front, the Council urged regional support for initiatives aimed at promoting inclusive dialogue amongst national stakeholders and stressed the importance of enabling the full and free participation of peaceful political parties, civil society and the media in the political process.
The Great Lakes region includes Burundi and Rwanda as well as Uganda, Kenya and Tanzania.
While welcoming the credible and peaceful conduct of elections in some States in the region, the Council noted that the recent and ongoing electoral processes in other States raise deep concerns about the risk of instability, human rights and humanitarian law violations and abuses, and further displacement of people.
The Council called on States in the region to take steps to ensure that electoral processes promote peace and security through timely, peaceful, inclusive and credible elections.
Related News
More in store for African retail and consumer businesses
Africa’s economy has seen modest growth in the wake of falling commodity prices, slowing revenues and volatile currencies. The moderation in growth impacts a range of industries and sectors, including retail and consumer products that must contend with rising costs, and a fall in prices.
Despite the decline in growth, the long-term outlook remains positive. The economic growth predicted for 2016 and beyond in some African countries and the growth expected in Africa’s consumer market provides major opportunities for retail and consumer companies looking to the future. These are some of the highlights from a report released by PwC.
“As Africa has risen to prominence as an investment destination over the past several years, so the role of retail and consumer goods has taken on greater significance,” says Anton Hugo, Retail and Consumer Industry Leader, PwC Africa. “Sub-Saharan Africa (SSA) remains one of the fastest growing regions in the world and the successful expansion of a number of global and African retailers and consumer goods companies across the region speaks to the opportunities that exist.”
“However, Africa’s fortunes are very much tied to those of the global economy. Pressure on emerging market currencies coupled with a decline in oil and other commodity prices has seen pressure on government revenues and the ability of governments to increase social expenditure and wages in the public sector. African retailers will need to focus their efforts on operational efficiency and managing the effect on their operations of volatile currencies,” adds Edafe Erhie, PwC Partner in Nigeria.
PwC’s inaugural publication entitled ‘So much in store’, is an in-depth study into the make-up of SSA’s retail and consumer goods industries, and provides an outlook for the coming five years by focusing on 10 African economies that we believe offer some of the most compelling opportunities for retail and consumer businesses looking to expand into Africa: Cameroon, Ethiopia, Ghana, Côte d’ Ivore, Kenya, Nigeria, South Africa, Tanzania and Zambia.
Trends shaping the retail and consumer sector in SSA
Significant global megatrends will help drive the retail and consumer goods industries and create future opportunities. Africa’s demographic dividend, its growing middle class and rising income levels, and rapid urbanisation will all have a part to play in the continued growth of the retail sector across the continent.
Currently, Africa is home to more than one billion people which is expected to increase to more than two billion by 2050. It also has the youngest population, with 226 million people aged between 15 and 25 years in 2016, according to World Bank estimates. Africa’s working age population is forecast to grow at a faster rate than its overall population. When the labour force grows more rapidly than the population dependent on it, resources become available for investment in economic development and personal consumption. This offers an opportunity for rapid economic growth.
The growing middle class is one of the key factors driving international retail expansion across Africa. Consumption choices typical of this class, such as internet usage, private health care, formal retail, as well as car and property ownership are all on the rise.
More informed and healthier consumers
Changes in consumer lifestyles and ambitions are influencing purchasing behaviour and patterns, according to leading retailers. Overall, consumers in SSA are becoming more aspirational and brand-conscious. “Africans are becoming more connected to global trends than ever before as a result of growth in internet penetration and travel,” explains Hugo. For example, in Ghana consumers are increasingly attracted to products that are well packaged and well documented.
This increasing level of discernment is also seen in the quality of goods that consumers expect and their willingness to pay for it. Those that can afford it are also becoming more health-conscious, favouring nutritious and healthy foods. In response, retailers are formulating new products.
Home-grown champions make their mark
Closer to home, African organisations are becoming dominant players in local markets and expanding their presence across the rest of the continent. South African retailers are a prime example of being among the most aggressive in expanding across the continent. But there are also examples from other countries, such as Zambia and Kenya expanding into the greater East African Community (EAC) region, and Nigeria into the West.
Informal trade continues to lead
For the foreseeable future informal retail will continue to dominate sales in SSA. With the exception of South Africa and Angola, it is estimated that upwards of 90% of sales in the focus countries is through informal channels such as markets, kiosks, table-top sellers and street hawkers.
“However, the industry is in the process of modernising with a number of western-style shopping centres taking shape in countries like Nigeria, Kenya and Ghana. It is also interesting to note that in some countries such as Ghana, Nigeria and Zambia, many of the malls are anchored by South African retailers. For some countries, the building of shopping malls is a challenging and expensive business due to the difficulties in securing land, resources, and the costs associated with building,” says Michael Mugasa, PwC Partner in Kenya.
Online retail
Although online retail is still in its infancy in SSA, the industry is showing promising potential. While South Africa and Nigeria already have numerous e-commerce players, the industry is less developed in countries such as Cameroon and Ghana. According to the report, successfully selling products online in SSA comes with challenges, including unreliable internet connections, logistical challenges, as well as a general distrust of transacting online and low bank penetration.
Local production on the rise
Increasingly there is a growing movement towards local production. This trend is driven by a number of factors. These include, amongst others, political stability and government incentives to boost local manufacturing. To circumvent import duties, port delays and high transport costs, companies are also considering local production options. Despite the opportunities, manufacturing in Africa comes with numerous challenges, such as power supply problems, high rentals, electricity and labour costs.
Supply chain optimisation
A critical success factor for retailers and consumer goods companies moving into many African countries has been their ability to implement supply chains that deal with the operational challenges that exist. “Given the size of Africa, supply chains tend to be complex, challenging and expensive,” says Hugo. “Other obstacles include poor transport, inadequate local supply capacity and the dominance of informal retail trade.”
Distribution
The dominance of informal trade and Africa’s large rural population makes distribution a complex exercise. However, as 90% of sales are made through informal channels, those that ignore this segment are missing out on a significant share of potential revenue. There are also many examples of companies that have introduced innovative ways of improving their distribution in various countries.
Hugo concludes: “Each country in Africa has its own value proposition. Smart investing in Africa means investors need to understand key regions and local markets. Furthermore, investors need to note that there are specific risk factors underlying the development of Africa. Despite these risks, investors and retailers will continue to see the African market as a huge opportunity.”
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How to protect infrastructure from a changing climate
Every other month the news seems to flash images of extreme weather – disastrous heat waves, floods of biblical proportions, and epic storms. On the rise as a result of a changing climate, these weather events can cause a myriad of damages and put the world’s critical infrastructure at risk. This costs money.
The devastating 2010 floods in Pakistan caused close to $2 billion in damages to physical infrastructure, according to World Bank estimates. And Hurricane Sandy wreaked $1.13 billion in damages on New York City’s infrastructure alone (New Jersey and other parts of New York State saw significant damages as well).
Examples like these are endless.
Alongside these increasing climatic risks to the world’s existing infrastructure assets, the fact remains that many countries desperately need more and better infrastructure. This is particularly true for developing countries. To meet the future infrastructure demands of these economies would require investment of at least an estimated additional $1 trillion a year through 2020.
That’s because the dams, power plants, and roads built today must withstand not yesterday’s or today’s climate, but a future climate that is variable and unpredictable. This presents an opportunity not just for the nations that will ultimately house this infrastructure, but for the decision makers involved in developing and financing infrastructure assets that can withstand climate change. Officials, advisors, and funders involved in developing public private partnerships (PPPs) for infrastructure share in this opportunity to make a difference in how resilience is mainstreamed into infrastructure projects.
PPPs are gaining importance in many developing countries as a way to finance infrastructure assets. However, to date, the traditional risk allocation frameworks for PPPs include limited consideration for climate change risks. This failure to consider climate risks is further exacerbated by a lack of knowledge and appropriate incentive structures in dealing with adaptation and long-term resilience for infrastructure PPP arrangements.
There is increasing need for decision makers involved in the public investment process including that of PPPs to both understand how climate change risks could affect their investments and how to mitigate those risks through financial instruments.
Recognizing that scope probably exists to embed climate considerations into the PPP process, PPIAF, along with the Climate Change Group of the World Bank Group, supported a new paper, “Emerging Trends in Mainstreaming Climate Resilience in Large Scale Multi-Sector Infrastructure PPPs”. It found that extensive bodies of knowledge exist on climate risks to infrastructure and on how to implement PPPs for infrastructure, though there is little overlap between them. This report presents a synthesis of insights from both areas, building on interviews with experts from multilateral development banks, analysis of national policy frameworks for PPPs and adaptation, and a literature review, to identify where these topics do and should overlap.
PPIAF has already begun building on this research to evaluate ways to include climate change considerations into the PPP development process. A related new issue brief from PPIAF, “Climate Risks and Resilience in Infrastructure PPPs: Issues to be Considered,” details how to operationalize the integration of climate considerations into PPPs. This publication provides a preliminary review of PPP contractual arrangements and identifies overarching concerns related to their inflexibility in terms of how climate risks are managed under the existing PPP risk allocation frameworks. Gaps and constraints in existing PPP contractual protection measures are also discussed. The paper aims to engage PPP practitioners as well as governments and their advisors in a broader discussion on how a paradigm shift in thinking will be needed in the way Infrastructure PPPs are planned, developed, procured and implemented.
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UN calls for political will to overcome inequality hindering sustainable development for all
Inequality is a universal challenge faced by least-developed, middle-income and developed countries alike, but which can be overcome by political will at national and international levels, the United Nations deputy chief said on 30 March 2016.
Addressing a special meeting on inequality convened by the UN Economic and Social Council (ECOSOC), Deputy Secretary-General Jan Eliasson said that inequalities within and among countries pose an immense challenge to global development efforts.
“Large disparities in income, wealth, power and opportunity plague our work for progress, both internationally and nationally, so do also large gaps in access to education, healthcare, water, sanitation, food, energy, and social protection,” Mr. Eliasson told the meeting, which brought together leading experts on inequality from academia, government, the private sector, the UN system and other stakeholders to conceptualize, analyze and recommend solutions for inequalities in the context of the 2030 Agenda for Sustainable Development.
The 2030 Agenda, adopted by UN Member States in September last year, pledges to reduce inequality. “For us to uphold the basic promise of the Agenda – to leave no one behind – we must reach those furthest behind first,” he said.
Inequality ‘cross-cutting issue’ of the 2030 Agenda
Inequality features prominently in the Sustainable Development Goals (SDGs), including two stand-alone goals – Goal 5 on gender equality, and Goal 10 on reducing inequality within and among countries. But inequality is also a cross-cutting issue which permeates practically all 17 goals and their targets, he added.
Inequality harms economic growth and poverty reduction, he said. It undermines social cohesion and undermines people’s sense of fulfilment and self-esteem. Inequality worsens the quality of relations in the public and political spheres. It stymies potential in human beings. And it wastes a lot of talent.
Yet, there is nothing inevitable about growing inequality. Inequality is strongly affected by policymaking, by public office and by pressure from leaders. “Where the political will exists, much can be done to address it,” he stressed.
Many countries have taken concrete steps to contain or reduce inequalities, including debt restructuring and prudent fiscal stimulus, made easier today not least by historically low interest rates.
Inequality between countries also remains a formidable challenge, the UN deputy chief said. Among the drivers of these gaps are illicit financial flows, financial manipulations, tax evasion and lack of harmonization of tax codes among countries.
International development cooperation can play an essential role in driving forward both public and private resources to go where the needs are greatest and the capacities are weakest, he added.
“Let us recognize that inequality is not just a statistic or a value-free measure of economic activity,” he urged, as inequality is increasingly harmful, sowing the seeds of division, pushing societies towards polarization and fracture.
Why discuss inequality now?
ECOSOC President Oh Joon said that the UN needs to discuss inequality now because the numbers clearly show that gaps in income and wealth have been consistently widening around the world.
Today, seven out of 10 people in the world live in countries where income inequality has risen, in many cases, to the highest level in 30 years, he said, adding that it has become a cliché to say that the richest one per cent has come to possess more than half the total wealth of the world.
“The fact that the gaps between the rich and poor are widening, despite improvements for the poorest, indicate that there are structural elements which cannot be properly dealt with by poverty reduction efforts alone,” he said.
Whether those elements might be called ‘the rules of the game’ or ‘a level-playing field’, they need be discussed at the UN, a shared forum in pursuit of global public goods.
The meeting is timely as it comes at the very first phase of the implementation of the 2030 Agenda, he said. In a press conference today, Mr. Oh and Jeffrey Sachs, the Secretary-General’s Special Adviser on the Sustainable Development Goals, discussed some ways of reducing inequalities, including through cutting down on illicit financial frauds and curbing corruption.
“At the international level, we need additional instruments, one way is to cut down on tax cheats,” said Mr. Sachs, noting that without the revenues, governments are unable to provide critical social services, such as health and education.
He noted also the importance of fighting corruption: “When things are transparent, the rich and the powerful are often not able to get away with the games that they play, and therefore good governance, transparency, use of information technology, global cooperation on taxes, closing down abuse on tax secrecy and tax havens are important pieces of the puzzle on creating a fair global society.”
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Partnership Forum spotlights UN’s catalytic role in multi-stakeholder engagement for 2030 Agenda
Addressing the Partnership Forum convened by the UN Economic and Social Council (ECOSOC), senior United Nations officials on 31 March highlighted the Organization’s critical role in facilitating the establishment of partnerships, which are necessary to implement the world’s new development goals by 2030.
“To successfully implement the 2030 Agenda for Sustainable Development, we must swiftly move from commitments to action,” Secretary-General Ban Ki-moon said in a message delivered on his behalf by David Nabarro, Special Adviser on the 2030 Agenda. “And, to do that, we need strong, inclusive and integrated partnerships at all levels.”
The UN system will act as “a catalyst and facilitator, supporting initiation of efforts, including multi-stakeholder platforms, forums for accounting and review, and monitoring and impact measurement,” he said.
The theme of the 2016 Forum is ‘From commitments to results: Leveraging partnerships for the 2030 Agenda.’ Since 2008, ECOSOC’s Partnership Forum has brought together stakeholders, particularly from business and foundations, to discuss with governments ways in which to engage in support of the internationally agreed development goals.
With the adoption of the 2030 Agenda, the role of multi-stakeholder partnerships looms even larger. There is general consensus that partnerships will play a crucial role in promoting the achievement of the Sustainable Development Goals (SDGs), to which all countries aspire.
The UN chief said that the partnerships that work best are those with a clear vision, effective internal governance structures, commitment by all partners and trust among all involved. In that regard, multi-stakeholder working is increasingly demonstrating its value, and Governments will have a critical role to play in their governance.
Breaking traditional silos
ECOSOC President Oh Joon also said that multi-stakeholder partnerships will be key for the implementation of 2030 Agenda.
Governments, UN, civil society, private sector, philanthropic community and academia “must break down traditional silos” for more and better cross-sectoral decision-making and solutions, he stressed, noting that partnerships must leverage the interlinkages between their goals and targets to enhance their effectiveness and impact.
ECOSOC is mandated to serve as the platform to review global partnerships. The body engages non-governmental actors in UN’s work and coordinates the activities of the UN development system.
Since 2008, the Council has placed increased emphasis on ways to mobilize partnerships in support of the international development agenda. As such, it is uniquely situated to provide guidance on partnership initiatives or commitments to support the implementation of UN mandates, he said.
General Assembly President Mogens Lykketoft also delivered a statement. A keynote address was given by Princess Haya Al Hussein, UN Messenger of Peace and Chairperson of International Humanitarian City.
2016 ECOSOC Partnership Forum
Background
ECOSOC’s Partnership Forum has served as a platform for discussion on partnerships since 2008, bringing together stakeholders, particularly from business and foundations, to discuss with governments ways in which to engage in support of the internationally agreed development goals. With the adoption of the 2030 Agenda, the role of multistakeholder partnerships looms even larger. There is general consensus that partnerships will play a crucial role in promoting the achievement of the Sustainable Development Goals (SDGs), to which all countries aspire.
The Forum will result in a greater understanding of cross-sectoral solutions and the key success factors in bringing high-potential development solutions to scale, through multi-stakeholder partnerships. The views of member states and experts on ways to enhance accountability and transparency of multi-stakeholder partnerships in support of the 2030 Agenda will be shared.
A President’s Summary will be prepared capturing the key messages from the day’s discussions. A more extensive summary of the event’s deliberations will be prepared which will serve as a basis for ECOSOC’s contribution to HLPF and the high-level segment of the Council.
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A new deal or a new global partnership for conflict-affected states?
Created within a year of each other, the World Bank and the United Nations were born out of a shared response to the Second World War. The war created a constituency willing to invest resources and ideals in a system of multilateral cooperation. In the words of one of their architects, these institutions were to create a “New Deal for a new world.”
Today we face another period of global disorder. The number of armed conflicts worldwide has tripled from four to 11 since 2007. 2014 was the most lethal year since the end of the Cold War, according to the Uppsala Conflict Data Program. In the same year, the total number of deaths from terrorism increased by 80 percent, to close to 37,000, the largest yearly increase in the last 15 years, according to the Institute for Economics and Peace.
The fallout is clear. The number of people affected by humanitarian crises has almost doubled in the past decade, with 125 million people requiring humanitarian assistance. Displacement is at a post-World War II high with 60 million people around the world forced from their homes, often within their own countries. Roughly two-thirds of U.N. peacekeepers today and almost 90 percent of personnel in U.N. Special Political Missions are working in and on countries where there is little peace to keep.
Responding to this challenge, the U.N. and its member states led major reviews in 2015 of the tools and approaches used to respond to conflict. These reviews looked at peacekeeping operations, the implementation of Security Council Resolution 1325 on Women, Peace, and Security, and the U.N.’s peacebuilding architecture.
These reviews underscored that while humanitarian assistance can mitigate suffering, and peacekeepers can stabilize situations, they alone cannot create lasting peace, development, and prosperity.
Responding to this challenge requires a new global partnership to prevent violent conflict, reduce humanitarian need, and sustain peace. This partnership must reaffirm our commitment to humanity and chart a course for change, as the secretary-general has called for in his recent report for the World Humanitarian Summit.
Taking place just before the World Humanitarian Summit, the ministerial meeting of the International Dialogue on Peacebuilding and Statebuilding (IDPS) in Stockholm is a key moment at which the principles of the New Deal for Engagement in Fragile States, in particular the TRUST and FOCUS components, could be used to provide a foundation for this effort.
Peacebuilding and statebuilding, however, are political. Technical instruments must be aligned with and informed by a political strategy owned by national governments and developed in consultation with its people. This is as true at the global level as it is in each country.
What needs to happen?
The first step is normative. In 2015, through the Addis Ababa Action Agenda and the 2030 Agenda for Sustainable Development, member states committed to a future that aims to leave no one behind. The International Dialogue, the New Deal, and the g7+ were important foundations, asserting the links between development and peace captured in the Sustainable Development Goals (SDG). However, the SDGs are universal. Goal 16 on just, peaceful, and inclusive societies is an ambition of all countries, not only those identified internationally as conflict-affected, and other goals—for example SDG 1 on ending poverty and SDG 10 on reducing inequality—are critical to peace in conflict-affected states. A statement at Stockholm should be made clarifying the linkages between the specific focus of the New Deal and the universal goals of the SDGs (and their affiliated processes).
The second is ownership. Peace and development are first and foremost a national responsibility. The New Deal provides a framework that brings together multilateral and bilateral partners of conflict-affected countries. However, it has functioned primarily as a tool for the targeting of aid, not its management. To achieve the SDGs in 2030 we need to equip national partners with the tools to address the drivers of conflict. That is where a revitalized New Deal can play an important role. While the SDGs are now the overarching framework, making more significant progress on the TRUST and FOCUS components of the New Deal will be essential contributions to the implementation of the 2030 Agenda. Commitments to ownership, the use of country systems, and mobilization of national resources should be restated and given life in Stockholm.
The last is resources. Resolving conflict requires multi-year financing addressing the drivers of conflict rather than short-term responses. While official development assistance (ODA) to conflict-affected countries has increased over the last dozen years or so, in 2013, peacebuilding support to legitimate politics, security, and justice systems represented only 16 percent (or $6.8 billion) of the $42 billion in gross development assistance for 31 conflict-affected countries (see Figure 1). At a very moment of global crisis, as of January 1, 2016 and for the first time in its history, the United Nations Peacebuilding Fund will not reach its $100 million annual allocation target endorsed by the secretary-general and donors. Stockholm needs to demonstrate a commitment to peacebuilding and statebuilding that goes beyond words, and commit to more resources devoted to conflict-affected countries and more resources targeting the drivers of conflict.
Figure 1: Peacebuilding versus total ODA, debt relief included, 31 conflict-affected countries, 2002-2013
The U.N. has been a supporter of the New Deal from the beginning, recognizing it as a model for partnership between conflict-affected states and their development partners. A political, prioritized strategy for peacebuilding and statebuilding is necessary to support full implementation of the Sustainable Development Goals in conflict-affected states. The New Deal provides inspiration for such a strategy. The question for Stockholm is whether inspiration alone will be sufficient.
Oscar Fernandez Taranco is United Nations Assistant Secretary-General for Peacebuilding Support. This blog reflects the views of the author only and does not reflect the views of the Africa Growth Initiative or the views of the United Nations. Special thanks goes to Jago Salmon for his contributions.
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Total opts for Tanzania oil route despite Kenya-Uganda talks
French oil giant Total has affirmed its commitment to construct the $4 billion (Sh406 billion) pipeline through Tanga despite the push by Kenya to have Uganda ship its crude oil through the Lamu port.
Total E&P Uganda general manager Adewale Fayemi said the French giant has made the decision to have the pipeline run through Tanzania despite talks between Uganda and Kenya.
“As a company, our position remains that we are going through Tanga… I understand there are issues being discussed but our position remains the same,” said Mr Fayemi said on Wednesday while attending a two-day East Africa Oil and Gas conference in Tanzania.
He said all available options had been carefully considered and the firm is more interested in the Tanga route, which will be cheaper for oil production than the Kenyan option.
Total is UK Tullow Oil’s partner in the Ugandan oil fields and the main financier of the operations. China National Offshore Oil Companies is also a partner. The firms are eyeing production of an estimated 6.5 billion barrels of Uganda’s crude oil by 2018.
Kenya Thursday put on a brave face in light of the Total’s position. “We will build an oil pipeline, whether we are together with the Ugandans or not,” said Energy PS Joseph Njoroge.
Total’s stand on the issue comes as President Uhuru Kenyatta considers negotiating for the Lamu route through his host President François Hollande during his April trip to France.
At the moment, Kenya and Ugandan officials are touring Lamu and Lokichar following a decision by President Kenyatta and Uganda’s Yoweri Museveni, to have all possible routes reviewed and harmonised.
In the tour, the team is looking at the terrain, technical and economic aspects of three possible routes through Tanga, Lamu or Mombasa port.
President Museveni on March 21 in Nairobi delayed making a final decision on the proposed shipping of its crude oil through Lamu port setting up Kenya and Tanzania for intense rivalry in their quest to become the preferred regional trade and transport hub.
The Nairobi meeting came just weeks after President Museveni and his Tanzanian counterpart John Magufuli reached a deal to build a 1,120-kilometre oil pipeline between Tanga and Uganda where an estimated 6.5 billion barrels of oil were discovered in the Albertine basin near the border with Democratic Republic of Congo.
The twist of events rattled Kenya, which now finds itself in a head-to-head competition with Tanzania to win Uganda’s decision to have its oil exported through Kenyan territory.
Tanzania has previously been labelled a “lone ranger” among East African Community partners on key integration issues such as trade and infrastructure development – a tag it sought to shed-off with the Uganda pipeline deal.
Although Uganda said in August 2015 that it had agreed upon the Kenyan route, it changed its stand and said Nairobi had to guarantee security for the pipeline, along with financing and cheaper fees than alternatives.
Total has previously also raised security concerns over the Kenyan route which would run through the volatile north eastern region where militant groups such as the Al Shabaab remain a threat.
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tralac’s Daily News Selection
The selection: Thursday, 31 March 2016
Starting today, in Addis: the 2016 Conference of Ministers on the theme: ‘Towards an integrated and coherent approach to implementation, monitoring and evaluation of Agenda 2063 and the SDGs’.
Today, in Kigali: the MINEAC hosts an engagement with Rwandan civil society on EAC integration. Updates: @MINEACRwanda
South Africa: February trade statistics (SARS)
The South African Revenue Service today releases trade statistics for February 2016 that recorded a trade deficit of R1.07 billion. This figure includes trade data with Botswana, Lesotho, Namibia and Swaziland. The February deficit is due to exports of R90.68bn and imports of R91.75bn, improving from a revised deficit of R17.96bn in January 2016. Exports increased from January 2016 to February 2016 by R19.29bn (27.0%) and imports increased from January 2016 to February 2016 by R2.39bn (2.7%).
Kenya Economic Update: Kazi ni Kazi – informal should not be normal (World Bank)
Extract: Trade performance and export growth for employment creation (Chapter 3): The declining performance of Kenya’s merchandise exports is not new, yet reversing it is key to robust growth and employment creation. Overall exports growth averaged 3% for the period 2010-2015, which was below average economic growth of 6% during the same period. More importantly, export growth to Kenya’s largest markets, EU, EAC and COMESA, was only 1-2%. At the same time, exports to Asia, Australia and the America’s recorded remarkable growth at about 10%. Notably, exports to Asia and Australia account for similar share with EU, accounting for 22% of total exports. But by far the most significant growth on exports recorded was to the Americas, at rates above 10%.
Exports to EAC region started declining in 2011. This coincided with the entry of the fully-fledged Customs Union. The customs union abolished preference access of Kenya’s manufactured products from Export Promotion Schemes. These products started to attract full Common External Tariff instead of being traded on duty free basis. Box 2.1 shows the export products that have declined in the EAC market. These products are from the manufacturing sector. Notably, Tanzania and Uganda now source these products from other markets outside the region (trade diversion). This market loss, which in real sense means loss of trade related jobs in Kenya, needs to be accompanied by a reallocation of factors to sectors that can compete in a deepened regional trade.
Africa told to step up checks on cheap Chinese imports (New Vision)
Officials from the Chinese government announced new plans on Tuesday to tighten controls intended to curb the practice but asked African states to follow suit. Yang Peipei, the councillor at China’s ministry of commerce, told journalists in China’s capital, Beijing on Tuesday that the practice has is driven by traders from Africa. “We are aware of the problem of substandard items exported to Africa. But this is largely because most African countries are price-sensitive and force manufacturers to cut costs in order to lower prices,” Peipei said during a press briefing on China-Africa economic cooperation and investment. To cash in on the lucrative business, traders approach manufacturers in China and ask for goods of lower quality at lower prices. Some of the items cost a fraction of the original brands. In most cases, however, buyers are unable to differentiate between genuine products and knock-offs.
CSR practices of Chinese businesses in the global South: findings from Kenya, Mozambique and Uganda (IIED)
Africa Incentive Survey 2016 (KPMG)
The purpose of the survey is to understand the landscape of incentives offered by African countries, both to local and foreign investors. Whilst in an ideal world, information relating to all countries in Africa would have been included in such a survey, for a variety of reasons (including time limitations), this survey contains information across 28 countries in Africa that represent 81% of Africa’s USD 2.4 trillion GDP and which are home to three-quarters of Africa’s 1.2 billion population. More than a third of the 28 countries surveyed have incentives related to manufacturing. It appears that African countries are reforming the incentive policies to include manufacturing incentives, to attract manufacturing FDI within their countries. South Africa, Nigeria and Morocco are notably the only countries in Africa that offer cash grants in addition to tax incentives, all of which require prior approval by government. [Download ppt presentation]
New data on East African private equity activity (RisCura)
Put together by global professional investment services firm RisCura on behalf of the East African Venture Capital Association the dashboard shows that Kenya is dominating the region as a hub of private equity activity. The RisCura-EAVCA East Africa Private Equity Deal Dashboard surveyed 16 funds, of which 13 are EAVCA members, and 63 transactions, which Rory Ord, Executive at RisCura says provides a fair sample. Of those, the value of deals in 2015 was $152m, up substantially from the 2014 value of $52m.
The role of agropoles and agro-processing zones in Africa’s agricultural transformation (AfDB)
Also speaking on the occasion, the Agriculture and Agro-industry Department Director, Chiji Ojukwu, revealed that the continent faces a staggering food import bill of US $35.4 billion per annum which is projected to increase to US $110 billion by 2025. “Can Africa continue to afford importing food at this level and magnitude?” he asked. The two-day extensive meeting closed with the following key recommendations for the Bank Group: i) Support the establishment of a network of Agropoles and Agroprocessing Zones in Africa to promote the implementation of a continent-wide agropoles strategy; ii) Facilitate investments in agropoles in countries facing situations of fragility; iii) Develop generic strategic and planning guidelines for the creation of agropoles and agroprocessing zones for African countries and provide technical assistance to them; iv) Integrate the development of agropoles in other initiatives supported by the AfDB such as agricultural value chains, youth employment, commodity exchanges and other investments in the agriculture sector.
Congo: Support to the transport sector and related agricultural and rural infrastructure (AfDB)
The upgrading and paving of the Mila Mila-Makabana-Mossendjo road is an alternative to the Brazzaville-Libreville road link as it enables direct travel from Brazzaville and Pointe-Noire to Franceville in Gabon, with the possibility of a road/rail intermodality to Franceville and significant time gain. It is against this background that the economic importance of Niari Department (Département du Niari), hitherto the country’s bread basket, has declined over the years owing to constantly deteriorating transport and marketing infrastructure.
Transportation costs and efficiency in West and Central Africa (tralac)
Thus the Regional Sealink Consortium announced at the [Abuja] workshop that they are collaborating in an effort to establish a shipping line for trading within west and central African. This will be a multi-modal transport system to include an integrated maritime and logistics services-combined transport and warehousing facility with supporting ancillary services like container handling, weighing activities and inland waterways. There are some essential elements which should be evaluated and included in the development of the multi-modal transportation system to be effective and improve competitiveness. These are vital to ensure goods are able to move from one point to another rapidly, reliably and cheaply: [The author: Willemien Viljoen]
Kazungula Bridge project: update (Government of Botswana)
According to a report presented by the two Permanent Secretaries, construction of a temporary bridge on the Zambian side has been completed while on the Botswana side it is expected to be completed in June 2016. Construction of the permanent bridge on the Zambian side has also commenced. The Bridge is of strategic importance to the economic integration of, not only Botswana and Zambia, but the SADC Region as a whole. The Bridge will provide the much-needed connection between the regional economic areas, and will also link regional ports which handle all
Global Infrastructure Forum preview: the importance of investing in built-to-last infrastructure (Brookings)
Are less developed countries more exposed to multinational tax avoidance? (UNU-WIDER)
We use a global dataset with information on 210,000 corporations in 102 countries to investigate whether cross-border profit shifting by multinational firms is more prevalent in less developed countries. We propose a novel technique to study aggressive profit shifting and improve the credibility of existing techniques. Our results consistently show that the sensitivity of reported profits to profit-shifting incentives is negatively related to the level of economic and institutional development. This may explain why many developing countries opt for low corporate tax rates in spite of urgent revenue needs and severe constraints on the use of other tax bases.
ECOSOC special meeting on inequality (UN)
Inequality is a universal challenge faced by least-developed, middle-income and developed countries alike, but which can be overcome by political will at national and international levels, the United Nations deputy chief said today. Addressing a special meeting on inequality convened by the UN Economic and Social Council, Deputy Secretary-General Jan Eliasson said that inequalities within and among countries pose an immense challenge to global development efforts. [DRC: UNSC debate, resolution on extension of MONUSCO's mandate (UN)]
UNODC launches initial study on Afghan opiate trade in Africa
Released earlier this month by UNODC, the 'Afghan opiate trade and Africa - a baseline assessment 2016' sheds new light on the illicit Afghan opiate trafficking situation in Africa. The report offers a much needed evidence base to support policymakers and law enforcement officials in understanding the trafficking of Afghan opiates into and across Africa in order to help in the development of an effective and coordinated response. 11 per cent of the world's opiate users are estimated to be based in Africa, with more than 50 per cent of these found in West and Central Africa.
Are India-US trade relations again on a downward spiral? (Livemint)
US President Barack Obama and Prime Minister Narendra Modi will meet on Thursday on the sidelines of the Nuclear Security Summit in Washington. They will for sure exchange pleasantries and even the latter’s trademark bear hug but there is no doubt that the two nations are now increasingly engaged in what even government officials in New Delhi have started to acknowledge is a “trade war”. Here are a few examples:
WTO members “still interested” in securing results in rules negotiations (WT0)
Ghana’s visa relaxation a vote of faith in Africa (Business Day)
Republic of Congo formalises Afreximbank membership (StarAfrica)
Lagos State launches one-stop shop for investors (CNBC Africa)
Magufuli's government hit by more foreign aid cuts (IPPMedia)
Total sticks to Tanga pipeline route as Kenya seeks consensus (IPPMedia)
Chinese investors eye Tanzania’s energy sector (Daily News)
Global steel industry facing ‘Ice Age,’ top China mill warns (Bloomberg)
Morocco to get Africa's first automated container terminal (Maritime Executive)
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Agenda 2063: First Ten-Year Implementation Plan 2014-2023
The Africa We Want – A Shared Strategic Framework for Inclusive Growth and Sustainable Development
Over the past 50 years (1963-2013) Africa focused her collective on the decolonization, the struggle against apartheid and attainment of political independence for the continent. On the occasion of the golden jubilee (May 2013) of the Organization of African Unity (OAU)/African Union (AU) which spearheaded the decolonization process, the continent re-dedicated herself to the attainment of the Pan African Vision of An integrated, prosperous and peaceful Africa, driven by its own citizens, representing a dynamic force in the international arena.
To achieve this vision, the Golden Jubilee Summit of the Union came up with a solemn declaration in eight areas spanning: social and economic development; integration, democratic governance and peace and security amongst others as the planks of the vision.
In order to make the solemn declaration a reality and within the context of the AU Vision, the Golden Jubilee Summit of the Union directed the African Union Commission (AUC), supported by the New Partnership for Africa’s Development (NEPAD) Planning and Coordinating Agency (NPCA), the African Development Bank (AfDB) and the UN Economic Commission for Africa (UNECA), to prepare a continental 50-year agenda through a people-driven process outlining the Africa We Want, namely Agenda 2063.
The Seven Aspirations
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Aspiration 1: A prosperous Africa based on inclusive growth and sustainable development.
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Aspiration 2: An integrated continent; politically united and based on the ideals of PanAfricanism and the vision of Africa’s Renaissance.
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Aspiration 3: An Africa of good governance, democracy, respect for human rights, justice and the rule of law.
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Aspiration 4: A peaceful and secure Africa.
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Aspiration 5: An Africa with a strong cultural identity, common heritage, shared values and ethics.
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Aspiration 6: An Africa, whose development is people-driven, relying on the potential of African people, especially its women and youth, and caring for children.
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Aspiration 7: Africa as a strong, united, resilient and influential global player and partner.
After the adoption of the Agenda 2063 Framework Document by the Summit in January 2015 as the basis for Africa’s long term socio-economic and integrative transformation, it directed the AUC to prepare the First Ten Year Implementation Plan of Agenda 2063 (2013-2023). This plan, the first in a series of five ten year plans over the fifty year horizon was adopted by the Summit in June 2015 as a basis for the preparation of medium term development plans of member states of the Union, the Regional Economic Communities and the AU Organs.
The document seeks to: identify priority areas, their associated targets / expected outcomes and indicative strategies to stakeholders; highlight the fast track programmes/projects that will bring quick wins and generate and sustain the interest of the African Citizenry in the African Agenda; assign responsibilities and accountabilities to all stakeholders in the implementation, monitoring and evaluation of the plan and outline the strategies required to ensure resource and capacity availability and sustained citizen’s engagement for plan execution.
Goals and Priority Areas for the First Ten Year Implementation Plan
Agenda 2063 is a 50 year strategic document and hence priorities had to be set within it for the First Ten Year Implementation Plan. The goals, priority areas within a goal and targets within a priority area were to a large extent influenced by four factors:
1. Flagship Projects: All the flagship projects and programmes approved by the AU Summit are included in the First Ten Year Implementation Plan. The African Citizenry through the consultations in the preparation of the 50 year framework document and supported by the AU Summit came out with 12 programmes/projects which they will like to see implemented immediately even before the adoption of the First Ten Year Implementation Plan.
Flagship Programmes/Projects of Agenda 2063
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Integrated High Speed Train Network: Connecting all African capitals and commercial centres through an African High Speed Train to facilitate movement of goods, factor services and people, reduce transport costs and relieve congestion of current and future systems.
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An African Virtual and E-University. Increasing access to tertiary and continuing education in Africa by reaching large numbers of students and professionals in multiple sites simultaneously and developing relevant and high quality Open, Distance and eLearning (ODeL) resources to offer the prospective student a guaranteed access to the University from anywhere in the world and anytime (24 hours a day, 7 days a week.
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Formulation of a commodities strategy. Enabling African countries add value, extract higher rents from their commodities, integrate into the Global Value chains, and promote vertical and horizontal diversification anchored in value addition and local content development.
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Establishment of an annual African forum. Designed to bring together, once a year, the African political leadership, the private sector, academia and civil society to discuss developments and constraints as well as measures to be taken to realize the Aspirations and goals of Agenda 2063.
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Establishment of the Continental Free Trade Area by 2017. To significantly accelerate growth of Intra-Africa trade and use trade more effectively as an engine of growth and sustainable development, through doubling of intra-Africa trade by 2022, strengthen Africa’s common voice and policy space in global trade negotiations and establish the financial institutions within agreed upon timeframes: African Investment Bank and Pan African Stock Exchange (2016); the African Monetary Fund (2018); and the African Central Bank (2028/34).
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The African Passport and free movement of people: Transforming Africa’s laws, which remain generally restrictive on movement of people despite political commitments to bring down borders with the view to promoting the issuance of visas by Member States enhance free movement of all African citizens in all African countries by 2018.
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Implementation of the Grand Inga Dam Project. The optimal development of the Inga Dam will generate 43,200 MW of power (PIDA) to support current regional power pools and their combined service to transform Africa from traditional to modern sources of energy and ensure access of all Africans to clean and affordable electricity.
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The Pan-African E-Network. This involves a wide range of stakeholders and envisages putting in in place policies and strategies that will lead to transformative e-applications and services in Africa; especially the intra-African broad band terrestrial infrastructure; and cyber security, making the information revolution the basis for service delivery in the bio and nanotechnology industries and ultimately transform Africa into an e-Society.
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Silencing the guns by 2020. Ending all wars, civil conflicts, gender based violence and violent conflicts and prevent genocide. Monitor progress through the establishment and operationalization of an African Human Security Index (AHSI)
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Africa Outer Space Strategy aims to strengthen Africa’s use of outer space to bolster its development. Outer space is of critical importance to the development of Africa in all fields: agriculture, disaster management, remote sensing, climate forecast, banking and finance, as well as defence and security. Africa’s access to space technology products is no longer a matter of luxury and there is a need to speed up access to these technologies and products. New developments in satellite technologies make these very accessible to African countries. The Brazzaville meeting on aerial space technologies underlines the need for appropriate policies and strategies in order to develop regional market for space products in Africa.
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Establishment of a single African air transport market: This flagship Programme aims at delivering the single African air transport market to facilitate air transportation in Africa.
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Establishment of the African financial institutions: Establishment of the Continental Financial Institutions: aims at accelerating integration and socio-economic development of the continent, as they are important institutions when it comes to the mobilization of resources and management of financial sector.
2. Near Term National and RECs Development Priorities: National Plans of Member States were reviewed in addition to the strategic plans of the RECs. The focus areas of their development priorities have been included in the First Ten Year Implementation Plan – this will ensure that their priorities in the near term converge with the priority areas contained in the 50 year framework document. The priority areas that emerged include:
- Sustainable and inclusive economic growth
- Human Capital Development
- Agriculture/value addition and agro-businesses development
- Employment generation, especially the youth and females
- Social Protection
- Gender/Women development and youth empowerment
- Good governance including capable institutions
- Infrastructural development
- Science, Technology, Innovation
- Manufacturing-based industrialization
- Peace and Security
- Culture, Arts and Sports
3. Continental Frameworks: The AUC has developed continental frameworks as Comprehensive African Agricultural Development Programme (CAADP), Programme for Infrastructural Development in Africa (PIDA), African Mining Vision (AMV) , Science Technology Innovation Strategy for Africa (STISA), Boosting Intra African Trade (BIAT), Accelerated Industrial Development for Africa (AIDA) amongst others to support Member States of the Union in their development efforts. These frameworks are being implemented by some member states and to ensure coherence and convergence, they have to be captured in the priority areas of the First Ten Year Implementation Plan.
4. Agenda 2063 Results Framework: All the targets in the 50 year framework document that are due by 2023 must be included in the First Ten Year Implementation Plan. Examples are AU Decisions/Directives and AU Plan of Action/Treaties.
Key Transformational Outcomes by 2023
Chapter three provides the plan framework – aspirations and their associated goals; goals and their associated priority areas; priority areas and their associated targets at the national, regional and continental levels; and targets and their indicate strategies. These together constitute the results framework for the First Ten Year Implementation Plan and when achieved by 2023 at the national, regional and continental levels there would be transformations in five key areas – highlights of such expected outcomes include:
Transformed, Inclusive and Sustainable Economies
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GDP will be growing at 7% and at least a third of the outputs will be generated by national firms.
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Labour intensive manufacturing, underpinned by value addition to commodities and doubling of the total agricultural factor productivity will be attained by 2023
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The beginnings of value addition blue economy – fisheries, eco-friendly coastal tourism, marine bio-technology products and port operations – will emerge.
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Creative arts businesses will be contributing twice as much in real terms their 2013 contribution to GDP.
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ICT penetration and contribution to real GDP in absolute terms would be double of 2013 levels.
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Regional industrialization hubs linked to the global value chains and commodity exchanges will be in place by 2023.
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At least 17% of terrestrial and inland water and 10% of coastal and marine areas would have been preserved and 30% of farmers, fisher folks and pastoralist will be practicing climate resilient production systems.
Integrated Africa
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There will free movement of goods, services and capital; and persons travelling to any member state could get the visa at the point of entry.
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The volume of intra-African trade especially in agricultural value added products would increase three fold by 2023.
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The African Customs Union, an African Common Market and an African Monetary Union will be operational by 2023.
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The African Speed Train Network will have passed the inception stage and will be taking its first passengers between two connected cities.
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African Skies will be open to all African Airlines
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Regional power pools boosted by at least 50% increase in power generation and the INGA dam will be operational and will contribute to the powering of the industrial transformation of the continent and comfort of the citizenry.
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African Education Accreditation Agency and a common educational system are in place and the African Youth will have the choice to study at any university and work anywhere on the continent.
Implementation, Monitoring and Evaluation of the Plan
The targets set in the plan cover national, the RECs and continental bodies, especially the AU Organs. Roles and responsibilities have been assigned to all these stakeholders in the implementation, monitoring and evaluation of the First Ten Year Implementation Plan. The implementation also covers building capacities of all the stakeholders to execute the plans and engaging citizens to own the process and outcomes of the plan implementation.
Capacity Development for the Implementation of the First Ten-Year Plan
Lessons learnt from the implementation of past continental frameworks indicate the necessity for building the capacities of all stakeholders at the continental, regional and national levels. It is against this background that a capacity assessment and development plan is being prepared to cover some of the AU Organs and the RECs in the first instance and later to the national levels.
It is anticipated that the implementation of the outcomes of the capacity assessment and development studies will deepen the planning, monitoring and evaluation skills of development managers; strengthen institutional/organizational effectiveness in development management; provide transformative and visionary leadership and the enabling policy, legal and regulatory environment required for the successful execution of the First Ten Year Implementation plan at all levels.
Financing the Ten Year Plan
Financing Needs for First Ten Years: Agenda 2063 Financing and Resource Mobilization Strategy (RMS) outlines the key areas where resources will be required, the potential sources to finance each of these needs, processes for operationalization for matching demand and supply for funds at the national and regional/continental levels and institutional arrangements for making it happen.
Sources of Finance for the First Ten Years: The typology of the sources for financing ranges from government budgetary increases, crowd sourcing for social causes, pure commercial finance from both public and private sources/savings including domestic capital markets, concessional loans, market price-based commercial loans, equity and other market instruments, FDI, portfolio investments by the private sector (debt, bonds, equity and other securities).
Domestic resource mobilization (DRM) is meant to contribute at least 75% to 90% of the financing of Agenda 2063 on average per country, namely through: (i) enhanced fiscal resource mobilization, (ii) maximization of natural resource rents – OGM, agriculture, maritime, tourism, etc.; (iii) the leveraging of the increasingly important pool of African institutional savings – pension funds, central bank foreign exchange reserves, sovereign wealth funds and capital market development; (iv) enhanced retail savings mobilization through financial inclusion namely; (v) the curbing of illicit financial flows; (vi) the reduction of inefficiency and governance/corruption-based financial leakages and wastages – government, infrastructure services, agriculture value chain, etc. Agenda 2063 should also be rightly financed through external financing mechanisms including (i) FDI, official development assistance (ODA); (ii) financial cooperation from emerging development partners such as BRICS countries, Arab world, etc.; (iii) FDI, PPP et other forms of investment partnerships; (iv) the leveraging of Diaspora remittances and savings; (v) improved access to the international financial markets.
Channelling Resources into Agenda 2063 Programs and Projects: It is to be noted that Africa needs not only funds, but also a more effective and inclusive means of channelling funds (including financial institutions and markets, financial instruments and financial services) to where they can be most effective and where there is market failure in the allocation of the needed resources.
From that perspective, three levels of financial intermediation vehicles and resource channelling vehicles will be considered as part of the First 10 Year Implementation Plan:
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Existing commercial financial intermediation vehicles such as, one the one hand, commercial banks, microfinance institutions (MFI), development finance institutions (DFI), insurance companies, etc. that will need to be up-scaled through additional capitalization and capacitated in relevant financial services and project finance expertise areas; and on the other hand, stock exchanges and bond markets that will need to be expanded, deepened and regionalized.
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New commercial financial intermediation vehicles to be created such as Africa 50 Fund, Africa Credit Guarantee Facility (ACGF), Africa Investment Bank (AIB), Africa Infrastructure Development Facility (AIDF), Diaspora bonds, Diaspora remittances securitization, African-owned private equity funds, African Angel Investors Network (AAIN), regional stock exchanges, regional commodity exchanges. Other processes that will promote commercial financing include: Intra-African investment promotion, PPPs targeted at African investors and local government DRM tools such as retail bond for infrastructure services for example
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Non-commercial finance channelling or intermediation vehicles to be considered include existing vehicles such as AU, RECs and Member State budgets and new vehicles to be created such as African Integration Fund (AIF), Fund for African Women, Youth Empowerment and Entrepreneurship Fund; but also crowd funding solutions for social or emergency causes.
Facilitation Measures for Access to Finance: During the period of the First Ten Year Plan the following facilitation measures will be put in place at the national, regional and continental level, depending on its appropriateness within the context of Agenda 2063 Resource Mobilization Strategy (RMS).
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Developing/implementing generic “framework conditions” (policy, legal, regulatory and institutional framework) for private sector development and industry/issue-specific enabling conditions (financial industry development, PPP/Infrastructure financing, large industrial project financing, private equity/venture capital market development, SME finance/banking and microfinance).
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Setting up relevant project development funds, viability gap funds, capitalization funds, blending facilities to address demand side readiness.
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Establishing information infrastructure (country rating system, corporate governance standards, credit bureau and collateral registries etc.)
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Developing expertise in financial advisory services and specialist financial services where there is significant gap across Africa (project finance, capital market, private equity/venture capital, financial engineering, risk management and industry-specific financial services)
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Putting in place risk sharing and guarantee facilities to “de-risk” investment into African securities and enhance the risk of lending to African SME namely.
Leveraging Africa’s Strategic Partnerships
The African Union has entered into a number of strategic partnerships to support its development process: Africa-EU, Africa-USA, Africa-Japan, Africa-China, Africa-India, Africa-Arab League of States, Africa-South America, Africa-Turkey, and Africa-Korea with more demand for partnership in the pipeline. However, the full potential of the financial pledges and technical assistance pledges embedded in these partnerships are yet to fully leverage from the African side. Hence, going forward the following three levels of actions need to be considered by the AU to take maximum advantage of its strategic partnerships:
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Preparing a comprehensive AU policy framework and articulating a partnership strategy for all high-potential partners around a limited number of interventions with meaningful socio-economic transformational benefits;
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Maximizing Africa’s potential to exploit the full potential of its partnership by enhancing its strategic, governance, technical, logistical and financial support to the partnership management function of the AUC; by bringing more clarity to the implementation model of Africa’s various continental programs (PIDA, CAADP/3ADI, AIDA/APCII/RADS/AMV, BIAT) to facilitate result-oriented cooperation with its strategic partners; and by improved involvement and coordination of/among Africa’s various stakeholders of the partnership process: AUC, NPC, AfDB, RECs, Member States, PSO, CSO and other AU organs; and
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Deepening transformational benefits of the partnerships through alignment to Agenda 2063 priorities, namely: Agenda 2063 flagship projects, natural resource-based and STI-based industrialization and technology transfer, intra-African trade and export development, private sector and MSME development, financial market development, support to the post-2015 Agenda in social and sustainable development and domestic financial resource mobilization.
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Economic Update: Kenya’s economy strong in a challenging global environment
Kenya’s economic performance remains solid, with the growth rate expected to improve from 5.6% in 2015 to 5.9% in 2016, according to a new World Bank Group economic report released today. It is projected to rise further to 6% in 2017, the report says.
The most recent Kenya Economic Update (KEU), Kazi ni Kazi – Informal Should Not be Normal attributes this positive outlook to low oil prices, good agriculture performance, supportive monetary policy, and ongoing infrastructure investments. Kenya experienced strong economic performance in 2015, and has exceeded the average growth for Sub-Saharan Africa countries consistently since 2009, the report adds.
The report also notes that Kenya’s economy remains vulnerable to domestic risks that could moderate the growth prospects. These include the possibility that investors could defer investment decisions until after the elections, that election-related expenditure could result to a cut back in infrastructure spending, and that security remains a threat, not just in Kenya, but globally. Finally, changes in monetary policy in industrialized countries could trigger volatility in financial markets putting the currency under pressure.
While the growing Kenya economy is creating more jobs now than in the past, the report says these are mainly in the informal services sector and are low productivity jobs. Notably, nine million youth will join the labor market in the next 10 years. Given the scarcity of formal sector jobs, the youth will continue to find jobs in the small household enterprises.
“Kenya is not short of jobs; it is short of high productivity jobs,” said Jane Kiringai, World Bank senior country economist for Kenya and the lead author of the report. “To increase productivity of jobs in the informal sector, policy interventions could be geared towards increasing access to broad skills beyond formal education, creating linkages between formal and informal firms, and helping small scale firms enter local and global value chains.”
To create more and better jobs, it is also imperative to reduce the cost of doing business which is necessary for a robust private sector, the report adds.
Trade Performance and Export Growth for Employment Creation
The declining performance of Kenya’s merchandise exports is not new, yet reversing it is key to robust growth and employment creation. Overall exports growth averaged 3 percent for the period 2010-2015, which was below average economic growth of 6 percent during the same period. More importantly, export growth to Kenya’s largest markets, EU, EAC and COMESA, was only 1-2 percent. At the same time, exports to Asia, Australia and the America’s recorded remarkable growth at about 10 percent.
Notably, exports to Asia and Australia account for similar share with EU, accounting for 22 percent of total exports. But by far the most significant growth on exports recorded was to the Americas, at rates above 10 percent.
Exports to EAC region started declining in 2011. This coincided with the entry of the fully-fledged Customs Union. The customs union abolished preference access of Kenya’s manufactured products from Export Promotion Schemes. These products started to attract full Common External Tariff instead of being traded on duty free basis. Box 2.1 shows the export products that have declined in the EAC market. These products are from the manufacturing sector. Notably, Tanzania and Uganda now source these products from other markets outside the region (trade diversion). This market loss, which in real sense means loss of trade related jobs in Kenya, needs to be accompanied by a reallocation of factors to sectors that can compete in a deepened regional trade.
Box 2.1 | Kenya has lost export market for key manufactured goods
Tanzania, where Kenya has lost export market valued at USD200m, leads in the EAC market decline. This represents a decline of 27% of exports between 2012 and 2015. The products behind this market loss include the following: Products of milling industry (HS11), Animal and vegetable fats and oils (HS15), Processed meat and fish products (HS16), Cocoa and cocoa preparations (HS18), Soaps and washing lubricants (HS34), Plastics (HS39), Apparel and clothing (HS61-63), Electrical machinery and equipment (HS85), Motor vehicles (HS87) and Furniture (HS94).
Kenya exports to Uganda recorded a decline of 12% or USD96 million between 2011 and 2014. The products behind this decline include: Meat (HS02), Animal or vegetable oils (HS15), Sugar and sugar confectionery (HS17), Tobacco (HS24), Pharmaceutical Products (HS30), Soaps (HS34), Aluminum products (HS35), Plastics (HS39), Paper and paper boards (HS48), Apparel (HS 60-63), Footwear (HS64), Iron and Steel products (72), Electrical machinery (HS85), and Glass and glassware (HS70).
A clear strategy will be required to reclaim a competitive edge in these more integrated markets. Impetus for Kenya products to reclaim the market share lies in the revealed export potential targeting Tanzania’s extra regional imports of similar products. A case in point is plastics, where Tanzania’s imports from outside the EAC stood at USD604million in 2013 against Kenya’s exports that had plummeted to USD17.4m by 2014. In Uganda, Kenya exports of Animal or vegetable oils stood at USD11m in 2014, Uganda imports of similar products from Rest of the World stood at USD251m in 2014. This implies a trade potential of USD240m in this one chapter alone!
Kenya Requires a Clear Export Strategy to Expand Exports in Each of the Trading Blocks EAC and COMESA
Retaining and expanding these regional markets requires a genuine commitment to the partnership by all member countries. The factors that have largely been attributed to the decline in exports include restrictive rules of origin across most of the products of Kenya’s, and indeed other EAC countries’, intra-regional export interest. SPS and Standards are also specific NTBs that may have a role in explaining the decline. Equally restrictive were customs procedures on intra-regionally traded products that ended up making it difficult for exports of certain products into the EAC region. Non-Tariff Barriers, especially SPS and Standards that have been reported by Kenya exporters into the COMESA market and the restrictive Rules of Origin will need to be addressed. Equally important is need for an export strategy targeting growth of exports in strategic markets in COMESA.
The prospect for Kenya, and indeed other EAC Partner States, to increase their intra-regional exports lie in the recently concluded reforms in the EAC. One such reform is the revised EAC Rules of Origin (2014) that have introduced the flexibility that was lacking in the previous rules and as well as ushering in very generous cumulative principle that allows Kenya and other EAC Partner States to cumulate with raw materials from more countries than was the case under the previous rules.
The immediate effect of this is to open up duty free market access for products that were previous denied such privilege on account of origin criteria. Cereals, pasta, bread, pastry, cakes and biscuits, among other processed foods of HS chapter 9, are some the key beneficiary products, where the ‘wholly obtained’ criteria was dropped in favour of the more flexible ‘Change in Tariff Heading.’ The latter allows all products from EAC milling industries to be traded within the EAC on duty free basis, irrespective of where the raw material was sourced.
This transformative change in the Rules of Origin is expected to see a steady substitution of breakfast cereals imported from outside the EAC region with EAC originating products manufactured using raw material obtained from most competitive global source countries. This will no doubt see investments and new jobs being created as Kenya and EAC Partner States exploit this potential. This story is replicated in many other manufactured products that could not access EAC market on duty free basis as a result of the restrictive rules of origin.
The prospect for Kenya, as well as other EAC Partner States, of enhancing their intra-regional trade is further explained by the recent Single Customs Territory reforms, particularly the destination country model of customs clearance. This model has removed red tape in intra-regional trade and introduced efficiency in intra-regional trade facilitation, leading to enhanced predictability of export/import business in terms of customs and other trade facilitation agencies treatment, reduction in time and cost of transaction.
The revised rules of origin, reforms in the SCT and the ongoing reforms of the EAC Customs Management Act to address CET and Stay of Duty/Duty Remission and related restrictions are low hanging fruit which Kenya could capitalize on, in working towards regaining the EAC market.
Expanding The COMESA Market
Kenya’s export growth in COMESA has largely been driven by Ethiopia and Congo DR, where exports grew by 6% and 5% respectively during 2010-15, despite these countries not implementing the full COMESA FTA. Exports to Egypt and Malawi recorded negative growth attributed to a decline that was experienced between 2013 and 2015 for Malawi, and 2013 and 2015 for Egypt.
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WTO members “still interested” in securing results in rules negotiations
WTO members clearly remain interested in achieving results in the negotiations on rules, despite the lack of an outcome in the sector during last December’s Nairobi Ministerial Conference, the chairman of the negotiations said on 22 March.
In his first report to members since the Nairobi meeting, Ambassador Wayne McCook of Jamaica, the chairman of the Negotiating Group on Rules (NGR), acknowledged differences on how the post-Nairobi discussions should proceed.
While “it's clear that members remain interested in finding ways to secure outcomes on rules,” some members wanted to focus on specific areas of interest while others emphasized the need for balance and observation of certain principles in pursuing outcomes, the chairman said. He added that he would make himself available should any delegation wish to consult with him on how to move forward.
Mr McCook said that despite intensive efforts in Nairobi, WTO members were unable to reach agreement at the 15-19 December Ministerial Conference on most of the rules issues, which cover anti-dumping and subsidies/countervailing disciplines, fisheries subsidies and WTO provisions on regional trade agreements (RTAs).
Two draft texts produced by the facilitator towards the end of the meeting on anti-dumping and fisheries subsidies failed to garner consensus from members. Save for the broad commitment to address rules as stated in paragraph 31 of the Nairobi Ministerial Declaration, only the issue of RTAs was the subject of a specific provision in the text (paragraph 28).
“Nevertheless, as we are all aware, members are committed to finding ways to advance work on all issues, including rules issues,” Ambassador McCook said. But he emphasized that proponents for outcomes in the rules negotiations have made clear they do not just want to simply pick up where they left off in Nairobi and do not want any limitations imposed by the Nairobi draft proposals and processes on the possible scope and ambition of further work.
Member interventions
More than two dozen delegations, some speaking on behalf of larger groups, took the floor to express their views on the way forward.
Many delegations highlighted the importance of the negotiations on fisheries subsidies and their disappointment over the continued inability to secure an agreement, despite the broad support for new disciplines in the sector. Reference was made to a Ministerial Statement issued in Nairobi by 28 members in which they committed to securing a ban on fisheries subsidies that negatively affect overfished fish stocks as well as subsidies to vessels engaged in illegal, unreported and unregulated fishing. Some said the mandate for a result was clearly spelled out in Target 14.6 of the United Nations' new Sustainable Development Goals on fisheries subsidies. It was therefore important that an outcome be achieved on fisheries subsidies at the WTO's 11th Ministerial Conference in 2017, they argued.
A number of developing countries in this group highlighted the second part of Target 14.6, which recognizes that appropriate and effective special and differential treatment for developing and least developed countries should be an integral part of the WTO fisheries subsidies negotiation.
Several delegations emphasized that outcomes need to be achieved in all areas of the rules negotiations and that special and differential treatment for developing countries remains an integral part of the negotiations. The outcome needs not only to be balanced across all pillars, it also needs to reflect the realities of the negotiations in the overall context of the WTO.
Other delegations voiced support for continued efforts in the rules negotiations, in particular new anti-dumping disciplines. One delegation said those members who indicated a willingness to engage on rules post-Nairobi now must make good on that promise, citing the efforts of proponents pre-Nairobi to recalibrate their ambitions. Another delegation said there were still widely divergent views both across and within the various rules issues and that members should not resume the negotiations without a clear signal on the way forward; new approaches are needed rather than a return to the same debates.
Further background on the WTO rules negotiations and previous news items on the talks are available here.
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New report: Nearly $1 trillion wasted globally on extraneous coal projects, amount could end world energy poverty
Second Global Coal Plant Tracker Report shows risk of excessive investment remains after reported China coal permit suspension
On 29 March, the Sierra Club, Greenpeace, and CoalSwarm released Boom and Bust 2016: Tracking The Global Coal Plant Pipeline, the second annual report examining the precarious global coal plant pipeline. New investigations detailed in the report revealed that while the coal industry continues to push for the construction of more coal-fired power plants, in reality, coal plants are increasingly sitting idle in all of the world’s four largest markets, and global coal consumption is declining drastically. This is particularly evident in China where the government recently took the first step to curb runaway coal plant investment, after the country’s coal use plunged by nearly 6.4 percent in two years.
The report’s unprecedentedly detailed mapping of new coal-fired power plants indicates the reported suspension of new permits and new construction starting in half of China’s provinces could affect 60 percent of the 460 new coal-fired units that have been permitted or are in the permitting process.
With coal use on the decline worldwide, the estimated $981 billion needed to construct the proposed coal plant pipeline represents a massive investment in potentially stranded assets – resulting in an even further downward spiral for the global coal industry. In fact, this number is more than one-and-a-half times the amount that the International Energy Agency (IEA) estimates is needed to end energy poverty for the 1.2 billion people currently living without reliable energy access. On top of this staggering revelation, the report found that the additional new proposed coal capacity would result in over 130,000 more premature deaths worldwide each year from air pollution and finds that existing coal-fired power plants are responsible for a total of nearly one million premature deaths annually from coal-fired power generation.
“The era of Big Coal is clearly coming to an end, and it’s long past time to move beyond dangerous, outdated, and polluting energy sources toward an economy powered by clean, renewable sources of energy like solar and wind,” said Nicole Ghio, senior campaigner for the Sierra Club’s International Climate and Energy campaign. “Coal use keeps falling off a cliff and plants are sitting idle, yet more money is being wasted on misguided attempts at locking in this dirty, dangerous fuel. The hundreds of billions being thrown at coal could instead go toward the booming clean energy sector, helping more than a billion people get access to the clean, reliable electricity that fossil fuels have failed to deliver.”
“Although this research has revealed hundreds of billions being squandered on unneeded coal plants, there’s more at stake here than money,” said Ted Nace, director of CoalSwarm. “In terms of climate safety, the clock is ticking on the transition to clean energy. There is no time to waste.”
“As coal-fired power plants are rapidly becoming uncompetitive, and concerns about their massive health impacts grow, the coal industry is making a last-ditch push,” said Lauri Myllyvirta, senior global campaigner on Coal and Air Pollution at Greenpeace. “China alone is housing the largest power market investment bubble the world has ever seen. Even after announcing suspension of new permits in 13 provinces, the country could still bring over 500 new coal-fired power plant units online while power generation from coal is falling precipitously on clean energy growth and slower power demand.”
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The triple transition of a slowing China, lower oil prices and a higher US dollar
Developing countries face a triple challenge of managing a stronger US dollar, China’s economic slowdown and a significantly weaker oil price.
China’s economic transition brings uncertainty. And yet its financial liberalisation is likely to result in continued outward foreign direct investment and trade with its trading partners from 2014 levels. Meanwhile, lower oil prices and an appreciating US dollar will be harmful to some sub-Saharan African economies in the form of further inflationary depreciations, higher debt and deteriorating reserve positions.
China’s balancing act
China faces a difficult balancing act. This entails deleveraging, slower growth and capital account liberalisation. Alongside the country’s deleveraging, it is expected by the Organisation for Economic Co-operation and Development to grow at 6.5% in 2016, less than half of its 14% growth before the 2008 global financial crisis. All the while, it is liberalising its financial system. The impact of this balancing – of deleveraging, slower growth and financial liberalisation – will be mixed.
Oil prices: a new (and lower) normal
Following a 50% decline between mid-2014 and mid-2015, the West Texas Intermediate measure of oil prices currently hovers around $40 a barrel. Lower energy demand in the US and, in the short term, in China is a structural driver of the decline. SSA oil exporters’ terms-of-trade (TOT) will be a particular source of vulnerability for economies with declining reserves. Our matrix of impacts suggests that, although most SSA economies see benefit from lower oil prices – including some oil producers, such as Ghana – others, such as Democratic Republic of China (DRC) and Nigeria, look vulnerable.
This oil price shock is important to consider: it has triggered corporate profitability concerns, it has been largely unresponsive to Organization of the Petroleum Exporting Countries production freezes and it has been driven by a structural demand shock. The outlook for oil prices is subdued particularly given that the US is now largely energy self-sufficient as domestic shale production drives down US energy imports. China’s energy demand is a source of debate, although its long-term demand to 2035 is expected to be robust given its infrastructure spending plans.
The US dollar’s momentum
The US dollar has appreciated by 28% from its July 2011 trough. This has been in part because of expectations of the Federal Open Market Committee (FOMC) tightening policy, a process which it indicated in May 2013 that it would start to contemplate. This will boost the US dollar given easing measures in Japan and the Eurozone. Although expectations have been scaled back, further dollar strength is also expected in 2016 given investor demand for US safe haven assets amid global financial volatility.
Widespread SSA currency depreciation, particularly against the US dollar, has led to tighter monetary policy, or engineered currency strength in SSA, to counter inflationary pressure. In Nigeria’s case, the naira-managed peg has been used to contain inflation risk. DRC uses dollarisation. This is necessary: currency depreciations that surpass 10–20% could trigger exchange rate pass-through inflation effects as large as 18–25% percent.
SSA investment outflows are most likely from economies with ‘twin’ deficits in their current and fiscal accounts. FDI inflows have been positive, although DRC, Nigeria and Uganda have been outliers. Portfolio flows have remained solid in Kenya, Nigeria and Zambia, although bond inflows have dropped dramatically in Ghana, Nigeria and Zambia. Global financial volatility could limit capital flows to SSA and restrict access to finance, particularly for economies with rising debt levels.
Vulnerable SSA economies
A number of SSA economies have been subject to multiple shocks. In Nigeria, the impact of lower oil prices has been felt, in part, through a decline in inward FDI. Further capital outflows will exacerbate its deteriorating debt and reserve positions. Nigeria’s sharply weaker external position, and falling reserves, suggest the naira peg will continue to come under pressure, with further devaluation likely.
Developments in Ghana’s economy suggest it has not yet borne the full brunt of lower oil prices. The impact of a strong dollar and higher US interest rates has been felt. At 26%, its policy interest rate is at a record high and aimed largely at countering the inflationary impact of cedi depreciation. Ghana’s high level of dollar-denominated debt and low level of reserves make the macroeconomic outlook vulnerable, with debt distress likely.
In DRC, despite expectations of resilient GDP growth, the economy faces multiple sources of instability from its TOT deterioration and the low level of reserves. The weakening in its current account is likely to exacerbate its net foreign asset position significantly. A slowdown in commodity prices and in China’s demand is a key source of vulnerability too, given that 94% of fuel exports go to China. This makes DRC’s overall GDP growth particularly sensitive to China’s economic growth.
SSA governments should upgrade their currency policies
There are three policy areas that could enhance SSA central banks’ ability to counter financial shocks. Greater alignment of market rates with the policy rate would increase the effectiveness of each rate move, which for SSA central banks would mitigate further rate rises from already prohibitively high levels. Second, helping SSA countries control capital flows that fuel boombust cycles matters. Finally, more robust liquidity forecasting would help SSA central banks protect their reserve positions, particularly those with weak exchange rates and a loss of oil revenues.
Improving global economic governance
Although everyone has paid lip service to better governance as an effective means of protecting against shocks, it is an undersupplied public good. New types of global institutional collaboration, information exchange and liquidity arrangements are needed. Inclusion of private financial institutional investors, through formation of an Investor (I) 20, in addition to the other G20 groups, would facilitate improved institutional collaboration and information exchange. It would enhance the monitoring and transparency of high-frequency trading in financial markets. This is important given that financial crises are rarely like their predecessors. Finally, enhanced regional contingency reserve arrangements targeted to SSA would bolster liquidity and provide some counterbalance to the US Federal Reserve.
Key messages from this report are:
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Developing countries will need to manage a stronger US dollar, economic slowdown in China and a significantly weaker oil price.
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The joint impact of this triple dynamic is important now given some developing economies’ inability to counter these shocks.
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Most sub-Saharan African economies will benefit from a lower oil price; yet oil exporters’ declining reserves, is a key vulnerability.
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US dollar strength risks fuelling further Sub-Saharan African inflationary depreciations and macroeconomic instability.
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Nigeria and Democratic Republic of Congo have seen deteriorating external accounts whereas Ghana’s debt looks unsustainable.
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On the policy front, domestic monetary stabilisation needs to be accompanied by improved global economic governance.