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SDG indicators challenged by many UN member states
UN Member States voice serious concerns at the Statistical Commission’s adoption of the global indicator framework for the Sustainable Development Goals
While the “global indicator framework” for the 2030 Sustainable Development Goals (SDGs) was adopted by the United Nations Statistical Commission on 11 March, the content of and process by which the indicators were formulated proved to be contentious and challenging.
The UN Statistical Commission held its 47th session on 8-11 March at the UN headquarters in New York. The central agenda item was the adoption of the indicators for the SDGs, generated by the Interagency and Expert Group on the SDGs (IAEG).
Many Member States expressed reservations and serious content concerns, and called for national and regional level indicators to play a stronger role, as well as future opportunities to update and amend the indicators. They also called for attention on scaling up capacity building in the National Statistical Offices of Least Developed Countries (LDCs) and small island developing states (SIDS).
In the final decision, the Statistical Commission requested the IAEG to take into account the specific proposals made by Member States and asked them to “report back to the commission at its 48th session on progress made in developing and improving global indicators, especially on plans to develop methodologies for indicators in tier III, including for work on definitions and standards to be agreed at the international level with a view to guaranteeing international comparability.”
Importantly, the decision also emphasized that the SDG indicators are not necessarily applicable to all national contexts, and are intended for global follow-up and review of the SDGs. Indicators for regional, national and subnational levels of monitoring will have to be developed at the regional and national levels. The decision emphasized that national ownership is key to achieving sustainable development and that national reviews are voluntary and country-led, taking into account different national realities, capacities and levels of development with respect to policy space and priorities.
This language reflects the views articulated by many developing countries on the lack of trust, transparency and disclosure in the IAEG process of formulating the indicators. The distrust is particular to the risk that an emphasis on “comparability” will pressure countries to use the global indicators framework as a starting point, rather than as one of several reference points.
Statistical capacity building for LDCs, SIDS and land-locked least developing countries is recognized. Efforts by the UN system to strengthen national statistical capacities are stressed, as well as coordination between national statistical systems and international organizations.
Improvements in data disaggregation are deemed fundamental for the full implementation of the indicator framework and to fully reflect the principles of the 2030 agenda. One key action for data disaggregation is to establish a working group that will strengthen national capacities and develop the necessary statistical standards and tools.
Two key areas that the indicator framework did not address are the lack of transparency and openness in the process of the IAEG group as well as the numerous and significant gaps in the content of the indicators and the degree to which they reflect the actual targets under each SDG.
The next step for the indicator framework is the 3rd meeting of the IAEG in Mexico City during the last week of March 2016, where the tier system will be discussed and an agreement will be arrived at, together with a work plan for the coming year. Adoption of the global indicators framework by the Economic and Social Commission (ECOSOC) and the UN General Assembly will then commence. A submission to the High Level Political Forum will be in July 2016.
Member States voice varying concerns
The G77 and China group of 134 developing countries, represented by Thailand as its chair for 2016, stressed the importance of political oversight over the global indicators. While the indicators are supposed to encompass all 17 SDGs and 169 targets in a balanced and integrated manner, the G77 noted that Goal 17 on Means of Implementation (MOI) has not been adequately integrated. The indicators should be faithful to the SDGs and should not reinterpret its targets, it stressed.
The Group also noted that the work of the IAEG must be accompanied by capacity-building efforts to strengthen national statistical capacities in developing countries, particularly African countries, LDCs, landlocked developing countries and SIDS and other countries in special situations.
The G77 and China emphasized that many targets emphasize the obligations of developing countries and undermine those of developed countries. In the long term, the statistical community will need to identify indicators to complement the existing ones.
The Group also stressed that the work of the IAEG is a work in progress and that its work should not be prematurely concluded. In other words, the report of the IAEG by the Statistical Commission is not and will not be the end of the work on global indicators. The Group noted the importance of the IAEG maintaining an inclusive, open and transparent process, particularly with regard to transparency and public access to official statistics.
Finally, the G77 and China urged that national ownership is key and should be the guiding principle of the global indicator framework, in that the proposed indicators may not be applicable to all national contexts and country reviews. As noted in the 2030 Agenda, targets are defined as aspirational and global, with each government setting its own targets guided by the global level of ambition, but taking into account national circumstances. This means that regional and national level indicators will complement the global indicators, with the national frameworks being voluntary and country-led, taking into account different national realities, capacities and levels of development. The importance of the national context was solidified as the Group stated that national processes would be the foundation for reviews at the regional and global levels, given that the global review will be primarily based on national official data sources.
The European Union, represented by the Netherlands, emphasized the need to develop a work plan for methodological advancement and international comparability. They stressed the importance of placing indicators in the technical domain. To ensure international comparability and avoiding data duplication, international and regional instruments should be considered. The EU highlighted the need for cooperation between National Statistical Offices and supranational institutions.
The Least Developed Countries (LDCs) group, represented by Bangladesh in 2016, raised the importance of the LDC technology bank, which was discussed in the 2030 Agenda but is not adequately addressed in the IAEG indicators framework. LDCs stressed that many indicators fail to address the target. For example, indicator 17.8.1, “Proportion of individuals using the Internet” does not capture target 17.8 which is to “Fully operationalize the technology bank and science, technology and innovation capacity-building mechanism for least developed countries by 2017 and enhance the use of enabling technology, in particular information and communications technology.”
The LDCs group stressed the importance of taking universality into better account. Many of the indicators can be better measured and implemented by developed countries, which will result in major differences in performances between developed and developing countries. In reality, however, the performance of developing countries may be similar but the appearance and reporting may be far less impressive due to the lack of capacity in statistical, monitoring and reporting functions. The strengthening of National Statistical Offices in LDCs is thus a priority task in the 2030 Agenda.
Small Island Developing States (SIDs) stressed the need to increase the degree of transparency, openness and inclusiveness in the formulation of the global indicators framework. This call echoed the general sentiment among a large number of Member States that the IAEG’s process thus far has not been inclusive, transparent and open with regard to Member States in New York.
SIDs noted that a total of 241 indicators represent a four-fold increase over the 60 indicators in the Millennium Development Goals agenda. Specific indicators are also being introduced at the regional and national levels, which will require a scaling up of national investments in data collection. SIDs have consistently called for standardized data, as this issue is of considerable importance for the already strained National Statistics Offices in SIDs.
The African Group, represented by Tanzania, requested sufficient time to discuss ‘grey’ indicators at national and regional levels and the necessity of a discussion on how to enhance the annual report of SDGs in terms of a clear understanding of what will be required at the minimum, given the reality that some African countries may not be able to report annually. Human development and effective data cooperation is important, and resources and funds need to be mobilized at the global level for the Group to be able to produce the requisite data.
(‘Grey’ indicators refer to those that have not been agreed on and that need further work.)
Land-Locked Developing Countries (LLDCs) stressed that all indicators should be further disaggregated. The Vienna Programme of Action is integral to this and one of the goals should be to minimize the reporting burden that LLDCs face. The LLDC group has special needs and there are some indicators that are especially important in tracking progress for LLDCs such as trade facilitation and regional integration to name a few.
India expressed its key concern that the indicators seem to go beyond the remit of the target they seem to be measuring and appear to editorialize the content of the targets themselves. In some other cases, the indicators do not seem to be directly relevant to the targets they are measuring, it pointed out, giving targets 3(c), 8(b), 9.4 as some examples.
The focus of most of the indicators seems to be exclusively on national action, even in respect of those targets that are clearly meant for international cooperation. For example, for target 1(a): ‘Ensure significant mobilization of resources from a variety of sources, including through enhanced development cooperation, in order to provide adequate and predictable means for developing countries, in particular least developed countries, to implement programmes and policies to end poverty in all its dimensions’, the suggested indicator focuses only on national resource availability and does not mention international resources. This is true of several such targets.
India said that needless to say, this detracts from the spirit of the SDGs and in particular the Means of Implementation Goal 17 targets which seek to enhance international support for developing country actions.
It referred to several other indicators that seem to rely primarily on perception surveys or opinion polls as the primary data set. For example, the indicator 10.3.1: ‘Percentage of population reporting having personally felt discriminated against or harassed within the last 12 months on the basis of a ground of discrimination prohibited under international human rights law’, or indicator 16.6.2: ‘Proportion of the population satisfied with their last experience of public services’.
While some such perception surveys may have been used in a few, usually developed, countries, there are no internationally accepted standards or guidelines for them, said India. Extending them to a universal agenda and to developing countries would require significant additional work and would also have to account for socio-cultural differences among countries. Without these considerations, India cautioned that such indicators could be overly subjective, imprecise and also prone to misuse.
India stressed that while the Agenda 2030 and the SDGs are universal, they are also differentiated. Target 12.1 for example clearly mandates the developed countries to take the lead in implementation when it comes to promoting sustainable patterns of consumption. The indicator for this target in 12.1.1 addresses the number of countries with sustainable consumption and production (SCP) national action plans or a priority or target of SCP in national policies. This indicator thus completely neglects the dimension of developed country responsibility for sustainable consumption. It could be argued that this mis-focus is also political, according to India.
China emphasized the principle of common but differentiated responsibilities (CBDR) and pressed for its inclusion in the final report of the Statistical Commission. The CBDR principle has been deleted from the report and currently does not appear in the version submitted to the Commission.
China offered three reasons for the re-inclusion of CBDR. First, the 2030 Agenda reiterates (1992) Rio Principles such as CBDR. Therefore, the indicators should reflect this. Second, the inclusion of CBDR could reflect the concern by statistical institutions of the varying statistical capacities of countries. Third, those countries with a weak statistical capacity can also accept this indicator framework.
China said there are too many indicators for Goal 16, but Goal 17 on means of implementation, which is key to the implementation of the SDGs, has a clear lack of indicators, and the ones that are present are weak or insufficient. Greater focus should be placed on these issues and priorities in the follow-up process. Some indicators should be modified or improved for the following reasons: (1) Member States did not have enough time to discuss ‘grey’ indicators; (2) algorithms classification and grouping of indicators remain to be refined; and, (3) some indicators are not easy to quantify and cannot allow for the full measurement of relevant targets.
(SDG 16 is to ‘Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels’.)
Japan expressed dissatisfaction with the process of the IAEG, and highlighted that civil society participation is important to include in the global indicator formulation process. It hoped that a meaningful modification of proposed indicators will be carried out in the IAEG. Japan also expressed regret that many countries have not been consulted on the development of new indicators in Annex 4, adding that it also has proposals on the new indicators in Annex 4 which it was not able to submit.
Germany pointed out that the indicators framework contains several cases where the target is not addressed in its entirety, and to address this need for improvement further methodological work will be necessary. The future work plan for the IAEG should include the assignment of indicators to different tiers. Expert groups can make valuable contributions to the IAEG, and these experts groups should be included in close cooperation, with an enhanced focus on disaggregation.
Cuba, Mexico and Jamaica also emphasized the importance of an inclusive and transparent process, and the need for greater capacity building. Governments should increase efforts toward harmonization and standardization of data and disaggregation is crucial in order to leave no one behind. The challenge of this task for LDCs should be addressed, while Member States, regional organizations, civil society and private sector should be included in the process of disaggregating data.
2030 Agenda and the SDGs: indicator framework, monitoring and reporting
On 11 March 2016 the UN Statistical Commission agreed “as a practical starting point” with the proposed global indicator framework by which to measure progress towards the 17 goals and 169 targets of the 2030 Agenda for Sustainable Development. It recognized that the development of a robust and high quality indicator framework is a process that will need to continue over time and authorized the Interagency and Expert Group for Sustainable Development Goals (IAEG-SDGs) to continue its work, including:
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to take into account the specific proposals for refinements of the global indicators made by Member States;
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to report on progress made on developing and improving the global indicators, and provide its proposals and a plan for regular reviews of the indicator framework, including mechanisms for approval;
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to report on plans to develop methodologies for those indicators for which definitions and standards have yet to be developed.
The Global Indicator Framework
Taking the global framework as a whole, several of the indicators stretch the envelope, especially from the perspective of rights. The indicators to measure progress on gender equality and on decent work for all are cross-cutting throughout the goals, and include those to measure the right to paid employment and to rights at work; to equal pay for work of equal value; to recognize and value unpaid care and domestic work; to reduce inequalities in income and social protection coverage; to measure the right to economic resources and ownership and control of land and property. Target 10.3 focuses not only on equality of opportunity but also of outcome, offering scope for civil society monitoring. The selection of the indicator on people’s experiences of discrimination and harassment to measure this target may be a starting point through which to capture the promise of “no one will be left behind”.
However, looking at the global framework against the stated priorities of the 2030 Agenda shows a number of gaps, notably with regard to common but differentiated responsibilities (CBDR) and extra-territorial obligations as well as reducing inequalities.
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Trade integration and global value chains in Sub-Saharan Africa: In pursuit of the missing link
The mid-1990s ushered in two decades of strong and sustained growth in sub-Saharan Africa. The growth takeoff has been attributed to a combination of factors, not least sound macroeconomic policies implemented by the authorities in the region, but also fiscal space created post-debt relief, the strengthening of political and economic institutions, and in a growing number of countries, exit from fragility.
Favorable external conditions have undeniably also played a role, with strong demand from advanced economies until the global financial crisis, and from emerging markets afterward, especially for raw materials. These external conditions have, however, turned far less supportive, with sharply lower commodity prices – for oil, in particular – and tightening global financial conditions.
We investigate the extent of trade integration of sub-Saharan African (SSA) countries in the global economy as well as within the region over the period 1995-2013. To assess integration, we use four key concepts: (1) trade openness, captured by import and export flows; (2) the centrality in the global and regional trade network, a measure that takes into account not only the size of trade but also the number of trade partners and the respective weight of these trade partners in global trade; (3) gravity model estimates that account for country- and region-specific determinants of bilateral trade flows; and (4) global value chain (GVC) integration. Using both existing data and a newly available data set based on multiregion input and output tables, we are able to evaluate these four important dimensions of trade integration and assess the degree of integration globally as well as regionally.
The main findings of the paper are as follows:
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The region’s trade openness has increased strongly since the mid-1990s, reflecting new partnerships with emerging markets, especially China, and budding intraregional trade. High demand for commodities has played a significant role, in particular for oil-exporting countries. However, the export structure of the rest of the region is less skewed toward raw materials, even for other natural resource exporters.
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Increased trade has been a powerful engine for growth. Yet over the past 20 years, labor productivity gains have trailed increases observed in other regions. In addition, by being more integrated in the global economy, the region is now more vulnerable to external shocks.
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Substantial opportunities for further regional and global trade integration still lie ahead. Despite strong growth in trade flows, sub-Saharan Africa’s trade has barely kept pace with the expansion of global trade, even as other regions managed to increase their weight in the global trade network over the same period. Indeed, even after accounting for lower levels of income and economic size, generally longer distances between countries, and a large number of landlocked countries, levels of trade flows emanating from sub-Saharan Africa are found to be only half the magnitude of those experienced elsewhere in the world.
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Likewise, the region still has ways to go to better integrate in GVCs – a process that has consistently been associated with higher levels of activity and income growth over time – as has happened in South and East Asia or Eastern Europe. However, while oil-exporting countries are clearly lagging behind, many other countries – both commodity and noncommodity exporters – are showing progress, even if from very low starting points, with the East African Community (EAC) and the Southern African Customs Union (SACU) particular bright spots. In countries that have made the largest strides into GVCs – such as Ethiopia, Kenya, Seychelles, South Africa, or Tanzania – manufacturing, agriculture, and agro-business – and, to a lesser extent, transport, tourism, and textile – have benefited the most from deeper integration. These results highlight the potential sectors where the region could build on its comparative advantages, provided the business environment is sufficiently conducive.
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In that respect, our analysis suggests that, to leverage the region’s trade potential and ensure strong job creation and durable growth in the process – especially at a juncture when external demand for commodities is far less supportive – it is more critical than ever to make progress in filling the infrastructure gap, lowering tariff and nontariff barriers, and improving the business climate and access to credit, while continuing to enhance education outcomes.
The rest of the paper is organized as follows. In Section 1, we document SSA’s international and regional integration over the past 20 years. In Section 2, we introduce the concept of centrality in the global and regional trade network, which takes into account, for each country, both the size of its trade and the number of its trade partners and their weight on global trade. The third section links trade openness with macroeconomic performances. To investigate the determinants of trade and estimate the order of magnitude of a potential “trade gap” for sub-Saharan Africa, we use a gravity model approach in Section 4, explaining bilateral trade flows with both country- and region-specific determinants. Section 5 assesses the extent of SSA’s integration into global supply chains, using the newly created Eora database that provides multiregion input output tables. Section 6 concludes the paper.
Global Value Chains
Beyond the pure expansion of trade, an additional dimension of globalization over the past two decades has been the emergence of global value chains (GVCs). In an increasingly integrated world economy fueled by technological progress, cheaper transportation and communication costs, and policy reforms in support of trade, production processes have been more dispersed across the globe. This has given rise to systems of supply chains in which value is added at each stage before crossing the border to be passed on to the next stage – GVCs. This process has allowed countries to better exploit their comparative advantages, by giving them the opportunity to join a production chain without having to provide all the other upstream capabilities, and has been particularly at play in South and East Asia around Japan and China and in Eastern Europe around Germany.
For countries with a limited existing manufacturing or service export basis and a large pool of labor such as in those in sub-Saharan Africa, this development can provide a golden opportunity. By specializing on a specific segment of a production chain, each participating country can generate a portion of the goods’ or services’ value added – while producing the whole product from scratch would never have been within reach in an increasingly competitive world – even if that means that a lower share of the value added of exports is captured locally. While certain preconditions such as sufficient levels of capacity, quality, and efficiency are required to join GVCs, these threshold levels can be exceeded over time through technology and knowledge transfers from other countries – most often in the form of foreign direct investment (FDI). Furthermore, knowledge transfers from other producers in the value chain, and, eventually, upgrading to higher value-added segments of the production chain can support productivity and income growth. Asian countries have championed this model, initially contributing to the most labor-intensive activities in the production process and gradually moving into more sophisticated portions of the value chain.
The integration into GVCs has indeed gone hand in hand with a pickup in income levels. In particular, we focus on the measure of backward integration; that is, the FVA that is imported for further processing into exports. By this measure, rising backward integration has been associated with rising income over time for developing and emerging economies. In pursuing a strategy of development anchored around integration in one intermediary link of the value chains, many countries have managed to lift their income levels as they gradually acquired new capabilities, and have benefited from knowledge spillovers and, eventually, from opportunities to diversify production and upgrade quality. In addition, enhanced participation in GVCs has also been associated with more inclusive growth, especially when the sectors targeted are labor-intensive and employ relatively lower-skilled workers.
Where do sub-Saharan African countries stand in that landscape? Using the Eora multi-regional input-output database mentioned earlier, we can provide here a first-time assessment of the region’s positioning in GVC.
Sub-Saharan African countries still generally find themselves at the start of their integration process into GVCs, having also relatively lower income levels than other regions in the world. At 15 percent of exports, the share of foreign value added embedded in the production of exports is low even compared with the 20 percent average observed in developing and emerging market economies. More worrisome is that the depth of its integration has barely increased since the mid-1990s, unlike in other income groups – signaling that the region has yet to join this global momentum and take advantage of it to lift productivity and create jobs. Corroborating that finding, neither the complexity of sub-Saharan African exports – measured as the diversity of products – nor the quality of exported goods – derived from price differences within specific product categories – have been improving over the past two decades. In addition, compared with all other regions in the world, sub-Saharan African exports tend to enter at the very beginning of GVCs (in the form of forward integration), as a higher share of its exports enter as inputs for other countries’ exports, reflecting the still-predominant role of commodities in many countries’ exports in the region.
There is, however, a significant degree of heterogeneity across sub-Saharan African countries, with some countries having fared much better than others:
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Oil exporters are the least integrated in GVCs in terms of FVA content of their exports. With the exceptions of Cameroon and Congo, this share has even decreased, including in countries such as Angola and Nigeria, suggesting that diversification of trade away from natural resources has stagnated, if not gone backward, over the past 20 years in these countries.
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However, in the rest of the region, a majority of countries (24 out of 35) have made progress, even if from a low starting point. The improvement is most widespread among non-oil-commodity exporters, with countries such as Burkina Faso, Central African Republic, Democratic Republic of the Congo, Ghana, Guinea, Niger, Sierra Leone, and Zimbabwe all registering progress. This shows that integration in value chains can happen even in countries where commodities play a role.
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Among the best performers, progress within the EAC has been particularly strong, with Kenya, Tanzania, and Uganda exhibiting solid progress – also a reflection of the benefits of the more general economic integration at play among these countries and their stated intention to further deepen their economic and monetary ties. Likewise, the SACU region exhibits relatively stronger depth of integration, both because its smaller members (Botswana, Lesotho, Namibia, Swaziland) were already quite integrated in the early 1990s and because South Africa did progress over the 1990-2010 period. Conversely, both the CEMAC and the WAEMU continue to exhibit low depth of integration. For the former, this has to do with the high reliance on oil exports for most of its members. For the latter, this suggests that the relatively high level of interregional trade with the currency union does not reflect the emergence of a regional value chain, but rather trade on final goods and services, with the depth of integration particularly low for the two largest countries of the union – Côte d’Ivoire and Senegal.
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Five countries in particular stand out, having seen the share of FVA in their exports increase by 5 percentage points or more in the past two decades: Ethiopia, Kenya, Seychelles, South Africa, and Tanzania. In these countries, the sectors that have benefited the most from the deepening of integration include agriculture and agro-business (especially in Ethiopia and Seychelles), and manufacturing (particularly in Tanzania), but also textiles, transport, and tourism, although to a lesser extent. These experiences bode well for the region: for one, the increase in depth of integration in some of these countries, at 10 percentage points or more, is of a similar magnitude to that experienced by countries such as Poland or Vietnam that are now success stories within large GVCs. The examples also highlight the sectors – agro-business, light manufacturing, tourism, and textile – in which sub-Saharan Africa has the potential to leverage its comparative advantages.
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However, to leverage these comparative advantages, the business environment (infrastructure, rule of law, cost and wage competitiveness, and so on) needs to be right. On that front, more still needs to be done, judging from the broader trend decline in industrialization in the region documented in other studies. It should be noted, though, that opportunities to participate in GVCs are not limited to manufacturing. Just as the production of goods has been broken down into different stages, services are increasingly being disaggregated and traded as separate tasks to create service value chains – as championed by India, for example.
The upshot is that the region still has an enormous potential to integrate into GVCs. By leveraging this potential, a better insertion in GVCs may help foster structural transformation, export diversification, and the possibility to absorb technology and skills from abroad. These benefits are especially important for countries with relatively small domestic markets, such as many in sub-Saharan Africa; in addition, the enabling of strong job creation would also allow countries to harness the dividends of the upcoming demographic transition.
An additional question would be which country or region could serve as an anchor for sub-Saharan Africa’s integration into GVCs. Some larger and more advanced economies within the region, most notably South Africa, could be candidates. Alternatively, given growing ties with China and India, including through FDI, these emerging markets could see increasing value in outsourcing some of their economic activities to sub-Saharan Africa, especially as rising wages in the Asian countries could make the region more cost-competitive.
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New research offers much-needed hope for our oceans
Earth’s fisheries are in bad shape – populations of some stocks, including tuna and mackerel, declined 74 percent between 1970 and 2010. A new study, however, offers a glimmer of hope of what we could expect in the not-so-distant future if global action is taken.
The study, published in Monday’s issue of Proceedings of the National Academy of Sciences, finds that with better fishing practices, the majority of the world’s fisheries – 77 percent, to be exact – could recover to a healthy state within a decade. And by 2050, global fish populations could double, resulting in a 204 percent profit increase for the world’s fishermen.
Amanda Leland, senior vice president for oceans at the Environmental Defense Fund and a co-author of the study, called the findings surprising and inspiring.
“There’s a really positive story right around the corner,” she told The Huffington Post. “We can have our fish and eat it too.”
“It would be very hard to find another global, significant environmental challenge that could be solved so quickly,” Leland added.
For the study, researchers from the Environmental Defense Fund, the University of Washington and the University of California, Santa Barbara analyzed data from 4,713 fisheries worldwide – representing 78 percent of global reported fish catch.
To no surprise, they found that business as usual would result in a “continued collapse for many of the world’s fisheries.” Sustainable management reforms, however, including science-based catch limits, could generate yearly increases of more than 16 million metric tons of seafood, with annual profits of $53 billion, according to the research.
In other words, sustainable fishing practices not only offer environmental benefits, but also long-term economic benefits.
“We no longer need to see ocean fisheries as a series of trade-offs,” Chris Costello, the paper’s lead author and a professor of environmental and resource economics at UC Santa Barbara, said in an emailed statement to HuffPost.
“In fact, we show that we can have more fish in the water, more food on the plate, and more prosperous fishing communities – and it can happen relatively quickly,” he added.
The new research offers a bit of good news in a seemingly never-ending ocean of bad.
For instance, a study published last year by the World Wildlife Fund found that many of the planet’s fish populations were on the “brink of collapse.” And in January, a study by the World Economic Forum and Ellen MacArthur Foundation found that the world’s oceans will be home to more plastic than fish by 2050.
Leland is among those who believes a turnaround is possible. However, she said that it will require people, particularly those in leadership positions, stepping up to do the right thing.
Implementing fishing rights – which “end the desperate race for fish by asking fishermen and women to adhere to strict, science-based catch limits in exchange for a right to a share of the catch or to a traditional fishing area” – has shown great success in places like Australia, Belize, Chile and the U.S., the authors wrote in a press release.
“We now have a clear roadmap for how to recover fisheries: Give fishermen secure fishing rights so they can control and protect their future,” Leland said.
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UN urges stronger, coordinated international response to address El Niño impacts
The United Nations has called for a stronger response by governments, aid organizations and the private sector to address the devastating impact the El Niño climate event is having on the food security, livelihoods, nutrition and health of some 60 million people around the world.
The appeal came at a meeting organized in Rome by four UN agencies, the Food and Agriculture Organization of the United Nations, the International Fund for Agricultural Development (IFAD), the Office for Coordination of Humanitarian Affairs (OCHA) and the World Food Programme (WFP).
Participants, including representatives from governments, non-governmental organizations and other UN agencies, took stock of the growing impacts of the current El Niño, which is considered as one of the strongest in history.
They noted that more than $2.4 billion are needed for current El Niño emergency and recovery-responses and currently there is a $1.5 billion gap in funding.
A global crisis
El Niño-related impacts have been felt across the globe since mid 2015. Among these are severe or record droughts in Central America, the Pacific region, East Timor, Vietnam, Ethiopia, and in Southern Africa. In addition, floods have affected certain parts of Somalia and the Tanzania, devastating forest fires have once again resurfaced in Indonesia while some regions has witnessed storms, as in the case of Fiji with Tropical Cyclone Winston.
These disasters have resulted in a wide range of consequences, most importantly, severe increases in hunger, malnutrition, water- and vector-borne diseases and the prevalence of animal and plant pests and diseases. Increasingly, populations are on the move: families across the globe are being forced into distress migration, both within and across borders, as their sources of livelihood disappear.
The meeting underscored that while the 2015-2016 El Niño has passed its peak as a meteorological phenomenon, it will continue to influence temperature and rainfall patterns causing extreme events in different parts of the world. These pose risks to health, water supply and food security – the numbers of those threatened by hunger as a result are expected to grow. These effects could last for long after the El Nino phenomenon has subsided.
Long-term impacts include higher malnutrition rates – some 1 million children are in need of treatment for severe malnutrition in Eastern and Southern Africa – and an increase in poverty, rendering vulnerable households less resilient to future shocks, and stalling countries’ progress in achieving the Sustainable Development Goals.
People relying on livestock for their livelihoods are particularly vulnerable given the long time frame required to rebuild herd numbers which have been decimated by drought. Sparse or absent rains also result in a loss of soil productivity and greater land degradation, factors that contribute to desertification.
Acting now, preparing for the future
The meeting ended with a series of commitments by FAO, IFAD, OCHA and WFP aimed at urgently scaling up responses to the current El Niño crisis while also ensuring a more effective response to similar events in the future.
The agencies committed to working closely with resource partners to help address the funding gap. One important way of doing this is to help prioritize the geographical areas that require urgent attention. They also pledged to work with governments, aid organizations, other development partners as well as the private sector to assist the worst hit populations with a mix of short-, medium- and longer-term efforts, including scaling up of existing social protection schemes.
Looking to the longer term, they also agreed that there is a need to redouble efforts to support and build the capacity of national governments to mitigate and respond to future El Niño and other climate-related events. As part of this, FAO, IFAD, OCHA and WFP said they would work with development partners to ensure that disaster risk reduction projects are stepped up in the most vulnerable areas.
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Economic Commission for Africa: Biennial report 2014-2015
The present report provides a review of the progress made over the biennium 2014-2015 in implementing the work programme of the Economic Commission for Africa (ECA), with a focus on the results that have been achieved in support of Africa’s transformation agenda.
Following its reorientation in 2013 to focus more on strengthening its policy influence, earning greater credibility and trust, becoming more accountable and learning-driven and promoting greater operational effectiveness in support of Africa’s transformative agenda, ECA has played a crucial role towards advancing Agenda 2063: The Africa We Want.
The biennium under review was one in which African leaders collectively asserted their priorities and needs in the adoption of a number of key global and continental transformative frameworks for the continent’s economic and social development. The year 2014 saw the adoption of Agenda 2063, which is a forward-looking continental framework founded on the African Union vision of “an integrated, prosperous and peaceful Africa, driven by its own citizens and representing a dynamic force in the global arena”. Agenda 2063 guided the region’s priorities and collective voice in the development of the three key global development frameworks in 2015: the 2030 Agenda for Sustainable Development; the outcome of the third International Conference on Financing for Development (the Addis Ababa Action Agenda); and the 2015 Paris Agreement on climate change. These intergovernmental processes were informed by the common African position on the post-2015 development agenda and the Marrakech Consensus, both of which were developed with ECA assistance.
Central to the success of ECA remains its emphasis on applying robust, evidencebased policy research produced in-house and with growing interdivisional collaboration and stakeholder engagement to its key strategic priority areas. In its flagship Economic Report on Africa series, ECA continues to deepen research on Africa’s industrialization, which is imperative for its structural transformation. The 2014 report explored how to build innovative, effective and flexible industrial policy institutions, processes and mechanisms to enhance industrialization. Noting the centrality of trade for industrialization, the 2015 report assessed the bidirectional relationships between industrialization and trade. Similarly, its work and support to member States on trade negotiations contributed to the successful launch of the Tripartite Free Trade Area in June 2015, kicking off the continental free trade area negotiations and the African common position for the World Trade Organization Ministerial Conference in September 2015. The ECA African Climate Policy Centre leveraged its growing body of data, including forecasted climate data, climate science and research on the continent, to deepen understanding of the needs and implications for building climate-resilient economies and to inform the region’s position in the lead-up to the twenty-first session of the conference of the parties to the framework convention on climate change, held in Paris. The commitment of ECA to high-quality research is demonstrated by the 2014 perception survey of ECA partners. The findings revealed a favourable perception of the contribution made by the Commission in terms of its influence on development policy in the region, with 85 per cent of respondents perceiving ECA knowledge outputs as being of high quality and effective in promoting discussion on Africa’s transformative agenda, more than 70 per cent of respondents indicating that ECA knowledge delivery was highly sensitive to context, relevant and tailored, and close to 90 per cent of respondents agreeing that ECA generated reliable and relevant policy ideas.
Africa rising: megatrends in economic and social development
Africa’s economic growth declined moderately following the slight contraction in the global economy, which was mainly due to subdued growth in emerging markets and developing economies, while a chequered recovery continued in developed economies. Looking forward, Africa’s growth prospects remain positive as it continues to be driven by strong domestic demand and investment (particularly in infrastructure). The improving business environment, lower costs of doing business and better macroeconomic management continue to enhance investment. The buoyant services sector and a focus on non-oil sectors by oil-exporting economies to mitigate the continued decline in oil prices will contribute to the positive medium-term prospects. In addition, the increasing trade and investment ties both within Africa and between African and emerging economies, as well as the recovery of traditional export markets, particularly in the eurozone, will contribute positively to the medium-term prospects.
Developments in the global economy and implications for Africa
Global growth declined moderately from 2.6 per cent in 2014 to 2.4 per cent in 2015, reflecting subdued growth in investment and household final consumption. The economic slowdown and rebalancing of economic activity in China away from investment and manufacturing towards consumption and services; lower prices for energy and other commodities (affecting economic activity in countries such as Brazil and the Russian Federation, as well as in other commodity-exporting countries); and a gradual tightening of monetary policy in the United States of America, are some of the key factors that have weighed negatively on global growth.
The macroeconomic uncertainties that have persisted since the global financial crisis and the volatility of commodity prices will continue to shape the medium-term outlook. Exchange rate volatilities have become more pronounced against this backdrop of falling commodity prices, global growth patterns, declining trade flows, capital flows and diverging monetary policies. The continued decline in oil prices may generate a positive outlook for the African continent because of the number of oil importers, although oil exporters may see a deterioration of their current account balances and depreciation of their exchange rates. Tightening monetary policy in the United States will also enhance the movement of capital outflows from developing and emerging economies.
Africa’s economic performance and prospects
Africa’s growth rate (excluding Libya) declined slightly from 3.9 per cent in 2014 to 3.7 per cent in 2015 owing to the global economic slowdown. Yet, Africa’s growth is the second fastest after East and South Asia. Growth in Africa continues to be driven by domestic demand, with private consumption influenced by increased consumer confidence and an expanding middle class, while investment is driven mainly by an improved business environment and lower costs of doing business. Continued government spending on infrastructure projects, in particular, has also contributed positively to growth.
The external balance, however, had a negative impact on growth in 2015, as a result of weak and volatile commodity prices.
Private consumption continues to be the main driver of Africa’s growth
The growth rate of private consumption increased from 1.6 per cent in 2014 to 2.7 per cent in 2015. Despite the increase in African infrastructure development, gross fixed capital formation grew by only 1.0 per cent relative to gross domestic product (GDP) in 2015. This was mainly due to the reduction in capital inflows as a result of the slowdown in the global economy, especially among Africa’s development partners in the eurozone and some emerging economies, such as Brazil, China and the Russian Federation. Net exports continued to weigh negatively on growth in 2015.
Varying growth performance across economic groups and subregions
Despite the low oil prices, oil-exporting countries grew at an estimated 3.9 per cent in the biennium. That performance, attributable to declining oil prices being partially cushioned by healthy dynamics in the non-oil sectors in some countries, is higher than both oil-importing and mineral-rich countries, which had an average growth of 3.5 per cent and 3.0 per cent, respectively. Growth in those two groups of countries was mainly driven by private consumption, which increased by 2.5 per cent and 3.2 per cent relative to total GDP, respectively.
At the subregional level, East Africa maintained the highest growth rate in the region with 6.2 per cent in 2015, despite experiencing a decline in growth relative to 2014 levels. It was followed by West Africa, with 4.4 per cent, Central Africa, with 3.4 per cent and North Africa (excluding Libya), with 3.6 per cent over the biennium 2014-2015, and Southern Africa, with 2.5 per cent in 2015.
African countries’ growth still relies on a narrow base
While economic growth rates have been higher in Africa compared with most regions in the past decade, it is also clear that, in many African countries, growth has continued to rely on a narrow base. As a result, the number of Africans living in absolute poverty has risen and inequality remains a major concern. More importantly, Africa’s economic growth has been associated with increased exploitation of non-renewable natural resources with minimal value addition and employment generation, and growth sustainability remains a major concern.
Mixed impact of low oil prices on the growth of African economies
Crude oil prices continued to decline at a monthly average of 4.1 per cent over the period from June 2014 to October 2015. Robust supplies and lower demand due to the global economic slowdown have generally explained the decline in commodity prices across the board. ECA analysis using monthly data from January 2000 to October 2015 reveals that oil prices have had a significant positive impact on oil-importing and mineral-rich countries, but a negative impact on oil-exporting countries, which have increasingly sought a diversified growth path. Thus, the overall effect of low oil prices on Africa’s growth appears to be marginal. The marginal impact of oil price decline emphasizes the significance of the continued diversification initiatives being undertaken by African countries, especially into non-oil sectors, and the effects of improved macroeconomic management and associated fiscal policies.
Low commodity prices and large investment projects underpin the growing fiscal deficits
Africa’s fiscal deficit increased from 5.1 per cent of GDP in 2014 to 5.6 per cent of GDP in 2015. The continued decline of oil and other commodity prices reduced fiscal revenues in many African countries, whereas high spending on infrastructure, fiscal loosening and higher spending in the lead-up to elections in a number of countries contributed to increased expenditure over the period. The fiscal deficit is expected to narrow in 2016 to 4.6 per cent of GDP as commodity prices and growth in emerging and developed economies are expected to pick up.
Tight monetary policy amid falling commodity prices and declining revenues
African countries exercised tight monetary policy as global headwinds weighed on the region. As has been the case with most developing countries, the inflation rate rose from 7.0 per cent in 2014 to 7.5 per cent in 2015. The strong United States dollar and high food prices exerted inflationary pressures in the region, despite weak global growth and low commodity prices partially offsetting the rise in inflation. Currency devaluations, especially in oil-rich countries, amid falling oil prices and declining revenues and exports also exacerbated the rise in inflation. Those inflationary pressures, together with high fiscal and current account deficits, led to the tightening of monetary conditions, including the hiking of monetary policy rates in countries such as Angola, Ghana, Kenya, Malawi, South Africa and Uganda to curb inflation. However, a moderating trend is expected for the biennium 2016-2017 in view of lower food and energy prices, improved security situations and diminishing impacts from subsidy cuts.
Exchange rates continued to depreciate, although with minimal impact on exports
Most African currencies depreciated in 2015, a trend that started in 2014. This was driven partly by low oil prices, but also by the strong dollar and the expected tightening of the United States monetary policy. Currency depreciation is expected to be associated with increased exports and a decrease in imports. However, for African countries, the association between exchange rates and trade seems to be very weak and, in some countries, not in line with the theory. This could suggest that there are other factors behind Africa’s lack of competitiveness, which undermine the benefits brought about by currency depreciation. While the cost of doing business in Africa has been decreasing, there are still considerable barriers to enhancing Africa’s trade, suggesting a lack of product diversification and value addition.
Current account deficits recorded by all economic groupings and subregions
Current account deficits increased from -3.9 per cent of GDP in 2014 to -5.0 per cent of GDP in 2015, with all economic groupings and subregions reporting deficits. Declining commodity prices and global demand as a result of the global economic slowdown, especially in emerging economies, played a significant role in the current account trends, with oil-exporting African countries recording their first current account deficit since 2009 (2.1 per cent) in 2014, followed by a deficit of 5.1 per cent in 2015. For oil importers, the low oil prices led to a narrowing of the deficit. Of the subregions, the current account deficit was largest for Central Africa (8.1 per cent), followed by East Africa (7.4 per cent) and then Southern Africa (5.7 per cent).
Primary commodities continue to dominate Africa’s exports
Agriculture dominates most African economies, accounting for up to 58 per cent of GDP in some countries, such as the Central African Republic. The continent’s total exports of goods and services declined by 3.2 per cent in 2013 and 5.2 per cent in 2014, while its total imports grew by 3.0 per cent in 2013 and 1.7 per cent in 2014. The continent’s imports are dominated by consumer goods, whereas its exports consist mainly of primary commodities, including fuels and bituminous minerals, and agricultural products, such as cocoa, fruits, fertilizers and vegetables. Fuel exports fell by 13.2 per cent and ore and metal exports by 8.2 per cent in 2014. On a positive note, whereas Africa’s exports to most of its trading partners have stagnated or even declined since the global economic crisis, intra-African trade remains relatively strong by volume, and diversified in terms of manufactured products and services. Manufacturing goods as a proportion of total intra-African merchandise exports stood at 41 per cent in 2014, down from 44 per cent in 2013, while fuel exports stood at 31 per cent in 2014 compared with 29 per cent in 2013.
Medium-term growth prospects and risks
Africa’s real GDP growth is expected to increase by about 4.3 per cent in 2016 and 4.4 per cent in 2017. Growth continues to be driven by strong domestic demand. The improving business environment, lower costs of doing business and better macroeconomic management continue to enhance investment. The buoyant services sector and a focus on non-oil sectors by oil-exporting economies in order to mitigate the continued decline in oil prices will greatly contribute to the good medium-term prospects. Furthermore, the increasing trade and investment ties within Africa and with emerging economies, as well as the recovery of traditional export markets, particularly in the eurozone, will contribute positively to the medium-term prospects.
However, African economies face significant risks, such as climate shocks and terrorism concerns, which require special attention by policymakers to maintain the requisite growth. The turbulence in the global economy has been underpinned by severe financial instability, widening sovereign-debt problems and high unemployment, especially in developed economies.
Recent social developments
Africa made considerable progress towards achieving the Millennium Development Goals despite challenging initial conditions. The baseline, generally 1990 for most of the Millennium Development Goals, was relatively low compared to other developing regions. There is an overall positive direction, with significant proportions of progress with variation across certain Goals, across and within countries.
Status of progress towards social outcomes in Africa
Africa has witnessed improved economic performance for nearly two decades, but its pace and character has not been sufficiently robust to sustain poverty reduction or create jobs. Between 1990 and 2010, poverty levels across Africa fell, albeit at a slow pace, from 56.5 to 48.4 per cent, while between 1990 and 2013 there was only a meagre decrease of 8 per cent in the proportion of people facing hunger and malnutrition as conflict and adverse climate conditions drove food insecurity and malnutrition.
Nevertheless, Africa is close to achieving universal primary enrolment with 25 countries achieving a net enrolment rate of at least 75 per cent in 2013. The reported completion rates, however, lag behind enrolment, while challenges relating to quality issues persist. Gender parity in primary schooling improved from 0.86 before 2012 to 0.93 after 2012, but secondary and tertiary gender parity remain at 0.91 and 0.87, respectively. Under-five mortality fell from 146 deaths per 1,000 live births in 1990 to 65 deaths per 1,000 live births in 2012, an improvement of 55.5 percentage points, but below the target in Goal 4 of the Millennium Development Goals of a two-thirds reduction by 2015. The efforts to combat HIV/AIDS, malaria and tuberculosis have yielded noteworthy achievements in terms of incidence, prevalence and mortality.
Progress towards achieving environment-related goals has been slower, with only one quarter of Africa’s population having access to an improved drinking water source. Similarly, the proportion of people with access to improved sanitation has increased from 24 per cent in 1990 to just 30 per cent in 2012, and remains skewed towards urban areas. Poor rural infrastructure combined with population growth leads to land degradation and decreasing agricultural productivity, resulting in lower incomes and reduced food security.
Good progress, but persistent inequities
The variation in progress across goals and within countries seems to follow a pattern across income, gender, ethnicity and location. For example, apart from North Africa, only 23 per cent of poor, rural African girls complete their primary education. In some countries, children in the poorest 20 per cent of the population are three times less likely to be enrolled in primary school than children from the wealthiest 20 per cent.
Human capital
Africa’s human capital, though improving, is not linked tightly enough to industrialization, and certainly not to the green economy, as endorsed in the 2030 Agenda for sustainable development and Agenda 2063. Those agendas aim to transform economies by tackling their structural vulnerabilities and by including all their citizens, achieving sustainability built on solid social, economic and environmental foundations.
Africa is plagued by the twin problems of unemployment and underemployment, which mutually reinforce and exacerbate the widespread informal sector in countries. The highest unemployment rates in countries with data in 2012 were Mauritania (31 per cent), Lesotho (26.5 per cent) and Gabon (20.3 per cent). Women had higher unemployment rates than men in Lesotho, Egypt and Gabon, in part reflecting the different access to labour markets for women.
Employment
Unemployment rates for Africa (excluding North Africa), disaggregated by sex, were 6.9 per cent for males and 8.8 per cent for females in 2014, which represent marginal declines of 0.2 and 0.1 percentage points over the 2009 rates. Most jobs in Africa, particularly for young people and women, continue to be generated outside the formal economy, where the skills profile is predominantly poor. It is further observed that 9 out of 10 rural and urban workers in Africa have informal jobs, and most employees are women and young people.
Working age population
The active working age population (25-64 years) is growing more rapidly than any other age group, more than tripling in size between 1980 and 2015, when it stood at 123.7 million (33.3 per cent) and 425.7 million (36.5 per cent), respectively. The active working group is largely composed of young people and its growth over time is a statistical feature of the demographic dividend that could lead to productivity gains and economic growth in Africa. The demographic dividend depends on the young population having the right skills profile to secure the positive effects.
Urbanization
Over the period 2015-2020, Africa will experience the highest rate of urban growth globally, with a rate of 3.42 per cent annually, compared with the world rate of 1.84 per cent over the same period.
Beyond the demographic shift, urban areas currently contribute more than 55 per cent of GDP to African economies. The economic role of cities, however, is largely driven by consumption rather than production. Unlike other parts of the world, urbanization in Africa is not linked to industrialization, which in turn has led to “consumption cities” that are populated primarily by workers in nontradable services. Moreover, African cities remain largely informal. This is particularly problematic given the youth bulge in the region and the concomitant need to create decent jobs.
Conclusions
Economic growth rates have been higher in Africa compared with most of the regions in the past decade; however, in many African countries, growth has not been inclusive, the number of Africans in absolute poverty and those facing hunger has risen and inequality remains a major concern. More attention should be paid to inequality and social exclusion, for example, though proactive social protection programmes. This is mostly because Africa’s economic growth has been associated with increased exploitation of non-renewable natural resources with minimal value addition and employment generation, which undermines its growth sustainability. The growth of an unplanned urban Africa with a youthful population needs to be matched with a development process that provides the requisite skills and efficient and adequate public services delivery.
The informal sector has to be provided with policy packages of training, access to credit and social protection to increase productivity and contribute to improved welfare, particularly for young people and women. Africa must also improve its resilience to both environmental and socioeconomic shocks, manage its natural capital and minimize pollution, all of which can be achieved by greening its industrialization process. Given the erratic energy supply in most countries, the importance of reliable and sustainable energy sources for structural transformation cannot be overemphasized.
Achieving structural transformation in Africa: programme results achieved in 2014
Regional Integration and Trade Division
Within the framework of its subprogramme on regional integration and trade, ECA aims to promote effective regional cooperation and integration among member States, including regional approaches to tackling the challenges of trade, industry, agriculture and land. Current discourse on the structural transformation of African economies, and the recent launch of both the Tripartite Free Trade Area (between the Common Market for Eastern and Southern Africa, the East African Community and the Southern African Development Community) and the continental free trade area negotiations, provide a big-picture indicator of the salient objective being achieved.
ECA has continued to contribute significantly in supporting member States to adopt policies and regional initiatives to promote intra-African trade and better leverage other trade developments, such as the economic partnership agreements. It has also been intensively involved in major developments in the area of trade in Africa through the provision of technical support. One particular example is the support provided to the three regional economic communities involved in the negotiation of the Tripartite Free Trade Area which was launched in June 2015, and led to the kick-off of the continental free trade area negotiations. In cooperation with the African Union Commission and the African Development Bank, and through a consultative process involving the regional economic communities and the member States, ECA finalized the first edition of the African regional integration index. It also produced the upcoming seventh edition of Assessing Regional Integration in Africa, highlighting the need to promote innovation in Africa for successful structural transformation. The ECA human rights impact assessment of the continental free trade area, focusing on employment, food security and rural livelihoods, is expected to address vulnerabilities to be taken into account in the ongoing negotiations relating to the area. To that effect, ECA exceeded or met its targets, with 29 countries and three regional economic communities now developing or implementing policies or programmes in the context of free-trade areas or customs unions.
Technical assistance was delivered in the formulation and validation of the national and regional action plans for boosting intra-African trade and the continental free trade area (Gabon, Nigeria, Tunisia, the United Republic of Tanzania, East African Community, Economic Community of Central African States, Economic Community of West African States, Southern African Development Community and Arab Maghreb Union) and also in the formulation and validation of the Africa Growth and Opportunity Act national response strategy (Ethiopia and Lesotho). To make trade agreements more inclusive and equitable, member States were made aware of the evidence-based economic implications of not only the economic partnership agreements, but also mega-regional trade agreements. Technical support was also provided to the African group of countries in preparation for the tenth WTO Ministerial Conference. The number of common positions adopted or implemented by member States in the area of international trade or trade negotiation increased from 10 in the biennium 2012-2013 to 16 in 2014-2015 (compared with the biennium target of 15).
In addition to informing member States on the status of food security in Africa, ECA developed an initiative aimed at promoting and developing regionally coordinated agricultural strategic commodities value chains, with a view to strengthening the capacity of member States and regional economic communities to develop effective policies and strategies for the development of regional agricultural value chains. The initiative and related outputs are highly commended and supported by the African Union and fit into the framework of the Comprehensive Africa Agriculture Development Programme to promote and develop value chains, agribusiness and agro-industries. The initiative engages the development of a number of outputs, notably five regional assessment studies of regional agricultural value chains and agro-industrial cluster development; a capacity framework for the development and implementation of regional agricultural value chains and agro-industrial clustering; five cluster baseline assessment studies; and a draft policy framework and guidelines for the development and promotion of regional agricultural value chains in Africa, to be presented before the assembly of Heads of State and Government of the African Union for possible endorsement.
Concerning agricultural issues, ECA fully met its target to increase the number of countries from five to six (with the addition of the Democratic Republic of the Congo) and the number of regional economic communities from two to five (Common Market for Eastern and Southern Africa, East African Community, Economic Community of Central African States, Economic Community of West African States and Southern African Development Community) that have designed or implemented policies or programmes aimed at achieving agriculture development and food security.
ECA conducted a pan-Africa study to assess the existence of the necessary conditions for successful agriculture transformation. The findings of the study would feed into the development of a policy framework, to be adopted at the highest political level in Africa, aimed at promoting successful agricultural and rural transformation. The study should be launched in 2016. Farming systems analysis is a key approach for the development of the agriculture sector in Africa, and is expected to produce considerable economic gains for Africa’s agriculture and agribusiness sectors. In this context, ECA has developed a comprehensive review of agricultural production and food systems in Africa in the context of emerging trends. The contribution of ECA to farming systems in Africa has helped to enrich informed debate on reforming Africa’s agricultural productions and food systems in the post-Malabo context and in the light of Agenda 2063.
Cognizant of the role that private equity can play as a potential alternative source of investment in support of development efforts in Africa, ECA has, among other initiatives, raised the prospects for private equity in economic growth in Africa. In this context, ECA has developed a pan-Africa study entitled “Private equity and its potential role in economic growth in Africa: demystifying the asset class for policymakers”. The ninth African Development Forum provided an opportunity for ECA to propagate the findings of the study among stakeholders, including member States, the private sector and civil society organizations. The recommendations from the Forum on this matter were part of the body of knowledge that is encapsulated in a book by ECA, which, apart from its wide dissemination, also fed into the Third International Conference of Financing for Development. All of those efforts are expected to generate a high level of policy influence going forward. At this point, it can be said that the study has helped to generate awareness among member States on the existence and viability of private equity in the development finance discourse on Africa. It has also helped to demystify this asset class among policymakers, which, indeed, was one of the intended objectives of the study.
ECA has initiated ongoing policy dialogue surrounding bilateral investment agreements and investment policies, both at the national and continental levels. In the debate, emphasis has been on whether signed bilateral investments have significantly influenced the levels of trade in African member States.
Concerning energy, ECA has continued to provide support to member States and regional economic communities (including the East African Community and the Economic Community of West African States) in adopting clean energy technologies and policies with a view to achieving inroads to sustainable energy for all. ECA undertook a continent-wide initiative to strengthen the capacity of African countries to promote the use of renewable energy to achieve sustainable development and poverty reduction. The project looked at the potential of bioenergies and of policies in support of their development in the African context, with particular emphasis on liquid biofuels owing to their far-reaching positive effects.
ECA, dubbed the “champion” of Africa’s structural transformation, is now reviewing many of the existing industrial and trade policies of its members, including Guinea-Bissau and Swaziland, as well as those of the Common Market for Eastern and Southern Africa. For instance, ECA has developed a comprehensive stand-alone industrial and trade policy for Swaziland that spells out the economic philosophy of the Government in terms of industry and trade intervention measures and strategies to drive the country’s sustainable development in support of other programmes to meet its targets for 2022.
ECA conducted a review of industrial policies and strategies in Africa, which provided information on the development of industrial capabilities across the continent to fill the observed gaps in this area. The review comprised quantitative and qualitative analysis on current policies and initiatives regarding industrial development and on the status and trends of industrial indicators. In that connection, ECA organized the ninth session of the Committee on Regional Cooperation and Integration, on the theme “Enhancing productive integration of Africa’s structural transformation”. Apart from presenting the salient results and achievements of the subprogramme over the biennium 2014-2015, the session aimed at enhancing the awareness of African policymakers on the importance of industrialization and productive integration as the bedrock of Africa’s transformation. The session saw the participation of 49 member States and 6 regional economic communities. In parallel to the session, a policy dialogue on structural transformation in the new global landscape was jointly organized by ECA, the Economic Commission for Latin America and the Caribbean and the Organization for Economic Cooperation and Development, with the participation of the German Agency for International Cooperation, with a view to implementing concrete actions for knowledge-sharing in development policy for better understanding of policy challenges in the realm of production transformation and development. The event saw the participation over 100 stakeholders from international organizations, the private sector, academia, African officials and non-governmental organizations.
Concerning infrastructure, ECA has contributed to the development of the Programme for Infrastructure Development in Africa monitoring and evaluation model for trans-Africa infrastructure projects to enhance regional projects implementation. A road map for the accelerated implementation of the African Action Plan for the Decade of Action for Road Safety was adopted by the African Union Commission during the regional review meeting on road safety, held in July 2015. ECA, in collaboration with the African Union Commission and the World Bank, organized a side event on implementing and achieving the goals for that Decade, in particular the challenges and opportunities for Africa, at the second African Road Safety Conference, held in November 2015.
In general, full progress was made towards increasing the number of countries and regional economic communities developing policies or programmes in the areas of industrialization, infrastructure, energy or investment, from 8 to 17 and 1 to 3, respectively.
Concerning the implementation of the Declaration on Land Issues and Challenges in Africa, progress was made with regard to increasing the number of member States and regional economic communities designing or implementing policies and programmes to address land governance challenges. The 11 additional States were Angola, Burundi, Côte d’Ivoire, Ethiopia, Kenya, Malawi, Niger, Somalia, South Sudan, Swaziland and Zambia, while the communities were the Common Market for Eastern and Southern Africa, the Economic Community of West African States and the Intergovernmental Authority on Development. The subprogramme contributed to that achievement by strengthening the capacity of member States and the communities through the implementation of joint programmes aimed at mainstreaming land governance issues in strategies and programmes, undertaking research to generate evidence for robust land policy options and developing a monitoring framework to track progress in land policy processes.
ECA inaugurated a biennial conference on land policy in Africa, which attracted over 350 participants and produced 85 papers. ECA also established a dedicated website on its land policy initiative, which serves as a useful source for access to land-related information and as a land information database.
To enhance the capacity of land stakeholders and land governance and administration institutions in Africa, ECA, in partnership with the United Nations Human Settlements Programme, produced a background document and capacity development framework, and organized several training activities with partners – such as the Pan-African Parliament and the Regional Centre for Mapping of Resources for Development – for Economic Community of West African States lawmakers and over 50 land stakeholders from 20 English- and French-speaking countries. In addition, ECA developed training programmes on gender and grass-roots participation in land policy. Furthermore, it conducted a number of studies covering a broad range of land issues, including the role of parliamentarians in land governance, women’s land rights and the development of guidelines for land governance curricula in universities and higher-education institutions. ECA also managed to secure financial support from the Government of Germany to support the establishment of a pan-African network of excellence on land governance. ECA also conducted advocacy activities in various international forums or high-level events on agriculture within and outside Africa to increase awareness of land governance. ECA is currently reviewing over 20 requests for technical assistance from member States and partners, and has continued to support a series of country and regional pilot projects on land governance and land mainstreaming with partners such as civil society organizations, the Pan-African Farmers Organization, the International Fund for Agricultural Development, the European Union and the Intergovernmental Authority on Development. ECA, in partnership with the Food and Agriculture Organization of the United Nations, is providing transversal support to 10 African countries for the integrated implementation of the Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security, and the Framework and Guidelines on Land Policy in Africa, to improve land governance in those countries for improved food security.
Following a report on the progress in implementing the Declaration on Land Issues and Challenges in Africa, presented to the inaugural Conference of the Specialized Technical Committee on Agriculture, Rural Development, Water and Environment in October 2015, the African Union Conference of Ministers endorsed a number of recommendations on land policy. They included the establishment of an African land policy centre and a fund to facilitate resource mobilization for the centre; the adoption of a monitoring and evaluation framework to track progress on land policy; the commitment to apply the Guiding Principles on Large Scale Land Based Investments in Africa in order to promote agricultural investments; and a target to allocate 30 per cent of land to women and to secure their land rights through legislative reforms and other mechanisms.
The way forward: strategic development issues to be tackled in the coming biennium
The overall objective of the ECA biennium programme plan is to promote inclusive and sustainable economic and social development with a view to accelerating Africa’s structural transformation, in line with the priorities and vision articulated in Agenda 2063, the NEPAD programme and Agenda 2030 for Sustainable Development.
The mandate for the programme is derived from Economic and Social Council resolution 671 A (XXV), by which the Council established ECA. Further mandates have emanated from the outcomes and decisions of major global conferences and summits, including the United Nation Conference on Sustainable Development, the International Conferences on Financing for Development, the sessions of the Conference of the Parties to the United Nations Framework Convention on Climate Change, the Conference of African Ministers of Finance, Planning and Economic Development and the ordinary sessions of the Assembly of the African Union.
Many African economies have continued to see solid growth over the past decade, which also saw African Governments making progress in advancing economic and social development, including meeting some of the Millennium Development Goal targets by 2015. However, the current economic growth of Africa is not all positive. It is generally not accompanied by much-needed structural transformation and diversification and often does not translate into equitable human development and improved livelihoods for the majority of people. Countries across Africa are becoming richer, but whole sections of society are being left behind and wealth disparities are increasingly visible. The current pattern and quality of growth is unsustainable and could undermine the continent’s chances of achieving transformation and sustainable development. Unequal access to health care, education, water, sanitation and other infrastructure is reinforcing inequality. Smallholder agriculture has not been part of the growth surge, leaving rural populations trapped in poverty and vulnerability. The deep, persistent and enduring inequalities in evidence across Africa have economic, social and political consequences, which in the long run undermine economic growth, productivity and the development of markets, weaken confidence in Governments and institutions, and create conditions for open conflict and social unrest, as the recent experience of some African countries has shown.
The central message is that economic growth alone is not enough. It must be accompanied by deliberate and proactive policies to reduce inequality and promote inclusion. Sustaining positive trends and achieving inclusive growth and development is the overriding development policy challenge that African countries must tackle as an urgent priority. In order to realize this objective, several related challenges and constraints need to be addressed, including achieving higher, sustained and equitable growth; investing in human development, including education, health care, infrastructure and job creation; boosting agriculture and food security; speeding up the pace of regional integration; promoting trade, including intra-African trade; and enhancing State and institutional capacity for improved economic management. Ensuring gender equality and building national statistical capacity should also remain top priorities. Resource mobilization is a critical cross-cutting challenge that must be addressed if Africa is to make progress in those areas. Sustaining positive trends will also depend critically on a favourable international environment that supports the special needs of Africa, particularly with respect to climate change, international trade and enhancement of the continent’s voice in key global decision-making forums and processes. These are the major issues and challenges that underpin the development of the Commission’s programme of work for the biennium 2016-2017.
Consistent with its mandate, the overall strategy of ECA for achieving the objectives of the programme will continue to centre on the nine interdependent and complementary subprogrammes, which were approved by the General Assembly as part of the restructuring of ECA. The overall strategy of the subprogrammes will consist of developing economic and social analyses and preparing reports to monitor and track the progress of Africa on global and regional commitments; formulating policy recommendations, guidelines and standards to support policy dialogue; organizing policy dialogue to facilitate consensus-building and the adoption of common regional positions on key issues; and providing technical assistance and capacity-building in the form of advisory services and training to disseminate best practices. An important element of the strategy is strengthening and expanding existing networks in order to generate, update and disseminate relevant information and facilitate the exchange of experiences and good practices among policymakers, civil society, academia and other stakeholders. Additionally, special efforts will be made to ensure that the gender mainstreaming strategy of ECA is reflected throughout the nine subprogrammes. The subprogrammes, which are outlined below, focus on thematic or sectoral priorities that are key to the transformation of Africa.
Macroeconomic policy
The main strategic focus of the subprogramme will be to contribute to accelerating the transformation of African countries from low to middle-income status. An important element of the strategy is to engage in applied research to develop policy recommendations to support member States in the design of appropriate macroeconomic policies and programmes to achieve strong, inclusive and environmentally sustainable growth, create jobs, foster gender equality and women’s empowerment, and accelerate the process of economic development within a framework of good economic governance.
Regional integration and trade
The work of the subprogramme will focus on policy research, consensus-building and the provision of advisory services in support of the efforts of the African Union Commission, member States and regional economic communities towards achieving structural transformation in Africa through trade, investment, industry, agriculture and land management for inclusive and sustainable development. Policy research, case studies and capacity-building programmes will be undertaken to boost African cross-border investment, intraAfrican trade and Africa’s negotiating capacity in multilateral trade negotiations in the context of fostering the continent’s integration.
Innovation, technology and management of Africa’s natural resources
The strategy will focus on research, policy development and analytical work to support member States in the following areas: promoting the use of social, economic and environmental innovations and technological systems; developing mineral resources in the context of the Africa Mining Vision; advocating policy-relevant research and analysis to inform the formulation and implementation of green economy policies in the context of sustainable development and poverty eradication and to realize optimal benefits from Africa’s natural resource endowments; and helping member States to address climate change challenges in key sectors and putting in place appropriate plans and mechanisms to reflect national development priorities, policies, strategies and programmes.
Statistics
The goal of the subprogramme is to increase the capacity of African countries to collect, compile and use high-quality, comparable and harmonized statistics, with a view to monitoring the implementation of the Sustainable Development Goals, and to support regional integration, including through the harmonization of methods for censuses, surveys, national accounts, economic classifications and Sustainable Development Goal indicators, in compliance with international methodologies such as the 1993 and 2008 systems of national accounts.
Capacity development
This subprogramme will play a vital role in ensuring that the key policy findings from ECA research are used to support policy implementation at the national, subregional and continental levels. It will do so by strengthening the capacity of member States, regional economic communities and the African Union and its organs to implement their development priorities in line with the priorities and vision articulated in Agenda 2063, the NEPAD programme and the 2030 Agenda for Sustainable Development.
Gender and women in development
This subprogramme will help member States to develop and implement economic and social policies that address gender issues and women’s empowerment concerns; enhance gender mainstreaming in national policies, programmes and strategies; monitor and report on the implementation of United Nations global and regional commitments on gender equality and women’s rights; and promote the collection and use of data disaggregated by gender.
Subregional activities for development
The five ECA subregional offices, which are responsible for the implementation of the components of this subprogramme, are located in Rabat, for North Africa; Niamey, for West Africa; Yaoundé, for Central Africa; Kigali, for Eastern Africa; and Lusaka, for Southern Africa. The subprogramme will focus on producing regular country profiles and risk analyses. The country profiles will include research, analysis, forecasts, indicators and trends, in addition to statistics on issues such as output, trade, agriculture, macroeconomics, monetary and financial variables, and remittances. The aim of the profiles is to produce policy advice in support of the development agenda of the member States.
Development planning and administration
Responsibility for the implementation of the subprogramme lies with the African Institute for Economic Development and Planning, which is the training arm of ECA and is a premier capacity development resource for African Governments. The Institute will work in close coordination with ECA divisions, subregional offices and centres. The Institute’s strategy will take into account the emerging demands of member States and in particular the priorities of the African Union, as reflected in Agenda 2063. The activities to be implemented include comprehensive training and technical cooperation services for Governments and other relevant stakeholders, applied research and the development of knowledge networks among stakeholders, particularly those relating to public sector performance in the region. Strategically, the Institute aims to contribute to expanding the capacity of African countries to autonomously deploy development planning tools to achieve the core goal of structurally transforming their economies and societies. The Institute will expand its global partnerships, including through collaboration with African universities and think tanks, with a view to enhancing its capacity to deliver decentralized courses across Africa. Furthermore, e-learning opportunities will be provided to officials from member States in order to enhance programme scale, reach, presence and impact, and promote a culture of continuous learning and retooling. Opportunities for tailor-made capacity-renewal and enhancement interventions will be explored, and efforts will be made to build interfaces between public sector managers and leaders and relevant actors from the private sector and civil society.
Social development policy
The subprogramme will focus on the following thematic issues: measuring inclusive development and mapping policies to reduce exclusion; monitoring social investments; identifying policy options to guide public and private efforts to improve the opportunities available to young people, with a view to reducing the intergenerational transmission of poverty and inequality; developing frameworks to better harness the demographic dividend; formulating principles for creating inclusive cities and integrating them into public policies; and providing support for the development and implementation of national urban policies. The subprogramme will also follow up on international and regional agreements on social development, employment, young people, population and urbanization.
Strategic partnerships will continue to be central to the implementation of the biennium programme plan. In line with its new partnership strategy, ECA will leverage its comparative strengths to engage a wide range of partners from within and outside the United Nations system in order to maximize the impact of its work. To that end, ECA will continue to be involved in the work of the Executive Committee on Economic and Social Affairs, which is the main vehicle for ensuring policy and operational coherence in United Nations development activities, and seek to enhance its collaboration with the United Nations Development Group. It will also continue to build on its existing partnerships with the African Union, the African Development Bank and other regional organizations, as well as with African civil society and private sector organizations. Inter-agency coordination and collaboration among United Nations agencies working in Africa will continue to be strengthened through the regional coordination mechanism of the agencies convened by ECA in support of the African Union and its NEPAD programme at the regional and subregional levels. In addition, ECA will work closely with the other regional commissions to develop joint initiatives and inputs with a view to strengthening the regional dimension of global development. At the national level, ECA will work closely with the United Nations resident coordinator system to exploit the inherent strengths of the funds and programmes. Lastly, partnerships with other stakeholders, including the private sector, civil society, universities and research institutions, will be developed and enhanced.
This report has been prepared for the Ninth Joint AUC-ECA Annual Meetings of the AU Conference of Ministers of the Economy and Finance and ECA Conference of African Ministers of Finance, Planning and Economic Development, taking place from 31 March to 4 April 2016.
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Status of African Integration: The Implications of Agenda 2063 and Agenda 2030 on African Integration
Report prepared for the Ninth Joint AUC-ECA Annual Meetings of the AU Conference of Ministers of the Economy and Finance and ECA Conference of African Ministers of Finance, Planning and Economic Development, taking place from 31 March to 4 April 2016
More than 50 years after its creation, the AU/OAU remains committed to implementing the integration agenda with and through its 8 RECs: the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), the Southern African Development Community (SADC), The Economic Community of West African States (ECOWAS), the Economic Community of Central African States (ECCAS), the Intergovernmental Authority on Development (IGAD), the Community of Sahel-Saharan States (CENSAD) and the Arab Maghreb Union (AMU). However, it now has to pursue its implementation Agenda in the modern day context and in harmony with the major contemporary development frameworks, namely Agenda 2063 and the 2030 Agenda for Sustainable Development and its Sustainable Development Goals (SDGs).
This report seeks to first present an overview of the status of integration within the RECs and also at a continental level summarizing initiatives and providing progress reports. Second, it seeks to introduce the new development frameworks, Agenda 2063 and the 2030 Agenda, and confirm that they are indeed compatible in design and implementation. Third, it explores the impact of the Agendas on the integration process and how the integration process can facilitate their implementation. Lastly, it highlights the challenges that will have to be overcome to effectively implement the two Agendas.
The Status of Integration
Integration Efforts within the RECs
The majority of the RECs are generally on schedule with the overall timeline of the Abuja Treaty. This assessment is qualified with an acknowledgement that there are still some of the RECs remain behind the integration schedule of the Abuja process, and there are variations in the extent to which the RECs have achieved the various stages of integration; some RECs suffer from persisting challenges that prevent them from fully attaining the desired outcomes such as: the full implementation of tariff lines by all members or a sufficient reduction in NTBs within the REC.
The East African Community (EAC)
EAC is the most advanced of the RECs and is moving well towards its goal of becoming a political federation. It is the second fastest growing economic bloc in the world, after the Association of South East Asian Nations (ASEAN) and has sustained real income per capita growths that have been higher than the rest of sub-Saharan Africa. EAC has attracted over $24 billion in foreign direct investment since 2000 and Kenya was the largest first-time issuer of sovereign bonds, debuting at $2 billion in 2014. In addition, there have been significant improvements in NTBs with the turnaround in the movement of cargo from Mombasa, Kenya, to Kampala, Uganda, having reduced from 18 days to 4 days, and from Kigali, Rwanda, having decreased from 21 days to 6 days. EAC has moved to eliminate NTBs by implementing a peer reviewed scorecard to monitor progress in that area. Several EAC banks and insurance companies are now operating across national borders and in 2011, in response to food and fuel shocks, EAC central banks even synchronized the tightening of their monetary policy to rein in inflation. All in all, intra-regional trade in EAC has more than tripled from $2.6 billion in 2004-a year before it launched its CU-to $8.6 billion in 2014. EAC has made the following progress through the stages of integration:
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The EAC Customs Union was launched in 2005 and became fully operational in 2010. It’s CET rates are 0% on raw materials, 10% on intermediate goods and 25% on finished products-which was to be revised to 20% in 2010. Exceptional rates above 25% can be applied to goods on the sensitive goods list, which include, among others: rice, cement, cotton fabrics, sugar, and milk and dairy products.
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In 2009, EAC adopted the ‘Protocol on the Establishment of the East African Community Common Market’, which entered into force in July 2010 following ratification by all 5 members. The EAC Passport was launched in 1999 and allows holders a 6-month visa-free stay in any EAC country for multiple entries. It is valid for 5 years, recognized by all EAC Member States and is currently being upgraded to an e-Passport as part of an integrated e-immigration management system. EAC citizens that only have national passports are entitled to 3-month visa free stays in EAC Member States and Rwanda, Kenya, and Uganda have established the right to establishment through bilateral agreements which also waive work permit fees. Rwanda went even further and began offering $30 visas to all African nationals without prior applications, as of 1 January, 2013.
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In 2013, EAC adopted the ‘Protocol Establishing the East African Monetary Union’ which sets out the process and criteria for harmonising monetary and fiscal policies, establishing a common central bank and replacing the national currencies of its member countries with a single common currency by 2024.
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In June, 2013, a Committee was established by the EAC Heads of States and Governments (HoSG) to draft an EAC Political Federation Framework for consideration and discussion by Member States. In August, the EAC HoSG, then directed the Ministers responsible for fast-tracking the political federation to develop a roadmap as well as prepare a zero draft of the Federal Constitution. Discussions and negotiations to launching the EAC Political Federation are still ongoing.
The Economic Community of West African States (ECOWAS)
ECOWAS is the second most advanced of the RECs within the Abuja framework and the most advanced with regards to free movement, as a result, 65.5% of the intra-African trade of ECOWAS Member States was within ECOWAS:
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Although ECOWAS was declared a Free Trade Area (FTA) in 2000, it had already adopted the ECOWAS Trade Liberalisation Scheme (ETLS) in 1979 with the aim of accomplishing in 3 stages: i) the immediate and full liberalization of trade in unprocessed goods and traditional handicrafts; ii) phased liberalisation of trade in industrial products reflecting the levels of development of the 3 groups of member states; iii) Gradual establishment of a Common External Tariff (CET). (Ukaoha & Ukpe, 2013). Only stage one was being implemented until 1990 when the ETLS opened up to include industrial products. In 2003, to comply with a WTO agreement on rules of origin, ECOWAS the ECOWAS protocol A/P1/1/03 was adopted to define the concept of originating products and the origin criteria for free circulation of industrial goods; it is the same as that of the West African Economic and Monetary Union (UEMOA). Prior to this, in 2002 the Council of Ministers adopted Regulation, REG./3/4/02 which spelled out a procedure for approving industrial products through the creation of National Approvals Committees (NACs) in each member states. NACs were responsible for approving companies and products that meet the originating product criteria and then communicating this to the ECOWAS Commission which would inform all Member States of approved companies and products for free exportation.
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In January, 2006, ECOWAS began moving towards becoming a Customs Union, when the ECOWAS Heads of State and Governments (HoSGs) established the ECOWAS CET, which drew on the basic UEMOA CET composed of four tariff bands: 0% on essential goods; 5% on goods of primary necessity, raw materials and specific inputs; 10% on intermediate goods; and 20% on final consumption goods. The UEMOA-ECOWAS committee was thereafter created to finalize the ECOWAS CET by January 2008. While they were unable to accomplish this, they made significant progress: i) developed and validated a 10-digit Regional Tariff and Statistical Nomenclature based on the HS2007 and later updated it to HS2012 after discussions with the World Customs Organisation (WCO); coordinated the market; ii) coordinating the market access offer under the framework of the European Partnership Agreements (EPAs) and the ECOWAS CET product classification; iii) adopted a 5th band at 35%. In January, 2015, the ECOWAS CET was operationalized.
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Following the establishment of the ECOWAS CET, the REC is well on its way to becoming a Common Market; it is already the most advanced REC with regards to Free Movement of People having adopted the legally binding ‘ECOWAS Protocol relating to Free Movement of Persons, Residence and Establishment’ in 1979. The Protocol was to be implemented in three 5-year stages, covering: i) the right of entry and abolition of visa requirement for stays of up to 90 days.; ii) residency with regards to seeking and carrying out income earning employment (provided an ECOWAS residence card/permit has been obtained) and enjoying equal treatment as nationals; and iii) establishment of enterprises. While progress has been slow in implementing the other two stages, stage one has been fully implemented, making ECOWAS the only REC on the continent in which member enjoy visa-free movement.
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In 1994, 8 West African Countries from ECOWAS formed the West African Economic and Monetary Union (WAEMU) and elected to maintain their colonial currency, the CFA Franc, as well as their legal and administrative systems. Their common monetary policy is implemented by the Central Bank of West African States (BCEAO) in Dakar, Senegal. The French Treasury guarantees the convertibility of the CFA Franc. As a result of their commonalities, they have been able to make better progress towards economic integration than non-WAEMU member states of ECOWAS.
The Common Market for Eastern and Southern Africa (COMESA)
COMESA is the third most advanced RECs in Africa having seen trade in the region grow from just $3.1 billion in 2000 when it launched its Free Trade Area (FTA) to $22.3 billion in 2014. COMESA has made the following progress:
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The COMESA Free Trade Area (FTA) was launched in 2000 using a variable geometry approach that allowed its members to join when they were ready to reciprocate terms and reduce tariffs according to the trade schedule. 17 of COMESA’s 19 Member States are FTA Member States. Ethiopia joined acceded to the FTA in 2014 following the completion of a 2014 study on Ethiopian Industrial Competitiveness, conducted by COMESA and Ethiopia’s Ministry of Finance and Economic Development (MoFED). It was joined by the DRC in 2014 and Uganda in 2015.
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The COMESA Customs Union (CU) was launched in 2009 and provided for a 3-year transition period for all Member States to implement the key CU legislation: The Common Tariff Nomenclature (CTN), the Common Customs Management Regulations, and the Common External Tariff (CET) which, for ease of implementation, is aligned with EACs CET: 0% raw materials, 10% intermediate goods and 25% finished goods. However, the COMESA CU has not been fully operationalised as not a single Member State has domesticated the CU legislation, despite a two-year extension of the transition period in November 2012. National and regional workshops conducted by COMESA to sensitize public and private sector officials to the CU instruments (legislation) found that for 11 Member States, the CTN was aligned to national tariff nomenclature by more than 62%; in addition, studies confirmed that there would be no revenue loss as a result of implementing the CU for most countries. The COMESA Council of Ministers thus called for increased efforts to implement the CU in 2015 and 2016.
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COMESA, is currently granting 90-day visas on arrival to citizens of its FTA Member States under Protocol CM/XI/60. However, it is being prevented from becoming a Common Market by delays in the implementation of 2 key instruments: The 2001 COMESA ‘Protocol on Free Movement of Persons, Services, Labour and the Right of Establishment and Residence’ (Free Movement Protocol), which has been signed by only Burundi, Kenya, Rwanda, Zimbabwe and DRC, has been ratified by Burundi, and is in the process of being parliamentary ratification in DRC; and the 1984 Protocol on the Gradual Relaxation and Eventual Elimination of Visas (Visa) Protocol, which has been ratified by all Member States but is not being adequately implemented.
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The COMESA Monetary Cooperation Programme was adopted in 1992, with a view of establishing a Monetary Union by 2025. This date was brought forward to 2018 by the COMESA Council of Ministers in 2006. The Monetary Union is to be achieved in 4 stages: i) consolidation of existing instruments for monetary cooperation and implementation of policies aimed at convergence according to specified criteria; ii) introduction of limited currency convertibility and informal exchange rate union; iii) formal exchange rate union and coordination of economic policy by a common monetary institute; and iv) a full Monetary Union by 2018, including a common currency and a common Central Bank. The COMESA Committee of Governors of Central Banks was established to make binding decisions regarding the implementation of the COMESA Monetary Integration Programme. In 2011, they established the COMESA Monetary Institute to undertake activities related to facilitating macroeconomic and financial integration and stability in the region. The Charter of the Institute has been signed by 12 members.
The Southern African Development Community (SADC)
SADC is the fourth most advanced REC in Africa having grown its intra - regional growth from $20 billion in 2004 to $72 billion in 2014. SADC has attained the following achievements:
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The SADC Free Trade Area (FTA), as envisioned in the 2005 SADC Protocol on Trade, entered into force in August, 2008, when the REC attained the minimum conditions of having zero duty on 85% of intra-regional trade. The maximum tariff liberalisation was attained in January, 2012, when the tariff phase-down process for sensitive products was completed. However, Angola, DRC and Seychelles have not signed the agreement, and Mozambique was due to complete the process in 2015 for South African imports. Moreover, Malawi, Zimbabwe and Tanzania were allowed to impose 25% import duties on sugar and paper products until 2015 in order to allow the industries to adjust.
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In 2003, SADC’s Regional Indicative Strategic Development Plan (RISDP) set out for the REC to become an FTA by 2008, a Customs Union (CU) by 2010, a Common Market by 2015 and a Monetary Union by 2016, with a single currency by 2018. However, to date, SADC has been unable to establish a CU due to several challenges including: multiple memberships of SADC countries to several overlapping Regional Integration Arrangements (RIAs) and AU RECs and the subsequent challenge of having to meet multiple obligations; complex and divergent trade policies and revenue constraints; differences in the levels of development of member states; complicated rules of origin; poor infrastructure and trade facilitation systems.
The Economic Community of Central African States (ECCAS)
ECCAS is the fifth most developed REC in Africa. It has faced several challenges in progressing towards integration but has also been working closely with ECOWAS to overcome them in areas such as: infrastructure and energyan area in which SADC has also been supportive, particularly of the Grand Inga Dam; Free movement of persons; and trade:
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In 2004 ECCAS initiated a Preferential Tariff with the aim of establishing an ECCAS Free Trade Area (FTA) through gradual custom tariff reductions according to the following schedule: 100% discount for traditional crafts and other crude products apart from mining by July, 2004; and for mining and manufactured goods, reductions of 50% by July 2004, 70% by January 2005, 90% by January 2006 and 100% by January 2007. However, Member States have been slow in translating community legislation into domestic law. Despite formal notification from the ECCAS General Secretariat of non-domestication of instruments and tools of the FTA, the ECCAS FTA is still not fully operational due to low political will, weak infrastructure, multiple controls and red tape, the maintenance of customs duties and multiple memberships to overlapping Regional Integration Arrangements and RECs.
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ECCAS adopted the ‘Protocol on Freedom of Movement and Rights of Establishment of Nationals in annex VII of the ECCAS Treaty with the Right of Free Movement and the Right of Establishment to be implemented within 4 and 12 years, respectively. Implementation was delay due to a lack of political will but in 1990 decisions were adopted to allow for the free movement of certain categories of persons including students and interns. Nevertheless, limitations exist under national legislation. Seven ECCAS countries are also member of the CEMAC (The Central African Economic and Monetary Community), which in June 2013, decided that from January 2014, citizens of the community will be free to move across borders without visas for 90 days using a national identity card or a passport and enjoying the same rights as nationals of the host country, except political rights.
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The ECCAS Member States that also belong to the CEMAC Monetary Union carried on from the colonial era, and therefore share a common currency, the Central Africa CFA franc, and a common macroeconomic policy convergence mechanism.
The Inter-Governmental Authority on Development (IGAD)
IGAD has fallen behind and remains at the second stage of the Abuja Treaty schedule, eliminating TBs and NTBs. However, it has been particularly active in the areas of climate-related disaster risk management and peace and security which have been the major hindrances to its integration efforts. It also suffers from multiple membership of its Member States to other Regional Integration Arrangements and RECs. On 12 October, 2013, the Foreign Ministers of IGAD and EAC initiated investigations into the merger of the two RECs in recognition of their increased consultation and collaboration on issues of common interest in the East Africa Region.
The Community of Sahel-Saharan States (CEN-SAD)
CEN-SAD has fallen behind schedule in the integration schedule of the Abuja Treaty and is on stage two, eliminating TBs and NTBs within the REC. However, it has been active in the areas of agriculture, finance and transportation. They key challenges faced by CEN-SAD include multiple membership of its countries to overlapping Regional Integration Arrangements and RECs, political instability, the resurgence of extremism, and the destabilization of a leading Member State, Libya, following NATO’s military operation in 2011.
The Arab Maghreb Union
AMU has fallen behind and is also at stage two of the Abuja Treaty, eliminating TBs and NTBs within the REC. Due Morocco’s illegal occupation of the Sahrawi Arab Democratic Republic (SADR), political tensions have arisen between Morocco and Algeria, as well as the African Union, which have led to a breakdown in relations between the AU and AMU and further hindered AMU’s progress. However, AMU Member States have been active outside the framework of the Abuja Treaty and have benefited from the removal of intra-regional tariffs under the Pan-Arab Free Trade Areas (PAFTA) and the adoption of low common tariffs by the Gulf Cooperation Council (GCC).
The COMESA-EAC-SADCT Tripartite Free Trade Area (TFTA)
On 10 June, 2015, the TFTA was launched during the Third Tripartite Summit held in Sharm-el-Sheikh, Egypt. The TFTA will combine 3 RECs, 26 countries, about 632 million people and about $1.3 trillion in combined GDP. Moreover, in the three RECs, between 1994 and 2014: trade has increased from $2.3 billion to $36 billion, with intra-regional trade increasing from 7% to 25%. It is anticipated that the TFTA will significantly boost and strengthen the gains made thus far:
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The process to establish the TFTA was initiated in 2005 when the Tripartite Task Force was set up to harmonise programmes within the three RECs in the areas of trade, customs, civil aviation, free movement of people and infrastructure development. At the first Tripartite Summit held in October 2008, in Kampala, Uganda, the Tripartite Heads of State and Government agreed on a programme of harmonisation of trading arrangements among the three RECs, free movement of business persons, joint implementation of inter-regional infrastructure programmes and the institutional arrangements on which cooperation between the RECs would be based. The also directed the Tripartite Task Force to develop a roadmap for the merging the three RECs.
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The negotiations for the establishment of the TFTA were launched in June, 2011, in Johannesburg, South Africa. Recognizing that the TFTA accounted for over half of the AU Membership, 58% of the GDP of AU Member States and 57% of their population, the Tripartite Heads of State and Government adopted a developmental approach to the TFTA anchored on three pillars: i) Market Integration; ii) Infrastructure Development to enhance connectivity and reduce the cost of doing business; and iii) Industrial Development to address productive capacity constraints. In this regards they: signed the declaration launching the negotiations, adopted a roadmap for establishing the TFTA, adopted the TFTA negotiating principles, processes and institutional framework, and they directed that a programme of work and roadmap be developed on the industrialization pillar.
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The TFTA Roadmap established at the Tripartite Summit in 2011 divided the negotiations into three phases:
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The Preparatory Phase consisted of: exchange of relevant information including applied national tariffs, trade data and measures; adoption of terms of reference for the negotiations; and the adoption of rules of procedure for the establishment of the Tripartite Trade Negotiation Forum (TTNV).
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Phase One focused on: tariff liberalization, rules of origin, customs documentation, transit procedures, non-tariff barriers, trade remedies, technical barriers to trade, dispute resolution and the facilitation of free movement of business persons within the regions.
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Phase Two focuses on: trade in services, trade-related issues like intellectual property rights and competition policy, trade development and competitiveness.
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The key outcomes of the Third Tripartite Summit held in 2015 were that:
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24 Tripartite Member States signed the ‘Sharm El Sheikh Declaration Launching the COMESA-EAC-SADC TFTA’; only Libya and Eritrea did not;
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16 Tripartite Member States signed the ‘Agreement establishing the COMESA-EAC-SADC TFTA’: Angola, Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Kenya, Malawi, Namibia, Rwanda, Seychelles, Sudan, Tanzania, Uganda, Swaziland and Zimbabwe;
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The Summit adopted the ‘Post-signature Implementation Plan’ which detailed regional and national level activities to be implemented in fulfilment of the TFTA Agreement;
The Summit directed that: i) negotiations on outstanding issues from Phase One to operationalise the TFTA be concluded expeditiously; ii) Phase Two negotiations be commenced; iii) the programmes of work and roadmaps developed on the Industrialization and Infrastructure Pillars be well-resourced and prioritized.
The Continental Free Trade Area (CFTA)
On June, 2015, a week after the launch of the TFTA, negotiations for the CFTA were launched during the 25th Summit of the African Union held in Johannesburg, South Africa. UNCTAD (2015) estimated that the removal of tariffs alone would increase trade from 10.2% in 2010 to over 15% by 2022 and enhanced trade facilitation measures could more than double gains, causing an increase of 21.9%. Moreover, in addition to stimulating intra -African trade by more than $35 billion per year, it could also decrease imports from outside Africa by $10 billion, boosting agricultural exports by $ 4 billion and industrial exports by $21 billion by 2022:
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The decision to establish the CFTA was adopted by the 18th AU Summit in January, 2012, in Addis Ababa, Ethiopia. The Summit also endorsed the Action Plan on Boosting Intra-African Trade (BIAT) which centres around 7 clusters: trade policy, trade facilitation, productive capacity, trade related infrastructure, trade finance, trade information and factor market integration.
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Through the decision, Assembly/AU/Dec.569 (XXV), HoSG adopted:
i. The objectives and principles of negotiating the CFTA;
ii. The indicative Roadmap for the negotiation and establishment of the CFTA;
iii. The terms of reference for the CFTA Negotiating Forum (CFTA-NF);
iv. The institutional arrangements for the CFTA negotiation; and
v. The ‘Declaration on the Launch of Negotiations for the Establishment of the CFTA’.
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The HoSG also requested that the CFTA-NF hold its inaugural meeting in 2015 with the aim of concluding negotiations by 2017. The First Meeting of the CFTA-NF was scheduled for 22-27 February, 2016, in the AUC Headquarters, Addis Ababa, Ethiopia.
Agenda 2063: Africa’s New Development Framework
Agenda 2063: Africa’s response to contemporary challenges and opportunities
Between 2001 and 2014, the African economy outperformed the global economy, averaging at above 5% per annum, compared to just over 2% during the 1980s and 1990s. Growth in Africa was driven by high commodity demand and soaring prices due to increased world output led by China, India and other emerging economies. It was also facilitated by improved governance and political stability, as well as improved economic policies including: prudent fiscal policies and stronger budgets which have lowered inflation, improved macroeconomic stability and supported growth.
Despite all this, Africa is only on track to attain 3 of the 8 Millennium Development Goals (MDGs): MDG2 to achieve universal primary education; MDG3 to promote gender equality and empower women; and the targets for MDG6 to combat HIV/AIDS, malaria and other diseases. Initial conditions and high population growth relative to the rest of the world, played a role in exacerbating the challenge of reaching the MDG targets. However, other structural economic factors have also prevented Africa from achieving its targets: over-dependency on primary commodities has left many African countries susceptible to external shocks that can disrupt their development gains; low-levels of value addition and economic diversification have limited both job creation and trade within and outside of Africa; inadequate participation and influence in the global political, financial and trade infrastructure has weakened Africa’s partnerships for development; and a lack of investment in human development, the promotion of rural development, agricultural productivity, social protections, and more equitable public service delivery systems, has increased inequalities and failed to sufficiently reduce poverty on the continent.
In addition, Africa’s share of global trade, even with itself, is relatively low. In 2014, Africa’s share of total merchandise exports in the world was only 3.5% compared to a 36.7% share for Europe, a 29.7% share for Asia and a 17.3% share for North America. Intra-African trade has risen from just 10% of the region’s total exports in 1995 to 17.7% in 2014. However, this is still much less than intra-European exports (68.5%), intra-Asian exports (52.3%), intra-North American exports (50.2%) and intra-South and Central American exports (25.8%); Africa exports less to African countries than it does to Europe, which receives 36.2% of all African exports, and to Asia, which receives 27.3% of African exports.
In recognition of both Africa’s successes and challenges, the African Union created Agenda 2063, a shared framework for inclusive growth and sustainable development in Africa to be realized by 2063. Drawing from lessons learned and encompassing all key continental initiatives, it is the culmination of efforts to achieve the Pan-African Vision of “An integrated, prosperous and peaceful Africa driven by its own citizens and representing a dynamic force in the global arena”. It is to be implemented over a period of 50 years through five 10-year plans that will be executed at the national, regional and continental levels. The Agenda 2063 Framework and its popular version-a simplified version for mass distribution-were adopted by the AU Summit held in January, 2015.
The First Ten-Year Implementation Plan (FTYIP) was subsequently adopted by the AU Summit held in June, 2015. The FTYIP is to be implemented between 2014-2023 and translates the 7 aspirations of Agenda 2063 into 20 goals that are based on: guidance from the Assembly decisions; the national and regional plans and insights of Member States and RECs; the orientation of existing continental frameworks; and the flagship projects and programmes of Agenda 2063.
The Global 2030 Agenda as a subset of Agenda 2063
At the same time that Africa has embarked on a journey towards structural transformation for sustainable and inclusive growth, through Agenda 2063, the world has made a commitment to end poverty, protect the planet and ensure prosperity for all. The Global 2030 Agenda for Sustainable Development (Agenda 2030) and its accompanying Sustainable Development Goals (SDGs) were adopted in September, 2015, as a fifteen-year plan for “achieving sustainable development in its three dimensions-economic, social and environmental-in a balanced and integrated manner”. African countries, as signatories to both Agendas therefore find themselves having to simultaneously implement two bold initiatives: Agenda 2063’s FTYIP and Agenda 2030.
Fortunately, significant efforts were made during the formulation process to ensure synergies between the two Agendas and continue to be made to maintain convergence between them. To begin with, an overlap between the two agendas was inevitable because of the way in which they were formulated. In a markedly different approach from that employed with the MDGs, both Agendas were created through a bottom up approach, which was informed by a comprehensive consultation process that included, among others: African citizenship and Civil Society Organizations (CSOs); Continental Organisation (including the AU, the AfDB and the ECA) and the RECs; the private sector and academia; and relevant international organisations such as the United Nations Development Programmes-Regional Bureau for Africa (UNDP-RBA).
The Common African Position on the Post-2015 Development Agenda (CAP)
The overlap between the two Agendas was significantly reinforced by the full incorporation of the CAP into both Agenda 2063 and Agenda 2030. The CAP was created to establish a consensus on common challenges, priorities and aspirations, and to enable Africans to collectively and more effectively contribute to the post-2015 agenda. The creation of the 10-member High Level Committee of AU Heads of State and Governments in 2013 and the endorsement of the CAP by the AU Summit in January, 2014 helped sensitize African leaders to the CAP and coordinate their activities, and also facilitated effective advocacy and the creation of alliances and political buy-in. Africa also established, in January, 2015, an African Group of Negotiators to promote its interests on the world stage. Finally, on top of utilizing the formal mechanisms for providing input into the UN processes, it leveraged its position as having several African negotiators, Ambassadors and Senior officials in key positions within the UN System. These included the President of the 69th UN General Assembly, the Chair of the G77 and China, they Co-Chair of the Open Working Group on the Sustainable Development Goals, the representative of the host country for the Third Financing for Development Conference, and the Special Advisor to the Secretary-General on Post-2015 Development Planning.
Ultimately, Africa was able to significantly influence the process of formulating Agenda 2030 because it was coordinated and spoke with one voice. It clearly and consistently its collective priorities as embodied in the six pillars of the CAP: (i) structural economic transformation and inclusive growth; (ii) science, technology and innovation; (iii) people-centred development; (iv) environmental sustainability, natural resource management and disaster risk management; (v) peace and security; and (vi) finance and partnerships.
Convergence between Agenda 2063 and Agenda 2030
As a testament to the hard-work and dedication of the African Leadership to ensuring that Agenda 2030 took into account the continent’s priorities, Paragraph 42 of full text of Agenda 2030 reads, “We support the implementation of relevant strategies and programmes of action… and reaffirm the importance of supporting the African Union’s Agenda 2063 and the programme of the New Partnership for Africa’s Development”. Further evidence of the alignment between the two Agendas was provided by a mapping exercise conducted by the AUC that showed a high level convergence between goals and targets of Agenda 2063’s FTYIP and Agenda 2030 (SDGs).
However, the convergence between Agenda 2063 and Agenda 2030 is implicitly less than 100%: Agenda 2030 is a global response to the world’s development challenges that by definition takes into consideration African dimensions, while Agenda 2063 is an African response to African development that takes into consideration global dimensions. Moreover, Agenda 2030 encompasses on economic, social and environmental dimensions, while Agenda 2063 also includes political and cultural dimensions. Both the AUC and the ECA have conducted mapping exercises comparing the SDGs to the FTYIP. The ECA has estimated a convergence of about 90% at the level of the goals, but only about 69% convergence at target level. In terms of the specific targets: there is 100% convergence with SDGs 2, 5, and 7; 90% convergence with SDG 16; 86% convergence with SDG 4; 80% convergence with SDGs 1, 8, and 9; 71% convergence with SDG 11; 68% convergence with goal 17; 67% convergence with SDGs 3 and 6; 50% convergence with SDG 12; 43% convergence with SDG 43; 33% convergence with SDG 13; 30% convergence with SDG 15; and 29% convergence with SDG 14.
However, mapping the goals and targets of the FTYIP and the SDGs has limitations. Firstly, the FTYIP is a subset of Agenda 2063 that focuses on those priorities and objectives that fall within its 10-year period. It therefore has a lower convergence with the 2030 Agenda than Agenda 2063 in its full form. Additionally, there are less direct strategic linkages that may not be identified by a mechanical mapping exercise but can be identified by analysing the general spirit and aim of the goals. Consequently, Aspiration 5 of Agenda 2063, “Africa with a Strong Cultural Identity, Common Heritage, Values and Ethics” has no direct link to Agenda 2063 but can be vaguely linked to target 4.6 which includes “appreciation of cultural diversity and of culture’s contribution to sustainable development”. The same applies for Aspiration 2, “An Integrated Continent, politically united and based on the Ideals of Pan Africanism and Vision of African Renaissance”, which can be vaguely linked to goals that reference regional cooperation such as 1.b, 2.5, and 9.1. It can also be linked to the full text of the 2030 Agenda, which explicitly refers to the importance of integration as a Means of Implementation.
The Risk of Divergence in Implementation
In addition, to being less than 100% convergent, the two Agendas are also non-binding, which is of particular importance with regards to their integrated and coherent implementation. Countries are essentially free to prioritize those SDGs that advance their own economic and political interests while largely ignoring the ones that do not. The result would be that the only SDGS that would be implemented are those that strongly and conspicuously link the interests of several nations or those that reflect the interest of more powerful nations. In cases where the interests of weaker developing nations, including African countries, are in conflict with those of stronger developed nations, there is a real risk of undermining not only the credibility but effectiveness of Agenda 2030.
A recent example that gives insight into the ways in which power dynamics and conflicting interest might play out is the Third Financing for Development Conference (FfD3) that was held in Addis Ababa, Ethiopia. As noted by the CSO FfD3 Group (2015), Bhumika (2015) and Ranja (2015), while the conference was successful in establishing a Technology Facilitation Mechanism (FTM) to support the attainment of the SDGs and institutionalized follow up mechanisms, namely the ECOSOC Forum on Financing for Development and the Interagency Task Force, it failed in several key areas. The first was that despite a general consensus that Illicit Financial Flows affect developing countries more and that a global effort is needed to tackle them, developed countries rejected the efforts of developing nations to create an intergovernmental tax governing body that would be more democratic and inclusive than the current OECD-controlled global tax architecture. The second way, was the emphasis placed on private-public partnerships and trade facilitation for development without sufficient emphasis also being placed on safeguarding policy space or putting in place binding commitments to ensure that businesses are held to internationally recognized human and labour rights and environmental standards. This seemed to promote the goal of developed countries to access new markets without addressing the goal of developing countries to protect their developmental gains, particularly with regards to creating stable markets and boosting industry.
In light of the aforementioned, it becomes clear that there is a strong and urgent need actively ensure the integrated and coherent implementation of both Agendas as a making sure that Africa’s economic interests and priorities are not forgotten in implementation. In addition, strengthening and communicating the high levels of convergence between the two Agendas will minimize the burden on Member States of implementing the two Agendas, as well as eliminate competition between them for resources. Most importantly, it must be clear that Agenda 2030 is a subset of Agenda 2063 that does not take into account Africa’s specific priorities and interests. Therefore, the implementation of Agenda 2063 ensures the implementation of Agenda 2030 but the implementation of Agenda 2030 alone, will not necessarily ensure the full implementation of Agenda 2063.
Integration and the New Development Agendas
The Role and Importance of Integration in Contemporary Development
Following 15 years of impressive economic growth, Africa and its partners have adopted a new development paradigm in which increased and improved trade is perceived as key path to economic growth and sustainable development. Creating added-value, opening up markets, creating a diversified industrial base, and establishing a more equitable international trading system are common African priorities.
Unfortunately, unlike Asia which saw trade double between 1995 and 2010, Africa has faced significant difficulties participating effectively in international trade. As a result, during that same time period African trade was stuck at 2% of the world total. In addition, raw commodities account for over 50% of sub-Saharan Africa’s exports and only less than 10% of Asian exports. Asia’s success is largely accredited to regional integration that allowed it to create efficient regional value chains that strengthened its position and enabled it to become a key player in global value chains. As the world’s most fragmented region, it takes almost twice as long to trade across borders in Africa (particularly sub-Saharan Africa) than it does in other regions such as Latin America and the Caribbean and South-East Asia. Africa can gain from integration that optimises border administration, eliminates the infrastructure gaps, both in transport and ICT, and allows for the free movement of people, goods, services and capital.
Integration within the New Development Agendas
In this regard, Agenda 2063, which absorbs the Abuja Treaty, is not only designed to be implemented within the framework of integration – with its National/Member States, Regional/REC, and Continental/AU levels of implementation – but it also aims to enhance and accelerate African integration efforts as evidenced by its 12 continental Flagship Programmes whose focus areas include regional plans and continental frameworks such as the CFTA. Agenda 2030 also relies heavily on regional integration identifying “regional and sub regional dimensions, regional economic integration and interconnectivity” as important aspects of sustainable development, and stating that “regional and sub regional frameworks can facilitate the effective translation of sustainable development policies into concrete actions at the national level.” In addition, several SDGs are to be implemented explicitly through integration structures and frameworks, including:
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Goal 1.b.: “Create sound policy frameworks at the national, regional and international levels, based on pro-poor and gender-sensitive development strategies…”
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Goal 2.5.: “By 2020, maintain the genetic diversity of seeds, cultivated plants…and their related wild species, including through soundly managed and diversified seed and plant banks at the national, regional and international levels…”
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Goal 2.b.: “Correct and prevent trade restrictions and distortions in world agricultural markets…”
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Goal 9.1.: “Develop quality, reliable, sustainable and resilient infrastructure, including regional and trans border infrastructure, to support economic development and human well-being…”
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Goal 11.a.: “Support positive economic, social and environmental links between urban, peri-urban and rural areas by strengthening national and regional development planning.”
Furthermore, there are a substantial number of SDG goals that don’t mention integration frameworks or structures but implicitly require such structures for their implementation, including:
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Goal 2.b. to “correct and prevent trade restrictions and distortions in world agricultural markets, including through the parallel elimination of all forms of agricultural export subsidies and all export measures with equivalent effect, in accordance with the mandate of the Doha Development Round”;
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Goal 10.7. to “facilitate the orderly, safe, regular and responsible migration and mobility of people, through the implementation of planned and well-managed migration policies”; and
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Goal 17.6 to “enhance North-South, South-South and triangular regional and international cooperation on and access to science, technology and innovation and enhance knowledge sharing on mutually agreed terms, including through improved coordination among existing mechanisms…”
Therefore, African Integration is vital to the implementation of the two development Agendas. Integration has the potential to turn several defragmented, undiversified, landlocked economies with little value addition, into a large African economy in which the more advanced countries contribute to the development of the less advanced economies and in the process expand their market and their human resource base, while gaining political and economic influence in the global community and ensuring political and economic stability in their own and their neighbours’ economies.
Key Success Factors
Domestic Resource Mobilization
Financing remains an integral part of the African Development Agenda. Countries must build on advances made since the Monterrey Consensus was reached and continue to strengthen the mobilization and effective use of domestic resources. This is particularly important as it becomes clear that Official Development Assistance (ODA), although still relevant, is becoming increasingly insufficient and unstable in the face of ongoing economic problems in Europe and elsewhere, and can therefore not be the principle source of funding. In addition, Africa’s status as the second fastest growing region in the world, makes a compelling case for Africa to fund its own development as a path to increased ownership and self-determination. Domestic resource mobilization already accounts for more than $527.3 billion of development finance compared to just $73.7 billion in private flows and $51.4 billion in official development assistance.
Savings and Banking
There is a need to promote savings mobilization through the banking sector. Africa’s private domestic savings are low compared to other developing regions because: the transactions of its large informal sector do no pass through the formal banking system, and there are inadequate incentives and entry barriers within the banking system for the large number of low income earners in Africa. These include high minimum deposits, balance requirements and account maintenance costs. In addition, the amounts paid on savings accounts are low compared to the cost of borrowing which discourages both saving and investment borrowing, especially by small and medium enterprises that make up the bulk of the African private sector.
Taxation
African countries should work to expand their tax base, improve tax administration and tap into underutilized sources of taxation. Although the average tax to GDP ratio in Africa is higher than other regions there are several countries that are still below the 15 per cent threshold conside red necessary for low-income countries. Moreover, the relatively high tax revenue as a percentage of GDP can also be partly contributed to the low levels of absolute GDP in Africa relative to other regions. One method of improving tax administration that has worked particularly well in Malawi, Rwanda, Tanzania, Uganda, South Africa and Zambia is the establishment of independent tax agencies.
Market Capitalization
Market capitalization in the form of pension funds and national and regional stock exchanges and continental stock exchanges, is also another source from which domestic resources can be mobilized. There are about 20 national stock exchanges and at least one regional stock exchanges that are active on the continent, and, as mentioned earlier, the AUC is working towards the establishment of a continental Pan-African Stock Exchange (PASE). In addition, sovereign bond sales have increased in Africa, excluding North Africa, from $6 billion in 2012 to $11 billion in 2014, providing much needed funding to infrastructure projects.
Illicit Financial Flows
Illicit Financial Flows (IFFs) which rob Africa of over $50 billion per year and are increasing by about 20% per year, have cost the continent more than it receives in ODA and Foreign Direct Investment (FDI) combined. They have a strong negative financial impact on economic growth and development because they: shift resources from high-yielding investments to investments with a low risk of detection, they distort prices, consumption and exports. In addition, they entrench negative behaviours in African economies by promoting rent-seeking within public offices, undermining the credibility of legal institutions, and crowding out legal activities through unfair competition. Combating IFFs and the enabling factors must remain a priority.
Economic Diversification, Value Addition and Global Value Chains
African economies are overly vulnerable to external shocks because many generate high portions of their income from a narrow base of commodity exports with little value addition. Between 2012 and 2014 oil prices fell by 11%; between June, 2014, and January, 2015, they fell by 57%. The impact on Africa as an overall net-oil exporter has been significant: it’s terms-of-trade has deteriorated by 18.3%, with net-oil exporting countries experiencing an even larger deterioration of 40%. Moreover, the International Monetary Fund (IMF) lowered its GDP growth estimate for the continent to 4.9% from 5.8%, citing “lower oil and commodity prices”. If oil prices in 2015 average at $40 per barrel as opposed to the $100 per barrel that was expected by analysts, Nigeria, Africa’s largest oil producer is set to lose $45 billion in export revenues (8.1% of its GDP), Angola, Africa’s second-largest oil producer, whose economy is less diversified than Nigeria’s is set to lose $35 billion (21.2% of its GDP). At the same time, European and Asian refiners have enjoyed higher profit margins; the excess production and decreased demand, depleted the crude oil storage capacities providing a surplus into the market. However, the refiners enjoyed a high refinery capacity to absorb the excess crude oil, as well as a high commercial storage capacity to act as a buffer against an excess supply of refined oil. This allowed them to enjoy the benefits of cheaper crude oil while avoiding an equal fall in refined oil prices.
The figures above reveal not only the risks that African economies are exposed to, but also the opportunities that they are missing out on. Value-addition and the export of processed commodities creates buffers against commodity price shocks and provide countries with more tools to manage and take advantage of external shocks. Diversification will increase the extent to which countries can do so. Integration will also play a key role in this area as it will create African markets and value chains that will insulate economies from external shocks and strengthen their position within global value chains. It will also enable countries to take regional approaches to infrastructure and private sector development, reducing the burden of individual countries and increasing the pay-offs through the creation of synergies and the reduction of redundancies.
Therefore, there is a need to focus on regional and continental programmes and projects aimed at providing the infrastructure and energy needed to enable industrialization and facilitate the creation of a strong and united African Economic Community. These include the flagship programmes/projects of Agenda 2063 including: the CFTA, the Integrated High Speed Train Network, the Commodities Strategy, the Grand Inga Dam Project and the African Passport and free movement of people.
Partnerships
Tax Cooperation
International Tax Cooperation needs to be scaled up to adequately cope with the increasing political, financial and technological prowess of multinational companies and ensure that IFFs, which are a direct threat to Africa’s development, are adequately dealt with. As expressed by developing countries during the FfD3 negotiations, there is a need to democratize international tax regulation which is currently dominated by OECD countries. Efforts to turn the ‘UN Committee of Experts on International Cooperation in Tax Matters’ into a fully intergovernmental tax body should be maintained.
ODA Commitments
International public finance-both concessional and non-concessional needs to be scaled up and made more efficient. This will require open, inclusive and transparent dialogue to enhance common understanding and knowledge-sharing, and will also require developed nations to meet the United Nations ODA target of 0.7% of their GNI to developing countries and 0.15% - 0.20% of ODA/GNI to least developed countries. While it is commendable that ODA increased from 0.22% of GNI in 2000 to 0.32% in 2010, but it has since slipped to about 0.29% in 2014, in the wake of global financial crisis, and their still exists a large gap in delivery. It is also encouraging that Members of the Development Assistance Committee (DAC) agreed to modernize the measurement of official development assistance in order to more accurately measure the growing amount of ODA that is in the form of concessional loans. Through the separation of grants and ODA loans (which are expressed as “grant equivalents”) in such a way that encourages donors to offer their loans to poor countries at lower interest rates and removes the incentive to issue to place interest rates on the loans that are above the donor’s own cost of funds while still counting them as ODA.
Technology
Africans must ensure that their partnerships contribute to enhancing technological capacities on the continent; the developmental potential of technology in Africa cannot be over-stated. Mobile technology saw a rapid increase from 1990 where only 4 African countries registered mobile -cellular subscriptions to 2013 where all African countries registered mobile subscriptions averaging 80.2% per 100 inhabitants, with 15 African countries even registering more than 100 subscriptions per 100 inhabitants. African mobile subscription in 2013 of 11.1% was much higher than the global average of 6.3%. Mobile phones have helped overcome major obstacles in banking, health, agriculture and several other areas, bringing essential services to vulnerable people in remote areas. The establishment of the Technology Facilitation Mechanism is a promising outcome of the FfD3 that needs to be followed through.
Clean Business
Although Africa and her development partners have unequivocally acknowledged the potential of the private sector to boost economic growth and development, there is an urgent need to equally acknowledge the potential of the private sector to reverse developmental gains if sufficient oversight is not put in place. As noted by Civil Society in their review of the FfD3 outcome, the international community has failed to sufficiently “endorse binding commitments to ensure business accountability based on internationally recognized human and labour rights as well as environmental standards”. As a result, “there is unconditional support for PPs and blended financing instruments… without a parallel recognition of the developmental role of the State and clear safeguards to its ability to regulate in the public interest”.
This concern is very relevant for Africa where the private sector’s contribution to high economic growth rates have masked the fact that it accounts for 65% of the IFFs through which Africa loses more than it gains in FDI and ODA combined. Additionally, a growing body of empirical research by African researchers such as Remla (2012), Ogunniyi and Igberi (2014), is starting to find that FDI has had a statistically insignificant causal effect on GDP per capita due to the repatriation of profits by foreign firms, the crowding out of domestic investment and low levels of human capital. Ernst and Young’s (2015) survey of 3,800 employees of large companies across 38 countries in Europe, Middle East, India and Africa reveals that with increasingly complex challenges to growth such as market volatility, geopolitical instability, oil shocks and economic sanctions, and increasing pressure to achieve growth, the risks of fraud, bribery and corruption is remains widespread and many businesses fail to continue to mitigate the risks. Over 61% of respondents in rapid-growth markets believe that bribery and corruption is widespread in their country; in Kenya the figure was 90%, while in Nigeria 31% responded that offering gifts to win business is justifiable and 21% said that offering cash payments to win business is justifiable. Moreover, although 21% of respondents had heard of fraud or briber in their business within the last 12 months, 42% of respondents say that their company does not have an Anti-Bribery Anti-Corruption policy (ABAC) or if it does, they do not know of it.
It is therefore of vital importance for policy makers to be mindful of the fact that positive private sector contributions tend to be more conspicuous, more immediate and easier to measure than the long-term, less measurable negative private sector contributions. One can easily quantify how much a company has contributed to a country’s GDP and assume that it is supporting economic development, but as John F. Kennedy said in 1963, GDP “measures everything, in short, except that which makes life worthwhile”. As a measure of legal monetary transactions related to the production of goods and services, GDP does not capture the billions leaving Africa in IFFs; it cannot quantify the opportunity cost to future generations of unsustainable natural resource use now; it does not account for the loss in the credibility of legal institutions or the entrenchment of rent-seeking caused by corruption; and it cannot make the connection between the surge in militant groups in the Niger Delta and destruction of both the environment and the livelihoods of people living in the Niger Delta due to oil spills-in 2014, ENI and Royal Dutch Shell admitted to over 550 oils spills in the Niger Delta, compared to an average of just 10 spills a year for the whole of Europe between 1971 and 2011.
The link between private sector and sustainable development lies in the concept of Clean Business, which is concerned with assessing the role of the firm in society and ensuring that it accelerates, or at the very least, does not hinder, a society’s progress towards human development and environmental sustainability. While Africa is struggling to attain, even Friedman’s (1970) basic law of clean business, that the firm’s responsibility is only to fulfil its legal obligations and ‘do no harm’, ideally the continent should aim to go beyond the concept of Corporate Social Responsibility and even the Triple Bottom Line Principle (Profit, People, Planet) and strive to create what Porter and Kramer (2011) of Harvard University call “Share Value”.
Shared Value goes beyond the perceived, and often limiting, trade-off between providing social benefits and achieving economic success, and puts forward that companies’ policies and operating practices need to enhance competitiveness while simultaneously advancing the economic and social conditions of the economic communities in which they operate; so instead of simply building schools, companies can fund or provide training for communities to learn the skills they seek; therefore simultaneously advancing the conditions of the community and addressing their human resource deficiencies. There are several emerging examples of the concept of Creating Shared Value at work. Wal-Mart (a large supermarket chain) saving over $200 million while transporting more products, by being more environmentally friendly, namely reducing its packaging and rerouting it’s trucks to cut 100 million miles from delivery routes; and Nestlé’s Nespresso (coffee) division grew by 30% and built a competitive advantage by helping farmers in Africa and Latin America that supply it with coffee beans, to break out of the cycle of low productivity, poor quality, and environmental degradation leading to limited production volumes and revenues. It did so by providing them with farming advice, guaranteeing their bank loans, helping them secure inputs such as plant stocks, and establishing local facilities to measure quality at point of purchase allowing for premiums to be paid directly to growers.
Related News
tralac’s Daily News Selection
The selection: Thursday, 24 March 2016
Featured tweets:
Dr Stergomena Tax (@DrTaxs): Southern Africa Region endorses Madam Pelonomi Venson-Moitou as the region's candidate for AU Chairperson's position. Please support.
Tom Pengelly (@pengelly_tom): With Denmark, Netherlands is a founding investor in #ATWA for West Africa.
Donia Hammami (@donia_hammami): Today in Dakar: W-Africa to strengthen role biz in governance structure National Trade Facilitation Committees!
Featured infographics: What Africa will look like in 100 years (The Telegraph)
Terrorism and Africa: high hopes and tough challenges in CEN-SAD conference (Ahram)
Tomorrow, defence ministers from the Community of Sahel-Saharan States (CEN-SAD) will conclude their meeting in Sharm El-Sheikh, held between 22-25 March. With delegations from more than 27 Arab and African states and numerous regional and international organisations, the conference took place under tight security. The group is working to reformulate and restructure its organisational bodies and mechanisms to strengthen the economic, military and security capacities of its member states and bolster cooperation in the face of the challenges and threats posed by transboundary changes in the region and their repercussions on the security, stability and development of these states. [G5 Sahel declaration on border management (SWAC/OECD)]
Addressing informal cross-border trade and security in IGAD region (CEWARN)
Representatives of Trade and Customs authorities from IGAD Member States shared their perspectives and concerns in relation to policy frameworks governing Informal cross-border trade as well as challenges in implementation. The meeting, 22-23 March, is part of a pilot policy initiative led by CEWARN and partners with the aim of supporting well-informed and participatory regional policy processes to promote cross-border security governance in the IGAD region.[CEWARN's new strategy]
DR Congo at 'critical juncture,' amid rising political tensions (UN)
The DRC is at a critical juncture, with rising political tensions ahead of elections which could lead to violence if left unaddressed, the top UN official in the country warned the UNSC today, while highlighting key issues for consideration as it renews the UN's mandate there. Presenting the Secretary-General’s latest report on MONUSCO, Maman Sambo Sidikou expressed support for the renewed partnership between the Mission and the country’s Government, aimed at addressing security threats more effectively.
Forecasting volatility in financial markets is the key for macroeconomic stability in COMESA region (COMESA)
The COMESA Monetary Institute is conducting a series of training programmes to help member States manage volatility in prices of their financial markets assets. The focus group for these programmes are the staff of the Central Banks of the member States. The latest training programme was conducted in Nairobi, 14-18 March, under the theme 'Practical application of modelling and forecasting volatility in financial markets within a multivariate framework'. It was attended by Central Banks’ staff from Burundi, DR Congo, Egypt, Ethiopia, Kenya, Malawi, Sudan, Uganda, Zambia, and Zimbabwe.
Joint AUC-AACB strategy on the establishment of the African Central Bank (UNECA)
This report recommends the following Strategic Plan and Roadmap with clear tasks, activities, deliverables, timelines, milestones and main actors leading to the establishment of the African Central Bank (ACB), spanning the period 2013-2034 as shown in Figure 5.1 (page 21). The strategy recommends a five-Stage approach leading to the establishment of the ACB namely:
On overlapping memberships: The issue of overlapping REC memberships will need to be resolved at an early stage. Countries need to decide which REC they will belong to as the vehicle for monetary integration in line with Abuja Treaty. The Strategy recommends African Union Commission should ensure rationalisation of the RECs.
Towards a Continental Free Trade Area: analysis of the status of the regional trade regimes (tralac)
The paper aims to identify the status of the regional economic communities and bilateral trade agreements. We then analyse the current applied tariffs and trade between RECs in order to highlight to what extent are goods i) being traded duty free; ii) attracting low/nuisance tariffs; and iii) high tariffs within the 8 RECs recognised by the African Union. We also explore the percentage of goods receiving preferential vs most favoured nation treatment amongst the 8 RECs.
However, the TFTA has not lived up to expectations and it has not delivered on its objective of establishing a single integrated Free Trade Area comprising the Members of three recognised regional African Union. What were originally intended to be building blocks for the creation of an integrated African market have now turned into stumbling blocks. However, regional integration remains part of the integration agenda, and therefore new approaches and ways of doing business are required. [The author: Taku Fundira]
Deal or no deal: strictly business for China in Kenya? (English)
Existing work on China's economic influence in Africa refers to Africa in broad terms, thereby generalizing the results to an extent that is unhelpful for policy-makers in a specific country. Moreover, the emphasis is on oil exporters. This paper remedies this by focusing on a single, oil-importing country: Kenya. The paper examines China’s economic presence in Kenya and some of the popular myths surrounding Chinese economic activity. [The authors: Apurva Sanghi, Dylan Conte Johnson]
Chinese firm to build Sh14bn Kisumu port as Kenya eyes more regional trade (Business Daily)
China Roads and Bridges Company will build a modern Sh14 billion port in Kisumu as Kenya targets a bigger maritime trade stake in the region. Transport secretary James Macharia said the port will be built under a government-to-government arrangement and as part of phase two of the standard gauge railway (SGR) which will link Nairobi to Malaba on the border with Uganda. The plans to construct a new sea port and extend a branch of the SGR line being built from Mombasa is expected to boost economic activities in Kisumu and other satellite towns.
State to fund locals as China builders swamp the market (Business Daily)
The government is proposing to fund local contractors to the tune of 20% for large projects as the industry faces threats of being overwhelmed by South African and Chinese firms setting up one-stop shops in Kenya. The National Construction Authority notes that Chinese companies have virtually taken over all multi-billion projects in Nairobi with just 22 local firms registered as category one providers.
Malawi: IMF completes review mission (IMF)
The prolonged adverse effects of the El Niño-induced drought, a strengthening dollar, and lower-than-expected export receipts have hit the economy hard. The drought has also placed an estimated 2.8 million people at risk of food insecurity which is being addressed by the authorities and the donor community. Real GDP growth which fell sharply to 3% in 2015 is expected to be within 3–4% range in 2016, depending on the improvement in weather conditions. Rising food prices and a sharp depreciation of the kwacha contributed to annual inflation increasing to about 25% at end-December 2015. Inflation has since fallen slightly to 23.4% in February 2016 and non-food inflation has been on a clear declining trend, suggesting that the appropriate adjustments in monetary and fiscal policies are having their intended effects. [Note: Malawi's Trade Policy Review will take place on 27, 29 April at the WTO]
Tanzania: IMF holds 2016 Article IV Consultation (IMF)
There was a broad convergence of views on the priority reform areas and on the key role of the government in facilitating private sector-led growth. Modernizing agriculture, which employs a large share of the population, would raise rural incomes and contribute to poverty reduction. It would also free labour resources for other sectors of the economy and could foster the development of certain industries, such as food processing. Improving the business environment is also a priority; this includes, among others, better energy and transportation infrastructure and improving access to land and finance.
Egypt's Suez Canal revenues decline for 2nd consecutive month (Ahram)
Egypt's Suez Canal revenues fell for the second consecutive month to record $401.4m in February, official data from the canal’s authority showed. The revenues slowed from $411.8m in January and $429m in December last year amid claims that vessels are changing route to the Cape of Good Hope at the southern tip of Africa instead of the Suez Canal due to the drop in world oil prices.
Battle for globalisations? BRICS and US mega-regional trade agreements in a changing world order (ORF)
This paper examines the two cases of BRICS, and the Transpacific Partnership and the Transatlantic Trade and Investment Partnership, and tests the hypothesis of a 'battle for globalisations', understood in two conflicting ways: as a) battle for global dominance, i.e., singular globalisation led by either the West or the 'Rest', and b) a battle for plural,'globalisations'. This paper endorses the idea of a more balanced and inclusive, and less 'western' governance, although within the global trade regime the thesis of singular globalisation can be maintained. [The authors: Marko Juutinen, Jyrki Käkönen] [Download]
Related: Samir Saran, Abhijnan Rej: 'Building new alliances with BRICS' (The Hindu), Regional trade agreements cannot replace multilateral trading system: WTO’s Yonov Frederick Agah, (Economic Times), India overtakes China in direct investment by US (Economic Times)
Trade and global value chains: how to address the gender dimension (UNCTAD)
Global value chains have become a dominant feature of world trade and investment, but what opportunities and risks do they provide to women? This question was addressed at a side event jointly organized by UNCTAD and Finland on 17 March during the 60th session at the UN Commission on the Status of Women.
From Shenzhen to Nairobi: what makes a global manufacturing hub? (Village Capital)
On further reflection, Shenzhen was not so different a few decades ago. Both Nairobi now and Shenzhen then have in common a plethora of small businesses, relative freedom from regulatory obstructions, and diverse young populations. Perhaps, with the right actions, Nairobi might in fact be a future hub for manufacturing. Three themes emerged from conversations with these entrepreneurs and the community that Village Capital gathered around them: [The author: Daniel Hsu]
Nigeria: Emefiele's currency pledge dashes hopes for Naira devaluation (Bloomberg)
Moody's assigns positive outlook for Kenya's economy (Daily Nation)
SADC faces tough battle at CITES 17 (Southern Times)
Ghana and Ivory Coast want a bigger cut of world chocolate billions: why their 'CHOCPEC' tie-up could be a game changer (M&G Africa)
Mauritius: Towards the introduction of a National Minimum Wage Mechanism (Government of Mauritius)
Drones play an increasing role in African mine management (AFK Insider)
A new lease of life for African rail: Destination 2040 (UIC)
Mozambique: Fishy Mozambique deal snares lenders (Financial Times/Business Day)
Djibouti: How a forgotten sandlot of a country became a hub of international power games (Bloomberg)
Crans Montana Forum on Africa and South-South Cooperation: EAC Secretary General calls for strong cooperation in public health
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Deal or no deal: strictly business for China in Kenya?
Existing work on China’s economic influence in Africa refers to Africa in broad terms, thereby generalizing the results to an extent that is unhelpful for policy-makers in a specific country. Moreover, the emphasis is on oil exporters. This paper remedies this by focusing on a single, oil-importing country: Kenya.
The paper examines China’s economic presence in Kenya and some of the popular myths surrounding Chinese economic activity. The first myth is that Chinese companies do not employ local workers. In fact, 78 percent of full-time and 95 percent of part-time employees in Chinese companies are locals.
Second, although China represents a large potential market for local exporters, the study finds that China has a better chance of expanding its exports to Kenya than Kenya does to China based on existing specializations. This may change with recent oil discoveries in Kenya, increasing the space for Kenyan exports to China, as well as from China’s shift to a consumption-driven economy which will increase demand for services, a growing strength of Kenya’s economy (World Bank Country Economic Memorandum 2016). The paper emphasizes that Kenyan policy makers should be less concerned about bilateral trade imbalances and worry about Kenya’s overall trade balance. However, the Standard Gauge Railway and Thika superhighway experiences suggest that Chinese firms offer relatively few technology transfer or supplier opportunities for local firms and academia.
Third, the popular focus of Chinese competition is on the impact on well-organized Kenyan producers and not on consumers, thereby underestimating the benefits Kenyan consumer derive from the availability of more affordable Chinese goods. The paper concludes with policy directions for improving export competitiveness and transparency in infrastructure projects, and local content.
Introduction
In recent years, China’s economic presence in Sub-Saharan Africa has risen rapidly. China’s growth in the region is driven in part by its strong demand for raw materials, and resource rich countries that manage the boom well may also translate the gains to the broader economy, working to pay down high public debt or alleviate poverty. But the countries that benefit from the boom are also more vulnerable to China’s economic slowdown. Oil-importing countries such as Kenya will be shielded from China’s slowdown and should even see an increase in their exports. Kenyan exporters of services such as tourism will fare well as China transitions to a consumptionbased economy by 2030. Greater Chinese consumption may also benefit Kenyan producers in the horticultural sector that are taking advantage of the trend of selling directly to large supermarkets in Asia. Supermarkets in China can also recieve Kenyan flowers if Kenya succeeds in negotiating duty-free access for cut flowers as part of the 404 duty free products from African countries.
Exporters of flowers are performing well, but producers of manufactured goods face more competition from China in both domestic and foreign markets. Many fear that local producers will be hurt by Chinese imports; cheap plastic shoes and clothes from China, and second-hand clothes in general, are much more popular than local products. In addition, Kenyan exports of clothing to the United States, for example, lost market share to China between 2004 and 2006, and have only recently begun to recover. The manufacturing sector grew slowly at only 3.4 percent in 2014, down from 5.6 percent in 2013, and some worry that slower growth could be a sign of a premature decline of industry (Chen, Geiger, Fui 2015). Without a turnaround in manufacturing, the growth potential of the economy is limited. But Kenya can enhance its growth in manufacturing if it continues to attract foreign direct investment from China.
A large share of foreign direct investment (FDI) already comes from China, allowing Kenya to diversify its sources of FDI and increase investment in manufacturing. Lagging behind countries such as Ghana, Nigeria and South Africa, Kenya performs poorly in attracting manufacturing FDI. To increase the low investment, Kenya wants to market opportunities to China because Chinese firms are attracted to the low cost of labor in Kenya. The lower wages, however, come with lower productivity, raising the unit cost of labor; at the moment, the unit cost of local labor is higher than in China, making Kenyan workers more expensive than Chinese ones. If Kenya reduces the unit cost of local labor, it will attract more Chinese investment in labor-intensive industries, providing jobs and helping reduce poverty. There is strong potential for poverty reduction in the textile and garments industry because it mainly employs women, who tend to increase the household savings rate.
China also offers critical financing in sectors that traditional investors overlook: infrastructure and construction. China’s loans compete with loans from traditional donors that attach conditions of good governance and transparency. Uninterested in the politics of the country, China funds major infrastructure projects in Kenya. One such project is the Standard Gauge Railway linking Nairobi and Mombasa by the China Road and Bridge Corporation, and other Chinese construction companies are taking advantage of the real estate boom in Nairobi. Following the slowdown in China, marketing for construction services should increase globally, and even more Chinese companies may come to Kenya to undertake major infrastructure and construction projects. The improvement in infrastructure will help lower the cost of doing business, attract more investment, and enhance productivity.
This paper is a product of the Macroeconomics and Fiscal Management Global Practice Group. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org.
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Forecasting volatility in financial markets is the key for macroeconomic stability in COMESA region
COMESA Monetary Institute (CMI) is conducting a series of training programmes to help member States manage volatility in prices of their financial markets assets. The focus group for these programmes are the staff of the Central Banks of the member States.
The latest training programme was conducted in Nairobi, Kenya from 14 to 18 March 2016 under the theme “Practical Application of Modelling and Forecasting Volatility in Financial Markets within a Multivariate Framework.” It was attended by Central Banks’ staff from Burundi, DR Congo, Egypt, Ethiopia, Kenya, Malawi, Sudan, Uganda, Zambia, and Zimbabwe.
The overall objective of the training was to build capacity of Central Bank staffs in modeling and forecasting both direct and spillover effects caused by volatility in prices of financial market assets.
“The training envisages that policy makers, informed by rigorous and robust volatility analysis, will undertake forward looking measures to mitigate the adverse effects of volatility in financial markets in member countries,” CMI Director Mr. Ibrahim Zeidy said adding that robust capacity in modeling and forecasting volatility in financial markets was key for financial and macroeconomic stability in the COMESA region.
The event was officially opened by Mr. Kishanto ole Suuji, the Assistant Director (Finance) of the Kenya School of Monetary Studies who observed that financial markets were prone to volatility.
“Volatility generates uncertainty in financial markets, which increases the associated level of risk and could therefore have serious adverse impact on financial stability and economic growth,” he said.
The two underscored the need for better understanding of financial markets volatility in member countries and robustly forecast the same in an ever changing macroeconomic environment.
“The training imparted analytical skills that will enable the participants to adequately measure and forecast volatility in prices of financial market assets,” Mr Zeidy said.
Participants were also exposed to various theoretical aspects of modeling and forecasting volatility in financial markets within a multivariate framework. They also got a good opportunity for knowledge sharing and networking.
The training programme is in line with the directive of the COMESA Committee of Governors of Central Banks made during its 21st Meeting in November 2015 in Lusaka, Zambia.
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Addressing informal cross-border trade and security in IGAD region
IGAD's Conflict Early Waming and Response Mechanism (CEWARN) hosted a meeting of IGAD Member State officials of Trade, Customs and Security on Addressing the nexus between Informal Cross-border Trade and Cross-border Security Governance in the IGAD region on 22-23 March 2016 in Addis Ababa.
IGAD Executive Secretary Amb. Mahboub Maalim and the Director for Trade and Industry Division of the African Union Commission, Mrs. Treasure Maphanga spoke at the opening of the meeting on 22 March and emphasized the critical importance of borderlands; security and development for the peace and prosperity of the entire IGAD region.
Informal Cross-border Trade was also recognized as a dynamic that happens on a large scale in all cross-border areas of IGAD with a potential that can be harnessed for ensuring security in the borderlands and improving the livelihood of communities residing in border areas. Security concerns related to the largely unregulated nature of informal cross-border trade was also raised.
Representatives of Trade and Customs authorities from IGAD Member States have shared their perspectives and concerns in relation to policy frameworks governing Informal cross-border trade as well as challenges in implementation.
The meeting is part of an ongoing collaborative pilot policy initiative among CEWARN, the Life & Peace Institute (LPI), the Organization of Social Science Research for Eastern and Southem Africa (OSSREA) and the InterAfrica Group (IAG) that is aimed at fostering dialogue and collaborative engagement among communities, civil society, the academia and governments on peace and security policy issues in the Horn of Africa. The initiative's end goal is to stimulate regional policies that are evidence-based and sensitive to local dynamics and perspectives.
The 22-23 March meeting follows extensive knowledge harvest work done by the partner organizations in academic and civil society sectors on the correlation between informal crossborder trade and cross-border security governance in the IGAD region.
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Trade and Global Value Chains: how to address the gender dimension
Global value chains have become a dominant feature of world trade and investment, but what opportunities and risks do they provide to women? This question was addressed at a side event jointly organized by UNCTAD and Finland on 17 March during the 60th session at the UN Commission on the Status of Women.
Global value chains (GVCs) can provide opportunities for the economic growth of participating countries, for companies to get access to new markets and upgrade technologically, and for women and men to get new jobs. However, to be beneficial, GVCs should lead, not only to economic but also to social upgrading. But this does not happen automatically.
Recalling the experiences of several countries that have been able to integrate into GVCs - Bangladesh, Brazil, Egypt, Kenya, Lesotho, Mauritius and others - participants highlighted the benefits of such participation, mainly in terms of the new job opportunities becoming available to both skilled relatively unskilled workers, including women.
H.E. Anne Lammila, Ambassador-at-Large for Global Women’s Issues and Gender Equality of Finland, emphasized how the new jobs provided by GVCs have elevated many women in developing countries out of poverty and empowered them within their families and communities.
Conversely the debate also revealed a serious challenge: a so called “rush to the bottom”, where firms tend to ignore basic workers’ rights in order to be competitive within the value chains.
By looking at horticulture and agro-processing, the apparel and the ICT sectors, Mr. Joakim Reiter, Deputy Secretary-General of UNCTAD, stressed that GVCs open a window of opportunities for women empowerment. However, he also noted that there is still work to do to better profit from this opportunity.
There are examples where women working in value chains face similar constraints to those faced by women working in firms oriented towards the domestic markets: employment at the lower nodes of the chain, with limited opportunities for skills development and lower wages in comparison to men performing the same functions. He concluded by saying.
An even more worrisome development was presented by Ms. Sheba Tejani, Assistant Professor of Political Economy at the New School in New York.
She pointed out that as firms upgrade technologically and become able to produce goods that have more value addition, women risk being left behind since they often do not possess the skills needed for more technology-intensive production. The technological upgrading of firms that results from their participation in GVCs, may thus lead to women’s exclusion from the workforce.
Participants called for action to be taken to make GVCs a tool for economic and social upgrading, including by providing fairer employment opportunities to women, including:
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To ensure that basic ILO conventions on workers’ rights, freedom of association, and equal pay for equal work are respected in all countries.
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To ensure that trade and investment agreements, including the new mega-regional agreements such as the TPP, go through human rights and gender assessments to fully grasp their social implications.
Practical instruments, such as Aid for Trade, can also be used to facilitate women’s beneficial participation in value chains.
The event was the result of a long-standing collaboration between UNCTAD and Finland on gender-related issues. The partnership made it possible to develop a number of initiatives, for example the UNCTAD manual on trade and gender and the related online course, from which policy-makers, academicians and civil society advocates in developing countries are benefitting.
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Gabon seeks to diversify its economy as oil revenues decline
Hit hard by the recent oil price decline, Gabon can build resilience and revive growth by continuing to diversify its economy, says the IMF.
In its annual assessment of the economy, the IMF also welcomed the government’s plan to improve the level and quality of infrastructure, and raise the quality of human capital – the key constraints to economic growth.
Staff Report
A challenging economic environment
Despite progress in implementing its transformation plan, Gabon is still oil-dependent and therefore highly vulnerable to the recent oil price shock. After a decade of lackluster economic growth, in 2010 the government embarked on the Plan Stratégique Gabon Emergent (PSGE), which aims to diversify its economy by 2025. In its first phase (2010-14), high oil revenues funded a scaling up of public investment that helped propel overall growth to nearly 6 percent on average, led by construction and services. While there are initial promising signs of diversification, structural transformation is a gradual process, and as of 2014 oil still accounted for roughly 40 percent of GDP, 45 percent of government revenues, and nearly 85 percent of exports. The low oil price outlook and secularly declining oil production will reduce available financing for the second phase of the PSGE (2016–20). As part of the oil-dependent CEMAC monetary union, Gabon’s success in adjusting to oil price shocks also hinges on the ability of other member countries to appropriately implement fiscal adjustments and their own diversification agenda.
Economic activity has significantly decelerated in 2015. Statistical data through September 2015 indicate higher-than-expected oil production (thanks to the introduction of new wells and performance improvements), mining (manganese), and agriculture (due to a large, ongoing international agribusiness joint venture). However, the sharp fall in oil prices has prompted the government to slow capital spending, and oil companies to rein in operating and development expenditures. This reduced domestic demand led to significant contractions in large non-oil sectors, including construction, transportation, commerce, and services. At the same time, broad money and credit to the economy are contracting.
Despite significant fiscal adjustment since the second half of 2014 and delays in the implementation of the capital spending, fiscal buffers are contracting rapidly. Since 2012, public debt has more than doubled from 20 to 43 percent of GDP (above the 35 percent indicative ceiling of the government), in part due to US$1.5 billion and US$500 million Eurobond issuances in December 2013 and June 2015, respectively. About two-thirds of the increase in the debt-to-GDP ratio since 2014 is due to the depreciation of the CFA franc and the decline in the oil GDP deflator. Moreover, between December 2014 and October 2015, government deposits at the BEAC (net of Eurobond receipts) declined by 57 percent, and gross international reserves by 30 percent. Foreign financing has become increasingly costly, as rating agencies have downgraded the sovereign debt of oil exporters, including Gabon, contributing to a significant increase in spreads in recent months.
Presidential and parliamentary elections are expected in the second half of 2016. No official election dates have been announced, but the process of electoral list revision began in January 2016. Opposition parties boycotted the 2009 parliamentary elections, and the governing Parti Démocratique Gabonais won 113 of the 120 seats in the National Assembly. The run-up to the elections is likely to be accompanied by heightened social and political tensions. As a result, some politically tough economic policy decisions may be delayed.
POLICY DISCUSSIONS: CONTAINING THE IMPACT OF THE OIL PRICE SHOCK
The principal theme of the 2015 Article IV consultations was the impact of lower oil prices on the economy, especially on the budget and the financial sector. Another key issue was how to reassess and reprioritize the PSGE so that it can be sustainably financed. Staff also assessed progress on other important issues and recommendations discussed during the 2014 Article IV consultations, including on the PSGE, structural reforms, and economic data shortcomings. As indicated in Annex II, there has been an improvement in the implementation of previous Article IV recommendations.
Fully Adjusting to a New Oil Price Outlook
The continued drawdown of fiscal buffers increases the risks to fiscal sustainability and the adequate financing of needed investment. While there was a slowdown in the execution of the 2015 budget (only 62 percent of budgeted capital spending was executed by September), non-oil revenue was lower than in 2014 and the government repaid large domestic arrears and temporary external arrears. Financing pressures likely persisted in the last quarter considering the expected acceleration in spending. Taking into account these developments and the 2015 amended budget, the staff projects a fiscal deficit on a commitment basis of 3½ percent and on a cash basis of 9 percent of non-oil GDP (including large reimbursements of VAT-related and other arrears).
Staff welcomes the authorities’ aim to continue fiscal consolidation, as outlined in the 2016 budget draft and in the Medium Term Fiscal Framework (MTFF), but has substantial reservations on the underlying assumptions. While the assumed US$42 per barrel of Gabonese oil was conservative when the budget was prepared, the acceleration of the decline in international oil prices suggests there is a need to amend the budget accordingly. Furthermore, the 2016 initial budget optimistically assumes a 20 percent increase in non-oil revenues relative to the authorities’ 2015 projection. It also proposes a small 3.5 percent increase in current spending, which will be politically difficult in an election environment and crowds out much-needed productive public investment by including two stadia to host the 2017 African Cup of Nations, which account for 15 percent of total capital spending. The 2016-18 MTFF proposes spending paths that imply a freeze in current spending in nominal terms and a reduction in capital spending by 8 percent between 2015 and 2018. Under these assumptions the government expects that the overall fiscal deficit would gradually decline and reach a small surplus in 2018.
The staff baseline scenario proposes a more substantial adjustment to preserve fiscal sustainability. Staff proposes that the non-oil revenue base be widened over time with the elimination of overly generous tax exemptions; wages and salaries would grow at 2 percent per year in nominal terms throughout the period; and other main current spending items and capital spending grow in nominal terms but at a rate significantly below non-oil GDP growth. Under those assumptions, a debt sustainability analysis (DSA) shows Gabon’s projected debt level peaking at 50.1 percent of GDP in 2016, and decline slowly from 2019. That said, shocks considered in the DSA could lead to much higher debt-to-GDP ratios, and a growth shock could propel debt significantly above the CEMAC ceiling (70 percent of GDP) by 2021. Given the large proportion of US dollar-denominated debt, exchange rate fluctuations constitute a significant risk to Gabon’s external debt sustainability.
Adjusting to the unfavorable oil price outlook while ensuring the financing of the government’s diversification plan requires a wide range of strong measures. The authorities need to:
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Foster non-oil revenues by widening the tax base, mainly by reducing tax exemptions and improving tax administration. In a fiscally-challenging environment, it is hard to justify the recent elimination of taxes and fees for over 171 products as part of the so-called “policies against high living costs”, and the prohibition of importation of vehicles over three years old, which represent a revenue loss of 0.7 percent of GDP in 2015. A review of these policies is urgently needed, especially in the context of rapidly rising real public wages. More generally, staff recommends a thorough review and reform of the tax policy regime.
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Prepare a revised budget for 2016, given the worsening growth and oil price outlook, to preempt unfavorable public debt dynamics and avoid the accumulation of arrears.
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Further enhance tax administration, drawing on extensive IMF and AFRITAC technical assistance by implementing measures such as formalizing the collaboration between tax and customs directorates, moving the collection of customs revenues from the Treasury to the customs department, modernizing customs drawback system, and adopting a risk-based approach to VAT reimbursements.
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There is also a critical need to curb inefficient and/or poorly targeted current spending, while protecting social spending. Most importantly, the public wage bill needs to grow below inflation in the medium term.
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With public investment considerably lower than in recent years, private sector participation for infrastructure construction should be encouraged by accelerating development of an appropriate Public Private Partnership (PPP) framework. Key projects under the PSGE should be reviewed and reprioritized while minimizing projects with limited long-term economic payoff such as sports infrastructure.
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Staff recommends anchoring medium-term fiscal policy by targeting a steady reduction in the debt to non-oil GDP ratio through a progressive strengthening of the nonoil primary deficit, which would allow the authorities to rebuild fiscal buffers. Throughout the adjustment, and financing permitting, annual reductions in the non-oil primary deficit should not exceed 2 percent of non-oil GDP so as to limit the negative fiscal impulse.
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The implementation of the BOP should continue, taking into account recent recommendations by IMF technical assistance, emphasizing measures to improve treasury management and to avoid further accumulation of arrears, especially external arrears.
Promoting Non-oil Growth under Tighter Budget Constraints
The recent decline in oil prices is proving a stark reminder of Gabon’s oil dependence, underscoring the need to foster non-oil growth and employment. Econometric evidence presented in the 2015 CEMAC regional consultation staff report shows that shocks like the recent decline in oil prices could lead to negative non-oil GDP growth in Gabon, with effects from both fiscal pro-cyclicality and from direct linkages between the oil and non-oil economies. The current strong fiscal response of the authorities and increased non-oil production is expected to soften the impact during the current oil price slump. Still, the ongoing deceleration and vulnerable fiscal outlook highlights the importance of the authorities’ PSGE, which seeks better stewardship of natural resources, infrastructure and human resource development, and moving up along the value chain.
The authorities have been able to attract foreign non-oil investment, but partly relying on costly schemes. As part of the PSGE, the government has appropriately allocated a portion of the oil windfall to strength the country’s transport and energy infrastructure. The authorities have embarked on a major rehabilitation of the Trans-gabonais railway line with the support of the IFC. This should significantly remove bottlenecks for wood-related and mineral exports. Gabon has also partnered with Olam International in one of the largest agri-business investments currently underway in sub-Saharan Africa. The government has provided a land bank to Olam of 300,000 hectares, of which over one-sixth is already under oil palm and rubber cultivation. To date, Olam’s foreign direct investment in Gabon has totaled US$1.5 billion, including plantations and the development of the Special Economic Zone and port capacity. Further impetus is expected to come from the GRAINE14 program, a joint venture of Olam and the government to address food security and rural income issues in Gabon. These investments will increase both cash crop and subsistence farming, boosting real growth by one percentage point, although the tradeoff is government financing for related infrastructure and foregone revenue in the form of a long tax holiday.
There is substantial room to implement more cost-efficient reforms to attract additional investment. The focus should be on improving the business climate, especially considering that Gabon’s standing in the World Bank’s Doing Business report and in other rankings is very low, below comparator countries, as well as undertaking additional horizontal structural reforms aimed at reducing factor costs.
With the oil price shock weighing on private sector activity, PSGE growth and diversification objectives need to be protected and structural reforms accelerated. In the present tight budgetary context, the authorities should aim to maximize the return on limited resources.
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Investor tax incentives should be avoided, as these undermine revenue generation and are unlikely to trigger a self-sustaining process of economic diversification.
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Investment should be reprioritized to focus on transport and energy projects with potential growth spillovers.
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In the same vein, priority should be on horizontal structural reforms aimed at raising economic competitiveness and productivity, notably in the areas of education, infrastructure, and institutions.
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Even prior to adopting a road map for Phase 2 of the PSGE, business climate reform should be accelerated, notably improving labor market legislation, strengthening anti-corruption efforts and the AML/CFT framework, and cutting red tape, as recommended in an action plan developed with the IFC.
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Deeper regional integration in CEMAC and more trade openness of the region would facilitate economic diversification in Gabon. Gabon should take a lead role in taking the necessary regional reforms forward. Similarly, Gabon should review its investment program against projects already underway in neighboring countries to ensure that possible synergies at the regional level are fully exploited.
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tralac’s Daily News Selection
The selection: Wednesday, 23 March 2016
Featured tweet, by @Erastus_Mwencha: Africa’s development trajectory has been boosted by mostly, [unrecorded] intra-African trade.
AfDB appoints Dr Frannie Leautier as Senior Vice-President
What’s the latest economic research on Africa? CSAE Round-up – Day 1
This week Oxford University’s Center for the Study of African Economies holds its BIG annual conference. Two plenary panels, one keynote speech, one presentation of the World Bank’s new report on Poverty in Africa, and almost 300 papers being presented. Wow! Today’s post provides micro-summaries of the papers presented on the first day of the conference.
Carlos Lopes: 'Regional integration and monetary unions in Africa' (UNECA)
Administering 54 sovereign states with an array of national policies and inefficient government apparatus constitutes a massive resource-draining overhead cost on Africa’s fragile, undiversified primary production based economies. An assessment of progress towards macroeconomic convergence in Economic Communities in Africa show that, while some progress is being made, it is generally below the targets set in their monetary integration programmes. If Africa were a business the management costs of this type of structure would be uncompetitive. The cost of governing such a fragmented production structure is simply too high for Africa to afford or sustain.
Thus, the contribution of regional integration to the promotion of intra-group trade, growth, development and social and political cohesion is unquestionable. The stark conclusion that can be drawn from these facts is that Africa must integrate (or, in business parlance, rationalize and merge) in order to reduce its overhead costs. The debate about integration, however, has been mostly centred on the political dimensions and the paramount pan-African ideal. [This commentary is based on the author's recent Africa Training Institute lecture]
Experts challenge regional governments to use pension funds for industrialisation (The Post)
Southern Africa economic experts have challenged governments in the region to explore the viability of pension funds, financial services levies and sovereign wealth funds in financing industrial infrastructure and key commodity value chains. “RECs must also build internal capacity to be able to provide the necessary leadership to drive the industrialisation process; they should organise comprehensive regional capacity building programmes for value chain identification, analysis and development among the public and private sectors and identify and develop concrete projects of a regional nature to kick-start the industrialisation process among others.”
West African Economic and Monetary Union: IMF Executive Board concludes regional consultation (IMF)
The overall budget deficit (including grants) increased to 4.8% of GDP in 2014, up from 3.3% 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% of GDP in 2015 from 38.9% 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% of regional GDP, compared with 6.1% in previous year, and gross international reserves rose to 5 months of imports from 4.7 months in 2014.
Abidjan-Lagos Highway Corridor Management Authority: EOI for a needs assessment on its establishment (AfDB)
On trade and transport facilitation: The consultants will identify key bottleneck and propose concrete and targeted steps/actions required with cost estimates towards enhancing movement of goods and services and persons along the corridor; through policy harmonization and reforms. On trade analysis: This analytical component will look at trade amongst the five countries on the Corridor, including the major goods and services traded at the borders, the private sector operators using the borders. The consultant is expected to engage with private sector operators involved in the transformation or processing of agricultural products as well as trade in similar goods along the Corridor. Enquiries will also be made on what constrains operators are facing and what arrangements could be made to facilitate trade and transportation of such products within the sub-region.
Related: West Africa Regional Integration Strategy paper - EOIs from the AfDB: EOI for the development of new RISP, EOI for analytical briefs for the new RISP
Tweet, by @Marcel_Vernooij: Meeting in The Hague with Denmark Foreign Affairs @UM_dk @SaanaConsulting @ECDPM @TradeMarkEastA on Accelerating Trade in West-Africa
Africapolis: Measuring urbanisation dynamics in West Africa (Sahel and West Africa Club Secretariat)
UK-backed African infrastructure projects are ‘pipeline for investment’, says minister (Out-Law)
The UK's Africa minister James Duddridge told an infrastructure conference hosted by the international and current affairs think-tank Chatham House in London on 15 March: “Infrastructure is a pipeline for money. Airports, railways and roads are all pipelines for economic activity. This requires local knowledge and skills but also global expertise and help to get people and money moving.” Duddridge said there was “no quick fix” for infrastructure challenges in Africa, but part of a new UK-led ‘Prosperity Fund’ for the region, worth £1.3 billion ($1.8bn) over five years, “will be used to help Africa grow out of poverty”.
UK aid: allocation of resources - interim report (International Development Committee)
We have some concerns, however, about how the aid strategy was developed and how it will be taken forward. Poverty reduction has been, and should always be, the first priority of UK aid. The strategy’s status as a Treasury-led document with little explicit focus on poverty reduction risks creating an impression that the objectives regarding the UK’s national interest, and therefore security and prosperity, were drawn up first, with DFID left to connect the dots with poverty reduction. That “tackling extreme poverty and helping the world’s most vulnerable” is listed as the fourth of four strategic objectives compounds this impression and risks damaging the reputation of UK aid abroad.
TICAD VI countdown: AfDB, Japan agree to work together (AfDB)
A 40-member delegation of Japanese investors paid a courtesy call on the African Development Bank Group in Abidjan on Monday, March 21, 2016, and met with AfDB President Akinwumi Adesina. The meeting focused on further strengthening AfDB-Japan cooperation in the public sector as well as promotion of Japanese business and private investments in Africa. The AfDB and Japan agreed to give an impetus to cooperation and building a transformative partnership that would stimulate large-scale private sector investments in Africa and provide opportunities for constructing quality infrastructure in the region, with energy as a key priority for the continent’s development. Japan’s State Minister for Foreign Affairs, Seiji Kihara, led the delegation. [TICAD VI senior officials meeting held in Djibouti]
Donald Kaberuka: 'Promoting Africa-India investment in the new global landscape' (Exim Bank)
Dr Kaberuka spoke extensively on Africa and India’s development story while drawing references to the gradual evolution of both the regions in the new economic environment, and the potential it has in the days to come. As a corollary, he mentioned about the growing trade and investment flows between Africa and India, even in the aftermath of the global financial crisis, which stands today at about US$ 76 billion dollars, from US$ 38 billion dollars in 2008. At the same time the African economy today has grown by 5 times its size as compared to 2000, (adjusted for real 2000 dollar the size is three times).
IDB signs MoU with Chinese fund to boost investment in Africa (StarAfrica)
On the side lines of the landmark China-OIC Forum 2016 taking place in Beijing, a memorandum of understanding was signed between the Islamic Corporation for the Development of the Private Sector, the private sector arm of Islamic Development Bank Group and China-Africa Development Fund (CADFund), a Beijing-based private equity firm focusing on Africa. Research collaboration and capacity-building programs that are tailored and demand-driven will also be conducted to better serve target markets. In addition, efforts will be focused on boosting support for African small-and-medium enterprises, widely recognized as an important economic driver and key contributor to sustainable GDP growth.
Summit to explore investment in Africa data centres (CAJ News)
Investors in the information and technology sector will meet in Monaco (9 June) to explore the next phase of data centre and cloud development across Africa. International consulting company, BroadGroup, who research and produce Datacloud, will provide a Market Assessment and Outlook for the Africa data centre landscape.
Mauritius: 2015 Article IV Consultation (IMF)
Mauritius is facing the challenge of avoiding the “middle-income trap” and moving to a higher income status. Competitiveness, productivity and investment rates have been declining in recent years, and the labour force is projected to shrink over time. Infrastructure bottlenecks are a constraint to further development, and the authorities envisage large public investment programs with complementary private investment to boost port capacity, transportation, connectivity and other advanced technologies. The country is also seeking a strategic re-orientation of its large offshore sector to channel foreign investment into mainland Africa. Currently, the global business company sector is a source of economic dynamism on the back of a Double-Taxation Avoidance Agreement Treaty with India, legal and accounting expertise, bilingualism and the record of political stability. Going forward, the authorities seek to position the country as a prime route for foreign investment into Africa and to depart from the tax-centred model to attract capital inflows. This strategy entails even stronger inter-linkages between the GBC sector, the domestic economy and the financial sector, providing further development momentum but also stronger potential spillovers from volatile external conditions. [Mauritius-Seychelles: Joint Commission of the Extended Continental Shelf (Government of Mauritius)]
Politics and development in Tanzania: shifting the status quo (Chatham House)
Tanzania’s trade relations with SADC overshadow those with the EAC, because South Africa dominates as a key country of origin for goods entering Tanzania, and is one of the largest export destinations for Tanzanian goods, second only to India. South African companies swiftly built a dominant presence in Tanzania in the 1990s, as the end of apartheid coincided with the latter’s economic liberalization, allowing South African companies to acquire a number of parastatal institutions during Tanzania’s privatization process. Over 200 South African firms operate in Tanzania; they are most prominent in high-profit industries such as infrastructure and telecommunications. South Africa’s Vodacom is the largest telecommunications firm in Tanzania. [The author: Adjoa Anyimadu]
Related: Tanzania increases issue of EAC trade certificates (East African Business Week), Ikulu: Uganda-Tanzania oil pipeline a done deal (IPPMedia)
South Africa: Does anyone remember the developmental state thing? (Business Day)
To ensure that growth is inclusive, the state has an important role to play in the economy. Policy sequencing in SA is key. Urgently, we need bold structural reforms to get the macroeconomic environment back into shape. Further, there is a need to take determined measures to improve institutional and technical capacities within the state, restructure the operating environment of state-owned enterprises, parlay investments into infrastructure to lift confidence, and explore creative and productive avenues to co-invest with the private sector. [The author, Mzukisi Qobo, is attached to the University of Johannesburg]
Kenya: Second reviews under the stand-by arrangement (IMF)
Performance under the current programme: Although Kenya’s macroeconomic performance remains robust, external shocks complicated achievement of some program’s macroeconomic objectives. All end-September and continuous performance criteria (PCs) were met. Performance under the structural benchmarks was mixed. [Rwanda could go for IMF precautionary loan (The East African)]
It takes a village to power Africa: Q&A with Andrew M. Herscowitz (GE Reports)
So it’s a whole micro-economy that is going to boom. The role of Power Africa — along with our partners like the UK’s Energy Africa and the African Development Bank’s New Deal on Energy for Africa — is determine how to harness what those companies are doing and get them into markets all over the continent. So that you’re cutting out the utility — and you’re cutting out us and the governments — and people are dealing directly with companies and are not waiting a month, a year or 10 years to be connected to the grid. [Andrew M. Herscowitz is the coordinator for President Barack Obama’s Power Africa and Trade Africa initiative]
Zuma coming to Zim in July (NewsDay)
Leaders of Angola-China Chamber of Commerce take office on 31 March (Macauhub)
Rwanda: Cement makers urged to embrace innovative ways to stay competitive (New Times)
Malawi drops ban on imported cement (Global Cement)
Botched rules trip Narendra Modi’s dream of shipping hub rivaling Singapore (Livemint)
Forum for the Future of Agriculture: FAO perspective, conference www
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Dr. Donald Kaberuka delivers Exim Bank’s 31st Commencement Day Annual Lecture: 2016
Dr. Donald Kaberuka, Former President of the African Development Bank Group and currently the Hauser Leader in Residence, Harvard Kennedy School delivered Exim Bank’s 31st Commencement Day Annual Lecture in Mumbai on March 21, 2016. Dr. Kaberuka was the Finance Minister of Rwanda prior to joining AfDB. Dr. Kaberuka spoke on “Promoting Africa-India Investment in the New Global Landscape.”
Mr. Yaduvendra Mathur, Chairman and Managing Director, Exim Bank of India, said that Exim Bank’s Commencement Day Annual Lecture series, instituted in 1986, has earned recognition as an important milestone in contributing to the debate and discussions on contemporary trade and development issues impacting global economy. Dr. Sunil Arora, Secretary, Ministry of Information & Broadcasting, presided over the Lecture.
Dr. Kaberuka spoke extensively on Africa and India’s development story while drawing references to the gradual evolution of both the regions in the new economic environment, and the potential it has in the days to come. As a corollary, he mentioned about the growing trade and investment flows between Africa and India, even in the aftermath of the global financial crisis, which stands today at about US$ 76 billion dollars, from US$ 38 billion dollars in 2008. At the same time the African economy today has grown by 5 times its size as compared to 2000 (adjusted for real 2000 dollar the size is three times).
He observed that the last fifty years especially the last part of it have been phenomenal in global economic history, as billions of people were lifted out of poverty by advances in globalization, thereby reducing the cost of doing business, increasing inter-connectedness and providing opportunities around global value chains for all countries. Recalling the discussions in the last World Economic Forum in Davos, he called the new economic order as the “fourth industrial revolution” with new opportunities but also disruptions in traditional business models, advances such as in artificial intelligence.
“It is also about the new elements in geopolitics, where it seems the problems are increasingly global, but the political actors have remained focused on the local, thereby creating a major disconnect. The multilateral system born of the Second World War is no longer fit for purposes like trade, migration, epidemics, terrorism, refugees, climate change, etc. and both India and Africa must determine how best to mitigate the downside while taking advantage of the opportunities that the two regions have,” Dr. Kaberuka said.
He drew parallels with India, and said that while both the Indian and African economies have seen rapid expansion of services, but the contraction in agriculture and manufacturing eventually has led to limited job creation, inequalities, and minimal integration in global value chains. As both regions continue to register fast growth, opportunities arise for diversification at both country and sectoral levels like agribusiness, IT, financial services, and healthcare and infrastructure.
While appreciating that PPPs, BoTs in infrastructure sector have worked well in some geographies, such as Kenya and Côte d’Ivoire, they have not been success stories across the board, including India. He conveyed his enthusiasm towards Exim Bank of India and AfDB working together on innovative infrastructure financing models in the years ahead.
In his speech he expressed anguish about those investors having a clichéd view about Africa, and wished that investors should ideally look beyond the hype, and the short term tactical issues and concentrate on the longer term trends. While articulating his concerns towards the existing pockets of extremism in the continent, which remain a big drag on investments, he felt that these could be overcome through a robust multilateral architecture and cooperation.
Referring to the slowdown in China, and its ‘triple transition’ phase, he felt that jobs will move to both India and Africa due to competitive conditions favoring the two regions. He seemed extremely optimistic about Africa and India, as he expressed his belief of the longer term mega trends accruing from the demographic dividend with a younger, educated and connected population, having increasingly higher disposable incomes.
“Promoting Africa-India Investment in the New Global Landscape”
Hotel Trident, Mumbai Monday, March 21, 2016
Good Evening. I am pleased to be back to India, a country I have had the pleasure of visiting on many occasions.
I want to thank Chairman Yaduvendra Mathur for the honour to deliver the Exim Bank Commencement Day Annual Lecture for the year 2016.
It has been privilege to work in close partnership with Exim Bank over the years during my tenure as the Head of the African Development Bank.
A few months ago the India-Africa Forum Summit was held in Delhi. That Summit provided yet another opportunity for our two regions to deepen the mutual cooperation and to review the global landscape and the implications on the growth prospects.
As many of you here will know quite well, India-Africa economic links go over a thousand years.
In the post-independence era, India and the countries of the African Continent have developed a multifaceted relationship, at official level, people to people and business to business.
Trade and investment flows continued to grow, even in the aftermath of the global financial crisis.
Africa-India trade stands today at about 76 billion dollars, from 38 billion dollars in 2008 with a portfolio in excess of US$ 14 bn, and is set to grow.
In my own country, I have seen an incredibly effective project on Nyabai… River, a hydroelectric which is helping to close the energy gap.
Exim Bank is active in more than 40 countries from energy, agri-business, to financial services.
African students continue to come to India in large numbers as I witnessed when I visited Bangalore a few years ago.
I am told Mumbai is now a major center for cooperation in the field of medical care, where many patients came here to take advantage of India’s excellent capabilities.
It is true that African exports to India are still dominated by raw materials especially oil. It is also true that, India’s investments in Africa are still concentrated in a few countries especially Mauritius, South Africa and Morocco.
However as both regions continue to register fast growth, I can see, I see already opportunities for diversification at both country and sectoral levels: agribusiness, IT, financial services, healthcare and of course Infrastructure.
Despite global slowdown, India and much of Africa continue to register strong growth. Today the African economy is five times its size in 2000, adjusted for real 2000 dollar the size is three times.
Although some economies growth has slowed due to commodity prices, the large majority are still growing at above 7%.
I understand India’s growth in 2016 is projected is more than 7 per cent, a credible performance given the global slowdown.
The two regions do share the same mega trends notably, the demographic dynamics, a young growing population, rapid internal migration and urbanization; with all the challenges and opportunities that the phenomenon presents.
The end of the commodity super cycle is an issue for many countries around the world and as I will be pointing out in a moment, adjustments will be needed.
The two regions must confront issues of inequalities and promoting an inclusive economy and especially how to spur rural incomes.
However, I do not buy into the doomsday scenarios that, the growth prospects are compromised in the longer term.
The last fifty years, especially the last part of it, has been phenomenal in global economic history. Billions of people have been lifted out of poverty by advances in the globalization, which has reduced the cost of doing business, increased inter connectedness and provided opportunities around global value chains for all countries.
Some have compared this to what happened in the World around the 15th century, while noting almost the same downside of globalization and its unintended consequences.
Today, both India and Africa face a global landscape rather different from the one we have known since the turn of the Millennium.
This is not simply about the global economic slowdown, turbulence in energy and commodity, equity markets or currencies.
It is about what the last World Economic Forum meeting in Davos called the "fourth industrial revolution" with its new opportunities but also disruptions in traditional business models, advances such as in artificial intelligence.
It is also about the new elements in geopolitics, where it seems the problems are increasingly global and long term but the political actors have remained focused on the local and the short term thereby creating a major disconnect.
Today I want to make two points: First: I am convinced that both our two regions economic prospects remain bright. However nothing is pre-ordained.
It will require hard work, imagination, innovative policies, flexibility especially in light of far too many unknowns in the global economy and the multilateral system.
It will require willingness to deepen, rather than delay much needed reforms, at the macroeconomic level, institutions and structural bottlenecks.
Second: Taking note of the fact that the multilateral system born of World War 2 is no longer fit for purpose ,from trade to migration, epidemics, terrorism , refugees, climate change the two regions must determine how best to mitigate for the downside while taking advantage of the opportunities. I want to suggest that the best way is for the two Regions to deepen cooperation and seek ways of creating a zone of prosperity across the Indian Ocean.
Let me begin with the first: economic prospects:
In recent months, the financial press is all doom and gloom on emerging markets, let alone Africa.
It is all rather reminiscent of the premature pronouncement to the end of the Asian miracle during the Asian Financial crisis in 1997.
There is a sense of deja vu.
Let me give you an example, recently a rather large European Bank decided to quit Africa, after a century.
There is speculation that this may all be due to its new corporate strategy to focus on the home market, or even to conform to new regulatory requirements.
What is certain: this has nothing to do with the performance of its African units, although an impression is created to that effect.
As for the commodity story: the reality is that Africa’s recovery predates the commodity bull run, in fact only a few countries are fiscally dependent on commodities.
African economies, after GDP rebasing, have determined that their service sectors are actually much bigger than initially believed.
But if you are skeptical, you are not alone.
After all Africa is such a mosaic, of countries, 54 countries, so similar and yet so different from each other.
Nonetheless if the economic performance of recent years has to be sustained both India and Africa need to take a number of key measures:
These are broadly four:
MACROECONOMIC Stance
STRUCTURAL Obstacles
INSTITUTIONAL Challenges
and finally EMERGING SECURITY landscape.
Let me begin with the macroeconomic stance:
In the late 1980s and early 1990s India and Africa went through a tough macroeconomic tough period.
In the case of Africa; a very high price for its ill-advised policies of the 1970s and 1980s was paid.
Combined with political instability, military takeovers, the African economies took a battering.
OVERVALUED EXCHANGE RATES THAT UNDERMINED AGRICULTURE AND EXPORTS GENERALLY.
CENTRAL BANKS THAT WERE INDEPENDENT IN LAW, BUT NOT IN FACT AND PRONE TO PICK UP GOVERNMENT DEFICITS WITH ALACRITY.
IMPORT CONTROLS THAT MULTIPLIED OPPORTUNITIES FOR RENT SEEKERS.
HIGH TARIFFS THAT ENCOURAGED EXPENSIVE INSUFFICIENT IMPORT SUBSTITUTING INDUSTRIES WHILE LIMITING REGIONAL TRADE.
COSTLY STATE ENTERPRISES THAT WERE A DRAG AND A BURDEN ON THE FOCUS AND ECONOMIES AS A WHOLE.
But here is the good story, that tough period led to tough policies that paid off handsomely.
In the current global slowdown, commodity price crash, there are fears that some countries would be tempted to go back to those command policies; there are concerns about a return to macroeconomic instability and excessive debt.
The policy stance of some oil exporting countries has done nothing to allay these fears.
Let me be very clear:
Adjustments in all oil exporting countries are necessary and should not be delayed.
That is true for Nigeria, Angola, Zambia, as it is for Russia, Saudi Arabia, Venezuela etc
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Buffers need to be rebuilt
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Expenditures rationalized
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Alternative sources of revenues identified
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Exchange rates managed realistically
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Import controls avoided, except on temporary basis
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Safety nets targeted, and blanket subsidies avoided.
Debt must be carefully managed, avoiding currency or asset mismatches investing wisely and building debt management capacity.
In some of the countries recent policy stance is not consistent with what I am saying here.
Delays in adjustment send the wrong signals and only delay the pain.
At a time like this, policy consistency, policy predictability has a huge premium.
Let me now to the second element: structural issues.
Everyone agrees that economic growth in the last decade and half in Africa has been very strong, but there is also acknowledgment that economic transformation is still work in progress.
The structures of the economy have seen a rapid expansion of services, but contraction in agriculture and manufacturing.
With it, have come limited job creation, inequalities, and minimal integration in global value chains which remains an issue.
I am told that here in India the Government’s new budget is putting emphasis on agriculture and infrastructure.
Many countries in Africa are doing exactly the same.
The challenge we face is that funding infrastructure with public means, leaves a 50 billion dollar annual gap.
PPPs, BoTs have worked well in some geographies, such as Kenya and Côte d’Ivoire.
I do understand that here in India too, PPPs have often not been without their complexities, but there are lessons both good and bad, we can all learn from. I am convinced that with the right policies we could extend the telecom revolution in other sectors especially energy.
So both our regions must work together to innovate in the area of infrastructure financing. The African Development Bank who is a leader in infrastructure finance in Africa has pioneered a number of instruments, so has Exim Bank, India.
In the last ten years when I was in office we put in close to 22 billion dollars in infrastructure while often reaching a leverage of 1:3.
I expect that this is an area where Africa and India will continue to work together leveraging the knowledge of Institutions like the AfDB and the Exim Bank.
Unlike India which is a single market, Africa still grapples with numerous national fragmented markets, although I am told this is not a wholly resolved issue in India either, as there are several different policies between the states.
This is a well-recognized bottleneck by investors.
Much progress has been made in the movement of people and merchandise, in cross border infrastructure, tariffs have been significantly cut but non tariffs remain an issue.
Let me now briefly turn to institutional challenges:
In years gone by, the risks for an investor were mainly were mainly political; nationalization, restrictions on ownership or on dividend repatriation.
I believe India, in the past had to deal with similar obstacles.
At this point the risks are concentrated in the domain of poor infrastructure, costs of doing business, regulatory issues and weak delivery capabilities at administrative levels.
You will remember the famous mantra taught at business schools: that good policy must meet three criteria:
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Technical soundness
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Political feasibility
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Administrative delivering ability.
I am sure that even here in India you will easily recognize the challenge of policies that may be technically sound, but get stuck at political tradeoffs or weakness in delivery.
To be fair, there has been all round progress, for example in dispute resolutions, commercial courts, arbitration chambers, etc.
I would acknowledge that, for example in the energy sector progress of ensuring energy that is available, affordable, accessible would be easier if policies on tariffs, subsidies, off taker balance sheets were much clearer.
There is no doubt that private investment in energy production and distribution would be enhanced to close the much needed gaps in this sector, if we could get the PPP framework right and regulatory institutions in shape.
Finally, let me refer to a new type of threat which is a big drag on economies and investments.
Although Africa is now much more stable than it has been in the past, we must now deal with the emerging security threats from extremism, jihadism.
International terrorism that feeds on weak or semi failed states such as Somalia with Al Shabab or AQMI and Boko Haram in the Sahel.
Some of these groups feed on local grievances of exclusion, political, economic or social, which must of course be addressed. They also sometimes take advantage of embryonic political developments, rent seeking crony capitalism, poor management of natural resources etc., as in South Sudan.
These are challenges some of our Regions face, but which I believe would be better dealt with through a robust multilateral architecture and cooperation.
Which brings me to my last point, how do we together India and Africa mitigate for the downside in the current global landscape while taking advantages of its possibilities.
I go back to where I began: Africa and India share longer term mega trends especially the demographic dynamics growing population, younger ,more educated and connected and increasingly higher disposable incomes.
The two regions are set to leapfrog on some new technologies and other disruptive innovations.
I believe therefore that as older economies continue to adjust and repair the damage of 2008, as China goes through the famous “triple transition" there will be jobs relocating to both India and Africa due to competitive conditions favoring our two regions.
While nothing is preordained, that is the law of economics; this is what has happened throughout history.
In a recent book Stevsn Radelet “The great surge-the ascent of the developing World" he said
“we live at a time of the greatest development among the global poor in the history never before have so many people in so many developing countries made so much progress in so short a time
When it comes to Africa people, many often find it hard to believe the rapid and often dramatic changes that have taken place in the last 15 years.
If you are a sceptic, you are not the only one, Africa is judged by the cliché of the day, the sound bite that excites the Editor, the narrative that fits the mindset.
But remember what the cognoscenti were saying about India in the 1970s.
An investor on the other hand I believe looks beyond the hype, the short term tactical issues and looks for the longer term trends.
Together India and Africa have come a long way.
The new global landscape demands that we deepen that relationship to create a zone of co-prosperity across the Indian Ocean through cross investments innovating around new investments to promote industrial development and service both way.
I end by commending the Exim Bank of India for an excellent job well done promoting investments between our two Regions. There is much more we can do together from infrastructure to medical care to cross learning on PPPs.
A great African statesman of our time, Madiba said:
"It always seems impossible until it is done”
"After climbing a great hill, one only finds that there are many more hills to climb"
Thanks for your attention and I am happy to take a few questions.
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UK-backed African infrastructure projects are ‘pipeline for investment’, says minister
The UK has outlined plans to increase its support for infrastructure development in Africa and encourage further investment on the continent.
The UK’s Africa minister James Duddridge told an infrastructure conference hosted by the international and current affairs think-tank Chatham House in London on 15 March: “Infrastructure is a pipeline for money. Airports, railways and roads are all pipelines for economic activity. This requires local knowledge and skills but also global expertise and help to get people and money moving.”
“UK companies have skills and expertise from project design, through planning and implementation,” Duddridge said. “British architects, professional services, legal firms and capital markets are among the best in the world and stand ready to support infrastructure development on the continent.”
Duddridge said there was “no quick fix” for infrastructure challenges in Africa, but part of a new UK-led ‘Prosperity Fund’ for the region, worth £1.3 billion ($1.8bn) over five years, “will be used to help Africa grow out of poverty”.
Duddridge said current UK projects include supporting “critical feasibility studies” for Tanzania’s government “to secure bigger finance through the World Bank”. “With greater funding, Tanzania can improve the port infrastructure and realise the regional trade benefits that will come from improved freight corridors across Tanzania,” he said.
The UK’s Department for International Development is backing a Tanzanian government programme with the World Bank to make the major commercial port city of Dar es Salaam, on Tanzania’s Indian Ocean coast, “more resilient to extreme weather events”, Duddridge said.
Duddridge said that on a visit to Tanzania earlier this month he saw "how cities with weak infrastructure are crippled by events as mundane as heavy rain”. “The infrastructure deficit was clearly visible," he said. "The rapid transport system is sadly not yet up and running.”
“The problems of congestion and inefficiency at Dar es Salaam port are well known,” Duddridge said. “That is why the UK government is helping Tanzania unlock the potential of this maritime gateway and supporting Trademark East Africa to work on the immediate congestion problems.”
In addition, the UK is continuing its ‘High Level Prosperity Partnerships’ (HLPP) programme with Angola, Cote d’Ivoire, Ghana, Mozambique and Tanzania, which Duddridge said “place the private sector in the driving seat of economic transformation”.
In Tanzania, supported by the HLPP, the UK said it is “the leading investor (35% share) and has the second largest development programme (£150m in 2012/13, rising to £200m in 2014/15)”.
Under the HLPP in Cote d’Ivoire, the UK said it is working with authorities “to establish a globally competitive mining code to attract responsible investors, provide UK education for future leaders in the country’s promising hydrocarbons sector, facilitate access to London’s financial expertise to support development of the Ivorian finance sector, including access to capital and an enhanced insurance market”.
In Mozambique, the UK said it is “the second largest bilateral donor (over £75m pa) and the largest bilateral budget support donor with a leading role in the development community”. “UK business is well established, we are a top five investor and UK exports are growing fast,” the government said.
The World Bank said last June that it had set aside $100m to help Tanzania increase transparency and accountability in governance and boost public financial management as the country ramps up a series of major infrastructure projects.
The bank said the “first-of-a-kind” ‘open government and public financial management development policy operation in Tanzania, financed with credit from the bank’s International Development Association, aimed to improve public investment management and procurement.
The bank said in a separate report that a “climate resilience project preparation facility” should be established in Africa to support plans for infrastructure investment, in addition to training programmes for planners and designers.
» Download: Enhancing the Climate Resilience of Africa’s Infrastructure: The Power and Water Sectors (PDF, 7.13 MB)
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Experts challenge regional governments to use pension funds for industrialisation
Southern Africa economic experts have challenged governments in the region to explore the viability of pension funds, financial services levies and sovereign wealth funds in financing industrial infrastructure and key commodity value chains.
According to a statement issued in Malawi on Friday at the close of the 22nd Intergovernmental Committee of Experts (ICE) Meeting of Southern Africa, co-organised by the United Nation Economic Commission for Africa-Southern Africa Office and the Government of Malawi under the theme “Implementing the SADC Industrialisation Strategy and Roadmap: Options and Prospects”, the experts implored governments to also introduce a levy on payroll to fund skills development.
“Governments in the region must explore the viability of pension funds, financial services levies and sovereign wealth funds in financing industrial infrastructure and key commodity value chains,” read the statement.
“Governments must utilise opportunities provided through the Regional Development Fund; they must mobilise resources towards implementing identified strategy priorities and accord priority to science, technology and innovation in national and regional programmes as the major catalyst for industrialisation.”
It was agreed that governments should identify, through research, the value chains of focus and target those for which the region had comparative advantage such as the cotton, beef, diamonds value chains as well as ratify the science, technology and innovation protocol.
They challenged governments to create an enabling environment to facilitate the active private sector participation in industrialisation.
“Governments in the region should develop and implement targeted policies to increase the participation of small and medium-scale enterprises (SMEs) in the economy and institutions providing finance for industrialisation should be configured to support SMEs; and stakeholders such as member states, civil society, regional economic communities (RECs) and development partners should advocate and promote the SADC industrialisation strategy and roadmap,” the experts stated.
On capacity issues, member states were asked to strengthen technical capacity within relevant ministries and government institutions; share knowledge and expertise including through secondment of officials among countries; develop capacity around specific sectoral chains and dialogue with relevant stakeholders such as the private, training institutions and development partners.
“Governments must include industrialisation as a key learning and development area in the education curriculum as part of the advocacy process. RECs, also should restructure and create technical expertise in mineral processing to enhance regional coordination of minerals sector development,” stated the experts.
“RECs must also build internal capacity to be able to provide the necessary leadership to drive the industrialisation process; they should organise comprehensive regional capacity building programmes for value chain identification, analysis and development among the public and private sectors and identify and develop concrete projects of a regional nature to kick-start the industrialisation process among others.”
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Regional integration and monetary unions in Africa
With a land mass of over 30 million square kilometers, Africa is as big as India, China, the US and most of Europe combined. Betrayed by a Mercator map projection, the common view of the size of the continent has been diminished, pretty much the same way as other characteristics of the continent.
When we realize the Democratic Republic of Congo (DRC) alone is about half the size of the European Union, we could even pretend that at least that much territory is already integrated within the continent. However, the reality is that even in one single country, like the DRC, national integration is a challenge. Just ten years ago DRC had a public budget smaller than Brussels. Basically, the point is: Africa has a long way to go!
The reality of integration in every region and corner of the planet is a tale of many challenges. Africa is no different. The European Union (EU), considered the most mature integration achievement, has itself started to demonstrate serious difficulties and major shortcomings, particularly relating to the Eurozone.
Africa has a longer history of monetary unions than Europe, but the large size of the European Monetary Union (EMU) and the challenges it has faced since the 2008-2009 financial crisis, provides important lessons for both existing and proposed monetary unions in Africa. Europe worked hard to consolidate its single market and achieve a high degree of trade integration before the establishment of the Euro. The Eurozone countries built over time an impressive architecture of processes, institutions and regulations.
One of the key lessons for Africa from the EU’s experience is that the institutional environment has to be conducive to the fostering of regional trade. Another lesson for Africa is the importance of stable macroeconomic policies. When there are wide differences in the degree of fiscal discipline across member countries, that reality can create challenges for the survival and stability of any union. The Eurozone experience also underscores the need for countries that are about to participate in a monetary union to have a credible and feasible mechanism for fiscal transfers, in order to enable them to respond and adjust to asymmetric shocks. In the absence of such a mechanism, any monetary union will be susceptible to enormous pressure when its members are hit by such asymmetric shocks. There are, however, concerns that the adoption of the stringent convergence criteria will limit policy space to address current and emerging development challenges.
The importance of monetary, fiscal and financial policy harmonization, within the context of economic integration, cannot be overemphasized. Monetary union is defined in the literature as involving two components: “exchange rate union, that is, an area within which exchange rates bear a permanently fixed relationship to each other…” and “convertibility – the permanent absence of all exchange controls, whether for current or capital transactions within an area”.
Nobel Prize Laureate in Economics, Professor Robert Mundell, posited that the degree of factor mobility within a currency union is of utmost importance. Movement of labor and capital goods across borders is not restricted so that it is easy for factors to move to areas where they can earn maximum remuneration for the services rendered. An essential requirement here is the presence of at least, an internally convertible currency within the union.
Regional Economic Communities in Africa aim to establish monetary unions as part of their broader integration agenda. Africa has a long history of some countries sharing single currencies. For example, the West African Economic and Monetary Union (UEMOA) has 8 countries using the CFA franc, previously pegged to the French franc and now to the euro. There is also the Economic and Monetary Community of Central Africa (CEMAC) with an additional 6 countries using the CFA franc. Lesotho, Namibia and Swaziland are pegged at par to the South African Rand, which effectively means that they share the same monetary policy. Countries that are part of these three blocks represent a significant portion of Africa’s GDP.
In fact, one of the main objectives of pursuing monetary unions in Africa is to boost regional integration, particularly intraregional trade and investments. Intra-African trade is about 16 per cent on average compared to 21 per cent for Latin America and the Caribbean, 50 per cent for Asia, and 70 per cent for Europe.
Administering 54 sovereign states with an array of national policies and inefficient government apparatus constitutes a massive resource-draining overhead cost on Africa’s fragile, undiversified primary production based economies. An assessment of progress towards macroeconomic convergence in Economic Communities in Africa show that, while some progress is being made, it is generally below the targets set in their monetary integration programmes.
If Africa were a business the management costs of this type of structure would be uncompetitive. The cost of governing such a fragmented production structure is simply too high for Africa to afford or sustain. Thus, the contribution of regional integration to the promotion of intra-group trade, growth, development and social and political cohesion is unquestionable. The stark conclusion that can be drawn from these facts is that Africa must integrate (or, in business parlance, rationalize and merge) in order to reduce its overhead costs.
The debate about integration, however, has been mostly centered on the political dimensions and the paramount pan-African ideal. Africa has broken the cycle of hopelessness and has hewn for itself an optimistic future through rapid and strong economic growth since the start of the century. Time has come to move to a more technical debate and focus, partly to give credence to such noble political ideals, but also because the speed of global transformation will not await, much more, for late comers. Accelerating the pace of and achieving structural transformation remains the greater challenge for the future. In fact, the majority of African countries continue to struggle to diversify their narrow-based economies.
Addressing these challenges will require due attention to an appropriate macroeconomic policy framework underpinned by a long-term development strategy that facilitates transformation of economic and social structures, and ensures a positive feedback loop in the investment-growth nexus. Such a macroeconomic policy framework for structural transformation should encompass five main components: i) scaling up public investment and public goods provision; ii) maintaining macro stability to attract and sustain private investment; iii) coordinating investment and other development policies; iv) mobilizing resources and reducing aid dependence over time; v) securing fiscal sustainability by establishing fiscal legitimacy.
These key elements of transformation are not optional when discussing monetary unions in the African context. Regional Economic Communities better pay attention, otherwise they risk not being taken seriously about such ambitious goals.
Carlos Lopes is Executive Secretary of the UN Economic Commission for Africa. Based on his speech at the Africa Training Institute of the International Monetary Fund, delivered on 8 March 2016 in Mauritius.
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IMF Executive Board 2015 Article IV Consultation with Mauritius
On March, 11, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Mauritius.
Mauritius has continued to grow at a moderate rate of 3.4 percent in 2015, as weak external demand, protracted decline in construction, and the collapse of a large financial conglomerate group more than offset the positive impact of favorable terms of trade. Inflation remains low (0.4 percent in January 2016), reflecting in part declining oil prices and shipping costs. Unemployment hovers around 8 percent, although it is higher among women and the youth. The external current account deficit narrowed to about 5 percent of GDP and international reserves increased to 6.5 months of imports, supported by continued capital inflows.
The monetary policy stance remains broadly appropriate against the backdrop of subdued inflation. The Bank of Mauritius reduced its key policy rate by 25 bps in November 2015, to 4.40 percent, in order to support the domestic economy, while making progress in mopping up excess domestic currency liquidity.
In the financial sector, credit growth is gradually recovering and overall, the banking system remains well capitalized. Nonetheless, domestic non-performing loans have been rising and provisioning has not kept pace with the decline in asset quality. In addition, the authorities face macro-financial challenges stemming from risk exposures and potential spillovers from the very large offshore sector and its sizeable inter-linkages with domestic banking activities.
The budgetary performance turned more prudent in 2015, reversing the deterioration of recent years. In 2015, both the overall consolidated deficit and the primary deficit remained below earlier budget projections, and improved relative to 2014. Nonetheless, public debt continued to increase (by more than 2 percentage points of GDP) due to the government’s interventions in the financial sector and the impact of the depreciating rupee on external debt.
The country’s statistical capacity continues to be strengthened as the authorities actively pursue efforts to improve the coverage of the offshore sector in official data, and to introduce a real estate price index.
Staff Report
Introduction
Mauritius’s strong development record has reflected a remarkable ability to adapt to changing economic and financial conditions. Economic growth has been commendable, and financial stability has been maintained, even under challenging circumstances. After successfully transitioning from an agricultural to a manufacturing and tourism based-economy, the country has continued to develop and diversify with a vibrant financial sector – including a very large offshore industry. A careful macroeconomic policy response helped Mauritius weather the global financial crisis. The economy has remained resilient to the recent increased volatility in emerging and frontier markets, and has benefitted from declining commodity prices.
Mauritius is facing the challenge of avoiding the “middle-income trap” and moving to a higher income status. Competitiveness, productivity and investment rates have been declining in recent years, and the labor force is projected to shrink over time. Infrastructure bottlenecks are a constraint to further development, and the authorities envisage large public investment programs with complementary private investment to boost port capacity, transportation, connectivity and other advanced technologies.
The country is also seeking a strategic re-orientation of its large offshore sector to channel foreign investment into mainland Africa. Currently, the global business company (GBC) sector is a source of economic dynamism on the back of a Double-Taxation Avoidance Agreement (DTAA) Treaty with India, legal and accounting expertise, bilingualism and the record of political stability. Going forward, the authorities seek to position the country as a prime route for foreign investment into Africa and to depart from the tax-centered model to attract capital inflows. This strategy entails even stronger inter-linkages between the GBC sector, the domestic economy and the financial sector, providing further development momentum but also stronger potential spillovers from volatile external conditions.
MACRO-FINANCIAL LINKAGES AND SPILLOVER RISKS
Macro-Financial Structure of the Mauritian Economy
The striking feature of Mauritius’ financial system relates to the enormous size of the GBC sector, intrinsically linked to the domestic economy through the balance of payments and the banking system. Profiting from tax exemptions on foreign-sourced income, GBCs have become a key pillar of the economy6 , and account for assets estimated at over US$630 billion, some 50 times the level of GDP. This massive order of magnitude has become evident following the authorities’ efforts, supported by IMF technical assistance, to collect survey data on GBC1s for use in balance of payments (BOP) and international investment position (IIP) statistics. Nonetheless, GBCs’ statistical coverage has still important gaps as GBC2s remain largely unmonitored.
The GBC sector plays a vital role in financing the balance of payments, offsetting the large current account deficit for the rest of the economy (13 percent of GDP in 2014). Net capital inflows (15 percent of GDP) and investment income from GBC investments in the rest of the world (10 percent of GDP) are used to finance the large current account deficit of the non-GBC economy, allowing for the observed net accumulation of international reserves.
There are also other inter-linkages between the GBCs and the domestic economy. While GBCs’ domestic assets account for only a tiny fraction of their massive total assets (most of GBCs’ activities are with non-residents), they still represent close to 100 percent of Mauritius’ GDP – largely in the form of domestic bank deposits. In addition, there are very large (and poorly understood) domestic cross-holdings within the GBC sector (around 300 percent of GDP). GBCs also contribute to tax revenues, paying almost 1.3 percent of GDP in taxes in 2014 (around 6½ percent of total tax collection). In contrast, the GBCs’ direct contribution to domestic employment remains modest. 13. GBCs’ foreign currency deposits are a key funding source for banks, which also have other large cross-border exposures. GBCs deposits account for 30 percent of the banking sector balance sheet (bank assets stood at around 300 percent of GDP) and bank claims on GBCs represent about 10-15 percent of domestic credit. GBCs can also hold equity stakes in banks. In addition, banks have large exposures to non-residents, with deposits equivalent to 22 percent of total liabilities, and cross-border loans in excess of 100 percent of GDP (mostly to borrowers in India and other countries in Africa and Asia). For the banking system as whole, foreign currency liabilities to GBCs and non-residents are mostly matched by foreign currency assets.
However, exposures to GBCs and non-residents vary significantly across banks. Under Mauritius’ single licensing regime, banks are free to operate in both Segment A business (domestically-sourced income) and Segment B business (foreign-sourced income, including GBCs and non-residents). Large foreign banks tend to focus on Segment B, drawing deposits from the most reputable GBCs and lending to their global network of customers with established credit records. The two large domestic banks are currently concentrated on Segment A. Medium-sized banks have a mix of Segment A and Segment B operations, potentially constituting a greater channel of spillover to domestic activity. Reflecting the considerable tax advantage for Segment B activities (80 percent reduction in the 15 percent corporate tax rate), many banks are planning to increase their Segment B operations going forward. This is a risky strategy given the challenges associated with assessing the funding risk from GBCs and non-resident sources, and the credit and counterparty risks involved in cross-border lending.
Potential Spillover Risks
The balance sheet inter-linkages noted above are a source of systemic vulnerabilities. A decline in GBC or non-resident foreign currency funding, for instance triggered by a significant revision of the DTAA Treaty with India or by an intensification of initiatives against tax base erosion and avoidance, could worsen Mauritius’ balance of payments position, lead to exchange rate pressure, a weakening of reserves, and rising inflation and external debt servicing costs. The associated decline in GBC deposits in domestic banks could create deleveraging pressures , particularly in any small and medium-sized banks with liquidity-risk management systems insufficient to quickly mobilize foreign currency assets. The resulting funding need could trigger a cutback of foreign and domestic credit, and broader confidence effects , which would impact the domestic economy. Indeed several banks operate within financial groups/holdings or mixed conglomerates with activities in other domestic sectors. Similarly, the large cross-holdings within the GBC sector could act as contagion channel. There could also be regional spillovers, given Mauritius’ role as financial hub for foreign investments in Africa. Yet, data and non-bank supervisory gaps prevent a full analysis of the GBC sector and the risks it poses.
Further integration of the offshore sector with the domestic economy entails benefits, but also increases potential spillover risks. The authorities aim at promoting the GBC sector as a conduit for investment into Africa, while encouraging a greater involvement of the GBC sector in the domestic economy by the introduction of “substantial presence conditions”. Although this greater interconnection with GBCs may have beneficial effects on domes tic economic activity, the strategy also raises the risk of inward spillovers from GBC-related volatility.
RAISING GROWTH BY BOOSTING COMPETITIVENESS AND GENDER EQUITY
Mauritius faces important challenges as it seeks to escape the middle-income trap. Mauritius has lost seven places in the 2015-16 Global Competitiveness Report, now ranking 46 among 140 economies. Productivity is eroding, unit labor costs have been rising, infrastructure needs upgrading, and labor regulation is relatively complex. The population (and labor force) is projected to start shrinking in the longer run. In addition, income inequality has been rising: The income share of the top 20 percent earners is nine times as high as that of the bottom 20 percent earners, and gender inequality remains relatively high. A reform program needs to address constraints on factor accumulation including by mitigating the projected decline of the labor force through skilled workers‘ immigration or an increase in female labor force participation – as well as productivity improvement, including by investments in human and infrastructure capital.
The 2015/16 budget outlines several measures to deal with these challenges. To strengthen the business climate, the authorities envisage, among other things, expanding the powers of the Fast Track Committee to expedite the approval and implementation of major investment projects and abolishing a large number of licenses and permits which have become obsolete. The authorities also target to boost infrastructure through a large investment program. As part of their program, smart cities would be developed which are environmentally friendly, highly connected and generate their own energy and water. As part of the authorities’ ambition to create an ocean economy, major investments in the port infrastructure are planned, expanding the connectivity of Port-Louis to other ports.
Raising female labor force participation rates could help address the challenges of population aging and enable the attainment of higher income status. Mauritius possesses a large pool of educated women who currently do not participate in the labor market. According to a staff study, this has led to an estimated income loss in the range of 22 to 27 percent compared to a situation without gender gaps in the labor force. The following options may be considered to increase female labor participation: (i) promoting part-time work and flexible work arrangements; (ii) increasing the number of childcare centers compliant with minimum quality standards; (iii) increasing financial inclusion for women by expanding financial literacy training targeted at micro-enterprises; and (iv) considering the introduction of paternity leave to level the playing field in hiring decisions and pay of women and men.
The authorities agreed with the thrust of staff’s analysis but pointed to constraints to implement policies related to traditional gender roles. They intend to continue addressing the skills mismatch in the economy and plan large investment programs to mitigate infrastructure bottlenecks. Measures to increase female labor force participation, including through training and employment programs, are ongoing. However, the authorities suggested that some family policies, such as paternity leave, might be difficult to implement.
STATISTICAL ISSUES
Mauritius’s main macroeconomic statistics are adequate for surveillance. The coverage and quality of key statistics, especially BOP and IIP statistics, have significantly improved, but there are important remaining gaps in offshore sector data. The GBC survey needs to cover GBC2s as well as GBC1s and collect better information on linkages between GBCs and domestic economy, including on GBCs’ cross-holdings and GBCs’ role in conglomerate groups. The authorities are undertaking efforts to introduce a real estate price index and to strengthen the coverage and accuracy of statistics regarding other financial corporations and sectoral balance sheets, supported by IMF technical assistance.
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New approaches needed to meet sustainable development challenges
At leading EU agriculture meeting, FAO Director-General stresses need for collaboration beyond traditional silos
The international community needs to find new and innovative ways of working together if it is to meet the goals laid out in the UN’s new Sustainable Development Agenda – and eradicate hunger and poverty, in particular – FAO Director-General José Graziano da Silva said at the Forum for the Future of Agriculture in Brussels on 22 March 2016.
Speaking at the annual event focused on food and environmental security, the FAO Director-General called on government ministries and international agencies to break through traditional silos and embrace more creative approaches to tackling today’s development challenges, embodied by the 17 Sustainable Development Goals (SDGs)
“The SDGs are interlinked and call for new combinations in the way policies, programmes, partnerships and investments should pull together to achieve common goals and produce the most needed public goods,” Graziano da Silva said.
Along the way, it is fundamental for countries to embrace modes of governance that look beyond sector-specific ministries, such as agriculture, health and education, to find innovative solutions for complex development problems, he said.
“We must count on a broad portfolio of tools and approaches to eradicate hunger, fight every form of malnutrition and achieve sustainable agriculture,” according to the FAO Director-General.
These tools – which include both agroecology and biotechnology – ought to serve the needs of family farmers, whose empowerment should be a central part of sustainable development interventions, he stressed.
“Today, nearly 80 percent of the extreme poor and undernourished people live in rural areas – most of them are family farmers who grow food, but not enough to avoid hunger or escape extreme poverty,” he said.
He noted that, at the same time, these very family farmers produce the largest proportion of the food consumed worldwide, and underlined their role as “key actors in achieving food security for all”.
“In this sense, it is essential to invest and create new products, technologies, processes and friendlier business models to support them, improve their resilience and enable them to produce more in a sustainable way,” he said.
Focus on nutrition, climate change
Along the way, the FAO Director-General stressed the need to strengthen food value chains to ensure a nutrition-sensitive approach to food production and diets, “from the farm to consumers’ tables.”
This includes empowering consumers to make better dietary choices, for example through improved labelling, by ensuring accurate advertising, and undertaking effective nutritional education campaigns.
The wide-reaching effects of climate change are another key factor that calls for responses across ministries and sectors in order to address the full range of impacts on people’s lives and livelihoods.
“Poor family farmers are driven off their land by prolonged drought, coastal fishing communities are losing their homes because of rising sea levels, and Pastoralists are forced to migrate in search of land on which their cattle can graze,” Graziano da Silva said speaking about the realities of farmers in particular.
“The rural poor are the most exposed to these threats, and they are the least equipped to deal with them,” he added.
Reminding the audience that FAO’s mandate is directly linked to at least 14 of the 17 SDGs, Graziano da Silva stressed the agency’s commitment to helping governments implement new governance mechanisms and data tools to achieve their priorities under the SDGs, closing with the plea that “No one must be left behind.”
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tralac’s Daily News Selection
The selection: Tuesday, 22 March 2016
Featured tweet, from @OECDtax: James Karanja appointed as Head of OECD UNDP @Tax_Inspectors Without Borders Initiative
Five forest figures for the International Day of Forests: 'We’ve lost 1.3 million square kilometers of forests since 1990 – an area larger than South Africa' (World Bank Blogs). Inaugurated yesterday: the Forest Landscape Restoration Hub for the Eastern and Southern Africa
Three training, conference alerts:
tralac's Geek Week, 11-15 April: An emphasis will be on providing an input into a tralac book examining issues associated with African agriculture and the WTO, although depending upon the interests of participants we can tailor topics to meet these interests. For example, it is likely that the week may explore some aspects of China-Africa trade.
MEFMI's annual research and policy seminar on 'Financing of development': call for papers
OUCAN 2016: 'New spheres of development finance: the role of Chinese finance in Africa’s infrastructure landscape'
Negotiating the CFTA: presentations from the recent ECOWAS/UNCTAD stakeholder consultation
Profiled presentation, by UNECA’s F. Fajana: Preparedness of the different AU-recognized Regional Economic Communities for the CFTA
The CFTA Negotiating Forum, the key organ in the CFTA architecture that has responsibility for negotiating the technical aspects of the CFTA, has the Representatives of the RECs in its composition. However, in the Rules of Procedure for the CFTA N-F which have been agreed at the recent inaugural session of the Forum, while the rules state that “The duly accredited Members of CFTA N-F Member States shall attend and participate in the Sessions of the Negotiating Forum”, the “Representatives of the RECs/ Customs territories secretariats can attend Sessions of the Negotiating Institutions and may provide written and/or oral presentations upon the request of the negotiating institution”. Thus a clear distinction has been made between the status of Member States and RECs in the CFTAN-F. The diminished role of the RECs in CFTA N-F notwithstanding, the RECs still have an important role to play in the CFTA negotiating process - that of coordinating their Member States for common positions, based on the acquis of their FTAs and building the capacity of the Member States for effective participation in the CFTA negotiations. It is in this regard that organization of this ECOWAS Workshop is a move in the right direction. [ECOWAS towards CFTA: looking at the CFTA with statistical lenses (Edward Chisanga, UNCTAD)]
Regulatory bodies seek to harmonise standards (New Times)
Officials from national standards boards from over 20 African countries, who are meeting in Kigali, have started charting a five-year common strategy that will ensure harmony among standards across the continent. The aim is to ensure differences in standards do not hinder intra-Africa trade, according to organisers. The three-day workshop is under the auspices of the International Organisation for Standardisation for developing countries with specific regard to strengthening national standards bodies’ strategic capabilities between 2016 and 2020.
Great Lakes region: UNSC debate on launch of new Regional Strategic Framework (UN)
Investment, strong leadership, as well as sustained support for state-building and tackling poverty were critical ingredients in crafting a peaceful, prosperous future for countries of Africa’s Great Lakes, the Security Council heard today during an open debate marking the official launch of the United Nations Regional Strategic Framework for the region. [Ethiopia to host fifth Tana High-Level Forum on Security in Africa next month (Sudan Tribune)]
2016 Africa CEO Forum: remarks by AFDB's Akinwumi A. Adesina (AfDB)
Africa’s private sector will continue to lead the continent towards economic transformation, African Development Bank President Akinwumi Adesina said Monday at the launch of the fourth Africa CEO Forum in Abidjan. Extracts:
Increasingly, African nations, taking advantage of the record low interest rates, have rushed to the international capital market to raise financing by issuing bonds. Between 2006 and 2014, African nations issued $26bn worth of Eurobonds. This was prudent as long as real interest rates remained low, and sovereign credit ratings favorable. Despite increasing yields, bonds issuances by African sovereigns amounted to about $12bn in 2015.
Of course, a rising Africa cannot be an indebted Africa. While the diversification of financing sources can be good, African governments need to be wary of the risks. Foreign currency denominated debt can quickly become unmanageable when currencies depreciate and foreign reserves are depleted. To avoid it, there is an urgent need to focus on macroeconomic stabilization and fiscal consolidation, broaden the tax base, and deepen domestic capital markets. We must ensure we do not fall again into the debt trap.
We must also tap into and securitize remittances for development. Remittances to Africa have risen from $11bn in 2000 to over $62bn in 2014, exceeding by far Official Development Assistance inflows. Also, sovereign wealth funds’ assets managed in Africa rose from $114bn in 2009 to $162bn in 2014. Pension funds currently stand at $334bn. With all these resources, Africa can finance its own development, and doing so enables it to decide its own direction and pace of growth. [Full text]
Africa CEO Forum second plenary debate: 'Africa – the next clean energy powerhouse?' (AfDB)
Economic Insight: Africa (ICAEW, Oxford Economics, NKC African Economics)
This issue of 'Economic Insight: Africa' aims to provide insight on the dynamics influencing growth in sub Saharan Africa over the past few years and explores the continent’s prospects over the rest of the decade. Growth after commodities: In summary, we find that the Chinese slowdown, and consequent effects on commodity prices, are resulting in changes in the structures of African economies; net energy importers, especially in East Africa, begin with an advantage on this score; the services sector in particular is an important driver of growth; and foreign direct investment and innovation in these sectors are leading to some exciting business developments.
Assessing the contribution of African sub-regional development banks to infrastructure development (ICA)
This study by the Infrastructure Consortium for Africa is an assessment of the current and past contributions of African Sub-regional Development Banks (SRDBs) to infrastructure development in Africa. The study reviews four out of the six African SRDBs that have been established by African Regional Economic Communities. The four sub-regional development banks covered by the study are: [The author: Dr Lufeyo Banda]
Industrial policy for long-term resilience (UNCTAD)
Extract: Active policy responses are now under consideration in many developing countries as industrial policies are once more on their agendas. While simple imitation is ruled out by country-specific constraints and challenges, a number of broad policy lessons may be drawn from successful industrializers. Finally, it is important to note that effectively implementing such a diversification strategy depends on the creation of an appropriate structure of public and private institutions and, not least, the development of a strong and competent bureaucracy.
COMESA, Islamic Development Bank explore partnership (COMESA)
The Islamic Development Bank is exploring possible areas of cooperation with COMESA on regional integration programs. These include cross-border cooperation, improving regional exports/intra-regional trade, trade facilitation, enhancing competitiveness of the private sector in regional market taking into consideration of the great economic and development potential of the Tripartite FTA. Six COMESA Member States namely Comoros, Djibouti, Egypt, Libya, Sudan and Uganda belong to the Organization of Islamic Co-operation.
ECOWAS, APPA to collaborate on developing energy sector in West Africa (ECOWAS)
The partnership will also develop common strategies for securing supplies of energy including hydrocarbons; promote efficient supply infrastructure development policies, transport and distribution of hydrocarbons through regional integration projects. It will also work towards harmonization of contractual frameworks, policies, regulation and tax based on the implementation of joint activities, mutual technical assistance, information exchange, training and participation in specific meetings.
SADC launches ICT thematic group (SADC)
IGAD member states validate sectoral strategies for next five years (IGAD)
The state of EAC bourses and the need for improvement (The Citizen)
Let us take an inventory of where we are: the four markets (Kenya, Tanzania, Uganda and Rwanda) have a total equity market capitalisation of $40bn. There are 105 total listed companies in the whole region (90 - if we exclude the cross/dual listings effect); bonds listed in the four markets are worth about $6.5bn. Liquidity (turnover) in the equity listings is at the level of $2bn per annum (5% of market capitalisation), liquidity on bonds trading is about $0.7bn. Our population is estimated at 140 million, but only about 3 million people have investment accounts with the stock exchanges and central banks (for government bonds investments). The above data are meant to tell us much about our region and its state of long term finance sources. The data tells us about how little we have made use of the capital markets to finance our enterprises and development projects. How are we currently financing these long-term economic activities then? [The author, Moremi Marwa, is Chief Executive of the DSE]
Boost to manufacturers as EAC relaxes rules on goods produced in the region (The EastAfrican)
Local industries have received a major boost after the East African Community relaxed the rules on goods made in partner states. According to the revised rules of origin, goods made in partner states will now be sold duty-free. The more accommodating rules of origin have been under discussion for a year, and are expected to promote locally manufactured goods to increase intra-regional trade. According to Adrian Njau, trade economist at the East African Business Council, the revised rules of origin are trade friendly, simpler and support value chain in the EAC region compared with the old ones.
South Africa: SOEs must buy local (IOL)
The Department of Trade and Industry wants state-owned entities to procure 70% of their products locally to boost growth and create jobs. Director-general Lionel October told MPs last week that if this could be done, localisation would be a game-changer in South Africa, adding that localisation was at the heart of reigniting growth in the economy. October also said the same principle was applied in the US through legislation. October said there was nothing that could stop South Africa from adopting a similar legislation to boost growth.
Djibouti: The road to international trade (CPI Financial)
Though it has long been a strategic port in the region, Djibouti is going a step further, steadily transforming itself into the critical hub for linking East Africa to the eastern hemisphere. Its aspirations got a boost with the recent cooperative agreement signed between Djibouti Ports and Free Zones Authority and Silk Road E-Merchants Information Technology Co. Ltd to create the Djibouti Silk Road Station. Ahmed Osman, Governor of the Central Bank of Djibouti, spoke to Banker Africa about the road ahead for Djibouti.
East Africa drives towards road tolling (World Highways)
The drive towards road tolling in East Africa is gaining momentum. Uganda appears to have broken ranks with its neighbours to make huge strides in achieving progress with this innovative road financing plan. Road tolling has hitherto has been held back in East Africa for lack of political goodwill and State bureaucracies. Kenyan government officials have made announcements on planned road tolling projects. But little has been achieved on the side of policy formulation, project structuring and reviewing the existing road act to pave the way for privatisation of certain routes.
Kenya: New railway to add 1.5% to national wealth (Daily Nation)
Uganda-Kenya to meet in two weeks over pipeline deal (Daily Nation)
How is the Chinese “Going Out” policy having an impact on agriculture-related trade with Africa? (Future Agricultures)
This study illustrated that Chinese investments in agriculture-related commodities in Africa are not necessarily aimed at satisfying China’s domestic food security, but rather are assisting Africa with its food security problem via increasing local productivity using improving technologies, machinery and infrastructure in the region. [Afreximbank urges twinning between Chinese industrial parks, African cities (StarAfrica)]
Does trade reduce infant mortality? Evidence from Sub-Saharan Africa (CGI)
This paper investigates the impact of a trade policy, the African Growth and Opportunity Act (AGOA), on infant mortality and fleshes out the likely mechanisms. This paper derives a causal estimate by developing a micro panel dataset across countries and exploiting within-mother variation in survival of infants. I find that the policy reduces infant mortality by about 9% of the sample mean.
EAC: RFP for the development of the EAC Food and Nutrition Security Policy Implementation Strategy
The high stakes of India’s dispute with the US over visa fees (Livemint)
As India drags the US before the WTO over a spike in American visa fees for foreign workers, the stakes go well beyond the few thousand dollars required for paperwork. It’s the first time that two countries have clashed over visas at the international trade arbiter and reflects the changing nature of global commerce. India generates more than $100 billion from a services industry that depends on sending citizens to the US and other countries to develop software, set up computing systems and repair broken technologies. It argues the US move to double the cost of visas for these skilled workers constitutes protectionism and violates the WTO’s principles for fair trade. The US contends the policy is more about immigration than trade.
Analysing Namibia’s 2015 trade statistics (New Era)
Maersk: South Africa trade reports
Mwami one-stop border post will boost Zambia, Malawi trade - Mwananshiku (The Post)
Kenya: National Ethics and Corruption Survey Report 2015 (EACC)
Daron Acemoğlu: 'Inclusive institutions key for economic growth' (Huffinton Post)
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