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The European Union and the African Union: A statistical portrait
This “statistical portrait” 2015 edition presents a broad comparison between the situation of the European Union, including EFTA members and Candidate countries, and the African Union, its member states and non-member states. The publication is jointly produced by Eurostat and the Statistics Division of the African Union Commission (AUSTAT) on the basis of data from both organisations.
With data up to and including the year 2014, this “portrait” includes various domains such as demography, health, education, national accounts, trade, and more. Tables in the eight chapters help the user to gain a detailed view on different aspects, such as mobile phone subscriptions, number of teachers, life expectancy, GDP, tourism, etc. An overview chapter is also included, presenting statistical comparisons with the rest of the world.
Africa-EU Strategic Partnership
Africa’s continental integration is a key priority for the strategic partnership between the African Union and the EU. The new Pan-African Programme will provide a major contribution to the EU-Africa Partnership, established by the two continents in 2007 with the Joint Africa-EU Strategy (JAES), in order to put their relations on a new footing. The programme is a key instrument for the European Union to implement, in close cooperation with African partners, the political priorities of the Joint roadmap 2014-17, which was adopted by African and EU Heads of State and Government during the 4th EU-Africa summit in April 2014.
During the seventh College to College (C2C) meeting between the European Commission and the African Union Commission, which took place on 22nd April 2015 in Brussels, political and operational impetus to the Joint Africa-EU Strategy was confirmed in view of the five priority areas of the Joint Roadmap:
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Peace and Security
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Democracy, Good Governance and Human Rights
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Human development
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Sustainable and inclusive development and growth and continental integration
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Global and emerging issues
The Colleges considered these topics during a plenary session, co-chaired by the President of the European Commission, Jean-Claude Juncker, and the Chairperson of the African Union Commission, Nkosazana Dlamini-Zuma. For each of these objectives, a number of actions have been identified at interregional, continental or global levels which are expected to have a real impact on the people of both continents.
To achieve the strategic objectives of priority 4 (such as economic growth for poverty reduction, creation of decent jobs; development of the private sector; continental integration, energy, industrialisation and investment) particular support for statistical capacity building has been considered essential by the partners: “Decisions to invest or develop new policies need to be based on reliable and comparable data. We will enhance cooperation between European and African Statistical Systems in producing quality statistical service.”
The Pan-African Statistics (PAS) programme, as part of the overall Pan-African Programme, therefore aims to support African integration by improving the availability and quality of statistical information required for informed decisionmaking and policy monitoring.
To this end it will provide technical assistance to enhance harmonisation and coordination of statistics on the continent and to foster institutional capacity building. In this context it will also support preparations in view of a statistical institute at AU level, the creation of which was decided by the African Heads of States and Governments in January 2013.
International trade
Africa accounted for around 9% of both the imports to the EU-28 and the exports from the EU-28 in 2014, measured by value. This was far below Asia, which stood for 43% of the imports value to the EU-28 and about a third of the exports value. Northern America only accounted for 14% of the imports to the EU-28 but was the destination for 21% of the exports.
The EU-28 goods trade balance with Africa was negative in all years between 2003 and 2014 (Figure 1.11). The EU’s trade deficit with Africa fell sharply from EUR 41 billion in 2008 to around EUR 4 billion in 2009 with both import and export values dropping, clearly reflecting the worldwide economic crisis. This decline in EU-28 exports to and imports from Africa broke the steady increase of EU-28 trade with Africa between 2003 and 2008, which had seen export values raise by 71% and imports by 94%. From 2009 onwards, EU-28 exports to Africa returned to steady growth; by 2014, the value of EU-28 exports to Africa was 28% above the 2008 level. Also the imports from Africa resumed the strong growth in 2009, exceeding the pre-crisis value by 16% in 2012. However, in 2013 and 2014 the value of EU-28 imports from Africa again decreased; it fell by 11% in 2013 and by another 8% from 2013 to 2014, reaching a lower value in 2014 than prior to the economic crisis.
In 2014, the three main African partners for imports of goods to the EU-28 were Algeria (19% of total import value from Africa), Nigeria (18%) and South Africa (12%) (Figure 1.12). Together, these three countries accounted for close to half the total EU-28 imports from Africa. For both Algeria and Nigeria, the main product group imported to the EU-28 was petroleum products, more specifically crude oil and natural gas. Thus, due to the fall in petroleum prices, the value of this trade can change substantially from year to year. Libya, recorded third in 2013, lost 6 percentage points from 2013 to 2014 due to this effect and to the effects of the continued instability following the Civil War of 2011. The result was that Libya ranked fourth for imports to the EU-28 in 2014, with 8% of the total. The main African destinations for EU- 28 exports of goods were Algeria and South Africa (each 15% of total exports to Africa in 2014), followed by Morocco (12%) (Figure 1.13).
In 2014, EU-28 exports to Africa were dominated by machinery and vehicles, in particular road vehicles; with EUR 55.5 billion, this product group accounted for more than a third of the total value. For EU-28 exports of energy products to Africa, there was a significant reverse flow of refined oil products, amounting to some EUR 21.0 billion in 2014. Another important export product group from the EU-28 to Africa was manufactured products classified by material, which reached 22.4 billion EUR in 2014 (Figure 1.14). This represented 15% of the total EU-28 exports to Africa. A further important group of products exported to Africa was chemicals, with a share of 13% of the total in 2014.
From 2013 to 2014, the value of exports to Africa of machinery and vehicles, the most important product group by far, remained stable. Amongst the other main product groups, the export value from EU-28 to Africa fell by more than 7% for energy products and almost 1% for manufactured products classified by material. In contrast, the EU-28 exports of food and live animals to Africa continued to rise by a further 9% from 2013 to 2014. The value of chemicals exports increased by almost 3%.
On the import side, the value of energy products imports from Africa decreased by 12% from 2012 to 2013, followed by a drop of another 15% in 2014. This downturn was partly due to a strong fall in imports of energy products from Libya, which could not recover from a sharp decline caused by the civil uprising in 2011 and the renewed unrest from 2013 onwards. With the exception of energy products, of oils, fats and waxes and of manufactured goods classified by material, all main product groups recorded growth in EU-28 imports from Africa between 2013 and 2014.
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Resource exploration: A move South
A growing number of large resource finds are in the developing world, reflecting growing openness in their economies
High-income countries have long been the main users and suppliers of natural resources.
It could be bauxite, copper, and iron ore across much of Europe – not to mention coal, lead, mercury, zinc, and oil and natural gas. English and Belgian coal deposits fueled the Industrial Revolution.
When the United States achieved independence in the late 18th century it was widely thought of as a country with “an abundance of land but virtually no mining potential.” (O’Toole, 1997). But a century later, after the rebellious colonies had developed into a stable country, the United States not only became a high-income country in today’s parlance but it overtook Europe to become the world’s major resource producer.
Today, though, the high-income-country share of global resource deposits has fallen, driven by growth in discoveries in other, less-developed parts of the world.
We document a major shift in resource exploration and extraction from high-income regions, or the “North,” to emerging market and developing economies, or the “South.” This shift in resource discovery and extraction is associated with efforts in emerging market and developing economies to open up to foreign investment and/or improve their institutions – including through more stable government and stronger rule of law. That North-South shift mirrors on a global scale what happened in the United States after independence.
The new policies that have sparked a move south in global resource exploration and extraction operate over and above other forces that affect natural resource exploitation, such as rising global demand, especially from emerging markets, and depletion of deposits in the North. That shift has important implications both for the welfare of individual countries and for our global understanding of the balance of forces shaping commodity markets. Moreover, the increasing number of finds in developing economies puts to rest concerns that the world will soon run out of mineral and oil resources.
North to South shift
The data on known reserves of subsoil assets suggest that developing economies have much more oil, metals, and minerals to discover. There is an estimated $130,000 worth of known subsoil assets beneath the average square kilometer of advanced and emerging market Organisation for Economic Co-operation and Development (OECD) member countries. That is much more than the roughly $25,000 in known assets in Africa (Collier, 2010; McKinsey Global Institute, 2013).
But it is unlikely that such differences in asset value can be explained by variations in geological formations between advanced and developing economies. It is much more likely that the difference is largely the result of more exploration in the OECD countries. The amount of resources a country knows it has and can get out of the ground changes as investment in exploration finds new deposits – and as technology increases the amount of deposits that can be extracted.
That there are many deposits yet to be found in emerging market and developing economies seems to be borne out by developments over the past few decades. We have developed a data set that covers major discoveries between 1950 and 2012 in 128 countries for 33 natural resources – including oil, metal ores, and minerals. While the total number of annual discoveries has remained broadly constant globally, where those discoveries occur has changed (see Chart 1). OECD countries accounted for 37 to 50 percent of all discoveries between 1950 and 1989, but for only 26 percent in the past decade, with sub-Saharan Africa and Latin America doubling their shares, to 17 percent and 27 percent, respectively. Latin America has had the most mineral and oil discoveries in the past two decades. Data on major oil and natural gas discoveries come from Mike Horn, a former president of the American Association of Petroleum Geologists. Data on major mineral discoveries were obtained from MinEx Consulting.
Resource discoveries and institutions
Differences in the quality of property rights and political stability (that is, the institutional environment) between advanced and developing economies can help explain why historically there have been relatively fewer exploration efforts in developing economies – and as a result fewer assets have been discovered. But this is changing. A widely used measure of market orientation (see Box 1) suggests that the rapid improvement in the institutional environment in many developing economies in the 1990s coincided with the increase in the share of oil and mineral discoveries in Latin America and Africa (see Chart 2). The evolution of principles such as the rule of law (see Box 2) over the past decades also shows a North-South convergence as various emerging market and developing economies adopted standards already prevalent in the North (see Chart 3).
There is solid anecdotal evidence of a link between better institutions and more discoveries across continents and types of natural resources (see table). The increase in discoveries after countries open up to the global economy tends to be quite stark. In Peru, for example, discoveries more than quadrupled, in Chile they tripled, and in Mexico they doubled. These discoveries not only occurred when commodity prices were high, but also when commodity prices were at historical lows.
Researchers such as Cust and Harding (2014) have already shown that institutions have a substantial effect on oil and gas exploration. They did so by identifying how differences in institutions affect exploitation of oil deposits that sit on both sides of a border. They found that there is twice as much oil drilling on the side that has better institutions, as measured for example by the level of constraint on the executive (which has been shown to reduce expropriation). However, while Cust and Harding looked exclusively at oil, we include minerals in our analysis and believe that we are the first to document the North to South shift in global resource extraction, which is especially pronounced for minerals.
The theoretical literature on exhaustible resource exploitation and exploration dates back to a paper by Robert S. Pindyck, in which he demonstrated how a planner can maximize the value of social benefits from consumption of oil and how the reserve base can be replenished through exploration and discovery of new fields (1978). We expanded Pindyck’s model to take into account that much of the exploration and development is carried out by multinational companies under a contract with an emerging market or developing economy. In addition to the physical cost of extraction multinational corporations incur, they can also face political risks and other institutional problems not present in the North. We included a “tax” in our model to capture costs not found in the North.
Of course, other factors affect exploration and extraction – such as the cost of discoveries and the demand for natural resources. To see how well our institution-focused model reflected reality, we developed predictions from the model and tested them against the data set of 128 countries. We included country, year, and geographic location and controlled for global common shocks and technological progress. To account for institution quality we included the generic measure of market orientation mentioned above.
The empirical analysis is consistent with our model’s predictions and with anecdotal information about individual countries. That is, a country’s market orientation is associated with a statistically and economically significant increase in the likelihood of resource discovery. In all situations we found that countries discover more natural resources after they adopt market-based institutions, especially when they improve the investment climate and government stability – for example, when contracts are strengthened or expropriation risk is reduced. A country’s proven resource endowment is thus in part determined by its institutions.
Our analysis suggests that if all of Latin America and sub-Saharan Africa were to adopt the same quality of institutions as the United States, the number of discoveries worldwide would increase by 25 percent, all else equal.
Institutions can affect discoveries in many ways. A stronger rule of law may reduce the risk perceived by potential foreign investors, making them more willing to undertake the long-term investments usually required in resource exploration and extraction. This could make it easier for a country to adopt better technology, if, for example, stronger contracts make the prospect of costly investments in technology more attractive. The institutional changes could also improve the quality of the labor force and in turn affect the number of discoveries if they stimulate public investment in education. The quality and quantity of U.S. mining schools, for example, is seen as key to the many natural resource discoveries there in the late 19th century. We did not attempt to determine which of these elements was the most important way better institutions foster exploration and extraction; we merely document that better institutions are associated with more discovery and development of resources.
Many researchers, such as Acemoglu, Johnson, and Robinson (2001), have found a close relationship between the quality of institutions and overall economic development. Our research supports those findings, at least insofar as resource development can be considered part of overall economic development. We found systematic evidence that policies geared toward economic liberalization and/or improvement in institutions lead to major natural resource discoveries that increase the level of known resources and eventually push those countries toward extractive activities.
What consequences for the South?
From a policy standpoint, the North-South shift in the frontier of resource exploitation is likely to have important, mainly beneficial, consequences for individual economies with newly found natural resources. Indeed, these discoveries expand the list of resource-rich countries. They also portend positive economic developments. New mines mean more investment and jobs, especially in the resource sector, and increased government revenues, which if spent properly can increase the health and welfare of the people. The new production has fostered new trade routes from Latin America and Africa to emerging Asia – such as China-Ghana and China-Chile – multiplying commodity trade alone on those routes by more than 20 times since the 1990s.
However, these newly found resources pose challenges for policymakers in developing economies, not the least of which is ensuring that countries do not squander their natural resources – the so-called natural resource curse. Income from the new resource discoveries must be spent on high-quality, growth-enhancing investment to ensure that the whole country benefits. Better knowledge of what lies beneath their soil is important, but it is equally important for authorities to negotiate with multinational corporations to find the just middle ground between giving incentives to exploration and ensuring that resource income will further development.
Doomsday unlikely
The gradual improvement in institutions and, during the last 13 years, high commodity prices have led to a scramble for natural resources. However, the recent dramatic plunge in oil and other commodity prices will reduce the incentive to open mines and drill fields, which will hamper the move from discoveries to natural resource production.
From a broader perspective, while demand for natural resources from emerging markets has been a key driver of recent global commodity market developments, progress in the quality of institutions has helped increase the supply of commodities and diversified the sources of those commodities. Our findings puncture doomsday scenarios such as the peak oil hypothesis, which predicted that global oil production would peak in the year 2000.
Of course, exploration and development have not increased only in countries with newly improved institutions. The North has also benefited from new technologies that enhance exploration and allow recovery of resource deposits that could not be extracted using older techniques. In effect, investment in technology can increase resource endowment. For example, new so-called unconventional technology in the United States permits extraction of oil from tight rock formations once thought unsuitable for drilling. As a result, oil production in the United States has grown significantly in the past five years. The reemergence of U.S. oil production suggests that technology, depending on how and where it is adopted, could to some degree attenuate the North-South shift in the frontier of resource extraction. That said, as the South continues to develop an environment that encourages investment, the move of resource exploration and extraction to emerging market and developing economies will continue.
Rabah Arezki is the Chief of the Commodities Unit in the IMF’s Research Department; Frederick van der Ploeg is a Professor of Economics at the University of Oxford; and Frederik Toscani is an Economist in the IMF’s Western Hemisphere Department.
This article is based on the authors’ forthcoming IMF Working Paper, “Shifting Frontiers in Global Resource Extraction: The Role of Institutions.”
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Competition law: A necessity for effective regional integration
Competition laws and policies have long been present in industrialised economies but only started to take root around the 1990s in the non-industrialised and emerging economies.
It was estimated that since the year 2000, only half of the 54 Member States of Africa have enacted competition laws in their countries. The adoption of competition laws in Africa have largely been as a motive for African economies to comply with regional trade agreements, especially within Southern Africa as a result of being members of the Southern African Customs Union (SACU) and the Southern African Development Community (SADC). SACU has a legal annex on competition law developed but not enforced and SADC has a cooperation model on competition across its member states.
A major milestone for acceleration of competition regime in Africa has been as a result of the Tripartite arrangement where the regional blocs in Eastern and Southern Africa comprising members states of SADC (that comprises Member States of SACU), East African Community (EAC) and Common Market for Eastern and Southern Africa (COMESA) have focussed on the enactment and harmonisation of competition policies and laws amongst and between its member states. The COMESA Competition Authority was also recently established to implement competition enforcement within its member states.
Having to enact and operationalise competition policies and laws for an African economy is essential if it wants to manage its economy through a regulatory system that fosters economic growth, innovation and development.
Anecdotal and researched literature shows that competition laws do discipline market competition in any economy.
It fosters competitiveness of markets and businesses and also assist in consumer protection where consumers get the best products for the least prices.
Competition Laws do condition and heal market failures i.e. the private sector sometimes not doing what it ought to do in terms of proper and orderly competitive conduct in the marketplace.
Competition laws assist in fostering innovation by nudging businesses to constantly improve, bringing in new equipment and producing products which are competitive and offering wide range of choice for consumers.
The competitive dynamics ensure that new firms come into the market and prosper if they perform well in the marketplace and less efficient firms become unprofitable and are forced out or close down. These have implications for the industrialisation efforts in an economy and industrial growth in general for Africa.
Competition protects consumers and SMEs, and can aid in economic democracy where the consumers who form a larger economic agent in the social and productive process of an economy has a voice on consumer issues and also ensure proper behavioural conduct of firms especially of the bigger firms on SMEs in African economies. Small Firms can be harmed, no less than individual consumers by the actions of bigger firms on which they rely for inputs.
Competition laws change the business landscape through Mergers and Acquisitions in the African economies because they inadvertently reduce the number of market players.
Merger review allows examination of the positive and negative implications of any merger and assists in whether a new firm coming into an economy through foreign direct investment lessens competition, promotes abuse dominance, stifles SMEs, or dislocates regional or industrial sectors, leads to unemployment or has efficiency gains.
Competition Policy and Law can assist in securing gains from trade liberalisation and market opening. The reduction of barriers to trade and the removal of barriers to entry for domestic and foreign investment can actually assist African economies to access their regional and continental markets and can spur competition for the production of goods and services unique to Africa through free trade, efficient production and industrial processes and proper market access.
Regional integration is about deepening the areas of cooperation amongst a group of member states. Regional Integration is a process and a means to an end and requires certain discipline for Africa to succeed. Successful regional integration is always characterised by free movement of goods amongst Member States, albeit with a recognition to ensure protection of its sensitive and economically necessary local productive and industrial capacities.
Regional Integration requires adherence to compliance measures which facilitate trade such as the simplified customs procedures, one stop border posts, harmonised rules and proper documentation on trade standards at borders and converged tariff setting and import and export charging rules.
Regional Integration is important for developing industrial capacity. It can provide agreed sectoral and product growth points amongst its Members States and strengthen regional value chains and can provide higher scale of regional industries that have high potential for backward and forward linkages on sectors such as pharmaceuticals, agro-processing, mineral beneficiation and natural indigenous resource products.
Regional Integration is an important basis for enforcing regional competition policies and laws.
It is a well know fact that firms and business especially multinationals tend to acquire significant market power and influence pricing and volumes of supply through either monopolistic or pricing behavioural strategies.
They ultimately determine the scope and volume of business transactions and tend to capture regional markets through cross border commercial market power.
If Competition laws are fostered at the regional level, it would have the potential to ensure such cross border competition behaviour is disciplined to the best regional interest of growing economies through trade.
Regional competition policies and laws can assist in enforcing anti-competitive behaviour right across the regions and on the African continent.
It can also ensure uniform market discipline through curbing substantial abuse of market power or dominant position or monopoly situations.
The above shows that the importance of competition law as a tool to regional integration especially on the business conduct and the competitive markets in Africa cannot be underemphasised and should be pitched at regional, continental and international agendas such as SACU, SADC, COMESA, AU, and the World Trade Organisation (WTO).
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Namibia: 2016 Budget Statement
Extracts from the Budget Statement presented by Calle Schlettwein, Minister of Finance, on 25 February 2016
I have the honour to table the FY2016/17 Budget, a second under the Presidential administration of His Excellency, President Hage Geingob.
Honourable Speaker, our country and people have rallied behind the common aspiration for achieving shared prosperity for all. The Government has articulated this policy agenda and as Jacob Lew said “The budget is not just a collection of numbers, but an expression of our values and aspirations.”
This budget is underpinned by two fundamental and mutually-reinforcing policy objectives. The first objective is to reassert and reestablish a sustainable path for public finance, thereby maintaining macroeconomic stability as a basic enabler for future sustainability and socioeconomic development. The second objective is to redirect increasingly scarce financial resources to the priority areas of national development; with the objectives of unlocking potential economic growth, job creation and poverty eradication towards the achievement of shared prosperity for all.
These objectives are premised against the backdrop of significant developments in the external economic environment on the one hand, and on the other hand, the urgency with which the Government has undertaken to promote and advance the national development agenda.
A fortnight ago, when His Excellency the President opened the Third Session of the Sixth Parliament, he implored all of us collectively, to decisively move faster ahead when he stated: “in 2016, it is time to turn words into reality, it is time to implement and, therefore, this is the year of implementation”.
This budget, therefore, gives scope for the implementation of national priorities commensurate with the available resource envelope.
This budget proposes the commencement of a growth-friendly fiscal consolidation, anchored on the reduction of public expenditure. It proposes the targeting of resources to the productive sectors of the economy, solidifying gains in the social sectors and instituting measures to improve the quality of spending.
We aim to achieve the dual objective of aligning the future fiscal policy trajectory to the changing macroeconomic environment, whilst giving precedence to the implementation of priority development programmes for continued progress on the economic and social fronts. Hence the theme of this budget is: “Towards Pro-growth Fiscal Consolidation”. This theme and fiscal policy stance are necessary for the future sustainability of positive development outcomes. And it requires that we innovate, improve returns on our investments and implement policy reforms to optimise outcomes that will lead to timely, reliable and affordable quality service delivery to the nation.
When addressing the last Session of Cabinet in December 2015, His Excellency President Geingob articulated the four pillars for accelerated socio-economic development agenda, to be enshrined into the high-impact “Harambee Prosperity Plan”. These are the pillars of economic and infrastructure development, social development, and effective governance and service delivery.
These overarching pillars of the medium-term policy focus resonate well with our national development goals and constitute the key levers for the transition to the Fifth National Development Plan.
In this context and, in terms of Article 126(1) of the Namibian Constitution, I have the honour to table for the favourable consideration of this House, the following documents:
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The Appropriation Bill, 2016/17; and
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the Estimates of Revenue, Income and Expenditure for the Financial Year 2016/17 and the corresponding Medium-term Expenditure Framework (MTEF) for the financial years 2016/17 to 2018/19
Additionally, Honourable Speaker, I present the Fiscal Strategy Policy Framework, the Development Budget and the Accountability Report as important policy information and public accountability documents.
BUDGET POLICY PRIORITIES – PROGRESS ON OUTCOMES AND THE MTEF COURSE OF ACTION
Honourable Speaker, when I tabled the FY2015/16 Budget and MTEF, I laid out the budget priorities. These priorities have been reiterated in the 2015 Mid-Year Budget Review.
Namibia’s economy is small and open and, therefore, vulnerable to volatility from external factors including, trade volumes between SACU and the rest of the World. Whilst we shall continue to use the MTEF as tool for sound expenditure planning, we need to recognise that this is a framework of what we expect to happen and not what will actually happen. Therefore, in the medium-term, we shall revisit the MTEF forecasts on an annual basis to see if we need to rebalance our budget proposals on what we know are the financial resources and policy space available to us at that point in time. To ensure that our budgets are realistic, credible and targeted; we shall continue with the Mid-Term Review of the annual budget as a means of assessing what we have achieved in the financial year to date and where we need to redeploy our resources to those activities that are identified as national policy objectives.
We have set forth four priority focus areas for the budget, namely; economic growth and sustainable development, poverty eradication and the improvement of social welfare, progress towards prosperity and; lastly, improved delivery of timely, reliable and affordable services to the public.
Given this set of broader national priorities, I wish to emphasize the indispensable need for continuing to entrench macroeconomic stability. This is a non negotiable basic enabling factor for ensuring a sustainable path for the efficient management of public finance.
The implementation of interventions in these core priorities has progressed, thus demonstrating Government’s commitment to achieve accelerated results that will lead to shared prosperity for all Namibians.
Within the inclusive growth and sustainable development agenda;
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The targeted policy package is to diversify and industrialize the economy, develop the skills base and implement structural policy reforms to draw more Namibians into the mainstream economic activity.
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We have achieved free primary and secondary education as a basis for expanded access to education. Increasingly more resources are allocated to improve access to tertiary education, vocational training, as well as funding for innovation and Research & Development
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Infrastructure development in the logistics sector has benefited through direct funding from the development budget and targeted actions by Public Enterprises. This priority objective will be pursued over the MTEF, with priority funding for road, rail, water, energy and ICT infrastructure so as to make the goal of a logistics hub a reality.
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New instruments for SME funding in the form of a Venture Capital Fund, a Credit Guarantee Fund and a Challenge Fund are being developed to further scale-up support to SMEs. The Investment Bill is due for tabling in Parliament and a reviewed set of investment incentives is being formulated as we prepare for the National Investment Conference in May this year.
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Development Finance Institutions will remain key catalysts for economic development in promoting domestic investment and access to finance. The roles of the Development Bank, AgriBank and SME Bank have been delineated in relation to their lending portfolio and client-base, and
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the Public-Private Partnership legislation is due for tabling in this House, once the legal certification process is finalized. This will provide an added window for private sector development and infrastructure development through PPPs, with a pilot project proposal for developing affordable housing units in urban areas, and
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in line with the national commitment to provide affordable housing to our people, funding is made available in support this commitment.
In respect to the priority on poverty eradication and the improvement of social welfare;
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The Ministry of Poverty Eradication and Social Welfare has been hard at work to define an integrated package of cross-cutting instruments for driving back the frontiers of poverty and vulnerability, through a wide range of national consultation.
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In particular, improved quality and coverage of social safety nets are implemented. This budget proposes to increase Old-age pension and improved coverage in respect of Orphans and Vulnerable Children and Veterans of the liberation struggle,
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In the ensuing fiscal year, Government will undertake expenditure review in the social sectors as a basis for consolidating the various social safety nets and improving their targeting,
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The tax policy reform agenda will continue over the MTEF, with key amendments having already been approved and implemented last year. Our focus is not only to broaden and deepen the tax base, but also to make the tax system more progressive, so that it contributes positively to the social objectives of reducing income inequalities. We understand that the proposed Solidarity Tax is not fully understood by various sections of society. Therefore, this and other high-impact programmes for targeted funding from this Tax need to be well defined. We shall therefore continue to engage the public on the specific tax proposal for a broader understanding on the benefit, principles and administrative arrangements for this national intervention.
Honourable Speaker, we recognize the income inequalities and skewed ownership of sources of income that we have inherited from many years of divisive policies and exclusion prior to the independence of our country still exist. We have made positive progress in addressing these structural challenges. And more still remains to be done. Hence, the budget avails resources to specific interventions to tackle the persistent high inequality through the promotion of wealth creation and shared prosperity:
In this respect:
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Government is implementing its commitment on delivering affordable serviced land and housing under the Mass Land Serving and Mass Housing programmes,
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The Public Procurement Act has been promulgated last year and the subordinate regulations are due for gazetting. The local economic development content of the Public Procurement Act will draw more enterprising Namibians into the mainstream economic activity, while increasing the public procurement multiplier effects in the economy.
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Public consultation is now underway on the provisions of the New Equitable Economic Empowerment Framework (NEEEF), promoting affordable and sustainable access to the means of production, while maintaining responsible lending,
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Further facilities are being developed to support SME access to finance and mentorship programmes,
Lastly, the Government has assigned great priority to increased delivery of public services through a performance-oriented and results-based work culture.
To this effect;
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the reform agenda for the public enterprises sector has started under the mandate of the Ministry of Public Enterprises to ensure good governance, internal efficiency and effective provision of goods and services, and
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the stage has been set for a performance-driven work culture through the implementation of performance agreements at all levels of public service delivery.
ADDRESSING MACRO-CRITICAL RISKS, ANCHORING MACROECONOMIC STABILITY
Honourable Speaker, on the 3rd of November 2015, I had the privilege to table the first Mid-Year Budget Review for Namibia. On that occasion, I laid out the medium-term policy framework and fiscal stance, which will underpin the FY2016/17 Budget and the coming MTEF.
The Mid-year Review critically highlighted the key macro-critical policy issues to be addressed over the next MTEF, namely
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The structural challenges of addressing unemployment, inequality and implementing measures to eradicate poverty, through targeted developmental intervention measures. Multi-pronged interventions, better targeting and more urgency are required to make a meaningful impact on these structural challenges.
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Secondly, the declining public revenue due to contractions in receipts from the Southern Africa Customs Union (SACU) and the impact of external factors on the domestic economy requires that we align the expenditure outlook to the revenue outlook and the changing macroeconomic environment. Consistent with the Mid-Year Budget Policy Framework, this budget further proposes the fiscal consolidation stance over the MTEF.
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Thirdly, we have to contend with the widening twin deficits regarding the budget deficit and the current account deficit as a result of shocks on revenue and the weakening of the external trade position. The fiscal consolidation framework will seek to reduce the budget deficit over the MTEF in order to stabilize growth in public debt. Its progrowth dimension supports interventions to help lift tomorrow’s growth potential of the economy. However, more structural policies to improve the productive and export-oriented capacity of the economy are needed to buttress the external position over the medium to longterm.
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Fourthly, we had to contend with declining levels of international reserves as a consequence of negative trade balances, with reserves reaching as low as 1.3 months of import coverage in October 2015. We have been able to raise reserve levels above the international benchmark level of three months of import cover, thanks to timely interventions.
We made notable progress in addressing some of these challenges. We have been able to earn and retain our sovereign credit rating and implement policy advice from the Article IV Consultations, thanks to our common commitment to implement timely and credible policy measures to mitigate downside risks to our economy. Through this budget, we reiterate our commitment to address the sovereign credit risks and implement policy measures set forth in the ratings recommendations.
WHAT DOES THIS BUDGET OFFER?
This budget and the Medium-term Expenditure Framework provide resources and funding strategies aimed at tackling the structural challenges that affect the development potential of our economy and improving the welfare of Namibians in an inclusive and sustainable manner. It is a consolidation budget with a pro-growth dimension.
As such:
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Overall allocations to education and health sectors as well as social welfare programmes are scaled-up to guard against slippages in the provision of services. This was still possible within the reduced overall expenditure ceiling.
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Social Safety Nets are strengthened, consistent with the commitments announced in the FY2015/16 budget,
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Unproductive capital expense is reduced, while productive development infrastructure allocations are maintained under the Development Budget and the priority infrastructure projects under various Public Enterprises
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Continued investment in the maintenance of law and order and democratic governance is made to safeguard peace and stability, and
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Government contractual and statutory commitments are resourced, providing assurance to meet these commitments.
More importantly, Honourable Speaker, “not everything that counts can be counted, and not everything that can be counted counts”. More funding therefore does not necessarly guarantee greater success. Policy reforms, innovation, intergrity of institutions, internal efficiency and implementation capacity are critical determinants of successful outcomes and accelerated results. This should form the main defining strategy for Offices/Ministries and Agencies in this new paradigm of executing our sectoral mandates
Before I proceed to the specific elements of the medium-term budget policy stance and budget allocations, allow me to highlight the economic context under which this budget and MTEF come into operation.
GLOBAL AND REGIONAL ECONOMIC AND FINANCIAL CONTEXT
This budget is presented against the backdrop of highly uneven and fragile global economic growth. Global economic growth is estimated at 3.1 percent in 2015, representing a slowdown from the growth rate of 3.4 percent witnessed in 2014. The International Monetary Fund (IMF) projects a pickup in the growth trajectory to 3.4 percent in 2016 and 3.6 percent by 2017.
However, considerable asymmetry and downside fragilities underpin this growth trajectory. While growth for the Advanced Economies is projected to be firmer and more broad-based, Emerging Markets and Developing Economies which account for about 70 percent of global growth continue to face a more challenging outlook. Three transition forces underpin the growth prospects for this group of economies. These are in regard to the normalization of monetary policy in the World’s largest economy, the United States of America, the slowdown and internal rebalancing in the World’s second largest economy, China, and the prevailing lower prices across a broad range of commodities.
The combined effect of these factors has triggered net capital outflows from Emerging Markets and Developing Economies and sharp volatilities in financial and capital markets across the globe, including excess volatility in exchange rates and currencies, with implications on the external position and sovereign debt financing position for these economies.
Indeed, Namibia is no exception to these developments. The Namibia Dollar, through the currency peg mechanism as well as the domestic interest rate environment has not been spared from these excess volatilities.
The Sub-Saharan African region has also taken a knock from the generalized slowdown in Emerging Markets economies. In fact, the soft landing for the Chinese economy has resulted in a much harder landing for Sub-Saharan African economies through the trade channel.
Closer to home, the South African economy, which is closely linked to Namibia through strong trade, monetary and financial ties, is projected to grow at a rate of about 0.9 percent in 2016, which represents a further slowdown from 1.3 percent in 2015. This low growth trend for the South African economy holds negative implications for Namibia through trade and financial linkages as well as revenue derived from SACU.
DEVELOPMENTS IN THE DOMESTIC ECONOMY
The above developments in the global and regional economies have inescapable direct and indirect consequences for our economy.
Domestic economic growth for 2015 is estimated at 4.5 percent, reflecting a deceleration from the growth rate of 6.4 percent posted in 2014. This is lower than the 5.7 percent growth rate anticipated in the previous budget, as well as the revised 5.1 percent envisaged in the Mid-Year Budget Review. However, this pace of growth mirrors the historical average growth rate for Namibia and signals a readjustment from the boom years of expansionary fiscal and monetary policies. It is a paradigm which calls for supportive policy and structural reforms in the medium-term to realise a more robust and inclusive growth trajectory.
On the demand side, high investment especially in the minerals and retail sectors normalized as most of the recent investment projects reached completion stage. Final consumption demand also softened, reflecting effects of monetary and fiscal policy tightening, while export growth moderated, mainly due to subdued commodity prices in the minerals sector.
On the supply side, mining output for some of the major commodities was weaker due to low prices and weak external demand which, together with the effects of the drought in the agricultural sector, resulted in the estimated reduction in output from the primary industries. On the other hand, activity in the secondary and tertiary industries lent support to growth during 2015, though retail growth slowed from recent high rates as growth in credit extension began to subside.
Balance of Payments and Foreign Reserves
One of the macro-fiscal structural challenges that we should overcome in the medium to long-term is the reversal of the twin deficits for the budget and the current account.
There have been positive developments in this regard. The Overall Balance of Payments returned to a surplus of N$12.6 billion during 2015, compared to a deficit of N$1.8 billion in 2014. This was primarily due to the capital and financial account surplus from the Eurobond issuance in the last quarter of 2015. The current account deficit widened further to an estimated 9.7 percent of GDP (from 8.8 percent in 2014) as a consequence of a negative trade balance. This is to say that measures to improve the productive and exporting capacity of the economy and a stronger fiscal balance should assume policy prominence during the ensuing period.
For the greater part of 2015, we have had to contend with decreasing levels of foreign international reserves to as low as 1.3 months of import cover, seen against the international benchmark of three months of import coverage. Significantly high imports of machinery and luxury goods continued to erode the reserves stock. Low levels of official reserves constitute sovereign credit rating weakness.
As such, Government has utilized a portion of the Eurobond issuance last year in combination with Rand denominated domestic asset swap in order to defend the reserve position. Through this intervention, we have been able to rebuild the reserves to 3.4 months of import cover. In absence of this timely intervention, the reserves would have been below one month of coverage by this date. Going forward, there is confidence that export growth from the major investment undertakings in the mining sector, supported by domestic policy response, will form a sustainable basis for enhancing the external position.
Exchange Rate and Currency Movements
With respect to the exchange rate, we have witnessed excess volatility during 2015 and the year-to-date. The South African Rand, to which the Namibia Dollar is pegged on parity, has depreciated against the US Dollar, by over 30 percent since September 2015. The sharp depreciation of the Rand reflects external volatilities in the international financial markets, subdued commodity prices and economic challenges in South Africa.
The deterioration in the currency has immediate implications for our economy. While depreciation confers competitiveness to the exporting sector, it has immediate effects on raising sovereign debt and debt servicing as well as a higher import bill and, consequently, inflationary costs.
I am aware that there have been mixed public reactions regarding the relevance of the currency peg to the South African Rand. Let me use this opportunity to reassure the public that due to the significant trade linkages, the currency peg to the South African Rand remains a relevant policy and a credible anchor of domestic price stability and trading for Namibia. Such relevance only gets eroded if imported inflation and excess volatility becomes a permanent occurrence and fundamental macroeconomic imbalances emerge.
Regional economic integration
In terms of the regional integration agenda, progress has been achieved to unlock gridlocks in reviving the SACU institutional arrangements. The meetings of SACU institutional bodies are expected to return to normalcy, with the decisive SACU Council retreat scheduled for April this year.
Namibia believes that SACU has an important role to play as the engine of regional integration and industrialization. We believe that SACU revenues are currently broadly shared in a manner that reflects the realities of the SACU economies.
In regard to SADC, the Tripartite Free Trade Agreement between and among the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC) and the Southern African Development Community (SADC) was launched in June 2015. The Free Trade Area is an opportunity for unlocking intra-African trade. Namibia thus needs to establish a market share in this greater continental trading arrangement, while improving her productive capacity.
Honourable Speaker, following a protracted period of resolving the outstanding issues the EU-SADC-EPA negotiations have been successfully concluded. The Partnership Agreement is expected to come into force early this year.
It should be recalled that Namibia had only initialled, but not signed the SADC-EU Agreement nearly a decade ago. As a nation, we raised and persisted on matters of domestic industrial development, which were not fully addressed in the Agreement. This is especially in regard to infant industry protection, taxes to promote industrial development and the Most Favoured Nation clauses. It is pleasing to note that all SADC Member States, which had ratified the Agreement by then, had joined forces in a constructive engagement with the EU for an all-encompassing Agreement. Together with other SADC Member States, we have prevailed in our negotiated settlement and now look forward to ratifying the Agreement.
Fiscal Developments
The Mid-Year Budget Review provided details of the revenue and expenditure execution in respect to the most recent actual year as well as estimates for the current year. The total revenue for 2014/15 stood at N$49.93 billion, this being 4.8 percent lower than the budgeted revenue, but a 19.1 percent increase from the previous year.
The preliminary revenue outturn for the FY2015/16 is estimated at N$56.76 billion, which is 4.6 percent lower than the budget estimates of N$58.44 billion, due to adjustments for shortfalls from the previous year and a lower than anticipated economic activity.
Total spending for the FY2014/15 amounted to N$58.70 billion, reflecting a spending rate of 97.5 percent, compared to 98.2 percent in the previous year. Operational expenditure execution rate was 97.5 percent, and the corresponding utilization rate for the development budget was 90.1 percent.
For the FY2015/16, total expenditure by Mid-February is estimated at N$53.08 billion, representing 79.1 percent of the N$67.08 billion budget. This comprised 80.8 execution rate for operational budget and 71.6 percent for the development budget. The Mid-Year Appropriation Amendment Bill proposed a reallocation of N$4.01 billion within and across programmes and maintained the overall expenditure ceiling of N$67.08 billion. It is expected that the budget execution rate would approximate historical spending rates by the end of the financial year.
For the FY2014/15, the budget balance stood at a deficit of 6.0 percent of GDP, an upward revision from the 5.5 percent budgeted deficit, given the shortfalls in revenue as a result lower economic growth outturn. A similar trend prevailed during FY2015/16, with downward adjustments in revenue, as announced in the Mid-Year Budget Review. Sufficient financing has been secured during the year to fully fund this deficit level and no funding shortfall is experienced. However, a policy stance to reduce the budget deficit and stabilize growth in public debt is necessary.
As a result of increasing financing needs, the total debt stock has risen from N$35.95 billion in FY2014/15, to an estimated N$59.79 billion by the end of FY2015/16 and stands now at about 37 percent of GDP. While this level of debt is well below the median of 40 percent for Namibia’s sovereign rating peer group of BBB-, it is, in effect, estimated to have exceeded the national cap of 35 percent in the current financial year. The fiscal consolidation stance proposed in this budget and MTEF is aimed at stabilizing this growth in public debt and bringing the proportion of public debt within the threshold level.
The depreciation of the Namibia Dollar in recent times has increased debt servicing cost for the foreign debt portfolio. Total interest payments have increased to N$3.13 billion in FY2015/16, from N$2.52 billion in FY2014/15. As a ratio of revenue, debt servicing stood at 5.5 percent by FY2015/16, while contingent liabilities is estimated at 3.8 percent of GDP in FY2015/16, both of which are below the ceilings of 10 percent of revenue and GDP respectively.
The Government Accountability Report gives a detailed account of achievements by Votes and Programmes. I will rely on my Cabinet colleagues to expand on the key achievements by programmes under their institutional mandate during the Committee Stage.
Let me now to turn to the details of the FY2016/17 Budget and the medium-term outlook.
THE MEDIUM-TERM ECONOMIC OUTLOOK
In spite of a particularly challenging external economic and financial landscape, our economy is projected to grow by 4.3 percent in 2016. This growth trajectory is further projected to improve to 5.9 percent by 2017 and average around 4.9 percent over the MTEF, in spite of headwinds from the subdued regional economic and financial environment, weak commodity prices and subdued trade environment.
These projected growth rates are above global averages and consistent with historical performance of our economy. It is a growth outlook that outstrips the projected Sub-Saharan Africa average growth levels of 4.1 percent over the medium term.
On the demand side, increased exports from the recent investment projects in the minerals sector as well as steady private sector investment are expected to anchor the growth outlook.
On the supply side, increased output from the mining sector is expected to lead recovery in the primary sector, amidst the adverse impact of the poor rainfall conditions in the agricultural sector due to the prevailing El Nino event affecting the Southern African sub-region. Continued growth in the tertiary industries is also expected to support the outlook, as tourism benefits from the depreciation of the Namibia Dollar and the logistics sector is boosted by new port infrastructure. For the coming financial year, the gradual pace of fiscal consolidation demonstrates Government’s commitment to growth-friendly fiscal policy, to cushion the tapering off of boom cycles in the construction and retail sectors.
Revenue for the 2016/17 budget year is projected at N$57.84 billion, an increase of 2 percent over the previous year, given the sharp reduction in SACU receipts. For the MTEF, revenue is projected to increase at a moderate pace of about 7.2 percent, to reach N$69.82 billion by the end of the MTEF or about 27.5 percent of GDP. This projected annual growth rate in revenue is lower than the actual average growth of about 14.0 percent observed in the last three years due to the projected decline in SACU revenues and an adverse external environment.
The major drag and significant risk for revenue growth is the projected reduction of SACU revenues, on account of lower growth outlook for the South African economy. In the coming financial year, Namibia has to repay a total of N$2.96 billion back to the SACU Common Revenue Pool due to the deficit experienced in the Pool as a result of the factors I alluded to above and ex-ante payments made to Member States. Continued implementation of domestic tax policy and administrative reform agenda as well as the industrial development capacity will contribute to increasing the increasing contribution of revenue from own source.
The FY2016/17 Budget and Expenditure Outlook for the MTEF
I table before you a N$66.00 billion budget, equivalent to 34.9 percent of GDP. This expenditure outlay represents a 1.6 percent reduction from the previous year’s budget and a 7.3 percent cut from the indicative ceiling for FY2016/17 proposed in the previous MTEF.
Of this N$66.00 budget, the total non-interest expenditure for 2016/17 amounts to N$61.12 billion, a reduction from N$63.22 billion in 2015/16 and averaging around N$64.91 billion over the MTEF, in line with the fiscal consolidation stance.
Over the MTEF period, total expenditure is proposed to increase by an average of 3.8 percent annually, ushering in a period of fiscal consolidation over the entire MTEF, in line with the proposed policy stance.
The key levers for fiscal consolidation are the non-essential operational expenditure items such as materials and supplies, subsistence travel, overtime, furniture and office equipment and vehicles, as well as the postponement of other non-productive capital spending on office buildings in respect of the development budget. Thus, non-interest operational expenditure for FY2016/17 is reduced by N$106.9 million relative to its FY2015/16 level, while the development budget in respect of non-productive undertakings is reduced by N$1.99 billion.
Interest payments, which represent the Government obligations to debt servicing, are budgeted at N$4.88 billion in FY2016/17 or some 8.5 percent of revenue, seen against the statutory cap of 10 percent of revenue.
Non-interest operational expenditure for the budget year is set at N$52.06 billion or 27.5 percent of GDP, representing a 0.1 percent nominal reduction over the previous financial year and taking into consideration Government contractual commitments, remuneration adjustments and the provision of critical public services.
The recent trend in growth in remuneration expenditure and related budget subdivisions has been a cause for concern. Whilst these categories of expenditure support gainful employment and opportunities for many Namibians, we must seek to ensure that recurrent expenditure is not funded in the long-term at the expense of other public investments to improve the productive capacity of the economy.
In this regard, and in keeping with Government’s commitment to ensuring that all public institutions become more effective in what they do; more efficient in how they do things; and, more economic in the use of public funds, a realignment of growth of remuneration expenditure in line with inflation is currently under consideration. We are proposing that any public sector wage increases should be capped to a maximum of the annual inflation rate. We would further propose that there should be no net increase in the current size of the civil service. Both of these proposals should remain in place for the MTEF.
As part of the consolidation stance, the development budget is also reduced, but such cuts mainly lie in the postponement of the construction of office blocks for various Offices, Ministries and Agencies which are non-productive investments. Taking into consideration these effects, the total development budget has been reduced to N$9.06 billion in FY2016/17 and rises moderately over the MTEF to reach N$11.01 billion by FY2018/19.
In addition to the development budget allocation, budgetary allocations are made under the operational budget for targeted transfers to Public Enterprises for investment in strategic infrastructure projects. Among the key off-budget infrastructure projects are railway works, the rehabilitation of several national road projects, energy and water infrastructure development projects.
Going forward, Government must seek a better alignment of the development budget to our economic priorities, industrialization policy and our Growth at Home Strategy. This alignment would further be optimized through leveraging local sourcing requirements, PPPs, improved Namibian ownership and the development of value chains across the development initiatives.
Budget Balance and Financing Options
In line with the projected revenue and consolidated expenditure outlook for the MTEF, the budget deficit is projected at 4.3 percent of GDP in the budget year and is expected to average around 3.0 percent over the MTEF. For policy consistency purposes, this deficit outlook trajectory defines the fiscal consolidation path over the MTEF as a means to stabilize growth of the public debt.
Total debt is now estimated at about 37 percent of GDP. For the FY2016/17, this proportion is projected to reduce to 34.6 percent and is forecast to average around 30.6 percent over the MTEF, thanks to the consolidation phase and better improvements in the pace of economic activity. Given the downside risks to growth and revenue, continued measures to curtail significant growth in public expenditure will augur well with the lasting effects of stabilizing public debt levels within the threshold of 35 percent. Within this framework, no significant additional expenditure is anticipated over the next two years.
In nominal terms, total debt is projected to increase to N$63.73 billion in FY2016/17, from N$61.32 billion in FY2015/16, and to average around N$68.22 billion over the MTEF. This forecasted annual growth in public debt is offset by a relatively healthy Year-on-Year growth in nominal GDP.
Government intends to finance the substantial component of the deficit from the domestic and regional capital markets. Contingent liabilities are projected to increase to an average around 9 percent over the MTEF, as Government extends support to SOEs for project financing on the strength of their balance sheets.
EXPENDITURE PRIORITIES AND INTERVENTIONS FOR MTEF
Reasserting a credible path for the sustainability of public finances is but one objective of the budget that I lay before this honourable House. The growth and social development dimension, which comes about by virtue of deliberately directing increasingly scarce resources to the priority areas of national development, is yet another important objective.
These overarching pillars of the medium-term policy focus, resonate well with our national development goals and constitute the key levers for the transition to the Fifth National Development Plan.
Let me now give a synopsis of the main budgetary provisions made in this budget and over the MTEF.
Economic and Infrastructural Development
The budget proposes an allocation of 22.2 percent of total non-interest expenditure or some N$13.56 billion to the economic and infrastructure sectors, for investment in growth enhancing infrastructure, including in the logistics, water and energy sectors. Over the MTEF, this allocation amounts to as much as N$44.75 billion, equivalent to 23.0 percent of total non-interest expenditure.
In addition, an amount of N$17.23 billion is allocated as targeted subsidies and other current transfers to Public Enterprises for targeted development of key national infrastructure projects.
The key projects are the rehabilitation of the national railway, the on-going expansion of the Port of Walvis Bay, several national roads, water infrastructure, the Mass Housing Programme and increased funding to the Public Financial Institutions for private sector support and SME development.
POLICY INTERVENTIONS FOR THE MTEF
Doing more with less requires that we implement administrative, structural and policy reforms to make efficiency gains and optimize outcomes. It is, therefore, important that implementation of key policy reforms is accelerated in various sectors of the economy under the mandate of Offices/Ministries and Agencies.
Tax Policy Proposals
In regard to tax policy, the following measures, some of which were announced previously, will be undertaken during the budget year and over the MTEF:
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we will proceed to finalize the approval and implementation process of the environmental and export taxes to promote domestic value addition as previously announced,
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increasing the fuel levy administered under Schedule 1, Part 5 of the Customs and Excise Act. This is a fuel levy duty which is different from the National Energy Fund levy and it has remained constant since 1998.
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the work to assess the feasibility of a presumptive tax on informal sector, develop the Double-Taxation Agreement Policy and increasingly leverage international tax cooperation on matters of illicit trade flows and transfer pricing will continue and driven to finality,
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the Customs Bill which seeks to domesticate regional and international best practices is at legal drafting stage and it is one of the legislative amendments due for tabling this year,
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we will continue to finalize the consultation on the proposed introduction of Solidarity Tax during the course of the coming year, with the view to develop the tax proposal. While we have made progress to reduce income inequalities from the Gini Coeffient of 0.70 to 0.597 by 2009/10, Namibia remains one of the countries with significantly high income inequalities with highly concentrated wealth. The Solidarity Tax will be a progressive, redistributive tax which will contribute to the reduction of income inequalities and take into consideration the income levels and the ability to pay. Thus, it is not a tax base-broadening measure, but a redistributive tax with a relatively high tax threshold. As I have stated, the proceeds of the tax will accrue to a designated fund which attracts a separate audit and Parliamentary approval. I have established a Task Team that will also comprise independent tax experts to formulate a White Paper on the specific tax proposal and its modalities. This concept Paper will form the basis for finalizing the consultations and formulating the tax proposal.
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We will proceed with strengthening the provisions for recovery of tax debts, deploy the new Integrated Tax System and implement the transitional modalities for the establishment of a Semi-Autonomous Revenue Agency
Public Finance Management Reforms
In the realm of Public Finance Management, we have made progress on some of the key reforms.
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a Mid-Year Budget Review was introduced in November last year, as a measure to enhance allocative efficiency and inject greater transparency into the budget process.
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the Public Procurement Bill was tabled in this House and subsequently enacted. The Ministry is now proceeding with the finalization of the regulations,
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the Public Private Partnership legislation is now at legal drafting and certification stage for tabling in Parliament this year. This legislation is destined to play a catalytic role in leveraging private sector funding and efficiencies and thus mitigating public financial obligations.
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The Ministry of Finance is working closely with the Ministry of Justice and Law Reform and Development Commission on the drafting of a new Public Finance Management Bill, which will amend and modernize the present day State Finance Act.
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We intent to roll-out the Public Expenditure Reviews, especially in the social and welfare-related sectors to, among other things, support the formulation and targeting of interventions for poverty eradication and social protection, and
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An Asset Management Policy for the management of public assets is being developed and this will be finalized during the coming financial year.
CONCLUSION
Joseph Stiglitz said that, and I quote “macroeconomic policy can never be devoid of politics: it involves fundamental trade-offs and affects different groups differently”.
We are experiencing such trade-offs vividly, hence our emphasis on stability and inclusivity and pro poor policies for a prosperous Namibia.
In this Budget, we have undertaken to:
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Strengthen macroeconomic fundamentals as a basis to long-term fiscal sustainability and the sustained funding of interventions to grow the economy.
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This Budget marks a firm commencement of the fiscal consolidation programme that curtails the negative effects of excessive budgetary expansion and fiscal austerity.
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It inspires confidence in the future, by placing fiscal operations on a longterm sustainable path, fund growth-enhancing infrastructure and social development programmes. The priorities on education and skills development, the provision of health services and infrastructure development are retained.
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The Budget allows the Government to meet its financial operations and contractual obligations, without compromising service delivery to all Namibians.
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We are committed to the improvement of social welfare through poverty eradication programmes and better safety net systems.
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The institution of performance contracts is an added facet through which accountability for the resources allocated and its effective use are monitored.
Through this budget, we strike a fine balance between growth and fiscal consolidation. The country’s growth outlook is reasonably robust in relation to regional and global averages. We can, therefore, look forward to the future with confidence.
Targeted resource allocation proposals have been made. What matters is effective implementation and results-based management. And we need to act decisively. I thus seek for your support and insights going forward.
I conclude my 2016 budget statement with a quote from the renowned black American athlete Jesse Owens. He said “We all have dreams. But in order to make dreams come into reality, it takes an awful lot of determination, dedication, self-discipline and effort.” We will need all of these attributes in the years ahead if we are to make Namibia the country we all desire to see.
It is now my distinguished honour to submit for your favourable consideration the Appropriation Bill 2016/2017, the Estimates of Revenue, Income and Expenditure and the 2016/17 – 2018/19 MTEF.
I thank you.
Related News
Demographic upheaval: Taking the power back
The world will struggle with population growth, aging, migration, and urbanization
Humankind is being buffeted by the forces of demographic change.
The most prominent changes are rapid population growth in some developing economies and shifting shares of adolescents and young adults in others, increasing longevity and population aging throughout the world, and urbanization and international migration.
All pose formidable challenges – threatening economic growth, fiscal stability, environmental quality, and human security and welfare.
But none are insurmountable. They will be best dealt with if public and private policymakers act decisively, collaboratively, and soon. That includes reform of retirement policy, development of global immigration policy, provision of contraception to many millions of women, and further improvements in child survival and treatment of chronic disease.
World population grows
Population growth was extremely slow throughout most of human history. It took until the early 19th century for world population to hit 1 billion and until the 1920s to reach 2 billion. But during the past century, world population has grown significantly faster. It reached 3 billion in 1960 and jumped to 7 billion in 2011.
At the beginning of 2016, world population was 7.4 billion, and it is projected to increase another 83 million this year – representing the difference between 140 million births and 57 million deaths. Medium-variant projections by the United Nations Population Division (UNPD), which assume that fertility behavior evolves consistently with past trends and patterns, indicate that world population will surpass 8 billion in 2024, 9 billion in 2038, and 10 billion in 2056. Reaching 10 billion would be the equivalent of adding China and India to the current world population.
Admittedly, there is some uncertainty about these projections. For example, under the UNPD’s low-variant projection (which assumes fertility is half a child lower), world population will not reach 8 billion until 2026; under the high-variant projection (fertility half a child higher), it will reach that level in 2022. But under almost any circumstances, the world is on a historically unprecedented population trajectory (see Chart 1).
Ninety-nine percent of projected growth over the next four decades will occur in countries that are classified as less developed – Africa, Asia (excluding Japan), Latin America and the Caribbean, Melanesia, Micronesia, and Polynesia. Africa is currently home to one-sixth of the world’s population, but between now and 2050, it will account for 54 percent of global population growth. Africa’s population is projected to catch up to that of the more-developed regions (Australia, Europe, Japan, New Zealand, and northern America – mainly Canada and the United States) by 2018; by 2050, it will be nearly double their size.
Between now and mid-2050, other notable projected shifts in population include:
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India surpassing China in 2022 to have the largest national population;
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Nigeria reaching nearly 400 million people, more than double its current level, moving it ahead of Brazil, Indonesia, Pakistan, and the United States to become the world’s third-largest population;
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Russia’s population declining 10 percent and Mexico’s growing slightly below the 32 percent world rate to drop both countries from the top 10 list of national populations, while the Democratic Republic of the Congo (153 percent increase) and Ethiopia (90 percent) join the top 10; and
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Eighteen countries – mostly in eastern Europe (and including Russia) – experiencing population declines of 10 percent or more, while 30 countries (mostly in sub-Saharan Africa) at least double their populations.
Rapid population growth poses significant challenges. Among them is the need to provide jobs for large numbers of people and give them the human capital (quality education, training, and health) they need to be productive. Nations must also lay down the requisite physical capital and infrastructure to support higher employment; otherwise mass suffering and political, social, and economic instability and conflict could become ever more common. Increased inequality across countries could also deter international cooperation, stalling or even reversing the globalization process, which has great potential to elevate standards of living around the world. In addition, rapid population growth tends to impose pressure on ecosystems and natural resources, undermining food, energy, and water security – promoting the degradation of local and global environmental quality and diminishing the prospects for remediation and adaptation.
It has been estimated that a daunting 734 million new jobs are needed globally between 2010 and 2030 to accommodate projected increases in population, account for plausible changes in labor force participation rates, and achieve target unemployment rates of 4 percent or lower for adults and 8 percent or lower for youth.
Where people live
As the number of people grew over the second half of the 20th century, so did population density, with considerable variation across geographic regions and countries. In 1950, population density ranged from 1.5 people a square kilometer in Oceania to 45 in Asia. Today, it ranges from 5 to 142 across those same regions.
The center of gravity for world population continues to shift to the less-developed regions. It is also shifting from rural to urban areas as a result of migration, rising birth and declining mortality rates in urban areas, and rural settings growing into urban areas. More than half the world’s population now lives in urban areas, up from 30 percent in 1950, and the proportion is projected to reach two-thirds by 2050 (see Chart 2). Africa’s population is the least urbanized, with 40 percent of its people living in urban settings – just half the proportion of Latin America and the Caribbean, which is the most urbanized developing region. Fifty percent of Asia’s population is projected to be living in urban areas in the next few years.
The number of megacities – urban areas with populations greater than 10 million – grew from 4 in 1975 to 29 today. Megacities are home to 471 million people – 12 percent of the world’s urban population and 6 percent of the world’s total population. The United Nations recently introduced the concept of metacities, which are urban areas with 20 million or more residents. Eight cities had reached “meta” status in 2015. Tokyo heads the list, with 38 million residents – more than the population of Canada. No. 2 Delhi’s 26 million exceeds Australia’s population. Other metacities are Shanghai, São Paulo, Mumbai, Mexico City, Beijing, and Osaka. By 2025, Dhaka, Karachi, Lagos, and Cairo are projected to grow into metacities.
There is an intense debate about the implications of these spatial distributions of people. Some stress the economic benefits that accompany urban concentrations, such as large pools of labor and markets for selling goods and services. Others highlight the pressure that dense urban populations place on land, air, and water resources; urban dwellers’ disproportionate consumption of fossil fuels and corresponding contribution to greenhouse gas emissions; and the fact that more than 1 billion of the world’s population live in squalid urban slums.
Population dynamics
Notwithstanding the expanding numbers, the pace of population growth has recently begun to slow. Currently, world population is growing at 1.08 percent a year, which means a population doubling every 64 years. That rate is down from a high of 2.06 percent during 1965-70, or a doubling every 34 years. Africa has the highest growth rate at 2.44 percent (doubling every 28 years), and Europe’s 0.04 percent is the lowest (a doubling time of 173 years). In fact, the overall rate of population growth is falling, and projected to continue falling, in every geographic region. For the world as a whole, the rate of population growth is projected to decline by half between now and 2050.
Demographers often describe the dynamic process of population growth using a “demographic transition” model, which reflects a shift from a regime of high birth and death rates to low birth and death rates. A key feature of the transition is that the mortality decline precedes the fertility decline, resulting in a period of population growth.
Mortality—The number of global deaths annually per 1,000 people has declined steadily from 19.2 in 1950–55, to 7.8 today. That decline reflects such factors as the development and widespread delivery of vaccines; other medical advances, such as the introduction of antibiotics and oral rehydration therapy; dietary improvements; public health interventions, including improved sanitation, safer drinking water, and insecticide-treated bed nets; expanded education (especially of mothers); and improvements in health system and other infrastructure. It corresponds to a 24-year gain in global life expectancy—from 47 in 1950–55 to 71 now. Given that the average newborn lived to about age 30 during most of human history, this 24-year increase, an average of nine hours of life expectancy a day for 65 years, is a truly astonishing human achievement – and one that has yet to run its course. Global life expectancy is projected to increase to 78 by 2050–55.
Life expectancy varies considerably across regions, from a low of 61 in Africa to a high of 80 in northern America. That nearly two-decade gap is projected to narrow somewhat in the coming years. Africa is expected to outperform all other regions in terms of both relative and absolute population health gains, reflecting, among other factors, economic catch-up and the diffusion of technology.
Improvements in child survival are a significant driver of life expectancy increases. Deaths of children under age 5 declined globally by more than 50 percent from 1990 to 2015, with improvements in every region, though proportionately less in sub-Saharan Africa and Oceania. The largest absolute numbers of child deaths occurred in India and Nigeria, which together account for 20 percent of world population and 23 percent of births – but 33 percent of child deaths. Preterm birth, pneumonia, complications associated with labor and delivery, diarrhea, and malaria are the leading causes of child mortality, with undernutrition a significant cofactor.
Despite major improvements in child survival, more than 16,000 children under age 5 died every day in 2015. Most of these deaths resulted from diseases and causes that are preventable or treatable using existing and affordable interventions.
Fertility – A decline in fertility is another major facet of the global demographic scene. In 1950, the average woman bore 5 children; today, she has 2.5 children (see Chart 3). Fertility rates vary widely across regions – from 1.6 in Europe to 4.6 in Africa. Across countries, fertility rates vary even more. They are 7.6 in Niger, 6.4 in Somalia, 6.1 in Mali and Chad, and 6.0 in Angola, but 1.2 in Singapore and 1.3 in Moldova, Bosnia and Herzegovina, Portugal, South Korea, Greece, and Spain. Roughly half the world’s population lives in countries with fertility rates below the long-term replacement rate of approximately 2.1 children a woman.
In developing economies, improvements in child survival are a fundamental driver of fertility decline, which follows from the realization that fewer births are needed to reach target family size. Desired fertility also shrinks with educational progress and income growth. Lower fertility, in turn, promotes improvements in child survival, both through better maternal health and by allowing more family resources to be devoted to each child.
Access to contraception is also a key to fertility decline. Among 15- to 49-year-old women living with a male partner (married or otherwise), the overall rate of modern contraceptive use is 57 percent, with the main methods being female sterilization (used by 19 percent of the age group worldwide), intrauterine devices (14 percent), oral contraceptives (9 percent), male condoms (8 percent), and injectables (5 percent). Of the remaining 43 percent of women in this demographic, roughly two-fifths have an unmet need for family planning – meaning they are fecund, sexually active, and want to delay or forgo child bearing but are not using modern methods of contraception. The fraction drops to about one-fourth when traditional methods such as rhythm or withdrawal are included. In Africa the unmet need for contraception and fertility rates are both well above the global average.
International migration– Besides births and deaths, movements of people across borders represent the final channel through which national population size changes. Only 3.3 percent of the world’s population, or 244 million people, live in countries other than the one in which they were born. Europe and northern America comprise 15 percent of world population, but are home to more than half of the world’s international migrants. Nearly 20 percent of them are in the United States, followed by Germany and Russia with 5 percent each. The countries with the greatest numbers of emigrants are India (16 million), Mexico (12 million), Russia (11 million), and China (10 million). International migrants are mostly working age and evenly distributed by sex.
Although one of the greatest cross-continent mass migrations in recent history occurred in 2015 – the exodus of more than 1 million Syrians to Europe – economic and institutional barriers to immigration remain significant, as does staunch social and political opposition in many advanced economies. However, migration has considerable potential to benefit not only those leaving their home countries but others in their origin and destination countries as well. Realization of that potential, however, depends on a variety of factors, including policies to support the migrants’ integration into local economies. Many countries from which migrants leave oppose migration because it drains them of critical human resources such as physicians, engineers, and educators. Remittances are, however, a significant countervailing force: an estimated $441 billion was sent to the developing world by migrants in 2015, more than three times the amount of official development assistance and roughly two-thirds the level of direct foreign investment to developing nations. Remittances can significantly mitigate poverty and promote economic and social development through the accumulation of human and physical capital.
Age structure
Perhaps the most important of the global demographic developments is the changing population age structure. Three highly predictable sets of changes stand out: falling youth dependency (the ratio of children under 15 to the working-age population, 15 to 64), shifting numbers of adolescents and young adults (15- to 24-year-olds), and the rising proportion of older people (ages 60 and over or 65 and over). All these changes are linked to trends in the numbers of births and deaths. For example, falling death rates in the early phases of the demographic transition occur disproportionately among infants and children, which effectively launches a baby boom that lasts until fertility declines. As the baby-boomers get older, an age wave works its way through the population pyramid (see Chart 4), from the base (infants and children) to the midsections (15-24 and 25-59), to the peaks (60-plus and 80-plus). Similar changes in age structure occur as a result of sharply rising birthrates, such as the baby booms in many countries after World War II.
Because people’s needs and capacities vary considerably over the life cycle, the consequences of changes in age structure can be significant. Children consume more output than they produce; they require lots of resources for food, clothing, housing, medical care, and schooling; and they typically do not work. By contrast, adults tend to contribute more than they consume – both through work and through their saving, which supports capital accumulation. The net contribution of the elderly is typically somewhere in between. People tend to work less as they reach advanced age and either save less or dip into savings to finance their consumption in retirement.
Demographic dividends – Changes in age structure can promote economic growth by creating the potential for what is known as a demographic dividend – a boost to income per capita associated with fertility decline, which reduces the burden of youth dependency, increases the proportion of workers and savers in the population, and allows resources to be reallocated from supporting children to building factories, laying down infrastructure, and investing in education and research and development.
Declining fertility also tends to free women from childbearing and child rearing, further boosting the labor supply. Similarly, saving rates tend to rise with increases in adult survival and the anticipation of longer periods of retirement, especially in countries where policies and institutions deter people from working past their early or mid-60s.
The demographic dividend is a window of opportunity for rapid growth of income and poverty reduction. It can be catalyzed through policies and programs that lower infant and child mortality and accelerated by encouraging lower fertility – for example, by broadening access to primary and reproductive health services and to girls’ education. But a demographic dividend is not automatic. Its realization depends on key aspects of the economic and legal environment such as the quality of governance, macroeconomic management, trade policy, and infrastructure; the efficiency of labor and financial markets; and rates of public and private investment in health, education, and training.
Demographic dividends have been enjoyed by a number of countries in recent decades, most notably the east Asian tigers (Hong Kong SAR, South Korea, Singapore, and Taiwan Province of China), which cut their birthrates precipitously in the 1960s and 1970s and used the economic breathing room to stunning advantage through judicious education and health policies, sound macroeconomic management, and careful engagement with regional and world economies. In these countries, more than 2 percentage points of annual growth in income per capita (roughly one-third of the total) is attributable to falling fertility and the corresponding sharp rise in the working-age share of the population between 1965 and 2000.
At the other end of the spectrum, countries in sub-Saharan Africa have fared much worse developmentally because they have been unable to escape the crushing burden of youth dependency and rapid population growth. High dependency ratios throughout much of Africa suggest that lower fertility has much potential to spur higher rates of economic growth.
In south Asia, where fertility rates have already fallen substantially, demographic dividends are a more near-term prospect and will depend importantly on human capital investments and job creation.
Ebb and flow in the youth bulge – Long-term economic well-being is powerfully connected to the near-term experience of adolescents and young adults. Along with their sheer number, the skills, habits, energy, and expectations of young people make them a potent agent of social and economic progress. The persistence of high unemployment rates – especially among the young – continues to undermine the formation of fruitful and stable connections between young people and the world of work. The Arab Spring at the beginning of this decade serves as a sobering reminder that populations with large numbers of adolescents and young adults pose great risk to social and political stability in societies that fail to satisfy people’s expectations for standards of living, especially in nondemocratic settings.
These demographic pressures, however, may soon be relaxed. Adolescents and young adults currently represent 16 percent of world population – ranging from lows of 9 percent in Spain and 10 percent in Bulgaria, Italy, Japan, and Slovenia to 24 percent in Micronesia and 23 percent in Lesotho and Swaziland.
But the share is falling in every region, and in some countries even the absolute number of 15- to 24-year-olds is shrinking. By 2020, the largest absolute declines will occur in China (32 million), Vietnam (2.3 million), Russia (1.8 million), Iran (1.7 million), and the United States (1.4 million). The largest percent declines will be in Armenia (–25 percent), Moldova (–24 percent), and Georgia (–23 percent). Other notable cases include South Korea (–15 percent), Cuba (–8 percent), Germany (–7 percent), the United Kingdom (–6 percent), Japan (–4 percent), and South Africa (–3 percent).
This suggests the possibility of better educational and economic opportunities. But the shrinking number of young people also has other implications, including the prospect of fewer workers to support swelling numbers of older people. The younger workers will face growing physical and financial responsibilities to support the elderly, including higher taxes to fund health care and pension spending in pay-as-you go systems. The situation will be further complicated by a swing in electoral power, from increasingly burdened young and prime-age adults to growing numbers of elderly dependents.
Global graying– In a 2009 survey, professional demographers said that aging is the greatest population issue the world will face in the next 20 years (except for African-based demographers, who ranked HIV/AIDS higher).
In 1950, 8 percent of the world’s population was classified as old (that is, age 60 or over). Since then, the old-age share of world population has risen gradually to 12 percent today, about 900 million people. But a sharp change is afoot. By 2050 about 2.1 billion people, 22 percent of global population, will be older than 60. The United Nations projects that the global median age will increase from about 30 years today to 36 years in 2050 and that, with the exception of Niger, the proportion of elderly will grow in every country.
Japan’s median age of 47 is the world’s highest and is projected to rise to 53 by 2050. But by then South Korea’s median age will be 54. In 2050, 34 countries will have median ages at or above Japan’s current 47. The world’s 15- to 24-year-olds now outnumber those ages 60 and above by 32 percent. But by 2026 these two groups will be equal in size. After that, those over age 60 will rapidly come to outnumber adolescents and young adults. This crossover already took place in 1984 among advanced economies and is projected to occur in 2035 in less-developed regions.
Undesirable effects
There is great concern over rapid population aging, which has been crudely linked to many undesirable phenomena, such as workforce shortages, economic growth slowdowns, asset market meltdowns, fiscal stress, the financial collapse of pension and health care systems, and the dissipation of demographic dividends.
But demographic change often spurs offsetting behavioral adjustments and technological and institutional innovations. Dire predictions abounded when world population was doubling from 3 to 6 billion between 1960 and 2000. But global income per capita more than doubled during those four decades, life expectancy increased by more than 15 years, and primary school enrollment rates approached universality in many countries.
Population aging is likely to provoke similar adjustments. Myriad strategies are available to realize the potential that increased longevity creates for gains in welfare and to deflect the burdens.
One set of strategies relies on the increased savings and greater female labor force participation that follow lower fertility, possibly abetted by the adoption of policies that make it easier to combine work and family. Another involves magnifying the effective size of the labor force through strong investments in child health and in educational attainment and quality. Businesses can also help by reforming human resources practices to make workplaces friendlier for older workers and by expanding opportunities for workers of all ages to augment and sharpen skill sets. Other buffers against the effects of an elderly population are likely to include the development of technology such as “social robots” that assist people with vital physical and cognitive activities and the redesign of cities to foster more active and healthier aging. Adjusting coverage and contribution rates and benefit payouts from public health care and pension systems is also a natural response to the fiscal pressures associated with population aging, although it risks provoking intergenerational tensions.
Increasing the statutory retirement age can be a potent response to labor-market tightening associated with population aging. Retirement ages have been remarkably stable for decades, even in the face of dramatic increases in longevity. Projected declines in the ratio of the working-age to non-working-age populations are much less sharp if the upper bound of the working age is increased to 70 over the next quarter century.
Of course, adding older adults to the workforce is useful only if they are healthy enough to be productive. A heightened focus on disease prevention could play an important role in adapting to population aging. That involves a commitment to healthier diets, more physical activity, reduction of tobacco and harmful alcohol consumption, and increased adult vaccinations against diseases such as influenza, pneumococcal pneumonia, and shingles.
Some have also proposed fostering increased rates of international migration from countries with “young” populations, such as those in Africa, to those with “old” populations, such as in Europe, as another adaptation to population aging. Turning on the international migration tap as a response to population aging is possible, but is unlikely to offer appreciable relief given social and political opposition to sustained mass immigration in most high-income countries.
A way forward
The world continues to experience the most significant demographic transformation in human history. Changes in longevity and fertility, together with urbanization and migration, are powerful shapers of our demographic future, and they presage significant social, political, economic, and environmental consequences. The challenges are formidable, though likely surmountable. Behavioral adjustments, technological innovations, and policy and institutional changes have significant potential to offset negative consequences and realize promising opportunities, but their implementation will require financial resources and strong national and global leadership. It is unlikely that the worst fears associated with rapid population growth and graying populations will be realized. But a great deal of analysis, debate, behavioral adaptation, and policy reform – in both the public and private spheres – must occur before we can be sure.
David E. Bloom is Professor of Economics and Demography in Harvard University’s Department of Global Health and Population.
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tralac’s Daily News selection
The selection: Thursday, 25 February 2016
Namibia's 2016-2017 budget takes place today: PWC preview (The Namibian)
Rescheduled: The 17th Ordinary EAC Heads of State Summit will now take place on 2 March in Arusha while the East African Business Leaders’ Summit will take place on 1 March.
Related - tweets, multimedia on cross-border movement policy issues:
@MINEACRwanda: #EAC Heads of State expected to launch the new International East African e-passport during their meeting 2nd March, 2016 in Arusha,Tanzania
@Rwandamigration: The open visa policy at the regional (#EAC) level has led to over 12,000 people getting permits free of charge
@Rwandamigration: #Rwanda, #Kenya and #Uganda also allow travel between their countries with national ID cards, which has increased cross-border trade by 50%
Africa Openness Index Report 2016: interview with AfDB's Director of Regional Integration and Trade (video, CNBCAfrica)
South Africa: 2016 Budget Speech documentation (National Treasury)
During the first three quarters of 2015, the current account deficit narrowed to 4% of GDP from 5.4% in 2014, largely due to an improved trade balance stemming from higher export receipts. The narrowing of the trade deficit in 2015 is expected to be maintained over the forecast period, resulting in an improvement in the current account relative to 2015 MTBPS projections. A further reduction in the current account deficit requires higher domestic savings. Over time, fiscal consolidation and structural reforms should contribute to improved savings. The terms of trade deteriorated by 0.1% over the first three quarters of 2015 compared to the same period in 2014, as falling oil prices offset declines in prices for coal, iron ore, gold and platinum. As oil prices rise gradually during 2016, the terms of trade are expected to weaken, before stabilising over the medium term. [SA risks ‘kleptocracy’ status - Gordhan (IOL)]
African economic and trade matters - highlighted decisions from the Executive Council's 28th Ordinary Session, 23-28 January (AU):
On AGOA: Requests the Commission to conduct a continent-wide study to investigate the causes of shortcomings in the African Growth and Opportunity Act process and make the most of the experiences of countries that have recorded better economic and commercial performance in this process; Also requests the Commission to remain engaged with the United States to ensure that there is no erosion of preferences available to Member States under AGOA; Urges Member States to set up their national AGOA response strategies to take better advantage of the economic and commercial potential of AGOA;
On FOCAC: Requests the Commission to capitalize on the commitment of China within the Forum on China-Africa Cooperation and the Memorandum of Understanding signed with China for industrialization;
On EPAs: Urges Member States and negotiating regions to forward their signed Economic Partnerships Agreement to the Commission which in collaboration with the United Nations Economic Commission for Africa are mandated to analysing them and ensuring that they are compatible with Africa’s development as framed in Agenda 2063;
Also requests the Commission to urgently organize a Ministerial Roundtable on current economic, financial, agricultural and humanitarian challenges facing the continent with a view to addressing these challenges and designing an African forward-looking response aimed to build long-term resilience;
Further requests the Commission in collaboration with Member States to fast-track the implementation of flagship programmes such as the Grand Inga Dam Project to unleash the economic potential of the continent;
Related: Continental Free Trade Area Negotiating Forum: update (AU), Tear down Africa's trade walls (The Economist), Africa should spur pace to integrate development (editorial comment, Ethiopian Herald)
Nigeria: IMF completes 2016 Article IV Mission (IMF)
Growth is projected to improve slightly to 3.2% in 2016 but could rebound to 4.9% in 2017, supported by an appropriate policy package that would, for example, enable priority infrastructure investments. The general government deficit is projected to widen somewhat before improving in 2017, while the external current account deficit is likely to remain flat at 2.3% of GDP. Growth in credit to the private sector is projected to recover from the slump in 2015, aiding the increase in activity. Key risks to the outlook include lower-than-budgeted oil prices, shortfalls in non-oil revenues, a further deterioration in finances of state and local Governments, and a resurgence in security concerns.
UK-Guinea Trade and Investment Forum: opening speech by James Duddridge, Minister for Africa (UK)
Improving the perspective for regional trade and investment in West Africa: the key to food security, economic development and stability in the region (ASCL)
The overall objective of the scoping study is to provide a comprehensive picture of The Netherlands’ Government ongoing cooperation with West Africa and the perspective in terms of policy options for strengthening its effectiveness and coherence by giving more emphasis to the promotion of intraregional trade and investment in West Africa. In order to identify knowledge gaps and needs, and to generate meaningful input in support of this scoping study, the ASCL, LEI and ECDPM organize a scoping conference, bringing together representatives from the consortium partners, The Netherlands’ Ministry of Foreign Affairs, the Food & Business Knowledge Platform as well as a selected number of other experts from diverse backgrounds. [Download the conference report]
Managing food security risks and intra-regional trade in Africa (FAO)
Key messages of the brief: Increased intra-regional trade in food staples can play a significant role in reducing domestic food price volatility. Significant efforts need to be made to increase the confidence of governments to place greater reliance on market based instruments at the same time as ensuring that food security objectives are met, and to convince private sector stakeholders that such change is credible and will be sustained.
Starting today, in Gaborone: SADC convenes meeting to assess El Nino impact
The two-day meeting, being jointly convened by SADC, the FAO and the WFP is expected to be attended by some 165 delegates from the agriculture, environment, food and nutrition, disaster management, climate change, water, health, planning and financial sectors from the 15 SADC member states. Other participants would include representatives from the humanitarian, development and donor communities.
The Great Lakes Private Sector Investment Conference concludes today: Ban highlights private-sector investment for potential to ‘transform’ Africa’s Great Lakes region (UN)
Turning to Government leaders of governments of the Great Lakes region, Mr Ban highlighted that by lending their support to the conference, they were showing their “resolve to improve the investment climate.” Governments had also committed to enact policies to help expand the domestic private sector, and to make it possible for micro-, small- and medium-sized enterprises to grow. “As you do so, I encourage you to create an environment that ensures business operations and investments are responsible and sustainable, and predictable,” Mr. Ban stressed. “We know that this is an essential ingredient to long-term economic growth and building trust in societies.” Speaking to the African private-sector leaders, Mr. Ban said that the people of the Great Lakes region count them – business leaders, entrepreneurs and investors – to fully contribute to the goal of transforming the region.
South Africa accepts protocol amending the TRIPS Agreement (WTO)
South Africa deposited its instrument of acceptance for the 2005 protocol amending the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) on 23 February 2016, becoming the fourth WTO member to do so in 2016. Thailand (on 28 January), Mali (on 20 January) and Lesotho (on 4 January) are the other three members that have accepted the amendment this year. The protocol will enter into force once two-thirds of the WTO membership has formally accepted it. South Africa’s acceptance marks another step towards the threshold.
WTO updates: Roberto Azevêdo: report to Trade Negotiations Committee (WTO), Rorden Wilkinson: 'The WTO, Nairobi and the 2030 Agenda' (BioRes), US prevails in WTO dispute challenging India’s discrimination against US solar exports (USTR)
Zimbabwe: Pre-shipment inspection to push prices upwards (Financial Gazette)
Kingston Khanyile, chief executive officer at Mtilikwe Financial Services, said while the SI is meant to mitigate dumping of substandard goods, the costs arising from this exercise will simply be passed onto the final consumer. “It’s a commendable move by government. The cost is minimal and there will be a marginal increase of prices but that will not stop the demand for imports,” he said.
Namibia Enterprise Surveys: key findings (World Bank Blogs)
The Namibia Enterprise Surveys consisted of 580 interviews with firms across three regions and three business sectors – manufacturing, retail, and other services. So what are some key highlights from the surveys? In 2013, it took a firm in Namibia about eight days to clear exports through customs, which is considerably more than the two days it took in 2006. Despite this increase, the average time to clear direct exports through customs is still about the same as in the upper middle income countries (8 days) and lower than the Sub-Saharan Africa regional average (10 days). Moreover, there is a wide variation across firm size.
ECOSOC debate: 'Partnership approaches: how to ensure accountability, coherence and evaluation of impact?' (UN)
Mr Mayaki (NEPAD) said after the creation of the African Union and NEPAD, in 2000, the regional dimension of partnerships had strengthened, common positions within the African context had been defined, and foreign direct investment (FDI) had increased. The coming decade would be uncertain, but it would be characterized by increased “regionality” and localism that would affect the State’s role. Decisions taken from the top-down would be increasingly contested by civil society and the private sector.
Kenya: Mobile cash transfers hit record Sh2.8trn on bill payments growth (Business Daily)
Kenya gets greenlight to export labour to Israel (Daily Nation)
Saudi Arabia to lift ban on Ugandan beef, fruits (Daily Monitor)
Mozambique: US EXIM Bank president visits (Club of Mozambique)
Zim-India trade increases by 200% (NewsDay)
Trade finance in Africa – where are we headed? An interview with Ikenna Egbukole, FirstBank of Nigeria
Algeria suspends free trade exchange agreements with EU (Africa News)
The New Development Bank has launched its website
African industrialisation investigation and workshop 2016: probing China’s role in Africa following FOCAC6 (WITS Journalism)
Civil society from the BRICS: emerging roles in the new international development landscape (IDS)
Sendai takes root in Africa (UNSIDR)
IMF Note on Global Prospects and Policy Challenges: prepared for the G20 Finance Ministers and Central Bank Governors' Meetings (IMF)
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South Africa: National Budget Speech 2016
People’s Guide to the Budget
The 2016 Budget affirms government’s commitment to close the gap between spending and revenue and implement a plan for stronger economic growth.
It is about sticking to our plans despite increasingly challenging circumstances. Government’s aim is to eliminate wasteful spending and reduce it on non-critical items so as to sustain service delivery and maintain strong public finances.
It has been a number of years since South Africa’s economic growth has been strong enough to encourage employment, promote investment and reduce government’s debt. In recent months, the situation has deteriorated further as expectations for growth have decreased, the rand has depreciated and confidence of business and consumers has fallen.
Economic growth was 1.3 per cent in 2015 and is expected to decline to 0.9 per cent in 2016 before rising to 1.7 per cent in 2017 and 2.4 per cent in 2018.
This low economic growth translates into reduced tax revenue. The gap between government spending and revenue stands at 4.2 percent of GDP in 2015/16. Spending has outpaced revenue as government maintained service delivery programmes in the middle of poor economic performance. In that period, debt has climbed steadily.
Over the next three years, government will lower the expenditure ceiling, increase tax revenues, and manage the size of the government workforce, which is a major source of expenditure. To achieve this, government will reduce compensation budgets by R10 billion in 2017/18 and R15 billion in 2018/19. An additional R48 billion in tax revenue will be raised over the next three years by adjusting tax and improving tax collection.
Although the spending ceiling will be lowered, it will still be growing moderately. Social grants have been protected, and core social and economic programmes will be maintained.
The country needs faster inclusive economic growth to achieve its development targets and improve its public finances. This kind of growth depends on higher levels of confidence and investment within the private sector. It is because of this that government has increased its engagements with business.
Government will be partnering with the private sector to invest in infrastructure projects, entrepreneurship, skills development projects and the independent power producer programme that will increase power supply. This partnership with the private sector, an expanding tourism sector, less labour strikes and better global growth conditions should support a pick-up in economic growth over the medium term.
Measures towards realising faster economic recovery
Government is committed to raising growth rates over the medium and long term. Success will depend on marshalling the active support of business, labour and civil society for the National Development Plan.
Key areas of intervention include:
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Focusing on electricity supply: Electricity has been the main constraint to faster economic growth. Government is therefore focusing on measures to increase electricity supply and building infrastructure to encourage investment and create jobs. Over the next 3 years, Eskom will invest R157 billion to expand electricity generating capacity.
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Infrastructure building is essential for encouraging investment, creating jobs and developing the right environment for the economy to grow rapidly. In line with the National Development Plan, the 2016 Budget prioritises spending on infrastructure. Over the next three years, government has committed R796 million towards investment in housing, roads, public transport, water and electricity.
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A total of R121.5 billion has been allocated for water and sanitation. The Department of Water and Sanitation will continue to focus on developing and rehabilitating water infrastructure to connect households.
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Focus on sectors that are less energy intensive and more labour intensive such as tourism, the ocean economy; agriculture and agro-processing. Government will identify and remove regulatory constraints that continue to hold back growth in these sectors.
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Using public resources to stimulate economic activity by prioritising spending on actions that have direct impact on the economy.
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Focus on small businesses, especially start-ups.
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Transforming the cities into mixed income precinct where people are close to transport networks and jobs. This also involves ensuring ongoing investment in infrastructure maintenance.
Restoring the momentum of growth requires greater confidence in the future on the part of all South Africans. Faster growth in private investment is key to economic recovery and employment.
Extracts from the 2016 Budget Speech by Minister Pravin Gordhan
I have the honour to present the 2016 Budget of President Zuma’s second administration. We do so in a spirit of frankness, both about our challenges and the opportunity to turn our economy’s direction towards hope, confidence and a better future for all.
Low growth, high unemployment, extreme inequality and hurtful fractures in our society – these are unacceptable to all of us. I have a simple message. We are strong enough, resilient enough and creative enough to manage and overcome our economic challenges.
All of us want jobs, thriving businesses, engaged professionals, narrowing inequality, fewer in poverty. All of us want a new values paradigm, a society at peace with itself, a nation energised by the task of building stronger foundations for our future society and economy.
We want our government to function effectively, our people to work in dignity, with resources for their families, decent homes and opportunities for their children. We want to see progress throughout our land, in agriculture, manufacturing, mining, construction, tourism, science and research, sport and leisure, trade and commerce.
It is within our grasp to achieve this future. It requires bold and constructive leadership in all sectors, a shared vision, a common purpose, and the will to find common ground. Above all we need action, not just words.
Let us unite as a team, sharing our skills and resources, building social solidarity, defending the institutions of our democracy and developing our economy inclusively.
We do have a plan, to:
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Manage our finances in a prudent and sustainable way,
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Re-ignite confidence and mobilise the resources of all social partners,
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Collectively invest more in infrastructure to increase potential growth,
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Give hope to our youth through training and economic opportunities,
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Protect South Africans from the effects of the drought,
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Continuously improve our education and health systems,
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Accelerate transformation towards an inclusive economy and participationby all,
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Strengthen social solidarity and extend our social safety net.
The Budget rests on the idea of an inclusive social contract, encompassing an equitable burden of tax and a progressive programme of expenditures.
The Budget relies on institutions of good governance and a public ethic that values honesty and fairness.
If we act together, on these principles, as public representatives, civil servants, business people, youth, workers and citizens, we can overcome the challenges of tough economic times and difficult adjustments.
In acting together we can address declining confidence and the retreat of capital, and we can combat emerging patterns of predatory behaviour and corruption.
We are conscious of the difficulties we face. Our resilience as a nation, black and white, can propel us to a better future if we make the right choices.
Overview of the Budget
Honourable Speaker, the past year has seen a deterioration in the global economy. In our own region, weaker business confidence coincides with a severe drought, bringing with it rising prices and threats to water supply in many areas. In addition we are obliged to confront the impact of slow growth on our public finances, while continuing to respond to the expectations of citizens and communities for improved education, reliable local services and responsive public administration.
The combination of multiple demands and constrained resources at times seems overwhelming. How does the state deal with such complexity? What should we prioritise?
As in the past, we have sought advice from citizens. This year, I sought budget pointers on several specific things: What does government do well? What should we stop doing?
How can we achieve inclusive growth?
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On what we do well, South Africans have very clear views: Tax administration. And paying social grants.
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What we should stop doing: Corruption and waste. Bailing out state entities.
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How to support inclusive growth : Support for small business. Job opportunities targeting the youth.
I greatly appreciate the response from so many South Africans – over 1500 in all. Mr Faiek Sonday, and Ms Thuli Ngubane are with us today. Mr Sonday’s advice was that “we should build more roads and train routes, because the sooner you get a worker at the desk or machine the more productive the economy will be”. And Ms Ngubane expressed the views of so many tipsters: “Let our schools’ infrastructure be improved so that all schools are conducive to learning. This will ensure that we produce the quality of students that can take our country forward.”
We agree, and indeed these are central priorities of the National Development Plan. As points of departure for the 2016 Budget, Honourable Speaker, allow me to emphasise several broad principles that flow through our NDP:
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It is a programme for inclusive growth – our social programmes, industrial action plan, promotion of agriculture and rural development, skills and training initiatives, investment in housing and municipal services are aimed at both prosperity and equity, creating opportunities for all and broadening economic participation.
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It is a plan for a strong mixed economy– in which public services and state actions complement private investment, expansion of trade and social enterprise.
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It recognises that improvements in the quality of education are the foundations of broad-based growth, productivity improvement and sustainable growth.
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It acknowledges that investment in infrastructure has to be enhanced and sustained both to underpin economic growth and address the spatial inefficiency and fragmentation of the apartheid landscape.
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It emphasises that employment creation has to be accelerated if growth is to be inclusive, and that income security for all relies also on appropriate social security, health services and social development programmes.
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It prioritises building the capability of the state, and strong leadership throughout society, to drive development and promote social cohesion.
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It highlights that partnership between government, business, organised labour and civil society is the key to policy coherence and more rapid development.
The Budget tabled today is guided by the NDP. It is a budget for inclusive growth, it emphasises partnerships amongst role players in our economy, it prioritises education and infrastructure investment, it supports employment creation and it contributes to building a capable, developmental state.
In brief, we propose the following:
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Against the background of slow growth, rising debt and higher interest rates, the pace of fiscal consolidation will be accelerated. The budget deficit will be reduced to 2.4 per cent by 2018/19.
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The expenditure ceiling is cut over the next three years by R25 billion, mainly by curtailing personnel spending.
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Tax increases amounting to R18 billion in 2016/17 are proposed, and a further R15 billion a year in 2017/18 and 2018/19.
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An additional R16 billion is allocated to higher education over the next three years, funded through reprioritisation of expenditure plans.
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Taking into account projected increases in the cost of living, R11.5 billion is added to social grant allocations over the next three years.
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Funds have been reprioritised to respond to the impact of the drought on the farming sector and water-stressed communities.
In support of growth and development, Honourable Speaker, our initiatives are also aimed at enabling and mobilising private sector and civil society capacity.
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Building on the success of our Renewable Energy initiatives, the Independent Power Producers Programme will be extended to include coal and gas power projects over the period ahead.
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Measures to strengthen tourism, agriculture and agro-processing are in progress.
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Collaboration with regional partner countries is being stepped up to improve border management, streamline trade flows and invest in transport and communications corridors.
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Investment in our cities is being accelerated, creating opportunities for participation of developers and other partners in housing, infrastructure and commercial development.
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Regulatory challenges that affect mining investment and employment are being addressed.
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A pathbreaking study of the cost of doing business has been completed, and municipalities are working on identified reforms.
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Progress has been made towards a minimum wage framework, and to reduce workplace conflict.
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The National Health Insurance White Paper has been published, and proposals for comprehensive social security will be released by mid-year.
Engagement with social partners needs to be intensified. Project plans and investments need to be managed and implemented.
But I know you will join me in acknowledging that the real champions of our development are the activists and entrepreneurs, officials and facilitators, who get on with the job, day by day, of managing programmes and running businesses, serving communities and meeting needs.
Our faith communities, non-governmental organisations and community volunteers all demonstrate daily that basic needs can be met with dignity. Initiatives like “Operation Hydrate” and “Gift of the Givers” have led the way in responding to the impact of the drought. The Gauteng Province’s Ntirhisano outreach programme similarly emphasises that communities can be co-partners with government in accelerating service delivery. We can strengthen these efforts as government, business, religious and community organisations, by working together.
Global outlook
Honourable Members, South Africa’s economic prospects are intertwined with global economic developments. A period of unprecedented monetary stimulus in response to the 2008 recession is not yet over, and global volatility and structural imbalances are far from resolved.
The pace of economic growth has slowed in many countries. The price of oil has fallen by 50 per cent since December 2014.
Our major exports – platinum, gold, iron ore and coal – have seen substantial declines in global demand and in prices. The effects on our economy are widespread:
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lower export earnings,
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lower revenue,
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declining investment,
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job losses, and in some cases business failures.
For the world as a whole, growth declined from 3.4 per cent in 2014 to an estimated 3.1 per cent last year. In sub-Saharan Africa, the decline was from 5 per cent to 3½ per cent. A moderate recovery is expected over the next two years.
It is notable that faster growth is being achieved in countries which have undertaken bold structural reforms, such as India’s scaling back of subsidies for industry and opening up of trade opportunities, and the promotion of skilled immigration, urban investment and labour-intensive manufacturing and agro-processing in South-east Asian and several African economies. These efforts have helped boost investor sentiment and reduce economic vulnerabilities.
Our own structural challenges and reforms are articulated in the National Development Plan. Our economic recovery depends on our ability to convert the plan into actions that deliver on the promise for a better life for all.
South African economic outlook
Fellow South Africans, growth rates of below 1 per cent fall short of what we need to create employment and reduce poverty and inequality. The Treasury currently expects growth in the South African economy to be just 0.9 per cent this year, after per cent in 2015. This reflects both depressed global conditions and the impact of the drought.
It also reflects policy uncertainty, the effect of protracted labour disputes on business confidence, electricity supply constraints and regulatory barriers to investment.
However, the institutional foundations of our economy remain resilient:
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Macroeconomic policy is effective,
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The inflation targeting framework provides an anchor for price and wage setting,
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Our banks and financial institutions are well-capitalised, and we have liquid rand-denominated debt markets,
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The architecture of our Constitution, justice system, public and private law and dispute resolution mechanisms is robust,
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We have excellent universities and research centres,
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We have a strong private sector,
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We are a resourceful people, committed to contributing to a better South Africa.
Mr Raymond Wesley wrote to me as follows: “As South Africans, we don’t have an appreciation of the strides we’ve made. Minister, show South Africans, especially the rich, that people’s lives have changed for the better.”
This is true, yet there is more to be done.
We are resilient, we are committed, we are resourceful. We know how to turn adversity into opportunity.
In the numbers, Honourable Speaker, there are indicators that an economic turnaround is possible if we build confidence and make the right choices.
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Business services, tourism and communication services continued to expand over the past year, contributing positively to job creation.
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While overall agricultural output has declined under severe drought conditions, there has been strong growth in several export products: including nuts and berries, grapes and both deciduous and citrus fruits.
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Overall export growth by volume was over 9 per cent last year, and will continue to benefit from the competitiveness of the rand. South African exports to the rest of Africa now exceed R300 billion a year, up from about R230 billion just three years ago.
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Retail trade data for the last quarter of 2015 indicate growth of over 4 per cent in real terms, signalling that consumer spending remains buoyant despite declining confidence.
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Investments amounting to over R20 billion have recently been announced in the automotive sector.
Yet our economy is not growing fast enough to raise employment or improve average incomes, Honourable Speaker. Investment growth must be substantially scaled up.
Growth and development
So we are resolved to restore the momentum of growth, to ensure that it is inclusive and sustainable, and to preserve our economy’s investment-grade status.
As Minister Nene put it in his October Medium Term Budget Policy Statement address: “If we do not achieve growth, revenue will not increase. If revenue does not increase, expenditure cannot be expanded.”
This means we must address institutional and regulatory barriers to business investment and growth. It means we must give greater impetus to sectors and industries where we have competitive advantages. And it means being bold where there is need for structural change, innovation and doing things differently. We need agility and urgency in implementation.
International experience has demonstrated that growth is ignited by strong and stable political and economic institutions, sound infrastructure that reduces the cost of doing business and facilitates trade, competition between firms and openness to trade and an environment where firms invest and undertake research and development. We also know that the more inclusive the economy the greater its scope for growth.
These are the challenges we hear in South Africa today.
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We are responding to appeals from the business sector for greater certainty in respect of policies that affect investment decisions.
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We are engaging with proposals from organised labour for a minimum wage policy, and for progress on opportunities for young people.
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We are responding to action in communities where services are missing or badly managed.
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We are crafting solutions to the voices of students regarding fees and housing.
I need to emphasise that violent protest is not an acceptable way of articulating these challenges.
Also, in these and other areas, the choices we make cannot meet every need, and the action we require involves collective action by many stakeholders. Today’s Budget sets out government’s plans for the next three years, building on what we have achieved since 1994. It also signals the actions underway to improve policy coordination and collaboration between social partners and stakeholders.
As outlined by the President, initiatives are in progress to address our policy coordination and implementation challenges.
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Over 80 bills and plans have been reviewed since September last year as part of the new socio-economic impact assessment programme, under Minister Radebe’s oversight. The aim is to address possible regulatory constraints pro-actively before they take effect.
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Visa regulations have been revised following consultation between Ministers Gigaba and Hanekom and concerns raised by the tourism industry.
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Talks are in progress under Minister Olifant’s leadership to improve workplace dispute resolution procedures.
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Minister Davies is introducing a new investment promotion agency to streamline administrative procedures and enhance our position as an African financial centre.
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Special economic zones and employment-intensive sectors with export potential have been prioritised for support by the Industrial Development Corporation.
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Initiatives to transform ownership of land and improve productivity in agriculture are under way, and Ministers Zokwana and Nkwinti are addressing drought-related challenges in rural areas.
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Under Minister Molewa’s guidance, South Africa’s response to the global climate change challenge has been prepared, and work with the National Business Initiative on the green economy has been strengthened.
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Our environmental employment programmes continue to earn international recognition. The Community Work Programme is expanding its reach and Jobs Fund partnership projects of R12 billion have been approved.
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Building on the Phakisa oceans economy initiative, a R9 billion investment in rig repair and maintenance facilities at Saldanha Bay is planned, and work has begun on a new gas terminal and oil and ship repair facilities at Durban.
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Minister Joemat-Pettersson is overseeing our renewable energy, coal and gas IPP programme, and preparatory work for investment in nuclear power.
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Minister Pandor’s department is leading work on beneficiation initiatives, including titanium, fuel cells, fluorochemicals and composite materials.
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Minister Motshekga is working with social partners on the National Education Collaboration Trust to identify and implement school improvement initiatives.
In recent weeks, President Zuma, other Ministers and I have engaged with business leaders to understand their concerns and views. Confidence and shared understanding have been reinforced. These engagements are clearly critical to boosting our economy, and must be extended to include regional forums and other stakeholders.
We particularly welcome the working groups that have been established and several practical proposals for joint action. These include a collaborative initiative to combat corruption and abuse of tender procedures, a new fund to accelerate small and medium enterprise development and measures to build investor confidence and contribute to social cohesion.
By removing constraints, supporting innovation, protecting jobs, diversifying our economy and exploring new opportunities, we can expand growth prospects.
Our economic outlook is not what it should be, global uncertainty and the drought are very real challenges, but our efforts to build a better future continue.
We are resilient, we are committed, we are resourceful.
By working together we can increase growth, broaden participation and inspire confidence in our economy and society.
Investment and sustainable growth
Honourable Members, the economist Dani Rodrik has recently noted that in those countries that are still growing rapidly, despite global economic headwinds, public investment is doing much of the work. To finance the investment needed for sustainable growth, we have the institutional capacity to blend international and domestic savings, and to combine public and private sector financing to mitigate risk and reduce the cost of capital.
The Presidential Infrastructure Coordinating Commission, under Ministers Nkwinti and Patel, has brought greater coherence to our strategic investment plans. They have drawn attention to the need for multi-year appropriations for major capital projects. Reform in this regard is under consideration.
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Energy investment amounts to R70 billion this year and will be over R180 billion over the next three years, as construction of the Medupi, Kusile and Ingula power plants is completed.
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Transport and logistics infrastructure accounts for nearly R292 billion over the next three years under Minister Peters’ oversight. Transnet is acquiring 232 diesel locomotives for its general freight business and 100 locomotives for its coal lines. There is R3.7 billion to upgrade the Moloto Road, R30 billion for provincial roads maintenance, R18 billion for bus rapid transit projects in cities and refurbishment of over 1700 Metrorail and Shosholoza Meyl coaches.
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R62 billion is allocated for the housing subsidy programmes of Minister Sisulu’s department, and R34 billion for bulk infrastructure and residential services in metropolitan municipalities.
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R28 billion will be spent over the MTEF on improving health facilities and R54 billion on education infrastructure.
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Under Minister Mokonyane’s leadership, the next phase of the Olifants River water scheme is in progress, completion of the supply to Lukhanji Municipality in the Eastern Cape, completion of the Wolmaransstad wastewater treatment works and construction of the Polihali Dam as part of the Lesotho Highlands project.
These are some components of the R870 billion public sector infrastructure programme over the next three years.
But our growth and development depends also on an expanding envelope of enterprise investment in industry, mining and mineral beneficiation, agriculture and agro-processing, housing, commercial development and tourism facilities. There are also initiatives in progress to reinforce financing of these projects.
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The Industrial Development Corporation continues to play a leading role in financing manufacturing and beneficiation. It plans to invest R100 billion over the next five years, including R23 billion set aside to support black industrialists.
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We have completed a R7.9 billion capital transfer to the Development Bank of Southern Africa, approved in 2013, which enables it to expand lending and implementation support to municipalities, and to complement private sector funding of strategic infrastructure projects. The Bank aims to increase lending by R48 billion over the next three years. Initiatives to reinforce municipal implementation capacity have been prioritised.
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The Land Bank has set aside a concessionary loan facility to assist farmers in recovering from the impact of the current drought conditions. Over the next three years R15 billion is allocated for land acquisition, farm improvements and expanding agro-processing opportunities.
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I am also pleased to confirm that the New Development Bank will open its Africa Regional Centre in Johannesburg next month. Our first instalment of R2 billion was paid in December last year, and the Budget makes provision for our further commitments over the medium term. This initiative gives impetus to our role as a financial centre for Africa, and will facilitate access to global finance by African investors and institutions.
So the capacity to mobilise finance is in place. Amendments to bank regulations are proposed, furthermore, which will facilitate lending for long-term infrastructure investment.
In energy, transport, telecommunication and urban development, there are many opportunities for joint public and private investment and facilities management.
Corporate investment and participation by trade union funds in infrastructure development needs appropriate policies and market structure frameworks, clarifying the roles and linkages between public and private sector service providers. Progress in these regulatory arrangements is the key to more rapid investment and more inclusive growth in these sectors.
Our working partnership with business leaders and social stakeholders, under President Zuma’s initiative, is about implementing these and other aspects of the National Development Plan.
Fiscal consolidation
This year’s Budget, Honourable Speaker, is focused on fiscal consolidation. We cannot spend money we do not have. We cannot borrow beyond our ability to repay. Until we can ignite growth and generate more revenue, we have to be tough on ourselves.
A central objective is to stabilise debt as a percentage of GDP. To achieve this, the new budget framework sets deficit targets for the next three years which are lower than the October Medium Term Budget Policy Statement projections. Spending plans are reduced, a higher revenue target is set and net national debt is projected to stabilise at 46.2 per cent of GDP in 2017/18, and to decline after that.
These budget proposals signal government’s commitment to a prudent, sustainable fiscal policy trajectory, and respond directly to the changed circumstances since the 2015 MTBPS was tabled.
Honourable Members, we have had to take into account the slowdown in revenue associated with slower economic growth over the past year. In last year’s Budget we projected total tax revenue of R1 081 billion. The revised estimate is R11.6 billion short of this total, but nonetheless about 8.5 per cent more than the 2014/15 outcome. This is a most commendable effort in the circumstances: all South Africans have contributed, and the 14 000 staff of the Revenue Service have done a sterling job.
A consolidated revenue target of R1 324 billion is set for 2016/17, or 30.2 per cent of GDP. Expenditure will be R1 463 billion, leaving a budget deficit of R139 billion, or per cent of GDP. The deficit will decline to 2.4 per cent in 2018/19.
Tax proposals
Inclusivity is also an important principle in our tax system, Honourable Speaker.
South Africa has built one of the most effective tax authorities in the developing world. The Revenue Service has made huge strides over the past decade in enforcing the law while providing assistance to small businesses and individuals. Public compliance with tax obligations is high. I am deeply mindful that we have a corresponding obligation, as government, to improve the impact of every rand spent, and to eliminate waste and corruption.
Inclusivity is also about the details of tax design, how it supports or hinders small and growing businesses, how the burden of tax is shared across individuals and households in different circumstances and in different income brackets, and how taxes contribute to environmental and health objectives.
This year, in view of the need to raise additional revenue and reduce the budget deficit, we have paid special attention to the fairness and inclusivity of the tax system.
We have also been mindful of the need to moderate the impact of tax increases on households and firms in the present economic context.
Our tax proposals include the following:
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Personal income tax relief of R5.5 billion, which partially compensates for inflation, focused mainly on lower- and middle-income earners;
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An increase in the monthly medical tax credit allowances;
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An increase of 30 cents a litre in the general fuel levy;
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Introduction of a tyre levy to finance recycling programmes, increases in the incandescent globe tax, the plastic bag levy and the motor vehicle emissions tax;
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Introduction of a tax on sugar-sweetened beverages; and
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Increases of between 6 and 8.5 per cent in the duties on alcoholic beverages and tobacco products.
The Income Tax Act already contains measures to encourage provision of bursaries by employers to employees or their relatives. It is proposed that the income eligibility limits and qualifying bursary values should be increased. Inclusion of industry-based training organisations in the list of activities qualifying for tax-exemption is also under consideration.
Our current taxes on wealth are under review by the Davis Committee. Higher capital gains inclusion rates are proposed, together with an increase in the annual amount above which capital gains become taxable. The transfer duty rate on properties above R10 million will increase from 11 per cent to 13 per cent, and measures are proposed to strengthen the estate duty and donations tax.
We will continue to act aggressively against the evasion of tax through transfer pricing abuses, misuse of tax treaties and illegal money flows. Drawing on the work of the OECD, the G20 joint project on base erosion and profit shifting and independent bodies such as the Tax Justice Network, further measures will be taken to address such revenue losses, including inappropriate use of hybrid debt instruments.
With effect from 2017, international agreements on information sharing will enable tax authorities to act more effectively against illicit flows and abusive practices by multinational corporations and wealthy individuals. Building on the expertise gained by the Large Business Centre since its establishment in 2004, SARS is well placed to take advantage of the new Common Reporting System. Our international collaboration is an essential part of efforts to ensure that the tax system remains robust and contributes to inclusive growth. I will announce further steps in this regard later in the year.
Time is now running out for taxpayers who still have undisclosed assets abroad. With next year’s deadline in mind, additional relief will be offered for a period of six months, from October this year, to allow non-compliant taxpayers to regularise their affairs. Though not introduced today, we publish on our website the draft bill on the special voluntary disclosure programme and the rates and threshold bill.
State-owned Entities
State-owned companies, Honourable Speaker, have important roles to play in boosting growth and development. But there are issues to address in their governance, mandates, financing and operations.
The recently-released report of the Presidential Review Commission on State-Owned Enterprises is a very welcome guide to the path ahead. It rightly emphasises that effective leadership is central to progress. It notes that our infrastructure financing requirements are huge, and require effective co-funding arrangements between SOCs and other investors.
The asset base of state owned entities is over R1 trillion, equivalent to about 27 per cent of GDP. They maintain networks and provide services – power, roads, transport, water, communications – on which the rest of the economy depends.
But the PRC report indicates that the mandates of some of our entities overlap, some operate in markets that should be more transparently competitive and some are no longer relevant to our development agenda. Some are in perpetual financial difficulties. So we must take decisive steps to ensure that they are effectively governed and that they contribute appropriately to the attainment of the National Development Plan.
Firstly, as President Zuma has indicated, entities that are no longer necessary should be phased out. The resources raised or saved will be redirected to the balance sheets of SOCs that should grow.
Secondly, where entities have overlapping mandates, rationalisation options will be pursued. The merger of our housing DFIs is already in progress. There are entities with regulatory responsibilities where capacity should be combined. We have national and provincial entities with diverse property holdings, interests in farming or trading or manufacturing enterprises – often inherited from the pre-1994 dispensation, typically buried in subsidiary companies that are not publicly accountable. These are unnecessary state investments, and often a drain on government resources. They are also assets with potential for growth in independent hands.
It seems clear, furthermore, that we do not need to be invested in four airline businesses. Minister Brown and I have agreed to explore the possible merger of SAA and SA Express, under a strengthened board, with a view to engaging with a potential minority equity partner, and to create a bigger and more operationally efficient airline.
Thirdly, the balance sheets of several entities with extensive infrastructure investment responsibilities are now stretched to their limits. Government has provided support in the form of guarantees, which now total R467 billion or 11.5 per cent of GDP. This is a source of pressure on the sovereign rating. Yet we need to accelerate infrastructure investment in the period ahead. So we must broaden the range and scope of our co-funding partnerships with private sector investors. This requires an appropriate framework to govern concession agreements and associated debt and equity instruments, and appropriate regulation of the market structure.
In taking this forward, we are able to draw on our experience in road funding concessions, in building the renewable energy market, and in promoting broadband telecommunications. Across these and other sectors we have much to learn from each other, both nationally and through provincial and local initiatives.
Minister Brown is in discussion with Transnet’s leadership on measures to accelerate private sector participation in the ports and freight rail sector. The intention is to improve efficiencies, reduce the cost of doing business and increase investment in new port facilities and inland terminals. This will complement investments that Transnet has already initiated through its Market Demand Strategy.
Our aim is to strengthen our state entities so that they can play a propulsive and dynamic role in our development. Further financial support to state-owned companies will depend on clarity of this mandate and firm resolution of governance challenges.
Our regulatory agencies have a special responsibility in this regard: in setting prices for electricity, transport and water utilities, they have to ensure that investment can continue to be financed and that costs are properly managed.
The strength of our major state-owned companies does not lie in protecting their dominant monopoly positions, but in their capacity to partner with business investors, industry, mining companies, property and logistics developers, both domestically and across global supply chains.
The 2016 Budget: Government’s Action Plan
Before concluding, Honourable Speaker, allow me to return to the main elements of the 2016 Budget, our spending plans and their contribution to growth and broadening development.
Our approach is to build on our strengths, directly address weaknesses and be bold where new initiatives are needed.
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The budget framework brings forward our fiscal consolidation, reducing the budget deficit to 2.4 per cent by 2018/19.
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Taxes are raised moderately, across a broad base, while limiting the impact on lower-income families.
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Personnel spending has been curtailed and cost containment measures are reinforced.
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Expenditure growth is focused on post-school education and training, economic infrastructure, social protection and health services.
Economic infrastructure
Budget allocations for water infrastructure this year take into account the special needs of drought-affected areas and the need to address water losses in critical supply networks.
The Regional Bulk Infrastructure Grant programme has been allocated R15 billion over the medium-term for the construction of the bulk water and sanitation infrastructure.
Public transport improvements in our cities are again prioritised, alongside better road maintenance and rehabilitation plans.
Over the MTEF period R1.6 billion is allocated to the SA Connect broadband programme to support access in remote areas and of schools, health care facilities and government institutions.
Business support and empowerment
Steps to reduce the regulatory burden for business investors are in progress. These include the establishment of Invest South Africa as a partnership with the private sector and concerted efforts by our largest cities to reduce the administrative costs of starting businesses.
A review of business incentives has been initiated, to strengthen their impact on growth, productivity, competitiveness, trade and competitiveness.
R475 million has been reprioritised to the Department of Small Business Development for assistance to small and medium enterprises and cooperatives.
Agriculture
Programmes aimed at revitalizing agriculture include spending on small-scale farming and developing agri-parks in rural economies.
An amount of R2.8 billion is allocated over the medium term to Fetsa Tlala, a food security initiative. The Department of Agriculture, Forestry and Fisheries aims to bring 120 000 hectares of land into productive use in the period ahead, benefitting 145 000 subsistence and smallholder producers each year.
Already this year, the department of Water and Sanitation has reprioritised R502 million to deliver water, protect springs and refurbish boreholes in response to drought conditions. Funds have also been provided for feed and support for livestock farmers, and disaster relief measures. Additional drought response allocations will be made, as required, in the Adjustments Appropriation later this year.
Investment in cities and urban networks
Cities are already taking steps to encourage higher land use density and inner city redevelopment, under the authority of the new Spatial Planning and Land Use Management Act. This will unlock significant further private sector development potential across our cities, focussed on strategic corridors.
Bus rapid transit systems are operational and expanding in Johannesburg, Tshwane, Cape Town and George, and will be extended to Ekurhuleni and eThekwini this year. About R6 billion is allocated to this programme in 2016/17. Improvements to rail rolling stock and infrastructure will begin to improve the daily travel experience for commuters.
Associated with these transport investments, over 90 integrated land development projects valued at more than R130 billion are in progress to reshape our cities in partnership with the private sector.
- In eThekwini, the Cornubia node comprises 25 000 housing units. An inner city regeneration programme is also underway, including projects at Bridge City, Centrum, the Point and the interconnecting corridor.
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In the Tembisa Corridor in Ekurhuleni, R6.5 billion in public investment will leverage R8 billion in private sector investment to deliver housing, commercial and office facilities.
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In Cape Town, the N2 Gateway housing programme is continuing, together with redevelopment of the Voortrekker Road Corridor, Conradie Hospital, the Athlone Power Station and other sites.
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In Tshwane, investments are focused on the Mabopane Station Hub which is the gateway to the north for more than 150 000 passengers a day and has an informal market accommodating approximately 2500 traders.
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In Manguang, the R2.6 billion mixed use Airport Development Node is in construction. An inner city residential development is planned and the Vista Park and Brandkop projects will yield over 8 500 housing units at a total development cost of over R1.9 billion.
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In Johannesburg, the “Corridors of Freedom” connecting Soweto, Alexandra, Sandton and the Johannesburg CDB bring together public transport improvements, social amenities and partnerships with property developers to increase settlement densities and improve social mobility.
Growth, Inclusion and Social Cohesion
Honourable Speaker, our economic imperative is to ignite inclusive growth.
This is central for jobs, for lowering debt, for delivering services and building infrastructure for a 21st century economy. Let us chart a new course for the economy and well-being of all South Africans, particularly for those hardest hit by unemployment – the low-skilled and the youth. This is not only crucial to address social imbalances and inequality, it is also fundamental to encouraging investment.
The recent tremors felt by emerging markets are a warning that we need to take corrective steps urgently or we will be worse off. At the same time, we need to move forward to mobilise the resources and capacity of all our people, large and small enterprises, civil society organisations and public-private partnerships.
The joint actions we need will not always be easy. All too often, bureaucrats and businesspeople speak past each other; the needs of the young are not the same as those of the elderly; the rhythms of the township differ from those of the suburb. Race, class and language differences interfere with progress, even when we have shared aspirations. We need to bridge these divides.
Yet we are resilient, we are committed, we are resourceful.
We can turn today’s adversity into opportunities.
We can address the weaknesses that create policy uncertainty, we can build on the strengths that are our resource base, our institutions and our workforce. We can do things differently where we need to innovate.
We have avoided reckless policies which might have dragged us into recession or reversed the capital flows we need. We have a sound macroeconomic and fiscal framework, and the will to work together for faster and inclusive growth.
Allow me to thank you, Mister President and Minister Deputy President, for your leadership and support. I must also thank Cabinet colleagues for your contributions to addressing the challenges before us.
Members of the Ministers’ Committee on the Budget, including Deputy Minister Jonas, have provided sterling support.
I thank our Provincial Premiers and Finance MECs, and Municipal Mayors, who share our fiscal and financial responsibilities.
I am especially grateful to the chair of the finance committee, the honourable Carrim, acting chair of the appropriation committee, honourable Gcwabaza and chairs of the select committee on finance and appropriation, honourable de Beer and honourable Mohai, who have responsibility for facilitating the consideration of the Division of Revenue Bill and the Appropriation Bill, and the revenue bills which will be tabled later in the year.
We are resilient. We are committed. We are resourceful.
Looking back on his extraordinary life of resilience, and of commitment, former President Mandela said this: “I am fundamentally an optimist. Whether that comes from nature or nurture I cannot say. Part of being optimistic is keeping one’s head pointed toward the sun, one’s feet moving forward. There were many dark moments when my faith in humanity was sorely tested, but I would not and could not give myself up to despair. That way lays defeat and death.”
Related News
The 1st Meeting of the Continental Free Trade Area Negotiating Forum (CFTA-NF) kicks off in Addis Ababa
The 1st Meeting of the Continental Free Trade Area Negotiating Forum (CFTA-NF), kicked off on Wednesday, 24 February 2016 at the African Union Commission (AUC) Headquarters in Addis Ababa. During the next three days, Member States will consider the post launch preparatory issues and essential process issues and technical documents that will enable the efficient conduct of the negotiations. The Meeting will consider and adopt the Rules of Procedure for the CFTA Negotiating Forum.
The 25th Ordinary Session of the Assembly of Heads of State and Government of the African Union, which was held in Johannesburg, South Africa in June 2015, launched the negotiations for the establishment of the Continental Free Trade Area (CFTA). The launch of the negotiations marked a major milestone in the implementation of the Summit decision to establish a continental free trade area by the Indicative date of 2017.
In her statement, the Commissioner for Trade and Industry, H.E. Mrs. Fatima Haram Acyl reminded participants how critical it is to deliver the CFTA by 2017. “Why is this important? Because the whole world is watching and waiting. And Africa must prove to itself and the whole world that it can agree internally on solutions towards its own development. We must strive to deliver the CFTA by 2017, and the Rules of Procedure that we will be considering and adopting in this session will be highly consequential in this regard,” she echoed.
According to the Commissioner, negotiating a free trade area among such various Member States will require enormous amounts of energy, effort, and persistence.
At the same time, Commissioner Acyl also acknowledged that diversity is Africa’s strength, that’s why she urged the participants to work as a team in a spirit of tolerance. “With a collective spirit of “Together as one Africa”, where disagreements are tolerated and differences of opinion are encouraged, we can and will prevail. With your commitment, the establishment of an African Continental Free Trade Area (CFTA) can and will become a reality,” she concluded.
The role of the African Union Commission in the negotiations is to provide and coordinate technical and administrative support to the Member States and REC’s. The AUC also serves as the Secretariat to the CFTA Negotiating Forum. In playing its support and harmonization role, the AUC closely collaborates with the RECs, the UN Economic Commission for Africa (UNECA) and the African Development Bank (AfDB) who are members of the Continental Task Force on the CFTA which operates at the level of Chief Executive Officers and at the Technical level.
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Ban highlights private-sector investment for potential to ‘transform’ Africa’s Great Lakes region
Although the succession of violence and suffering has sometimes prevented countries in the African Great Lakes from achieving their potential, United Nations Secretary-General Ban Ki-moon said on Wednesday, 24 February that the hard-working people must be given more opportunities to use their abundant natural resources in order to address the root causes of conflict and ultimately transform the region.
Addressing the Great Lakes Private Sector Investment Conference in Kinshasa, capital of Democratic Republic of the Congo (DRC) earlier today, the UN chief said that participants had joined together to share ideas and experiences underscoring the importance of attracting private investment, promoting business activity and enhancing regional economic cooperation and integration in the region.
“Together, you have begun identifying regional investment opportunities, reviewing the investment climate, and beginning a dialogue between public and private sectors on how best to move forward,” Mr. Ban said participants at the event, which runs two days and seeks to bring together actors from the public and private sectors with current and prospective interest in the region.
The conference came at a “particularly opportune moment,” in the wake of the adoption of the 2030 Sustainable Development Agenda, the Paris Agreement on climate change and the Sustainable Development Goals, in which world leaders had pledged to end poverty by 2030 and leave no one behind, Mr. Ban said.
“But it will not happen on its own. Everyone must play a part,” Mr. Ban stressed. “All of you are critical. It is absolutely vital that investments are aligned to the implementation of these landmark accords,” he added.
The UN chief noted that he was pleased that the journey leading to the current conference was inclusive and involved consultations with Governments, business leaders, entrepreneurs and civil society organizations.
When the idea for the conference came about two years ago, “leaders recognized that peace and development are two sides of the same coin,” Mr. Ban said. “They understood that the lack of jobs and opportunities creates a breeding ground for conflict – and that conflict itself is the biggest obstacle to human development.”
Mr. Ban also recalled a visit to the Great Lakes region that he undertook in 2013 with World Bank Group President Jim Yong Kim, in which they sent the “strong message” that peace and development should go hand-in-hand.
Turning to Government leaders of governments of the Great Lakes region, Mr. Ban highlighted that by lending their support to the conference, they were showing their “resolve to improve the investment climate.” Governments had also committed to enact policies to help expand the domestic private sector, and to make it possible for micro-, small- and medium-sized enterprises to grow.
“As you do so, I encourage you to create an environment that ensures business operations and investments are responsible and sustainable, and predictable,” Mr. Ban stressed. “We know that this is an essential ingredient to long-term economic growth and building trust in societies.”
Speaking to the African private-sector leaders, Mr. Ban said that the people of the Great Lakes region count them – business leaders, entrepreneurs and investors – to fully contribute to the goal of transforming the region.
Urging the leaders to ensure that their actions can help realize the Sustainable Development Goals and advance the Paris Agreement, Mr. Ban said that the people of the region look to them “to strengthen productive capacity; create decent jobs and livelihoods; improve economic governance; and foster inclusive development and shared prosperity.”
Mr. Ban also asked development partners to work to build and enhance the productive capacities of Great Lakes States.
“Help to integrate the region into international value chains that change the nature of exports from raw materials to value-added exports,” he said.
He also asked global business leaders and investors at the conference to join efforts to build bridges to regional integration that will create larger markets and pools of resources, and deliver generous returns on private investments.
“We are in the heart of Africa. This region can also be an engine for development and economic growth, building on the progress that has been made over the years. All of you are pivotal to forging that path,” the UN chief said.
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South Africa accepts protocol amending the TRIPS Agreement
South Africa deposited its instrument of acceptance for the 2005 protocol amending the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) on 23 February 2016, becoming the fourth WTO member to do so in 2016.
Thailand (on 28 January), Mali (on 20 January) and Lesotho (on 4 January) are the other three members that have accepted the amendment this year. The protocol will enter into force once two-thirds of the WTO membership has formally accepted it. South Africa’s acceptance marks another step towards the threshold.
The protocol amending the TRIPS Agreement, which was adopted in 2005, is intended to make it easier for poorer WTO members to access affordable medicines. The protocol allows exporting countries to grant compulsory licenses (one that is granted without the patent holder’s consent) to their generic suppliers to manufacture and export medicines to countries that cannot manufacture the needed medicines themselves. These licenses were originally limited to predominantly supplying the domestic market.
The following WTO members have accepted the amendment: Albania, Argentina, Australia, Bahrain, Bangladesh, Botswana, Brazil, Brunei Darussalam, Cambodia, Canada, Central African Republic, Chile, China, Colombia, Costa Rica, Croatia, Dominican Republic, Egypt, El Salvador, European Union, Grenada, Honduras, Hong Kong China, Iceland, India, Indonesia, Israel, Japan, Jordan, Kenya, the Republic of Korea, Lao PDR, Lesotho, Macao China, Malaysia, Mali, Mauritius, Mexico, Moldova, Mongolia, Montenegro, Morocco, Myanmar, New Zealand, Nicaragua, Norway, Pakistan, Panama, Philippines, Rwanda, Saint Kitts and Nevis, Kingdom of Saudi Arabia, Senegal, Singapore, South Africa, Sri Lanka, Switzerland, Chinese Taipei, Thailand, the former Yugoslav Republic of Macedonia, Togo, Trinidad and Tobago, Turkey, Uganda, United States, Uruguay, and Zambia.
More information on the issue of TRIPS and public health is available here.
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Azevêdo urges WTO members to deepen their dialogue to build on recent successes
In his report to the General Council on 24 February as chair of the Trade Negotiations Committee, Director-General Roberto Azevêdo urged WTO members to “deepen their dialogue with each other” about how to advance the work of the WTO and to build on the recent success of the Ministerial Conference in Nairobi.
Report by the Chairman of the Trade Negotiations Committee
Thank you Mr Chairman. Good morning everybody.
Before I start I want to say a word about the situation in Fiji, in the aftermath of Cyclone Winston. I’m sure I speak for everyone at the WTO when I express my sincere condolences to all those affected by this terrible storm. My thoughts are with the government and people of Fiji as they begin the long road to recovery.
I’d also like to take this opportunity to welcome those Ambassadors attending their first General Council meeting today.
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H.E. Mr Moussa Bédializoun Nebie, of Burkina Faso
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H.E. Ms Marianne Odette Bibalou Bounda, of Gabon, and
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H.E. Mr Junichi Ihara, of Japan.
I look forward to working with you all.
Now, turning to the business before us, in Nairobi ministers gave us some clear guidance on our forward work.
Paragraph 33 of the Ministerial Declaration says that officials should work to find ways to advance negotiations. And they requested me, as Director-General, to report regularly to the General Council on these efforts.
So now let me move on to my report.
I have had a number of useful exchanges with members in recent weeks. I visited Barbados and Jamaica in January. And last week I visited Nigeria, Cote d’Ivoire and Senegal. In each case I held a series of meetings with government representatives and, whenever possible, also interacted with both the private sector and civil society.
I also took part in the ministerial meeting convened by the Swiss authorities in Davos on the 23rd of January. And I attended a meeting of EU trade ministers in Amsterdam on the 2nd of February.
In each of these exchanges I was struck by the sense of optimism about the WTO. There is a clear desire to build on our recent successes.
A lot of ideas were floated during these meetings regarding process and substance. However, I’ll leave it to members to raise any such ideas themselves when they’re ready to do so.
Over recent weeks I have also been in touch with the private sector – and with civil society more broadly. Again, these exchanges have been positive.
Several parties expressed their interest in having a deeper, more interactive dialogue about WTO work with other stakeholders. I have been approached by some – in particular the ICC and B20 – to facilitate such a dialogue amongst them and others here in Geneva.
This interest from these constituencies is very important, but I have been encouraging them to be as inclusive as possible. I think such dialogue should bring in large and small players from around the world – from both developing and developed economies.
We are working to see whether a first conversation of that kind could take place here at the end of May – perhaps on the 30th.
I hope that other discussions will take place, bringing a wide range of voices across civil society, representing different perspectives – including through the Public Forum in September.
As to meetings held here in Geneva over recent weeks, I met with the Negotiating Chairs on the 4th of February to listen to their views on our post-Nairobi work. And, on the 10th of February, I convened an informal Heads of Delegation meeting.
That meeting was an opportunity to reflect collectively on the outcomes of the 10th Ministerial Conference and to discuss the way forward.
I will briefly reiterate some of the key points from my presentation at the meeting.
I think Nairobi showed that we need to improve the way we work in Geneva. Despite the fact that we succeeded in delivering some important outcomes at the 10th Ministerial Conference, there’s no doubt that there are lessons to be learned.
Too much was left to negotiate in Nairobi itself. In future, by the time we make the transition from the Geneva process to the Ministerial Conference, we should aim to be in a much more advanced position.
To deliver that I have suggested two elements which I think are important:
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First, we need to be in closer contact with capitals, to obtain more regular, substantive and updated political instructions.
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Second, we need to engage ministers more throughout the process – not just at the end.
Those were the suggestions that I made. We would need to look at precisely how this could be achieved, if you think this is something we should do.
Now, regarding the substantive outcomes of the Ministerial Conference, I think it is important to recall that some of the decisions taken under the DDA specify a number of follow-up actions – including:
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to “pursue negotiations” on an SSM,
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to negotiate, “in an accelerated time-frame”, to find a permanent solution on Public Stockholding,
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and to continue holding dedicated discussions on Cotton.
All of these follow-up actions now demand our attention.
Part 3 of the declaration, which is focused on our future work, also specified a number of follow-up actions.
Again, I want to stress that each and every word of the declaration is important. I am not attributing more prominence to one thing over another.
But there are two areas which we will need to look into, and which are particularly notable precisely because there is no common view on them. One is the remaining DDA issues. Another is non-DDA issues.
There is no consensus about how to address the DDA. Nonetheless, in Nairobi, all members gave a "strong commitment" to advancing negotiations on the remaining Doha issues. It is important to underline this point, even though members do not currently have a shared view on how it should be achieved.
I requested that the Negotiating Group chairs begin discussions within their respective groups.
Turning to non-DDA issues, again members were not of a common view. But it was clear that some want to discuss issues outside the DDA. It is not clear yet how that conversation would take place, but there is a clear understanding that if there’s a desire to launch multilateral negotiations that would have to happen with the agreement of all members.
Progress in these areas must be member-driven. I urge members to talk to each other. That’s the only way we can begin to advance.
Those were the key points which I made during the meeting. A number of delegations then took the floor.
Many shared my concerns with the process in Nairobi.
They agreed that the process at Ministerial Conferences needs to be more predictable and transparent. The responsibility lay with each member. Members also agreed that the preparatory process in Geneva needed to bring agreed or close-to-finished outcomes to ministers for decision, with very few issues left open, if any.
Different perspectives and views were expressed on the way forward. Some called for us to sustain the momentum from Nairobi and resume work in negotiating groups as soon as possible.
Others called for a frank discussion on the key elements of the declaration to attain clarity, or even a period of reflection to build a shared view on how to move ahead.
Some delegations also reiterated their well-known positions on the DDA mandate and non-DDA issues.
Several references were made to the centrality of the development dimension and that special and differential treatment should remain an integral part of future negotiations.
A number of groups also reiterated the need to preserve their envisaged flexibilities.
What was clear by the end of the meeting is that there is still a lack of clarity among members with regard to how the process should evolve.
Therefore, I think members will need to deepen their dialogue with each other about how to advance their work.
Of course, the chairs are available to facilitate any conversations – as am I – but any ideas on the way forward should be coming from members themselves.
It is important that we have a rich conversation over the coming months – and that we hear the views of all.
I encourage you to talk to each other and to share your views about our next steps in light of the outcomes from Nairobi.
It is my view that we can’t allow multilateral cooperation to suffer, especially at a time when the world needs our contribution to help improve people’s lives and prospects around the world – particularly for the poorest.
That concludes my report. Thank you Mr Chairman.
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The WTO, Nairobi and the 2030 Agenda
Against the backdrop of the latest WTO ministerial meeting can the multilateral trading system still deliver for the new UN sustainable development agenda?
Commentary on the outcome of the WTO’s 10th Ministerial Conference, known as MC10 in WTO parlance, held in Nairobi, Kenya in mid-December has been mixed. More optimistic accounts have hailed the adoption of a package of measures comprising six ministerial decisions on agriculture, cotton, and issues related to least-developed countries (LDCs) as significant and as an illustration of the continued capacity of the WTO’s negotiating function to deliver trade gains.
More pessimistic interpretations, however, see the Nairobi agreement as an abandonment of the 2001 Doha Development Agenda (DDA) in all but name and an open door for more exclusionary, plurilateral, and mega-regional trade deals.
Yet while commentators have been quick to celebrate or bemoan the outcome of MC10, both in terms of the substantive gains it may bring or the impact it may have on the future of the multilateral trading system, almost no-one has asked what it means for the nascent 2030 Agenda for Sustainable Development and its Sustainable Development Goals (SDGs).
The WTO’s negotiating function is now sufficiently problematic, and the organisation too peripherally placed, for the multilateral trading system to contribute as meaningfully to the realisation of the SDGs as had been envisaged.
This is a question worth asking. Given the significance of MC10 to revitalising the WTO’s negotiating function, and the place of that function in the realisation of the 2030 Agenda, it seems only prudent to reflect upon the impact that the Nairobi outcome is likely to have. This short essay explores the likely contribution of multilateral trading system to the 2030 Agenda in the wake of the Nairobi ministerial conference.
Trade in the 2030 Agenda
The previous Millennium Development Goal (MDG)-centred agenda made important moves towards embedding poverty reduction as a norm of international public policy making – if not practice – even if it was not wholly successful in galvanising the wherewithal to achieve the targets set.[1] One criticism of MDG regime was that it failed to bring the multilateral trading system into a global partnership for development, resigning trade-led growth and by extension growth-led development to an aspiration rather than a formal component of the global development order.
The 2030 Agenda seeks to correct this by bringing the multilateral trading system more centrally into the worldwide fight against destitution and immiseration. Yet, it is through a successful conclusion to the DDA – and crucially an outcome envisaged largely to be in accordance with the original Doha mandate – that the WTO and the multilateral trading system are to play a role.
Prior to the Nairobi ministerial the multilateral trading system had been set to play a more substantive role in the realisation of the 2030 Agenda than it had in the MDG-era. Trade had been cast as an engine for generating the kind of economic growth necessary to eradicate extreme poverty, for pressing forward with the elimination of destitution on a global scale, and for bringing welfare gains to all of the world’s populations.
Certainly, questions persisted as to whether the WTO was up to the challenge of driving forward the kind of trade-led growth envisaged in the 2030 agenda, and its capacity to play a full role was the subject of some scepticism as a result.[2] These questions had arisen not only because of the difficulties members have in concluding the Doha Round, but also because of the WTO’s peripheral role in shaping the 2030 Agenda and the less-than-spectacular record of the multilateral trading system in delivering gains for developing countries.[3] That said, the 2030 Agenda and the accompanying SDGs were nonetheless premised largely on an assumption that the Doha Round would eventually be concluded, that its conclusion would bear some resemblance to the original Doha mandate, and meaningful development gains would flow therefrom.
All change in Nairobi
Nairobi, however, changed all that irrecoverably. It threw into even sharper relief the mismatch between the function, direction, and orientation of the multilateral trading system and the means by which – and aspirations for – the realisation of the 2030 Agenda. In so doing, it relegated the WTO to a cameo role, and altered profoundly the relationship between the pursuit of multilateral trade openings and the realisation of substantive and meaningful development gains.
How and why is this the case? The agreement reached in Nairobi transforms the framework for conducting trade negotiations by moving it away from one targeted on delivering broad-based universal deals via a “single undertaking” to something more lithe and multi-faceted. This resulted because members proved unable to agree on whether or not to reaffirm the DDA in the Nairobi ministerial declaration thereby neither retaining nor abandoning it as the framework for future WTO negotiations.
Instead, rather than have the Nairobi negotiations flounder on a unbridgeable divide, members agreed to recognise their differences and to allow subsets of countries to pursue plurilateral negotiations in areas of interest to them. Only in cases where an attempt is made for new issues to be negotiated multilaterally – that is, across the membership as a whole – would universal consent be required.
It is because Nairobi resulted in a successful conclusion – and crucially opened the door for further negotiations to take place – that it is widely seen as rekindling faith in the organisation’s negotiating function and offering an important counter to the growth of “mega-regional” trade deals such as the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). Yet, it came at the expense of the DDA and the 14-year effort to agree to a wide-ranging multilateral deal on trade measures for development that has been a key demand of developing countries, and which has been crucial to securing their participation in the multilateral trading system.
The consequences of this decision, however, have significance beyond the Doha Round. The Nairobi outcome breaks with a near 40-year desire to conclude negotiations on a universal basis in the General Agreement on Trade and Tariffs (GATT) and the WTO.[4] Not only does the decision re-introduce a framework for negotiation permitting the conclusion of small group agreements that were a feature of many of the trade rounds prior to Uruguay (1986-1994), it also amounts to a recognition that the pursuit of universal agreements like the DDA is too difficult.
This, in turn, reduces the capacity of developing countries to secure trade-offs from developed countries in return for concessions in new areas as they had during the Uruguay Round when agreements in services, intellectual property rights, and investment measures, among other things, were given in return for agreements on agriculture, and textiles and clothing, as well as in an extension of special and differential treatment.
It is difficult to see how, in an era of mega-regional and plurilateral negotiations wherein the most commercially significant members negotiate market-opening deals among themselves, developing countries are likely to be able to gain significantly. And given that securing trade gains is a prerequisite of the 2030 trade-led growth and development strategy, it is hard to see how the Nairobi declaration will do anything other than hinder the capacity of the multilateral trading system to contribute meaningfully to the realisation of the SDGs.
It is worth bearing in mind that part of the rationale for launching the DDA on the basis of a single undertaking was to enable developing countries to secure the rectification of implementation anomalies and unfinished pieces of business from the Uruguay Round – particularly in agriculture – in exchange for any new trade concessions. Many of these remedial measures are seen by developing countries as important in helping realise the 2030 Agenda.
While it is the case that the Nairobi ministerial declaration commits members to the pursuit of development gains by other means, the only compunction to complete Doha is if there is a desire to open up negotiations in new areas on a multilateral basis. This is small beer indeed.
This outcome fundamentally alters the likely shape of future WTO deals. While the use of a critical mass negotiating mode brought participation and consensus into the core of the Nairobi talks, ironically it resulted in an agreement that enables members to move away from the pursuit of universal agreements wherein a balance of concessions is required that are acceptable to all members, to one in which more narrowly focused piecemeal negotiations can be pursued.
This less-than-universal approach to negotiating has a long history in multilateral trade and its return signals a move back to a more “mini-lateral” exclusionary mode of agreeing trade deals that has traditionally favoured developed countries over their developing counterparts.
The transformation of the WTO’s negotiating function into a much lither machinery is likely to preserve rather than attenuate this pattern. This does not necessarily mean that gains for the poorest and LDCs will be absent from future negotiations, but it does mean that they will almost certainly be of proportionately lesser value.
What now?
The future for the WTO and the multilateral trading system is mixed. On the one hand, it is clear that the Nairobi outcome will energise the multilateral system and enable the WTO to preside over future agreements. On the other hand, and in the absence of a universal endeavour, there is very little to force developed countries to focus on negotiations that are of specific interest to their developing counterparts.
The WTO’s negotiating function is now sufficiently problematic, and the organisation too peripherally placed, for the multilateral trading system to contribute as meaningfully to the realisation of the SDGs as had been envisaged. All we can hope for is that members make good on their commitment to pursue development gains by other means. The history of the Doha round and of the multilateral trading system more generally tells us that we should not hold our breath.
Rorden Wilkinson is Professor of Global Political Economy and Chair of the Department of International Relations at the University of Sussex, UK.
This article is published under BioRes, Volume 10 - Number 1, by the ICTSD.
[1] See Fukuda-Parr, Sakiko, and David Hulme. “International norm dynamics and the “end of poverty”: understanding the Millennium Development Goals.” Global governance: a review of multilateralism and international organizations 17.1 (2011): 17-36. Also Wilkinson, Rorden, and David Hulme. The Millennium Development Goals and beyond: global development after 2015. Vol. 65. Routledge, 2012.
[2] Wilkinson, Rorden. “Fit for Purpose? The Multilateral Trading System and the Post-2015 Development Agenda.” (2014).
[3] See Gowa, Joanne, and Soo Yeon Kim. “An exclusive country club: the effects of the GATT on trade, 1950-94.” World Politics 57.04 (2005): 453-478; Wilkinson, Rorden, and James Scott. “Developing country participation in the GATT: a reassessment.” World Trade Review 7.03 (2008): 473-510.
[4] The desire to conclude rounds on the basis of a single undertaking was a stated aim of multilateral trade negotiations as far back as the commencement of the Tokyo Round (1973-1979).
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At 50, UN development programme revamps itself to tackle new sustainability goals
The United Nations Development Programme (UNDP), with its presence in more than 170 poor and vulnerable countries, must rise to the challenge of advancing a “big, new, more complex, and transformational” sustainable development agenda, the head of the agency said on 24 February 2016 at a ministerial meeting to commemorate the 50th anniversary of its founding.
“For fifty years, UNDP has been working on the frontlines of development, advocating for change and connecting countries to the knowledge, experience, and resources they need to help people build better lives,” UNDP Administrator Helen Clark told the special meeting at UN Headquarters.
“The world has changed immeasurably in that time, and UNDP has changed with it,” she added.
But UNDP’s core mission remains more relevant than ever, she stressed, citing its mandate to support countries to eradicate poverty in a way which simultaneously reduces inequality and exclusion, while protecting the planet.
The 2030 Agenda and the Sustainable Development Goals (SDGs), adopted by 193 Member States last September, provide the framework for the next phase of UNDP’s work.
“We have already taken steps to ensure that UNDP is fit for purpose in the SDG era,” she said, noting that a more focused Strategic Plan includes the restructuring of headquarters to eliminate duplication and improve efficiency and effectiveness, as well as a shift of policy, programme, and other support closer to the field. UNDP also implemented measures which led to the agency being ranked among the most transparent development organizations in the world.
Given the ambition and breadth of the 2030 Agenda, UNDP must be ever more proactive, responsive, and innovative, she said, urging ministers and other participants to share their visions on how UNDP can better support Member States.
More specifically, she asked them to discuss the measures which lead to inclusive growth and the eradication of poverty in all its dimensions; the importance of balancing economic growth and improved livelihoods with the need to protect the environment; ways to ensure that governance, peace and security are durable and benefit all parts of society; and how to identify risks and take appropriate action to prepare for disasters and adapt to climate change.
UN Secretary-General Ban Ki-moon, in a video message to the meeting, said that UNDP’s strengths included its global presence and programmatic reach, its pioneering analysis and forceful advocacy, and a strong commitment to the most vulnerable members of society.
“UNDP also plays the key coordinating role in the UN development system,” he said, stressing that this role will become even more important as the Organization supports national efforts to achieve the SDGs.
Mogens Lykketoft, the President of the UN General Assembly, said that it is through UNDP that Member States have most explicitly sought to fulfil the Organization’s core objective of “advancement of social progress and better standards of life in larger freedom.”
UNDP has a geographical footprint corresponding to the multi-polar world, and a mandate that reflects the complexity of the global challenges of today, he noted. Citing its function as resident coordinator at country level, its presence in over 170 of the world poorest and most vulnerable countries, and its role as chair of the UN Development Group, he said “a dynamic UNDP will be and must be at the very heart of a dynamic response from the UN development system.”
“Together, you must deliver as one, advocate loudly for SDG action, work hand in hand with Member States and other partners, and promote accountability for last year’s commitment,” he concluded.
Helen Clark: Closing Speech UNDP 50th Anniversary Ministerial Meeting
Today’s meeting has been about Ministers engaging strategically on the big issues and on the role of UNDP. Thank you all for entering in to the spirit of the meeting – more Davos than General Assembly – and being engaged, and insightful.
A key message came at lunchtime from Erik Solheim: let’s be positive. For despite all the bad headlines in the news media, our world has seen a huge amount of progress. People are living longer and are better educated. They have more income. We have not yet reached the last mile. But it can be done. We have seen countries eradicate poverty. We have seen countries reach many new heights.
My wish for UNDP is that it continues to be proactive, responsive, and relevant as countries define their development journeys. Each country is unique, but if we stick with getting rid of poverty, stick within the boundaries of nature, and continue to lift human development, then we will be on the right track.
By the end of the Agenda 2030 period, most countries will be middle income countries. And so the role of UNDP will change. It will include much more South-South Co-operation and knowledge sharing, and policy advice. We must continue to move with the times. We are not what we were in 1966. What we are today is not what we will be in 2030. But we will still be there, and we will still be relevant.
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Today we heard how UNDP over 50 years has supported countries to navigate through the most difficult times: whether that involved war and conflict, hardships like Ebola, recovery from devastating natural disasters, or tackling violent crime and lawlessness.
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It was heartening to hear the President of Togo say in our opening session that “UNDP’s action made the difference at a critical moment in our country’s development”. More than a decade since that critical moment, UNDP continues to be a valuable partner. Many others echoed these sentiments.
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Other speakers highlighted how UNDP’s support for elections, capacity development, and constitutional reforms have been critical to progress. Pakistan noted: “It is easy to set goals. It is difficult to achieve them unless there is a machine to move them.”
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Countries including Latvia and Turkey also reflected on their journeys with UNDP, from being aid recipient countries to becoming donors and partners to other developing countries. UNDP’s partnership with developing countries has been for the long haul.
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Many speakers also reiterated UNDP’s important contributions to the big international development agendas, including through the human development concept, and in the Earth Summit’s Agenda 21, the Millennium Declaration of 2000, and now the 2030 Agenda.
Challenges ahead
While today has been a celebration of past progress, we also asked for realism about the major challenges which lie ahead.
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Many countries highlighted their concerns about sustaining the gains they have made over the last decade. Building the resilience of people, communities, and countries to be able to withstand and prosper amid shocks of all kinds is a priority for all. UNDP will work to integrate risk management into its country support and programming, following the call at Sendai to mainstream disaster risk reduction. Norway described UNDP as being “indispensable” in building resilience.
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Inequality has been highlighted as a challenge by countries at all levels of development. In order to achieve sustainable development all people must be included. Women who make up half the world’s population must be engaged fully. So must the world’s largest ever generation of young people who are looking for a positive future in the workforce and for their voices to be heard.
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We heard many calls for partnerships which are inclusive of the most vulnerable and marginalized people. Addressing inequalities in all forms is an imperative; it is good economics, and it’s an investment in peace and security.
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Preventing Violent Conflict is helped by building more inclusive societies, and reducing vulnerabilities. We have heard your emphasis on investing in peace, reconciliation, and dialogue, and ensuring that the commitment of development partners is sustained.
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Many countries raised the critical issue of water security and scarcity and the management of water resources. This is a potential source of greater tension in the years ahead. UNDP is committed to supporting countries to head off looming crises through improved water governance, and management of shared water resources.
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Many spoke of how environmental degradation is impacting on their ability to move ahead. Combating climate change, achieving sustainable management of natural resources, and managing the risks associated with natural disasters loom large. As Finland noted, protecting the planet and delivering sustainable development is not a choice; it is a matter of survival. Many countries need support to make the shift to the more sustainable production models called for in Agenda 2030, and in the COP21 Agreement reached in Paris.
Today’s discussions have affirmed that these challenges must be tackled with urgency, even in the current constrained global economy. The MDGs were launched in better times. Now all sources of finances must be drawn on – public and private, domestic and international, developmental and environmental.
Egypt noted that “When co-ordinating different funds, synergy is critical. We need integrated programmes playing together as one team”. UNDP plays a role in finding those synergies
UNDP and Agenda 2030
Your assessment today of how UNDP can best support your countries’ efforts to successfully implement the 2030 Agenda fits closely with the vision expressed in our Strategic Plan.
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Today Ministers have said they value our role in facilitating countries’ access to knowledge, expertise, and resources to implement the SDGs. Minister Murah of Sierra Leone called UNDP the “SDG Accelerator”. Our role in supporting countries to pursue risk-informed development has been acknowledged.
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Ministers have also stated how much they value UNDP’s efforts to ensure integration and coherence in its leadership and co-ordinating role in the UN development system. Many of you called for us to play an even stronger role in that, which we are happy to do.
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Special mention was made of our role in fragile countries. Somalia and others made it clear that crisis-affected countries cannot be left out of SDG implementation. UNDP has a key role to play in these contexts.
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The importance of supporting South-South Co-operation has also been raised by many countries, including Panama and Mozambique. Across developing countries, there are countless experiences of positive and innovative policies and best practices. All countries are keen to share their experiences and lessons learned to support SDG achievement.
Ensuring UNDP can meet expectations
UNDP offers its unconditional support to countries. But we need your help too.
In particular, we benefit from a stable and predictable financial foundation to sustain our multilateral character and our partnerships, and to lead the UN development system. That system relies on the backbone support of UNDP’s universal presence in developing countries and its scale.
So we ask all Member States to see investing in UNDP as an investment in the global presence and mandate of the UN for development. So often, leaders say to us: UNDP is the face of the UN in our country. We are respected for our expertise, our political neutrality, and for always supporting national ownership.
Conclusion
This Ministerial Meeting strongly suggests that there is a shared understanding of the road ahead for development and for UNDP as a ‘trusted and strategic’ partner.
We are grateful for your presence, your leadership, and your generosity in thought, action, and commitment to our shared agenda, and for the confidence you have expressed in UNDP. Your inspiration and recommendations will help guide our future work.
In closing, can I express special appreciation to all who have journeyed to New York to help shape our future, and to the team in UNDP led by Michael O’Neill and supported by all UNDP senior managers which pulled together this extraordinary meeting. We are indebted to you all for your contributions – as we are to all our staff around the world who work with dedication to make a difference for people and planet.
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Dialogue of African energy stakeholders towards “the Development of a Harmonised Regulatory Framework for Energy in Africa”
African energy stakeholders met at a 2-day workshop in the margins of the Joint Africa-EU Strategy meeting of the “Reference Group on Infrastructure”, to develop cooperation at the continental level, towards the development of a harmonized regulatory framework for energy.
The Stakeholders’ dialogue workshop was co-organized by the African Union Commission (AUC) and the European Union (EU), through its Technical Assistance Facility for the “Sustainable Energy for All (SE4ALL), Eastern and Southern Africa” initiative.
The workshop was attended by the following energy stakeholder representatives: Continental organizations representatives from AUC, NEPAD/NPCA, APUA, AFREC, AFUR, UNECA; Regional Economic Communities (REC) representatives from COMESA, EAC, ECCAS, ECOWAS, SADC; regional organisations and bodies such as RERA, and ERERA; and EU representatives and the team of Technical Experts.
Existing regulations and best practices at national, regional and continental levels were discussed, and a common approach towards harmonization of energy legislations was developed.This is the first in a series of round table discussions, and will be followed by consultations on the technical specifications towards harmonization.
The ambition is to formulate a continental strategy and set up an action plan for the necessary reforms, with the ultimate goal of creating an enabling regulatory environment for electricity market development in Africa.
The initiative is supported by the European Union (EU)whose representative, Mrs. Anna Burylo, Head of Cooperation of the EU Delegation to the African Union, said during the opening session of the workshop: “Policy and regulatory reforms are a prerequisite to facilitate investment from both public and private sources. Policy and regulatory frameworks should ensure stability, transparency and a degree of predictability, while balancing macro-economic and consumer interests.”
Continental and regional integration, in particular through the development of regional infrastructure and markets, is one of the key components in the vision of the African union Commission, of an ‘integrated, prosperous and peaceful Africa, driven by its own citizens and representing a driving force in the global arena’.
The Director of the Department for Infrastructure and Energy of the AUC, Mr. Aboubakari BABA MOUSSA, mentioned at the opening that the “harmonized continental regulatory framework for the energy sector in Africa” is one of the fundamental requirements for creating conducive environment for private sector investment in the energy projects and creation of vibrant energy market. This is one of the flagship projects of the Agenda 2063 of the African Union and is being implemented by the AUC in collaboration with the European Union.
Having a harmonized regulatory framework will go a long way to to support the INGA Project which is another flagship of Agenda 2063 and the extension of transmission lines to the Eastern, Southern Western and Northern Africa regions. This will put the corner stones in establishing regional/continental energy markets, and connecting Africa together. The director highlighted also the importance of sharing energy information and data among the African Countries to accelerate the development of the African Energy Market.
Formulation of a continental strategy and action plan of proposals: Stakeholders Dialogue Workshop - Summary
Present situation, gaps, best practices
In order to answer to the objective of harmonization of the regulatory frameworks and promote active cooperation between regulators at regional and continental level, we have followed a bottom up approach for the analysis of the situation.
National level: Many African countries already have institutions, legislations and regulations which allowed interconnection and electricity market. Benchmark national legislation and best practices identified represent good examples for less advanced countries, regarding the different framework conditions, for cooperation and harmonization. The report also reviews the gaps/barriers and weaknesses which will have to be removed through introduction of reforms by a number of other African countries:
The power sector of the Sub-Saharan countries with the exception of South Africa comprise of relatively small systems which are characterized by technical, operational and financial problems. The creation of the regional markets is essential for creating the environment to attract the needed (funds) capital, technology and expertise to help fix the challenges of the electricity deficit.
Many countries underperform in rate and level of electricity access, because of weak means and also due to a lack of policies, poor enabling environment for private sector investments, and institutions for development and roll-out of related programmes, in particular through innovative ways, including REs and mini-grid solutions.
It must be noted that the shortcomings of the African Energy Sector are not due to the challenges posed of the inadequacies of the legislative and regulatory frameworks alone but a combination of factors.
Therefore the assessment must also be viewed in the context of the traditional financial under performance of the existing utilities and their ability to adequately respond to the needs of the sector.
The macro-economic environment and sometimes protracted power shortages undermine the utilization of some of the best formulas (Ghana tariffs example).
Despite a large number of best practices, there are remaining range of barriers hindering the development and access to modern and sustainable energy services on the continent, including: low levels and lack of effective policy, regulatory and institutional frameworks; unattractive energy market to potential investors due to high investment costs and low technical skills and implementation capacity, amongst others.
Regional level: The electricity sectors of most of the African countries have undergone reforms (at various stages) with the assistance of regional organizations. Several regional and continental initiatives are also being implemented for achieving regional and continental goals in energy supply and access. Power Pools represent a real success especially SAPP and WAPP.
The adequacy and efficacy of the legislative and regulatory framework for the electricity market and industry is as important a factor as the commitment and political will to take decisions and implement them towards the scaling up of generation, improvements in governance of the sector operators, development of competitive markets and ensuring success in access programmes.
Existing disparities in the regional development of the legislative and institutional framework for electricity, renewable energy and energy efficiency limits the extent of the comparative analysis. The developments within the SADC/SAPP and ECOWAS/WAPP/ERERA regions are ahead of the rest in the electricity sector. With regard to renewable energy and energy efficiency the RCREEE and ECREEE are more advanced.
Continental level: Presently, the AUC and its other continental agencies relevant to the development of the energy sector and related continental harmonization (including PAP, NPCA, AFREC/AFSEC)do not exercise any legislative power. Same observation is for AFUR which represent less than 50% of African countries. The role of these continental institutions may be limited to information, advice, getting lessons from best practice for dissemination, assistance, model of contracts.
Preliminary conclusions
Considering their mandate and powers, the roles of Continental Institutions would essentially consist of awareness, information, advices, exchange of information and experience, workshops, publication of guidelines and guide books, and for some actions carrying out audits. AFUR represent a good example of continental institution and has published Quality of Service Guidelines and continues to support members in regulatory capacity building while AFSEC has been continuing with a standards (related e.g. to quality of electricity supply and electrical risks) development process. But the guidelines and standards issued by these important sector continental bodies are non-binding on members as they do not have the force of law.
The AUC should take initiatives for the harmonisation of contracts related to energy exchanges, network connection and access, and for the promotion of sustainable solutions for private sector investment in power generation, transmission and distribution. AUC may also have to secure and monitor coordination between regional initiatives and Regional Centres for RE&EE, and benefit from experiences of existing centres.
Regional organizations may have the same information roles and also have an important required role for contracts and tariffs, market rules and grid codes to convince their member countries to adapt their legislation and regulatory framework. They will have to gradually introduce necessary changes in order to remove all barriers to their regional markets. Several standards, as well as some tools and software, are worth being implemented within all regulatory authorities belonging to a same region.Regional inputs are also required for national legislation and power sector organisation, and for RE.
National level: There have been several attempts to jointly develop standards, codes or labels at the level of several countries. Exchange and mutual support between countries within a region is necessary to make progress in regulations and develop new electricity, RE and EE markets
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What role for trade and investment in the new climate regime?
A landmark universal emissions-cutting deal offers both hope and challenges as stakeholders move to implementation.
In a historic move, parties to the UN Framework Convention on Climate Change (UNFCCC) successfully landed the first multilateral climate treaty since the 1997 Kyoto Protocol during the Twenty-first Conference of the Parties (COP21) held in Paris, France, last December. However, while the adoption of the Paris Agreement and the decisions giving it effect marks a significant achievement for the climate community, the world must now get to the business of implementation.
The Paris Agreement charts a path towards a climate regime capable of moving the global economy off a carbon intensive growth model that is responsible for driving planetary warming. Parties agreed to hold the increase in global average temperature to “well below 2°C above pre-industrial levels” and to “pursue efforts” for a 1.5 degrees Celsius limit. The aim is to peak global emissions “as soon as possible” and to achieve net-zero emissions in the second half of the century. In order to do so, the deal requires parties to submit so-called “nationally determined contributions” (NDCs) every five years, which should at the minimum outline best-effort mitigation pledges, with increasing ambition over time.
Trade and investment both directly relate to various parts of the Paris deal and will be critical to harness for the much-needed low-carbon economic transition.
The new deal represents a significant break from previous UN climate arrangements. It provides for universal participation through bottom-up climate action, on the basis of “common but differentiated responsibilities and respective capabilities” (CBDR-RC), in contrast to previous top-down mandated emissions cuts for developed countries only. Under a binding transparency framework, all parties will have to monitor and report on emissions and track progress on achieving their NDCs regularly, which will be subject to a technical expert review and a facilitative, multilateral consideration of progress.
A series of principles, arrangements, and guidelines need to be developed in order to operationalise the Paris Agreement, and these will govern international cooperation across many climate policy areas for decades to come. Deadlines for implementing various features of the Paris deal vary, ranging from consideration at the first meeting of the parties to the Agreement – to be held at the relevant UNFCCC COP following the deal’s entry into force – to specific dates, such as a one-off facilitative dialogue on progress in 2018 to inform the 2020 NDC submissions; the 2023 start of a binding five-yearly “global stocktake” to assess progress towards achieving the Agreement’s objective and targets; and the establishment of a new collective quantified climate finance goal from a floor of US$100 billion per year prior to 2025.
Building the new climate regime will undoubtedly face many technical, financial, and political challenges. Among the more systemic concerns is whether the deal does enough to galvanise the action needed to avoid the worst impacts of climate change. This will ultimately depend on whether political will is maintained and supportive policies are put in place.
Among these, trade and investment both directly relate to various parts of the Paris deal, and need to be harnessed for the much-needed low-carbon economic transition. The remainder of this article will focus on key details and next steps that matter from a trade and investment perspective.
A boost for carbon markets
COP21 has sent a clear and strong message that carbon pricing will be an integral part of the global mitigation effort under the new climate regime. The Carbon Pricing Leadership Coalition (CPLC) – launched by 21 governments and over 70 businesses and organisations in December – will undoubtedly contribute to the uptake of carbon pricing policies.
In addition to an expansion of domestic carbon pricing, such as the planned introduction of China’s national carbon market next year, international cooperation in this area will be of significant interest as countries will likely find themselves in an increasingly ambitious and asymmetric climate regime. Linking carbon markets creates a more harmonised carbon price, thus lowering concerns around competitiveness distortions and fears industry may relocate to countries with less stringent climate regulations, referred to as “carbon leakage.” Linking can also incentivise the uptake of new carbon markets and encourage the reduction of potentially trade-distortive and often sub-optimal support measures in existing schemes. The first carbon market linkages have already been formed by California and Québec, by the EU and Switzerland, and more may soon join rank with interest signalled for EU-China, EU-Korea, and China-Korea linkages.
Article 6 in the Paris Agreement lays the multilateral foundation for such cooperation. Paragraph one broadly recognises voluntary cooperation between parties in the implementation of their NDCs, while paragraph two specifically refers to cooperation involving “internationally transferred mitigation outcomes.” It gives countries flexibility to work out different cooperation arrangements outside, yet in parallel to, the multilateral process. Article 6 simply recognises countries’ ability to engage in transfers but does not impose COP procedures to this end beyond applying emissions accounting rules that are consistent with those developed under the Paris Agreement.
Through this language the deal provides a hook for the formation of carbon market clubs, an arrangement where groups of countries agree to rules and standards, in exchange for the exclusive right to trade emissions units between themselves. The club’s value lies in its ability to scale up climate action by increasing ambition among members and incentivising the adoption of markets by non-members.
New Zealand, supported by seventeen countries, also released a ministerial declaration after the COP stating the signatories’ intention to develop standards and guidelines for international market mechanisms in the post-2020 regime and inviting others to support and apply these. This could provide an additional stepping stone for the formation of carbon market clubs.
Another promising avenue is the Carbon Market Platform, launched by Germany on behalf of the Group of Seven (G7) industrialised countries, with the aim of supporting the spread of carbon pricing policies. The initiative was opened to non-G7 countries during COP21. Together with the CPLC, these processes create significant impetus for the increasing mobilisation of market mechanisms, and sends important signals to business and investor communities.
Article 6 also creates a new UNFCCC mechanism to generate tradeable offset credits. Contrary to the Kyoto Protocol’s Clean Development Mechanism (CDM), it will be universal in nature, meaning that all countries will be able to generate credits and use these to meet their NDCs.
Gearing up for a massive energy shift
One of the most discussed elements of the Paris deal is its global temperature goals, with the aspirational 1.5 degrees Celsius warming ceiling representing a considerable increase in ambition, compared to the previous two degrees Celsius target that has alone guided climate policy thus far. Long advocated for by those most vulnerable to the impacts of climate change, the lower temperature reference was incorporated into the text after receiving support from a “High Ambition Coalition” of countries formed in secrecy six months prior to the COP, including almost eighty African, Caribbean and Pacific countries, all EU members, and the US.
Keeping the temperature rise to well below two degrees Celsius will require tremendous efforts by all nations to scale up emissions mitigation efforts and to do so fast. A massive energy shift away from climate-warming fossil fuels and to clean energy will be key in this respect. In addition, negative emissions technologies like carbon capture and storage (CCS) will play an increasingly important role, given that all scientific scenarios under the 1.5 degrees Celsius limit reviewed by the Intergovernmental Panel on Climate Change (IPCC) to date include assumptions about the use of such technologies.
The role of clean energy and energy efficiency are clearly recognised in many of the current NDCs as key areas for climate action. Although the Paris Agreement itself does not include any energy-related provisions, the decisions contain a noteworthy reference acknowledging “the need to promote universal access to sustainable energy in developing countries, in particular in Africa, through the enhanced deployment of renewable energy.”
Trade policy has an important role to play in securing the necessary energy shift and thus helping countries achieve their mitigation pledges. Removing traditional trade barriers like tariffs and restrictions to trade in services would help decrease the cost of clean energy technologies, thereby making them a more affordable for all, and a viable alternative to fossil fuels. Border obstacle reductions can largely be done on a unilateral basis. This option should also be particularly considered by African countries to help enhance access to renewable energy technologies.
Collaboration between countries is, however, needed to address more complex issues such as cumbersome and uncoordinated standards and their associated testing and certification requirements, or various energy subsidy schemes, many of which are far more trade restrictive than tariffs. The trade talks for an Environmental Goods Agreement (EGA) by 17 WTO members could play a role on this front, despite current limitations in scope and ambition.
Regional trade agreements (RTAs) offer another promising avenue to tackle these issues. Whereas the recently concluded Trans-Pacific Partnership (TPP) could have done more to promote clean energy, other agreements such as the EU-Singapore free trade agreement are more proactive on this matter, and could serve as an inspiration for future RTAs. Ongoing negotiations like the one for the Transatlantic Trade and Investment Partnership (TTIP) have the opportunity to make a big difference, not only by facilitating trade in climate-friendly technologies between the US and the EU, but also by strengthening environmental laws and enforcement, or promoting additional opportunities for collaboration on climate related issues like fossil-fuel subsidy reform, which can inform future multilateral trade policymaking.
Technology for climate action
Technology development and transfer is a key building block for effective climate action in the context of sustainable development. Technologies for mitigation include those related to energy efficiency, clean energy, carbon capture and storage, hybrid vehicles, or animal waste management, while examples of adaptation technologies include those needed to tackle sea-level rise such as improved drainage, crop varieties resistant to drought or heat, and improved irrigation systems.
Technology development and transfer is enshrined in Article 4.5 of the 1992 UNFCCC founding document as a tool to enable climate action. To this end, a Technology Mechanism (TM) was established in 2010 at COP16, with the task of enhancing climate technology development and transfer. However, as is well documented, technology development and transfer can prove difficult to harness in practice due to a range of challenges, including access, finance, institutional, and innovation constraints.
It is nevertheless an encouraging sign that COP21 decided to strengthen the TM to serve the Paris Agreement’s aims, and provided it with instructions to undertake further work on technology research, development and demonstration, as well as the development and enhancement of endogenous capacities and technologies.
The UNFCCC’s subsidiary bodies will additionally elaborate a new “technology framework” to provide “overarching guidance” on the TM’s work in the new climate regime. This framework should facilitate the updating of technology needs assessments and the enhanced implementation of their results; the provision of enhanced financial and technical support in this context; the assessment of technologies that are ready for transfer; and the enhancement of enabling environments for and the addressing of barriers to the development and transfer of socially and environmentally sound technologies.
There will also be a periodic assessment to evaluate the effectiveness and adequacy of the support provided to the TM following modalities to be developed and adopted by 2019. The Paris Agreement further creates a link between the TM and the UNFCCC’s financial instruments, responding to concerns that technology-based activities have so far been restrained by insufficient funds.
While technology development, diffusion, commercialisation, and transfer ultimately remains a complex and multifaceted process, getting trade and investment policy settings right is an important, although not an easy task. For example, lowering tariffs on clean energy goods, as discussed above, would likely increase their competitiveness and uptake in the global market place.
More generally, trade liberalisation can help to boost the supply of intermediate goods needed for technology innovation in any given economy, and competition in an open market should spur innovation. Indeed, a key feature of the TM is its focus on domestic innovation capacities, although the role of intellectual property rights (IPRs) will likely continue to be a tricky subject in the climate talks. The TM has identified the need for further clarity on IPRs in relation to climate technology development and transfer. Earlier draft versions of the Paris Agreement had included several options on this front, but the final text does not directly address the subject.
Climate action in a global economy
Implementing the Paris Agreement will have effects beyond the climate world due its fundamental ties with economic activity. Under a climate regime marked by universal action on the one hand, driven by self-determined and increasingly ambitious domestic measures on the other, mitigation efforts and policies will vary greatly between countries.
This asymmetry can have impacts on the global economy beyond emissions, both positive and negative, intended and unintended. Carbon pricing instruments or subsidies for low-carbon technologies may, for example, affect relative prices and competitiveness, alter demand and supply, and ultimately impact trade. The link between trade – itself a key driver of growth and development – and climate change will therefore be of increasing relevance. A good understanding and careful consideration of the impacts of so-called climate “response measures” will be crucial to ensure that climate action contributes to, rather than undermines, sustainable development.
Building on some existing general references in the Convention, the Paris Agreement and decisions refer to the impact of response measures in several places. COP21 also decided to continue a response measures forum, formerly initiated at COP17 in an attempt to host a more substantive discussion on the issue, but which had become largely paralysed following the expiry of its two year mandate in 2013. Parties agreed to improve the forum and adopted a work programme and technical modalities to this end. The forum will continue once the Paris Agreement takes over from the current regime, though for this purpose the modalities, work programme, and functions remain to be developed by the UNFCCC’s subsidiary bodies over the coming years.
These developments are a positive sign for an issue where a more specific conceptual discussion has long proven difficult due to its sensitivity and controversy, not least the perception that it serves the interests of fossil fuel-dependent economies, and may raise compensation obligations. Parties now have an opportunity to pick up and deepen much-needed dialogue and exchange on response measures, including on trade and climate change interactions. However, discussions should also take place within the trade world, as well as between the climate and trade communities.
International transport emissions
The final Paris Agreement contains no references to tackling emissions from international aviation and shipping. Given that these together account for around five percent of global emissions, and are forecast to grow by two to five percent per year if no further abatement actions are taken, this decision was criticised by many stakeholders. The close link between trade and international transport means that, from a trade policy perspective, tackling transport emissions will be key to making trade more sustainable.
Work on international transport emissions is on the docket for other multilateral bodies. Members of the International Civil Aviation Organization (ICAO) have pledged to develop a proposal for the first-ever global market-based measure (MBM) for aviation emissions by September, to come into effect at the end of the decade, as part of an aspirational goal to achieve carbon neutral growth from that time onwards.
Meanwhile, the International Maritime Organization (IMO) is in the process of elaborating a global data collection system to analyse energy efficiency, including guidelines on fuel use information. This will be considered at a meeting in April along with revisiting last year’s proposal from the Marshall Islands for a sector-wide emissions reduction target.
The Paris outcome could provide important stimulus for action in both arenas. Failure to make meaningful progress might, meanwhile, see parties such as the EU resort to unilateral solutions to address international transport emissions.
Opportunities and challenges
The new climate regime presents both opportunities and challenges. Through the universal commitment to ambitious targets there is unprecedented momentum to transition from our current high-emission trajectory to a truly low-carbon society. In addition to avoiding the worst impacts of global warming, this could result in a host of other benefits, from new economic opportunities to improved health. At the same time, the transition will not be simple. The bottom-up nature of the new climate regime raises doubts about countries’ ability to collectively achieve the necessary level of ambition, while the absence of a strong enforcement mechanism poses a challenge for ensuring compliance.
Implementing the Paris Agreement must also look to increase interactions between the climate and trade regimes. Climate measures under the asymmetric regime will likely test the limits of existing trade rules, something that policymakers will need to consider and deal with.
However, more than anything, climate efforts should actively mobilise trade policy, including liberalising trade in clean energy technologies, fostering innovation and technology transfer, as well as informing and facilitating club-like governance arrangements in the area of carbon markets. A proactive use of trade and trade policy can help the world achieve our low-carbon transformation imperative.
Ingrid Jegou is Senior Programme Manager of the Global Platform on Climate Change, Trade and Sustainable Energy at the International Centre for Trade and Sustainable Development (ICTSD). Sonja Hawkins is Junior Programme Officer, Climate and Energy, ICTSD. Kimberley Botwright is Managing Editor, Bridges Trade BioRes, ICTSD.
This article is published under BioRes, Volume 10 - Number 1, by the ICTSD.
tralac’s Daily News selection
The selection: Wednesday, 24 February 2016
SADC Council of Ministers' meeting, 14-15 March: briefing note
African Economic Platform: inaugural meeting (14-16 April, Mauritius)
Extract: The inaugural platform will tackle amongst other issues the potential for the Continental Free Trade Area to boost intra-African trade and investments; the role of governments and the private sector in industrialization and an African commodity sector; bridging the skills deficit in the continent, measures to speed up free movement of people on the continent and the challenge of building a competitive African business and private sector in a fast changing continent and world. “The ultimate aim of the African Economic Platform is to catalyze economic transformation on the continent by seeking solutions to, among other things, economic integration, promoting greater intra-African trade, skills development and capacity building,” the AU Commission Chairperson said when making the announcement. [Twitter updates: @AfriEconPlatfrm]
Egypt’s turn to Africa: much more than goods (Financial Times)
Yet the true potential cannot be accounted for in terms of goods trade alone. It is an enigma that there is hardly a single investor in Egypt from sub-Saharan Africa. This needs to be rectified, given the sizeable pockets of liquidity and net worth across the continent, coupled with the compelling entrepreneurial skills we see in many of these markets. [The author, Karim Sadek, is managing director, transportation and logistics, at Qalaa Holdings]
ANSI announces Standards Alliance support for Trade Africa (ANSI)
The American National Standards Institute is pleased to announce an expansion of the Standards Alliance, ANSI’s public-private partnership with the US Agency for International Development that provides technical assistance to developing countries specifically related to implementation of the WTO Technical Barriers to Trade Agreement. The expanded scope of the Standards Alliance will allow ANSI to engage with five additional countries in sub-Saharan Africa: Cote d’Ivoire, Ghana, Mozambique, Senegal, and Zambia. To date, ANSI has engaged in ten countries and regions under the Standards Alliance, including those in the EAC and SADC. The work plans in these regions have included successful activities such as:
Nouakchott Declaration on the Fisheries Transparency Initiative (AfDB)
Welcome the announcements by the governments of Mauritania, Indonesia, Senegal – as Senegalese President Macky Sall confirmed at the conference – and Seychelles to start the process of forming a dedicated National Multi-Stakeholder Group for the FiTI within 2016, implementing transparency in their fisheries sectors based on a participatory process. Urges states, business, civil society, international partners and providers of financial and technical assistance to take active steps in promoting the Fisheries Transparency Initiative and supporting its long-term sustainability. [Background]
Kenya: Finish old projects before budgeting for new ones, MPs told (Daily Nation)
Parliament’s experts on budget and economic policy have asked the national and county governments to concentrate on finishing ongoing development projects before new ones are started. In its report to MPs ahead of the processing of the Budget, the Parliamentary Budget Office has asked MPs to request project appraisals before a project is selected for inclusion in the allocation for the next financial year. It says that while the allocation to development grew 29 times between 2002 and 2015, the rate of completion has been very low. “It is estimated that as of June 2015, there were more than 1,000 projects which were classified as ongoing. The estimated cost to complete these projects is Sh3 trillion,” the PBO says. [Special Economic Zone at Mombasa to boost business (New Times)]
Boost for regional trade flow as DRC joins Comesa FTA (Business Daily)
The flow of goods on the Mombasa-Malaba corridor is set to ease further after the DRC joined the Comesa free trade area, signalling intention to eliminate time-consuming customs procedures. Comesa secretary-general Sindiso Ngwenya said the DRC was committed to a phased tariff reduction scheme, starting with an instant tariff reduction of 40 per cent which would be followed by two equal cuts of 30 per cent. [Tanzania: We should remove barriers to trade, DRC envoy urges (IPPMedia)]
Zambia: ‘MFEZ earmarked for Kabwe’ (Daily Mail)
“KCCI plans to set up the first private sector-led MFEZ to revive the local economy of Kabwe and the entire Central Province, and to build the capacity of the local small and medium-scale entrepreneurs. The potential for industrialisation and value chains in Kabwe and the surrounding areas of Central Province is viable and a potential contributor to Zambia’s gross domestic product,” Central Province Chamber of Commerce and Industry vice chairperson Andrew Sinyangwe said in an interview on Thursday.
South Africa: International cooperation, trade and security cluster briefing (GCIS)
Extracts on SACU: South Africa assumed the position of Chair of the SACU in June 2015. Following a special meeting of the Council of Ministers and Heads of State and Government in November 2015, there is agreement to convene a Retreat in April 2016 to give strategic direction to the implementation of the six-point work programme. This will be followed by a Summit of SACU Heads of State and Government by June 2016. The Preferential Trade Agreement between SACU and the Southern Common Market (Mercosur), comprising Brazil, Argentina, Paraguay and Uruguay, has now been ratified by all member states and this agreement is expected to enter into force in the first semester of 2016. The agreement will offer new market access opportunities for South African exports and also strengthen our South-South Cooperation. [Trade and Industry undertakes investment and trade initiative to India (GCIS)]
Resilient: Africa bets are off (Financial Mail)
Relilient Reit is putting on ice its plans to build 10 shopping centres in Nigeria, placing it among a growing number of SA companies whose African bets haven’t quite panned out. The key reason for the move is that it is becoming more difficult for clothing retailers to trade profitably in Africa’s largest economy. De Beer says the sharp drop in the oil price and government’s subsequent attempts to limit the depreciation of the naira against the US dollar by, among other things, introducing wide-ranging import controls have left a number of the large clothing retailers without any stock.
Nam food production at its lowest (The Namibian)
Food production is at its lowest in Namibia with only 21% of national cereal requirements being met through local production. This is according to the 2015 crop prospects, food security and drought situation report released by the agriculture ministry. Economic Planning minister Tom Alweendo, who was speaking during the zero hunger review validation meeting just outside Okahandja, said there are risks involved when a country is so dependent on other countries to meet its food needs.
Kenya: To EACC: Follow the money to catch all these corrupt officials (Daily Nation)
The recent sackings, in one fell swoop, of Kenya Ports Authority’s top officials has left keen observers of the perennial shenanigans and power plays around the port of Mombasa scratching their heads. Methinks that we in the press have not adequately captured the true significance of what has taken place in Mombasa — an upsurge in raids on container freight stations, sensational discoveries of contraband in freight stations, and the high profile sackings at KPA. There are many long-term policy questions here. What must be done to improve security and regulation of the country’s maritime affairs? When will Kenya ever have a fully financed and efficiently operating coast guard?
Kenya inks agriculture, irrigation deal with Israel (Business Daily)
President Uhuru Kenyatta and Israeli Prime Minister Benjamin Netanyahu have signed a deal on irrigation and agriculture that could boost the one million acre Galana-Kulalu project. Israel has played a key role at the Galana-Kulalu irrigation scheme, having extended a Sh7 billion loan for the development of the 10,000-acre model farm. The agreement was signed Tuesday in Jerusalem, Israel, where Mr Kenyatta is on a three-day State visit.
Rwanda: RRA surpasses 2015/16 revenue collection target (New Times)
The tax body collected Rwf470.6bn against a target of Rwf460.3bn during the period, with tax revenue collection for July-December 2015 standing at Rwf463.5bn compared to Rwf455.0bn targeted. Rwf8.4bn was collected above projections, giving confidence RRA could meet its annual revenue targets. Overall, tax revenue grew by 13.9% during this period with non-tax revenue collections of Rwf7.1bn against a target of Rwf5.2bn and a surplus of almost Rwf1.9bn – an equivalent of 35.6% over the target.
Tanzania GDP rises in Q4, full year 2015 (Reuters)
Faster growth in the communications, mining and financial services sectors boosted Tanzania's economic growth at the end of 2015, the statistics office said on Tuesday. East Africa's second-biggest economy grew 7.1% year-on-year in the fourth quarter compared with 4.1% in the same period a year before, the National Bureau of Statistics said. Overall GDP growth for 2015 rose to 7.1% from 7.0% in the previous year. [NBS: Download]
Egypt's central bank widens exceptions on import restrictions (Ahram)
Egypt's central bank excluded manufacturing inputs, spare parts and computers from a measure requiring importers to provide 100% cash deposits at banks on their letters of credit, the bank said in a statement on Monday. The central bank raised in December the requirement from 50% in an attempt to boost domestic production against foreign competition and shore up limited resources of the hard currency.
Min Zhu: 'Small middle-income countries in Africa need to rethink their growth strategy' (Brookings)
The small middle-income countries in Africa represent a successful group that has experienced solid economic growth and sustained improvements across a broad range of development indicators. Recently, a moderation in growth has slowed the rise of their income towards advanced-economy levels. This has raised concerns that some of the countries may be caught in the so-called “middle-income trap.” The growth slowdown reflects both the weaker global conditions and domestic constraints. These countries thus need to adjust their policies to preserve stability, while at the same time advance on the next generation of structural reforms that will set the basis for long-term growth and a transition to advanced-economy status.
UN adviser calls for new mobile-industry partnership to achieve sustainable development (UN)
Speaking at the Mobile World Summit in Barcelona yesterday, David Nabarro, Secretary-General Ban Ki-moon’s advisor on the 2030 Agenda for Sustainable Development, called on the mobile industry to “work with Governments and the international community to expand connectivity, lower barriers to access and ensure that tools and applications are developed with vulnerable communities in mind.”
Second-generation biofuel markets: state of play, trade and developing country perspectives (UNCTAD)
This report focuses on how these market opportunities can be capitalized on and how to promote technology transfer for developing countries interested in engaging in advanced biofuel markets for the attainment of the SDGs, and as an instrument to meet their commitments under COP21. By carrying out a non-exhaustive mapping of cellulosic ethanol projects and recent policy lessons around the globe, this report seeks to provide public and private practitioners with a macro-picture of the advanced biofuels sector, with a specific focus on cellulosic ethanol as of 2015-2016. The report concludes with five suggestions for the responsible development of the second-generation biofuels industry:
Move over China, India may be Africa's new mining frontier (M&G)
Diamond mining: Zim violates agreement with China (NewsDay)
Angola taken off money laundering blacklist (Macauhub)
Jim Yong Kim: 'Lessons from Vietnam in a slowing global economy' (World Bank)
2015 Review of the UN Peacebuilding Architecture: debate summary (UN)
New time series of global sub-national population estimates launched (World Bank)
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Special Economic Zone at Mombasa to boost business
The Kenyan government’s approval of the development of a Special Economic Zone (SEZ) in Dongo Kundu, Mombasa, expected to boost job creation and regional trade, has been welcomed by business people.
The Dongo Kundu bypass, which is part of a three-phase plan to decongest the port city of Mombasa, is set for completion in 2018.
Eng. Jean-Baptiste Gasangwa, the Private Sector Federation (PSF) resident representative in Mombasa, told The New Times on Monday that two things are taking place in Mombasa currently, including the extension of the Port of Mombasa to increase its capacity to handle 50 per cent more containers in two years’ time.
“This is good news for business in the regional countries as increasing imports and exports including recently discovered oil will reach the market faster and cheaper because of less congestion as is the case with existing capacity in the port of Mombasa,” he said.
The other development at the port, according to Gasangwa who has lived and worked in Mombasa for 27 years, is the establishment of the Special Economic Zone.
“For our country and the region, this also is good news indeed. To shed a clearer picture, Dubai is a known example of such a zone but this time it is coming to our door step,” he added.
“Our importers will not need to go very far to buy whatever they need with expensive visa, flight and accommodation expenses. Rwandan industries can also easily establish themselves in the zone-within the East African Single Customs Territory, and transform by adding value to our exports before they are sent to overseas markets.”
Rwanda uses the port of Mombasa for its imports and exports to the tune of 40 per cent, the rest passing through the Tanzanian port of Dar es Salaam.
The free-trade zone (FTZ) project will be established on a site of between 300-500 acres of land available to investors and it will host wholesale and retail trading, breaking bulk, re-packaging logistics, warehousing and handling and storage of goods.
Developed as an industrial and commercial hub with potential for the creation of jobs for the youth, the facility is expected to gain immensely from the ongoing expansion and modernisation of the port of Mombasa.
The entire Mombasa Port Area Development Project (MPARD) is expected to take 36 months and, at the end – after a three-phased construction plan – the main purpose will be to decongest Mombasa port and ensure a quicker turnaround time for freight logistics companies delivering and collecting cargo.
“Upon completion of the three phases, the Dongo Kundu bypass is expected to bring far-reaching benefits and a very positive impact to traffic flow management at the Coast,” Kenya National Highways Authority (KeNHA) Board Chairman, Erastus Mwongera was quoted saying last week.
Forecasts by the government of Kenya point to a population of 27,000 workers within the SEZ. Currently, the practice at the port is that all goods are subjected to slow customs procedure. Once the FTZ is complete, however, goods on transit will face less strict customs regulations.
“There will be immense economic opportunities arising once the road is built and will spur development and ease movement within Mombasa, which has been a challenge for a while,” said KeNHA Acting Director General Linus Tonui.
In building an FTZ, Kenya joins economies such as Dubai that gain much from distributing goods to other parts of the world.
Meanwhile, Kenya is this year also constructing another container terminal – projected to have a capacity of 450,000 twenty-foot equivalent units (TEUs) – in Mombasa to handle increased trade within the region. This new terminal is expected to rise to 1.2 million by 2019.
The port of Mombasa handled one million TEUs of cargo last year.
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Small middle-income countries in Africa need to rethink their growth strategy
Successes and challenges
The small middle-income countries (SMICs) in Africa represent a successful group that has experienced solid economic growth and sustained improvements across a broad range of development indicators. Recently, a moderation in growth has slowed the rise of their income towards advanced-economy levels. This has raised concerns that some of the countries may be caught in the so-called “middle-income trap.”
The growth slowdown reflects both the weaker global conditions and domestic constraints. These countries thus need to adjust their policies to preserve stability, while at the same time advance on the next generation of structural reforms that will set the basis for long-term growth and a transition to advanced-economy status.
Sub-Saharan African SMICs: Growth and Stalled Convergence
Before the global financial crisis, growth in these countries was aided by high demand for their exports from advanced economies and emerging markets. The legacy of the crisis – a slowdown in global growth, FDI, and trade – is lasting longer than expected and having spillovers on the growth potential of these countries. More recently, commodity exporters have been hit by declining exports and a rising cost of external finance. Closer to home, countries like Botswana, Lesotho, Namibia, and Swaziland are also heavily exposed to the slowdown in the South African economy from trade channels and the decline in revenues from the customs union.
Notwithstanding the differences – location, land size, structure of their economy – these countries face some common domestic challenges: diversifying their economic activities, creating jobs, building more infrastructure, furthering human development, and making growth more inclusive. Policies need to focus in five areas:
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Diversifying economic activities and exports to ensure growth is broad based. The recent downturn in commodity prices has further emphasized that an economy is more resilient if the growth comes from a variety of sources.
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Unemployment, particularly rising youth unemployment, is a big concern. Large informal sectors with low productivity levels contribute to underemployment while lack of education and job training worsen skills mismatches. Unemployment creates political and social pressures leading to short-term solutions that are unsustainable or undesirable in the longer term. For instance, pressures for job creation in the public sector result in an inflated wage bill and crowd out other priority spending.
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Infrastructure deficiencies hinder the development of the private sector through a high cost of doing business. Countries should add infrastructure, but also make better use of what is available. With many countries facing binding budget constraints and significant investment needs, increasing the efficiency of existing infrastructure is more important than ever.
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Human development indices have improved, but more can be done. Life expectancy has improved in several countries, but further progress is needed in others. There is also room for progress in secondary and tertiary education. Building human capital can also help with youth unemployment.
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Inclusive growth is one of the key challenges of the 21st century. While poverty rates have fallen, efforts are still needed in this area. Also, inequality remains unacceptably high in several countries. If unchanged, this will lead to social pressures and hurt growth.
Reform needs: Moving to the next level
Faced with a decline in exports demand and the overall resource envelope, more expensive costs of external financing, and domestic constraints, the challenge SMICs face in transitioning to advanced economies is more pronounced. Recapturing the earlier growth momentum will require governments to rethink their sources of growth and accompanying policies.
Crucially, countries need to implement previously delayed structural reforms to enhance their competitiveness and resilience. Reform needs vary according to the stage of economic development: What got countries from low-income to middle-income will not necessarily take them to high-income. The reform efforts can be grouped in three broad themes:
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Creating fiscal space to balance the constrained resource envelope with significant spending needs and strengthening public financial management to improve the value for money and reduce fiscal risks;
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Furthering private sector development to diversify the sources of growth and reduce reliance on the public sector;
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Fostering inclusive growth, including by upgrading human capital to aid job creation.
Given multiple reform needs, countries need to prioritize and sequence reforms to maximize payoffs. The pace of reforms matters as much as the type of reforms. Similarly, there are benefits in implementing certain reforms simultaneously or in “waves.” For instance, there are synergies between labor and product markets reforms.
“Africa on the Move: Unlocking the Potential of Small Middle-Income States,” offers a number of policy options to address these challenges and realize future opportunities through the analysis of macroeconomic and structural issues. The areas covered in the book include the macroeconomic vulnerability faced by these countries; how to enhance their resilience to shocks; an assessment of how labor market outcomes can be improved; structural policies and institutional reforms that could boost productivity growth, and financial inclusion policies.
While the reform diagnostics are fairly straightforward, navigating the political economy constraints to reforms represents a thornier challenge. Political economy constraints are often the main reason reforms are delayed. For instance, labor market reform in Mauritius was initially opposed by unions concerned about the interest of their members. Eventually, negotiations between the government, employers, and unions resulted in a package that protected workers through an unemployment insurance scheme and support for job search and training. Peer learning may offer scope to share ideas on navigating the political economy to push forward the reform agenda to enable the middle-income countries to transition to advanced-economy status.
Min Zhu is Deputy Managing Director at the International Monetary Fund. This blog reflects the views of the author only and does not reflect the views of the Africa Growth Initiative.
» Download an except from Africa on the Move: Unlocking the Potential of Small Middle-Income States (PDF)
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African Development Bank supports launch of the Fisheries Transparency Initiative in Nouakchott
The African Development Bank (AfDB) played a key role in the First International Conference on the Fisheries Transparency Initiative (FiTI) in Nouakchott, Mauritania, on February 3, 2016, on the invitation of the country’s President, Mohamed Ould Abdel Aziz.
The Conference was opened by President Ould Abdel Aziz and his Senegalese counterpart, Macky Sall, with keynote addresses from Isabella Lövin, Swedish Minister of International Cooperation for Development; Abdlatif Y. Al-Hamad, Director General and Chairman of the Arab Fund for Economic and Social Development; Louise Cord, Regional Director at the World Bank; and Peter Eigen, the Chair of the International Advisory Group of the Fisheries Transparency Initiative.
A high-level panel included representatives from Governments, international organizations, business and civil society. In their opening speeches, the two Heads of State highlighted the importance of the FiTI, which aims at enhancing responsible and sustainable fisheries through transparency and participation. Senegal’s President also saluted the role played by Mauritania in the fight against illicit fishing and terrorism.
In addition to the opening session, the conference convened four other sessions devoted to global efforts for responsible fisheries, responsible fisheries through transparency and participation (multi-stakeholder panel), the way forward, and adoption of the conference’s declaration.
Speaking as panellist at the multi-stakeholder panel, Sheila Khama, Director of the AfDB’s African Natural Resources Center (ANRC), expressed the Bank’s support to FiTI. She addressed the issue of transparency within the broader context of good governance and sustainable resources development, in keeping with the Bank’s strategic goals. Her remarks focused on the importance of the sector to the Bank’s vision for agricultural transformation, industrialization and human development strategies and objectives, as well as the need to go beyond sheer disclosure and focus on good governance through regulatory effectiveness, fair trade arrangements, transparent contracts, resource conservation and the elimination of illicit trade. She also stressed the importance of resource planning and monitoring to avoid depletion and to ensure equitable access between large commercial companies and small fishermen. Khama underscored the need to enable investment, and to ensure that current and future fishing contracts deliver fair value, allowing regional governments to negotiate future contracts.
Khama delivered a presentation on the role and strategy of the ANRC to the Bank’s Liaison Office in Mauritania, highlighting the mandate, the proposed strategic direction, the operating structure, the business model and the current initiatives of the Center.
At the end of the Conference, participants adopted the Nouakchott Declaration on the FiTI, which endorses seven principles as a foundation for the initiative to reflect the beliefs, objectives and expectations of the FiTI stakeholders. It also welcomes the announcement by the Governments of Mauritania, Senegal, the Seychelles and Indonesia to start the process of forming a dedicated national multi-stakeholder group for fisheries transparency within 2016. The Nouakchott Declaration urges states, business, civil society, international agencies, and donors to take active steps in promoting FiTI and supporting its long-term sustainability.
Against the background of the Conference, the Bank team used the opportunity to deepen its country dialogue on natural resources management and to meet with the Mauritanian Government authorities, namely the Ministers of Economic Affairs and Development, of Mining, Energy and Oil, and of Fisheries and Maritime Economy. The message of Akinwumi Adesina, President of the Bank, was conveyed to each of these authorities by Khama. The AfDB’s delegation also welcomed Mauritania’s leadership to the FiTI and identified areas of interest for the Bank, in particular the ANRC and the African Legal Support Facility (ALSF). These include the exchange of information and knowledge, contract management and negotiation, contract review, and implementation of FiTI. It is envisaged that the AfDB could assist the country in implementing FiTI as a component of an institutional support scheduled for 2017.
The Bank team also comprised the Resident Economist in Mauritania, Marcellin Ndong Ntah; the Fisheries Expert in the ANRC, Jean-Louis Kromer; and an ALSF Legal Expert, Jean-Claude Mabushi. The Executive Director for Mauritania, Tarik Al-Tashani; and his Advisor, Mohamed Hamma Khattar were also in attendance.
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Boost for regional trade flow as DRC joins Comesa FTA
The flow of goods on the Mombasa-Malaba corridor is set to ease further after the Democratic Republic of Congo (DRC) joined the Comesa free trade area (FTA), signalling intention to eliminate time-consuming customs procedures.
Comesa secretary-general Sindiso Ngwenya said the DRC was committed to a phased tariff reduction scheme, starting with an instant tariff reduction of 40 per cent which would be followed by two equal cuts of 30 per cent.
Kenyan traders rely on the Mombasa-Malaba road (Northern Corridor) to move produce to their key markets in the region.
Landlocked states such as Uganda, Rwanda, Burundi, DRC and South Sudan also rely on the highway to receive import orders via Mombasa Port.
Kenya has previously reduced administrative barriers on the Northern Corridor in part of efforts to speed up cargo flow to landlocked markets.
Under FTA, a designated group of countries agrees to eliminate tariffs, quotas and preferences on most (if not all) goods.
Kenya is among countries seeking to reap from the Comesa FTA model with the planned construction of a Special Economic Zone (SEZ) in Mombasa’s Dongo Kundu area.
The Kenyan Cabinet last week approved the development of the SEZ that will host wholesale and retail trading, breaking bulk, re-packaging logistics, warehousing and handling and storage of goods, among others.
The facility will be developed as an industrial and commercial hub with potential for the creation of jobs for the youth, a dispatch from State House said.
A blue print by the Industrialisation ministry showed that the plan included the establishment of a free trade zone (FTZ) within the 1,326 hectares SEZ facility.
“2018 is the target year for the launch of Mombasa SEZ at Dongo Kundu,” the ministry said in the document adding that it forecasts a population of 27,000 workers within the SEZ.
The FTZ project will be established on a site of between 300-500 acres of land that is available to investors.
It will host wholesale and retail trading, breaking bulk, re-packaging logistics, warehousing and handling and storage of goods among others.
Unlike the current practice at Mombasa port where all goods are subjected to slow customs procedure, an FTZ creates a haven where goods on transit face less strict customs regulations. The area will be reserved for re-exports to the 400 million-people Comesa bloc, allowing for transhipment of cargo without inspection or paying customs duty.
Uganda and Ethiopia recently undertook to join the Comesa FTA to boost trade in the region. Ethiopia has of late found itself at loggerheads with other partner countries over trade controls and restrictions to its markets.
Besides joining the Comesa FTA, more members of Comesa have relaxed visa regulations to boost cross-border trade.
Mauritius, Rwanda and Seychelles have scrapped visas for nationals of Comesa member states while Zambia has issued a circular waiving visas for the region’s citizens who travel for official business only.
The decisions are part of efforts to implement the bloc’s Protocol on Free Movement of Persons, Services, Labour and Rights of Establishment and Residence in the region. So far four countries; Burundi, Kenya, Rwanda and Zimbabwe have signed the protocol on free movement of persons. Only Burundi has fully ratified it.
Kenya and Rwanda are, however, already fully complying with most of the provisions of the protocol before it is fully implemented by the bloc. The two countries have promised to ratify the protocol soon.