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tralac’s Daily News selection
The selection: Monday, 8 February 2016
Profiled trade and investment policy discussions:
Tomorrow, in Pretoria: What next for EU‐SA trade relations?
Thursday, in Nairobi: Stakeholder consultations on a National Export Strategy
This week: ECOWAS, Germany collaboration in focus
Later this month, in Arusha: the inaugural East African Business Leaders Summit
Profiled 2015 annual reports: NEPAD Agency, Southern Africa Shippers Transport and Logistics Council
Egypt: Beyond summit diplomacy (Al-Ahram Weekly)
Preparations are well underway for Egypt to host a conference on investment in Africa later this month. Scheduled to open in Sharm El-Sheikh on 20 February, the conference is expected to attract high-level delegations to discuss intra-African investment and foreign investment in the continent. Official press statements say Egypt is eyeing mega-projects in several African states, and government and business-sector sources say they are discussing potential “common interest” projects that, if pursued, will enhance Egypt’s position in Africa. East Africa in general, and Nile Basin countries in particular, are expected to receive the greatest attention from Egyptian investors, working either independently or in partnership with other foreign investors. Though the conference will be opened by President Abdel-Fattah Al-Sisi, it will be the private, rather than state, sector that takes the lead, said Minister of Investment Ashraf Salman.
Brazilian and African governments discuss investments (POST)
A series of topics were discussed between the executive secretary of the Ministry of Development, Industry and Foreign Trade, Fernando Furlan, and ambassadors from 15 African countries in Brasília. The ambassador of Tunisia said to ANBA that the meeting was “highly productive”. “We talked about the signing of the Cooperation and Investment Facilitation Agreement, which sets the rules for doing business and investments, and is a modern instrument to replace the Bilateral Investment Promotion and Protection Agreements. This new model allows the investor more institutional support, unlike the BIPA. It’s an innovative model.” Angola and Malawi are some of the African countries that already signed the agreement with Brazil. In Tunisia, Algeria and Morocco, CIFA negotiations are still in the early stages.
Matrade to expand Malaysian products in West Africa (Malaysian Insider)
The Malaysia External Trade Development Corporation aims to use Nigeria and Ghana as a platform to promote Malaysian products in the West African region. MATRADE Trade Commissioner to West Africa Saifuddin Khalid said the West African region had started opening up their economies, resulting in increasing demand for foreign products. Saifuddin noted that Malaysia enjoyed good relationship with West Africa before the region was hit by political uncertainties in the 1990s, which led to Malaysian companies divesting their investments there.
AGOA has rich export opportunities, if Kenya is interested (Daily Nation)
For this article, rather than attempt to analyse the entire product list, I will focus on two areas, textile and fisheries. These two also happen to be areas that Kenya’s government has committed to developing.
US opens up for more of SA’s goods (Business Day)
After intense discord over SA’s participation in the African Growth and Opportunity Act, the trade relationship between SA and the US is on the mend, with talks now under way to provide greater access for SA’s agricultural products into the lucrative US market. The discussions between the US and South African governments over expanding the range of SA’s agricultural exports that can enter the US market duty free under Agoa have already yielded results, as the US Department of Agriculture has issued a regulation to allow SA to export litchis to the US. Other "low hanging fruit" under discussion are avocados, mangoes and beef, assistant US trade representative for agricultural affairs and commodity policy Sharon Bomer said last week.
Mozambique, China: update on bilateral trade and investment relations (MFA China)
China has started the implementation work and set up a fund for production capacity cooperation, and will soon launch the first batch of projects, and then more and more enterprises will focus their attention on Africa. China is willing to discuss with Mozambique the cooperation under this framework at the earliest time to help its development and bring more benefits to its people. China will view Mozambique as a natural extension of the 21st Century Maritime Silk Road and boost cooperation with Mozambique in marine economy and port-neighbouring industrial parks. Both sides could focus their cooperation on the following aspects:
Mobile phones top imports by Kenyan traders from China (Business Daily)
SA coal finds new markets (IOL)
South Africa’s coal exporters, who reported record shipments last year, are finding markets closer to home to replace waning Chinese demand. “The market axis for coal is seemingly shifting towards new and emerging markets, marking a structural change from a well- established way of doing business," Mosa Mabuza, deputy director general for mineral policy and investment promotion at South Africa’s Department of Mineral Resources, said Thursday at an IHS conference in Cape Town.
South Africa: Beware of impact of new laws on investment - Chamber (Fin24)
The negative impact of legislation like the investment promotion protection bill and the expropriation bill on foreign investment figures in South Africa will only become visible in future, cautioned Matthias Boddenberg, chief executive of the Southern African-German Chamber of Commerce and Industry on Thursday. The chamber has expressed its concern about the legislation in the past, but was not successful in convincing the Department of Trade and Industry and other policy makers of its view, Boddenberg said at the first meeting of Cape members of the chamber in 2016.
The Rand, Nam dollar and benefits of being in the CMA (Southern Times)
The South African Rand might have depreciated against major foreign currencies, particularly the US dollar, Euro and the British pound. This is however not a reason to have discussions of de-linking the Namibian dollar from the South African Rand, to which it is linked one-on-one. Southern Africa Customs Union spokesperson says although the union secretariat does not yet have the latest figures to comment on the impact of the weakening of the rand on trade in the customs area, it is important to note the weakening of rand does not have much impact on intra-trade of Common Monetary Area Member States apart from the general impact that now importing goods into the Union is now expensive.
Unlocking Namibia’s industrialisation potential (New Era)
Recognising that presently Namibia has a very narrow manufacturing base dominated primarily by agro-processed products, the Growth at Home strategy, therefore, calls for a diversified economy through value addition activities or processes. However, due to the lack of economies of scale facing many Namibian manufacturers, an innovative approach such as focusing on niche markets should be considered in order to make the growth at home strategy impactful. [The author, Maria Lisa Immanuel, is attached to the Namibia Trade Forum]
Fair trade hinges on rules of origin (East Africa Business Week)
The Rules of Origin, which determine whether a product is produced within a particular trading partner, are pivotal to any preferential trade arrangement. “These rules of origin that we set for ourselves have the power to render the preferences useless or to actually promote industrial growth of the continent,” Emmanuel Hategeka, the Permanent Secretary in the Rwanda Ministry of Trade and Industry said last week. Hategeka was speaking at the at the recently concluded First Tripartite Private Sector Regional Dialogue on the theme ‘Towards a Private Sector position on TFTA Rules of Origin for increased Market Access’, in Kigali last week.
Kenya and Uganda to jointly monitor transit cargo in bid to stem diversion (Daily Nation)
The pact was signed by Uganda Revenue Authority Commissioner General Akol Doris and Kenya Revenue Authority Commissioner General John Njiraini following deliberations in Nairobi. Speaking at the just concluded East African Revenue Authorities Commissioner-General’s (EARACG) meeting, in Nairobi, the two expressed optimism that revenue collection would be streamlined.
Importers from Uganda and Rwanda now threaten to ditch Mombasa port (The Standard)
The traders accuse the Kenya Revenue of subjecting their goods to verification of cargo at the Container Freight Stations. They said this verification should be done at the port instead of transferring the burden to the CFS, such as Portside Container Terminal where KRA has ordered a 100 per cent physical inspection of all cargo.
Tanzania: High costs stymie standard gauge plan (Daily News)
The government yesterday noted that the envisaged multi-trillion shilling central railway line project that was to be rebuilt to standard gauge level is for now too expensive for Tanzania to finance through own funds. Finance and Planning Minister Dr Philipo Mpango said this yesterday when wrapping up the debate for the 2016/2017 development plan and budget framework. Dr Mpango told the parliament that for the 15tril/- project to be commercially viable, it has to run through Burundi, Rwanda and the Democratic Republic of Congo. He expounded that through the support of the World Economic Forum and the African Development Bank, the central corridor has been found most commercially viable, thus the government was doing all it could to implement it. “WEF and ADB are working closely with Tanzania to raise the required funds. The project will only be viable through Public Private Partnership.” He noted that there are Chinese and American companies which have already shown interests to invest in the project.
Related: EAC states told to pick up pace (East Africa Business Week), Common market yet to open up (East Africa Business Week)
'It's tough to do business in Africa' (IOL)
Politicians were to blame for high airfares that prevented Africans from travelling around their own continent, Mossadek Bally, founder, chairman and CEO of the Azalai Hotel group said. Bally, who was part of a panel in the closing session of the three-day US-Africa Business Summit in Addis Ababa on Thursday, said it was easier for Africans to take a plane to fly to Dubai or Paris on holiday than within Africa.
Related: It’s easier for North Americans to travel within Africa than Africans themselves (Quartz), South Africa: Implementation of Cabinet concessions on immigration regulations (GCIS), Tourism ‘will take years to recover’ from visa issues (Business Day)
Kenya: Steelmakers take dispute on imports to regional bloc (Daily Nation)
Local steel manufacturers have escalated their dispute with the government over cheaper imports from China to the East African Community. The traders are lobbying the five-member trading bloc to increase import duty to protect their businesses. Through the Kenya Association of Manufacturers, they have accused the government of refusing to shield them from cheaper Chinese steel.
Possible protection for SA steel - dti (Fin24)
The South African government is working closely with all stakeholders in the steel sector to secure agreement on a comprehensive package of measures to support South Africa’s primary steel production capabilities, the Department of Trade and Industry said on Friday. Minister of Trade and Industry Rob Davies has assented to tariff increases for three steel products. Investigations into another eight product lines have been finalised and await government approval. This follows due process involving the International Trade Administration Council, according to the dti.
Migration and multilateralism will be hallmarks of 2016 (UN)
The world is facing a political, economic, moral and social crisis as governments and communities struggle to provide effective solutions for the unprecedented numbers of people fleeing war, instability or persecution, the top United Nations migration official said today, calling for deceive multilateral action to tackle “the global issues lurking behind today’s vast movement of people.”
India: Is low import penetration hurting productivity growth? (Livemint)
One important feature of the economic reforms process that started in 1991 was India opening its doors to international trade. It cut tariffs and other barriers such as import quotas and reduced trade protection overall. While trade has risen, a recent Reserve Bank of India paper notes that import penetration has shown a relatively muted increase. This, the paper notes, may be one reason for lower productivity growth. Import penetration is simply the ratio of imports to domestic demand, i.e. how much of domestic demand is being met by imports. For manufacturing goods, this ratio increased from 10% in 1990-91 to only 15% in 2009-10, despite a huge decline in trade protection from 129% to 21% over the same period. Trade protection here refers to approximately how much of domestic industry’s profits (or more correctly value-added) are protected due to tariffs.
The chequered history of Make in India and what Modi must do to make it work (The Wire)
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Progress in the global war on poverty
Almost unnoticed, the world has reduced poverty, increased incomes, and improved health more than at any time in history.
The headlines on any given day suggest a world under siege. War. Terrorism. Refugees. Disease. Recession. Famine. Climate change. But beneath these often very real problems, something remarkable has been happening, something on a more epochal level that has gone almost completely unnoticed.
Global poverty has fallen faster during the past 20 years than at any time in history. Around the world hunger, child death, and disease rates have all plummeted. More girls are getting into school. In fact, never before have so many people, in so many poor countries, made so much progress in reducing poverty, increasing incomes, improving health, reducing conflict and war, and spreading democracy.
Some of these gains – especially the declines in poverty and child mortality – rank among the greatest achievements in history. Yet few people are aware that they are even happening. Most people believe that, apart from a few special cases such as China and India, developing countries by and large remain hopelessly mired in poverty, stagnation, and dictatorship. Yet the reality is quite different: A major transformation is quietly under way, affecting the lives of hundreds of millions of people in nearly every corner of the world.
In 1993 almost 2 billion people around the world lived on the paltry sum of less than $1.90 a day (the World Bank’s definition of “extreme” poverty), or less than $10 a day for a family of five. Imagine, if you can, what that means: never enough food, a house made of mud and thatch that couldn’t possibly keep out the rain and the pests, no schooling for your children, and going through your entire life without ever having a single lightbulb in your home or seeing anyone resembling a doctor. For most of world history, the number of people living in this kind of poverty rose inextricably alongside world population. But in the early 1990s, for the first time, extreme poverty began to fall – fast. By 2012, just 1 billion people were living on less than $1.90 a day – half as many as two decades before (the $1.90 figure is calculated in constant prices, adjusting for inflation). By best estimates, the number was down to around 700 million in 2015, and falling. The change is widespread, going far beyond China and India to include countries as far-flung as Indonesia, Mozambique, Ghana, Brazil, El Salvador, and Mongolia. In all, more than 60 developing countries around the world have seen a decline in the number of extreme poor, despite continued population growth.
Meanwhile, millions more poor people have access to clean water and basic sanitation facilities. The share of people living in chronic hunger has been cut nearly in half, with better nutrition and lower rates of stunted growth in children. Prior to 1980 just half of girls in developing countries completed primary school; now 85 percent do. Less than 50 percent of adult females could read and write, but today global female literacy has passed 93 percent.
Perhaps most remarkable of all are the widespread improvements in basic health. Diarrhea killed 5 million children a year in 1990, but less than 1 million in 2014. Malaria deaths have been cut by half since 2000, and deaths from tuberculosis and HIV have both fallen by one-third. Because of better nutrition, greater access to immunizations, and success in fighting diseases, life expectancy at birth has increased from 50 years in 1960 to 65 years today.
The biggest health gains have been for children. In 1960, some 22 percent of children born in developing countries died before their fifth birthday, a horrifyingly high percentage. But today, less than 5 percent do. Remarkably, the improvements have been truly global: The rate of child death has declined in every country in the world since 1980 (at least where data are available). And, as fewer children die, parents are having fewer of them. Fertility rates have fallen from 5 children per adult woman in the 1960s to 2.5 today, and global population growth has slowed from 2 percent to 1.2 percent per year – still high, but headed in the right direction.
At the same time, economic growth has accelerated, and average incomes have risen. In the 1970s and ’80s, most developing countries stagnated in the midst of oil price shocks, the debt crises, the meddling of the cold-war superpowers, and mismanagement by incompetent despots. Economic growth per person averaged zero for nearly 20 years. But starting in the mid-1990s, growth rates began to rise. By 2015 average incomes in developing countries had almost doubled (after controlling for inflation), and that figure excludes China. Quite literally hundreds of millions of people – poor, middle-class, or wealthy – in dozens of developing countries have much higher incomes than they did 20 years ago. Importantly, the benefits of growth have been relatively widespread, and not just concentrated among the rich. Roughly speaking, inequality has worsened in about one-third of developing countries, remained about the same in another one-third, and improved somewhat in the other third.
Meanwhile, there has been a big shift from dictatorship to democracy. In 1983, only 17 developing countries were democracies; by 2013, that number had tripled to 56 (and this figure excludes many other countries with populations of less than a million). The generals that once ruled across Latin America are gone, replaced by democratically elected governments. The same is true for dictators such as Ferdinand Marcos in the Philippines, Suharto in Indonesia, Gen. Park Chung-hee in South Korea, and many others. The end of apartheid in South Africa ushered in a slow but steady sweep of democracy across about half the countries of Africa. Recent elections in both Myanmar (Burma) and Nigeria hold out the hope for continued gains. Taiwan elected its first female president in January. Yes, these new democracies are imperfect and have many problems, as is true of any democracy, especially young ones. But today, power is far more likely to be transferred through the ballot box than through violence, coups and countercoups are much less common, and individual freedoms and rights are honored and enforced to a much greater degree. Never before have so many poor countries been so democratic.
As incomes have risen and democracy has spread, conflict, war, and violence have fallen sharply. This fact surprises anyone reading the daily news about Syria, Yemen, or Afghanistan. While I do not want to trivialize these conflicts, we tend to forget just how violent the world was in the 1980s and early ’90s, when all of Central America was engaged in bloody civil wars, most of Southern Africa was in flames during the height of apartheid, West Africa was in chaos, and Southeast Asia was reeling in the aftermath of the Vietnam War and the Killing Fields of Cambodia. While far too much conflict still exists, there is much less of it. The number of civil wars over the past decades is only half as many as there were in the 1980s, and deaths from war have fallen by nearly three-quarters.
The fight against extreme poverty is far from over. Not all developing countries are making progress, and even in those that are, not everyone is moving forward. There are still 700 million people living in extreme poverty. Every year, 6 million children die of preventable diseases. Many countries, especially the poorest, remain vulnerable to calamities such as the Ebola outbreak that swept through West Africa in 2014. Too few women and girls get the opportunities they deserve. Nevertheless, the changes over the past two decades are a big start – the strongest and most promising start ever – in improving the well-being of millions of people in many of the world’s poorest countries.
What sparked these changes? Why did so many developing countries begin to move forward on so many fronts in the early 1990s? Three major forces were at work. First, the end of the cold war, the demise of communism, and the collapse of the Soviet Union dramatically improved the global environment for sustained and peaceful development. The United States and the Soviet Union stopped propping up some of the world’s nastiest dictators. Proxy wars and political violence associated with the cold war came to an end in Central America, Southeast Asia, Southern Africa, and elsewhere. Countries in Eastern Europe and Central Asia gained their freedom. Perhaps most powerfully, economic and political ideologies shifted substantially. Communism and strong state control lost credibility. A new consensus began to form around more market-based economic systems and – at least in many countries – more accountable and democratic governance, along with greater respect for basic freedoms and rights. Developing countries around the world introduced major economic and political reforms and began to build institutions more conducive to growth and social progress.
Second, globalization and international access to new technologies brought more trade and finance and a far greater exchange of ideas and information. Exports from developing countries are five times as large today as they were just 20 years ago, and financial flows are 12 times as large, creating many more economic opportunities. With deeper global integration came technologies that spurred progress: vaccines, medicines, new seed varieties, mobile phones, the Internet, and faster and cheaper air travel. To be sure, globalization has brought challenges, risks, and volatility, not least the 2007 food and 2008 financial crises. But it has also brought investment, jobs, ideas, and markets, all of which stimulated progress.
Third, while global changes mattered, the countries that began to move forward did so primarily because of strong leadership and courageous actions by the people in those countries themselves. Where new leaders at all levels of society stepped forward to forge change, progress ensued; where old dictators stayed in place, or new tyrants stepped in to replace the old, political and economic systems remained rigged. New national leaders such as Nelson Mandela of South Africa, Corazon Aquino of the Philippines, Óscar Arias of Costa Rica, Lech Walesa of Poland, Ellen Johnson Sirleaf of Liberia, and many others worked to build new and more inclusive political systems while introducing stronger economic management, working alongside civil society and religious leaders such as Rigoberta Menchú Tum of Guatemala, Desmond Tutu of South Africa, Muhammad Yunus of Bangladesh, Jaime Sin of the Philippines, and Wangari Maathai of Kenya. Less-famous local leaders opened schools, clinics, microfinance organizations, and businesses to support the turnaround.
In addition, foreign aid played a supporting role in bolstering progress. Although aid is far from a silver bullet, and not all of it works well, much of it has been effective in saving lives, building schools, and achieving other goals. The bulk of the research evidence on aid shows a moderate positive effect on development progress. Aid has been particularly helpful in improving health, fighting disease, mitigating the impacts of natural disasters and humanitarian crises, and helping to jump-start turnarounds from war in countries such as Mozambique and Liberia. Aid programs have helped save millions of lives by fighting malaria, tuberculosis, HIV/AIDS, and diarrhea, and by immunizing children around the world. Aid is not the most important driver of development, but it has played an important secondary role in the development surge over the past two decades.
The huge gains in global development over the past two decades are unprecedented. Never before have so many millions of poor people made so much progress in so many dimensions of human life. These advances are obviously good for the global poor, but they are good for richer countries like the US as well. Broad-based gains in development and reductions in poverty enhance global security; build states’ capacities to fight drug trafficking, terrorism, and pandemic disease; and help the US economy by providing new markets and consumers for American products. Development helps build like-minded allies that can work with the US to solve major global challenges, helping citizens in each country. Perhaps most important, development helps spread and deepen values that Americans hold dear: openness, economic opportunity, democracy, and freedom.
Yet few people are aware of this great transformation. A 2013 survey asked Americans what they thought had happened to the share of the world’s population living in extreme poverty over the past two decades. Sixty-six percent of respondents said they thought it had doubled, and another 29 percent said that it hadn’t changed. That is, 95 percent of Americans got it completely wrong. Only 5 percent knew (or guessed) the truth: that the share of people living in extreme poverty had fallen by more than half.
Why are these changes not more widely recognized? In part it reflects our penchant for bad news. We can’t get enough of scandal, corruption, disaster, and conflict, but we ignore tales of steady progress or a job well done. Stories of flawed elections with violence in Africa are on the front page; peaceful and successful ones go unnoticed. At the same time, news travels much faster, and there is much more of it. In the past when outbreaks of disease or violent protests occurred, we may never have heard about it, whereas today it hits the Internet almost instantly.
Partly it reflects the tendency of researchers to specialize narrowly in one area of expertise, while learning much less about others. Health experts recognize the huge decline in infant mortality but know little of the spread of democracy; poverty experts know all about the gains of the extreme poor but are unaware of the decline in conflict. Academic research rewards specialization, not big connections across disciplines.
It is also partly about poor memory: We romanticize the past (the “good old days”) and focus on today’s problems rather than on what is going well. When we read about today’s wars and conclude the world is in bad shape we are forgetting how much worse it was in so many ways just a few decades ago. But for whatever reason, some of the greatest gains in history are happening right in front of our eyes, yet we fail to recognize them.
The real question is whether the progress of the global poor can continue in the future. So far, the transformation is incomplete: While the fates of hundreds of millions of people are improving, many other people have been left behind. There are big opportunities to continue progress stemming from technological breakthroughs in energy, agriculture, and medicine; increased trade among emerging markets; and a much greater exchange of ideas. But there are also huge challenges, including population pressures, climate change, demand for resources, changing demographics, threats of disease, and tensions from the rise of China and India. There are at least three broad future scenarios, any one of which is possible.
One is that the development transformation continues: Sustained economic growth, smart investments and policy choices, continued advances in technology and ideas, stronger health and education systems, and deepening democracy will lead to growing prosperity and improved welfare in the coming decades. China, India, Brazil, and other middle-income countries continue their ascendancy (with gradually slowing growth), followed by Turkey, Indonesia, Thailand, South Africa, Ghana, and many others. Trade among developing countries grows, mobile phones expand their reach, and the Internet extends to more people in poor countries. New technologies lead to increased agricultural productivity, cleaner and more efficient energy sources, reduced environmental damage, and further advances in health. Although progress does not reach everywhere and some countries stagnate or face tragic setbacks, others, such as Myanmar and Cuba, eventually join the widening circle of development. Democracy spreads farther and deeper, perhaps in different forms and new variations, with more countries embracing accountability, transparency, and good governance. The number of people living in extreme poverty falls quickly.
A second future is that the rate of progress diminishes significantly: China’s rapid economic expansion decelerates quickly, the US and European economies remain sluggish, and economic growth and job creation slow across many developing countries. Rich and poor countries alike fail to make critical investments in infrastructure, education, health, and technology. Resource mismanagement and environmental degradation begin to undermine progress. Advancements in health continue, but at a much slower pace as antimicrobial resistance expands and new epidemics strike, as with the Ebola virus in West Africa. A backlash against democracy takes shape, opening doors to authoritarianism, and more nations follow Thailand and Venezuela in reversing democracy. Poverty continues to decline, but much more slowly.
A third scenario is that development progress is derailed: Population pressures, demand for resources, climate change, environmental degradation, and growing conflict and war combine to halt, and in some countries reverse, development progress. Rising populations and increasing incomes cause growing shortages of water, food, energy, and minerals, while climate change significantly destabilizes food production and worsens health conditions. Both rich and poor countries fail to take the actions necessary to slow climate change, increase food supplies, and develop new energy sources. Growing tensions from an ascendant Asia and a declining West – coupled with greater competition over scarce resources, or growing global religious and ideological hostilities – spark greater conflict. Western countries increasingly turn inward, creating a global leadership void that allows security threats to grow as trade and investment suffer. International organizations lose legitimacy and effectiveness. Democracy is seen as an unsuccessful experiment, and dictators rise again. Economic growth decelerates sharply, much as it did in the 1970s and ’80s, and the declines in global poverty slow considerably. Development progress largely ends, and some countries go backward.
None of these futures are inevitable or etched in stone; any of them (or shades between them) are possible. It is easy to be pessimistic and to conclude that the obstacles to continued progress are just too great and that progress will falter. For hundreds of years, people have predicted at one point or another that global progress would halt. But they have always underestimated the world’s growing abilities – even with many setbacks along the way – to work cooperatively, meet new challenges, and expand global prosperity and basic freedoms. While we can picture many of the future difficulties facing developing countries, it is much harder for us to envision the new ideas, innovations, technologies, governance structures, and leadership that will emerge to tackle them.
Continued progress in fighting poverty will not happen automatically. It will depend on human choices, sacrifice, cooperation, leadership, and action, both in the world’s leading countries (like the US) and in developing countries around the world. The right question is not which of these scenarios is more likely, but rather, how can we continue to achieve rapid progress for the global poor?
Getting there will require action in several crucial areas. One, for instance, is global leadership. The US and other leading countries must take steps to strengthen their own economic and political systems – not just for their own benefit, but to establish a global environment in which other countries can prosper. The rich countries must also lead efforts to improve the effectiveness and legitimacy of international organizations such as the United Nations, the International Monetary Fund, the World Trade Organization, and the World Bank. Perhaps most important, the US and others must lead by example with respect to democracy. We are not, at the moment, a very good model. Democracy will not continue to spread in developing countries if the leading countries are poor examples.
At the same time, as has been the case for 200 years, continued progress will require sizable investments in new technologies and innovations. By 2050, global food production must increase by around 70 percent, freshwater requirements will grow by 50 percent, and the demand for energy in developing countries will double. Technology alone will not solve these problems, but these challenges cannot be met without robust investments in new technologies.
Within developing countries themselves, effective leadership will be the major driving force for continued advancement. Lasting progress will require good governance and state institutions that can deliver sustained – and inclusive – economic growth with good jobs, alongside continued advancements in education and health.
Delivering on this ambitious agenda will not be easy. But all of it is possible with effective leadership, cooperation both within and across countries, the right kinds of policy choices and investments, and concerted action. The stakes are high, for developing countries and rich ones alike. But the opportunity is within our grasp for the next two decades to become the greatest era of progress for the world’s poor in human history.
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South Africa ranks 30 for worldwide innovation influence
South Africa has ranked number 30 out of 56 countries in terms of its domestic policies supporting global innovation.
The global technology think tank, Information Technology and Innovation Foundation (ITIF) released the data in its report, Contributors and Detractors: Ranking Countries’ Impact on Global Innovation.
“More innovation will be the determining factor in achieving greater progress,” stated the report, released on 20 January. “Countries’ economic and trade policies can either help or hurt global innovation.
“In contrast, policies such as export subsidies or forced localisation harm global innovation. If nations increased their supportive policies and reduced their harmful policies, the rate of innovation worldwide would significantly accelerate.”
How does South Africa compare?
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South Africa and Kenya were the only African countries to have been featured. Kenya ranked at 51.
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South Africa’s BRICS partners ranked as follows: Brazil came in at 41, Russia 42, India 54 and China 44.
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The top spots were taken by Finland, Sweden, the UK, Singapore, Netherlands, and Denmark, respectively.
The authors of the report looked at various aspects that supported innovation locally, but which had a global effect, such as supportive tax systems, investing in the work force, and research and development.
“Robust innovation is essential for economic growth and progress,” said co-author Stephen Ezell, ITIF’s vice-president for global innovation.
“As countries increasingly vie for leadership in the innovation economy, they can implement policies that try to benefit only themselves but harm the production of innovation in the rest of the world. Or they can implement ‘win-win’ policies that bolster their own innovation capacity while also generating positive spill-overs for the entire global economy. For innovation to flourish around the world, we need a system that is doing much more of the latter.”
According to technology news site IT Web, South Africa’s National Development Plan is the blueprint for “the national system of innovation to function in a coherent and co-ordinated manner, with broad objectives aligned with national priorities.
“It seeks to improve the governance of the innovation system, especially by ensuring the alignment of science and technology innovations activities across government and by co-ordinating public funding.”
Contributors and Detractors: Ranking Countries’ Impact on Global Innovation
Executive Summary
More innovation will be the determining factor in achieving greater progress. Countries’ economic and trade policies can either help or hurt global innovation. For example, policies such as robust investment in and tax incentives for scientific research and education support global innovation. In contrast, policies such as export subsidies or forced localization harm global innovation. If nations increased their supportive policies and reduced their harmful policies, the rate of innovation worldwide would significantly accelerate. This report assesses countries on the extent to which their economic and trade policies either constructively contribute to or negatively detract from the global innovation system.
Most studies comparing countries on innovation rank them on innovation capabilities and outcomes. But no study has assessed the impact of countries’ innovation policies on the broader global innovation system. This study assesses this by inquiring whether countries are attempting to bolster their innovation capacities through positive-sum policies such as investments in R&D, education, or tax incentives for innovation that contribute positively to the global body of knowledge and stock of innovation; or if they are trying to compete through negative-sum “innovation mercantilist” policies such as localization barriers to trade, export subsidization, or failing to adequately protect foreign intellectual property (IP) rights (e.g., through the issuance of compulsory licenses or even outright IP theft). Those types of policies are more concerned with expropriating existing knowledge, shifting innovative activity to suboptimal locations, or unfairly propping up inefficient companies. Because of the injurious effect of these policies on innovators (both those living in other nations, and even in-country) the result is less, not more, global innovation, and the world as a whole is hurt by such nations’ innovation mercantilist policies.
This issue is of paramount importance, because as countries increasingly vie for leadership in the global innovation economy, they can implement policies that benefit only themselves at the cost of hurting global innovation, or policies that can bolster their own innovation capacity while also generating positive spillovers that benefit the entire global innovation system.
This report assesses the impacts of countries’ economic and trade policies on the broader global innovation system. It examines 27 indicators, including 14 “contributors” that constructively spill over to contribute to global innovation, grouped into three categories – taxes, human capital, and R&D and technology – and 13 “detractors” that inhibit greater levels of global innovation, also grouped into three categories – balkanized production markets, IP protection, and balkanized consumer markets.
The report finds that the nations doing the most to support global innovation while doing the least to detract from it, on a per capita basis, are Finland, Sweden, the United Kingdom, Singapore, and the Netherlands. The report identifies these countries as “Schumpeterians” for fielding policies – such as robust levels of government investment in scientific research and education and innovation-enabling tax policies – that produce significant spillovers to the global innovation system while generally eschewing use of policies that detract from it. In contrast, the countries making the least constructive impact on the global innovation system – Argentina, Indonesia, India, Thailand, and Ukraine – contribute less to global innovation and at the same time use more innovation mercantilist policies that detract from it. The United States ranks just 10th overall, largely because its innovation-supporting policies (such as funding for scientific research) are lower than those of the leaders (on a per capita basis). China ranks 44th, largely because it fields so many policies that harm global innovation.
Some policymakers may say that this it is all well and good to think about the global innovation system, but their job, after all, is to look out for the innovation welfare of their own country, not to be altruistic. However, this report finds a strong correlation between countries’ contributor innovation policies and their levels of domestic innovation success, as evidenced by countries’ contributor scores correlating with their innovation output scores on the World Intellectual Property Organization’s 2015 Global Innovation Index. In other words, doing well on innovation policy can also mean doing good for the world.
If the world is going to maximize global innovation, it will need to develop stronger mechanisms to encourage nations to do more contributing and less detracting. Perhaps the most important step needed to move in this direction is for global policymakers, economists, and pundits to begin to treat innovation as though it is as important as trade in optimizing global economic growth and welfare. Even if some policymakers do not believe it, most know they are supposed to repeat the mantra that free trade boosts global economic welfare. But that same intellectual consensus does not exist when it comes to supporting innovation policies, such as robust intellectual property protections, that are a key to maximizing global innovation (and thus global economic welfare). Importantly, this means pushing back against the false narrative advanced by organizations such as the United Nations Conference on Trade and Development (UNCTAD) that developed nation innovation comes at the expense of developing-nation economies and that an innovation “redistribution” strategy helps, not hurts global innovation.
We also need to develop a better framework for distinguishing between countries’ innovation policies that are good (i.e., that help the adopting nation and the world) as opposed to “ugly” (i.e., that purport to help the adopting nation but that hurt global innovation). For example, the World Trade Organization (WTO) should produce its own version of The Information Technology and Innovation Foundation’s (ITIF’s) The Global Mercantilist Index, which would comprehensively document countries’ WTO violating trade barriers as they relate to innovation, while unabashedly ranking the most egregious nations.
Put simply, the world is not producing as much innovation as is possible – or as is needed. For as Joseph Schumpeter once stated: “technological possibilities are an uncharted sea.” The problem today is that because of the policies of many nations, too many of the boats on this sea are underpowered, and the sea itself is too turbulent. It is time to understand that maximizing global innovation should be the key international trade goal of the 21st century and that, absent new approaches and stricter disciplines, the world will fail to deliver the promise of the future – new technologies, new products and services, new cures or treatments for diseases, and greater social and economic well-being – to the world’s 7 billion inhabitants as quickly as possible.
The Information Technology and Innovation Foundation (ITIF) is a nonprofit, nonpartisan research and educational institute focusing on the intersection of technological innovation and public policy. Recognized as one of the world’s leading science and technology think tanks, ITIF’s mission is to formulate and promote policy solutions that accelerate innovation and boost productivity to spur growth, opportunity, and progress.
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Beware of impact of new laws on investment – Chamber
The negative impact of legislation like the investment promotion protection bill and the expropriation bill on foreign investment figures in South Africa will only become visible in future, cautioned Matthias Boddenberg, chief executive of the Southern African-German Chamber of Commerce and Industry on Thursday.
The chamber has expressed its concern about the legislation in the past, but was not successful in convincing the Department of Trade and Industry (dti) and other policy makers of its view, Boddenberg said at the first meeting of Cape members of the chamber in 2016.
“We have tried to convince the dti and policy makers as well as members of parliament that foreign investors do not see the national law as sufficient and as safeguarding new investments,” said Boddenberg.
“The American as well as the European chambers have expressed their concern as well. These concerns were aggravated when we looked at the expropriation bill.”
“Our concerns have not been addressed and I am afraid to say that we will see the effects of this legislation only in a few years’ time when we look at the figures for foreign investment in SA,” warned Boddenberg.
He described 2015 as a year of great changes and upheaval in politics, society and also in the realm of the chamber. The Rhodes Must Fall and Fees Must Fall initiatives are examples he mentioned.
As for Nenegate, Boddenberg said this shuffle of the minister of finance in cabinet at the end of 2015 caught chamber members by surprise.
“The reaction of the markets did not surprise us, but certainly led to the hasty re-instatement of former finance minister Pravin Gordhan,” said Boddenberg.
“This brought some relief to the markets, but the damage had been done.”
At the same time, he said the chamber members were grateful that there were no major strike waves in 2015. At the same time some members are worried about possible strike action later this year.
The chamber expects broad based black economic empowerment (BBBEE) to play an important role in 2016.
“Most of our member companies have implemented some measures in order to comply with the regulations,” said Boddenberg.
The chamber plans to set up an enterprise and supplier development fund to support the development of enterprises in general, but also to develop suppliers for German companies in SA.
“We can thereby contribute to the fight against the de-industrialisation of SA, which is a serious threat,” explained Boddenberg.
The total trade volume between SA and Germany from January to November 2015 amounted to €14.3bn (about R254bn). German exports to SA amounted to €8.9bn and SA exports to Germany reached €5.4bn.
The chamber expects the total trade volume for 2015 to come to about €15bn.
Boddenberg concluded by saying he is happy with the progress made by the chamber toward a regional orientation. An office has been established in Maputo and good progress has been made in establishing an office in Lusaka.
Energy industry comes out of its shell to recognize need to share resources and exchange best practices
DHL whitepaper highlights unprecedented market conditions, forcing industry to adjust supply chains
New research from DHL, the world’s leading logistics provider, shows that a lot of companies operating in the energy industry yet have to adapt their supply chains to the exceptional harsh market conditions the sector faced in 2015 – and will continue to do so in 2016. The new whitepaper looks at both the conventional and renewable energy industry and suggests improving supply chain visibility and efficiency as well as adopting a new mindset to share logistics assets and resources across departments and companies.
“2016 is a make-or-break year for the energy sector when it comes to supply chains. Given the market development for oil and gas companies, there is little to no leeway for operational inefficiencies, which could be tolerated before. Invisibility of inventories and utilization as well as decentralized control systems need to be eradicated – especially in the upstream sector where margins are very tight or non-existent now”, says Steve Harley, President Energy Sector, DHL Customer Solutions & Innovation.
The last two years brought unprecedented challenges upon the energy industry, particularly for oil and gas companies. Prices for both crude oil and liquefied natural gas (LNG) dropped more than 60 percent since July 2014 and reached around US$30 per barrel crude oil today (as of January 27).
Renewables, on the other hand, continue to increase their share in the global energy mix. Last year, they contributed to more than half of the additionally installed power generating capacity. Despite the pleasant outlook, however, renewables projects are often still reliant on subsidies harboring the risk of political changes.
“Although the industry faces challenges, there are a lot of opportunities for both conventional and renewables businesses. The survey responses show that there is room for improvement when it comes to efficient, well-organized supply chains,” Harley continues. “Renewables and energy supply chains are converging in terms of average project size, locations and the rise of integrated players. Each has unique strengths, which presents opportunities to learn from one another and to pursue synergies.”
Statements from logistics managers in the oil and gas industry confirm that more than 40 percent believe that their organization lacks supply chain visibility. Only one in twenty managers thinks that their company has full visibility. The whitepaper suggests a more central approach to logistics coordination supported by global supply chain visibility. This will enable energy companies to reduce overheads and improve materials management by centralizing stock, pooling resources and lowering obsolescence.
Finally, the authors consider facility- and knowledge-sharing with competitors for the sector to become more efficient. Examples such as US shale oil extraction show that standardization offers huge efficiency gains across a sub-industry. Since 2007, productivity increased by 30 percent annually thanks to standardized processes. Historically though, the energy industry struggled to adopt measures such as standardized equipment or shared industry structures. Interestingly enough, the majority (73 percent) of decision makers think that they should be more open, while only 13 percent are already open to share facilities and knowledge to drive down costs. Energy companies should also consider learning from businesses in other sectors, with the automotive industry being a specific example for adapting the supply chain to increase operational maturity.
The white paper ‘A new frontier: Prospering in the changing energy environment’ is available for free download at www.dhl.com/energywhitepaper2016
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Migration and multilateralism will be hallmarks of 2016, says senior UN official
The world is facing a political, economic, moral and social crisis as governments and communities struggle to provide effective solutions for the unprecedented numbers of people fleeing war, instability or persecution, the top United Nations migration official said on 5 February 2016, calling for deceive multilateral action to tackle “the global issues lurking behind today’s vast movement of people.”
The UN Special Representative of the Secretary-General for International Migration, Peter Sutherland, said in Geneva that 2016 “is the year of migration and multilateralism,” and that series of comprehensive initiatives is needed to drive home – and effectively address – the global nature of the issue.
Indeed, he told reporters, while there has been an understandable focus on migrants arriving on the shores of European countries, this has often obscured the fact that the global dimensions of the phenomenon are very real; 85 per cent of the total numbers of global migrants are moving from developing to developing country.
Yet the response in Europe, for instance to the crisis in Syria, has at times sparked “incipient nationalism,” which is evidenced in xenophobic and racist reactions rather than anything to address the challenges of free movement of people, he said. “But this is not just a European issue, we’ve seen this in the Andaman Sea, in Asia […] in movements from Latin America into North America,” said Mr. Sutherland.
He noted that the conference yesterday in London on the Syria crisis achieved substantial commitments to financial support, particularly to frontline States – Lebanon, Turkey, and Jordan –which are “close to the scene of devastation” and carry an “enormous proportion” of the global refugee population. “European States in comparison are taking minuscule amounts of refugees, and refusing to share in the concept of solidarity that one might have expected,” he stressed.
Highlighting the presence of new razor wire fences, the UN official warned that borders “challenge the moral responsibility” of States to help refugees and provide asylum.
Against this background, one of the main messages that Mr. Sutherland conveyed was that migrants bring significant benefits to their host communities, and that European countries in particular stand to benefit from the influx. “We have to have a greater understanding of the positive values that the migrant communities are bringing to countries who badly need them," Sutherland said.
“The 10 countries with the lowest population growth in the world are in Europe. In 30 or 40 years’ time those who are retired as opposed to those who work will massively have increased in Europe. We have to learn to integrate into our societies those who seek refuge in them,” he added.
As an example, Mr. Sutherland noted that “migrants in general, and in every country in Europe, make greater fiscal contribution than they take in benefits. They have lower levels of unemployment, and in general a greater interest in education. They do not contribute to the current narrative create terrorist threats in large numbers. The handful of those who have been involved in terrorism in Europe have in general been born and brought up in Europe.”
Questions from the audience turned the discussion to the situation in northern France, where the UN refugee agency earlier sounded the alarm on behalf of thousands or refugees and migrants crowding into informal camps in Calais in need of both shelter and adequate protection.
The Office of the UN High Commissioner for Refugees (UNHCR) expressed concern about some 4,000 refugees and migrants currently reported to be living in the Calais “jungle” and almost 2,500 in Grande-Synthe, on the edges of Dunkerque, often in dire circumstances, aggravated by the winter conditions.
At present there are limited facilities that attend to the specific protection needs of children, including those under the age of 15. Among the few is the Maison du jeune réfugié centre in St Omer, which is run by France terre d’asile.
At an earlier press conference, the UN Special Rapporteur on the human rights of migrants, François Crépeau, underscored that addressing the situation is “primarily a French responsibility. But since the people are seeking asylum in [United Kingdom], and they are in France, it is a matter of a societal response – French, British and European.”
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Social inclusion central to 2030 Agenda, UN Social Development Commission hears as new session opens
The adoption of the 2030 Agenda – which places people and the planet at the centre of global development – presents new challenges and opportunity for the United Nations Commission on Social Development, a senior UN official said on 3 February 2016, opening the body’s 54th annual session with a call for building on its strengths to foster an integrated approach when addressing social policies.
“You can enhance your work in promoting progress in social development in the context of the new Agenda. You can integrate your work related to disadvantaged and vulnerable groups, including persons with disabilities, youth, older persons and families, into ensuring that no one is left behind,” said Lenni Montiel, Assistant Secretary-General for Economic Development in the Department of Economic and Social Affairs.
While “enormous” gains were made since the World Summit for Social Development had resulted in the Copenhagen Declaration in 1995, progress remained uneven – both within and among countries – with millions of people still excluded from access to the very rights, services and income-generating activities that underpinned a sustainable future for all.
As such, the Commission’s work is indeed vital to implementation of the new 2030 Agenda. Further, it is critical in providing a platform for Member States to deliberate social policies, share experiences, raise awareness and mobilize action. While more than one billion people since 1995 had been helped out of extreme poverty and the proportion of undernourished people in developing regions was down by almost half, progress had been uneven.
The Commission’s session, which runs through 12 February, will conclude the 46-member body’s 2015-2016 review and policy cycle under the priority theme “Rethinking and Strengthening Social Development in the Contemporary World.”
As the first session held after the adoption of the 2030 Agenda, it is marked by a new overall context, with discussion focused on the role of social policy in achieving people-centred, inclusive sustainable development for all.
“We need to create over 600 million new jobs by 2030,” he said, or 40 million annually to keep pace with growth in the working age population. Conditions for the 780 million working poor must be improved and rising inequality addressed,” Mr. Montiel said, noting that a lack of equal opportunity for women, youth, those with disabilities, the elderly and indigenous communities meant they could not realize their potential.
54th Commission for Social Development, 3-12 February 2016
The Commission for Social Development provides an ideal opportunity to focus on the role of social development as a key component of sustainable development and to identify effective means of placing peoples at the centre of the 2030 Agenda” Daniela Bas, Director of UNDESA-DSPD
The 54th session of the Commission for Social Development (CsocD54) will take place from 3 to 12 February 2016 at the United Nations Headquarters in New York. This session will conclude the Commission’s 2015-2016 review and policy cycle under the priority theme, “Rethinking and Strengthening Social Development in the Contemporary World.”
The Commission, at the juncture of transitioning into the 2030 Agenda for Sustainable Development, will focus its discussion on the critical role of social policy and development in achieving people-centered, inclusive, just, and socially, economically, and environmentally sustainable development for all.
Deliberations during the Commission will be executed through high-level panel discussions as well as general discussions amongst the Members of the Commission and other stakeholders. Scheduled side-events will also take place to enhance and enrich discussions of the priority theme.
Civil Society Forum
As a protocol, the Civil Society Forum took place prior to the Commission on 1 and 2 February 2016. The Forum aimed to support participants in refining their understanding of the relationship between CsocD54 and Agenda 2030, and formulating concrete recommendations for the Commission. The Forum also sought to strengthen collaboration between the Civil Society and Member States through effective open dialogue, focusing on such issues as inequalities and poverty, human rights, accountability and means for implementing sustainable policies for realizing Agenda 2030.
» Download the Civil Society Declaration 2016.
Rethinking and Strengthening Social Development in the Contemporary World
The Secretary General’s report on the priority theme identifies forward-looking strategies for strengthening the social dimension of sustainable development. The report amplifies that rethinking and strengthening the social dimension of sustainable development requires the international community to overcome the underlying structural causes of development challenges by securing broad-based social progress and fostering resilience to ensure sustainable and permanent development.
A high-level panel discussion on the priority theme will be guided by the SG’s report – drawing upon the vision of the 2030 Agenda for Sustainable Development, and the deliberation of the Commission at its fifty-third session.
Emerging issues: moving from commitments to results for achieving social development
CSocD54 will address current issues affecting social development that require urgent consideration or new cross-cutting issues in the context of evolving global challenges under this item. This session will provide the Commission for open exchange of ideas that are strategically important for social development.
A panel discussion on the emerging issues will be guided by a Note by the Secretariat, the 2030 Agenda for Sustainable Development as well as insights of experts, how to translate commitments made in the framework of the new Agenda into concrete polices and strategies to achieve social objectives, and how the Commission could effectively contribute in this regards.
Implementation of the 2030 agenda in the light of the Convention on the Rights of Persons with Disabilities
CSocD54 will assemble a multi-stakeholder panel discussion to discuss the recent progress in the disability-inclusion in the 2030 Global Agenda for Sustainable Development. The multi-stakeholder discussion will explore how existing UN institutional frameworks can contribute to strengthening the mainstreaming of disability, enhance awareness and improve cooperation to advance the implementation of the Sustainable Development Goals (SDGs) in line with the Convention on the Rights of Persons with Disabilities (CRPD) and will discuss the possibility and will further investigate modalities of establishing a new monitoring mechanism for disability in development for the CSocD.
The CSocD54 is an important one, as it will be the first session after the adoption of the 2030 Agenda for Sustainable Development which provides the new overall context.
The new Agenda puts poverty and sustainable development at its core and emphasizes people-centred, unified and coherent approach. Strengthening social policy and development is critical to ensure an integrated follow-up, balancing its social, economic and environmental dimensions. The fundamental role of social development in realizing the SDGs need to be highlighted. This gives renewed energy as well as a stronger sense of urgency to the work of the Commission.
» Documents prepared for the 54th Session are available to download below. Click here for more info on the CSocD54.
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Rwanda getting largest amount of aid dollars per capita in EAC
Top donor aid recipients
According to data from the Organisation of Economic Cooperation and Development (OECD) – a consortium of 34 donor countries – official development assistance (ODA) to Sub-Saharan Africa in 2014 saw a 41% rise compared to 2004, but Uganda’s share has seen the lowest growth compared to all her EAC counterparts. ODA are financial flows provided by official State agencies to develop social infrastructure as a foundation for developing nations in order to attract or develop other sources of development finance.
Peacekeeping and anti-terrorism supplies as well as military equipment and services are not counted as ODA. ODA makes up more than two thirds of external finance for least-developed countries. In comparison to 2004 figures, Uganda’s share of ODA increased from $1,412 million to $1,633 million in 2014 – an increase of just 15% – compared to Kenya’s 120% and Rwanda’s 91%. Kenya ($2,655 million) and Tanzania ($2,648 million) are second and third on the list of Africa’s top 10 donor aid recipients. With their total of $1,024 million, Rwandans received the largest amount of donor aid per capita in the region – $85 compared to Uganda’s $43 and Kenya’s $60.
The US, which was also listed as the world’s biggest donor country with disbursements of about $32,730 million, was Uganda’s biggest donor with about $451 million followed by the World Bank/IDA ($352m), the United Kingdom ($171m) and the European Union ($151m). Kenya and Tanzania also received more donor aid from the US than other countries while the UK was Rwanda’s biggest donor with $160m. Over the last decade, President Yoweri Museveni’s government has been keen to reduce dependency on donor aid by increasing revenues collections and looking elsewhere (especially China) for cheap long-term credit.
But while some development analysts say it will be long before Uganda completely weans itself off ODA, others say it is a positive development for Uganda to be getting less of ODA. Buliisa County MP Stephen Biraahwa Mukitale, who also sits on the Parliamentary Committee on National Economy, says he has no problem with lower levels of bilateral aid and more multilateral aid (support channeled through international NGOs) and more technical assistance. “A beggar has no choice,” he says. “In the past, we were forced to do whatever the development partners demanded but now that we have reached a certain level of self-sufficiency, we can afford to say ‘no, thanks’ if their aid comes with conditions that we can’t manage.”
Prof. Augustus Nuwagaba, an Economics professor at Makerere University, attributes the decline in ODA to Uganda to several factors but most especially the numerous corruption scandals in recent years, which have made the country unattractive as an aid recipient compared to her regional counterparts. Massive corruption, he says, has caused a situation whereby aid effectiveness is not felt by the whole population as most of the aid money ends up in the pockets of a few individuals. However, like Mukitale, he insists that national development must be initiated internally from within, with foreign aid only helping to propel it.
Indeed, while Uganda’s tax revenues have grown considerably, the budget deficit has not shown any sign of abetting and the revenue to GDP ratio has remained rather low at about 12% – way below what many of the top aid-receiving countries have achieved. Consequently, the revenue collections remain too low to alleviate the biting poverty in large parts of the country leave alone sorting out the infrastructure bottlenecks. This has forced the government into massive foreign debt mainly from China.
According to the Uganda National Household Survey (UNHS 2012/13), development indicators in large swathes of the country are still pathetic, while the country’s Human Development Index stood at 0.484, ranking at 164 out of 187 countries, according to the HDR 2014. Poor infrastructure, lack of access to markets, poor access to social services still require large amounts of resources to deal with. However, Nuwagaba argues that with no governance and accountability systems in place to ensure that the resources are not abused, donors would continue to direct their money to countries like Rwanda that have zero tolerance for corruption.
Generally, according to the OECD, aid to the poorest countries fell in 2014, which OECD Secretary-General Angel Gurría attributed to the fact that the donor countries themselves were still emerging from “the toughest economic crisis of our lifetime.” Denmark, Luxembourg, Norway, Sweden and the UK continued to exceed the United Nations target of keeping ODA at 0.7% of GNI, while 13 donor countries saw a rise in net ODA, with the biggest increases being reported by Finland, Germany, Sweden and Switzerland.
tralac’s Daily News selection
The selection: Friday, 5 February 2016
Sub-Saharan Africa: The distribution of consumption expenditure - inequality among all Africans (World Bank)
This paper uses a set of national household surveys to study the regional Sub-Saharan Africa distribution of consumption expenditure among individuals during 1993 to 2008. The analysis puts the disparities in living standards that exist among persons in Africa into context with the disparities that exist within and between African countries. Regional interpersonal inequality has increased (from a Gini index of 52% in 1993 to 5% in 2008), driven by increasing disparities in living standards across countries, while there has been no systematic increase in within-country inequality. For the African distribution as a whole, growth of consumption expenditure (from household surveys) has been low (around 1% per year). This growth has been uneven and as a result the richest 5% of Africans received around 40% of the total gains, while the bottom third stagnated.
Zambia, Angola, DRC sign trade deals (Daily Mail)
Minister of Commerce, Trade and Industry Margaret Mwanakatwe says Zambia signed trade agreements with Angola and the Democratic Republic of Congo to provide for duty-free and quota-free market access of most goods produced in the country. “We are also in discussion with our counterparts in Angola on the possibility of establishing a dry port at Lobito. This should transform Zambia’s market access giving us access to the eastern seaboard. It will also potentially expand our utilisation of the African Growth Opportunity Act initiative, which until now has been less than our intended target,” Mrs Mwanakatwe said.
On the DRC agreement: Mrs Mwanakatwe said they met to finalise the product list which is an annex to the trade agreement that was signed on August 6 last year in Lusaka. “We also agreed to establish a joint bilateral trade committee with the task of promoting the development of joint projects, to fight against fraud and to eliminate non-tariff barriers. Furthermore, the committee will review the list of products every six months to take into account the dynamics in trade and economic development of both countries,” Mrs Mwanakatwe said.
Why there is little to show for Kenya-Nigeria trade deals (Daily Nation)
Two years ago Kenya and Nigeria penned a trade agreement on agriculture produce, mainly tea and flowers. According to the deal, Kenya was supposed to start exporting farm produce to Nigeria. However, two years on the implementation of the agreement is still in the back burner. Last week, Nigerian President Muhammadu Buhari visited Kenya, reviving hopes of that the agreement would finally take off. Unfortunately, indications are that Kenya might have to wait longer before the deal is implemented.
Botswana: Weak diamond exports trigger P2bn trade deficit (Mmegi)
A trade deficit of P1.9 billion was recorded in November 2015 from a surplus of P370 million the previous month largely due to a significant fall in diamond exports. Due to the low exportation of rough diamonds from the aggregation process, total exports were valued at P2.3 billion in November, a decrease of 50.3 percent from the October 2015 value of P4.6 billion. [Download: November 2015 International Trade Statistics]
The impact of China’s slowdown and rebalancing on South Africa: three scenarios (World Bank)
If South African exporters can respond to growing import demand from China, China’s slowdown, coupled with rebalancing, could raise South Africa’s GDP by 4.4% ($31.8bn) by 2030, compared with the past trends scenario. South African terms of trade could improve by 0.4%, while world prices of natural resources could increase by 3.9% and services by 6%. In this scenario, South African exports to China are projected to expand by 4% ($480 million), while imports from China could decline by 3% ($462 million). In addition, a marginal but positive effect on poverty reduction is expected, with a decrease in the poverty headcount of 0.33 percentage points relative to the past trends scenario. The simulation results come with several caveats. [Note: See Box 1.1 in SA Economic Update]
Kenya: China’s exports to Kenya reach Sh295bn on railway construction (Business Daily)
Nairobi also imported rail locomotives worth Sh2.6 billion from Beijing last year alongside railway wagons worth Sh4.7 billion, the Kenya National Bureau of Statistics data shows. This cemented China’s position as the largest source market for Kenya’s imports, followed by India and the US. The KNBS data shows that Kenya’s imports from China grew to Sh295 billion in the first 11 months of last year, up from Sh222 billion in 2014. But bilateral trade is heavily skewed in favour of the world’s second largest economy, denying Kenya the much-needed hard currency inflows. Kenya exported less than Sh5 billion worth of goods to Beijing in the review period, official data shows. [Download: Leading Economic Indicator December 2015]
Related: Hez Gikang’a: 'Why Kenya now needs a strategy to engage with China' (Capital FM), Pakistan beat Uganda in Kenya's November trade (The Star)
The Regional Assembly is urging Partner States to “up their game” in sensitisation activities, particularly when it comes to the Common Market Protocol in order to raise awareness and showcase benefits to the citizens of the region. At the same time, the EALA wants Partner States to adopt a phased implementation of the EAC Common Market Protocol by prioritising aspects that carry quick wins or deliver immediate multiplier effects. This move shall endear citizens to take advantage of the benefits that shall accrue from the Common Market Protocol. The Assembly on 2 February 2016 debated and adopted the Report of an oversight activity on the Security-related challenges of implementing the Common Market Protocol along the Central Corridor.
Related: Malaba, Busia One-Stop Border Posts ready (The Observer), EALA approves 2013/14 Annual Report of the Community (EALA)
RBZ moves on illicit financial flows (NewsDay)
The Reserve Bank of Zimbabwe has put in place stringent prudential measures to plug illicit financial flows, as it emerged that close to $2bn was spirited out of the country last year by individuals and companies, worsening the liquidity situation. The new measures include, among others, getting rid of the concept of free funds, reporting of suspicious transactions and use of plastic money. A customer who wants to withdraw above $10 000 will now be required, with effect from today, to give the bank reasonable notice of at least a day. In his monetary policy statement delivered yesterday, RBZ governor John Mangudya said money was flowing out of the country dwindling the liquidity position of the economy.
Related: Zimbabwe’s January 2016 Monetary Policy Statement, Zimbabwe, China central banks have yet to agree on yuan settlement (ecns)
Zimbabwe imposes value added tax on nearly 40 imported basic foods (Business Day)
In the January 22 Government Gazette, Finance Minister Patrick Chinamasa amended section 78 of the VAT Act by repealing clauses that until now allowed the imported food commodities to be taxed at zero rate. The tax is effective from February 1.
Zimbabwe, neighbouring countries losing millions in taxes due to illegal fish trade (NewsDay)
Food price index starts 2016 dropping to nearly 7-year low (FAO)
The global Food Price Index, calculated by the United Nations Food and Agriculture Organization on a monthly basis, fell in January, slipping 1.9% below its level in the last month of 2015, as prices of all the commodities it tracks dropped, sugar in particular. Meanwhile, weather patterns associated with El Niño are sending mixed signals about the early prospects for cereal crops in 2016, especially in the Southern Hemisphere, according to FAO's Cereal Supply and Demand Brief, also released today. It notes that 2016 crop prospects have been "severely weakened" in Southern Africa, and a 25% cut in wheat production in South Africa now appears likely. Conditions for the crop are generally favourable in the Russian Federation and the EU, but winter plantings declined in the United States and Ukraine. The area under wheat is also expected to be cut in India, following a poor monsoon and below average rains since October.
Kenya: Treasury keen to evade Parliament in Mauritius tax row (Daily Nation)
Treasury Permanent Secretary Kamau Thugge in court papers said the agreement was not subject to parliamentary scrutiny. Dr Thugge said that the Double Tax Agreement was not a treaty and was thus exempted from ratification.
Tanzania: Why govt's five-year growth plan failed to impress MPs (The Citizen)
The implementation of the first Five-Year Development Plan has miserably failed, as the government itself has not been able to pass a precise overall grade of the plan ending in June this year. This was revealed here last week when the Ministry of Finance presented to Members of Parliament a number of reports including a comprehensive review of the FYDP 2011/12 - 2015/16. The comprehensive review report for the implementation of the plan notes that while in some areas there were 'reasonable' achievements, efforts were needed in other areas to reach envisaged targets. "It is difficult to pass a precise overall 'grade' on whether the implementation of the five-year development plan has surpassed 50 per cent mark or above," reads part of the report circulated to the lawmakers.
Malawi: new online collateral registry and business registration system (World Bank)
Malawi has become the third country in sub-Saharan Africa, after Ghana and Liberia, to establish a modern online collateral registry system to enable businesses and individuals access loans using movable assets. As in many other countries, financial institutions in Malawi traditionally require fixed assets such as land or buildings as collateral for loans. The collateral registry, officially called Personal Property Security Registry was launched today together with the Malawi Business Registration System. The collateral registry is an online public database that allows financial institutions to register security interests in movable property such as livestock, machinery, and vehicles facilitating the use of such collateral for loans.
East Africa Power Pool to be fully connected by end of year 2018 (Xinhua)
The ten member Eastern African Power Pool will be fully connected by the end of 2018, officials said on Thursday. EAPP member states include Kenya, Uganda, Tanzania, Rwanda, Burundi, Democratic Republic of Congo, Sudan, Egypt and Ethiopia. Kenya Electricity Transmission Company acting managing director Fernandes Barasa said Kenya is fast tracking its electricity interconnection with Uganda, Tanzania and Ethiopia, adding that the Kenya-Ethiopia transmission line should be completed in the next two years.
A new road map for Power Africa (Devex)
Power Africa spent its first year focused on grid-scale generation deals, but leaders of the initiative are now looking ahead to ambitious connections targets — Power Africa-supported projects have the potential to lead to more than a million direct connections — and making changes based on lessons already learned. Generation and access goals, for example, are “actually two totally different things,” Andrew Herscowitz, Power Africa coordinator, told Devex. As a result, the road map lays out specific plans for each goal, and progress will be measured in actual connections. “We’ve learned a ton,” Herscowitz said. “We don’t just trust everything people say at conferences. We focus on analysis and data.”
Modelling growth scenarios for biofuels in South Africa’s transport sector (UNU-WIDER)
South Africa has a nascent biofuels industry and emerging regulatory framework, and although water scarcity limits local supply potential, that of the southern African region appears substantial. This paper describes the results and modelling approach of an assessment of potential biofuel demand from South Africa’s transport sector to 2050 that may respond to this supply under a number of scenarios.
Christine Lagarde: 'The role of emerging markets in a New Global Partnership for Growth' (IMF)
This is why we need what I call a new “partnership for growth”. Both emerging and advanced economies need to play their part to promote faster and more sustainable convergence. With this in mind, I would like to address three questions: First, what are the key challenges facing emerging markets and what are the interlinkages between emerging and advanced economies? Second, how can we forge a new partnership for growth? Third, what can be done to support this process—including by institutions like the IMF?
Uganda: URA revels in Shs 47 billion mid-term surplus (The Independent)
SA, Nigeria lead Africa online retail (Fin24)
India to defer finalizing trade pact with Australia (Livemint)
Médecins Sans Frontières statement on TPP
Trans-Pacific Partnership: Ministers’ Statement (USTR)
China's efforts to expand the international use of the renminbi (Brookings)
Aldo Caliari: 'Financing infrastructure in financial markets - why civil society should be alert' (Heinrich Boell Foundation)
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The distribution of consumption expenditure in Sub-Saharan Africa: The inequality among all Africans
This paper uses a set of national household surveys to study the regional Sub-Saharan Africa distribution of consumption expenditure among individuals during 1993 to 2008. The analysis puts the disparities in living standards that exist among persons in Africa into context with the disparities that exist within and between African countries.
This paper ignores national boundaries and studies the Sub-Saharan-Africa-wide distribution of consumption expenditure among individuals. By combining household survey data from as many African countries as possible (accounting for around three-quarters of the regional population), we can put all Africans on the same scale of consumption expenditure, regardless of their country of residence. Inequality and other distributional characteristics are typically measured at the countrylevel (e.g. for a recent review of the evidence on Sub-Saharan Africa, see Beegle et al., 2016). This paper offers a complementary view and puts the disparities that exist within African countries into context with the disparities that exist within the region as a whole.
Our analysis is similar to studies of the global income distribution (Milanovic, 2005, Anand and Segal, 2015; Ravallion, 2014a) and we draw heavily on the analysis by Lakner and Milanovic (2015). Our analysis is perhaps best seen as referring to a sub-region of the global distribution. According to Milanovic (2005), there are three concepts of global inequality: (1) the inequality in per capita incomes between countries in the world, which is relevant to studies of income convergence across countries; (2) population-weighted international inequality, which assigns everyone the per capita income of their country of residence; and (3) interpersonal inequality, where everyone is assigned their own income. In this paper, we study the third concept as applied to Sub-Saharan Africa, i.e. the inequality in consumption expenditure among all people living in Sub-Saharan Africa. Implicit in our analysis is an African-wide social welfare function which treats persons irrespective of their country of residence. In the global context, this is referred to as a cosmopolitan social welfare function (Atkinson and Brandolini, 2010). One might also have an instrumental concern for regional interpersonal inequality if extreme regional inequality contributes to conflict or migration.
The analysis in this paper is based on a database of national household surveys from Sub-Saharan Africa maintained by the World Bank, over the period 1993 to 2008. Our welfare measure is consumption expenditure per capita as measured in household surveys, expressed in 2011 PPP USD, although the results are robust to using 2005 purchasing power parity (PPP) exchange rates. While our database of household surveys has a good coverage of Africa as a whole (representing three-quarters of the regional population), the coverage of fragile countries remains low. Hence our results are probably a lower bound on African inequality. Another reason for why our estimates are likely to be a lower bound is that we use consumption expenditure surveys which most likely underestimate consumption at the top of the distribution.
Between 1993 and 2008, interpersonal inequality for Sub-Saharan Africa as a whole increased. For example, the Africa-wide Gini increased from 52% in 1993 to 56% in 2008. By contrast, Beegle et al. (2016) find no systematic increase of within-country inequality in the region. Taken together, the country-decomposition of regional inequality shows that the rise in regional inequality was driven by increasing inequality between countries, i.e. an increasing dispersion in average consumption across countries. However, within-country differences continue to dominate the level of African inequality. The African growth incidence curve is upward-sloping, consistent with the increasing inequality. While mean African consumption grew at around 1% per year, living standards for the bottom third of the distribution stagnated, while the top 5% received some 40% of the total gains between 1993 and 2008 (with a growth rate of around 2% per year).
The paper is structured as follows. First, we explain the construction of our database, and then show summary statistics. Section IV presents results for the cross-sectional distribution and its inequality. Overall African inequality is decomposed into between- and within-country components in Section V. In Section VI, we study growth incidence curves, looking at both relative and absolute gains along the distribution. Section VII compares these results with what can be learnt from GDP per capita alone. We analyze relative movements over time of specific country groups in the regional distribution in Section VIII, and the final section concludes. The Appendix presents a number of robustness checks, especially the results with the 2005 PPPs. Throughout, we draw comparisons with regional results for East Asia and Pacific from a companion paper (Jirasavetakul and Lakner, forthcoming). In the early 1990s, average consumption per capita was comparable in the two regions or even slightly lower in East Asia. However, since then growth in East Asia has been much faster and, while regional inequality also increased, its growth appears less concentrated than in Africa.
This paper is a product of the Office of the Chief Economist, Africa Region and the Poverty and Equity Global Practice Group. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org.
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The role of emerging markets in a new global partnership for growth
Both emerging market and advanced economies need a partnership for growth to promote faster and more sustainable convergence of income levels, said IMF chief Christine Lagarde in a speech to students at the University of Maryland on 4 February 2016.
Good morning. Thank you, Dean Robert Orr for your very kind introduction.
And thank you to you – students and faculty – for welcoming me here today. I would like to recognize my friend, Ambassador Susan Schwab, who will join me for a conversation after my remarks.
I am absolutely delighted to be hosted by one of the finest public policy schools in the world. This is a place where future leaders acquire essential skills, where future policymakers develop ideas and tools to address the pressing issues of the 21st century.
Today I would like to share with you my views on a key 21stcentury issue – the growing importance of emerging market economies. And by growing importance, I mean for the global economy, for advanced countries like the United States, and for you and me personally.
To get started on this topic, let us consider all the possible connections with emerging markets in the first 30 minutes of your day:
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Let’s assume it is 7:00 am, and the alarm goes off on your Chinese-made smartphone. (Ok, let’s say it is 9:00 am – perhaps you have had a long night behind you!)
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On the way to the shower, you send a WhatsApp message to your TA. WhatsApp, of course, was co-founded by a Ukrainian computer engineer.
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A few minutes later, your roommate has also woken up. With a third of UMD graduate students being international students, there is a good chance that she may be facetiming with relatives in India.
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At 9:15 am, you are facing a really tough choice – between strong coffee from Kenya and a milder variety out of Colombia.
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You switch on your Bluetooth speaker – made in Malaysia – to listen to the news.
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Overnight, global stock markets were rattled by the latest Chinese economic data – which has put a dent in your mom’s 401(k) savings plan, and you worry about Spring Break in Mexico.
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Luckily, as you head out to a field trip in a Zip Car made in Korea, you realize that low oil demand and strong supply from emerging markets have also brought down gas prices!
As you contemplate these first minutes of your day, you realize that the center of economic gravity has been slowly shifting. Yes, the United States is still the most important economy in the world, but New York, Chicago, and L.A. have gotten company, from Beijing to Brasilia, from Moscow to Mumbai, and from Jakarta to Johannesburg.
Emerging and developing economies are home to 85 percent of the world’s population – 6 billion people. These 85 percent matter to the global economy more than ever, and they matter to you more than ever – because of strong linkages through trade, finance, economics, geopolitics, and personal connections that you experience every day.
A New Partnership for Growth
As a group, emerging and developing economies now account for almost 60 percent of global GDP, up from just under half only a decade ago.1 They contributed more than 80 percent of global growth since the 2008 financial crisis, helping to save many jobs in advanced economies, too. And they have been the main driver behind the significant reduction in global poverty.2
China alone has lifted more than 600 million people out of poverty over the past three decades.
After years of success, however, emerging markets – as a group – are now facing a new, harsh reality. Growth rates are down, capital flows have reversed, and medium-term prospects have deteriorated sharply. Last year, for example, emerging markets saw an estimated $531 billion in net capital outflows, compared with $48 billion in net inflows in 2014.3
In the short term, the softening of growth, the scale of capital outflows, as well as the recent stock market declines are cause for concern.
Furthermore, on current IMF forecasts, emerging and developing economies will converge to advanced economy income levels at less than two-thirds the pace we had predicted just a decade ago.
This means that millions of poor people are finding it more difficult to get ahead. And members of the newly created middle classes are finding their expectations unfulfilled.
This is bad not only for emerging markets themselves, but also for the advanced world that has come to rely on emerging markets as destinations for investment and as customers for its products.
It also carries with it the risk of rising inequality, protectionism, and populism.
This is why we need what I call a new “partnership for growth”. Both emerging and advanced economies need to play their part to promote faster and more sustainable convergence.
With this in mind, I would like to address three questions:
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First, what are the key challenges facing emerging markets and what are the interlinkages between emerging and advanced economies?
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Second, how can we forge a new partnership for growth?
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And third, what can be done to support this process – including by institutions like the IMF?
1. Key Challenges and Spillovers
Let me start by explaining what I mean by emerging markets. This is a group of about 30-50 countries that are in a transition phase – not too rich, not too poor, and not too closed to foreign capital, with regulatory and financial systems that have yet to fully mature.
Let me also emphasize that these countries are incredibly diverse – culturally, geographically, and even economically. Right now, for example, Brazil and Russia are in recession, while India and Mexico are enjoying robust growth. So it would be a mistake to think of these countries as a homogenous bloc.
At the same time, all these countries are eager to catch up with their richer peers. As I explained, however, the current difficult economic context makes catching up much harder – which brings me to the key challenges.
Challenges
First – China’s growth transition. China has embarked on an ambitious rebalancing of its economy – from industry to services, from exports to domestic markets, and from investment to consumption. It is also moving towards a more market-oriented financial system.
These reforms are a necessary process that, in the long run, will lead to more sustainable growth and benefit both China and the world.
In the short run, however, it will lead to slower growth, and this slowdown creates spillover effects – through trade and lower demand for commodities, and amplified by financial markets.
Second – declining commodity prices. Oil and metals prices have fallen by around two-thirds from their most recent peaks, and are likely to stay low for quite some time. As a result, many commodity-exporting emerging economies are under severe stress, and some currencies have already seen very large depreciations.
Third – asynchronous monetary policies. The Federal Reserve has raised interest rates in response to a strengthening U.S economy, while other advanced economies have not raised interest rates, or have gone in the opposite direction.
This has contributed to a rise of the U.S. dollar – putting considerable strain on those emerging market companies that took on large amounts of US dollar-denominated debt, especially in the energy sector.4
This means that anybody who holds an exposure to such companies, whether banks or governments, may be vulnerable to losses.
In addition to these challenges, the emerging world is also facing increasing geopolitical and environmental risks. Think of the Syrian refugee crisis that is directly affecting countries such as Turkey, Lebanon, and Jordan, which are hosting millions of displaced people.
Think of the impact of climate change on food prices, political stability, and people’s health, particularly in Sub-Saharan Africa and southern Asia. By 2030 it is expected that more than 98 percent of deaths related to climate change will occur in developing countries.
Spillovers and Spillbacks
All this matters to advanced economies – because of what we at the IMF call spillovers and spillbacks. What does that mean?
It means a two-way street of unintended knock-on effects – with actions in one country spilling over to others, which in turn creates a negative feedback, or spillback effect, on the country that started the process. Emerging markets have reached a size where such effects are big enough to be noticed everywhere.
Let me give you some examples:
Financial spillovers. Last August, global financial markets were rattled by China’s announcement of a new exchange rate arrangement. And at the beginning of this year, another stock market plunge in Shanghai made global investors hit the “sell” button. More broadly, weaker corporate fundamentals in emerging markets can also trigger financial spillovers to the rest of the world.5 So, watch those balance sheets!
Trade spillovers. Global trade has slowed down dramatically in recent years, partly because of China’s economic slowdown. This matters to all of us – not only because trade has historically been a major driver of growth, jobs, and prosperity, but also because trade between emerging and advanced economies now exceeds trade among advanced economies.
Economic spillovers. Adding it all up, our estimates show that a slowdown of one percent in the emerging world would reduce growth in advanced countries by about 0.2 percentage points. This may not sound like much, but in fact would be a significant blow to those advanced countries that are already struggling with what I have called a “new mediocre” of low growth and high unemployment.
There are also environmental spillovers. Over the next 15 years, we may be looking at up to $90 trillion in global infrastructure investment, mostly in emerging and developing economies that will see a massive increase in urbanization.6
Just think about the risk if this investment is done in the wrong way – for example, if it locks in carbon-intensive energy and transportation structures in these mega-cities. This could radically affect the quality of life on the planet – for all of us.
So my message is: emerging and advanced economies depend on each other, and the world depends on their collaboration. How can the two sides do more to make it work?
2. It Takes Two to Grow: Mutual Responsibilities
The simple answer to the question is this: it takes two to grow. And this is my second topic. The idea is that strong policy actions by emerging and advanced economies can be a win-win for both. A win-win for the global economy.
So what can emerging market economies do?
Let us start with the immediate challenges. And let us focus here on commodity-exporting emerging economies that are facing increasing budget deficits and growing foreign-exchange pressures.
These countries could make their fiscal adjustment less painful – by upgrading the efficiency of spending, strengthening fiscal institutions, and increasing non-commodity revenues. At the same time, allowing for greater exchange rate flexibility can help many of them soften the impact of the adverse external shocks they are facing.
In many cases, emerging economies will also need to step up the use of so-called macroprudential tools to limit financial sector risks – either by monitoring the foreign currency debt that some of their major companies are carrying, or by limiting the fallout from the large credit expansion that many countries have gone through in recent years.
What can advanced economies do?
Faced with modest growth prospects, advanced economies need to continue to support demand through accommodative monetary policies. But they should use a more balanced policy mix. What do I mean by that?
For several years now, advanced economies have relied largely on monetary policy by keeping interest rates extremely low. This was crucial to help the recovery from the 2008 financial crisis.
But central banks cannot do it alone. Countries with budgetary room for maneuver should also use fiscal policy to stimulate their economies – for example, by funding much-needed upgrades of public infrastructure.
At the same time, the United States has a special responsibility as it normalizes its monetary policy – because this can be a source of global spillovers and spillbacks. So it is important that the Federal Reserve continue to do this in a prudent and well-communicated manner.
And what is it that both emerging and advanced economies can do?
There are no easy answers here. Both need to address the underlying economic issues that are fundamental to boost potential growth and promote the sustainable income convergence that I talked about earlier.
Let me highlight two priorities:
First, foster more and better innovation – by removing barriers to competition, cutting red tape, enhancing the mobility of labor, and investing more in education and research. This would unleash entrepreneurial energy and help attract private investment in ideas that are new, surprising, and useful.
This would also strengthen the role of public research institutions, such as the University of Maryland. Remember that all the technologies that make your phone “smart” have benefited from state funding – the internet, wireless networks, GPS, microelectronics, and touch screens.
Private companies like Apple put it all together – brilliantly – but they would not have had the incentives and financial muscle to do it all by themselves!
Second – facilitate a greater sharing of technology between the advanced economies and their emerging peers. This would, for example, require finding a better balance between intellectual property protection and technology dissemination.
Emerging economies would need to rethink their approach to patent protection. At the same time, we should ask whether ideas in advanced economies are, in some cases, too strongly protected. There has been an active global debate on these issues, including on pharmaceuticals and medical treatments.
Another way to facilitate the sharing of technology and know-how is foreign direct investment. FDI into emerging and developing economies, as a share of GDP, is now well below what it was in 2000-06. Our global forecasts predict it will fall even further by the end of the decade. So we need greater efforts to remove unnecessary barriers to FDI, and to replace hot money with longer-term investment.
Likewise, we need to promote technology sharing by promoting trade reforms. For at least three decades before the 2008 financial crisis, global trade regularly grew at twice the rate of the global economy. It is now expanding at, or below, the rate of the global economy. Aside from the China effect, this is because of the slowdown in trade liberalization in recent years.
So we need greater efforts to open up global trade systems and promote trade integration through regional and multilateral agreements.
Finally – both advanced and emerging market countries need to complete and implement the global regulatory reform agenda – which is essential to create a more resilient global financial system.
3. What Can Be Done Globally to Help?
This brings me to my final topic – what more can be done at the global level to support the efforts of emerging and advanced economies? And how can the IMF support this new partnership for growth?
From the point of view of emerging markets, the current international monetary system is less supportive than it should be. This is one area where I have called for a “global policy upgrade”.
What do I mean by international monetary system? I mean the rules and conventions that govern exchange rates, international capital movements, reserves, and official arrangements that allow countries to access liquidity in times of distress – the so-called global financial safety net.
This system also involves institutions designed to ensure that the rules and mechanisms are enforced. The IMF itself was established more than 70 years ago to promote the effective operation of this system. We do this by monitoring the economic and financial stability of our 188 members, by providing financial support in times of distress, and by offering world-class technical assistance and training.
Let me highlight two elements of the international monetary system where smart retooling could be helpful: (i) capital flows and (ii) the global safety net.
Safer capital flows
A stronger monetary system should include a framework for safer capital flows.
Capital flows have increased significantly over the past four decades. Between 1980 and 2007, for example, global capital flows increased more than 25-fold, compared with an eight-fold expansion in global trade.
The good news is that this has underpinned higher investment in many emerging economies that need foreign capital to finance their development. The bad news is that we have seen episodes of high capital flow volatility that can contribute to financial pressures in the emerging world and can – as I noted previously – ”spillback” to the advanced economies.
There is now a growing recognition that the short-term nature and inherent volatility of global capital flows are problematic. What can be done?
Again, there are no easy answers here, but let me offer some preliminary thoughts on what could be done over the medium term. To my mind, countries would benefit from a shift towards more long-term, equity-based capital flows.
In source countries, for example, the supervisory framework could be adjusted to ensure that prudent levels of capital are held behind short-term debt-creating flows. In recipient countries, stronger macroprudential policies could help to make financial systems more resilient.
And in both emerging and advanced economies, it may be helpful to reconsider tax policies – which have a built-in bias towards debt, largely through interest deductibility.
Stronger global financial safety net
In addition to safer capital flows, a stronger international monetary system must include an adequate global financial safety net – to enable access to financial resources in times of crisis or distress.
What exactly is the safety net? It includes countries’ foreign-exchange reserves, currency arrangements – known as swap lines – between central banks, regional financial arrangements, and of course the IMF.
While the safety net has expanded in size and coverage since the 2008 financial crisis, it has also become more fragmented and asymmetric.
For example, many emerging economies do not have access to the existing swap lines between advanced country central banks. This is a challenge because emerging economies depend critically on advanced country currencies in their trade and finance.
It is not surprising, therefore, that many emerging economies have built up their own large safety buffers of foreign exchange reserves. Why is that a problem? Because it means that, for many years, capital was flowing “uphill” – from poorer emerging markets to richer advanced economies. This is counter-intuitive because the returns on capital should be higher in poorer countries.
A stronger safety net would help reduce the need for this kind of “self-insurance”. It would also free up capital for much-needed investments in the emerging world – in infrastructure, health, and education, for example.
So how can the safety net be strengthened? For example, one could think about strengthening and broadening global precautionary financing instruments that work for everyone. One could also increase the size of the safety net. Over the next few months, the IMF will be considering with our members these and other issues related to the international monetary system.
The role of the IMF
Which brings me to my final point today: the role of the IMF. I am pleased to tell you that our role has been strengthened by the approval by our membership of a set of Quota and Governance Reforms – which actually came into effect last week. Why is this so important?
First, it places the institution on a more sustainable footing financially – doubling our permanent resources – and it strengthens our ability to respond quickly to our members’ needs.
Second, it also enhances the representation of dynamic emerging and developing economies in the IMF’s governance structure. For the first time in history, emerging market countries like Brazil, China, India, and Russia are now among the 10 largest shareholders of the Fund.
The bottom line is that today’s IMF more accurately reflects the dynamics of the 21st century’s global economy – including the role of emerging markets. It also bolsters the IMF’s ability to bring emerging and advanced economies together in this new partnership for growth.
4. Conclusion: a new economic reality
So, that is what I wanted to say to you today. A new economic reality has slowly emerged as countries have developed and grown richer. And now that some of these countries experience difficulties after many years of strong growth, we are affected by it, too. This is not something to fear, but it does require us to be aware and think a bit differently, a bit more multilaterally.
I have spoken about what emerging and advanced economies can do. What about you? What can you do?
As future leaders and policymakers, you will have the opportunity to play your part – for example – by promoting climate change awareness, highlighting the dangers of excessive inequality, and insisting on the highest standards of ethical behavior in all walks of life.
As President John F. Kennedy once said:
“Change is the law of life, and those who look only to the past or present are certain to miss the future.”
My message today is that the role of emerging and developing economies is a defining feature of the 21st century – and of the world in which you and your children will live. By forging a new partnership, by strengthening what I have called a “new multilateralism”, we can create a more prosperous and more peaceful future for everybody.
Thank you.
1 GDP measured at purchasing power parity.
2 According to the most recent World Bank estimates, in 2012, 12.7 percent of the world’s population lived at or below $1.90 a day. That is down from 37 percent in 1990 and 44 percent in 1981.
3 Institute of International Finance report.
4 The corporate debt of nonfinancial firms across major emerging markets quadrupled to more than $18 trillion between 2004 and 2014 (October 2015 GFSR).
5 Research which will be published in the April 2016 Global Financial Stability Report.
6 Global Commission on the Economy and Climate (GCEC), 2014, Better Growth, Better Climate: The New Climate Economy Report (Washington); Blog by Nicholas Stern.
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EALA calls for full implementation of the Common Market Protocol, cites sensitisation as key in the process
The Regional Assembly is urging Partner States to “up their game” in sensitisation activities, particularly when it comes to the Common Market Protocol in order to raise awareness and showcase benefits to the citizens of the region.
At the same time, the EALA wants Partner States to adopt a phased implementation of the EAC Common Market Protocol (CMP) by prioritising aspects that carry quick wins or deliver immediate multiplier effects. This move shall endear citizens to take advantage of the benefits that shall accrue from the Common Market Protocol.
The Assembly on 2 February 2016 debated and adopted the Report of an oversight activity on the Security-related challenges of implementing the Common Market Protocol along the Central Corridor.
The Report presented to the House by the Chair of the Regional Affairs and Conflict Resolution Committee, Hon. Abdullah Mwinyi follows the oversight activity undertaken by the Committee in the United Republic of Tanzania in November 2015.
The activity aimed at appreciating first-hand, the existing security-related operational challenges of implementing the Common Market Protocol along the Central Corridor; Non-Tariff Barriers (NTBs) constraints including numerous police road blocks and check points; and, the ongoing reforms and projects on course to ease cargo transportation in landlocked Partner States of Burundi, Rwanda and Uganda.
The objective of the Committee was to comprehend and appreciate the implementation of the Common Market Protocol along the Central Corridor and to ascertain the challenges faced in the implementation.
The Committee held a field trip visiting Dar es Salaam, all through to Vigwaza weigh-bridge and road blocks. It further interacted with various stakeholders including officials of the Ministry of EAC, Ministry of Labour and Employment, and the Tanzania Bureau of Standards. Others included the Business Community, Members of the Tanzania Police Force and the Tanzania Roads Agency officials.
The Committee observed that United Republic of Tanzania had developed a national Common Market Protocol implementation strategy and a national Committee to realise the same. It further strengthened the National Monitoring Committee for Elimination of Non-Tariff Barriers and had commenced on the issuance of the machine-readable identification.
The Committee was, nonetheless, informed that implementation of the Common Market Protocol continued to lag behind owing to a number of factors including: Inadequate awareness among Private Sector, implementing agencies and the general public on the provisions and implementation of EAC CMP as well as delays by the Sectoral Ministries, Departments and Agencies (MDAs) to amend national laws relevant to the said Protocol. In addition, the Committee took cognisance of the funding requirements for smooth implementation of the EAC Common Market Protocol.
During debate, Members noted that Partner States should emulate the United Republic of Tanzania to modernise the weigh-bridge technology and scales to ensure enhanced speed and accuracy in weighing process targeting reduction of bribery incidences, fines for overloading and time taken in the weighing process.
At the same time, United Republic of Tanzania should work with other Partner States to re-look on the validity through research the issue of yellow fever cards within the EAC region as an impediment to Free Movement of Persons.
Hon. Bernard Mulengani remarked that it was necessary to also look at security-related matters such as illegal road blocks, arrests and the ever-worrying trend of terrorism gaining entry through the Free Movement of Persons. He further requested the Council of Ministers to clarify on the term foreigner in advent of the Common Market Protocol.
Hon. Valerie Nyirahabineza decried the constant delays by Partner States to amend the national laws to conform to the Common Market Protocol. “Article 47 requires Partner States to align their legislation to CMP. This is vital”, she said. “What happens if the laws in the Partner States are not aligned with that of the EAC? Are we going to continue to benefit from the Protocol?” she asked.
“In the case of the Customs Union, we have a legal framework in the name of the Customs Union Management Act. It is a high time we have a co-ordinating structure to handle this aspect”, she added.
Hon. Shyrose Bhanji said Tanzania had done well with regards to removal of NTBs. One of the major challenges, however, is that of lack of sensitisation to the public, she said.
“This is not only a recurring problem but looks more like a chronic problem”, she said. “We need more sensitisation to the publics to create awareness here in the country. Even EALA Members need to be more involved in-country. This shall enable us also to brief Tanzanians and other East Africans”, she said.
Hon. Makongoro Nyerere, however, said the various weigh-bridges on the Central Corridor continued to delay the speed of movement of goods. “They need to be reduced so that we also spur Free Movement of People from one point to another,” he added.
Hon. Mumbi Ngaru said the Government of Kenya had continued to prioritise sensitisation of its citizens on the EAC. “The Council needs to formulate a policy around sensitisation. This is very key,” she said.
Others who supported the report were Hon. Shyrose Bhanji, Hon. Makongoro Nyerere, Hon. Martin Ngoga and Hon. Ussi Maryam. Hon. Odette Nyiamilimo, Hon. Isabelle Ndahayo, Hon. Christophe Bazivamo and Hon. Taslima Twaha also gave a nod to the report.
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EALA approves 2013/14 Annual Report of the Community
EALA on 3 February 2016 debated and approved the EAC Annual Report 2013/14. The Assembly, meanwhile, urged the Council of Ministers to ensure further improvements in future subsequent reports and in all EAC documents by enhancing overall supervision and quality control. This measure is geared towards sustaining high standards in all outputs of the Community.
The debate was preceded by tabling and debate of the Report of the Committee on General Purpose (GPC) on the EAC Annual Report for 2013/2014. The report of the GPC followed the consideration of the Annual Report for the year 2013/14. The Committee Report presented by the Chairperson of the Committee on General Purpose, Hon. Dr Odette Nyiramilimo urges the Council of Ministers to make follow up on actions with intention to amend, retract or correct identified parts of the Annual Report that may be erroneous.
The Committee on General Purpose further calls for additional details to be included on the status of major Community Projects such as those under Infrastructure Sector. The details should, inter-alia, include updates on status, causes for delay and other challenges realised under the Road network, Railway sector and the EAC Master Plan.
The Committee also observes that the EAC Annual Report 2013/14 contains no section on challenges either than what is mentioned by the Deputy Secretary-General of the EAC in his submission to the Committee.
“As it has been noted in previous reports tabled before the House, there is apparent hesitation to clearly point out challenges in the EAC Annual Report,” Hon. Odette Nyiramilimo noted. Each year, the Chairperson of the Council of Ministers submits an Annual Report on the activities and achievements of the Community to key stakeholders in line with Article 49(2)(c) of the Treaty.
The Annual Report illustrates the accomplishments of the various Organs and Institutions of the Community within their respective mandates and missions. The 2013/4 Report captures the progress made in implementation of various activities including the Protocol on establishment of the East African Monetary Union, operationalisation of the single Customs Territory, Infrastructure development, productive and social sectors and the progress on the internationalisation of the new generation EAC e-Passport.
At debate, Members called on the Council of Ministers to cause for take up more shares in East African Development Bank (EADB).
Hon. Shyrose Bhanji supported the move for Partner States to take more shares in the EADB.
“It is shocking to hear that our partner States have minority shareholding in the Bank. We are supposed to take advantage of the bank. What is the problem? We cannot be seen to transform agriculture which is our backbone through donor funding,” she added.
Hon. Dora Byamukama supported the adoption of the Annual Report but said it was necessary for the Assembly to debate on documents that are current. Others who supported the report were Hon. Christophe Bazivamo, Hon. Nancy Abisai, Hon. Bernard Mulengani, Hon. Straton Ndikuryayo and Hon. Valerie Nyirahabineza.
The Chairperson of the Council of Ministers, Hon. Dr Susan Kolimba affirmed that the Council would make every effort to enhance the quality of its Annual Reports.
East African Community Annual Report 2013/14
Chapter 7. Office of the Director General – Customs and Trade
The Office of the Director General (Customs and Trade) is responsible for the implementation of the customs and trade (internal and external) functions in the EAC. Customs encompasses tariff and valuation, compliance and enforcement, procedures and facilitation while trade covers international trade, internal trade and Standards, Quality Assurance, Metrology and Testing.
Customs
Implementation of the EAC Single Customs Territory: Following the decision of the Summit in April 2012 to adopt the destination principle for the implementation of the EAC Single Customs Territory and commence the implementation on 1st January 2014, the Council in November 2013 approved a Framework and roadmap for its implementation.
In order to implement the directives, the Committee on Customs constituted five Technical Working Groups (TWGs), namely: Business Flows and Legal; ICT; Compliance and Enforcement; Capacity Building and Change Management; and Inter-Agency Cooperation to develop the required instruments for operationalization of the EAC Single Customs Territory. The Committee undertook a number of activities and developed the operational instruments including: the SCT business process manual; Compliance and Enforcement Framework; and proposed amendments to the EAC Customs Management Act and regulations to cater for the SCT. Activities undertaken during the period under review included developing capacity building and change management intervention tools to support the implementation of the SCT.
Enhanced Trade Facilitation and Customs Services through Interconnectivity of Customs Systems: Following the finalization of the Study on the Interconnectivity of customs systems, the Council directed the Secretariat to develop Customs Information Technology regulations to reinforce the use of IT in Customs. As at 30th June 2014, the draft regulations were awaiting final adoption by Council after legal input by the Sectoral Council on Legal and Judicial Affairs.
Review of Rules of Origin: The draft revised EAC Rules of Origin were considered by the Sectoral Council on Trade, Industry, Finance and Investment during its meeting in May 2013 that among others, directed that further consultations and sensitization of stakeholders be undertaken. The Secretariat undertook the consultations in the Partner States particularly on the following new elements:
(a) Simplification of origin criteria:
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Value added criterion by proposing to lower the threshold from 35% to 30% and using the Ex-works price instead of Ex-factory costs;
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Change in Tariff Heading has been made more flexible to some goods by allowing changes in Tariff Sub-headings;
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Introduction of specific manufacturing processes as a qualifying criterion to some goods, such as manufacturing to start from completely knocked down kits for motor vehicles assembled in the region.
(b) Review of the definition of ownership of a fishing vessel of a Partner State by lowering the threshold of ownership from 75% to 20%;
(c) Introduction of a rule that provides for the treatment of goods sold in sets;
(d) Establishment of central database of registered exporters at the Secretariat;
(e) Provision for other forms of cumulation other than full cumulation such as cumulation with countries or Regional Economic Communities that EAC has concluded a Free Trade Area with;
(f) Introduction of a rule on Approved Exporter, where the competent authorities of the exporting Partner States may authorize any exporter who makes frequent shipments of products;
(g) Introduction of a rule on validity of proof of origin where proof of origin shall be valid for six months from the date of issue in the exporting country.
Development and Review of Customs Laws and Regulations: Work towards amending the EAC Customs Management Act commenced in order to align it with the procedures under the Framework of the Single Customs Territory. The 27th Meeting of the Council held in August 2013 approved the recommendations to amend certain provisions of the EAC Customs Management Act and EAC Customs Management Regulations and referred the provisions to the Sectoral Council on Legal and Judicial Affairs for legal input.
Establishment of One Stop Border Posts (OSBP): There were fifteen OSBP Projects at various levels of development on internal borders in the region supported by various Development Partners. Construction at Taveta, Namanga, Rusumo, Isabania, and LungaLunga/ Hororo were at advanced stages of completion while work on Kabanga, Busia, Mutukula, Malaba, Katuna, Kagitumba/Mirama Hills was expected to progress faster given that most contractual issues had been resolved. One stop border posts infrastructure at Holili, Sirari,Nemba/Gasenyi and Ruhwa had been completed while construction at Tunduma and Kobero was planned to commence late in 2014.
Capacity Building in Customs: The EAC Customs Training curriculum was rolled-out in November 2012 in Rwanda and officially launched in May 2013 by the Committee on Customs. The other four Partner States commenced implementation in July 2013. The EAC Customs capacity building initiatives focused on developing tools to support the implementation of the EAC Customs training curriculum. The training materials were published and distributed to Partner States for application.
Regional Time Release Study: The East African Community (EAC) in conjunction with the World Customs Organization (WCO) conducted a Regional Time Release Study (TRS) on the Central Corridor between Dar es Salaam and Bujumbura and Kigali via Kabanga/Kobero and Rusumo borders respectively. The Study which commenced in February 2014 developed terms of references, work plan, questionnaires, and a budget. The TRS experts also undertook a route survey and sensitization of the stakeholders that was slated for completion by end of September 2014.
Customs Integrity Action Plan: The Secretariat in collaboration with customs experts from revenue authorities developed and finalized the EAC Customs and Tax Integrity Action Plan and the Regional Code of Conduct in July 2013. The document was submitted to the Partner States for further consultations.
Duty Remission for Motor vehicle Assemblers: The Sectoral Council on Trade, Industry, Finance and Investment at its meeting held on 10th June 2013 in Arusha, considered the recommendations of the Committee on Customs to adopt the list of items to be excluded from CKD for vehicle assemblers, items to be included in the CKD kits for assembling of trailers and the level of breakdown of CKD kits for motor vehicles. SCTIFI directed the Secretariat to conduct a comprehensive regional study and finalise the regulations. The Secretariat coordinated the validation and finalized the regulations which are awaiting consideration by SCTIFI.
Trade
The EAC Mechanism on Elimination of Non-Tariff Barriers (NTBs): The EAC Time Bound Programme (TBP) on elimination of Non-Tariff Barriers was updated during the 14th Regional Forum on NTBs held in February 2014. Seven (7) new NTBs were reported by the Partner States.
Development of a Legally Binding Mechanism on Elimination of NTBs: The draft EAC NTBs Bill was adopted by the Council in November, 2013 and forwarded to the Sectoral Council on Legal and Judicial Affairs for legal input. Once the Bill is enacted into law, it will enhance the work of EAC Regional Forum on NTBs and the National Monitoring Committees on the elimination of NTBs as contained in the EAC Time-bound Programme.
Compilation and Dissemination of Trade Statistics: As a strategy to improve both internal and external trade, the Community annually compiles and publishes the Trade Report highlighting EAC intra-trade and Customs revenue and investment performance in the Community, among others. The EAC Trade Report 2012 was finalized and printed. Preparation of the zero draft of the EAC Trade report 2013 was on-going.
Promotion of Jua Kali/NguvuKazi Artisans: The Jua Kali/NguvuKazi Artisans Exhibitions have been held annually in the Partner States on rotational basis since 1999. The main objective of the annual Exhibition is to facilitate the formalization of informal sector activities within the East African region by allowing the artisans to meet, exchange business information, and expand markets for their products in order to exploit opportunities offered under the EAC Common Market. The specific objectives are to bridge the gaps in trade, culture and social economic imbalances in the region; create awareness of the sector’s potential in producing and providing affordable goods; create expanded investment opportunities for the region’s up-coming/emerging entrepreneurs; and initiate dialogue between the entrepreneurs and sharing knowledge in technology, innovations and business techniques.
The 14th EAC JuaKali/NguvuKazi Exhibition was held in Nairobi, Kenya in December, 2013 and the Post exhibition Report was prepared with key recommendations and lessons for improvement of future exhibitions. A total of 500 artisans drawn from the Partner States were sensitized on market opportunities in the EAC.
Trade in Services Under the EAC Common Market Protocol: In June 2013, the Sectoral Council on Trade, Industry, Finance and Investment (SCTIFI) directed Partner States to make proposals in accordance with Article 53 of the Common Market Protocol (CMP), for amendment of the relevant Articles of the EAC CMP that affect trade in services and free movement of workers by February 2014. The directive was based on the fact that Partner States were of the view that it was difficult to implement Trade in Services provisions in the CMP and the schedules of commitments due to some technical errors, omissions and legal inconsistencies/discrepancies. A meeting of Experts on trade in services held in April 2014 developed proposals for amendment of the relevant Articles on Trade in Services and free movement of workers under the EAC CMP, which were subsequently adopted by the SCTIFI meeting held in May 2014.
Further, under the World Trade Organisation (WTO) Transparency Mechanism, the WTO Secretariat prepared a Factual Report on the Provisions on Trade in Services under the EAC CMP. EAC meetings of Experts on Trade in Services were held in January and May 2014 to develop comments on the Report and responses to the questions raised by Colombia, Chile and Canada. The Factual Report was adopted by the 73rd WTO Transparency Session of the Committee on Regional Trade Agreement held in June 2014 in Geneva, Switzerland.
Finalization and Implementation External Trade Agreements: During the reporting period, the Community continued to negotiate external trade agreements namely, the EAC-EU Economic Partnership Agreement (EPA) and the EAC-U.S. Trade and Investment Partnership (TIP).
Under the EAC-EU EPA Negotiations, substantial progress was made on the issues under the negotiations. As of March 2014, both Parties had reached agreement on the outstanding issues under Institutional Arrangements, Dispute Settlement, Rules of Origin and Most Favored Nation Clause. Outstanding issues remained on Export Taxes, Agricultural Domestic Support, Relations with the Cotonou Agreement, Good Governance on Tax Matters and Consequences from Customs Union Agreements concluded with the EU.
Regarding the EAC-U.S. TIP, the first public-private sector EAC-U.S. Commercial Dialogue was held in August 2013. The EAC and U.S. private sectors jointly enumerated priority areas including trade facilitation and related infrastructure, energy, agribusiness, services, access to finance and markets, development of supply chains and strengthening of women in business leadership. Subsequently, exploratory discussions were held between the EAC-U.S. Technical Officials Meeting in February 2014 in Bujumbura, Burundi to discuss the components of the TIP, namely Regional Investment Treaty, Trade Facilitation Agreement, Trade Capacity Building Assistance, SPS and TBT; and Commercial Dialogue. Both parties agreed on follow up actions.
Model Investment Treaty: The Secretariat developed a draft Model Investment Treaty to be used by the EAC Partner States as a basis for negotiations with third parties. The draft was submitted to Partner States for further consultations.
Finalization of EAC Joint Export and Investment Promotion Strategy 2013-2017: The EAC Export Promotion Strategy 2013 - 2017 was considered by the Council in June 2013. The key highlight of the EAC Export Promotion Strategy was the separation of the joint EAC Export and Investment Promotion Strategy.
Development of Efficient Export Incentives: The development of policies for the Export Processing Zones (EPZs) and the Special Economic Zones (SEZs) continued during the reporting period. The SEZs Policy and the draft study report on the impact of the Customs Union on the existing EPZs/SEZs firms were reviewed and validated respectively.
Implementation of EAC SQMT Act 2006: During the period under review, thirty eight (38) Standards were developed and approved by East African Standards Committee, and were awaiting adoption by Council. In addition, three (3) sets of regulations to operationalize the SQMT Act were adopted by the Council in November 2013. As part of the follow-up on the implementation of harmonized standards at the regional entry points, a monitoring mission was undertaken to eight (8) border posts in the region.
Negotiations for the Establishment of the COMESA-EAC-SADC Tripartite Free Trade Area: The Tripartite Trade Negotiation Forum (TTNF) established four (4) Technical Working Groups (TWGs): Customs Cooperation; Rules of Origin; TBT/SPS/NTBs; and Trade Remedies and Dispute Settlement. The TWGs concluded the situational analysis on key thematic issues for substantive negotiations and considered the respective annexes (3, 4, 5, 6, 7, 9 and 10) of the draft FTA Agreement. The TTNF also commenced text-based negotiations schedule and adopted Annex 6 of the draft TFTA Agreement on Simplification and Harmonization of Trade documentation and procedures. More critically, the TTNF resolved the contentious issues on modalities for tariff liberalization which cleared the way for Tripartite Member/Partner States to embark on preparation and exchange of their tariff offers.
On negotiations on movement of business persons, the Tripartite Task Force (TTF) Chief Executive Officers established a TTF Sub Committee on Movement of Business Persons (SCMBP). The TTF SCMBP held its inaugural meeting in April 2013 in Nairobi Kenya and reviewed the draft terms of reference (ToRs) for the proposed Tripartite Technical Committee on Movement of Business Persons (TTC-MBP); updated the draft Situational Analysis of the Movement of Business Persons in the three RECs; and prepared a work programme on negotiations on movement of business persons.
Under the Tripartite industrial development pillar, a Tripartite Regional Consultative Workshop was held in June 2013, in Nairobi, Kenya. The workshop brought together stakeholders from ministries of trade and industry in the Tripartite region as well as the private sector and enabled them to provide inputs to the draft Work Programme/Roadmap on the Tripartite Industrial Development Pillar.
Under the Tripartite infrastructure development pillar, work progressed on Operationalisation of the Joint Competition Authority (JCA); Tripartite Corridors Infrastructure Development and Border Posts and development of a Tripartite Infrastructure Master Plan (including Development of the Project Database and Tripartite Work on Corridor Monitoring).
Exports: The value of total exports by the EAC Partner States has more than tripled from USD 4.9 billion in 2004 to USD 14.3 billion in 2013 with respective shares of 41% (Kenya), 36% (Tanzania), 17% (Uganda), 5% (Rwanda) and 1% (Burundi). Graph 7.1 shows the upward trend in the value of exports, with Kenya as the lead exporting country, followed by Tanzania, while Burundi has the least exports in value terms.
Imports: The value of total imports by the EAC Partner States has more than quadrupled from USD 9.4 billion in 2004 to USD 37.5 billion in 2013 with respective shares of 44% (Kenya), 33% (Tanzania), 16% (Uganda), 5% (Rwanda) and 2% (Burundi). Graph 7.2 shows the trend in the value of imports, with Kenya as the lead importing country, followed by Tanzania, while Burundi has the least imports in value terms.
Intra-EAC Exports: The value of intra-EAC exports by the EAC Partner States has increased from USD 3.1 billion in 2004 to USD 5.6 billion in 2013. Graph 7.3 shows the upward trend in the value of intra-EAC exports, with Kenya as the lead exporting country, followed by Tanzania, while Burundi has the least exports in value terms.
Intra-EAC Imports: The value of intra-EAC imports by the EAC Partner States increased from USD 0.7 billion in 2004 to USD 2.1 billion in 2013 with respective shares of 16% (Kenya), 19% (Tanzania), 30% (Uganda), 19% (Rwanda) and 16% (Burundi). Graph 7.4 shows the trend in the value of intra-EAC imports, with Uganda as the lead importing country, followed by Tanzania, while Burundi and Kenya were the least importers in value terms.
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Food price index starts 2016 dropping to nearly 7-year low – UN agency
The global Food Price Index, calculated by the United Nations Food and Agriculture Organization (FAO) on a monthly basis, fell in January, slipping 1.9 percent below its level in the last month of 2015, as prices of all the commodities it tracks dropped, sugar in particular.
FAO’s Food Price Index is a trade-weighted index tracking international market prices for five key commodity groups: major cereals, vegetable oils, dairy, meat and sugar. It averaged 150.4 points in January, down 16 per cent from a year earlier and registering its lowest level since April 2009.
The main factors underlying the lingering decline in basic food commodity prices are the generally ample agricultural supply conditions, a slowing global economy, and the strengthening of the United States dollar, the UN agency noted in a news article.
This month, FAO also raised its forecast for worldwide cereal stocks in 2016, as a result of lowering its projected consumption and raising 2015 production prospects.
The FAO Sugar Price Index fell 4.1 per cent from December, its first drop in four months, as crop conditions improved in Brazil, by far the world’s leading sugar producer and exporter.
The Dairy Price Index dropped by 3.0 per cent on the back of large supplies, in both the European Union (EU) and New Zealand, and torpid world import demand.
FAO’s Cereal Price Index declined 1.7 per cent (to 149.1 points) amid ample global supplies and increased competition for export markets, especially for wheat and maize, as well as a strong US dollar.
The Vegetable Oil Price Index dropped 1.7 per cent, mainly because of a decline in soy oil prices reflecting expectations of ample global soybean supplies.
Finally, the Meat Price Index moved 1.1 per cent lower than its revised December value, with prices of all meat categories falling, except pig meat, which was sustained by the opening of private storage aid in the EU.
Meanwhile, weather patterns associated with El Niño are sending mixed signals about the early prospects for cereal crops in 2016, especially in the Southern Hemisphere, according to FAO’s Cereal Supply and Demand Brief, also released on 4 February.
It notes that 2016 crop prospects have been “severely weakened” in Southern Africa, and a 25 per cent cut in wheat production in South Africa now appears likely. Conditions for the crop are generally favourable in the Russian Federation and the EU, but winter plantings declined in the United States and Ukraine. The area under wheat is also expected to be cut in India, following a poor monsoon and below average rains since October.
The 2016 outlook for rice along and south of the Equator is “dim” due, at times, to insufficient water and, at others, to excessive rains.
As for the 2015 season, FAO modestly raised its forecast for world cereal production to 2,531 million tonnes, up slightly from that released in December.
Wheat output in Canada and Russia and maize output in China, Canada and Paraguay drove the upward revision. FAO also slightly raised its expectation regarding 2015 world rice production, mostly on account of higher forecasts for China, Viet Nam and the United States.
At the same time, FAO lowered its forecast for world cereal utilization in the 2015/16 season to 2,527 million tonnes, which remains 0.8 per cent above that of the previous year. This reflects a 2.0 per cent increase for wheat, largely on account of higher livestock feed use in developed countries and a 0.3 per cent increase in maize. World rice utilization is projected to expand by 1.1 per cent, keeping world per-capita consumption stable.
As a result of the upgraded production and downgraded consumption forecasts, world cereal stocks are set to end the 2016 seasons at 642 million tonnes, higher than they began. That level implies a steady and comfortable global cereal stock-to-use ratio of around 25 per cent. However, the inventory build-up varies geographically and depending on the crop.
Notable increases in wheat inventories are forecast for the US, EU and China whereas some reductions are likely in Canada, India and Iran. On the other hand, world rice stocks would need to be drawn down to bridge the expected gap between world production and consumption, with much of the release likely to concern India and Thailand, the two leading rice exporters.
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African Integration and Development Review 2015
The African Integration and Development Review is an international multidisciplinary journal for the discussion of a wide range of integration issues in Africa.
This volume of the Review is particularly interested in the theory of integration and to its application to problems. Areas of interest include: aid and trade, regional disparities and agrarian reform, development administration, education planning and human resource development, industrialization and transfer of technology, environmental issues, human rights and democratization issues, urbanization and women in development.
The Need for Public Policy Space: Examining the Problems of Wholesale Public Policies Implementation and the Criticisms of Conditionality in Eradicating Poverty in Africa
Many African countries face the challenge of policy space in economic and noneconomic development. The term ‘policy space’ appeared in an UNCTAD document in 2002 and acquired its first official status in Sao Paulo consensus of 2004. Policy space can be defined as, the scope for domestic policies implemented in economic and non-economic development which might be framed by international and global market consideration (Oversees Development Institute, 2007). The UNCTAD document argued that developing countries, especially the small or poor countries should be free from International Financial Institutions (IFIs) because the effects of their actions are likely to cause more damage than good. This lack of policy space has triggered debates about the availability of national governments inputs on economic and non-economic policies. Therefore, this paper argues for the need for public policy space in terms of both economic and non-economic policies in Africa.
One of the issues that emerges from this, is that public policies implementation proves problematic in developing and African countries. Public policies are important to global economic development. The World Bank (WB) and International Monetary Fund (IMF) are some, but major pioneers of public policies. Both IFIs have also been deeply involved economic and noneconomic affairs and many governments have turned to them for solutions. In western democracies it is believed that WB & IMF policies will improve efficiency in the economic and public sector systems. However, Kong (2007) explained that most of the times these policies are unsuccessful because of complexities that accompanies them.
Critics have recommended that WB and IMF modify their economic policies in order to reap better results from their advocacies. Some observers have drawn our attention to the issue of ‘Financial Tightening’ condition for fund provision as a problem for African development. In advanced countries, financial tightening is the opposite of what their economies need, yet, this same condition is exported to Africa. Given the extensive gap, globally Africa is the worst affected by this lack of economic policy space (Global Financial Stability Report, 2012). This paper approaches this issue by examining why public policies conditionality proves problematic in Africa.
Author: Dr. Waziri Sulu-Gambari, University of Manchester, United Kingdom
Effects of Remittances on Economic Growth in Cameroon: An ARDL-bounds testing Approach
Theoretical and empirical investigations into remittances’ economic impact have produced highly mixed results. On the positive side, remittances contribute to the alleviation of poverty and, in some instances, provide capital to fund households’ investments and savings. For a number of countries, international remittances have driven macroeconomic growth, mostly by increasing national disposable income. For many low income countries, net emigration countries, remittances are the most important source of external financing, leading FDI and official development assistance.
The debate on remittances and its potential effects on economic growth has produced mixed results.
In the first strand of the debate, some studies have found that remittances can have a deleterious impact on national economic growth in the medium and longer term. Remittances can fuel inflation, disadvantage the tradable sector by appreciating the real exchange rate, and reduce labor market participation rates as receiving households opt to live off of migrants’ transfers rather than by working. Moreover, remittances’ contribution to growth and poverty might reduce the incentives for implementing sound macroeconomic policy or to institute any needed structural reforms.
In the other strand of the debate, however, there is empirical evidence that remittances lead to positive economic growth, be it through their positive impact on consumption, savings or investment. Lucas (2005) cites several case studies that show signs that remittances may indeed have served to accelerate investment in Morocco, Pakistan, and India. Glytsos (2002) models the direct and indirect effects of remittances on incomes and hence on investment in seven Mediterranean countries, and finds that investment rises with remittances in six out of the seven countries. Additionally, the results of the analysis conducted by Leon-Ledesma and Piracha (2004) for eleven transition economies of Eastern Europe during 1990-1999 show support for the view that remittances have a positive impact on productivity and employment both directly and indirectly through their effect on investment. Finally, a recent study by Roberts and Banaian (2004) on remittances in Armenia conclude that overall, empirical evidence suggests that the propensity to save out of remittance income is high (almost 40%) and remarkably consistent across studies.
There are, however, at least two points of reservation regarding the effects of remittances. One is the possibility that countries can face a situation similar to the Dutch disease in which the inflow of remittances causes a real appreciation, or postpones depreciation, of the exchange rate. This has the effect of restricting export performance and hence possibly limiting output and employment. The second reservation relates to the argument put forward by Chami et al (2003) that income from remittances may be plagued by a moral hazard problem, permitting the migrant’s family members to reduce their work effort. Their panel regressions support this view as they find remittances to be negatively correlated with growth among a sample of developing and developed economies from the early 1970s.
Against this backdrop, we examine the impact of remittances on economic growth in Cameroon by bringing out the pronounced positive effect of remittances on economic growth as compared to other external sources of capital. To this end, we employed an econometric procedure as the recently ARDL bounds testing approach which heavily relies on Multivariate Cointegration within an error correction model (ECM) to establish both the short- and long- run relationships between inflows of remittances, and other external inflows in the form of foreign aid, foreign direct investment and openness to trade on economic growth for the period 1960 to 2014.
Author: Prof. Do ango Simplicio, Université Omar Bongo Faculté de Droit et des Sciences Économiques, Libreville, Gabon
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tralac’s Daily News selection
The selection: Thursday, 4 February 2016
Now available: African Integration and Development Review (Vol. 8 No. 2, July 2015)
Africa-Arab Partnership: update from Addis (AU)
East Africa Research Fund: call for proposals. Themes 'Understanding intra-regional labour migration' and 'Understanding small scale mining'
Mukhisa Kituyi: 'How to ensure the continued participation of LDCs in the multilateral trading system?' (UNCTAD)
There is significant potential in LDCs for the creation of regional value chains in agriculture and agro-processing. Integration into regional markets for agro-based products is strong in Asian LDCs (which direct 85% of their agricultural goods to regional markets); but it is much weaker in African LDCs and Haiti (where the corresponding share is just 26%) and island LDCs (approximately 10%), where the development of regional agricultural value chains is held back by infrastructure deficits, poor competitiveness in production and trade, and weak implementation of regional integration initiatives.
Developing regional markets is also important for trade in services, which has become a dynamic driver of growth in many African LDCs. To leverage services trade and the related development, employment and growth benefits, it is particularly important to improve the coherence in the currently existing multiple layers of regulation that appear disjointed and unrelated across existing national, regional and global frameworks. To address the disconnect at the global level, the LDCs' national and regional priorities must be better taken into account and adequately reflected in the global services agenda in order to move from the multilayered status quo to an articulated and coherent strategy.
Trade, finance and development: overview of challenges and opportunities (ICTSD)
Where do trade and finance fit into this picture? In order to organize our thoughts, let us divide the impact of trade and finance on economic growth (leaving development per se out of the picture for the time being) into two components. [The author, Jean-Louis Arcand, directs the Centre for Finance and Development at the Graduate Institute Geneva]
US companies want fair treatment in South Africa (NewsGhana)
American companies in South Africa are concerned that some EU companies who are their competitors were getting 5 to 25% reduction in duty, a treatment which is denied to US companies, Assistant US Trade Representative for Africa, Florizelle Liser, said at a press conference in Johannesburg. This happened when South Africa was enjoying duty free access to the U.S market to sell their products, she said. There are over 600 US companies operating in South Africa, and this pushed American government to force South Africa to comply with certain compliances in relation to the African Growth and Opportunity Act, Liser said. Liser, however, denied that her country was arm twisting South Africa to agree to the U.S. demands.
ANC sets up review of SA’s trade agreements (Business Day)
Economic subcommittee co-chair Enoch Godongwana on Monday said in light of Agoa, it was agreed that NEC members should have a deeper understanding of trade agreements. "We have got to deepen our own understanding of these trade agreements and their implications and therefore the economic transformation subcommittee will work out a detailed presentation for the NEC," he said. This presentation will be made to the party’s highest decision making body between conferences when Mr Mantashe slots it onto the programme. Mr Godongwana echoed Mr Davies’ assertion that the intention was not to change or reverse any of the agreements, but rather to deepen members’ understanding of them and their implications.
US-Africa Business 2016 summit: Kenya ministers pitch projects to investors in Addis (Daily Nation), The problem with investing in Africa – Hayes (PM News)
Klaus Schade: 'To de-link or not to de-link? A contribution to the current debate in Namibia' (Southern Times)
Last but not least, de-linking the Namibia dollar from the South African rand would imply that we abandon our regional integration ambitions of a monetary union that is still on the agenda even though no new time lines for achieving it have been agreed upon.
Lesotho: 2015 Article IV Consultation (IMF)
Spillovers from slower growth in neighbouring South Africa have begun to weigh on the Lesotho economy. Diminished employment opportunities for migrant workers, particularly in the mining sector, have reduced remittances and consumers’ purchasing power at home. Also, with a lag, SACU revenues depend on South Africa’s collection of import duties, which fell considerably short of expectations in 2014/15. South Africa is also an important source of private sector investment in Lesotho, which also appears to have fallen. However, beyond water transfers, Lesotho’s principal export markets (diamonds, textiles) lie outside the sub-region and are not strongly affected by economic developments in South Africa. Finally, Lesotho’s financial system has close linkages with South Africa and under the CMA, South Africa’s monetary and exchange rate policies have a direct impact on Lesotho. Most years, several of Lesotho’s financial institutions have accumulated assets in South Africa leading to a net outflow of financial resources.
Lesotho’s SACU revenues are expected to fall by about 12 percentage points of GDP between 2014/15 and 2016/17, with much of this drop expected to be long lasting. After falling by 3½ percentage points of GDP in 2015/16 (to just over 25 percent of GDP), they are projected to plunge another 8½ percentage points to about 16½ percent of GDP the following year. Although a modest rebound is expected in 2017/18, SACU revenues are projected to remain relatively low (below 20 percent of GDP) over the foreseeable future, largely due to the slowdown in import growth in South Africa, which is the main determinant of the size of the SACU revenue pool.
Zimbabwe: Economic Update (World Bank)
Low export prices and high production costs are contributing to a persistent deficit in the external accounts. Despite narrowing somewhat in recent years, Zimbabwe’s current account deficit remains much larger than those of comparable countries in the region, and exports currently amount to just over half of imports. A decline in global prices for gold, platinum and other mineral commodities, coupled with unresolved supply-side constraints, has reduced the value of mining exports. Zimbabwe has also benefited from lower oil prices, but rising import volumes largely offset the impact on import values. Remittances gradually increased during 2010-2015 and are estimated to have reached almost 7% of Gross National Income in 2015. The deficit is primarily financed by capital inflows, especially foreign borrowing, but unfavorable terms contribute to making this model unsustainable over time.
Today, in Harare: RBZ Monetary Policy Statement
Rwanda: Govt targets $100 million from floriculture, horticulture exports (New Times)
The Government targets $104m annually from floriculture and horticulture sector by 2018, up from current $10m, an official said yesterday. Tony Nsanganira, the state minister for agriculture, said this would be possible owing to the increasing number of investors in floriculture growing in Rwanda. He was speaking at a meeting with investors from Japan and session on Japan floriculture experimental study that seeks ways to boost flower growing in the country.
Designing an agricultural mechanization strategy in sub-Saharan Africa (Brookings)
Kenya: Thugge defends tax treaty shielding Mauritian firms (Business Daily Africa)
Treasury permanent secretary Kamau Thugge has held in court that a treaty shielding Mauritian firms from normal taxation rates was signed to attract investors to Kenya. Mr Thugge says, in response to a suit filed by a lobby, that the tax treaty signed in 2012 will lower levies for Mauritian firms doing business in Kenya but only for five years. The Tax Justice Network-Africa has sued the Kenya Revenue Authority, the Treasury and Attorney General Githu Muigai in a bid to quash the Double Taxation Avoidance Agreement which it says will deny Kenya billions of shillings in revenue. The lobby says unscrupulous parties can manipulated the terms of the treaty to evade taxation by the KRA.
Tanzania: Employers unhappy with law covering foreign workers (IPPMedia)
Opening a seminar for Association of Tanzania Employers members yesterday, Dr Mlimuka said although the association was committed to creating more jobs in the country, the existing local business environment made it difficult to do so. He cited legislation like the Non-Citizens (Employment) Regulations Act of 2015 which, according to him, was extremely unpopular among employers. “At the risk of being labeled anti-local, we as an association would love to see more relaxed labour and migration laws for foreigners working in the country, vis-à-vis the lack of qualified Tanzanians in specialised fields of work,” he said.
Tanzania: Spice growers to benefit from value chain trade association (IPPmedia)
Africa’s production of spices has grown by 40% over the decade such that SADC countries produce 1.2 million metric tonnes with 1.7% market share in 2005. Highlighting on Tanzania’s share of global spice exports, Mchomvu said in Tanzania trade in the crop was still traditional and localised with limited supply to niche export markets. In 2009, Tanzania was ranked 3rd in organic spice farms in Africa and fifth in the World with 151.6 hectares that were organically certified out of 85,366 farms.
IMB says Somalia route highly volatile despite lull in piracy attacks (Business Daily)
The International Maritime Bureau has warned that ships plying routes off the coast of Somalia remain at risk despite a lull in piracy attacks that enters its fourth year. The intergovernmental anti-piracy group said no Somali-based attacks were reported in 2015 but the route through the Gulf of Aden remained a risk area.
Nigeria: To devalue, or not to devalue? (ThisDay)
India’s trade with Senegal rockets to over $700m (Odisha News Insight)
Commodity price shocks and financial sector fragility (IMF)
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IMF Executive Board concludes 2015 Article IV Consultation with the Kingdom of Lesotho
On January 29, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Kingdom of Lesotho, and considered and endorsed the staff appraisal on a lapse-of-time basis.
Real GDP growth averaged about 4.5 percent a year from 2010 to 2014, before dipping to an estimated 2.6 percent in 2015, mainly reflecting recent weaknesses in the manufacturing and construction sectors and spillovers from slower growth in neighboring South Africa. At the same time, unemployment rates have remained high, especially among the youth, and the incidence of poverty is virtually unchanged from a decade ago. Most health, education, and social indicators have shown little or no improvement, even with considerable government spending in these areas (about 30 percent of GDP a year). Looking ahead, real GDP growth is projected to remain about 2.5-3.0 percent in 2016, but could be lower depending on the severity of the current drought. Inflation is expected to remain moderate at around 5-6 percent, despite rising food prices and the recent depreciation of the South African rand.
Overall Government expenditures remain comparatively high. Government expenditures have amounted to about 60 percent of GDP or more in recent years, with spending becoming increasingly slanted toward recurrent expenditures. The government wage bill rose to 21.5 percent of GDP in 2014/153 – the highest in sub-Saharan Africa – and is budgeted to increase to 23 percent of GDP in the current fiscal year. Lesotho relies heavily on revenues from the Southern African Customs Union (SACU) for government financing, but these revenues have been highly volatile. After a sharp drop in 2010/11-2011/12, SACU revenues rebounded to an average of about 29 percent of GDP a year over the following three years. The rebound in SACU revenues contributed to Lesotho’s recovery from a severe fiscal crisis and supported the rebuilding of fiscal and external buffers, with official international reserves reaching 6.3 months of imports by end-March 2015. However, SACU revenues have fallen once again. After slipping to R 6.6 billion (about 26 percent of GDP) this year, Lesotho’s allocation will drop sharply to R 4.5 billion (about 16 percent of GDP) in 2016/17, with much of this decline expected to be long-lasting.
Lesotho’s current business environment has weakened, partly because of political difficulties around the collapse of the country’s first coalition government in 2014. Despite early elections in February 2015 and a smooth transition to a new coalition government, tensions have persisted. Implementation of Lesotho’s National Strategic Development Plan (NSDP) has stalled in this environment and investment has slowed. Also, some development partners have dampened their economic support.
Executive Board Assessment
In concluding the 2015 Article IV consultation with the Kingdom of Lesotho, Executive Directors endorsed staff’s appraisal, as follows:
Lesotho achieved solid economic growth for several years with only moderate inflation. In recent years, the authorities were able to rebuild fiscal buffers and international reserves, largely due to a temporary rebound in SACU revenues. However, there has been little progress in the fight against poverty and unemployment, despite considerable spending on social sectors and transfers.
Lesotho faces a challenging economic outlook. The imminent sharp drop in SACU revenues could threaten macroeconomic stability, unless a major fiscal adjustment is implemented. While existing buffers provide a cushion to allow an orderly adjustment over the next 2-3 years, it is critical that the authorities take a substantial first step in the upcoming fiscal year to ensure credibility. Containing recurrent expenditures – most importantly, the extraordinarily large government wage bill – should be central to the adjustment effort. In addition, social protection can be better targeted toward the most vulnerable. The measures that the authorities intend to include in the 2016/17 budget would indeed make a significant contribution toward fiscal adjustment.
Reforms to strengthen public service administration and public financial management are urgently needed, not only for a successful fiscal adjustment, but to also improve the delivery of government services. A lack of basic controls – such as the inability to fully reconcile government bank accounts on a regular basis – contributes to severe government inefficiencies. Staff urges the authorities to make good use of extensive technical assistance currently available to build capacity in critical management areas.
To achieve greater inclusiveness, the private sector needs to step up job creation. Implementation of the National Strategic Development Plan, which provides a viable approach for transitioning from government dependence to private sector led growth over the longer term – particularly in sectors with potential for high employment – needs to be restarted. In the near term, to quickly stimulate job growth, measures could be taken to eliminate unnecessary obstacles and bottlenecks to doing business. Continued implementation of the Financial Sector Development Strategy would improve access to credit and financial services.
To ensure financial stability, building capacity for bank and nonbank supervision and coordinating on cross-border supervision need to be continued. While indicators point to a generally sound financial system, the authorities need to remain vigilant regarding weak individual institutions and financial linkages to sectors that would be affected by fiscal adjustment.
The loti’s parity with the South African rand has served Lesotho well by supporting macroeconomic stability and integrating the economy with the region. It is critical that an adequate level of international reserves is maintained to ensure this exchange rate regime.
Looking ahead, a rules-based approach to fiscal policy could strengthen fiscal discipline and better manage volatile revenues. Building up the institutional PFM framework, including robust medium-term planning and budgeting, is a necessary first step toward this goal.
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How to ensure the continued participation of Least Developed Countries in the multilateral trading system?
Statement by Mr. Mukhisa Kituyi, Secretary-General of UNCTAD at the Ministerial Dinner on Trade, organized by the Kingdom of the Netherlands in Amsterdam, 2 February 2016
The rules and regulations of the multilateral trading system provide the institutional framework for universal, open, non-discriminatory and equitable international trade. The multilateral trading system has also demonstrated its tremendous importance in helping fend off a protectionist backlash from the economic and financial crisis that began in 2008, and more generally in protecting the weak countries, notably the LDCs, from forceful action by more powerful countries.
The lack of progress in multilateral trade negotiations has led some countries to pursue alternative settings for trade liberalization. This has repercussions particularly for the many lower-income countries that see their preferential margins erode and their competitiveness in international markets decline. To put the trade rules to work for development, the international community must take creative and pragmatic actions.
Multilateral rule making could address preference erosion inter alia by broadening duty-free and quota-free market access to all merchandise exports from LDCs in key markets including in South-South trade, and by implementing the services waiver, decided at the WTO’s Ministerial Conference in 2015, so as to enhance LDCs’ services supply capacities (UNCTAD Post-2015 Policy Brief No. 6).
Making trade work for development is more than changing the global rule book
Starting with the Uruguay Round, there was a strong assumption that the norm-setting of trade rules by the WTO would lead to better development outcomes. However, the development ambitions encompassed in the Doha Development Agenda have not met the optimistic expectations. Some hurdles were overcome at the WTO’s Ministerial Conference in December 2015. But reducing trade to norm-setting processes risks converting a means into an end, and making trade work for development concerns must look at boosting trading activities at least as much as at changing the global rule book.
Exporting is a powerful enabler of development especially for the LDCs. Trade growth will be necessary to sustain the 7 per cent annual GDP growth in LDCs, as envisaged by Target 8.1 under Goal 8 of the SDGs. The current trade slowdown exacerbates the challenge of increasing developing country exports, in particular with a view to doubling the share of the least developed countries (LDCs) in global exports by 2020, as envisaged in the Istanbul Plan of Action and reaffirmed in SDG 17. The strong decline in commodity prices makes it difficult to maintain the buoyancy of the LDCs’ commodity export earnings, which contributed to the increase in their share in global exports from 0.6 per cent in 2000 to 1.1 per cent in 2014.
The trade slowdown is also set to reduce trade-related fiscal revenues, such as tariff revenues or proceeds from commodity exports, that constitute around 10-25 per cent of the total public revenue of many low-income countries. This calls for finding additional sources of fiscal revenue. Developed countries have made substantial effort towards limiting what have been called “tax optimization” strategies of corporations that declare profits in tax havens.
Should we not apply the same principles to investment in developing countries and make corporations pay taxes where they undertake their profitable activities? Investment-related tax evasion cost developing countries some $100 billion last year, i.e. about twice the amount of FDI that went to Africa in the same period. This means that stopping “tax optimization” will not just bolster developed country fiscal accounts and allow them undertake the public investment needed to accelerate their economic recovery and global trade growth. It will also augment public revenue available for the investment push needed for developing countries to attain the SDGs.
Harnessing regional trade for economic transformation in LDCs
Rural development is particularly important for economic transformation and attaining the SDGs in the LDCs and the development of regional trade can play a crucial role in this regard (UNCTAD Least Development Countries Report 2015).
There is significant potential in LDCs for the creation of regional value chains in agriculture and agro-processing. Integration into regional markets for agro-based products is strong in Asian LDCs (which direct 85 per cent of their agricultural goods to regional markets); but it is much weaker in African LDCs and Haiti (where the corresponding share is just 26 per cent) and island LDCs (approximately 10 per cent), where the development of regional agricultural value chains is held back by infrastructure deficits, poor competitiveness in production and trade, and weak implementation of regional integration initiatives.
Developing regional markets could also amplify the return on investment in trade facilitation. While improving connectivity, cutting red tape and accelerating turn-around times of transportation material will certainly reduce costs and stimulate trade. But reducing the cost and speeding up the time it takes for a container with imports to get from, say, Mombasa to Kigali, is only half a success if the container continues to come back empty from Kigali. In order for trade facilitation to support development, imports must be used to build productive capacity, enlarge firm size and accelerate productivity growth with a view to advancing industrialization and export diversification in LDCs. Only when trade facilitation benefits both imports and exports can it support development in a sustainable way.
Developing regional markets is also important for trade in services, which has become a dynamic driver of growth in many African LDCs. To leverage services trade and the related development, employment and growth benefits, it is particularly important to improve the coherence in the currently existing multiple layers of regulation that appear disjointed and unrelated across existing national, regional and global frameworks. To address the disconnect at the global level, the LDCs’ national and regional priorities must be better taken into account and adequately reflected in the global services agenda in order to move from the multilayered status quo to an articulated and coherent strategy.
Ensuring policy coherence between trade and other SDG-related areas
Doing all of this requires a set of coherent policies in which trade policies and other policy areas mutually reinforce each other and in which one ministry must know and reinforce the activities of the other ministries. For example, some measures taken toward implementing the SDGs, such as technical barriers to trade designed to protect the environment, may harm the country’s exports, and potentially job and income creation, and hence not contribute to attaining the three pillars of sustainable development in an integrated way.
As outlined in my Report to UNCTAD 14, the role of the developmental state as an enabler of development, and the role of the public sector more generally will continue to be important where the private sector is likely to be weak or absent, such as is often the case in LDCs and other low-income developing countries.
Most importantly, the State remains the only institution that can manage large-scale societal changes, such as those envisaged in the SDGs. While we need to enhance the contribution of the private sector, and individual businesses, towards sustainable development, it is crucial that the State remains effective through the implementation of coherent policies including in trade for it to maximize its role as an enabler of development.
For this to be possible, aiming towards coherence among different policy areas must be supported by capacity and institution building at the national level, as well as by strengthened global partnerships. Despite recurrent setbacks, the multilateral trading system remains a crucially needed global public good.
To summarize, all available policy instruments need to be mobilized to support the role of trade as an enabler of development, and the various policy initiatives must combine to form a coherent set of policies and find support by the international community. Economic governance must strike the right balance between the policy-making prerogatives of governments, on the one hand, and the requisites of international economic integration and cooperation, on the other.
We need a shared multilateral agenda on moving forward trade-related rules and institutional arrangements to fulfil the ambitions of the 2030 Agenda to attain the SDGs. UNCTAD 14, which will be held in Nairobi next July, will be an important moment to galvanize international cooperation on trade and development issues.
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Commodity price shocks and financial sector fragility
The recent decline in commodity prices, especially for oil, has revived once again interest in their economic impact. Most commodities prices have declined by about 50 percent between mid-2014 and mid-2015, leading to significant losses in export earnings for commodity exporters.
While commodity markets may be undergoing a transition to an era of low prices, such a sharp decline is not unprecedented. The large occurrence of commodity price shocks has led to a large number of studies analyzing the impact of lower commodity prices on various variables such as economic growth, debt, conflict, etc.
Adverse commodity price shocks can also contribute to financial fragility through various channels. First, a decline in commodity prices in commodity-dependent countries results in reduced export income, which could adversely impact economic activity and agents’ (including governments) ability to meet their debt obligations, thereby potentially weakening banks’ balance sheets. Second, a surge in bank withdrawals following a drop in commodity prices may significantly reduce banks’ liquidity and potentially lead to a liquidity mismatch. . If large enough, commodity price shocks can also adversely affect bank balance sheets by weighing on international reserves and increasing the risk of currency mismatches. Third, a decline in commodity prices can reduce commodity exporters’ fiscal performance (by lowering revenue), which in turn may push government to adjust their budgets to accommodate revenue shortfalls. Often this can happen in a disorderly manner through the accumulation of payment arrears to suppliers and contractors, who in turn are unable to adequately service their bank loans.
However, the literature lacks a systematic empirical analysis of the impact of negative commodity price shocks on the financial sector. The lack of evidence could be due to the lack of data on developing countries and the imprecise definition of the financial fragility, which is difficult to quantify.
Financial fragility can be defined as the increased likelihood of a systemic failure in the financial system, for which the most obvious indicator would be a systemic banking crisis. A less dramatic definition of financial fragility could capture the sensitivity of the financial system to relatively small shocks.
That said, the corresponding indicator(s) would be relatively more complex and not obvious to construct. The closest existing empirical analysis in the literature examines the impact of terms of trade shocks on the occurrence of banking crises. The lack of empirical evidence is rather surprising given the growing awareness of financial stability issues in many countries, and the close link between commodity markets and the financial sector.
Using a large sample of commodity exporters among developing economies, this paper highlights that negative commodity price shocks tend to weaken the financial sector and can lead to banking crises. The paper attempts to fill a gap in the empirical literature by analyzing the impact of adverse commodity price shocks on the fragility of the financial sector and has three main findings.
First, negative shocks to commodity prices tend to weaken the financial sector and increase the probability of banking crises, with larger shocks having more pronounced impact. More specifically, negative commodity price shocks increase nonperforming loans and bank costs, reduce the provisions to non-performing loans and bank profits (return on assets and return on equity).
Second, these detrimental effects are more common in countries with poor quality of governance, high public debt, and low financial development but are less common in countries under IMF-supported programs, holding sovereign wealth funds (SWF), implementing macro-prudential policies, and with a diversified export base.
Third, GDP growth, fiscal performance (fiscal deficit and government revenue), savings, and debt in foreign currency are the main transmission channels of commodity price shocks to the financial sector.
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Designing an agricultural mechanization strategy in sub-Saharan Africa
The current lack of food security within the sub-Saharan Africa region is a matter of international concern. Simplistic attempts to respond to this challenge by conglomerating the agricultural realities of all countries in the region will not produce the valid analysis needed to properly frame solutions.
It is not debatable that agricultural development should be the major area of focus in any discussion of food security, and mechanization is one of the key elements in this necessary agricultural advancement. Equally, I would like to argue, there should be no doubt that the relative growth of the agricultural sector of each sub-Saharan country varies so significantly from that of its neighbors that the only meaningful unit of analysis should be the country rather than the region.
Additionally, the major focus of this discussion will be the small-scale farm and an analysis of its mechanization strategy based on current data and projected demographic shifts in various sub-Saharan countries. Although agricultural mechanization is a broad umbrella term, this paper focuses primarily on the use of tractors. Knowledge of the growing need for mechanization is not sufficient in and of itself. Adequate market penetration of farm machinery, and (I would argue) a resultant increase in food production, can only be achieved in sub-Saharan Africa if issues relating to acquisition, utilization, and maintenance of said equipment can first be addressed. This piece will offer suggestions that, if utilized, could help resolve these concerns.
The number of tractors is inconsistent across countries
The main objective of farm mechanization is increasing agricultural production. Despite the use of several indicators to express the level of mechanization, the number of tractors per 1,000 hectares of arable land remains a meaningful and easy-to-monitor indicator for busy policymakers, development professionals, and private businesses.
In 2009, the Food and Agricultural Organization’s (FAO) Round Table Meeting of Experts held in Tanzania reported that the number of tractors per 1,000 hectares of arable land in sub-Saharan Africa had sunk from 2 in 1980 to 1.3 by 2003 (FAO, 2011). Looking at the same FAO data for the same period for a few countries, the data show the decrease of the number of tractors per 1,000 ha in Ghana, which is consistent with the conclusion of the roundtable.
However, for Côte d’Ivoire and Kenya, the number of tractors was static from the 1980s until the mid-1990s, and then slightly increased late 1990s and early 2000s. Finally, for Tanzania and Guinea, it decreased from 1980s to mid 1990s, and then increased from the late 1990s and early 2000s (Graph 1).
The small increase observed in these countries did not constitute a big gain in term of adoption of mechanization in these countries compared to the gain and the progress of mechanization in Asia and the Pacific countries for the same period (FAO, 2011).
The cost of labor influences the uptake of agricultural machinery
One factor that determines the potential adoption of agricultural equipment is the cost of labor. If the cost of agricultural labor remains cheaper in sub-Saharan Africa countries, the farmers do not have the incentive to use costly machinery. Thus, the demographic trends and the agricultural productivity affect the adoption rate of tractors in the continent. Looking at demographic data, the percentage of population living in rural areas remains high but varies greatly across countries, anywhere between 60 percent and 80 percent. Similarly, the agricultural sector is the main source of labor. This numbers mean that agricultural production relies heavily on human power using hand tool technology – not on machinery.
This big picture, however, does not give us a clear view of the potential agricultural machinery market. Two major factors; rapid urbanization and sustainable high agricultural growth rate, tell us of the existence of a potential market and the development of mechanization at least in these countries. The rapid urbanization in Tanzania, Nigeria, Ghana, and Côte d’Ivoire, (53 percent, 67 percent, 70 percent, and 71 percent, respectively by 2050 (United Nations, 2014)), helps us predict the increase of the cost of the agricultural labor in these countries.
In other words, it is highly likely that the demand and the adoption rates of agricultural equipment grow rapidly there. Moreover, the high agricultural growth of these countries (3.4 percent, 7.4 percent, 5 percent, and 4.4 percent, respectively), indicates the increasing strength of the agricultural sector in their economy. Policymakers and private investors in the agricultural equipment can go deeper than the country level to explore the unidentified market needs, looking at regional or local sub-unit levels to explore appropriate areas within the country to start business.
Commercially oriented small-holder farmers can be a good market for agricultural equipment
The market of tractors and other agricultural equipment is not isolated – it must be considered within the whole agricultural market. Low agricultural profitability and difficult agricultural market access indicate an environment not suitable for mechanization. Developing mechanization with pure survival agriculture or subsistence farming is difficult and non sustainable. However, subsistence farming can be categorized into two subcategories: survival agriculture and commercially oriented farming.
In a subsistence farming context, a mechanization strategy targeting commercially oriented small-holder farmers will succeed if other constraints are addressed. These constraints are (but not limited to): access to finance, repair, availability of spare parts, training, access to agricultural inputs, and access to markets. I would evaluate the size of this category of commercially oriented subsistence farmers about 10 percent to 15 percent of the small-holder farmers. Therefore, with small-scale farming, strategy and resource allocation should only be focused on commercially oriented small-holder farmers.
Businesses should rethink how they “sell” tractors
The aforementioned argument implies that farm size doesn’t matter. Regardless of the size of the farm, farm profitability and the mechanization business model can drive success. The business environment and local context are relevant factors to consider when developing a business model. The size and the type of tractors matter. In small-scale farming, the powerful and large equipment frequently used in developed countries is irrelevant. The choice is a smaller machine, such as a tractor less than 75 HP or a walking tractor.
Also, small-holder farmers – especially those with low profits – may still not able to afford a tractor, so a hire-service or rental tractor might be a good working model, though this idea is yet to be explored in full: Sheahan and Barrett (2014) report that the “ownership of agricultural machinery remains rare among African farmers, but much remains to be learned about rental and sharing arrangement that might enhance access for those who do not own equipment.”
Thus, the traditional dealership business model alone cannot be efficient in the context of a nascent mechanization market in sub-Saharan Africa. For small-holder farmers, rental and hire-service model or the combination of these two models should be part of the mechanization strategy. The model can involve not only small-holder farmers, but also individual medium-size farmers, dealers, or new small business enterprises.
Financing agricultural mechanization is a major challenge
Designing a business strategy to increase the use of tractors in small-scale farming is not limited to the development of a good business model. One of the major impediments to improving the agricultural productivity in sub-Saharan Africa is the financing. Policymakers, development professionals, donors, and private investors play a critical role in developing a sustainable financing model adapted to the African business context.
Small-holder farmers cannot afford to buy a tractor without financial assistance. To overcome the financial hurdle, the common advice is to organize farmers into cooperative or association and they can purchase the equipment as a group. (This approach works, but it is only efficient in the short term because it leads to the collective good problem.) However, regardless of the ownership approach, financing remains the impediment to mechanization in developing countries. Banks are reluctant to finance agricultural businesses because of their high risk and uncertainties.
In the past, many African countries had implemented a government-led investment. The government was the sole actor – developing the strategy, financing the entire operations, and delivering the services to the farmers. This approach failed to achieve the expected results. Therefore, designing a model based on lessons learned constitutes a better approach. A public-private partnership should be one of the working financing schemes, particularly in the nascent market context. Another option is the establishment of a basket fund from donors and government. In any financial model, the mechanization strategy should be private sector driven, and farmers should be given the option to make payments towards the purchase of their equipment during the harvest.
It is important to develop a strategy by which success can be quantified. In a business-led approach, it is common to measure success by tracking the number of tractors sold and the profits generated by sales operations. Indeed, those are major factors, but this type of data should not be the only metric worthy of consideration. Executed rental and hire service contracts and mechanization adoption rates should also figure in the tally. The increase of these contracts and adoption rates predict the growing market demand and ultimately the creation of future buyers. These metrics will identify the establishment of a sustainable market.
Marius Ratolojanahary is the Former Minister of Agriculture, Madagascar
References
FAO. (2011). Investment in Agricultural Mechanization in Africa: Conclusions and recommendations of a round table meeting of experts. Retrieved from http://www.fao.org/docrep/014/i2130e/i2130e00.pdf
Houssou, N., Diao, X. & Kolayavali, S. (2014). IFPRI Discussion Paper 01387. Retrieved from SSRN: http://ssrn.com/abstract=2539582.
Sheehan M. & Barrett C. (2014). Ten striking facts about agricultural input use in Sub-Saharan Africa. Cornell University. Retrieved from http://barrett.dyson.cornell.edu/files/papers/SheahanBarrettTenFactsInputUseSSASept2014.pdf
United Nations, Department of Economic and Social Affairs, Population Division (2015). World Urbanization Prospects: The 2014 Revision, (ST/ESA/SER.A/366).