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Trade, finance and development: Overview of challenges and opportunities
Sustainable development is the Holy Grail of the international community, and the potential roles played by trade and finance lie at the heart of the search effort. The extremely robust positive correlation between various measures of trade and financial development on the one hand, and economic growth, on the other, is the bread and butter of thriving sub-disciplines within economics (international trade and the finance and growth literature, respectively). Evidence concerning the direction of the causal relationships is, however, less than compelling.
For example, there is increasing evidence (and the 2008 crisis may be a manifestation of this) that countries can have financial sectors that are “too large.” As such, one needs to be extremely cautious in formulating policy recommendations that rest on putative causal relationships that have not been rigorously established. Moreover, the link between trade and finance on the one hand, and various measures of development (as opposed to a narrow focus on economic growth), on the other, has attracted much less attention.
To some extent, this is because of the proliferation of measures of development: it suffices to think of the vast array of Millennium Development Goals (MDGs) or Sustainable Development Goals (SDGs). An implicit assumption is that economic growth will necessarily translate into improvements in these indicators: this is not, of course, the case. In addition, it is already difficult to establish the causal determinants of economic growth: doing so for a plethora of other development indicators increases the challenge by several orders of magnitude.
Geography and institutions
During the past twenty years, our understanding of the determinants of economic growth has been profoundly shaped by a vast corpus of cross-country empirical literature. This work was initially driven by the construction of internationally comparable measures both of economic growth and development (such as the Penn World Tables or the World Bank’s Word Development Indicators) and of country characteristics. Though it is something of an oversimplification, this literature has given rise to two broadly defined schools of thought concerning the key fetters to economic development and growth.
On the one hand, the “geography” school, often associated with Jeffrey Sachs, holds that a country’s development performance is to a large extent determined by its geographical location. For example, it is argued that a country’s level of gross domestic product (GDP) per capita is, ceteris paribus, an increasing function of its distance to the equator; similarly, landlocked countries are believed to have both a lower level and a lower rate of growth GDP per capita. There are many causal pathways that can explain geographically driven income and growth effects, including the higher burden of disease under subtropical climates or the infrastructure needed to overcome geographic isolation from world markets for landlocked countries. In a traditional growth accounting framework, both of these examples underscore the fact that geographical fetters to development affect total factor productivity (TFP), the overall efficiency with which factors of production, such as labour and capital (both human and physical), are transformed into output; the productivity of single factors of production (such as labour); and the amounts of the factors themselves that are used.
On the other hand, the “institutional” school of thought, often associated with the work of Daron Acemoglu and his collaborators, has emphasised the importance of a country’s institutional environment, where institutions are understood in their economic (and not political) sense in terms of social structures, such as the rule of law or the protection of property rights that allow economic activity to develop. As with geography, institutional factors can affect the productivity of single factors, TFP, and factor use.
One of the most important empirical regularities established by the institutional school is that there is a causal relationship linking national economic institutions (as usually measured by protection against expropriation risk) to income per capita. Moreover, a second important empirical regularity is that geography affects per capita income through its impact on institutions: once economic institutions are appropriately taken into account, geography arguably no longer has an independent impact on income levels.
A simple diagram, based on empirical results similar to those of one of the most influential recent papers in economics (Acemoglu, Johnson, and Robinson, 2001) will render this mechanism more explicit: geography affects economic institutions, but has no direct effect on growth; economic institutions, in turn, determine economic growth. The effect of geography on economic growth is therefore mediated through national economic institutions. There is a final arrow linking economic growth to development in a broader sense.
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.
First, there are direct effects: trade and finance, through well-established mechanisms, may enhance growth performance. Though the causal evidence at the macro level is often weak (the finance and growth or aid effectiveness literatures are cases in point), there is a corpus of microeconomic evidence that points to productivity enhancing causal effects of trade and finance. These effects are added in the following picture.
Second, there are indirect effects, which operate through either geography or economic institutions. “Geographic” effects of trade and finance include trading arrangements (such as preferences), which effectively compensate for geographical disadvantages, or financing options – such as official development assistance (ODA) or public-private partnerships (PPPs) devoted to infrastructure projects – which overturn geographic fetters, such as being landlocked. “Institutional” effects of trade and finance have been explored less. While, to take but two examples, the corruption-enhancing effects of ODA have been well documented, as has the positive impact of openness on many national bureaucracies, there are undoubtedly many other mechanisms that could, and should, be explored.
Growth versus development
Finally, there remains the vexing question of the link of all of this (as noted at the outset) with broader measures of sustainable development. Here (and I am willing to be corrected on this), the existing literature is not of much help. In an effort to wrestle a broader development indicator into the above conceptual straightjacket, I appended, as a very rough thought exercise, a third equation to the Acemoglu, Johnson, and Robinson (2001) empirical framework. The scalar measure of development that I added was the classic child anthropometrics indicator of stunting (the proportion of children in a country whose height is one standard deviation below where it should be if they were in good health).
I chose this synthetic indicator for two reasons. First, because half a century of empirical evidence has taught us that it is determined by four factors: income (and therefore economic growth); access to clean water and basic healthcare; maternal education and female empowerment. Second, this indicator is culturally neutral: in different societies, economic and social success may be measured by a bewildering number of indicators, ranging from income, to land ownership, to livestock; but the bottom line is that all inhabitants of this planet care about the welfare of their children, which also adds an intertemporal perspective to things. A remarkable empirical regularity emerges: while income per capita is (unsurprisingly) a statistically significant determinant of stunting (more precisely, a 1 percent increase in per capita GDP is associated with a 5 percent fall in the prevalence of stunting), neither geography nor institutions appear to play a role. While this regularity is merely suggestive, it does offer the hope that the above conceptual framework may be of some use in pinpointing the roles that can be played by trade and finance in enhancing development in general, and not merely economic growth.
Jean-Louis Arcand is Professor and Director of the Centre for Finance and Development at the Graduate Institute Geneva.
Implemented jointly by ICTSD and the World Economic Forum, the E15Initiative convenes world-class experts and institutions to generate strategic analysis and recommendations for government, business, and civil society geared towards strengthening the global trade and investment system for sustainable development.
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To de-link or not to de-link? A contribution to the current debate in Namibia
There have been calls recently from some commentators to re-consider the one-to-one peg of the Namibia dollar to the South African rand, because of the rand’s strong depreciation over the past year. It is interesting to note that these calls are usually made, when the rand is under pressure, not when it is appreciating against major currencies.
Before evaluating the merits of such calls a brief review of the rand’s performance vis-à-vis major currencies such as the US dollar (USD) and some emerging market currencies such as the currencies of the BRIC countries (Brazil, Russia, India, China) is necessary.
The South African rand (ZAR) showed periods of appreciation and depreciation against the USD, the British pound (GBP) and the Euro (EUR) over the past 10 years. In addition, the performance against these three currencies has not always been alike. During 2005 the ZAR appreciated by between 1.3 per cent and 2 per cent against these currencies, but lost value in the following three years in particular against the Euro.
Compared to 2005 the ZAR depreciated by the end of 2008 against the Euro by more than 50 per cent, but only by some 30 per cent against the USD and GBP. Some of the losses were reversed in the following two years, when the ZAR appreciated by between 11 per cent (USD) and 25 per cent (GBP) as at the end of 2010 compared to 2008.
In 2011, the South African currency moved sideways, appreciated slightly again vis-à-vis the USD, but lost slightly against the two European currencies. Since 2012 the ZAR started losing ground, but still appreciated slightly against the EUR in 2015 when comparing the average value of the currency in 2015 to 2014.
The fact that the performance of the ZAR against these three currencies differed in magnitude and sometimes even in direction suggests that the performance has not only been influenced by internal, domestic factors, but by external factors as well. This is further corroborated when comparing the value of the ZAR against the Japanese yen.
The direction and degree of change often differed substantially compared to the rand’s performance against the other three currencies.
Furthermore, the rand showed a mixed performance vis-à-vis the BRIC currencies. Since the Chinese yuan’s value was guided by the USD, the ZAR depreciated over the past two years, but slightly less compared to the USD.
It also lost value (8 and 12 per cent) against the Indian rupee in 2014 and 2015 respectively. On the other hand, the rand appreciated strongly against the Russian rouble by 6 per cent and 27 per cent over the same period and gained last year against the Brazilian real 16 per cent.
Although the weaknesses of the latter two currencies can to a large extent be attributed to domestic factors (drop in energy prices and economic sanctions in the case of Russia; economic challenges and political uncertainty in the case of Brazil), global factors play a crucial role in the performance of in particular emerging markets currencies.
There was the time of the USD80 billion per month bond-buying programme of the US Federal Reserve Bank that flushed the markets with liquidity and resulted in the depreciation of the USD and the appreciation of among others emerging market currencies such as the ZAR.
The expectation that the Federal Reserve Bank will increase the policy interest rates in the US changed financial investors’ sentiments and coupled with uncertainties about the direction of the Chinese economy and globally weak commodity prices resulted in increased risk aversion and the search for safe havens. Contrary to trends in the past, it was no longer gold that played the role of a safe haven, but currencies such as the USD, which resulted in the depreciation of emerging market currencies in general and not only the ZAR.
On the other hand, not only emerging markets but also countries such as Denmark used monetary policy to gain competitive advantages. Talk of a currency war made the rounds. China devalued the Chinese yuan in the second half of 2015, which triggered currency adjustments in other countries such as Kazakhstan, Turkey and Vietnam.
Countries devalued their currencies in order for their goods and services to become more competitive on the world market. Kazakhstan for instance de-linked the Kazakh tenge from the USD in August 2015 and the currency’s value dropped by more than 20 per cent. Currently, Saudi Arabia and Hong Kong consider de-linking their currencies from the USD for the same competitiveness reasons. While quite a number of countries took or are taking steps to devalue their currencies other countries have faced economic challenges owed to the appreciation of their currencies, notably Switzerland and the USA.
Switzerland terminated the cap of the value of the Swiss franc against the Euro in January 2015, which resulted in a steep appreciation of the Swiss franc and a loss of competitiveness of Swiss exporters and subsequently a lower economic growth rate. The strength of the US dollar is one of the reasons for a downward revision of economic growth expectations for 2016 from 2.8 per cent to 2.6 per cent by the International Monetary Fund (IMF) in January 2016.
These monetary policy responses indicate that the appreciation or depreciation of a currency is not ‘good’ or ‘bad’ per se. The depreciation of a currency is a monetary tool to among others gain competitive advantages since domestic goods and services become less expensive not only on the international market but also on the domestic market compared to goods and services from countries which currency appreciated. The depreciation of a currency is therefore been used as an industrial policy instrument.
The flip side of the coin is however, that imports become more expensive, including imports that are used in the production of exportable goods. In countries with a narrow industrial base, such as Namibia, that rely on the importation of most consumer goods and coupled with an arid climate depend on the importation of most of the foodstuff, increasing import prices can finally lower the population’s standard of living unless they are compensated for the rising costs of living by increasing salaries, wages and or social transfers.
South Africa’s currency was however hit harder recently than some other emerging markets’ currencies, because of a combination of the external factors mentioned above and domestic factors such as policy uncertainty, structural issues, widening budget and current account deficits, downgrading by sovereign rating agencies, and low growth prospects. For instance, the IMF changed its economic growth estimates for South Africa for 2016 drastically from 3.7 per cent in January 2015 to just 0.7 per cent in January 2016. There is also a risk that South Africa faces a further downgrading that markets might already factor in. These factors contributed to the strong depreciation of the ZAR in recent weeks and by implication of the Namibia dollar, the Lesotho loti and the Swazi lilangeni.
Even if Namibia does not face all the same domestic factors that contributed to the devaluation of the South African rand, the country will still be exposed to the external factors.
Given the narrow industrial and export base of Namibia, the economy and by implication the currency is more vulnerable to external shocks in one or more of the dominant sectors, such as diamond or uranium mining or the fishing sector, than a more diversified economy such as the South African. Angola (reliance on oil) and Zambia (copper) serve as examples.
It could therefore well be that a de-linked Namibia dollar would be weaker than the South African rand, which would result in a declining standard of living in Namibia since imported goods and services become more expensive.
In addition, since most of Namibia’s imports are sourced from or through South Africa, prices would be more volatile in Namibia because of additional exchange rate fluctuations. On the other hand, the South African market is important for some of Namibia’s industries, such as the beverage and meat industries.
If a de-linked Namibia dollar appreciates against the South African rand, Namibia’s exports to South Africa become less competitiveness and exporters risk losing market shares.
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.
Addressing the domestic factors in earnest that contributed to the depreciation will support the recovery of the ZAR and hence the Namibia dollar as soon as investor sentiments change again and emerging markets are not viewed as risks but as opportunities.
Klaus Schade works as economic policy analyst and consultant in Namibia
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tralac’s Daily News selection
The selection: Wednesday, 3 February 2016
Some conference dates to diarise:
2016 Mining Indaba (Cape Town, 7-11 February)
EAC’s Council of Ministers (Arusha, 22 February) and Heads of State summit (Arusha, 29 February)
Taking stock of IIA reform (Geneva, 16 March)
AfDB Annual Meetings (Lusaka, 23-27 May)
TICAD VI (Nairobi, 27-28 August)
Second Southern African Business Forum (August 2016)
China-Mauritius relations 'have gone beyond the scope of bilateral relations' (FMPRC)
Foreign Minister Wang Yi said China-Mauritius relations are of increasing strategic significance and have gone beyond the scope of bilateral relations. Looking into the future, China’s cooperation ideas are as followsThe unique geographic and regional advantages of Mauritius should be fully leveraged to gradually build the country into a gateway for China’s investment in Africa and a hub for China’s connectivity cooperation with Africa. Both sides could explore the feasibility of jointly establishing a financial service centre for cooperation with Africa and a training platform for Africa and the feasibility to promote Mauritius’s aviation connection with all other African countries. Second is to expand China-Mauritius cooperation eastward to the Indian Ocean with a focus on enhancing mutually beneficial cooperation in maritime economy. China views Mauritius as a natural extension along the Maritime Silk Road and will explore effective ways with Mauritius for jointly building the 21st Century Maritime Silk Road based on an open attitude and the principle of voluntariness.
China and Mozambique sign visa waiver agreement (Macauhub)
Navigating the new normal: China and global resource governance (Chatham House)
The report considers the costs and benefits of a more active role for China in global resources governance. It recognizes that different commodities face different challenges and require different governance frameworks, and that different regions require context-specific responses. The report also considers the risks of more limited engagement of China and other new actors, which could mean declining relevance for existing processes and institutions that govern resource production, trade and consumption, and a diminished capacity to tackle longer-term challenges like climate change.
Carlos Lopes: 'Conflict grows out of inequality and exclusion' (UNECA)
Results show that the economic performance of conflict areas is on average 10% below that of conflict-free areas in most GDP performance categories. A study estimated a loss of 284 billion USD (in constant 2000 rates) for 23 African countries, from 1990 to 2005. This figure represented then an average annual loss of 15% of their GDP. Regression analysis indicates a loss of about 2.2% GDP growth due to conflict. The interrelated nature of African economies also means that the costs of war within a sub-region generally result in economic costs for neighbouring countries. These include production losses through loss of opportunities deriving from migration, trade losses, increased costs of security and policing and the costs of supporting refugees.
Sandra Uwera: 'Intra-regional trade key to Africa's industrial growth, competitiveness' (New Times)
So the Kigali meeting was crucial as we wanted to collect views of the private sector in the COMESA trade bloc on the rules of origin regime to ensure a balanced framework. We have so far made head way on a number of issues, including agreeing to put in place simple and predictable rules that will facilitate intra-regional trade. We have agreed that rules of origin should be administered in a consistent, uniform, impartial, transparent and reasonable manner to promote industrialisation in the region. We are also aware of the fact that when rules of origin are not flexible, the cost of compliance exceeds benefits accruing from market access, a reason why some exporters do not comply with the rules. As a result, exporters will trade with companies in countries with favoured rules, this means low intra-regional trade, and slow pace of industrial growth in the region. Member states still don’t understand the benefits of creating a more harmonised regional market. We need to look at the bigger picture of creating more than $1 trillion in GDP simply because we decided to trade among ourselves. [The author is CEO, COMESA Business Council and SG of the Tripartite Private Sector platform]
Phyllis Wakiaga: 'Africa's future lies in free movement of goods, people' (Capital FM)
Over the last decade, Kenya exports average Sh2 billion while imports averages Sh313 million between 2004 and 2014 making Nigeria a significant trading partner for Kenya. The two countries have committed to double their trade and investment levels in five years. In 2014, Kenya’s share of world exports was 0.03%, 33.5% of these exports are from the manufacturing sector. On the other hand, the countries share of world imports is 0.10% pointing to the growing trade imbalance with surging imports. Africa share of global trade is 2% which is still low. There therefore an enormous potential to enhance Kenya’s with the rest of Africa particularly in growing the manufacturing sector with a view to enhance exports of value added products. [The author is the CEO, Kenya Association of Manufacturers]
New PS promises to address Kenya's trade balance (Daily Nation)
Newly appointed Permanent Secretary Chris Kiptoo says he will deliver a trade policy to address the imbalance in Kenya exports against imports. Mr Kiptoo said he will come up with a new set of rules on taxes, subsidies, import and exports in the next four months to boost Kenyan trade. The former TradeMark East Africa Kenya Country Director said he will also spearhead the development of an export strategy to boost Kenya’s capacity to produce for the global market.
Kenya: Govt told to involve MPs before signing trade pacts (Daily Nation)
In a report, the Kenya Human Rights Commission said Parliament was best suited to deliberate on such matters which could see Kenyan food industries edged out by multinationals whose contracted farmers enjoy huge subsidies in their respective countries. “The full implementation of Economic Partnership Agreements, may shift consumption away from local products, to EU goods. This may in turn lead to a decline in production and employment in large-scale industries,” it said. The report follows completion of a study entitled, ‘Impact of EU trade agreement EAC-EU EPA on Kenya’s Agriculture’, where KHRC called for establishment of a monitoring mechanism incase the agreement is ratified to track negative effects.
South Africa: AGOA compromises raise questions about goals (Business Day)
This is interesting because AGOA has evolved from what many regarded as an aid or economic access programme into an instrument for the creation of markets for US goods. This is not objectively bad from the perspective of the US. But it does raise important questions about long-term industrial trade and industrial policy as implemented today by the government. It has to be asked, in defending the benefits under AGOA, whether the government is making short-term choices rather than thinking long-term about developing domestic industry over time. [The author, Xhanti Payi, is head of research at Nascence Advisory and Research]
South Africa: Lucky Cement drops court challenge (IOL)
Pakistan cement producer Lucky Cement has decided against reviving its South African court challenge to the imposition by the International Trade Administration Commission of anti-dumping duties on Portland cement imports from Pakistan. The company said it had instead decided to put its faith in the Pakistan government’s approach to the World Trade Organisation (WTO) to challenge and revoke the anti-dumping duties.
Port of Maputo handles less cargo in 2015 (Macauhub)
The cargo handled at the port of Maputo in 2015 – 15.6 million tons – represented a contraction of 19.17% compared to 19.3 million tons processed in 2014, said Tuesday in Maputo the port’s management company. The Maputo Port Development Corporation explained the slump with the difficult conditions experienced in international markets, following a sharp decline in commodity prices compared to previous years. The largest declines in tonnage were seen in loading of coal and magnetite, as well as in the car terminal and sugar, the MPDC said in a statement.
Mozambique: Private credit bureau legislation (SPEED)
In 2016 the Bank of Mozambique presented regulations to the law for discussion. The report below analyses those regulations and provides recommendations.
The impact of foreign direct investment on productivity and growth in SADC (UCT)
This thesis focuses on the impact of foreign direct investment on productivity and growth in the Southern African Development Community (SADC), which is dealt with in three related studies. The first study undertakes an investigation of the existence and nature of technology and productivity spillovers from foreign direct investment to domestic firms in the region, while the second investigates the role of the spatial density of economic activities in speeding up the productivity externalities and impact of foreign direct investment in FDI host countries. In the last study, we investigate the role of intra-regional bilateral foreign direct investment between South Africa and countries in SADC in influencing growth and income convergence in the region. [The author: Nicholas Masiyandima]
Nairobi grabs top FDI destination slot, leaves behind Joburg (Daily Nation)
Nairobi edged out Johannesburg to become the top destination of foreign direct investment in Africa in 2015 reflecting improving investor confidence in Kenya. A report by an investment monitoring platform, FDI Markets also shows that FDI flows into Kenya rose 37% in 2015 compared to 2014 adding that Kenya also attracted 12.6% of FDI inflows into Africa, second only to South Africa’s 17.1%. "This is further compounded by Nairobi attracting the most FDI on the continent at city level in 2015, beating Johannesburg, which has held this accolade since 2010," notes the report.
6 initiatives tackling African electrification (Devex)
A host of alliances and initiatives have been set up to address the energy deficit challenge. They bring together a range of institutions from business, government and civil society under a common objective of reducing poverty and promoting inclusive growth by meeting basic energy needs. To give a sense of the scope of the challenge and the range of actors involved, Devex has pulled together a shortlist of projects and initiatives that are dedicated to addressing energy shortages in Africa.
Investment facilitation: an Action Menu (UNCTAD)
The Action Menu proposed here for discussion is based on UNCTAD’s Investment Policy Framework and rich experiences and practices of investment promotion and facilitation efforts worldwide over the past decades. The Action Menu proposes 10 action lines with a series of options for investment policymakers to adapt and adopt for national and international policy needs: the package includes actions that countries can choose to implement unilaterally, and options that can guide international collaboration or that can be incorporated in international investment agreements. The Action Menu should be read in the broader context of UNCTAD’s Investment Policy Framework for Sustainable Development.
Record number of Investor-State Arbitrations filed in 2015 (UNCTAD)
The Enhanced Data Dissemination Initiative 2: update after Ghana conference (IMF)
Botswana: Strategy for the development of statistics (AfDB)
India: Commerce minister holds consultation with Export Promotion Councils (Business Standard)
'Indian likely to become CFO of AIIB’ (The Hindu)
US Delegation to the African Union Summit: press briefing (State Department)
Closing 2016 Youth Forum, senior UN official says young people key to new sustainability agenda (UN)
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Zimbabwe Economic Update: Changing growth patterns, improving health outcomes
The World Bank presents the first edition of the Zimbabwe Economic Update (ZEU). The objective of the ZEU is, first, to provide a World Bank perspective on Zimbabwe’s recent economic developments, and second, to profile recent progress in a key sector or a key issue in detail. In this edition, we discuss the ongoing progress in improving health outcomes and review some of the policies and practices the sector has adopted in response to its challenges.
Over the last five years, Zimbabwe has made significant progress in stabilizing and revitalizing its economy. The economy grew at an average of six percent annually, while inflation has been kept low. A steady, albeit gradual, sequence of economic and institutional reforms is gaining momentum, and is reflected in the World Bank’s annual Country Policy and Institutional Assessment (CPIA). With strong Government commitment, steadfast household investments and substantial donor support, considerable progress has also been made towards regaining Zimbabwe’s past performance in social outcomes, particularly in health and education. The authorities are now implementing a number of reforms to strengthen the financial sector, in particular, and to improve the business environment, in general.
Yet significant challenges remain. The economic boom that followed the introduction of the multi-currency system in 2009 appears to have run its course and the economy is facing significant headwinds. The Country was adversely affected by a drought in 2015, and is starting to experience the effects of El Nino this year, in particular on agriculture, energy and water supply. Industry remains subdued due to a challenging policy environment, shifting terms of trade and infrastructure weaknesses. The services sector, however, continues to grow, building on Zimbabwe’s skilled labor force.
A high public debt overhang still constrains and raises the cost of capital for investment. Successfully addressing the arrears to mulitlateral and bilateral partners would enable relations with external creditors to be normalized. This would strengthen investor confidence and increase private financial flows, as well as allow partners to fully support Zimbabwe's development and to help protect the poor.
To raise growth, Zimbabwe will have to correct key macroeconomic imbalances in particular, the high current account deficit, which will require real improvements in investment, productivity and adjustments in public spending. Indeed, without substantial improvements in the allocation and efficiency of public spending, the poor will bear the brunt of the headwinds ahead.
Executive Summary
Recent Developments
Trend economic growth is now around 2-3 percent per annum following the end of the dollarization boom in 2012. Prices have stabilized, and the turbulence of the 2000s is giving way to a restructured Zimbabwean economy. Agricultural production now represents a broadly constant share of total output, while the service sector is experiencing dynamic growth. However, the manufacturing and mining sectors are struggling to cope with rising capital costs, a difficult business climate and a decline in external competitiveness. As a result, there has been a shift in economic activity from industry to services.
A poor growth and worsening external environment contributed to a deceleration in 2015 and growth is projected to remain at 1.5 percent in 2016. The GDP growth rate slowed from 3.8 percent in 2014 to 1.5 percent in 2015 and 2016, due largely to the impact of an ongoing drought, which is taking a heavy toll on agriculture production. The depreciation of the South African rand against the US dollar has weakened Zimbabwe’s competitiveness vis-à-vis its main trading partner. Exchange-rate dynamics are having an especially negative impact on the mining and manufacturing sectors, which already face considerable challenges in attracting investment. The mining sector is experiencing a structural transition as the commodity super-cycle ends. Growth in the service sector particularly finance, insurance and construction has accelerated.
Weather-related shocks to the agricultural sector have had an especially negative impact on the poor. Over 90 percent of Zimbabwe’s extremely poor live in rural areas. Of these households, the overwhelming majority depend directly or indirectly on agriculture. The drop in agricultural output in 2015 is estimated to have temporarily increased the poverty rate by about 1.5 percentage points, marginally reversing the substantial gains in poverty alleviation that were achieved during the stabilization period. Projections for a poor harvest in early 2016 suggest that poverty may increase further this year.
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, butrising import volumes largely offset the impact on import values. Remittances gradually increased during 2010-2015 and are estimated to have reached almost 7 percent of Gross National Income (GNI) in 2015. The deficit is primarily financed by capital inflows, especially foreign borrowing, but unfavorable terms contribute to making this model unsustainable over time.
Growth has been largely driven by consumption, while both public and private investment has fallen substantially since 2011. Aggregate consumption exceeds GDP and has made a disproportionally large contribution to economic growth during 2010-15. Public sector investment is constrained by severely limited fiscal space for non-wage expenditures and scarce external borrowing opportunities. Investment fell to an estimated 13 percent of GDP in 2015, as a high cost structure and a difficult business climate continued to erode firm competitiveness. Capital inflows, including external borrowing and asset sales are sustaining consumption growth, but this is untenable over the long-term.
The domestic financial sector is slowly recovering from a post-dollarization credit boom and interest rates remain elevated. The Central Bank has stabilized the financial sector, a recent growth of broad money looks robust and bank lending has become market-driven. But still only blue-chip borrowers are able to access financing at competitive rates. The authorities are taking measures to update Zimbabwe’s credit infrastructure, strengthen oversight and restore the regulatory framework.
Zimbabwe is experiencing a deflationary trend in response to these macroeconomic imbalances. The multicurrency regime, adopted in 2009, limits monetary policy instruments available to the authorities but also provides a level of fiscal and economic restraint. As competitive pressures increased, the consumer price index fell -2.5 percent, year-on-year, at end-2015. Declining prices should help to restore competitiveness over time, but should be accompanied by efforts to raise productivity at all levels of the economy.
The Government has maintained a tight fiscal stance in recent years and the primary deficit remains small and manageable. Fiscal revenue represented over 25 percent of GDP from 2011 to 2015, but the public sector wage bill accounts for more than three-quarters of total spending during recent years. A tight fiscal envelope has encouraged the authorities to adopt innovative financial management strategies in the health sector, improving health outcomes and generating important lessons for other sectors.
Outlook and Challenges
Zimbabwe’s economic outlook is subdued, and growth is projected to remain at 1.5 percent in 2016 as El Nino related weather conditions depress agricultural output, but growth is expected to revert to trend growth of 2-3 percent in 2017-18. However, these projections are subject to upside and downside risks, both of which are intensified by the economy’s dependence on a limited range of key sectors. Unfavorable weather conditions compounded by the 'ElNino' weather, power shortages,insufficient liquidity in agricultural markets and limited access to agricultural credit will continue to threaten agricultural production over the projection period. Meanwhile, a further decline in global commodity prices, an economic shock in South Africa, or the further depreciation in the South African Rand against the US dollar could put Zimbabwe’s recovery at serious risk. Finally, Zimbabwe’s current account deficit is equal to over 17 percent of GDP, while the investment rate is 13 percent and the GDP growth is 1.5 percent; this situation is unsustainable.
Zimbabwe has enormous potential for inclusive growth, but it will be a complex challenge to ensure that recovery is truly broad-based and not regressive. As a country, Zimbabwe's education expenditures relative to GDP are among the highest in Sub-Saharan Africa and the Country has an impressive human capital base. Following the economic disruptions of the 2000s, income distribution is more equitable than at any time in the country’s recent history. But the price of this redistribution, and the new downside risks facing the economy have a disproportionately negative impact on middle and low-income households. The authorities have demonstrated a credible commitment to broad-based growth, but without correcting key imbalances in both private sector and public sector service delivery, the recovery could take place in a way that is regressive and could compromise Zimbabwe’s path toward a fair distribution of the gains from further economic growth.
Clearing external debt arrears is important to Zimbabwe’s medium-term growth trajectory. The total public and publicly guaranteed external debt was estimated to be US$7.1 billion (51 percent of GDP) as at September 2015, with external arrears occupying a large share at US$5.6 billion (79 percent of total external debt). The public debt burden has had a deleterious impact on the cost of capital and the economy. It has limited Zimbabwe’s access to financing for development and raised the cost to the private sector of accessing international capital markets. The authorities have recognized that clearing the arrears would allow for a resumption of longer term and concessional development financing both for investment and for buffering the impact of current shocks on the poor and vulnerable. To this end, the Government has presented a strategy to clear Zimbabwe’s arrears to multilateral institutions in 2016 using own resources and loans, at a meeting with its international creditors during the 2015 annual World Bank – IMF meetings. If successful, this strategy will go a long way to lifting Zimbabwe’s medium-term growth outlook.
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Conflict grows out of inequality and exclusion
For a while Africans enthusiasm with the good economic performance of the continent has had a contagious lazy effect in many minds. It was as if the road to a new continental status was a given, even though we were all too busy approving many frameworks and strategies, centered on the need for real structural transformation. Unfortunately the time for a wake-up call is passed.
A combination of renewed conflict, drop on commodities demand and prices, including oil, high currency volatility, rising interest rates, choking of key economic locomotives and another devastating visit of our hated El Niño, are dominating yet again the African story line. Let us get the story straight.
The fundamentals for Africa’s economic prospects are there and intact. Africa continues to register the highest growth within a global slump, our international reserves took a beaten, but this is to be put in contrast with still internationally low debt levels, public deficits are still under control, and steady increase in investments from many , although not all, sources. Recent Summits with India and China, the two demographically equivalents, demonstrated trust in the future. Infra-structure projects have mostly not been affected by the downturn, from a new Suez Canal, to the largest ever dam in Ethiopia or world size solar farms in three countries. As far as the economy is concerned the news are actually better than most could afford. So, where are then the key factors that shift the mainstream narrative back to the past?
Squarely it is a combination of two factors: fragility perception and lack of deeper structural transformation, seen as the need to combine higher agricultural productivity, adding value to natural resources, modernized services associated with urban and youth bulges, powered by strong industrialization. African Agenda 2063 approved by the continent’s leaders is all about that.
If Africa is going to sustain a different narrative it has to be based in real changes. It is therefore opportune to focus on the part of the continental narrative less strategically assessed by Africans themselves: the causes of conflicts.
Between the early hours of April 11th and the late afternoon of May 14th 1994, fifty thousand Rwandese where killed with machetes by their neighbors in the Nyamata Hill. This was a very small part of what is now considered the largest genocide since World War II. A genocide that took the lives of hundreds of thousands of Rwandese. This shocking reality requires for us to understand why was this possible? One participant in the brutal killings said: “Rule number one was to kill. Rule number two, didn’t exist.”[1]
Is it possible to recognize amongst those we call terrorists, be it Al Shabbab, Boko Haram or those who perpetrate the carnages in Central African Republic or South Sudan, a similar rule book? Killing without remorse? Doing it like a job, better than planting or surviving in the periphery, and then have a good drink and laugh at the panic provoked and media attention. How can this happen? How can this continue to happen?
Huge differences in the distribution and exercise of political and economic power result in violent conflicts, in absence or failure of a political mechanism to address inequality. Inequality between groups rather than individuals is probably the foremost cause of conflict in Africa. It exists on three mutually reinforcing levels: economic, social and political. Relatively deprived groups seek or are persuaded by their leaders to seek redress. Privileged groups may also be motivated to fight to protect privileges. Horizontal inequalities are most likely to lead to conflict where they are substantial, consistent, and increasing over time. Exclusion, the extreme manifestation of inequality, is a major factor igniting conflicts. Of particular attention is the exclusion of youth. Uneducated and unemployed youth is a common characteristic to countries experienced conflicts. This marginalized and excluded fraction of the population has been more prominent in the conflict as combatants and least visible during peace.
Very often the richest regions in minerals, oil and gas and which contribute most of national revenue are the poorest in terms of social development and general wellbeing. The collapse of State institutions translated by its inability and ineffectiveness to provide basic services or security has proven to be an important trigger to conflicts. Social stability is based on a hypothetical social contract between citizens and government. People accept state authority so long as the state delivers services and provides reasonable economic conditions. With economic stagnation, decline, or worsening state services, the social contract breaks down, and violence is likely to occur. The collapse of infrastructure completes the erosion of state authority. The combination of a breakdown of institutions and physical infrastructure coupled with the use of ethnic violence creates the conditions in which violence becomes self-sustaining. Evidence suggests a higher incidence of conflict among countries with low per capita incomes, life expectancy, and meagre economic opportunities.
Of the 54 African states only 8 have not experienced armed or violent conflict since independence.
War confers benefits on individuals as well as costs which can motivate people to fight. Young uneducated men, in particular, may gain employment as soldiers. War also generates opportunities to loot, profiteer from shortages and from aid, trade arms, and carry out illicit production and trade in oil, drugs, diamonds, timber, and other commodities. Where alternative opportunities are few, because of low incomes and poor employment, and the possibilities of enrichment by war are considerable, the incidence and duration of wars are likely to be greater. This “greed hypothesis” has its base in rational choice economics. Very often, political leaders deliberately “rework historical memories” to engender or strengthen cultural identities in the competition for power and resources and justify the recourse to violence because of economic interest.
Environmental stress can be a serious catalyst for violence too, especially when people seek alternatives to desperate situations, while resource riches give strong motivation to particular groups to gain control over such resources. This reality is maximized by illegal trade and financial transactions that are depriving the continent of over fifty to sixty billion USD every year.
Results show that the economic performance of conflict areas is on average 10% below that of conflict-free areas in most GDP performance categories. A study estimated a loss of 284 billion USD (in constant 2000 rates) for 23 African countries, from 1990 to 2005. This figure represented then an average annual loss of 15% of their GDP. Regression analysis indicates a loss of about 2.2% GDP growth due to conflict. The interrelated nature of African economies also means that the costs of war within a sub-region generally result in economic costs for neighboring countries. These include production losses through loss of opportunities deriving from migration, trade losses, increased costs of security and policing and the costs of supporting refugees.
In Niger’s real GDP growth reduced to 3.6% in 2013 after expanding by 11.1% in 2012. In Mali, the series of events triggered by the 2012 outbreak of conflict and insecurity led to falls in government resources and expenditures by at least 30%. In DRC internal investment as a percentage of GDP dropped from 31.6% in 1997 to 17.7% in 1998; and reached its lowest level of 2% in 2000. Libya oil output has shrunk to less than 400,000 barrels per day (bpd), from about 1.7 million bpd before the outbreak of conflict. As a result, GDP contracted by an estimated 24% in 2014. The government accounts are expected to post a deficit of about 80 % of GDP in 2015, with the current account deficit exceeding 60% of GDP.
The message is clear. African priorities either deal upfront with the causes of conflict, or everybody will pay the price for the fragility perception. It is true that countries in Europe, Asia or the Americas were stabilized after prolonged wars that were fomented by the same ingredients of exclusion. They evolved to create better institutions, regulated markets and stabilized security. But it is also true that when it happened there, there was no universal telephony coverage or global media. A continent with more conflicts and affected people than Africa right now, continues to be associated with progress and change. I am talking about Asia. If Africa wants to follow suit there is a need for boldness, a common security framework and squarely accept the challenges of exclusion and managing diversity. That is the only way on deals with die hard perceptions.
Rule number one -to kill- with no rule number two, is still mobilizing far too many in the continent. We need Africa to focus on the “why”, and not allow this pervasive virus mentality to rotten past decade and a half achievements.
The why in fact can take inspiration from a virus’s metaphor. Any virus is basically a micro infectious agent that replicates only inside the living cells of other organisms. Viruses can infect all types of life forms. Even if they are not inside an infected cell or in the process of infecting a cell, viruses exist in the form of independent particles. Virus spread in many different ways, but they do have a pattern. It is known that virus can come from far away.
The good news is that viral infections in humans provoke an immune response that usually eliminates the infecting virus. Immune responses can also be produced by vaccines, which confer an artificially acquired immunity to the specific viral infection.
Africa either has strong immunity to deal with these terror groups viral effects, because of the strength of its institutions and capabilities, or has to develop, fast, a vaccine that will rid us of its damage. Such a vaccine could be labeled “antidote to exclusion”.
This article is based on a speech delivered by Carlos Lopes at the 26th African Union Executive Council, 25 January 2016, Addis Ababa.
[1] Reference to Jean Hatzfeld, Une saison de machettes, Seuil, 2003.
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Launch of the 2015 Global Go To Think Tank report
The Economic Commission for Africa joins hundreds of think tanks and civil society actors around the world in a series of annual coordinated events as part of a program organized by the Think Tanks and Civil Societies Programs at the University of Pennsylvania (TTCSP).
The events are intended to highlight the important role think tanks play in government and civil societies around the world. This year’s theme is “Why Think Tanks Matter to Policymakers and the Public.”
This year’s Go To Think Tank Index Launch marks the ninth annual event organized by the TTCSP to acknowledge the important contributions of think tanks worldwide. TTCSP’s initial effort to produce a global ranking of the world’s leading think tanks in 2006 was in response to a series of requests from donors, government officials, journalists, and scholars who wanted the TTCSP to identify the leading think tanks in the world.
Since its inception, the objective for the Global Go To Think Tank Index report has been to gain a better understanding of the role think tanks play in governments and civil societies and help enhance the quality, capacity, and performance of think tanks around the world.
The global launches are taking place in 75-80 countries, including one at the Economic Commission for Africa's Conference Centre, on 5th February 2016.
About the Think Tanks and Civil Societies Program
The Think Tanks and Civil Societies (TTCSP) at the Lauder Institute of the University of Pennsylvania conducts research on the role policy institutes play in governments and in civil societies around the world. Often referred to as the “think tanks’ think tank,” TTCSP examines the evolving role and character of public policy research organizations.
Over the last 20 years, the Think Tanks and Civil Societies Program has laid the foundation for a global initiative that will help bridge the gap between knowledge and policy in critical policy areas such as international peace and security, globalization and governance, international economics, environment, information and society, poverty alleviation, and health.
This international collaborative effort is designed to establish regional and international networks of policy institutes and communities that will improve policy making as well as strengthen democratic institutions and civil societies around the world.
» Download the Go To Think Tank Index.
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Commissioner Acyl articulates the dire need for Africa’s structural transformation in line with the Agenda 2063
The Commissioner for Trade and Industry of the African Union Commission (AUC) held a press briefing on 27 January 2016 on the margins of the 26th African Union Summit of Heads of State and Government, under the theme: “The African Union’s Trade and Industry Agenda as a catalyst for Africa’s Development”.
H.E. Mrs. Fatima Haram Acyl highlighted the Department of Trade and Industry’s initiatives within the context of the Agenda 2063 and expressed the urgent need for Africa to industrialize.
According to the Commissioner for Trade and Industry, Africa faces an imperative for structural transformation. H.E. Mrs Fatima Haram Acyl observed that we need to address the paradox of a rich continent with poor citizens. Therefore urgent steps must be taken to create sustainable jobs that will improve the well-being of the people of Africa, especially women and youth.
The Commissioner for Trade and Industry also pointed out that African Union’s trade and Industry agenda is looking to support the continent’s structural transformation agenda, in line with Agenda 2063 and underscored that the fall of the commodities prices have reinforced the imperative of diversifying away from commodities based economies.
“I want to highlight two critical initiatives that are central to ensuring that the AU’s trade and Industry agenda will play a catalytic role in the continent’s transformation agenda. These are initiatives related to the Africa Mining Vision as well as the Boosting Intra-African Trade and fast tracking the Continental Free Trade Area,” she said.
Commissioner Acyl mentioned that the Africa Mining Vision provides a framework for providing technical assistance currently provided through the 5 year African Minerals Development Center (AMDC) project involving AUC, UNECA, AfDB, UNDP and other partners in a manner that ensures ownership by African governments of these interventions.
The Commissioner also announced the AUC has been mandated to develop a Continental Commodities Strategy that will address the issues of commodity pricing and commodity based industrialization more broadly, building on the experiences of the past decades. “The strategy reviews the state of play of agriculture, mining and energy commodities in Africa and identifies and articulates areas of national, regional and continental policy and will be finalized this year,” she echoed.
With regards to the Boosting Intra-African Trade and the negotiations of the Continental Free Trade Area (CFTA), Commissioner Acyl indicated that the establishment of the CFTA, will create a single market for goods and services in Africa for over a billion people and a GDP of over 3 trillion dollars provides a good reason to invest and partner in Africa. The CFTA, she said, could increase intra-African trade by as much as $35 billion per year, or 52 percent above the baseline, by 2022 especially with the implementation of the WTO Trade Facilitation Agreement.
She thanked Member States and development partners for their technical and financial support during the preparatory phase and indicated that all efforts have been made to facilitate negotiations for 54 countries. She concluded by announcing that the first negotiating session of the CFTA negotiations will take place in February in Addis Abba, Ethiopia.
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IMF reforms policy for exceptional access lending
The IMF has approved an important reform to the institution’s policy on lending to countries that request large-scale financing.
The broad objectives of the reform – which includes the removal of the “systemic exemption” that was created in 2010 – is to help promote more efficient resolution of sovereign debt problems and avoid unnecessary costs for the member, its creditors, and the overall system.
“This latest reform to our lending framework is actually part of a broader reform agenda aimed at more efficiently resolving sovereign debt crises where they occur, as well as to prevent their occurrence in the first place,” said Sean Hagan, the IMF’s General Counsel.
“The reform is carefully designed to preserve the IMF’s ability to continue to provide financing to assist members in resolving their balance of payments problems, including in the presence of contagion risks,” said Hugh Bredenkamp, Deputy Director of the Strategy, Policy and Review Department of the IMF.
Evolution of the “exceptional access” framework
In the late 1990s and early 2000s, the IMF provided financing to a number of its members that were experiencing capital account crises which, on several occasions, involved “exceptional access” to IMF resources – that is, financing amounts that exceeded normal IMF lending limits. The requirements in place at the time to justify these large-scale lending programs were “exceptional circumstances,” and these were not clearly defined. This left the IMF vulnerable to pressure to provide large amounts of funding even when prospects for program success were not as strong as should have been for the level of risk the IMF was assuming.
To address these concerns, the IMF established a comprehensive exceptional access policy framework in 2002. Under this framework, the IMF could only provide large-scale financing in capital account crisis if all of four conditions were met, one of which was that there is a “high probability” that the member country’s debt is sustainable. This is the second exceptional access criterion.
The other three exceptional access “criteria” (as they are known as) relate to a member experiencing exceptionally large balance of payments needs; the member having prospects for gaining/regaining access to private capital markets; and the member having the institutional and political capacity and commitment to implement a IMF-supported program.
With respect to the second criterion on debt sustainability, if the high probability bar was met, the IMF could lend without requiring any debt operation. If, however, the bar was not met, a sufficiently deep debt restructuring was typically needed to restore debt sustainability with high probability before the IMF could lend. There was no middle ground between providing financing and requiring a deep debt reduction. Accordingly, for members whose debt was “sustainable but not with high probability,” the debt reduction operation could constitute an unnecessarily drastic measure.
This underlying rigidity in the 2002 exceptional access framework was tested in 2010, in the context of the first IMF-supported program for Greece. Because the IMF did not assess Greece’s debt to be sustainable with high probability, the framework required an upfront debt reduction. However, there were serious concerns at the time that this could lead to severe contagion both in the Eurozone and beyond. Thus, at the time, the IMF created a “systemic exemption” for cases where there were significant uncertainties around debt sustainability. In such cases, the exemption allowed large-scale financing to go ahead without a debt reduction operation if there was a high risk of systemic international spillovers (see figure).
Shortcomings revealed
While the systemic exemption was a step towards greater flexibility, it had several shortcomings, which revealed themselves over time.
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First, the exemption did not prove reliable in mitigating contagion. And this is understandable. Insofar as it left market concerns about underlying debt vulnerabilities unresolved, the exemption was unlikely to instill market confidence in the program and thereby limit contagion.
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Second, by replacing maturing private sector claims with official claims, it increased “subordination risk” for private creditors – that is, the risk that private claims would rank lower than official claims in the case of an eventual default – making it more difficult for the country to regain market access.
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Third, for the two reasons above, the systemic exemption entailed substantial costs and risks for the member country and the IMF. In particular, it delayed the restoration of debt sustainability, impaired the prospects of success for the country’s economic policy program, and eroded safeguards for IMF resources.
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Finally, the exemption had the potential to aggravate “moral hazard” in the international financial system, i.e., the tendency of creditors to overlend to a sovereign at interest rates that do not fully reflect the sovereign’s risky debt situation, since they believe they are likely to be bailed out in the event of a sovereign debt crisis.
A reformed, more calibrated, but appropriately flexible framework
The reformed policy, developed by IMF staff in a series of papers in 2013, 2014 and 2015, seeks to improve the existing framework in two important ways.
First, it removes the systemic exemption, for the reasons noted above.
Second, it gives the IMF appropriate flexibility to make its financing conditional on a broader range of debt operations, including the less disruptive option of a “debt reprofiling” – that is, a short extension of maturities falling due during the program, with normally no reduction in principal or coupons.
The reformed policy – like the old one – prescribes that when debt is clearly sustainable (let us call it the “green” zone), the IMF will continue to use its catalytic role and provide financing support to the member without requiring any debt operation. When debt is clearly unsustainable (the “red” zone), a prompt and definitive debt restructuring will continue to be required to restore debt sustainability with “high probability”.
However, for countries where debt is assessed to be sustainable but not with a high probability (i.e. the “gray” zone), the new policy allows the IMF to grant exceptional access without requiring debt reduction upfront, as long as the member also receives financing from other creditors (official or private) during the program. This financing should be on a scale and terms that (i) helps improve the member’s debt sustainability prospects, without necessarily bringing debt sustainability to the green zone at the outset; and (ii) provides sufficient safeguards for IMF resources.
The new policy does not automatically presume that a reprofiling or any other particular option would be implemented at the outset when debt is in the gray zone. Instead, the choice of the most appropriate option, from a range of options that could meet the two conditions noted above, would depend on the member’s specific circumstances.
In situations where the member retains market access, or where the volume of private claims falling due during the program is small, sufficient private exposure could be maintained without the need for a restructuring of their claims.
In situations where the member has lost market access and private claims falling due during the program would constitute a significant drain on available resources, a reprofiling of existing claims would typically be appropriate. This could allow a somewhat less stringent adjustment path while also reducing the required amount of financing from the IMF. Although a reprofiling is a form of debt restructuring, it will likely be less costly to the debtor, the creditors, and the system than a definitive debt restructuring.
Where a reprofiling is undertaken, the scope of debt to be reprofiled would be determined on a case-by-case basis, recognizing that it would not be advisable to reprofile a particular category of debt if the costs for the member of doing so – including risks to domestic financial stability – outweighed the potential benefits. For instance, short-term debt instruments (by original maturity), trade credits, and local currency-denominated debt have typically not been included in most past restructurings.
Under the new policy, financing from official bilateral creditors, where necessary, could be provided either through an extension of maturities on existing claims and/or in the form of new financing commitments.
The new policy would also allow the IMF to deal with rare “tail-event” cases where even a reprofiling is considered untenable because of contagion risks so severe that they cannot be managed with normal defensive policy measures. In these rare cases, the IMF could still provide large-scale financing without a debt operation, but would require that its official partners also provide financing on terms sufficiently favorable to backstop debt sustainability and safeguard IMF resources.
This could be done through assurances that the terms of the financing provided by other official creditors could be modified in the future if needed (say in the event of downside risks materializing). If official partners could not provide such assurances (or if the member’s debt was deemed unsustainable at the outset), the terms of official financing would have to be sufficiently favorable to bring debt to the green zone.
In essence, all these options illustrate appropriate flexibility that the new framework embodies (see figure above).
In addition to the improvements to the second exceptional access criterion, the reformed policy also modified the third, or “market access”, criterion. The Board confirmed that the third criterion, which requires a member to have prospects for gaining/regaining market access remains binding even when there are open-ended commitments of official support for the post-program period. It also clarified that the timeframe within which a member is expected to gain/regain market access has to be consistent with the start of repayment of its obligations to the IMF, not just when the last one is due, as could have been implied by the old formulation of the criterion.
Putting it all together
The above reform is a central component of a four-pronged work program on sovereign debt crisis resolution endorsed by the IMF’s Executive Board in 2013. The reforms follow a series of Board discussions and consultations with stakeholders over the last three years. Before this latest reform to the exceptional access policy, the IMF had already completed two of the four components:
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In October 2014, the Executive Board endorsed key features of enhanced collective action clauses in international sovereign bond contracts to reduce their vulnerability to holdout creditors in case of a debt restructuring. Many members now include clauses consistent with these key features in new international debt issuances.
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In December 2015, the Board approved the reform of the IMF’s policy on non-toleration of arrears to official bilateral creditors, which allows the IMF to lend in the presence of arrears to official bilateral creditors under carefully circumscribed circumstances.
Later this year, the IMF will consider the final component of the sovereign debt restructuring work program, which intends to discuss, inter alia, issues related to debtor-creditor engagement, including the IMF’s lending-into-arrears policy for private creditors.
Together, these four workstreams will help facilitate the resolution of sovereign debt crises, thus benefiting the international financial system as a whole.
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Investment Facilitation: An Action Menu
Preliminary draft for peer review, based on UNCTAD’s Investment Policy Framework for Sustainable Development
Mobilizing investment and maximizing its positive contribution to growth and sustainable development is a priority for most countries. Concerted efforts are required to boost cross-border investment, within the context of an overall policy framework aimed at maximizing the benefits of such investment for host countries and minimizing any negative side effects.
Numerous initiatives aimed at stimulating investment exist that try directly to affect the risk-return ratio for investors. Such initiatives may try to lower risks by providing guarantees, by sharing risks or by offering certain protections. Or they may try to increase potential investor returns through incentives.
In the most common international instruments for investment promotion, relatively little attention is being paid to ground-level obstacles to investment, such as a lack of transparency on legal or administrative requirements faced by investors, lack of stability and predictability in the operating environment, and other factors causing high costs of doing business.
Addressing such barriers to investment could provide a real boost to both cross-border and domestic investment, complementing direct stimulus instruments (guarantees, incentives), and reinforcing trade facilitation efforts – given that 80% of trade is driven by the international production networks dependent on investments from multinational firms.
Investment facilitation initiatives could, in fact, mirror many elements common in trade facilitation. They could include improvements in transparency and information available to investors; they could work towards efficient and effective administrative procedures for investors; they could enhance the consistency and predictability of the policy environment for investors through consultation procedures; they could increase accountability and effectiveness of government officials and mitigate investment disputes through ombudspersons; they could include cross-border coordination and collaboration initiatives such as regional investment compacts or links between outward and inward investment promotion agencies; and they could include technical cooperation and other specific support mechanisms for investment.
The Action Menu proposed here for discussion is based on UNCTAD’s Investment Policy Framework and rich experiences and practices of investment promotion and facilitation efforts worldwide over the past decades.
The Action Menu proposes 10 action lines with a series of options for investment policymakers to adapt and adopt for national and international policy needs: the package includes actions that countries can choose to implement unilaterally, and options that can guide international collaboration or that can be incorporated in international investment agreements. The Action Menu should be read in the broader context of UNCTAD’s Investment Policy Framework for Sustainable Development.
The proposed Action Menu is preliminary research and does not represent the official views of UNCTAD member States or the UNCTAD Secretariat. Comments and ideas will be invaluable to the further development of the Action Menu.
This Discussion Note is made available on UNCTAD's Investment Policy Hub to facilitate online feedback and discussion as an integral part of the Investment Policy Blog. Readers are invited to submit comments via email to Mr. James Zhan, Director of the Investment and Enterprise Division at This email address is being protected from spambots. You need JavaScript enabled to view it..
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Record number of Investor-State Arbitrations filed in 2015
UNCTAD has updated its recently launched Investment Dispute Settlement Navigator. The ISDS Navigator is now up to date as of 1 January 2016.
The update reveals that the number of investor-State dispute settlement (ISDS) cases filed in 2015 reached a record high of 70. Spain was by far the most frequent respondent in 2015, with 15 claims brought against it. The Russian Federation is second on this list with 7 cases.
As of 1 January 2016, the total number of publicly known arbitrations against host countries pursuant to international investment agreements (IIAs) has reached nearly 700.
In the coming weeks, UNCTAD will publish its annual IIA Issues Note on “Recent Developments in ISDS”, providing a more detailed analysis of the newly filed cases as well as an overview of the key decisions issued by arbitral tribunals over the course of 2015.
The Investment Dispute Settlement Navigator is the world’s most comprehensive ISDS database. Each of the 696 case entries contains information on: legal basis (applicable treaty); countries involved; short summary of the dispute; economic sector and subsector; amounts claimed and awarded; breaches of IIA provisions alleged and found; arbitrators serving on the tribunal; status/outcome of the arbitral proceedings; decisions issued by tribunals and other items (to the extent the information is publicly available).
Any additional information or clarifications on specific cases as well as suggestions for improving the ISDS Navigator would be welcome (to submit information, use the “Report new developments” button).
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UNCTAD Expert Meeting: Taking stock of IIA Reform
Multi-year Expert Meeting on Investment, Innovation and Entrepreneurship for Productive Capacity-building and Sustainable Development, fourth session
The meeting will discuss policy perspectives of the issues under discussion in the Multi-Year Expert Group on Investment, Innovation and Entrepreneurship for Productive Capacity-Building and Sustainable Development.
The meeting will take stock of developments in bilateral, regional, and multilateral investment policy, with a specific focus on the reform efforts related to the regime of international investment agreements.
Further, the meeting will consider several lessons on science, technology and innovation policy identified by UNCTAD, particularly in the context of its policy advice and capacity-building work, and it will provide an update on entrepreneurship policies and their relation to the achievement of the Sustainable Development Goals.
This will enable a discussion on the UNCTAD Investment Policy Framework for Sustainable Development, the Entrepreneurship Policy Framework and the Science, Technology and Innovation Policy Framework.
The meeting will also serve as a preparatory step towards UNCTAD intergovernmental activities in 2016, in particular those of the Investment, Enterprise and Development Commission.
Investment, innovation and entrepreneurship and productive capacity-building for sustainable development
The topic for the fourth session of the Multi-year Expert Meeting on Investment, Innovation and Entrepreneurship for Productive Capacity-building and Sustainable Development was decided at the fifty-sixth executive session of the Trade and Development Board, in 2012, as follows: “The fourth session of the expert meeting will bring together the findings of the three preceding meetings, with a view towards refining UNCTAD’s Investment Policy Framework for Sustainable Development, the Entrepreneurship Policy Framework and the Science, Technology and Innovation Policy Framework.”
This last session is thus intended to summarize the work of the multi-year expert meeting from the policy perspective, bringing to a close the cycle of work undertaken on the subject matter. The timing of the fourth session suggests that it will also serve as a preparatory step towards the fourteenth session of the United Nations Conference on Trade and Development (UNCTAD XIV), in particular the deliberations under sub-theme 2 of promoting sustained, inclusive and sustainable economic growth through trade, investment, finance and technology to achieve prosperity for all.
Investment is essential to build productive capacities and ensure sustainable development. New generations of investment policies have emerged that place inclusive growth and sustainable development at the heart of efforts to attract and benefit from investment. This prompted UNCTAD to update its Investment Policy Framework for Sustainable Development. Following guidance from member States, specific attention is being given to how to address investment policy challenges at the regional and international levels. In particular, and in light of the pressing need for systematic reform of the global regime of international investment agreements, it is necessary to take stock of efforts and bring that reform in line with today’s sustainable development imperative.
Science, technology and innovation (STI) are central to the process of building productive capacity, increasing productivity, promoting competitive firms and industries, and drawing level economically. The links between STI policy and sustainable development are thus myriad. This is recognized in the mainstreaming of STI into the 2030 Agenda for Sustainable Development focused on the Sustainable Development Goals. The inputs from member States experts emphasized the need for policy-focused technical cooperation on STI. In particular, consideration of the conceptual framework underlying the UNCTAD STI policy review programme provided a number of elements that should enable improved relevance of such policy frameworks for future activities in support of STI policy in developing countries, particularly with regard to their response to challenges posed by fast technological change.
Entrepreneurship is likewise key for attaining the Sustainable Development Goals. However, to achieve impact on building productive capacities, strengthening microenterprises and small and medium-sized enterprises, addressing challenges of sustainable and inclusive growth, improving life conditions particularly of vulnerable groups of the population, such as youth and women, concerted efforts are needed to ensure a comprehensive and holistic approach to entrepreneurship promotion. That approach should be based on long-term strategies and policies, adequate resource allocation, capacity-building programmes, efficient assessment and monitoring mechanisms, coordination and cooperation at all levels, and sharing of good practices and lessons learned. In response to that challenge, UNCTAD developed the Entrepreneurship Policy Framework, which advocates a comprehensive, coherent and coordinated approach to assist policymakers in identifying, formulating and implementing policy measures on entrepreneurship and the promotion of microenterprises and small and medium-sized enterprises.
Experts will be requested to elaborate on, and add to, these key issue areas identified by the secretariat. Experts are asked to share experiences with regard to the implementation of the three policy frameworks, as well as to shed light on other areas of concern and future consideration in this regard.
To facilitate the discussions, the UNCTAD secretariat has prepared a background document entitled “Investment, innovation and entrepreneurship for productive capacity-building and sustainable development”.
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Closing 2016 Youth Forum, senior UN official says young people key to new sustainability agenda
Marking the end of the two-day United Nations Economic and Social Council (ECOSOC) Youth Forum, the President of the 54-member body told hundreds of youth leaders that the event exceeded high expectations and that the time is now for young people to get behind global efforts to ensure sustainable development for all.
“We should aim high and we have the potential to reach ambitious goals,” Oh Joon said at the Forum’s closing ceremony. “What else have we learned? The challenges the youth is facing are real,” he said.
Mr. Oh listed unemployment, poverty, climate change, and inequality as issues needing to be addressed through “a cross-cutting and interconnected approach.”
“This being said, solutions exist and there is a need for an inspiring commitment by all stakeholders to drive the 2030 Agenda forward,” he stressed, referring to the new set of 17 Sustainable Development Goals (SDGs) adopted by all UN Member States last September.
This year’s Youth Forum, an annual event taking place for the fifth time, focused on how young people can support the goals worldwide. ECOSOC’s President underlined that youth will play an important role in advocating for the SDGs so that people all over the world know about them. “This is a prerequisite to ensure that nobody is left behind,” he declared.
Meanwhile, a key message that emerged from the forum was the recognition that young people are not only key actors in advancing the 2030 Agenda for Sustainable Development, but they are also directly affected by the challenges the SDGs seek to tackle.
“One of these challenges is the prevailing employment crisis young people face all across the globe,” said Mr. Oh, delivering ECOSOC’s President Statement. “As President of the Economic and Social Council, I welcome the launch of the UN system’s Global Initiative on Decent Jobs for Youth by the ILO Director-General, Guy Ryder, at the opening of our Forum.”
The 54-member body also highlighted key messages and recommendations that emerged from the Forum. These included not just working for youth, but with youth to promote the SDGs; creating participatory and inclusive political processes for all the diverse voices of youth to be heard; creating not just jobs but decent jobs for young people; and enhancing the quality of education and training for them to meet today’s labour market needs.
Mr. Oh also highlighted that the level of engagement during this year’s Youth Forum has shown that young people are ready to act to implement the SDGs.
Presidential Statement
on the occasion of the 2016 ECOSOC Youth Forum
Youth Taking Action to Implement the 2030 Agenda
The 2016 Youth Forum of the Economic and Social Council, convened in New York from 1 to 2 February 2016, has come at a point in time, in which the world has to come together to turn its commitment, embodied in the Sustainable Development Goals (SDGs), into tangible action. This Forum was the first high level discussion in the Council to plan how to implement the new SDGs and the 2030 Agenda for Sustainable Development. Youth will play a leading role in turning the comprehensive vision of this “21st Century Declaration of Interdependence” – as the Deputy-Secretary General referred to it – into action.
The level of engagement during this year’s Youth Forum has shown that the youth is ready to act to implement the SDGs. With the largest number of participants since the inception of the Forum five years ago and with the largest number of delegations from capitals and highest level national authorities on youth, including 21 Ministers, we witnessed how the Forum offered an critical platform for Member States, young people and other key stakeholders to dialogue how youth can be involved in the implementation of the SDGs and contribute to the intergovernmental review of the implementation of the 2030 Agenda.
We looked at youth issues and youth engagement in the SDGs from a thematic perspective as well as from a regional angle and identified key priorities that will guide us in operationalizing the SDG framework as we move forward. While we were warned of common pitfalls when it comes to youth development, we also set the stage for engagement with insightful contributions from a wide variety of participants, including high-level government representatives, and had the opportunity to take note of promising practices and existing experiences that could be applied or adapted by Member States across the board.
A key message that emerged from the 2016 ECOSOC Youth forum was the recognition that young people are not only key actors in advancing the 2030 Agenda for Sustainable Development, but they are also directly affected by the challenges the SDGs seek to tackle. One of these challenges is the prevailing employment crisis young people face all across the globe. As President of the Economic and Social Council, I welcome the launch of the UN system’s Global Initiative on Decent Jobs for Youth by the ILO Director-General, Guy Ryder, at the opening of our Forum. The Global Initiative on Decent Jobs for Youth, endorsed by the UN’s Chief Executives Board for Coordination, is the first ever comprehensive UN system-wide effort to promote youth employment.
I commend the Global Initiative and its strategy, which represent a unique collaboration and partnership platform to enhance efforts by the UN system and beyond to tackle the youth employment challenge and assist Member States in targeting a crucial goal of the 2030 Agenda for Sustainable Development. Through strategic alliance building, regional and country-level action, pooling expertise and enhancing knowledge, and innovative and sustainable funding modalities and resource mobilization, this Initiative aims to scale up action and to increase impact through effective, innovative and evidence-based interventions.
Our discussions at the Forum highlighted that the Youth around the world are not mere beneficiaries of the Sustainable Development Goals, but key drivers for the successful implementation of the 2030 Agenda. The role of young people and their organizations must be recognized as a leading one, as youth take action across all areas crucial for the implementation of the agenda, including in politics, business, academia and civil society. The following key messages and recommendations emerged from our discussions during the Forum:
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Young women and men constitute half of the world’s population, and we need to approach the issue of youth with a sense of urgency. We should not only work for youth, but work with youth to promote sustainable development.
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We need participatory and inclusive political processes for all the diverse voices of youth to be heard, in particular the marginalized young people.
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Youth unemployment continues to be one of the most challenging issues of our time with around 40 per cent of young people in the labour market either unemployed or working in poverty. The challenge is not only to create jobs, but to create decent jobs for young people.
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We must enhance the quality of education and training to meet today’s labour market needs. This requires strengthening partnerships involving the private sector and youth organizations. We also need to promote science, technology, engineering and math education, in particular for women and girls.
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We need to invest in and promote youth entrepreneurship which is considered as a key driver for young people’s economic empowerment as well as for achieving the SDGs.
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Promoting gender equality and the empowerment of women and girls requires action on various fronts to achieve not only SDG5 but all the other sustainable development goals. We need more women in leadership positions both in public and private sector. We need to end all forms of violence against women or girls. We must unlock the full potential of women and girls to turn our societies into more inclusive, peaceful and prosperous ones. To this end, men and boys must be engaged to accelerate societal change.
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Young people need better health education and healthcare that is accessible, affordable and of good quality.
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Youth can foster the innovative use of social media and communication tools to further the call for comprehensive climate action and to follow-up on progress or lack thereof of the Paris Agreement on Climate Change and SDG13. We need to promote the organization of youth-led climate change events.
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Youth engagement is imperative for the achievement of SDG16 on peaceful and inclusive societies. Youth are often those most affected by the continuation or outbreak of violent conflicts. Increased participation of the youth in decision-making at all levels is key to conflict resolution, recognizing young people as peace-builders and beacons of hope to overcome war and violence. The adoption of the Security Council Resolution 2250 (2015), which calls for increased representation of youth in decision-making at all levels for the prevention and resolution of conflict, was considered a historic step in recognizing the role and potential of young people.
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African Development Bank to help attract investment for sustainable and inclusive growth at the 2016 Mining Indaba in Cape Town
From February 7-11, 2016, the African Development Bank (AfDB) will join Ministers of Mining from 16 African countries, industry leaders and an estimated 7,000 participants in Cape Town, South Africa, for the one of the world’s largest mining conferences, Mining Indaba. As patron of the African Minister’s Forum, and a principal sponsor of the conference, the AfDB will help African countries compete for investment in mining.
The AfDB will convene a panel discussion on a local content policy toolkit designed by the Bank’s African Natural Resources Center (ANRC). Sir Paul Collier, Chair of Oxford University’s Blavatnik School of Governance, will deliver a keynote address. Other panelists include Andile Sangqu, CEO of AngloAmerican Corporation, and Matthew Bliss, Strategic Partnerships, Cordaid. The ANRC toolkit will help governments design policies that balance benefits to African economies with fair returns to investors. It also provides a guide for formulating effective local content policies.
The Bank will also host a special session on “Indaba Sustainability Day” to advocate transparent engagement with communities affected by mining operations and discuss policies to ensure economic diversification. His Majesty Kgosi Leruo Molotlegi, King of the Bafokeng nation, located in the platinum-producing region of South Africa, will deliver the opening remarks.
A panel moderated by ANRC Director Sheila Khama will include Kojo Busia, Senior Mineral Sector Governance Advisor, African Mineral Development Centre, UNECA; Tim Carstens, Managing Director of Base Resources; and Gillian Davidson, Head of Mining and Metals Industries for the World Economic Forum.
“The Indaba conference is the mining industry’s flagship event and represents an opportunity for the Bank to demonstrate regional development leadership,” said Khama.
The African Natural Resources Center was established by the African Development Bank to advise African countries on natural resources management, policy formulation and implementation. The goal is to enable countries to secure greater social and economic value from resources development, including minerals. The ANRC’s activities include extractive industries and minerals, non-renewable resources (gas, oil) and renewable resources (forestry, water, fishery, land).
Investing in African Mining Indaba is an annual conference dedicated to the capitalization and development of mining interests in Africa. The conference is expected to attract the participation of around 2,300 international companies.
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Intergovernmental Committee of Experts (ICE) 2016
The Intergovernmental Committee of Experts (ICE) is the annual meeting of the United Nations Economic Commission for Africa (ECA). It is held to define and monitor the implementation of the work programme of the ECA regional Offices and to discuss key issues and challenges pertaining to the economic and social development of the sub-regions, with the view to making appropriate recommendations to address them.
In addition, the ICE is a forum to cement partnerships and define modalities of cooperation between and among stakeholders aimed at sustaining regional integration and accelerating the pace of development in the sub-regions.
The schedule of the 2016 ICE regional meetings is outlined below.
20th Meeting of the Intergovernmental Committee of Experts (ICE) – Eastern Africa
Institutions, Decentralization and Structural transformation in Eastern Africa
8-11 February 2016
Nairobi, Kenya
This meeting will discuss key issues and challenges pertaining to the economic and social development of the Eastern Africa region with the view to making appropriate recommendations to address them.
The 20th ICE will also examine the role of institutions in promoting equitable growth and structural transformation, defined as the reallocation of resources towards higher productivity sectors (manufacturing and modern services), in Eastern Africa.
This will include a review of mechanisms that ensure the formulation of shared visions, enshrine good governance, strengthen public participation in decision-making and build social capital and cohesive pacts for transformational change.
High-level representatives from 14 countries of Eastern Africa, representatives of Regional Economic Communities as well as of of the private sector, international institutions, civil society organisations, media, and other relevant stakeholders are expected to attend the Nairobi meeting.
Background documents
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20th ICE Eatern Africa | Draft Concept Note
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High-Level Panel: Institutions, Decentralization and Structural Transformation in Eastern Africa | Draft Concept Note
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Background Study on Institutions, Decentralisation and Structural Transformation in Eastern Africa | First draft, February 2016
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The Impact of Trade Regimes on Industrialisation | Ad-hoc Experts Group Meeting (AEGM) Concept Note
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The Impact of Trade Regimes on Industrialisation; Trade and Technological Diffusion in the East African Community | Working Paper
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Social and Economic Inequality in Eastern Africa | AEGM Concept Note
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Mapping Spatial Inequalities in Eastern Africa | Preliminary draft, January 2016
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From theory to practice: Unravelling sustainable development opportunities at county level in Kenya | AEGM Draft Concept Note
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Roundtable Discussion on The Followers and Leaders’ Pact: Towards New Horizons | Draft Concept Note
Intergovernmental Committee of Experts of Central Africa
Leveraging the agricultural potential of Central Africa for food Security and the Structural Transformation of the Sub-region
24-26 February 2016
Douala, Cameroon
During three days of the session, experts from Central African States as well as those from international organisations will lay emphasis on strategies that would allow countries of the sub-region to leverage their huge agricultural potential in order to speed up growth, whilst aiming to achieve the second of the global Sustainable Development Goals, which is: “End hunger, achieve food security and improved nutrition and promote sustainable agriculture.”
The ideal of making good the agricultural potential of Central Africa for food security and the structural transformation of the sub-region would be examined in panel discussions on the following sub-topics: (i) opportunities to be exploited to create more added value in the value chain within the agricultural sector; (ii) the ways through which developing agro-industry can scale up the contribution of manufacturing to GDP; (iii) the degree to which climate change put a strain on agricultural resources; (iv) mechanisms to promote high agricultural yields especially via better access to appropriate technology.
19th meeting of the Intergovernmental Committee of Experts (ICE) for West Africa
The Country Profiles of the ECA: tools in the service of the structural transformation of West African countries
25-26 February 2016
Dakar, Senegal
The main objective of the 19th session of the ICE is to debate recent developments that could impact the economic and social development of West African countries, in order to identify the main challenges to be met and to make recommendations to accelerate the growth and the economic transformation of the sub-region.
With this in mind, the participants will examine the report prepared by the Office on the above-mentioned theme, which will serve as the main document for discussion. They will also examine the note on the economic and social conditions in 2015 and the outlook for 2016 in West Africa. In addition, they will analyse the recurrent report on the implementation of regional and international agendas, which this year place the emphasis on the transition between the Millennium Development Goals (MDGs) achieved in 2015 and the Sustainable Development Goals (SDD) adopted under the auspices of the United Nations in September 2015. Moreover, the Report on the Activities of the Office during 2015 and its Provisional Programme of Work for 2016 will be presented to them for their assessment and validation.
The theme chosen for debate this year is entitled, “The Country Profiles of the ECA: tools in the service of the structural transformation of West African countries”. The choice of this theme for the agenda of the 19th session of the ICE results from the wish by the Sub-Regional Office of the ECA for West Africa to edify the delegates of Member countries on the utility and the specific features of these country profiles by underlining what differentiates them from similar documents produced by other institutions.
In contrast to other profiles, the ECA country profiles aim rather at providing each African country with an objective analysis of its economic and social situation, supported by a certain number of global indicators, notably the African Social Development Index (ASDI), African Gender and Development Index (AGDI) and the Regional Integration Index (RII). They will also serve as sources of comparative data to respond to the needs of academics, civil society, investors and analysts.
Lastly, they will contribute to the development of African statistical systems by strengthening the availability of data from national sources, up-to-date, multi-sectoral, disaggregated and complying with international norms and standards.
Background documents
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Socioeconomic Profile of West Africa in 2015 and Prospects for 2016
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Activity Report of the ECA Sub-Regional Office for West Africa 2015 and Work Programme 2016
- Outcome document: Draft conclusions and recommendations | 19th ICE for West Africa
31st Meeting of the Intergovernmental Committee of Experts (ICE) – North Africa
Green economy to speed up industrialization in North Africa
1-4 March 2016
Rabat, Morocco
High-level officials, academics, private sector and civil society representatives from Algeria, Egypt, Libya, Mauritania, Morocco, Sudan and Tunisia will take part in this international meeting. They will examine economic and social conditions in North Africa and make recommendations to achieve stronger economic development and integration in this sub-region as well as the African continent.
This meeting will build on a number of ECA studies on topics such as achieving sustained industrialization in Africa (2012 ICE meeting), optimizing the use of basic commodities and other natural resources (2013 ICE meeting), selecting policy and institutional frameworks (2014 ICE meeting) and speeding up industrialization processes through trade (2015 ICE meeting). In preparation for COP 22, scheduled to take place in Marrakech (Morocco) in November 2016, participants will also discuss the sub-region’s essential need to preserve its environment while industrializing.
One of the five regional commissions of the UN Economic and Social Council (ECOSOC), the Economic Commission for Africa was set up in 1958. In North Africa, ECA’s sub-regional office aims to increase member states’ capacity to achieve socio-economic development, especially in areas such as integration – a regional priority. The Intergovernmental Committee of Experts (ICE) supervises the activities, action plans, program and strategic orientations of the ECA’s office in North Africa.
In addition to the ICE meeting, the ECA office in North Africa will hold a round table under the theme: “Industrialization through trade in North Africa in a multi-agreement context”, to identify the necessary conditions to industrialize Africa, facilitate the emergence of growth centers in strategic industrial sectors and build regional value chains including through intra-African trade.
Background documents
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31st Meeting of the Intergovernmental Committee of Experts | Aide Memoire
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Industrialization through Trade in North Africa in the Context of the Continental Free Trade Area and Mega Trade Agreements | AEGM Concept Note
Intergovernmental Committee of Experts Meeting – Southern Africa
Financing the SADC Strategy and Roadmap on Industrialization
10-11 March 2016
Lilongwe, Malawi
Southern Africa is experiencing the toughest energy crisis yet and unless addressed, it threatens the region’s efforts to accelerate industrialization. The power crisis in southern Africa has been accumulated over decades of under investment in energy infrastructure. Hardly any country has been spared, including South Africa, the largest economy in Southern Africa. Hydro-power is the single most source of energy for much of the region, with several countries failing to meet their power needs due to antiquated and inefficient power infrastructure.
Investment in the energy sector has not matched the economy growth experienced by the region, and with it, increased energy demand.
The power crisis is happening at the time when the region is working to accelerate industrialization. On April 29, 2015, SADC Heads of State convened an extra ordinary summit and approved the SADC Industrialization Strategy and Roadmap, affirming the “importance of industrial development in poverty alleviation and the economic emancipation of the people of the region”
But, can the region industrialize among a crippling power crisis? Should SADC worry or take this as an opportunity to find a lasting solution?
The ICE will be preceded by an Ad-hoc Expert Group meeting (AEGM) to discuss the Energy Crisis in Southern Africa: Perspectives for the future from 7-8 March, 2016 also in Lilongwe, Malawi.
An issues paper ‘Financing the SADC Industrialization Strategy and Roadmap’ will form the main document for review and discussion. Recommendations from the meeting will be presented to the Conference of Ministers; an annual gathering of ministers responsible for finance and planning on the continent in March 2016, in Addis Ababa.
Both the ICE and AEGM, provide a forum for exchanging ideas and sharing lessons from a diverse pool of expertise and experiences through round-tables, presentations and open discussions.
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tralac’s Daily News selection
The selection: Tuesday, 2 February 2016
China-Africa trade: 2015 flows reflect commodity punch (Standard Bank)
What is now unambiguously clear, however, given both the reduction in the value of African exports to China, and the necessary elimination of the “commodities not elsewhere specified” category, is that China is running a large trade surplus with Africa. Last year (2015), this surplus amounted to USD35bn. By comparison, in 2014 the United States ran a trade surplus of just USD4bn with Africa, while the EU27 and Japan both ran trade deficits with Africa, of USD2bn and USD6bn respectively. As such, while China remains Africa’s largest single trading partner, the diversity and balance of this trade relationship is now more obviously problematic.
This presents political challenges for Beijing, which has until now aimed to position itself as an equal, and developing world, counterpart in its commercial and political engagements with Africa. As a result, going forward, the tone of its engagements with the continent will certainly shift, as was already evidenced at last year’s Forum on China-Africa Cooperation in Johannesburg, at which China placed greater emphasis on “win-win” partnerships with Africa, and on the need for Chinese investment and financial assistance (largely in the form of concessional loans) to boost African manufacturing, skills and infrastructure development. [The author: Simon Freemantle] [Download]
USTR's public hearing on trade and investment in Africa: testimony by Jim Kolbe (USTR)
The hard truth is that there is a growing disillusionment in Congress and in the business community for preference programs, a sentiment not altogether unwarranted. AGOA may represent a major opening for trade an investment on the African continent, but there has to be a reciprocal showing from the other side. The quality of governance matters – tackling corruption, a competitive procurement process, transparency, an independent judiciary and adherence to the rule of law, the quality of the work force – these all matter to a business thinking of making a major investment in Africa. This brings me to the main point of my remarks. As important as preference programs may be, as helpful as foreign assistance can be in bringing about infrastructure developments, I am convinced that the most important objective of our assistance program in Africa must be the facilitation of internal reforms.
Note: senior USTR officials meet today with SA agricultural and foreign policy policy research sectors (AgBiz and SAIIA)
Congress passes 'Electrify Africa Act' (VOA)
The US House of Representatives on Monday passed the Electrify Africa Act, after nearly two years of trying to get the measure through both chambers of Congress. It now goes to President Barack Obama for his signature. The bill directs the president to establish a multi-year strategy to assist countries in sub-Saharan Africa in implementing national power strategies with a mix of energy solutions, including renewable energy sources. Obama and the ambassadors from 35 African countries support the partnership.
Launched today, in Pretoria: South Africa economic update – 'promoting faster growth and poverty alleviation through competition' (World Bank)
Promoting faster growth and poverty alleviation through competition is particularly important for South Africa, which is facing weak economic growth and limited fiscal resources and has to look to avenues outside the fiscal space to stimulate faster sustainable growth and progress towards its ultimate goal of eliminating poverty, outlined in the 2030 National Development Plan. The update presents a candid assessment of South Africa’s economic prospects. With growth declining in per capita terms the NDP goals are moving further out of reach. South Africa urgently needs fundamental reforms to kick start growth and promote job creation. Advancing with reforms to improve the lives of South Africans is particularly attractive, since they hold the potential to boost growth and speed up poverty alleviation. Competition policy demonstrates the power of bold reform to ease pressures in times of a tight public purse. The report is organized as follows: section one presents economic developments and prospects, and section two presents promoting faster growth and poverty alleviation through effective competition policy. [Download]
Related: Launching tomorrow, in Harare – the World Bank's latest Zimbabwe Economic Update
Botswana: Budget 2016 speech (Finance Ministry)
The preliminary overall balance of payments for 2015 is estimated at P3.3bn as at November 2015, a decrease from P11.4bn recorded in 2014. The current account surplus is estimated to fall, from P22.9bn in 2014 to P12.9bn in 2015. The positive contribution of net inflows of receipts from the Southern African Customs Union to the current account balance is expected to be offset by the trade deficit. Exports of goods and services are estimated to decrease by 18.6% in 2015, due to weak global demand for rough diamonds, while imports are also projected to decline by 8.1% in 2015.
Tanzania: Govt unveils 22.9trn/- revenue plan for 2016/17 (IPPMedia)
The Minister for Finance and Planning, Dr Philip Mpango, yesterday unveiled the proposed framework for the one-year 2016/2017 development plan under which the government expects to collect 22.9 trillion/- in total revenue. Tabling the draft plan before members of parliament in a planning committee session here, Dr Mpango said total revenue from internal sources including local governments was expected to reach 15.8trn/-, which would cover about 68.7 per cent of all expenditure requirements compared to 62.2 per cent for fiscal year 2015/16. He said out of this, tax revenue is expected to reach 14.106trn/-, being a 14.1 per cent increase on 2015/2016 figures. Non-tax revenue, meanwhile, is expected to reach 1.11trn/- while revenue from the municipal council sources is estimated at 584 .4bn/-, according to the minister.
TFTA: Swaziland might benefit from SACU exchange tariff offer (Swazi Observer)
The Southern African Customs Union exchange tariff offer with the East African Community might be a new hope to turn things around the SACU quandary facing the country. Revenue from SACU contributed 76% of the Swazi government income in 2009 but started to drop significantly in 2010 and continued declining with projections reflecting that they would amount to only about E4.5 billion in 2016. The finalisation of the tariff offer to Egypt, Ethiopia and other non-SADC Tripartite Free Trade Area member states by SACU might increase the region’s revenues.
New customs system ASYCUDA World rolls out on February 1 (Swazi Observer)
Southern Africa: Regional policy-makers face 'perfect storm' (IOL)
Technical Barriers to Trade: SADC report on standardisation, quality assurance, accreditation and metrology programme (WTO)
This document contains information provided by SADC at the Technical Barriers to Trade (TBT) Committee meeting of 4-6 November 2015 under Agenda Item 4 (Update by Observers).
Malawi: New laboratory to spur country’s economic transformation (UNIDO)
A groundbreaking ceremony, held today in Malawi’s second largest city, Blantyre, marked the construction of a new Standardized Quality Assurance and Metrology laboratory which aims to further advance the transformation of the country’s economy. Once completed, the laboratory will ensure goods produced and packaged in the country undergo internationally accepted checks and tests, thereby enabling the participation of Malawian products in the international market and protecting the rights of consumers.
East Africa ICE breakout session: The impact of trade regimes on industrialisation (UNECA)
The objective of the AEGM is to study how regional trade policies can support industrialization in the region. The discussion will be informed by a detailed study “Industrialization and regional integration in Eastern Africa”. The study will highlight the importance of coordinating trade policy and industrial policy in the region and show how trade policy can be used to boost industrialization. [The ICE meeting]
African Space Policy and Strategy: update (AU)
The African Union Heads of State and Government Summit has adopted the African Space Policy and Strategy as the first of the concrete steps to realize an African Outer Space Programme, as one of the flagship programmes of the AU Agenda 2063. They immediately urged the Member States, RECs, Partners and the Commission to raise awareness on the central role of space science and technology in Africa’s socio-economic development and mobilize domestic resources for the implementation of this policy and strategy. Adoption of the Space Policy and Strategy has set pace for collective revitalization of African space activities in contribution to the achievements of the overarching Agenda 2063. The Space Working Group was chaired by South Africa and comprised of members from Algeria, Egypt, Kenya, Tanzania, Nigeria, Ghana, Congo and Cameroon, and Namibia for job well done.
Dr Ibrahim Assane Mayaki: address to 34th NEPAD HSGOC
Growth in global imports of information and communications technology slows to five-year low (UNCTAD)
Global imports of information and communications technology goods grew by only 1% in 2014, the latest year for which figures are available, the lowest rate of growth compared to the preceding five years, newly released UNCTAD data show. Developing countries, and those countries changing from a centrally planned economy to a market economy, accounted for more than half (57%) of total global imports, which reached a value of $2.1 trillion. The largest increases in ICT goods exports were noted for the Russian Federation (up 80%), the Philippines (up 40%), Latvia (up 30%), South Africa (up 25%), Poland (up 21%), Finland (up 13%) and Australia (up 12%). In total, ICT goods accounted for 12% of world merchandise imports in 2014. This proportion ranged between 44% for Hong Kong, China, around 20 to 24% in China, Malaysia, the Philippines and Singapore and less than 1% in Afghanistan and Mauritania.
UN Global Initiative on Decent Jobs for Youth (FAO)
Under the lead of the International Labour Organization, the Initiative was developed by 19 international organizations that are committed to increasing the impact of youth employment policies and expanding country-level action on decent jobs for young women and men. Globally, young people account for approximately 24% of the working poor - this dynamic is particularly pronounced in Africa, where over 70% of youth subsist on $2 per day or less. FAO will be leading one of the eight thematic areas of the strategy, on Youth in the Rural Economy, while contributing to others. [Draft Strategy for Global Initiative on Decent Jobs for Youth]
Robots could eat all of Ethiopia's jobs; South Africa, Nigeria and Angola not safe either (MG Africa)
Nearly all jobs in Ethiopia, and more than half of those in Angola, Mauritius, South Africa and Nigeria could be taken over by automation, according to an incisive new study, throwing a big spanner in continent’s hopes of manufacturing its way into prosperity. This is because the majority of jobs in those countries are either low-skilled or in industries highly susceptible to computers and robots, including the continent’s mainstay agriculture. The study, which draws from World Bank research, is authored by US-based bank Citi and the Oxford Martin School, a research and policy arm of the University of Oxford. It finds that 85% of jobs in Ethiopia are at risk of being automated from a pure technological viewpoint, the highest proportion of any country globally.
Mali-Côte d’Ivoire corridor: funding update (AfDB)
This high-impact project will be financed with concessional resources from the African Development Fund and the Transition Support Facility. It involves the construction of 140 kilometres of improved asphalt roads, creation of a high-quality transport corridor between Bamako in Mali and the port of San Pedro in Côte d’Ivoire. The project is expected to open up Mali and to and facilitate the transportations of persons and goods. The road passes through one of the country's major farming regions.
Leaders urged to promote intra-Africa air travel (Daily Nation)
An air transport industry lobby group Monday called on African governments to remove air traffic barriers to promote intra-Africa travel. Africa Airlines Association Chief Executive Engineer Elijah Chongosho said air transport business for passengers and cargo continues to suffer as local carriers face hefty taxes, fees and other charges associated with intra-Africa trade. “The situation worsens when some governments collude with foreign governments to block Africa airlines from their airspace in favour of foreign airlines whose officials ‘grease’ the palms of senior government officials,” he said.
Forging a West African Consensus on UNGASS (Premium Times Blogs)
The three communiqués reviewed here are a reminder that the problem of drug policy reform will go way beyond UNGASS. The global prohibitionist approach to narcotic drugs has been firmly institutionalised in West Africa’s legal systems, and in its political and judicial cultures. To change this demands much more than making uplifting speeches at the United Nations. [The author, Lansana Gberie, was a consultant for OSIWA on UNGGASS 2016]
African Development Bank to contribute to funding Nigeria’s deficit
AfDB high-level mission to Nigeria
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China-Africa trade: 2015 reflects commodity punch
As expected, African exports to China down 42% in value
Recently announced trade data by China’s customs office reflects our expectations for the harm in terms of the value of African exports to China which was wrought by last year’s precipitous commodity price slump, and the related slowdown in China’s growth prospects.
In all, African exports to China were down 42% year-on-year (y/y) in 2015, to USD67bn, from USD116bn in 2014. This was the almost exactly the increment of loss we had expected.[1]
Meanwhile, again as we had anticipated, Chinese exports to Africa held steady: in 2015 Chinese data valued total exports to Africa at USD102bn, a marginal (3.8%) decline on 2014 flows of USD106bn.
In all, last year China-Africa trade totalled USD169bn, registering a meaningful 24% decline from reported flows of USD222bn in 2014. That said, it is important to outline (again as we asserted in our September report) that China appears now to have dropped the problematic “commodities not elsewhere specified” category from its import data from Africa. In 2014 China reported imports of this category of goods to the value of USD27bn, virtually all of which (China claimed) came from South Africa. Yet South African data did not corroborate this flow. As such, if we retrospectively remove this category from the 2014 trade data, then China’s imports from Africa in that year amounted to a far more modest, though still substantial, USD89bn. Taking this figure (USD89bn), rather than the disputable figure of USD116bn, the y/y drop in African exports to China in 2015 reduces from 42% to 23%.
What is now unambiguously clear, however, given both the reduction in the value of African exports to China, and the necessary elimination of the “commodities not elsewhere specified” category, is that China is running a large trade surplus with Africa. Last year (2015), this surplus amounted to USD35bn. By comparison, in 2014 the United States (US) ran a trade surplus of just USD4bn with Africa, while the EU27 and Japan both ran trade deficits with Africa, of USD2bn and USD6bn respectively.
As such, while China remains Africa’s largest single trading partner, the diversity and balance of this trade relationship is now more obviously problematic.
This presents political challenges for Beijing, which has until now aimed to position itself as an equal, and developing world, counterpart in its commercial and political engagements with Africa. As a result, going forward, the tone of its engagements with the continent will certainly shift, as was already evidenced at last year’s Forum on China-Africa Cooperation (FOCAC) in Johannesburg, at which China placed greater emphasis on “win-win” partnerships with Africa, and on the need for Chinese investment and financial assistance (largely in the form of concessional loans) to boost African manufacturing, skills and infrastructure development.
This avenue of China-Africa engagement is a necessary and potentially productive development – but it will certainly take the foot off the pedal in terms of the raw scale of China’s commercial ascent in Africa which has been a presiding theme for the past 15 years in particular. Put simply, much of the China-Africa narrative since 2000 has rested on the seismic lift in trade – mostly, at least from 2000 to 2012, of Chinese imports from Africa. With this narrative cooling, new momentum will be needed. And the formation of the “win-win” partnerships Beijing is promising in order to stimulate this new tone will be infinitely more challenging, and bureaucratically complex, than the trade-fuelled drive which it is looking to supplement.
Finally, though the trade concerns were fully expected, we are somewhat alarmed by the announced drop in Chinese investment to Africa, with direct investment falling by a reported 40% in H1:15. We expect that this decline is a further reflection of cooler Chinese appetite for African commodities. Regardless of this, we still see strong upside in this area of China-Africa engagement, based to a great extent on the continued ambition of Chinese companies to extend their global reach as a means, in part, of offsetting domestic vulnerabilities. Further, the Chinese government appears to remain convinced of Africa’s long-term potential (as are we), and is able to secure meaningful commercial and geopolitical access with fewer of the barriers, and costs, that exist in comparable frontier and emerging economies in Latin America and the Middle East.
[1] See Insight & Strategy: China’s slowdown: the implications for Africa, 25 September 2015, where we outlined our expectations for a 40% y/y decline in African exports to China, in value terms, in 2015.
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Competition could lift South African growth and boost poverty alleviation
In times of weak growth and limited fiscal resources government policies that promote greater domestic competition and improve the regulatory environment could lift growth and support poverty alleviation, says the South Africa Economic Update released by the World Bank today.
The report’s forecast for real GDP growth is at 0.8 percent in 2016, down from 1.3% 2015 and the lowest rate of growth since 2009, weighed by a combination of external and internal factors. They include weaker commodity prices, lower Chinese demand and rising US interest rates as well as policy uncertainty, infrastructure gaps and a severe drought at home.
Growth is forecast at 1.1 percent in 2017. Overall, South Africa is projected to remain largely below the average growth rate of 4.5 percent for Sub-Saharan Africa in 2016-2017. Against this backdrop, poverty in South Africa is set to rise as incomes fall, placing the National Development Plan goals of the eradication of extreme poverty, reduction in joblessness and doubling of incomes by 2030 further out of reach.
“The outlook calls for fundamental policy action to turn the economy around. Policies that can fast-track infrastructure investment, slash the regulatory burden, enhance flexibility in markets, raise education standards and promote competitiveness have the potential to restore confidence and ignite investment and growth,” says Guang Zhe Chen, World Bank Country Director for South Africa.
The report’s special focus section examines the potential for Promoting Faster Growth and Poverty Alleviation through Effective Competition Policy.
A simulated scenario in which South Africa reduces regulatory restrictiveness of professional services sectors suggests that the value added of industries which use these professional services intensively would increase by between $1.4-1.6 billion. “This is equivalent to an additional 0.4-0.5 percentage points of GDP growth and shows the potential of such reforms to stimulate faster sustainable growth and improved competitiveness at little expense to the state budget,” says World Bank Program Leader, Catriona Purfield.
The report highlights the cases of two key input sectors – cement and telecommunications – to examine how competition enforcement and an effective regulatory environment can help promote competitiveness and faster economic growth.
In the cement sector, the busting of a regional cartel, followed by the first entry of new firms in 80 years, lowered cement prices, whilst generating investment and creating jobs. Prices in the cartelized cement markets are estimated to have fallen by 7.5-9.7 percent higher once this cartel was broken.
The case of the telecommunications sector shows how competition hinges on the broader regulatory environment beyond competition enforcement. Competitive bidding and efficient spectrum assignment policies could expand spectrum availability that has created challenges for small network providers looking to enter the market, and has left operators facing significant capacity constraints, contributing to a slowdown in broadband speeds and slow deployment of high-speed services. Timely actions by a well-resourced sector regulator and effective policy direction on spectrum licensing will be key in boosting competition and improving market outcomes.
“The forthcoming spectrum licensing process provides an opportunity to get the regulatory environment right up front by ensuring an open and transparent framework for existing firms and new entrants to bid for this capacity,” says World Bank Senior Competition Economist, Tania Begazo. Adding that there is a need for South Africa, which has had much success in using competition enforcement powers to detect anti-competitive behavior, to effectively coordinate and strengthen the comparative roles of the Competition Authorities, the sector regulator, and the policy-maker.
In addition to the growth-enhancing effects of competition, tackling cartels in basic food products can generate savings for consumers. In the case of four cartels in maize, wheat, poultry, and pharmaceuticals – products which make up 15.6 percent of the consumption basket of the population’s poorest 10 percent – helped generate a 0.4 percentage point reduction in the overall national poverty rate. This shows how competition policy can help stretch the cash transfers to the poor from the budget.
The report recommends the South Africa Competition authorities expand their investigations beyond the traditional areas of food, intermediate inputs and construction to new industries and markets. Safeguarding the efficacy of the Corporate Leniency Policy, which provides incentives for cartel members to disclose information, will be key ensuring the continued success of the Competition Authorities in cartel detection. The upcoming assignment of spectrum for broadband services offers the possibility to get the regulatory environment right so to encourage greater competition between providers allowing for more rapid progress towards the NDP target of achieving 100% access to broadband by 2020 at an affordable cost to consumers.
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Botswana: 2016 Budget Speech
2016 Budget Speech by Honourable O.K. Matambo, Minister of Finance and Development Planning, delivered to the National Assembly on 1st February 2016
I. INTRODUCTION
Madam Speaker, I have the honour this afternoon to present to the National Assembly budget proposals for the financial year 2016/2017.
Madam Speaker, the 2016/2017 budget marks the end of the tenth National Development Plan (NDP 10), whose implementation was characterised by slow growth in both the global and domestic economies. It is, therefore, an opportune time to reflect on our achievements during NDP 10, as well as determine how best to address the persistent development challenges facing this country such as unemployment and poverty.
Among the achievements by Government was the ability to support growth momentum in the domestic economy during NDP 10, despite the fact that the implementation of the Plan coincided with the global financial and economic crisis of 2008/2009. In the face of the crisis, this Government demonstrated its prudent stewardship in economic and financial management and acted decisively by adopting a proactive fiscal stance to support domestic economic activities. As a result, the average growth in the domestic economy over the Plan period is now expected to be around 4.5 percent, compared to the initial 3.3 percent forecast at the beginning of the Plan.
Most importantly, the use of fiscal policy to support growth was done responsibly to ensure continued macroeconomic stability; with the average accumulated budget deficit during the Plan period now estimated at P4.7 billion or negative 3.1 percent of Gross Domestic Product (GDP), compared to P31.9 billion or negative 16.4 percent of GDP initially projected for the Plan. Monetary policy also remained supportive over the Plan period, with inflation decelerating towards the lower end of the Bank of Botswana’s objective range of 3-6 percent, while the exchange rate policy resulted in a stable real effective exchange rate, which is a necessary condition for promoting competitiveness of domestic industries.
Despite the achievements in the macroeconomic area, the Government’s effort to address development challenges facing this country was constrained by the continued weak recovery of the global economy. The prolonged depression of commodity prices, especially of diamonds, has further weakened the domestic economic prospects. In addition, the shortage of water and electricity, which are key inputs in driving economic activities, has also undermined domestic growth prospects.
Madam Speaker, the constraints I have just outlined led to a significant downwards revision of the domestic growth forecast for 2015, prompting Government to adopt the Economic Stimulus Programme (ESP) as a strategy to: boost growth, promote economic diversification, and create jobs. ESP is aimed at supporting domestic economic activities in the short term, while providing foundation for a sustainable growth path for the economy in the long term through investment in infrastructural development. In this regard, a strategic approach was adopted in the selection of sectors for interventions, based on their potential for growth and job creation. The implementation of the ESP is scheduled to start in earnest in 2016/2017 financial year. With the extension of NDP 10 by an additional year to end in 2016/2017, any new projects under the ESP will therefore be approved through this budget. The intention is to use the ESP to accelerate the implementation of these programmes and projects. I will return to some of the elements of this Programme in my presentation of the 2016/2017 budget proposals.
Madam Speaker, the preparation of the budget proposals for the 2016/2017 financial year was guided by priorities, as presented in the 2016/2017 Budget Strategy Paper. These priorities were discussed extensively during the Budget diPitso held with relevant stakeholders late last year. Among the top national priorities to be addressed through the 2016/2017 budget are: economic growth; employment creation; and poverty eradication. Accordingly, resources are proposed for allocation to: infrastructure development to address the challenges of inadequate water and electricity supply; social infrastructure to address existing backlogs of classrooms and health facilities; and land servicing to facilitate business opportunities.
In many respects, the 2016/2017 budget is a transitional budget, specifically from: NDP 10 to NDP 11; Vision 2016 to Vision 2036; and the United Nations Millennium Development Goals (MDGs) to Sustainable Development Goals (SDGs). Efforts were therefore made during the preparation of the 2016/2017 budget to ensure that it lays a sound foundation and expenditure path for NDP 11, while at the same time aligning its priorities with the emerging themes of both the Vision 2036, and the Sustainable Development Goals. The preparation of the Vision 2036 is underway, while the SDGs were adopted by the United Nations General Assembly in September 2015. A full alignment of the Vision 2036 and the SDGs with the annual budgets will be achieved through implementation of NDP 11, whose preparation is at an advanced stage and I hope to present its draft to this Honourable House in July this year.
At this juncture, Madam Speaker, I wish to review the global and domestic economic performance and outlook, which provide the context for the 2016/2017 budget proposals.
II. ECONOMIC REVIEW AND OUTLOOK
Global Economic Review
Madam Speaker, owing to declining commodity prices and increasing financial market volatility, the global economic performance for 2015 was characterised by an uneven economic performance. According to the World Economic Outlook released by the International Monetary Fund in January 2016, growth in the global economy was 3.1 percent in 2015. This is lower than a growth rate of 3.4 percent achieved in 2014. World output growth is however expected to improve slightly in 2016 to reach 3.4 percent.
Growth in advanced economies remained modest during 2015; registering 1.9 percent, from 1.8 percent recorded in 2014, and is expected to reach 2.1 percent in 2016. The outlook for 2016 is underpinned by strengthening of growth in emerging market and developing economies, which is expected to reach 4.3 percent. The downside risks to such forecast include: the continued slowdown in the growth of the Chinese economy, weaker growth in oil exporting countries, and declines in other commodity prices. Given that economies are to a large extent integrated, the weak global economic prospects impact negatively on the performance of sub-Saharan Africa, including Botswana. In the event, growth in these economies is expected to have declined to 3.5 percent in 2015, from 5.0 percent in 2014. However, in 2016, economic growth for sub-Saharan Africa is expected to strengthen to 4.0 percent, due to an expected modest recovery in oil prices, which will benefit large oil exporting economies in the region, particularly, Nigeria and Angola, as well as an improvement in the outlook of countries which were initially affected by Ebola.
Regional Economic Review
Madam Speaker, the economic performance of the Southern African Development Community (SADC) region mirrors that of the global outlook. The region’s real GDP growth and inflation rate are expected to be on a downward trend, because of falling commodity prices and weak demand for exports. According to the recent World Economic Outlook of January 2016, only two Member States namely, Mozambique and Democratic Republic of Congo are expected to surpass the region’s real GDP growth target of 7.0 percent in 2015. Much of the decline in the growth rate occurred within the Southern African Customs Union (SACU) Member States. Consequently, growth in the SADC region is expected to average 3.9 percent during 2015, compared to 4.6 percent recorded in 2014. Inflation in most SADC Member States eased in 2015, remaining below the region’s target rate of 7.0 percent, with the exception of Malawi and Zimbabwe. In general, inflation within the region is expected to be stable at 5.6 percent during 2015; the same rate recorded in 2014.
Domestic Economic Review
Economic Growth
Madam Speaker, the continued slowdown of growth in the global economy, particularly in the major markets for our diamonds, has had profound impact on the domestic economy. The latest estimates from Statistics Botswana indicate that, the domestic economy declined by 3.5 percent in the third quarter of 2015. As a result, the growth estimate for the 2015 has been revised downwards from 2.6 percent to 1.0 percent. This compares to the growth rate of 3.2 percent recorded in 2014. Contributing to the slow growth in the domestic economy in 2015 was the mining sector, which declined by 14.0 percent in 2015, due to the reduction of diamond production. Water and Electricity sector also registered a decline of 104 percent, due to continued water and electricity supply challenges. Growth in other non-mining sectors is also estimated to slow down during the year, reflecting the effect of the water and electricity shortages on domestic economic activities.
However, a modest recovery in the domestic economy is expected in 2016 and 2017, with growth rates projected to be 4.2 percent and 4.3 percent, respectively, underpinned by recovery in both the mining and non-mining sectors. Mining sector, which accounts for a quarter of the domestic output, is forecast to grow by 0.6 percent in 2016, and a further 0.7 percent in 2017, compared to the decline of 14 percent in 2015. The non-mining sector, on the other hand, is forecast to grow by 4.7 percent and 4.9 percent in 2016 and 2017, respectively, compared to 3.9 percent achieved in 2015. These growth forecasts are based on the expected moderate recovery in the global economy, as well as the impact of the domestic policy initiatives such the Economic Stimulus Programme.
Monetary Policy and Inflation
Madam Speaker, to support growth, an accommodative monetary policy stance was maintained during 2015, with the Bank Rate being reduced from 6.5 percent at the beginning of the year to 6.0 percent in August 2015. This reduction was consistent with the inflationary outlook and was expected to reduce the cost of borrowing for investment in the country.
Over the twelve months to December 2015, annual inflation rate fell from 3.8 percent in 2014 to 3.1 percent in 2015. This was driven by the decrease in fuel prices, which were adjusted downwards in February, August and December 2015, following a decrease in crude oil prices worldwide. It is anticipated that this trend will continue, thus exerting downward pressure on domestic prices; with inflation remaining within the Bank of Botswana’s objective range of 3-6 percent.
Balance of Payments and Foreign Exchange Reserves
Madam Speaker, the preliminary overall balance of payments for 2015 is estimated at P3.3 billion as at November 2015, a decrease from P11.4 billion recorded in 2014. The current account surplus is estimated to fall, from P22.9 billion in 2014 to P12.9 billion in 2015. The positive contribution of net inflows of receipts from the Southern African Customs Union (SACU) to the current account balance is expected to be offset by the trade deficit. Exports of goods and services are estimated to decrease by 18.6 percent in 2015, due to weak global demand for rough diamonds, while imports are also projected to decline by 8.1 percent in 2015.
The level of the country’s foreign exchange reserves stood at P84.9 billion in December 2015, an increase of 7.3 percent from P79.1 billion in the previous year. Expressed in US dollar and Special Drawing Rights (SDR) terms, the foreign exchange reserves were equivalent to USD7.5 billion and SDR5.5 billion, respectively.
This represents an equivalent of 19 months of import cover of goods and services. The increase in foreign exchange reserves in Pula terms was mainly due to the depreciation of the Pula against major international currencies.
Madam Speaker, of the total amount of reserves in December 2015, Government Investment Account, which is Government savings, amounted to P35.0 billion. While this portion of the reserves is available for Government use, it is important that the use of these reserves is restricted to investment in high impact projects, with potential to bolster economic growth, and thus, contribute to future budget surpluses needed to re-build depleted reserves.
Exchange Rate Developments
Madam Speaker, the exchange rate policy supports our export-oriented development strategy, as it ensures stability of the real effective exchange rate (REER). As an inflation-adjusted exchange rate, REER is used to measure the country’s competitiveness; a rise in the REER implies that the country's exports are more expensive and imports are cheaper, while a fall in the REER makes a country's exports cheaper and its imports expensive. It is therefore important to ensure that the domestic currency is neither over nor undervalued for the country to remain competitive in international markets.
The annual review of the Pula exchange rate mechanism, which took place in December 2015, resulted in maintaining the current basket weights of 50 percent South African rand and 50 percent IMF’s Special Drawing Rights (SDR), while the rate of crawl was changed from zero to an upward rate of 0.38 percent per annum for 2016. This in line with expected monetary developments in the country’s major trading partners. In terms of the bilateral exchange rate movements in 2015, the Pula appreciated against the South African Rand by 13.6 percent, while it depreciated by 11.6 percent against the SDR.
Madam Speaker, it is important to note that while a country can achieve some competitiveness in the short term through the management of the exchange rate, a sustainable way to achieve robust international competitiveness is through growth in productivity and improved efficiency among domestic economic entities. In this regard, Government will continue to implement public sector reforms, and undertake other structural reforms to improve productivity in the economy.
Performance of Public Enterprises
Madam Speaker, parastatal organisations or state owned enterprises showed mixed performance in 2014 and 2015. While some State owned enterprises such as; Botswana Development Corporation, Botswana Telecommunications Corporation Limited, Botswana Communications Regulatory Authority, Botswana Housing Corporation, and Botswana Savings Bank, made profit, others, which include; Water Utilities Corporation, Air Botswana, National Development Bank, and Botswana Meat Commission, recorded operational losses. I will now give a brief overview of the performance of each of these selected parastatal organisations.
During 2015, BDC made a net profit of P202.2 million, after a net loss of P7.8 million in 2014.
Similarly, Botswana Telecommunications Corporation Limited (BTCL) performed well, recording a net profit of P146.8 million in 2015, compared to P140 000 in 2014. The lower profit in 2014 for BTCL was attributed to the impairment charged for the significant drop in the value of the company, as a result of the transfer of some of its assets to BOFINET. Meanwhile, an Initial Public Offer (IPO) was launched in December 2015, which provided an opportunity for Batswana to own shares in BTCL. So far, the response from Batswana has been overwhelming. Eventually, the BTCL shares will be listed in the Botswana Stock Exchange to allow for their trading.
The Botswana Communications Regulatory Authority also recorded a net profit of P31.7 million in 2015, a decline from P48.1 million in 2014, mainly due to a fall in operating revenues owing to tariff reductions for essential services and a rise in operating expenses due to acquisition and replacement of network equipment as well as digital migration. The Botswana Housing Corporation recorded a net profit of P9.8 million in 2015, a decrease of 39.9 percent, from P16.3 million in 2014, as a result of its outreach programme that increased its staff costs and the construction of social housing projects. Botswana Savings Bank’s net profit declined marginally to P12.2 million in 2015, compared to P12.8 million in 2014, due to increased competition in the domestic banking sector.
Madam Speaker, the Water Utilities Corporation, recorded a net loss of P367.0 million in 2015 up from P361.0 million in 2014. The continued poor performance was due to prolonged drought spells which increased water transfer cost and provision of additional water sources. Air Botswana made a net loss of P165 million in 2015 compared to, P100 million in 2014, mainly due to high costs of maintenance of its old fleet of aircrafts.
The National Development Bank registered a net loss of P37.2 million in 2015 compared to a net loss of P86.3 million in 2014. The Botswana Meat Commission whose latest audited financial statements are for 2014, registered a net loss of P9.6 million in 2014, after registering a net profit of P25 million in 2013. This loss was partly due to measles outbreak during 2014, and inadequate supply of cattle to the Commission, resulting in its failure to supply beef to the lucrative European Union market.
Development of Vision 2036 and Adoption of Sustainable Development Goals
Madam Speaker, the year 2016 marks an important milestone in our journey as a nation; as the country will be celebrating its 50th anniversary of independence. The year also coincides with the end of Vision 2016. In this regard, the ongoing review of the Vision 2016 will provide an opportunity to assess our achievements as a country over the past five decades, as well as the challenges facing the country. Meanwhile, a process to develop the next vision – Vision 2036, has since been launched, with a Presidential Task Team appointed towards the end of 2015 to guide national consultations on the development of the new Vision. The Team is expected to conclude its task in April 2016, with the draft Vision 2036 scheduled for presentation to Parliament in June 2016. The new Vision is expected to be launched in September 2016 to coincide with celebrations for the country’s 50th anniversary of independence.
Madam Speaker, the United Nations family adopted the Sustainable Development Goals (SDGs) that will guide development process for the next 15 years. The SDGs cover a wide spectrum of dimensions such as poverty, hunger, health, gender equality, energy, water, economy, income inequality, climate change and governance. A number of these goals are aligned to Botswana’s national priorities and will be implemented as part of our normal planning process.
III. KEY THEMATIC AREAS FOR 2016/2017 FINANCIAL YEAR
Madam Speaker, as 2016/2017 is the last financial year of NDP 10, the proposed budget provides an opportunity to consolidate activities originally planned for the Plan period; some of which were later postponed due to the global financial and economic recession of 2008/2009. The recently announced Economic Stimulus Programme also provides an opportunity to intensify backlog eradication efforts by accelerating the implementation of programmes and projects approved for NDP 10. In this respect, the proposed budget allocations for 2016/2017 cover key thematic areas of: investing in infrastructural development; creating employment opportunities; strengthening human capital; enhancing national security; and strengthening local governance. I shall briefly discuss the details of each of these thematic areas in turn:
Investing in Infrastructural Development
Madam Speaker, the importance of water and electricity, as key inputs into economic activities cannot be overemphasised. The country is currently faced with water and electricity supply shortages due to the drought situation and continued technical problems related to power supply, respectively. Shortages of such critical utilities do not only inconvenience the general public, but also undermine growth in the economy; as they adversely affect business operations. As such, all projects for water and electricity will be accorded high priority in the allocation of the budget in 2016/2017.
Water
Madam Speaker, to address the water situation, Government has embarked on a number of projects in various districts to ensure security of water and improved waste water management. For the Greater Gaborone area, Government intends to meet water demands by, among others, increasing water storage capacities and construction of new primary water pipelines. Phase II of the North-South Carrier Water Scheme, which involves construction of a parallel pipeline to the existing line is underway.
Other initiatives include exploring the possibilities of accessing water from Lesotho and the Chobe-Zambezi area.
In addition, initiatives are underway to reclaim waste water, as an alternative water resource. The construction of a waste water reclamation plant in Mahalapye is underway. This Plant will produce 3.9 million Cubic Meters of water per annum, with a potential to irrigate 40 hectares of agricultural land. It is expected that the reclaimed waste water initiative will reduce pressure on usage of portable water on agricultural production. Moreover, Government through Botswana Institute for Technology Research and Innovation, has set-up a world class Centre for Material Sciences that will assist in the development of new materials in the water purification sector and air filtration, amongst others.
Energy
Madam Speaker, to address power challenges, efforts continue to be made to address the technical issues facing the Morupule B Power Station. The plant’s reliability has been low due to major defects arising from the construction of the project. This has resulted in a financial burden for Botswana Power Corporation, which has to source power from, among others, the Emergency Diesel Power plants and import power at high costs. To improve on the power generation situation in the country, the Morupule A Power Station is being refurbished. The project scope includes overhauling and repairing various units, which should result in an additional output of 132 MW.
Despite the power challenges, Government remains committed to improving access to electricity within the country, with more villages planned for electrification through the rural electrification programme. In this regard, network extension in 24 villages is currently ongoing. The solar electrification programme is also ongoing in Government schools and associated facilities that are far away from the national power grid. Furthermore, the implementation of the National Electricity Standard Cost, which was established to reduce the burden of high connection cost for domestic consumers, is ongoing. In an effort to cut on costs, Government has adopted low cost solar technology for street lighting, and sensitised Government departments on its availability. Its use has been demonstrated in Gaborone, Ghanzi and Southern Kgalagadi Districts, with possible roll-out to other areas across the country.
Creating Employment Opportunities
Madam Speaker, unemployment, especially among the youth, is one of the development challenges facing this country. To address this, Government has resolved to, among others, use its spending power to boost economic growth and create jobs in the country. Therefore, in addition to seeking value-for-money in spending Government budget, efforts will be made to ensure that such expenditure, whether under recurrent or development budget, contributes to job creation in the country.
Some of the economic activities with potential for creating employment opportunities, which Government will be undertaking during 2016/2017 include: infrastructure backlog eradication, road networks and maintenance, wildlife and tourism initiatives, continued implementation of EDD initiatives, creation of Special Economic Zones, as well as regulatory reforms and improving efficiency.
Infrastructure Backlog Eradication
Madam Speaker, the global financial and economic crisis led to a number of projects being deferred, especially in the areas of social and economic infrastructure such as in education, health, and roads. In this regard, Government, through the ESP is embarking on fast-tracking backlog eradication, which covers construction of classrooms, staff quarters, and customary courts; upgrading of health facilities; and rural electrification.
The implementation of the ESP will create jobs especially in the construction sector and rural areas. In the same vein, youth owned construction companies and individual youths with vocational skills in maintenance should be given priority in the implementation of the ESP through the Youth Empowerment Reservation Programme. Currently, the Programme reserves 15 percent of minor maintenance budget of Government facilities for youth companies and youth with vocational skills in construction.
Road Networks and Maintenance
Madam Speaker, another potential area for employment creation is in the area of maintenance of the road network in the country. With better project designs and proper packaging of contracts, contractors can be encouraged to use more labour than machinery in the execution of the road maintenance programmes. A study commissioned in the 2013/2014 financial year to look at the condition of our road network as well as investment needs analysis revealed that about 90 percent of our roads are in good condition, while 10 percent require urgent maintenance. It is against this background that road maintenance interventions have been given priority to eradicate existing backlogs.
Some major maintenance works are ongoing in the following roads; Sefophe – Martin’s Drift, Tsau – Nokaneng, Maun – Toteng, and Ghanzi (Junction 44) – Tsootsha. In addition, Notwane and Kazungula bridges are being constructed, while Platjan and Mohembo Bridges are at tendering stage. Civil works contracts for two (2) Output and Performance-based Road Contract (OPRC) packages covering a total of 335 km in the Southern region were signed in February 2014 and the rehabilitation works are underway. The implementation of these construction activities relating to road infrastructure will boost domestic economic growth and also create employment opportunities.
Wildlife and Tourism initiatives
Madam Speaker, the tourism sector has potential to contribute positively to growth and job creation in the country. Hence, Government will continue to create an enabling environment for tourism businesses including encouraging joint partnerships between individuals, citizen companies and non-citizens. A number of initiatives are also being undertaken which include; the Dams Tourism project, the Gaborone Precinct project, which will showcase diverse tourism products under one roof, and the Kasane-Kazungula Redevelopment project currently under preparation. With the initiatives to grow tourism in the country, Botswana was voted the best destination country to visit in 2016 by Lonely Planet Publication, a global travel and tourism publication.
Economic Diversification Drive and Special Economic Zones
Madam Speaker, the Economic Diversification Drive (EDD) initiative and the establishment of Special Economic Zones are considered important in promoting both domestic and foreign direct investments, thus boosting growth and creating the much needed employment opportunities in the country. Furthermore, these initiatives are consistent with other Government policies such as the Citizen Economic Empowerment, and initiatives to develop entrepreneurial culture among Batswana, especially the young emerging business entrepreneurs. This should, in turn, develop local capacity to diversify the economy.
The EDD initiative continues to be one of Government’s priority areas in promoting domestic production, and consumption of local products. In December 2014, Government issued a Directive to reinforce EDD by instructing all Government and parastatal organisations to prioritise procurement of locally produced goods and services, in addition to awarding price preference to local enterprises.
Madam Speaker, as part of creating a conducive environment for private sector development in the country, a Special Economic Zones (SEZs) legislation was promulgated in August 2015. The implementation of the SEZ programme will be in three (3) phases. Phase I will include three sites namely: (i) the mixed-use near Sir Seretse Khama International Airport, comprising international diamond activities, auto components manufacturing, agro-processing, pharmaceuticals, and general manufacturing; (ii) Gaborone Fairgrounds’ financial services; and (iii) Pandamatenga Integrated farming, agro business and food processing. Activities under this phase are at various stages of implementation and form part of the 2016/2017 financial year’s budget. Phase II of the SEZs is planned for Francistown, Selebi Phikwe, and Lobatse areas, while Phase III will focus on the Tuli Block and Palapye areas. Government is in the process of establishing a Special Economic Zone Authority which will oversee the implementation of the SEZ programme.
Regulatory reforms and improving efficiency
Madam Speaker, creating employment opportunities requires rapid and sustained economic growth, which in turn depends on among others, the overall efficiency and productivity of the economy. In this connection, Government continues to undertake various measures to deregulate the goods and labour markets, with a view to improving efficiency. Specifically, Government has intensified the implementation of the reform roadmap and action plan for Doing Business in Botswana. Some of the initiatives in the roadmap include: reviewing of various pieces of legislation, public sector reforms to streamline processes for service delivery in the country, and leveraging on the information and communications technology to improve productivity in the economy.
Strengthening Human Capital
Madam Speaker, human capital development remains a high priority for Government as education and training are critical for capacity building, citizen economic empowerment, as well as social and economic development. In this regard, substantial resources will continue to be channelled towards education and training with emphasis on ensuring that the skills and qualifications offered and acquired are more responsive to the needs of the labour market.
Skills Development
Madam Speaker, in recognition of the importance of education to achieving inclusive growth, Government has, over the years, invested substantial resources in the development of skills for the country’s workforce. Besides empowering the individual to make informed choices in life, education can contribute to sustainable economic growth through improved productivity of the workforce, as well as the ability to adopt technology. Concerned with the declining education performance, Government adopted the Education and Training Sector Strategic Plan (ETSSP) in 2015, whose implementation is expected to address the quality of existing Vocational Education and Training programmes as a way of equipping the youth with appropriate skills.
Furthermore, the ETSSP will also increase equitable access to education by intensifying the use of Information, Communication and Technology (ICT) in learning. Under the ETSSP, an Early Childhood Policy Framework will be developed in partnership with the United Nations Children’s Fund to guide the implementation of Early Childhood Care and Development in the next five years. The acceleration of backlog eradication of classrooms and other education facilities under the ESP will help achieve some of these targets.
Health
Madam Speaker, as the old adage goes “a healthy nation is a productive nation”; hence, Government is committed to investing in health not only to raise the standard of living in the country, but also to improve the productivity of the workforce. In this connection, Government will continue to pursue avenues to improve the standard of health by continuously reviewing the policies and processes of delivering health in the country. One such avenue will be the implementation, in 2016, of the Medicines and Related Products Supply Chain Strategy. The objective of the Strategy is to ensure regular availability and rational use of essential medicines, and provide quality assurance and security of health commodities throughout the supply chain.
Enhancing National Security
Combating Crime and Corruption
Madam Speaker, our continued ranking as the least corrupt country in Africa in the Transparency International Corruption Perception Index is commendable. However, there is no room for complacency, given the negative impact of crime and corruption in our individual lives, as well as on the economy. In this regard, Government regularly conducts audits in different areas such as: recruitment and promotions processes; acquisition and distribution of drugs; and procurement of medical equipment, with a view to identifying loopholes in the systems.
Efforts by Government in combating crime are yielding positive results as indicated by the recent decline in some categories of crime. However, the country continues to be susceptible to security challenges including cybercrime. In order to address these challenges, initiatives are being put in place, particularly through provision of capacity building in investigation, intelligence and forensics. In addition, the capacities of the various security agencies are being strengthened to respond to the emerging need for a secure environment. These include the recruitment of more security personnel, providing transport and logistics, and equipping them to, among others, undertake quality investigations and improve surveillance.
Strengthening Local Governance
Madam Speaker, with their close proximity to the communities, Local Authorities play an important role in the delivery of services to the public. It is for this reason that Government is committed to strengthening and fostering their operations in providing local services and promoting local participation, as part of the efforts to create employment opportunities and alleviating poverty.
Local Economic Development
Madam Speaker, in order to strengthen local governance, Government continues to put in place policies and strategies to develop districts and urban centres. In this regard, Government developed the Local Economic Development (LED) Framework in 2015 in recognition of the potential for Local Authorities to drive economic growth. The LED initiative is intended to enable communities to: identify their development challenges and needs; understand their resource endowment; mobilise resources; and take action to grow and diversify their local economies. This initiative is expected to have lasting outcomes on creating decent jobs and incomes for the communities, thereby improving livelihoods for citizens.
In addition, Government approved the Strategy on Private Sector Participation in Land Servicing in April 2015. Among the areas already identified for piloting the initiative include: Gerald Estate Block 1 and Central Business District in Francistown, Kasane, Ramotswa, and Morwa/Bokaa area in Kgatleng District. Under this strategy, the private sector is expected to participate in land servicing. Meanwhile, Government will continue to undertake servicing of land in some districts by providing waterlines, storm water drainage, and de-bushing, in order to facilitate plot development.
Social Welfare Programmes
Madam Speaker, in an effort to enhance the living standards of the most vulnerable members of our society, Government continues to provide social welfare programmes. These programmes are intended for the vulnerable groups such as the elderly, orphans and people living with disabilities, and should not be confused with short term relief programmes such as Ipelegeng.
This Government is committed to ensuring that, through the social welfare programmes, people who fall under the vulnerable group category live in dignity. On the other hand, those people engaged under short term relief measures such as Ipelegeng are expected to graduate into sustainable employment opportunities, which is a necessary condition for reducing poverty. Nonetheless, Government is committed to ensure the sustainability of these programmes through continuous evaluation of their effectiveness, and better targeting of their beneficiaries.
Over the years, the social welfare programmes have combined both cash transfers and income generating micro projects, mainly under the Poverty Eradication Programme. As at August 2015, a total of 207,385 beneficiaries were registered under temporary relief programmes. In addition, cash allowances were increased effective April 2015 as follows: old age pensions allowance increased from P300 to P330; world war veterans’ allowance increased from P420 to P450; while destitute persons’ allowance was increased from P120 to P150. The disability cash transfer of P300, targeting people with severe and profound disabilities, was also introduced in April, 2015.
IV. 2014/2015 BUDGET OUTTURN
Madam Speaker, total revenues and grants for the 2014/2015 financial year amounted to P55.90 billion, an increase of P4.36 billion or 8.46 percent over the revised budget of P51.54 billion. This performance was underpinned by the increase in mineral and Bank of Botswana revenues. Mineral revenues increased due to more than expected dividend receipts, while an extra amount of P1.7 billion was received from Bank of Botswana as additional dividends and residual income. Total expenditure and net lending, on the other hand, declined from the revised budget of P51.26 billion to P50.56 billion, mainly due to under-expenditure in the development budget.
As a result, the overall budget outturn for the 2014/2015 financial year was a surplus of P5.34 billion or 3.7 percent of GDP, which is significantly higher compared to a marginal surplus of P280.83 million projected in the revised budget for the same year.
V. 2015/2016 REVISED BUDGET ESTIMATES
Madam Speaker, for 2015/2016 revised budget, total revenues and grants of P51.76 billion, represents a decrease of P3.62 billion or 6.5 percent, from the original budget of P55.38 billion.
The decline in total revenue is due to the fall in Mineral revenue, which is expected to decrease by P1.85 billion. In addition, Customs and Excise revenue and Value Added Tax (VAT) are also estimated to decline from their original budget by P885.41 million and P1.17 billion, respectively. The decline in the Customs and Excise revenue emanates from the appreciation of the Pula against the Rand. VAT revenue, on the other hand, declined due to unexpected substantial refund claims, especially from mining companies.
On the other hand, the revised total expenditure and net lending for 2015/2016 is estimated at P55.96 billion, an increase of P1.81 billion or 3.3 percent from the original budget estimate of P54.15 billion. This increase is due to supplementary funding of P423.36 million under recurrent and P1.39 billion for the development budget. As a result, the revised 2015/2016 budget shows a deficit of P4.20 billion or minus 2.8 percent of GDP compared to the original projected surplus of P1.23 billion.
VI. 2016/2017 BUDGET PROPOSALS
Madam Speaker, at this juncture, I would like to present the budget proposals for the 2016/2017 financial year. I must emphasise that the proposed budget allocations were informed by the need to stimulate economic growth and create job opportunities in line with the ESP objectives. The implementation of the ESP will be done prudently to ensure continued fiscal sustainability.
Special emphasis will be placed on the phased implementation of Government programmes and projects, taking into account constrained fiscal space and available implementation capacity. This calls for strict discipline in utilising available public funds by Ministries and Departments. Furthermore, it means that implementation capacity and expenditure quality must improve significantly to yield the desired outcome, otherwise, less resources would be available for future economic activities.
Revenues and Grants
Madam Speaker, total revenues and grants for 2016/2017 are estimated at P48.40 billion, a decrease of P3.36 billion compared to the revised budget of P51.76 billion for 2015/2016; with Mineral revenue contributing 35.2 percent of the total revenues, followed by Customs and Excise at 24.3 percent. Non-Mineral Income Tax and Value Added Tax come third and fourth at 21.2 percent and 12.4 percent, respectively. The reduction in the 2016/2017 revenues compared to 2015/2016 is a result of the projected fall of 6.9 percent in mineral revenues and 23.8 percent in customs and excise receipts.
Recurrent Budget
Madam Speaker, the proposed Ministerial Recurrent Budget for 2016/2017 financial year amounts to P36.99 billion, an increase of P0.29 billion or 0.8 percent compared to the current year’s original budget of P36.70 billion.
The largest share of the Ministerial Recurrent Budget is proposed for allocation to the Ministry of Education and Skills Development, with a budget of P10.64 billion or 28.8 percent of the total. Through the implementation of the Education and Training Sector Strategic Plan, Government is committed to ensure that issues of quality of education and skills mismatch are addressed.
This substantial budget caters for, among others, teaching services’ wage bill, post-secondary bursaries, and subventions to University of Botswana and other Government funded tertiary institutions, increased enrolment for the Botswana International University of Science and Technology, provision for examination costs, maintenance of institutional facilities, food for secondary school students, and utility costs for the various education facilities.
The second largest share of the proposed Ministerial Recurrent Budget of P5.75 billion or 15.5 percent is proposed for allocation to the Ministry of Health. This budget will cover the cost of drugs, dressings and vaccines, service charges, anti-retroviral therapy, replacement of obsolete medical equipment, medical specialists’ fees, running costs for the new Teaching Hospital, and the establishment of the Medicine Regulatory Authority, among others.
An amount of P4.99 billion or 13.5 percent of the total, being the third largest share, is proposed for allocation to the Ministry of Local Government and Rural Development. The bulk of this amount is mainly to cater for: revenue support grants to Councils, social protection programmes including the Old Age Pension scheme, Orphan Care programme, and the Destitute programme, which includes the special Okavango Destitute initiative.
The fourth largest share is proposed for allocation to the Ministry of Defence Justice and Security at P4.95 billion or 13.4 percent to cater for among others operational costs for; the BDF, Botswana Police, and Botswana Prison Services.
An amount of P2.02 billion or 5.5 percent is recommended for the Ministry of Transport and Communications which is the fifth largest share. This will cover maintenance of roads, replacement of vehicles, upgrading of the Government Data Network, subvention to the Civil Aviation Authority of Botswana and Botswana Post’s Universal Service Obligation costs.
The sixth largest share of P1.11 billion or 3.0 percent of the total, is proposed for allocation to the Ministry of State President to cover, among others; service charges, programme development costs of the Department of Broadcasting Services, printing costs, office rent, Vision 2016 Council winding up expenses, and additional budget provision arising from the transfer of District Administration and Public Enterprise Evaluation and Privatization Agency to the Ministry.
Madam Speaker, the balance of P7.53 billion or 20.4 percent of the total is proposed for allocation to the remaining Ministries and Departments. Among these, the largest share of the balance is proposed for the Ministry of Agriculture at P1.09 billion, to cater for operating charges including service charges, purchase of material, foot and mouth disease, and animal identification devices.
The second largest share of the balance amounting to P908.53 million is recommended for the Ministry of Trade and Industry to cover subventions for its parastatals, especially Selebi-Phikwe Economic Diversification Unit (SPEDU) and its transformation into a company limited by guarantee.
Statutory Expenditure
Madam Speaker, the proposed Statutory Expenditure for 2016/2017 financial year amounts to P6.91 billion, a decrease of 12.9 percent compared to P7.93 billion allocated for the 2015/2016 financial year. The reduction in this provision is due to the P1.64 billion payment of Government Bond BW003, in the 2015/2016 financial year.
Development Budget
Madam Speaker, a total development budget of P14.82 billion is proposed for the financial year 2016/2017. The Ministry of Defence, Justice and Security, with a proposed allocation of P3.59 billion or 24.2 percent, takes the largest share of the proposed budget, mainly to cater for provision of defence equipment, communication equipment, and infrastructure, in order to improve BDF’s defence capabilities. In addition, the allocation caters for construction of police stations at Mmathubudukwane, Maitengwe and Semolale, as well as staff houses in different locations in order to improve safety and security.
The second largest share of P3.43 billion or 23.1 percent is proposed for the Ministry of Minerals, Energy and Water Resources. The budget caters for energy and water infrastructure in order to address the current supply shortages which have affected the welfare of Batswana. The major energy infrastructure projects include; Morupule A Power Station rehabilitation at P135 million, North-West Electricity Transmission Grid at P225 million and Rakola sub-station at P257 million. In addition, the Botswana Power Corporation requires cash injection of P1.35 billion to cater for emergency power supply and P257 million under ESP for rural electrification.
The water infrastructure projects include: the North South Carrier (NSC) II from Palapye to Mmamashia; Mahalapye and Palapye network extensions; connection of Kanye and Molepolole to NSC; Maun Water Supply and Sanitation and Kanye Sanitation; country-wide ground water investigation; as well as various water supply interconnections.
The Ministry of Transport and Communications, with a proposed budget of P1.41 billion or 9.5 percent, takes the third largest share to cater for construction of secondary roads, bridges, bitumen and trunk roads. The major projects under this Ministry are: Kazungula and Mohembo bridges; Output Performance Road Contract for Mankgodi-Jwaneng and Rakhuna-Mabule roads; as well as the Traffic signals improvements and centralised traffic control in Gaborone, an initiative which is aimed at improving the flow of traffic. The proposed budget includes an estimated amount of P250 million for road projects under the ESP.
The fourth largest share is proposed for the Ministry of Local Government and Rural Development at P1.22 billion or 8.3 percent. The budget mainly caters for Ipelegeng and Destitute Housing programmes. Part of the Ministry’s budget is for ESP projects at P315.04 million for backlog eradication for primary school facilities, village infrastructure and construction of customary courts. The Ministry of Education and Skills Development with a proposed budget of P1.09 billion or 7.4 percent gets the fifth largest share; out of which a sum of P440.35 million is for the construction of teachers’ houses, classrooms and laboratories under ESP.
Madam Speaker, the other Ministries and Departments share the remaining balance of the proposed Development Budget of P4.17 billion. The largest share of the balance is proposed for the Ministry of Lands and Housing at P910.37 million. The budget mainly caters for: Land Servicing at P338.38 million; Land Administration and Processes, Capacity and System (LAPCAS) at P354 million. The proposed budget also includes an amount of P272.9 million under ESP aimed at accelerating ongoing programmes.
The second largest share of the balance at P813.04 million is proposed for the Ministry of Agriculture, of which, P35 million is for ESP, to cater for; grey water re-use, Lotsane irrigation project, Glenn Valley infrastructure rehabilitation, grading of roads, and Agricultural Service Centres. The third largest share of the balance amounting to P741.81 million is proposed for the Ministry Health to cater for upgrading of health facilities and construction of staff houses throughout the country. A total of P600.08 million inclusive of ESP amounting to P50 million is proposed for the Ministry of State President. This caters for additional poverty eradication packages.
Overall Balance
Madam Speaker, with an estimated total revenues and grants of P48.40 billion for 2016/2017 financial year, and proposed total expenditure and net lending of P54.44 billion, the net result is an estimated budget deficit of P6.05 billion or 3.8 percent of GDP. In line with the principles of our Medium Term Debt Management Strategy, this budget deficit will be financed through a combination of drawing down on Government savings, domestic borrowing and foreign borrowing, subject to the analysis of the opportunity cost of each of these financing instruments, and within the provisions of the relevant legislation such as Public Finance Management Act of 2011 and the Stock, Bonds and Treasury Bills Act of 2005. In any event, this deficit, and any other future budget deficits, will be restricted to a ratio up to 4 percent of GDP to avoid the country sliding into an unstainable fiscal path.
VII. PUBLIC SERVICE SALARIES
Madam Speaker, negotiations on public service salaries are the prerogative of the Bargaining Council, which comprises the Government and Trade Unions. It is important, however, to consider the prevailing global and domestic economic outlook, in particular, the constrained fiscal space for 2016/2017, arising from the depressed global demand for, and prices of diamonds. We all need to take into account these unfavourable economic fundamentals to ensure the country’s future fiscal sustainability.
VIII. CONCLUSION
Madam Speaker, as I conclude, I wish to point out that, the medium term fiscal outlook is a cause for concern, given the modest growth prospects for the domestic economy. I therefore, call upon Ministries to exercise restraint in requesting for additional funding through supplementary budgets during the course of the financial year, as this would simply worsen the fiscal situation.
I must also hasten to add that, the development of this country is a matter of mutual social responsibility, and not that of Government alone. While the Government has shown, and continues to show visionary leadership by adopting policies and programmes aimed at inclusive growth, it is the responsibility of both the public service and the private sector to deliver on these programmes and associated projects.
I therefore, call upon those charged with project implementation in Government to avoid deficiencies in project designs; provide accurate initial estimates of the costs of projects; reengineer the tendering and adjudication processes to ensure speedy delivery of projects; and ensure adequate supervision of contractors to avoid cost overruns and unnecessary delays in project delivery. Most importantly, such projects should deliver on intended impact anchored on sustainable inclusive growth and economic diversification.
The private sector plays a key role in the delivery of development programmes, in particular, through contractors who will be undertaking various projects and activities planned for the financial year. Private contractors are critical in ensuring timely delivery of planned projects and the quality of the final products. I therefore, implore upon all contractors, to demonstrate their social responsibility and ensure that projects are delivered on time; according to specifications; within budgets; and are of good quality. Furthermore, it is my hope that, given the importance of the recently introduced Economic Stimulus Programme to economic growth and job creation, private contractors will cooperate with Government in the delivery of the budget, rather than stalling project implementation, resulting in cost over-runs.
Since most projects envisaged for 2016/2017 and beyond are in the construction area; which requires land, I would also appeal to the land authorities throughout the country to expedite the process of land allocation and servicing, as part of their social responsibility in the delivery of our development programmes and projects.
Madam Speaker, let me take this opportunity to thank our bilateral and multilateral development partners, as well as private foundations for their contribution to our development agenda through their technical and financial support.
Madam Speaker, I now move that the Appropriation (2016/2017) Bill, No. 1 of 2016 be read for the second time.
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NEPAD: Our collective action is only the first chapter of the story
Addis Ababa, 29 January 2016
Today, on behalf of the NEPAD Agency, I have had the privilege to address a speech to the 34th NEPAD HSGOC in Addis Ababa. I have presented some of the major results the Agency has delivered in 2015 across national, regional and continental levels.
Within our priorities and in line with our long term vision, Agenda 2063, the Agency operated over 20 projects and has executed 9.05 M USD as of September 2015.
NEPAD was founded on the idea that only a unique Agency with a global and holistic approach could organize and lead the way for Africa’s development. 2015 brought us closer to that goal of coordinating and catalysing our energies towards that goal.
At the continental level, I would like to emphasize that despite the low cycle that is now engulfing commodities, natural resources remain a major source of revenue for African states and contribute substantially to job creation.
That is why getting better value from extractive industries has long been a key goal for African governments. In accordance with the 25th AU decisions, the NEPAD agency undertook capacity development exercise in Tax Policies and Contract Negotiation in the extractive industries. A first regional dialogue and training was held in Dakar in September 2015. In this domain like in so many others, we identified the absolute necessity to work closely between member states.
Also, from a regional point of view, undoubtedly, infrastructure remains Africa’s top challenge and priority.
With low levels of intra-regional trade and the smallest share of global trade, Africa remains the least integrated continent on earth. We continue to build upon the achievements of the first ever Programme for Infrastructure Development in Africa and what we achieved in Dakar on the occasion of the Financing Summit that took place in June 2014.
We could then prioritize the transformative “16 mega PIDA projects”. Thus far, the NEPAD Agency has actively developed facility instruments that are directed at making those infrastructure projects bankable.
From coast to coast, we are beginning to break ground on the first of those projects. I would like to single out five of these initiatives that will be completed in a matter of years: the Abidjan-Lagos corridor; the Dakar-Bamako rail link; two hydroelectric dams, Sambangalou in Guinea and Ruzizi III in Rwanda; and the road from Serenje to Nakonde in Zambia.
Similarly, in June 2015, the NEPAD launched the Continental Business Network (CBN), an initiative we are particularly proud of. We need to improve the dialogue between the public and private sectors and this high level platform does just that by bringing together top global and African CEOs and institutional leaders.
The other field of choice for our Agency’s action has been Agricultural transformation and food security. They remain of crucial importance for the continent and require collective and regional actions.
At the country level the Agency continued to support members state in various areas such as the blue economy, climate change and human development.
The NEPAD also played an extensive role in defending better agricultural practices, notably through the NEPAD Climate Smart Agricultural (CSA) program.
Our action is also targeted at science, technology and innovation: we successfully undertook Capacity development for AU Member States by collecting, managing and analysing African Science, Technology and Innovation Indicators. Countries that have so far benefitted from the training include Côte d’Ivoire, Namibia, Niger, DRC, Togo, Zimbabwe, Malawi, Cape Verde and Sudan…
Finally, with regard to education, students from the Republic of Congo commenced specialised training in child and maternal nursing. The training is offered as part of the package provided by the NEPAD Agency’s project on Nursing and Midwifery Education in Africa.
Our collective action through the NEPAD Agency is only the first chapter in a story that we shall write together. Together we will realise our dream of an African continent whose countries are open both to each other and to the world. This is the only way ahead to face an uncertain future.
Dr. Ibrahim Assane Mayaki of the Republic of Niger is the Chief Executive Officer (CEO) of the New Partnership for Africa’s Development (NEPAD) Planning and Coordinating Agency, head-quartered in Midrand, South Africa.
NEPAD Key Development Results Annual Progress Report 2015
Executive Summary
The New Partnership for Africa’s Development (NEPAD) Agency is central to the continent’s transformation efforts. The necessary political determination has been renewed by African leaders to deliver the accelerated implementation of the NEPAD Programme under the African Union (AU). Furthermore, the resounding commitment of African leaders to a Sustainable Development Agreement for the next 15 years, that is transformative and global, is proof that the African continent is ready to eradicate all forms of marginalisation and underdevelopment.
As the technical body of the AU, the NEPAD Agency focuses on the strategic development coordination of the implementation of the continent’s priority programmes and projects. This role is now more critical in the context of the African Union Agenda 2063 and the Sustainable Development Goals (SDGs).
The AU declared 2015 the Year of Women’s Empowerment and Development towards Africa’s Agenda 2063. Agenda 2063 envisages the effective participation of women in public and private life, through a full and fair share of economic, social, cultural and political opportunities and decision-making. The NEPAD Agency recognises that promoting gender equality is one of the most effective ways to drive inclusive growth and reduce poverty, and supports countries, women’s organisations and civil society organisations to advance gender equality and women’s empowerment.
In order to ensure that there are additional resources to support development projects that address gender concerns in Africa, the NEPAD Agency, with the goodwill of the Spanish Government, established the NEPAD-Spanish Fund for African Women’s Empowerment. Since its inception in 2007, the Fund has contributed to women’s economic empowerment through skills transfer, access to finance and the set-up of businesses, and access to land. More than half a million women have benefited directly from the Fund. At an institutional level the capacities of government institutions and civil society organisations, including grassroots women’s organisations, have been empowered.
Africa faces a large and growing unemployment challenge; half of Africa’s population of 1.1 billion people is under the age of 25 years, with this population expected to double to 2.4 billion people by 2050. While youth currently constitute approximately 40% of the working age population, over 60% of them are unemployed. The design of a continental youth employment programme is under way. The programme, while aiming to enhance the engagement of youth in gainful employment, will have a dedicated focus on building skills.
Infrastructure remains Africa’s top priority. This notwithstanding, the low levels of intra regional economic exchange and the smallest share of global trade position Africa as the least integrated continent in the world. Infrastructure inefficiencies are costing Africa billions of dollars annually and are stunting growth. Bridging the gap in infrastructure is thus vital for economic advancement and sustainable development. However, this can only be achieved through regional and continental cooperation and solution-finding.
Under the leadership of His Excellency, Macky Sall, President of the Republic of Senegal and Chair of the NEPAD Heads of State and Government Orientation Committee (HSGOC), and following the Dakar Financing Summit, the implementation of the ‘NEPAD 16 Mega Projects’ commenced. Firstly, the Programme for Infrastructure Development in Africa (PIDA) Service Delivery Mechanism was established, to endow project owners with the required capacity for early-stage project preparation. Secondly, in collaboration with the Infrastructure Consortium for Africa, the Roundtable of Project Preparation Funds was set up to enhance cooperation on the funding of continent-wide initiatives such as PIDA. Thirdly, ‘Africa50’ was established to finance infrastructure projects, including PIDA projects.
The fourth milestone was the Continental Business Network (CBN), which serves as a high level platform for private sector involvement in the PIDA projects. The CBN, endorsed by the 24th AU Assembly, was launched in June 2015 on the side-lines of the World Economic Forum on Africa in Cape Town. The CBN is seen as an African-led movement to fast-track high-level private sector investment in Africa’s regional infrastructure development.
The High Level Panel Report on Illicit Financial Flows from Africa observed that Africa loses 50 billion US Dollars per annum through illicit financial flows. In order to commence with the implementation of the recommendation on the report and the decision of the African Union Summit of June 2015, the NEPAD Agency organised the first regional dialogue on capacity building for tax and mining administration officers in the West and Central African region. It is envisaged that this programme, designed for senior government officials, will contribute to improved tax policy design and better contract negotiation for the extractive industries.
The Financing for Development Conference in Addis Ababa in July 2015 came at a critical time. A central issue is how to reform the global financing system to allow the achievement of the SDGs by 2030. Having actively participated in the negotiation process and strengthened the African voice, the NEPAD Agency is fully involved in advancing the SDGs and helping African countries to meet the SDG targets, towards achieving the 17 SDGs by 2030. Of utmost importance is the need to maintain the coherence and alignment of the 2030 Agenda with the vision outlined in the AU Agenda 2063 and its 10-year Implementation Plan.
The African Peer Review Mechanism (APRM) is the epicentre for deepening democracy and the dissemination of best practice among African Union Member States, reflecting their commitment to improving governance at all levels. To date, 35 Member States have voluntarily joined the APRM; 17 countries have been peer reviewed and the second-cycle review process is in the pipeline. Going forward, the urgent task for the APRM is the effective implementation of the National Programmes of Action (NPOA) arising from the peer review exercises.
At an institutional level, the APR Secretariat is being strengthened through its integration into the AU and through the development of stronger collaboration and synergy with the NEPAD Agency and other relevant organisations. In this regard, the APRM is being re-positioned to effectively serve as the monitoring tool for AU Agenda 2063.
The African group of negotiators at the Conference of the Parties in Paris (COP 21) received technical and financial support, provided in collaboration with the African Ministerial Conference on the Environment (AMCEN). Furthermore, the Agency, in collaboration with the African Union Commission (AUC), the United Nations Economic Commission for Africa (UNECA) and the African Development Bank (AfDB), set up the Africa Pavilion Hub at the conference.
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AfDB President shares his vision for the Bank and the continent at 26th African Union Summit in Addis Ababa
The 26th African Union Summit was an opportunity for African Development Bank President Akinwumi Adesina to share his vision for the Bank and the continent in the coming years.
AfDB’s overarching goal for its participation in the 26th AU Summit, which took place in Addis Ababa, Ethiopia, from January 21-31, 2016, on the theme “African Year of Human Rights with particular focus on Women Rights”, was to position the Bank as a key player by leveraging resources to support the African countries in the implementation of Agenda 2063.
The AfDB President also sought to broaden the dialogue on the Bank’s new corporate priorities, “the High Fives” – to Light up and Power Africa, Feed Africa, Industrialize Africa, Integrate Africa and Improve quality of life for the people of Africa – and to discuss the New Deal on Energy for Africa, which was launched recently in Davos, Switzerland, during the World Economic Forum Annual Meetings.
The New Deal on Energy for Africa is a transformative partnership-driven effort with an aspirational goal of achieving universal access to energy in Africa by 2025. To drive and achieve this goal, the African Development Bank is working with governments, private sector, bilateral and multilateral energy sector initiatives to develop a Transformative Partnership on Energy for Africa – a platform for public-private partnerships for innovative financing in Africa’s energy sector.
The 34th Session of the New Partnership for Africa’s Development (NEPAD) Heads of State and Government Orientation Committee on January 29 provided an opportunity for the Bank President to reaffirm AfDB’s support for NEPAD in the implementation of the African Union Commission’s Agenda 2063 and the Programme for Infrastructure Development in Africa (PIDA).
Agenda 2063 is a strategic framework for the socio-economic transformation of the continent over the next 50 years. It builds on, and seeks to accelerate the implementation of past and existing continental initiatives for growth and sustainable development.
Each year, the African Union Summits bring together stakeholders to discuss emerging issues that are of relevance to Africa’s economic development. The 26th Ordinary Session of the AU Assembly of Heads of States officially opened on January 30. The AU Summit also included a special luncheon of Heads of State and Government to honour the collective effort of solidarity to fight back Ebola through the deployment of health workers under the African Union Ebola Outbreak support mission in West Africa (ASEOWA).