Search News Results
Fourth Trade Policy Review of SACU: Minutes of the meeting
The fourth joint Trade Policy Review of the Southern African Customs Union (SACU) countries, i.e. Botswana, the Kingdom of Lesotho, Namibia, South Africa, and the Kingdom of Swaziland, was held on 4 and 6 November 2015.
The Review contributed to deepening the understanding of the regional, as well as national elements of the trade regimes of Botswana, Lesotho, Namibia, South Africa, and Swaziland. The five countries were praised for their commitment to the multilateral trading system, and their active participation in the WTO. They were also encouraged to ensure that their regional trade agreements (RTAs) are consistent with WTO provisions, and to comply with their notification obligations, particularly in the areas of SPS, TBT, and import licensing for the benefit of transparency and predictability.
The substantial number of advance written questions and of interventions indicates the importance Members attach to SACU states’ trade policies and practices. Members urged the five countries to pursue their trade liberalization reforms, to improve the implementation of their multilateral commitments on goods and services and their business environment with a view to enhancing transparency and predictability, and attracting investment.
Introductory remarks by the Chairperson
H.E. Mr Atanas Atanassov Paparizov (Bulgaria)
Over the period under review, economic performance in the SACU countries had fluctuated with a downward trend in their consolidated (total) GDP growth rate. Their highest consolidated GDP growth of 3.4% had been recorded in 2011 and the lowest (-1.7%) in 2009; it had been around 2.5% per year since 2012. This performance had largely resulted from the global economic crisis and its impact on the mining and manufacturing sectors. Economic growth had been uneven within SACU but the overall (consolidated) performance largely reflected South Africa’s, as the latter accounted for about 91% of the region’s total GDP.
SACU countries sourced some 13% of their imports in the customs union, and supplied the union in the same range. As the main economy, South Africa also dominated regional trade, with over 95% of commercial flows within the customs union involving South Africa as a destination or source. Extra-SACU imports originated mainly from the EU, China, and the United States, which were also among SACU’s main export markets. Overall, with the exception of South Africa, diversification remained an issue for SACU members as it was at the time of the previous Review in 2009.
SACU’s common trade regime had remained broadly unchanged since the previous Review. Within SACU, customs-related measures, including the applied MFN tariff, excise duties, duty and tax concessions, customs valuation, rules of origin, and contingency trade remedies, had been harmonized. For the time being, in the absence of a regional body, the International Trade Administration Commission (ITAC) of South Africa was responsible for managing the SACU common external tariff (CET); it was also mandated to recommend all rebates, refunds, and drawbacks in SACU.
During the period under review, SACU members had made efforts to facilitate trade by further streamlining customs procedures and documentation. Nevertheless, their common external tariff (CET) remained complex, comprising ad valorem, specific, mixed, formula (variable) duties, and their combination, while their individual tariff binding commitments were at ad valorem rates. The simple average applied rate of the CET was 8.3% in 2015, slightly up from 8.1% in 2009. Tariff rates continued to display high dispersion.
In addition to these challenges mostly related to the common trade regime of the SACU countries, other elements of the harmonized regime such as the antidumping regime, as well as country-specific regimes were of interest to Members. On investment, Members wanted to know more about the reforms implemented by each SACU State since the previous Review and their likely impact. Regarding non-tariff barriers, issues of interest to Members included import prohibitions, licensing and other import restrictions applied by most SACU States, for instance the use of import restrictions to promote local production in Botswana, Lesotho and Swaziland, and the administration of tariff quotas by South Africa.
On SPS, Members were interested in the reforms implemented by South Africa and its compliance with the relevant WTO provisions. SACU States used incentives to promote diversification and investment, and the impact of such a strategy was of interest to Members. None of the SACU States was a party to the WTO Government Procurement Agreement and information on their plans to join the Agreement was appreciated, as this would further open their procurement regime to foreign participation and enhance transparency. Members were also interested in the enforcement of intellectual property rights in the SACU region, specifically on the role that Customs played in this regard, and the current status of draft laws and regulations.
On sectoral policies, Members’ knowledge would be improved by further information on the extent to which environmental aspects were taken into account in the fisheries, energy, mining, tourism and transportation sectors; state participation in the mining sector in Botswana and Namibia; the agricultural reform undertaken by Lesotho; and on the industrial policies applied by South Africa and Swaziland.
The Chairperson noted that as at the time of the last Review in 2009, the SACU economies continued to grapple with issues such as poverty eradication and income inequality; thus the need to accelerate structural reforms to improve the productivity and competitiveness and hence ensure inclusive growth. In this context, Members were interested to learn which policies were the SACU States planning in order to implement and attain the UN Development Goals and how the WTO Members could assist them in this endeavour.
Statement by the Discussant
Mr. Alberto Pedro D’Alotto (Argentina)
I would like to highlight the comprehensive reports prepared by the Governments of Botswana, Lesotho, Namibia, South Africa and Swaziland and by the WTO Secretariat for this meeting. Their effort for the work of this TPR must be emphasized, as this TPR encloses multiple Members, and therefore there are multiple sources of information to be taken into account. Both the Secretariat’s report and the SACU’s report, thanks to their comprehensiveness, will certainly assist us during the following days in our discussions.
I would like to draw your attention over certain aspects of these reports, which I considered as being the most important ones to be addressed briefly.
As you recall, the last review was made in 2009 and that was a year with a particular connotation as a global financial crisis happened during that time. Thus, it is understandable that in the global review that we are discussing today, the effects of this crisis are reflected with a downward trend in their consolidated (total) GDP growth rates. The detrimental impact of the economic crisis on almost all economic activities brought down the consolidated GDP growth as low as -1.7% in 2009. If seen disaggregated, two countries were more resilient to the crisis, as Lesotho and Namibia had GDP growths of 3.4-7.8% and 0.6-6% respectively for the period under review.
When observed collectively, the SACU economies grew the most in 2010 (3.4%), and in 2011 (3.7%). These positive results were triggered mainly by the pickup of the mining activities throughout the region and also thanks to the revenues from the manufacture sector.
The discrepancy between the consolidated GDP and the disaggregated one relies mainly on the inequality amongst the SACU economies. With a total GDP of US$350 billion, South Africa’s economy ranked first in the region as it represented over 91% of the region’s total GDP (which adds up to US$380). In contrast, Lesotho accounted for only 0.6% of the total GDP with its US$2.1 billion in 2013. This macroeconomic inequality is reflected not only on the different levels of development or economic structures between the SACU members, but also on an Intra-country level. For example, one of the biggest challenges that still persist for SACU members is that they rank high on the income inequality worldwide. This situation has worrying social effects throughout the region, as for example the population living below the poverty line has ranged between 19.3% and -63% (Botswana in 2009 and Swaziland in 2010, respectively). We sincerely trust that SACU members will be up to the challenge of overcoming this situation with the policies reforms and programmes that will be discussed during these couple of days.
As it was noted in the previous report, SACU displays a trade deficit that still has to be corrected by all of its members, except for Botswana, which had a trade surplus during this review period. For example, in Namibia this is a challenging issue, as its trade deficit has increased in a yearly basis since 2010, rising from 3.8 in 2010 to 26.5 in 2014. If a trade deficit widens in one year by 52.3% (from N$17.2 billion in 2013 to N$26.2 billion in 2014), the political willingness to address this issue must be accompanied by innovation. That is why we see with optimism that Namibia has implemented the Export Processing Zone Programme (EPZ), which we hope will succeed in attracting investments for export-oriented manufacturing and value added activities. But when we analyse the region as a whole, I cannot help but notice that its main source of the aggregate trade deficit is the decline of exports and a high demand for motor vehicles and machinery by South Africa. Even though this is a result of the development that South Africa is experiencing, it would be interesting to hear from all these countries what actions or plans are being taken to overcome this trade deficit experienced in the region.
South Africa’s views about these subjects, in particular, will be most relevant during this review, as it is involved in over 95% of the commercial flows within the customs union. As reported in the previous TPR, there are still opportunities for the region to enhance their intra-SACU trade as, in aggregate, approximately 13% of SACU’s imports where sourced by the region. For example, approximately 3% of South Africa’s import demands where covered by SACU countries, while Lesotho’s and Swaziland’s imports where covered in approximately 90% by their SACU partners. This is an opportunity to be addressed, without overlooking the strong market that the region already has with EU countries, which are the leading investors in the region, and with the United States, China, and other Asian countries.
We are confident that SACU will also be able to increase their extra-SACU trade with these countries, as its members are implementing different types of programmes that will improve the business environment in general. For example, Lesotho’s Private sector competitiveness and Economic Diversification project or its Customs Modernization Programme, might ensure trade benefits in general. Also, Swaziland’s Investor Road Map and its National Development Strategy could effectively induce economic diversification and growth. Overall, these programmes might help improve SACU members’ ranking in the World Bank’s doing business report, to rise them back – or even better – to where they were in 2008 (compared to this year’s negative results).
Although no new trade agreements were signed or implemented during the last five years, since the last review report, SACU members are currently negotiating a Preferential Treatment Agreement with India, and they are participating in the negotiations on the Tripartite Free Trade Agreement between COMESA, the EAC and SADC. Negotiations with the EU on a SADC-EU Economic Partnership Agreement (EPA) were completed last year during July, and some SACU countries maintain trade agreements and have launched bilateral trade negotiations (despite a consensus to negotiate this type of agreements as a group).
As reported by the Secretariat in 2009, applied MFN customs tariff, excise duties, duty and tax concessions (rebates, refunds and drawbacks), customs valuation, rules of origin, and contingency trade remedies remain harmonized within SACU. But it is noteworthy to mention that in 2014, South Africa adopted a new customs valuation legislation that still derives from the WTO Agreement on Customs Valuation, where the customs value of imported goods is the transaction value based on the f.o.b. prices of imports. SACU’s customs valuation regime is still largely based on South Africa’s legislation, and in 2011, a “Regional Customs Policy Document” was adopted by the SACU Council of Ministers as a common strategic objectives plan to pursue the implementation of specific customs projects.
Members of the WTO have submitted interesting questions to the different SACU countries, on a variety of issues, and being so many, I would like to call your attention upon those that deal with SACU’s Common regime. Also, concerns about SACU’s efforts to bring its institutions into operation and to promote their full independence have been brought forward. Members’ questions about the SACU’s services liberalization seem most relevant as their economies remain dominated by their relatively large services sector (about 60% of their consolidated GDP).
Related News
Of maize and money: How to bring farmers into the financial system
Nearly half of the world’s farmers are unbanked. This statistic is worrying given the evidence linking financial inclusion to poverty alleviation and since over 70 percent of the world’s poor live in rural areas where agriculture is the predominant occupation.
Here’s a startling statistic – nearly half of the world’s farmers are unbanked. The 2014 Global Findex estimated that of the more than one billion adults in developing countries who report to be engaged in agriculture, over 440 million do not have a bank account or even a mobile money account. Even those who have accounts do not fully use them – less than 15 percent report using their account to receive payments against sale of agricultural produce.
Findex defined adults engaged in agriculture as those that receive payments – in cash, into an account, or through a mobile phone – for selling their or their family’s agricultural products, crops, produce, or livestock. If you include those who only earn wage income from agriculture, the number of unbanked would be even higher. This statistic is worrying given the evidence linking financial inclusion to poverty alleviation and since over 70 percent of the world’s poor live in rural areas where agriculture is the predominant occupation.
Recognizing the importance of financial inclusion, over 50 countries have set national targets and commitments to improve access to financial services for individuals and enterprises. Further impetus to this global agenda has come from the G20 through its Global Partnership for Financial Inclusion and the World Bank Group that has set the goal of Universal Financial Access by 2020. However, we need to better understand how to reach underserved population segments such as those involved in agriculture.
So what are the opportunities to accelerate financial inclusion of agricultural households?
Earlier this year, the World Bank Group’s FISF program convened global experts to answer this question. The workshop was co-hosted by the Ministry of Foreign Affairs, Netherlands and the Rabobank Group, and brought together experts from select countries, multilateral organizations, major foundations, NGOs, and researchers.
Here are the main takeaways from the workshop:
-
Need to focus on broader array of financial services rather than just credit or insurance for agricultural production. Agricultural households have a broad range of financial service needs, several of them for lifecycle and business needs not related to agriculture, and there is strong evidence on impact of access to payments and savings services.
-
It is possible to improve the quality of data on financial inclusion of agricultural households. The current major global and national data sources on financial inclusion generally do not provide comprehensive insights for individuals engaged in agricultural activities but the assessment carried out for the workshop suggests it is possible to do this cost-effectively.
-
There is an opportunity to facilitate increased use of bank/transaction accounts to send government payments and remittances to agricultural households. A large proportion of these payments and remittances are currently in cash but new developments in payment technologies allow them to be sent to bank/transaction accounts;
-
The potential for improving access to payment and credit infrastructures for financial cooperatives and microfinance institutions needs to be assessed further. These institutions reach a large proportion of agriculture households in many countries but most do not have access to national payment and credit infrastructures.
-
The effectiveness of financial education programs targeting agricultural households can be improved. The likelihood of positive impact can be increased if programs are designed carefully incorporating insights from the substantial body of research now available.
-
Need to stimulate stronger private sector innovation and investment to address financial services needs of agricultural households. CGAP’s ongoing work program on financial inclusion of smallholder families aims to do this but additional efforts are needed.
So what’s next?
We are initiating a global mapping of the potential to convert government payments in agriculture (agricultural subsidies and payments toward food-reserve procurements) from cash to transaction accounts and preparing a guidance note on improving the quality of financial inclusion data in national household surveys.
The road to universal financial inclusion will not be easy, and we need to tackle it from different angles. We need solutions that can provide financial access to the unbanked 440 million people engaged in agriculture and help those who already have access to benefit from using a broader range of financial services.
Related News
Galvanising action for the Global Goals: Challenges for EU-Africa relations in 2016
The start of 2016 leads us into a new era in international cooperation, but time is not on our side. The migration and refugee crisis, global and local terrorism, violence and fragility in the European Neighbourhood and beyond – all triggered by or mixed with the very visible impacts of climate change – are stark reminders that action on multiple fronts cannot be postponed.
Four major conferences in 2015 have resulted in a set of ambitious agreements on sustainable development, development finance, climate change and trade, including the Sustainable Development Goals (SDGs), or Global Goals. Now, 2016 confronts us with the task of turning these grand words into deeds. Africa and Europe will need to gear up fast to put their global commitments into practice.
This will be a challenging exercise, as pressures are already building on various fronts, especially climate policy, conflict and security, and poverty and fragility. At the same time, a number of ongoing policy processes are in place that provide opportunities for realising the global ambitions.
To exploit the full potential of these vital processes, strong political backing will be required. Climate change is occurring more rapidly and intensely than previously expected. The knock-on effects of climate and other challenges on poverty and fragility put planetary security at risk on a scale unseen before. The refugee and migration crisis illustrates how immediate and intertwined these challenges are.
These call for strong political leadership and collective action both in Africa and Europe. As we have argued in the past, “international development in this century is about all countries and their citizens tackling the shared problems of sustainable development together”.
This ECDPM Challenges Paper looks at implications, challenges and opportunities ahead in 2016 for EU external action and EU-Africa relations, especially in light of the implementation of the 2030 Agenda for Sustainable Development.
Related News
Food price index drops in December due to abundant supplies, slow economic growth – UN agency
Prices of major food commodities declined for the fourth year in a row in 2015 according to the UN Food and Agriculture Organization (FAO), averaging 19.1 per cent below their previous-year’s levels, while the agency also reported today that the dwindling global economy has triggered sharp price falls from metals to energy markets.
FAO’s Food Price Index, a trade-weighted index tracking international market prices for five key food commodity groups (major cereals, vegetable oils, dairy, meat and sugar) averaged 164.1 points over 2015 and ended the year even lower, at 154.1 points in December.
During that month, the index reportedly declined a further 1.0 per cent from its revised November value, as falling prices for meat, dairy and cereals more than offset gains by sugar and vegetable oils.
“Abundant supplies in the face of a timid world demand and an appreciating dollar are the main reason for the general weakness that dominated food prices in 2015,” said FAO senior economist Abdolreza Abbassian in a press release.
In more detail, the UN agency reported that its Cereal Price Index declined 1.3 per cent in December from its November value, due to intensifying export competition among maize producers and expectations of more wheat supplies entering world markets after Argentina removed export taxes. The sub-index, which includes rice, shed 15.4 per cent on average during 2015 from the previous year.
Meanwhile, the Dairy Price Index subsided 1.0 per cent in December, and over the year was 28.5 per cent below its average level in 2014, the sharpest decline of any food commodity.
Turning to the Meat Price Index, FAO is reporting a 2.2 per cent drop in December, prompted by surging pork output in Europe and reduced U.S. demand for imported beef. Over the full year, meat was on average 15.1 cheaper than in 2014.
In regards to the Vegetable Oil Price Index, it rose 2.1 per cent in December, pushed up by uncertainties regarding Brazil’s soybean crop, but over 2015 as a whole was 19 per cent below the previous year.
Finally, FAO’s Sugar Price Index rose 0.6 per cent in December, but was on average 21 per cent lower in 2015 than the previous year.
Related News
El Niño has put world in ‘uncharted territory,’ UN relief chief says, urging action now to mitigate impacts
Briefing United Nations Member States on Thursday, 7 January on the widely varied and devastating impacts of the current El Niño weather phenomenon – which for months has sparked massive floods in some countries while leaving others, often in the same region, bone dry – the top UN relief official urged the international community to act now to help millions of people facing food insecurity.
“We are here to re-sound the alarm; to spur a collective response to the humanitarian suffering caused by changes in weather patterns linked to El Niño and to take action now to mitigate its effects,” said Stephen O’Brien, the UN Under-Secretary-General for the Coordination of Humanitarian Affairs, who added: “If we act now, we will save lives and livelihoods and prevent an even more serious humanitarian emergency from taking hold.”
He said that in some regions, millions of people are already facing food insecurity caused by droughts related to El Niño. “In other parts of the world, we have a short window of opportunity now to prepare for what we know will happen within months. In both cases, we must act together and we must act quickly,” he stressed.
Mr. O’Brien, who is also the UN Emergency Relief Coordinator, was joined today by Paul D. Egerton, Representative to the UN and other International Organizations in North America, and Director, World Meteorological Organization (WMO) Liaison Office to the UN , as well as: Osnat Lubrani, Resident Coordinator in Fiji (via phone); Valerie Julliand, Resident Coordinator in Guatemala (via video link); Christy Ahenkora, Resident Coordinator a.i. in Lesotho (via video link); Ahunna Eziakonwa-Onochie, Resident Coordinator /Humanitarian Coordinator in Ethiopia (via video link); and Niels B. Holm-Nielsen, World Bank, Global Lead, Resilience and Disaster Risk Management.
“The strength of the current El Niño has put our world into uncharted territory,” continued Mr. O’Brien, explaining that while the phenomenon is not caused by climate change, the fact that it is taking place in a changed climate means that its impacts are less predictable and could be more severe. While the current El Niño is expected to decline in strength in the first months of 2016, “this does not mean that the danger is past.”
El Nino and a possible subsequent La Niña event would continue to effect different parts of the world – at different times – with a mix of above or below average rainfall.
“The impacts, especially on food security, may last as long as two years,” he said, expressing particular concern about a number of countries spread across Central and South America, the Pacific region and East and southern Africa. And while countries in those regions are by no means the only ones that could be impacted by the phenomenon, the gap between projected needs and local government and humanitarian actors’ capacity to respond “requires our urgent attention.”
He said that in Latin America and the Caribbean, Honduras, Guatemala, El Salvador and Haiti are particularly vulnerable. Indeed, below average rainfall from March to September 2015 had led to significant crop losses and triggered the need for food aid for millions of people.
“More than 4.2 million people in Central America, including 3.5 million in Honduras, Guatemala and El Salvador are affected by one of the most severe droughts in the region’s history, which is likely to grow in intensity until March this year,” he explained, adding that in Haiti, some 3 million people – or 30 per cent of the population – are classified as food insecure, with some 800,000 severely food insecure and in need of urgent assistance.
Beyond those countries, the wider region is at risk of potentially devastating effects on the agricultural sector including floods, landslides and droughts, potentially leading to forest fires.
“In the Pacific region, Fiji, Vanuatu, Solomon Islands, Papua New Guinea; these are the ones at greatest risk, but as many as 13 countries could be affected,” said Mr. O’Brien, noting that drought conditions are already affecting some 3.5 million across the region and that in some countries, El Niño is increasing the likelihood of typhoons and cyclones. Serious food insecurity is also foreseen in Timor Leste by March, when harvests are expected to fail, affecting about 220,000 people.
Turning to East Africa, he said that poor rains had resulted in drought-like conditions in the northern parts of the region, mostly Ethiopia, Sudan, Djibouti and Eritrea, while other parts of East Africa had experienced a wetter than normal season. By early 2016, projections indicate that at least 22 million people will be food insecure across the region and between 2.7 million and 3.5 million people could be affected by floods.
“Ethiopia is the country most affected so far as it faces the worst drought in 30 years. Humanitarian needs more than tripled in the past year,” reported the UN relief chief, adding that some 10.2 million people are in need of emergency food assistance. And while the Government is taking on an “impressive” leadership role in confronting the crisis – including the allocation of some $290 million of its own resources for response efforts – the scale of the challenges demand more significant and timely support, as it could take possibly three to five months for donor support to reach those in need on the ground.
All these countries and regions need assistance now, to offset the impacts already being felt and to prepare “for what we know is to come,” said Mr. O’Brien, adding that: El Niño poses a critical test to the global humanitarian system in two fundament areas. First, it has tested the world’s commitment to early action. “The warning signs are there. Are we prepared to act on them? Are we prepared to make the resources available now based on these firm clues, or do we wait […] for the facts of a massive crisis?” he asked.
The second challenge, he said, is ensuring cooperation between humanitarian and development actors and between the international community and local actors. Could humanitarian and development actors work together at all levels to build resilience at the community level to prevent major loss of lives and livelihoods?
Mr. O’Brien stressed that previous crises had shown that early action is critical to reduce vulnerability and the need for humanitarian assistance later on. While major contributions from donors and humanitarian agencies had provided “a good start,” much more was needed, particularly as many of the response plans in affected countries remain seriously underfunded.
Related News
The Asian Infrastructure Investment Bank gets off the ground
With $100 billion in capital and a staff of 500, the Asian Infrastructure Investment Bank was formally launched on Dec. 25 and seeks to make its first loan as early as spring 2016.
The Beijing-based multilateral lender aims to help Asia build roads, power grids and other essential infrastructure. It will hold the first meetings of its board and executive council on Jan. 16-18. The AIIB counts 57 founding members.
For the agreement to take effect, it had to be ratified by at least 10 members, accounting for at least 50% of the bank’s capital. Both conditions have been met, China’s Ministry of Finance said. At the time of the launch, 17 members had ratified, including top contributor China, the U.K. and Germany.
They together represent more than half the bank's share capital, according to the ministry.
The Philippines was the last country to meet the year-end deadline to become a founding member. President Benigno Aquino’s eleventh-hour decision highlights his mistrust of China, which is locked in a bitter territorial dispute with the Philippines over islands and reefs in the South China Sea.
Hiccups aside, pulling in 57 members to a multilateral bank that it will lead was a diplomatic triumph for China. Brunei, Malaysia and Vietnam, which all have territorial conflicts with China, joined the lender earlier.
Philippine Finance Secretary Cesar Purisima said his country, which needs an estimated $127 billion from 2010 to 2020 for infrastructure, is expected to benefit from AIIB projects. The indicative paid-in capital of the Philippines is $196 million.
China leads
The AIIB will serve as a guidepost for reforming governance of the global economy, Chinese Finance Minister Lou Jiwei said in a statement, stressing the bank will work with existing institutions such as the World Bank and the Asian Development Bank, to contribute to sustainable growth in the region.
President-designate Jin Liqun, a former high-ranking Chinese financial official, will be formally voted into office in January. The rest of the management team will also come together at that time.
The AIIB is the first multilateral lender in which China will play a central role. China holds 26% of the voting rights, giving it a de facto veto over important decisions. Around 30 more countries want to join the AIIB, Jin told reporters in November. The bank will consider capital increases to accommodate new members.
The AIIB is already discussing coordinated lending with the World Bank, the ADB and other institutions, and it aims to finance its first project in the spring or summer. It expects to lend around $2 billion in its first fiscal year.
The new bank hopes to meet developing countries’ needs by disbursing loans quickly. But with Japan and the U.S. remaining aloof, many observers believe the AIIB will struggle to obtain a top credit rating. This may add to funding costs and, in turn, the interest rates paid by borrowers.
Related News
European Parliament Committee on Development issues draft opinion on the conclusion of the West Africa-EU Economic Partnership Agreement
Draft Opinion of the Committee on Development on the proposal for a Council decision on the conclusion of the Economic Partnership Agreement (EPA) between the West African States, ECOWAS and the UEMOA, and the European Union and its Member States
The Economic Partnership Agreement (EPA) is a new approach, combining trade liberalisation with the objectives of sustainable development. Trade liberalisation does, however, carry risks for developing countries. In that regard, the EPA is to be commended for containing a range of instruments in order to react to problems that might arise during its implementation, especially the possible disruption of local production, food insecurity, difficulties for infant industries or a decline in tariff revenues for the state budget. It will be important during implementation to closely follow actual developments and react quickly within the EPA institutions should such situations arise. During the implementation of the EPA special care should therefore be taken to ensure an easy triggering of the different safeguard clauses in order to render them meaningful.
The monitoring system provided for by the EPA should be designed and made operational as soon as possible – within four years after entry into force of the EPA at the latest – so as to be available before liberalisation in the ECOWAS states starts to show effect. The Commission/Joint Council should ensure appropriate funding and a minimisation of administrative burdens for the monitoring system, particularly the Consultative Committee, to guarantee meaningful and effective monitoring. The Commission should ensure that monitoring covers, inter alia, human rights issues, food security, inclusive economy, core labour standards of the International Labour Organization and environmental concerns, besides the economic effects of the EPA on local economies.
The rapporteur regards the EPA and its institutions as a valuable possibility that should be actively used by the Union and the ECOWAS states to stay in continuous dialogue. The Commission is asked to ensure that human rights, social and environmental aspects are included in the work of the Joint Council and the Joint Implementation Committee. The rapporteur appreciates that a framework for dialogue on parliamentary level is foreseen with the Joint West Africa-European Union Parliamentary Committee. It should play an active role in observing the effects, both positive and negative, of the EPA during implementation. The rapporteur underlines the importance of including not only economic, but also social partners and other non-state, civil society actors in the Consultative Committee, and of giving them a significant role in monitoring implementation. He urges the Commission as well as the ECOWAS Secretariat and Member States to include a wide range of civil society actors in the monitoring process.
The rapporteur is very much concerned by the insufficient sustainable development provisions. The EPA contains only limited and indirect references to human rights as well as social and environmental standards. The EPA can only achieve its ambitious objectives if these issues are duly taken into account during implementation.
Therefore the rapporteur demands additional institutionalised guarantees before Parliament gives consent. This should primarily be in the form of a protocol to establish a specific monitoring structure dedicated to sustainable development ensuring the proper involvement of civil society organisations and trade unions. All new monitoring institutions should be tasked with specific responsibilities, such as the possibility to adopt recommendations and binding decisions, be granted sufficient autonomous resources and pay special attention to implementing the eight core ILO Conventions, so as to ensure that domestic labour laws and practices follow the ILO Decent Work Agenda. It should be clear that non-compliance with these rights and standards will lead to consultations and eventually to suspension of the EPA.
The Committee on Development calls on the Committee on International Trade, as the committee responsible, to recommend that Parliament give its consent to the proposal for a Council decision on the conclusion of the Economic Partnership Agreement (EPA) between the West African States, ECOWAS and the UEMOA, of the one part, and the European Union and its Member States, of the other part.
Related News
tralac’s Daily News selection
The selection: Thursday, 7 January 2016
Featured tweet, Ambassador Gaspard: AGOA Tremendous progress in negotiations today. Thanks to leadership of SA DTI & DAFF. Looking forward to the first shipment of chickens...
Note: SA's trade minister Rob Davies will brief the media on the outcome of negotiations at 3pm local time today.
AGOA row: Big losers, but also winners if SA gets boot (News24)
If South Africa loses its beneficial status in terms of the Africa Growth and Opportunities Act, there will be some winners and some losers in the local agriculture and agribusiness industry, according to John Purchase, CEO of Agbiz. Conflicting interests between different value chains in the broader agro-food system makes it important for the outcome of SA's current Agoa negotiations to result in a good balance, he told Fin24 on Wednesday.
Post-Doha trading system: Five points for African economies to consider (Brookings)
Whether they support keeping Doha alive or they want the round’s early closure, African policymakers and negotiators need to fully understand the nature and implications of a post-Doha world and constructively contribute to the discussions regarding a new architecture for the global trading system, if and when the time comes. They need to have a solid grasp of the context and the stakes. Below are five important policy-related points for African officials and stakeholders to keep in mind when formulating their positions and strategies for any future negotiations. [The author: Soamiely Andriamananjara]
Regional integration and spillovers in Sub-Saharan Africa (World Bank)
Box 2.6.1: Over the past decade, regional integration in Sub-Saharan Africa has expanded. Though still low, intra-regional trade represents a growing share of the region’s trade. Cross-border financing flows within Sub-Saharan Africa have increased rapidly. Nevertheless, shocks to growth in the two largest economies – Nigeria and South Africa – appear to have no measurable effects on other countries in the region. This box examines the extent of regional integration. In particular, it takes a closer look at linkages between SSA’s two largest economies — Nigeria and South Africa — and the rest of the region to assess the potential significance of intra-regional growth spillovers. The box addresses the following questions: How open is Sub-Saharan Africa to global and regional trade and financial flows? How large are the potential intra-regional spillovers from the region’s two largest economies, Nigeria and South Africa?
Anaemic recovery in emerging markets to weigh heavily on global growth in 2016 (World Bank)
Sub-Saharan Africa: The region is forecast to accelerate to 4.2% in 2016 from 3.4% in 2015 as commodity prices stabilize. Economic activity will vary across Sub-Saharan Africa, with consumption growth remaining weak in oil exporting countries as fuel costs rise, while lower inflation in oil importing countries helps boost consumer spending. Nigeria is forecast to expand 4.6% after growing by 3.3% last year while South Africa is expected to advance only modestly to 1.4% growth from 1.3% in the year just ended. [SSA regional forecast]
Why is everyone worried about China? (Economic Times)
Tweet by Shawn Donnan: US November trade figures out...both exports and imports down again
International e-commerce in Africa: the way forward (ITC)
There are two competing stories in Africa: vibrant domestic digital businesses, and feeble development of international e-commerce. Several domestic e-commerce businesses in large African countries (such as Nigeria, Kenya and South Africa) are strong and growing, even if similar platforms are currently absent from smaller countries. While considerable innovation is applied to serving local markets, international digital entrepreneurialism in Africa would appear to be blocked. This paper identifies six main issues, which also represent the greatest obstacles to international trade more generally: [Download]
Christine Lagarde's speech to Nigerian parliament: 'Act with resolve, build resilience, and exercise restraint' (IMF)
More broadly, Sub-Saharan Africa is also facing spillovers from geopolitical factors, including the fight against Boko Haram. The threat of terrorism is very real and never far from our minds. Having been in Paris during the November attacks, I know firsthand the sorrow that so many Nigerians carry in their hearts. In this region, terrorism not only takes a human toll but it also makes public finances more fragile. How? By widening budget deficits. Revenues are lower, including from lower growth, and spending needs higher, including for security and for supporting those impacted by the violence. One immediate downside is higher financing needs that can crowd out other essential public spending. This brings me to my second topic—how can policymakers manage these near-term vulnerabilities?
Structural transformation in West Africa - profiled, forthcoming UNECA events:
Innovative financing for the structural transformation of the West African economies (23-24 February)
The main objective assigned to this Ad-Hoc Experts Group Meeting is to analyse the options available and the status of innovative financing mechanisms in West Africa, discuss the major constraints and challenges posed for their development and identify strategies for consolidating these arrangements then optimizing their contributions to the structural transformation of the economies of the sub-region. On the basis of the review of the report written by the Sub-Regional Office of the ECA for West Africa, the participants will be able to specifically:
Country profiles: tools in the service of the structural transformation (25-26 February)
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, African Gender and Development Index and the Regional Integration Index. 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.
Trade between China and Mozambique shrinks 33%, Jan-Nov 2015 (Club of Mozambique)
Trade between China and Mozambique dropped by 33.2% while trade between China and Portuguese-speaking countries experienced a real contraction of US$31.674bn, from January to November 2015, compared to the same period of 2014. This is according to official figures published in Macau. The registered drop, of 25.84%, was due to China selling products to the eight Portuguese-speaking worth US$33.398bn (-19.68%) and importing goods worth US$57.502bn (-29.00%).
China’s trade with Angola in the same period totalled US$18.271bn (-46.24%), with Chinese sales amounting to US$3.429bn (-33.52%) and purchases of Angolan products to a total of US$14.841bn (-48.51%). China’s trade with Mozambique totalled US$2.198bn (-33.22%), with China selling goods worth US$1.786bn (+3.77%) and buying goods worth US$412m (-73.75%).
Promoting job growth in Mozambique: Let's Work Partnership workshops (World Bank)
On November 30 and December 1, 2015, The Let's Work Partnership held three private sector consultative workshops for the agriculture, forestry and construction sectors in Maputo, Mozambique. The workshops were attended by key stakeholders from large and small firms, the Government, and development organizations in the three sectors. The objective of the workshops was to contribute ideas to develop interventions that have the potential to be impactful in creating private sector led inclusive jobs in Mozambique. The participants discussed opportunities to deepen value chains and links between large firms and smaller domestic enterprises and constraints that need to be addressed to promote job growth.
Lesotho ratifies Trade Facilitation Agreement (WTO)
Lesotho and Georgia are the two new members that have ratified the Trade Facilitation Agreement. The WTO Secretariat received the countries’ instruments of acceptance on January 4th. These two ratifications bring to 65 the number of WTO members that have formally accepted the TFA.
Related: India bends backwards: set to endorse WTO's trade facilitation deal (domain-b), India's Commerce Ministry to seek Cabinet approval for WTO services pact soon (Economic Times), USTR releases 2015 report to Congress on China’s WTO compliance https://ustr.gov/about-
Smart Africa secretariat opens in Kigali this week (New Times)
The Smart Africa alliance comprises several African countries and institutions committed to promote information communication and technology as a driver for socio-economic growth. The secretariat will be guided by the Smart Africa Manifesto – adopted during the inaugural Transform Africa summit in 2013 – that is hinged on five pillars; Policy, Access, E-government, Private sector/Entrepreneurship and Sustainable development. [Kenyan mobile phone users up to 38 million (Daily Nation)]
Malawi: 2015 Article IV Consultation (IMF)
Malawi’s exports are highly concentrated in agricultural commodities. The top three products account for about two-thirds of total exports. In 2013, exports of tobacco, sugar, and tea yielded US$ 763m (18% of GDP) while exports of manufactured goods were only US$ 55m (1.3% of GDP). Malawi has lagged behind SSA LICs in terms of export diversification and quality in recent years. [Download]
Sudan lost $7bn due to border shut down with South Sudan (Sudan Tribune)
Sudan’s foreign ministry has disclosed they are discussing with the South Sudan the reopening of border between the two countries saying that Sudan’s losses has incurred $7 billion due to stopping cross-border trade. Sudan’s state minister foreign affairs Kamal al-Din Ismail, who briefed the parliament Monday on Sudan’s foreign policy, said his country’s interests were significantly hit by the closure of the border with South Sudan.
Ethiopia to battle trade mis-invoicing (The Citizen)
"In collaboration with Indian customs and excise, last year we have replaced the old system and established new custom data base, which is linked to global price makers and update itself automatically. In addition, we are also identifying the major importers in the country to do close follow up with our intelligence unit. We have also plan to continue using the public to inform us about such tax frauds and get paid up to 10% of the recovered stolen tax money," Sisay Baharu, Director of Planning and Performance Follow-up at the Ethiopian Customs and Revenue Authority said.
Uganda’s Shilling depreciated by 17.5% in 2015 - BoU (Daily Monitor)
In an interview with Daily Monitor last week the executive director research Bank of Uganda, Dr Adam Mugume, said Uganda and many other currencies in the world experienced depreciation against the US dollar. “Similarly, regional currencies weakened against the US dollar. Uganda, Kenya and Tanzania shillings depreciated by 17.5 per cent, 11.9 per cent and 23.5 per cent, respectively, against the dollar between January and December 2015, while the South African Rand depreciated by 28.6 per cent during the same period,” he said. Asked if Uganda shilling will gain strength in 2016, Dr Mugume said the strengthening of the Shilling in 2016 will depend on the recovery in exports and FDI inflows. “These will largely be influenced by the global economic factors,” he said.
Global body, Alliance for Financial Inclusion, picks Prof Benno Ndulu as chairman (The Citizen)
TRA collections hit a record Sh 1.4 tr since establishment (The Citizen)
South Africa extends steel import tariffs to counter glut (Bloomberg)
tralac’s Daily News archive
Catch up on tralac’s daily news selections by following this link ».
SUBSCRIBE
To receive the link to tralac’s Daily News Selection via email, click here to subscribe.
This post has been sourced on behalf of tralac and disseminated to enhance trade policy knowledge and debate. It is distributed to over 300 recipients across Africa and internationally, serving in the AU, RECS, national government trade departments and research and development agencies. Your feedback is most welcome. Any suggestions that our recipients might have of items for inclusion are most welcome. Richard Humphries (Email: This email address is being protected from spambots. You need JavaScript enabled to view it.; Twitter: @richardhumphri1)
Related News
Anemic recovery in emerging markets to weigh heavily on global growth in 2016
Global economy to accelerate modestly to 2.9%
Weak growth among major emerging markets will weigh on global growth in 2016, but economic activity should still pick up modestly to a 2.9 percent pace, from 2.4 percent growth in 2015, as advanced economies gain speed, according to the World Bank’s January 2016 Global Economic Prospects.
Simultaneous weakness in most major emerging markets is a concern for achieving the goals of poverty reduction and shared prosperity because those countries have been powerful contributors to global growth for the past decade. Spillovers from major emerging markets will constrain growth in developing countries and pose a threat to hard-won gains in raising people out of poverty, the report warns.
“More than 40 percent of the world’s poor live in the developing countries where growth slowed in 2015,” said World Bank Group President Jim Yong Kim. “Developing countries should focus on building resilience to a weaker economic environment and shielding the most vulnerable. The benefits from reforms to governance and business conditions are potentially large and could help offset the effects of slow growth in larger economies.”
Global economic growth was less than expected in 2015, when falling commodity prices, flagging trade and capital flows, and episodes of financial volatility sapped economic activity. Firmer growth ahead will depend on continued momentum in high income countries, the stabilization of commodity prices, and China’s gradual transition towards a more consumption and services-based growth model.
Developing economies are forecast to expand by 4.8 percent in 2016, less than expected earlier but up from a post-crisis low of 4.3 percent in the year just ended. Growth is projected to slow further in China, while Russia and Brazil are expected to remain in recession in 2016. The South Asia region, led by India, is projected to be a bright spot. The recently negotiated Trans-Pacific Partnership could provide a welcome boost to trade.
“There is greater divergence in performance among emerging economies. Compared to six months ago, risks have increased, particularly those associated with the possibility of a disorderly slowdown in a major emerging economy,” said World Bank Group Vice President and Chief Economist Kaushik Basu. “A combination of fiscal and central bank policies can be helpful in mitigating these risks and supporting growth.”
Although unlikely, a faster-than-expected slowdown in large emerging economies could have global repercussions. Risks to the outlook also include financial stress around the U.S. Federal Reserve tightening cycle and heightened geopolitical tensions.
“Stronger growth in advanced markets will only partially offset the risks of continued weakness in major emerging markets,” said World Bank Development Economic Prospects Group Director Ayhan Kose. “In addition, the risk of financial turmoil in a new era of higher borrowing costs remains.”
Regional Outlooks
Sub-Saharan Africa
The region is forecast to accelerate to 4.2 percent in 2016 from 3.4 percent in 2015 as commodity prices stabilize. Economic activity will vary across Sub-Saharan Africa, with consumption growth remaining weak in oil exporting countries as fuel costs rise, while lower inflation in oil importing countries helps boost consumer spending. Nigeria is forecast to expand 4.6 percent after growing by 3.3 percent last year while South Africa is expected to advance only modestly to 1.4 percent growth from 1.3 percent in the year just ended.
East Asia and Pacific
Growth in the region is projected to continue to slow to 6.3 percent in 2016 from a slightly less-than-expected 6.4 percent in 2015. Growth in China is forecast to ease further to 6.7 percent in 2016 from 6.9 percent in 2015. Growth in the region excluding China was 4.6 percent in 2015, broadly unchanged from 2014, as weaker growth in commodity exporters, including Indonesia and Malaysia, was offset by growth acceleration in Vietnam and moderate recovery in Thailand. Risks include a faster-than-expected slowdown in China, the possibility of renewed financial market turbulence, and an abrupt tightening of financing conditions.
Europe and Central Asia
Growth is projected to rise to 3 percent in 2016 from 2.1 percent in the year just ended as oil prices fall more slowly or stabilize, the Russian Federation’s economy improves, and Ukraine recovers. Economic activity in Russia is projected to contract by 0.7 percent in 2016 after shrinking by 3.8 percent in the year just ended. Growth could resume modestly in the eastern part of the region, which includes Eastern Europe, South Caucasus, and Central Asia, if there is a stabilization of commodity prices. The western part of the region, which includes Bulgaria, Romania, Turkey and the Western Balkans, should grow moderately in 2016, buoyed by recovery in the Euro Area.
Latin America and the Caribbean
The region is projected to recover modestly from recession in 2016, with activity flat after shrinking by 0.9 percent in the year just ended, as the region grapples with the protracted decline of commodity prices and domestic challenges weighing on the region’s largest economies. However, there are differences among the sub-regions with stronger growth in developing Central and North America and the Caribbean offsetting weakness in South America. The current recession in Brazil is expected to extend into 2016 but a return to growth is expected in 2017. Although weighed down by low oil prices and associated fiscal pressures, growth is expected to pick up in Mexico thanks to dividends from implementation of structural reforms and strengthening demand from the U.S. market.
Middle East and North Africa
Growth is forecast to accelerate to 5.1 percent in 2016 from 2.5 percent in the year just ended, as the expected suspension or removal of economic sanctions against the Islamic Republic of Iran will allow that country to play a larger role in global energy markets. Growth is expected to pick up in other oil exporters as well, predominantly on the assumption that oil prices will stabilize. The region is subject to serious risks from the possibility of an escalation of conflict, a further decline in oil prices, and failure to improve living conditions, which could spark social unrest.
South Asia
The region is projected to be a bright spot in the outlook for emerging and developing economies, with growth speeding up to 7.3 percent in 2016 from 7 percent in the year just ended. The region is a net importer of oil and will benefit from lower global energy prices. At the same time, because of relatively low global integration, the region is shielded from growth fluctuations in other economies. For FY 2016-17, India, the dominant economy in the region, is projected to grow at a faster 7.8 percent and growth in Pakistan (on a factor cost basis) is expected to accelerate to 4.5 percent.
Infographic: Global Growth – January 2016
Related News
Nigeria: Act with resolve, build resilience, and exercise restraint – Lagarde
Speech by Christine Lagarde, Managing Director of the International Monetary Fund, to the Nigerian National Assembly in Abuja, 6 January 2016
Honorable Speaker of the House, Honorable Members of Parliament, Honorable Members of the Government, Ladies and Gentlemen,
Good morning and Happy New Year!
I would like to thank you for the gracious introduction, and Members of Parliament and the people of Nigeria for their incredible hospitality.
I have been looking forward to starting my new year here in Nigeria – and I am grateful for the special privilege to speak before this parliament.
My first visit to Africa as IMF Managing Director was in late 2011, and the first country on my itinerary was Nigeria. At that time, Nigeria was emerging from the 2008-09 commodity price collapse and the banking crisis that followed.
Since that visit, Nigeria has been acknowledged as the largest economy in Africa – with a maturing political system. We saw a peaceful general election last year in which, for the first time in Nigeria’s history, there was a democratic transition between two civilian governments. It was a strong sign of Nigeria’s commitment to democracy, to a new Nigeria.
At the same time, the external environment has changed. Oil prices have fallen sharply; global financial conditions have tightened; growth in emerging and developing economies has slowed; and geopolitical tensions have increased.
All this has come at a time when Nigeria is facing an urgent need to address a massive infrastructure deficit and high levels of poverty and inequality.
So, Nigeria faces some tough choices going forward. Nigerians, however, are well known for their resilience and strong belief in their ability to improve their nation and lead others by example. I firmly believe that Nigeria will rise to the challenge and make the decisions that will propel the country to greater prosperity.
As the great Nigerian novelist Chinua Achebe once said: “If you don’t like someone’s story, write your own.” This is exactly what you are doing right now.
And let me assure you that, as you go forward, as you develop your story, the IMF will support your efforts.
Today, I would like to offer my perspective – on your story and punctuate it with three R’s: resolve, resilience, and restraint.
-
I will first identify the global economic transitions that are affecting Nigeria and the region.
-
I will then turn to the importance of managing the near-term vulnerabilities facing Nigeria’s economy.
-
And, finally, share my thoughts on what might help to achieve more inclusive and sustainable growth.
1. Global economic transitions and implications for Nigeria and the region
So let me start with the big picture. For more than a decade, growth in Sub-Saharan Africa was driven by an extraordinary combination of improved policies, stronger institutions, high commodity prices, and high capital inflows.
The region has now entered a different phase, where commodity prices and capital flows are far less supportive. We are in the process of updating our forecasts, but broadly the IMF staff estimates that regional economic growth dropped from 5 percent in 2014 to about 3.8 percent last year, with only a modest recovery expected in 2016.
There is a similar picture at the global level – modest growth last year, with only a slight acceleration expected in 2016. Emerging markets, which propelled global growth after the 2008 global financial crisis, have slowed; advanced economies are still recovering from the impact of that crisis; and financial markets remain volatile.
In fact, both at the regional and global level, growth is affected by three major economic transitions. They include China’s move to a new growth model, the prospect of commodity prices remaining lower for longer, and the increasing divergence in monetary policy in major economies, especially since the recent rise in U.S. interest rates.
Understandably, policymakers in this region are concerned – because these transitions can create spillovers through trade, exchange rates, asset markets, and capital flows.
For example, spillovers are now affecting oil-exporting countries, which generate about half of this region’s GDP. These economies, including Nigeria, are facing massive pressures and challenging prospects.
Over the medium term, oil prices are likely to remain much lower than the 2010-13 average of more than $100 a barrel. Why? Because of the huge oversupply in global oil markets. Think of the shale oil boom in the United States, and some historically large producers such as Iraq and Iran coming back to the market. Other factors include OPEC’s strategic behavior and the drop in global demand for oil, especially in emerging economies.
Already, lower oil prices have sharply reduced Nigeria’s export earnings and government revenues. Both are likely to remain at depressed levels, reducing the space for policy interventions to address Nigeria’s social and infrastructure needs.
Private sector investment will also be affected. Investor confidence about the outlook has remained weak, and financing is likely to become more difficult and more costly for everyone. With U.S. interest rates expected to continue to rise, albeit slowly, the likelihood of capital outflows will increase, and exchange rate pressures could mount as investors re-assess their appetite for risk.
More broadly, Sub-Saharan Africa is also facing spillovers from geopolitical factors, including the fight against Boko Haram. The threat of terrorism is very real and never far from our minds. Having been in Paris during the November attacks, I know firsthand the sorrow that so many Nigerians carry in their hearts.
In this region, terrorism not only takes a human toll but it also makes public finances more fragile. How? By widening budget deficits. Revenues are lower, including from lower growth, and spending needs higher, including for security and for supporting those impacted by the violence. One immediate downside is higher financing needs that can crowd out other essential public spending.
This brings me to my second topic – how can policymakers manage these near-term vulnerabilities?
2. Managing near-term vulnerabilities
Let me start by underscoring the progress made in recent years. Nigerians have created a large and diversified economy that has grown by about 7 per cent a year over the last decade. This has been a remarkable achievement, a testament to Nigeria’s immense potential.
The outlook, however, has weakened. Growth in 2015 is estimated at about 3.2 percent – its slowest pace since 1999 – and only a modest recovery is expected in 2016.
For a country with a rapidly increasing population, this means almost no real economic growth in per capita terms.
On top of the slowdown, vulnerabilities have increased. The ability to manage shocks is restricted by low fiscal savings and reserves. And the weakening oil sector could stress balance sheets and put pressure on the banking system.
Reduced confidence and lower capital spending also impact the non-oil corporate sector. Unfortunately, this sector looks less resilient today than during the downturn of 2008-09. Companies that have increased their leverage and US-dollar debt in recent years may now come under pressure as they face rising interest rates and a stronger dollar.
Nigeria also has a large regional footprint, and its fortunes affect that of its neighbors, especially through trade. For example, it is estimated that a one percent reduction in Nigeria’s growth causes a 0.3 percent reduction in Benin’s growth.
So what can policymakers do?
I see an immediate priority – a fundamental change in the way government operates. What do I mean by that? The new reality of low oil prices and low oil revenues means that the fiscal challenge facing government is no longer about how to divide the proceeds of Nigeria’s oil wealth, but what needs to be done so that Nigeria can deliver to its people the public services they deserve – be it in education, health or infrastructure.
This means that hard decisions will need to be taken on revenue, expenditure, debt, and investment going forward. My policy refrain is this:
Act with resolve – by stepping up revenue mobilization. The first step is to broaden the tax base and reduce leakages by improving compliance and enhancing collection efficiency. At the same time, public finances can be bolstered further to meet the huge expenditure needs. For example, the current VAT rate is among the lowest in the world and well below the rates in other ECOWAS members – so some increase should be considered.
Build resilience – by making careful decisions on borrowing. Nigeria’s debt is relatively low at about 12 percent of GDP. But it weighs heavily on the public purse. Already, about 35 kobo of every naira collected by the federal government is used to service outstanding public debt.
Exercise restraint – by focusing on the quality and efficiency of every naira spent. This is critically important. As more people pay taxes there will, rightly, be increasing pressure to demonstrate that those tax payments are producing improvements in public service delivery.
Let me give you examples of what I mean:
On capital expenditure, the focus must be on high-impact and high value-added projects. This is why the government is focusing on power, integrated transport (roads, rail, air, and ports), and housing. These can help connect centers of activity across the country and drive growth prospects.
On recurrent expenditure, efforts should be made to streamline the cost of government and improve efficiency of public service delivery across the federal and sub-national governments. Transfers and tax expenditures should also be addressed. For example, continuing the move already begun by the government in the 2016 budget to eliminate resources allocated to fuel subsidies would allow more targeted spending, including on innovative social programs for the most needy.
Indeed, fuel subsidies are hard to defend. Not only do they harm the planet, but they rarely help the poor. IMF research shows that more than 40 per cent of fuel price subsidies in developing countries accrue to the richest 20 per cent of households, while only 7 per cent of the benefits go to the poorest 20 per cent.
Moreover, the experience here in Nigeria of administering fuel subsidies suggests that it is time for a change – think of the regular accusations of corruption, and think of the many Nigerians who spend hours in queues trying to get gas so that they can go about their everyday business.
At the same time, we should not forget the huge challenges facing Nigeria’s state and local governments. These sub-national governments – which account for the bulk of social spending – have only limited tools to manage the impact of declining oil revenues. My message here is to manage better the smaller purse, while building capacity to increase internally generated revenue.
The IMF can help in that regard by providing technical assistance on public financial management. We did so for the Kaduna State Government. We can explore how to support states’ efforts to undertake budget reform.
I see another immediate policy priority – strengthen Nigeria’s external position. The essential fact is that, given the structure of the economy, the massive fall in oil prices – which is expected to continue – has changed the medium term foundations for economic resilience. To be clear, the goal of achieving external competitiveness requires a package of policies including business-friendly monetary, flexible exchange rate and disciplined fiscal policies, as well as implementing structural reforms. Additional exchange rate flexibility – both up or down – can help soften the impact of external shocks, make output and employment less volatile, and help build external reserves. It can also help avoid the need for costly foreign exchange restrictions - which should, in any case, remain temporary. And going forward, improved competitiveness from improved exchange rate flexibility and other reforms will facilitate the needed diversification of the exports base and, ultimately, growth.
This brings me to my final topic – how can policymakers achieve more inclusive and sustainable growth?
3. Achieving inclusive and sustainable growth
The good news is that Nigeria is already, in many ways, a 21st-century economy.
-
Think of the boom in mobile communications in a country where more than 140 million cell phones are in use, nearly one for each Nigerian.
-
Think of the vibrant, home-grown film industry that has become the world’s second-largest by output. Nollywood employs about one million people who create films that are winning audiences across the continent and beyond.
-
Think of the growing number of innovative startups – from fashion to software development – that are promoting Brand Nigeria. Indeed, the growth in services to about half of Nigeria’s output is a testament to the transformation that has begun, and which needs to continue.
But we all know that huge structural challenges remain, despite the many initiatives that are ongoing. Let me highlight the conditional cash transfer scheme in Kano, where poor households receive financial assistance linked to girls’ enrolment in schools. Overall, however, poverty and inequality still remain high, especially in some parts of the country.
Women account for about 42 percent of the total labor force – which is comparatively low – and their literacy rates are well below that of men. Maternal mortality is relatively high because of limited access to health care. Many women and children are dying every day simply because they cannot get to medical facilities fast enough.
With that in mind, what are the key policy priorities? Invest in quality infrastructure, make the banks work, and improve governance. Let me take each in turn:
The first – act with resolve to significantly improve transportation networks and power delivery [i.e., generation, transmission, and distribution]. For example, Nigeria could be exporting tomato paste – a staple of Nigerian cuisine – on a large scale, but it imports about half of what it needs. This is why Nigeria needs to build more roads and better rail networks, so that more farmers can bring their crops to market.
Likewise, more investment is needed in energy infrastructure in a country where too many businesses and households regard their backup generators as their main power source.
The second priority – build resilience by fostering a sound banking system. This will help channel more savings into productive investments, especially in quality infrastructure.
To be sure, Nigeria’s banks are generally well-capitalized and more resilient than during the downturn of 2008-09. But they are beginning to feel the impact of the growing vulnerabilities in the corporate sector. This means rising non-performing loans, which will need to be carefully monitored and managed.
The third priority – act with resolve in fighting against corruption. In his first public speech after the election, President Buhari singled out corruption as a “form of evil that is even worse than terrorism.”
Corruption not only corrodes public trust, but it also destroys confidence and diminishes the potential for strong economic growth.
At the global level, it is estimated that the cost of corruption is equivalent to more than 5 percent of world GDP (World Economic Forum), with over US$ 1 trillion paid in bribes each year (World Bank).
Here in Nigeria, important initiatives to discourage graft are underway and should be applauded. Let me highlight the publication of monthly data on the finances and operations of the Nigerian National Petroleum Corporation. This provides information on a key sector, building confidence in transparency, and improving accountability of oil revenues, for the benefit of all Nigerians.
Much more can – and needs to be – done. Fighting corruption is a multi-year, multi-generational struggle that must be won.
Conclusion
So let me conclude: today your nation has embarked on a new journey. Nigeria is looking ahead, while drawing strength from its assets – the richness and diversity of its culture, the ingenuity of its people, and the belief in a better future.
Today policymakers have the opportunity to address near-term vulnerabilities and medium-term challenges – with resolve, resilience, and restraint. Today the “Giant of Africa” is walking with a spring in her step – inspiring others in the region and across the world.
As the great Nigerian poet Ben Okri once said: “Our future is greater than our past”.
Thank you.
Related News
2015: A new era of comprehensive development of China-Africa cooperation
The year 2015 has witnessed China-Africa relations recording the most splendid chapter in the history of international relations.
Fruitful achievements have been made in the recently concluded Johannesburg Summit of FOCAC, which ushered in a new era of win-win cooperation and common development between China and Africa and brought China-Africa relations onto a new journey with broad prospects.
History will always remember the year 2015.
The Johannesburg Summit is indeed a milestone in China-Africa relations, which sent a strong signal to the world – China and Africa will join hands for win-win cooperation and common development and promote comprehensive development of their relations.
From proposing to strengthen and consolidate the “five major pillars” of China-Africa relations to announcing “ten major cooperation initiatives” with Africa in the following three years supported by US$60 billion for their smooth implementation; from initiating five proposals on China-Africa friendly cooperation to emphasizing the principle that four things will never change in its relations with Africa… China has made solemn commitment and taken real actions to keep up to date its policy of developing relations with African countries with sincerity, real results, affinity and good faith and approach of upholding principles and pursuing interests
The year 2015 is a year of fully deepening and upgrading China-Africa relations. Leaders of China and African countries all agree at the summit to upgrade their new type of strategic partnership into comprehensive strategic cooperative partnership, thus realizing another leap of China-Africa relations.
Such a new positioning will fully expand China-Africa relations and open up broad prospects of their mutually beneficial cooperation at a larger scope, wider field and higher level, which is of strategic importance for both sides. China is now working hard to realize the Chinese dream of great rejuvenation of the Chinese nation, for which the CPC Central Committee adopted the Suggestion on the 13th Five-Year Plan at its Fifth Plenary Session, while the AU also adopted Agenda 2063 early this year, mapping out the development vision for the following 50 years. A series of new measures for matching the development strategies of China and Africa will promote comprehensive upgrading of China-Africa cooperation.
To strengthen and consolidate the “five major pillars” of China-Africa relations, namely political equality and mutual trust, economic win-win cooperation, cultural exchange and mutual learning, mutual support in security, and solidarity and collaboration in international affairs, will offer strong support and guarantee for comprehensive development of China-Africa friendly cooperation.
Having gone through several hundred years of ups and downs, China and Africa now define their relations as comprehensive cooperative partnership, which starts a brand new era. South African President Zuma said full of expectation that with the strong support of China, upheaval changes will happen in the African continent. Zimbabwean President Mugabe could not help to show his excitement at the Summit and expressed “most sincere and profound gratitude” to China. Leaders of African countries are full of joy for the real measures and sincere commitment of China to help Africa.
The year 2015 is a crucial year in the history of China-Africa relations. It marks the 15thanniversary of the establishment of FOCAC. The past 15 years have witnessed robust development of China-Africa relations with their cooperation making great headway in various fields, yielding fruitful results.
Politically, there has been frequent exchange of high-level visits, making their political mutual trust more solid. China and Africa have rendered each other mutual support and cooperation in international affairs, and shown mutual understanding and support on issues concerning each other’s core interests and major concerns.
Economically, China has maintained Africa’s biggest trading partner for the sixth consecutive year. China-Africa trade stood at US$220 billion in 2014, which is 22 times that of the year 2000 when FOCAC was inaugurated. China’s total investment to Africa has exceeded US$30 billion, which is 60 times that of 2000, up by 20% annually in average.
In the field of production capacity cooperation, China is committed to helping Africa to address the problem of underdevelopment in infrastructure which hinders its development. By September 2015, through China’s assistance and financing, the total railway lines completed and under construction by China in Africa were 5675 kilometers, and that of highways 4507 kilometers. The internal combustion bullet trains, locomotives, passenger trains, freight trains, and urban rail of the CRRC have covered 29 African countries, providing nearly 10,000 railway vehicles to Africa.
People-to-people and cultural exchanges between China and Africa have also been deepened and expanded. China has helped to build schools and offers government scholarships to African countries, and organizes multilateral and bilateral training programmes on technical management as well as workshops for senior officials of African countries. Moreover, more and more Chinese people prefer to travel to Africa, and many of them have chosen to settle down there, leaving many touching “love stories”.
China and Africa need and complement each other in their cooperation, and are faced with unprecedented historic opportunities.
Africa now is in the initial period of industrialization, while China has accumulated rich experience in the field of industrialization, and can offer its development experience to African countries for reference. China-Africa cooperation is timely and appropriate.
China has proposed “ten major cooperation initiatives” including industrialization, agricultural modernization, infrastructure and green development, covering various aspects of Africa’s development, which can help Africa to overcome bottleneck constraint against its development, thus to achieve independent and sustained development. The initiatives aim at promoting matching of development strategies of the two sides.
China has always been a firm participant, supporter and promoter for Africa’ s development. President Zuma said passionately that when China came to Africa to cooperate with them, he was for the first time full of hope for Africa’s future, which is something he could not dare to imagine in the old times when western countries colonized Africa.
“The beginning of all stings is small.” China-Africa traditional friendship has laid a solid foundation for China-Africa relations to embark on a new journey.
The year 2015 is the first year for China-Africa relations to embark on a new journey. In the coming year of 2016, under the guidance of the policy of developing relations with African countries with sincerity, real results, affinity and good faith and the principle of “proposed, agreed upon and led by Africa”, we will work to strengthen and consolidate “five major pillars” of China-Africa relations based on the needs and reality in Africa. There will be a new future of China-Africa cooperation.
Related News
Agoa row: Big losers, but also winners if SA gets boot
If South Africa loses its beneficial status in terms of the Africa Growth and Opportunities Act (Agoa), there will be some winners and some losers in the local agriculture and agribusiness industry, according to John Purchase, CEO of Agbiz.
Conflicting interests between different value chains in the broader agro-food system makes it important for the outcome of SA’s current Agoa negotiations to result in a good balance, he told Fin24 on Wednesday.
Agoa has enabled duty free, trade access preferences for SA’s agricultural products. SA did, however, not meet a December 31 deadline to remove barriers on beef and chicken imports from the US, placing it at risk of losing these US trade preferences.
“If SA is kicked out of Agoa the SA industries that would be the big losers would primarily be fruit (including juice), wine and nuts. The winners would be the SA poultry and pork industries,” said Purchase.
“Our position is clear: SA’s current Agoa negotiations must aim to bring about a balanced situation where the country’s duty free access to the US for its fruit, wines and nuts are maintained, and where SA, in turn, allows certain imports of US broiler meat, pork and beef under certain and strict conditions, both from a tariff quota, sanitary and phyto-sanitary (SPS), and food safety point of view. The process is, however, now out of our hands,” said Purchase.
He added that the SA’s current situation regarding the Agoa process is a complex issue, which requires a balancing act by government and agribusinesses in general.
“SA’s geo-political positioning is, of course, adding to the complexity of the current Agoa trade negotiations and related issues. The geo-political impact cannot be divorced from these types of negotiations,” explained Purchase.
Agbiz represents about 80 companies and associations involved in various agro-food value chains, including fruit, nuts, wine, poultry, red meat and grains. It looks at cross-cutting issues which affect various industries and it engages with government on policy and legislation as well as trade matters.
In September 2015 the Department of Trade and Industry (dti) did invite Agbiz to provide some guidance and perspective as part of what Purchase calls “this very tricky” Agoa situation.
“We asked for a balanced situation, which was basically what the dti and government adopted. We even called for partial equilibrium models to be run as some industries would win and some would lose,” said Purchase.
These are agro-economic models to determine what the benefits would be and what the losses would be in specific industries. The Bureau for Food and Agricultural Policy (BFAP) was asked to develop and run such models and, according to Purchase, came to the same conclusion as government on where one would have to settle in the negotiations.
Certain sanitary and food safety issues regarding poultry imports from the US have since been resolved and as far as Purchase is aware the only issue left relates to SA’s concern about the so-called salmonella food safety issue.
Related News
Scaling up climate and disaster resilience for the world’s most vulnerable
Natural disasters can cause unthinkable tolls and continue to disproportionately affect the poorest and most vulnerable.
When the category five Cyclone Pam barreled down on Vanuatu in March, the destruction was unprecedented. The largest cyclone to make landfall in the Pacific in recorded history, the storm struck 22 of Vanuatu’s 83 islands, with tides sweeping away entire villages, swallowing infrastructure, and destroying hundreds of acres of crops. With over two-thirds of the population affected, the country’s finance minister described the storm’s impact as “catastrophic – destroying years of development and investments.”
Drivers of climate and disaster risk are making scenarios like this more common. Climate change threatens to worsen extreme weather events like droughts, floods, storms, and heatwaves. Rapid urbanization and unplanned development are putting more people in harm’s way than ever before – more than one million people a week are moving into cities, with 90 percent of urban growth taking place in Africa and Asia. These trends will continue to increase the number and severity of disaster events. In the last decade, there were nearly twice the number of climate-related disasters alone than in the 1980’s.
Fortunately, it’s possible to empower countries like Vanuatu and others to become more resilient. Through technical assistance, capacity building, and knowledge sharing activities, the Global Facility for Disaster Reduction and Recovery (GFDRR) helps vulnerable countries reduce disaster and climate risks and build resilience. In Vanuatu, the GFDRR-supported Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) provided a $1.9 million cash injection within 10 days of the disaster to help with immediate recovery needs.
Managed by the World Bank, GFDRR is a global partnership funded by 22 donor partners with a mission help developing countries better understand and reduce their vulnerabilities to natural hazards and adapt to climate change.
During the past fiscal year, GFDRR provided nearly $80 million in grants that address these challenges in over 89 countries. This work has enabled vulnerable countries to leverage significant additional funding in resilience – including more than $3 billion from the World Bank alone in FY15.The impact of GFDRR’s growing program this past fiscal year included:
-
Supporting a post-disaster needs assessment (PDNA) and further recovery efforts after two high-magnitude earthquakes struck Nepal’s Kathmandu Valley in April and May. This assessment helped lead to $4.4 billion in donor pledges, including $500 million from the World Bank.
-
Training over 11,000 people in disaster risk management (DRM) topics, including in Indonesia where a GFDRR-supported initiative focused on capacity building has trained over 750 local DRM practitioners from 53 districts.
-
Strengthening available risk information in Malawi through community mapping and open-source platforms. This data was used after the country suffered its worst flooding on record in January 2015. GFDRR has supported recovery efforts, including a PDNA and a disaster recovery framework.
GFDRR also scaled up DRM through its innovative thematic initiatives. The Safer Schools Program is helping to make students and schools safer through better construction practices. For example, it is working in Nepal to improve the safety and quality of the country’s education facilities as it builds back after the April and May 2015 earthquakes. Another program, the Small Island States Resilience Initiative (SISRI), supports highly vulnerable countries in reducing climate and disaster risks to their communities, economies, and ecosystems.
This past year has been historic for the global resilience agenda, marking the adoption of the Sendai Framework for Disaster Reduction and Recovery (SFDRR), which will help guide GFDRR and the global community’s DRM efforts through 2030, as well as the landmark climate agreement in Paris and the Sustainable Development Goals.
“This has been a monumental year for the development community,” said Francis Ghesquiere, Head, GFDRR Secretariat. “As we work toward helping countries realize the Sendai Framework, the Paris agreement, and other accords, the work of GFDRR will be central to help build resilience.”
2016 will bring other important conversations around the resilience agenda, especially international milestones like the World Humanitarian Summit and Habitat III. GFDRR will work to inform and implement these larger frameworks, and ensure the needs of those most vulnerable to disaster and climate risk remain at the forefront of the post-2015 development agenda.
Related News
World Bank issues ‘perfect storm’ warning for 2016
Simultaneous slowdown in Brics economies would jeopardise chances of pick-up in global growth this year, report says
The risk of the global economy being battered by a “perfect storm” in 2016 has been highlighted by the World Bank in a flagship report that warns that a synchronised slowdown in the biggest emerging markets could be intensified by a fresh bout of financial turmoil.
The Bank said the possibility that Brazil, Russia, India, China and South Africa – the so-called Brics economies – could all face problems simultaneously would put in jeopardy the chances of a pick-up in growth in the coming year.
It added that the impact would be heightened by severe financial market stress of the sort triggered in 2013 by the announcement by the Federal Reserve that it was considering reducing the stimulus it was then providing to the US economy.
Launching its annual Global Economic Prospects, the Bank said activity in 2015 had failed to live up to its expectations – the fifth year in a row that growth has undershot the forecasts made by the Washington-based institution, which lends to the world’s poorest countries.
The Bank said growth had slowed to 2.4% in 2015, from 2.6% in 2014, but added that a stronger performance in developed countries should lead to 2.9% growth this year.
“Downside risks dominate and have become increasingly centred on emerging and developing countries,” it said.
The Bank is predicting that recessions in Brazil and Russia will bottom out in 2016, that China will experience only a modest growth slowdown from 6.9% to 6.7% and that India will continue to expand at a robust pace.
The report said that, in a development unmatched since the 1980s, most of the largest emerging market economies were slowing at the same time. Sharp declines in commodity prices, subdued global trade, weaker capital flows and currency pressures had combined last year to create a “particularly challenging external environment for commodity exporters”, where most of the growth slowdown had occurred.
The Bank has estimated that growth in developing countries reached a post-crisis low of 4.2% in 2015, down from 4.9% in 2014, and warned that 2016 could be another difficult year.
In the event that growth in the Brics economies fell one percentage point short of expectations, the Bank said this would knock 0.8 points off growth in other emerging markets and reduce growth in the global economy by 0.4%.
But the Bank also highlighted the risks of what it called a perfect storm. “Spillovers could be considerably larger if the Brics growth slowdown were combined with financial market stress.
“If, in 2016, Brics growth slows further, by as much as the average growth disappointment over 2010-14, growth in other emerging markets could fall short of expectations by about one percentage point and global growth by 0.7 percentage points.
“If such a Brics growth decline scenario were to be combined with financial sector turbulence, emerging market growth could slow by an additional 0.5 percentage points and global growth by an additional 0.4 percentage points.”
![Source: Global Economic Prospects, January 2016 BRICS Global Economic Prospects Jan 2015](/images/News/BRICS_Global_Economic_Prospects_Jan_2015.jpg)
Jim Yong Kim, the Bank’s president, said: “More than 40% of the world’s poor live in the developing countries where growth slowed in 2015. Developing countries should focus on building resilience to a weaker economic environment and shielding the most vulnerable. The benefits from reforms to governance and business conditions are potentially large and could help offset the effects of slow growth in larger economies.”
The Bank said it expected the growth rate in the Middle East and North Africa region to more than double as a result of the ending of sanctions against Iran and an end to declining oil prices. “Growth is forecast to accelerate to 5.1 percent in 2016 from 2.5 percent in the year just ended, as the expected suspension or removal of economic sanctions against the Islamic Republic of Iran will allow that country to play a larger role in global energy markets. Growth is expected to pick up in other oil exporters as well, predominantly on the assumption that oil prices will stabilize.”
More stable commodity prices should also help Africa, the Bank added, predicting growth to pick up from 3.4% in 2015 to 4.2% in 2016.
» Read more: Global Economic Prospects: Spillovers amid Weak Growth | January 2016
Related News
International e-commerce in Africa: The way forward
E-commerce has great potential to become a significant part of the economic activity of countries throughout Africa. Increasing digital literacy and unprecedented new demand are occurring at the same time as breakthrough developments in infrastructure and technology.
News of successful investment rounds for local e-commerce platforms, the increasing adoption of mobile money, and the reach of Internet connectivity to a significant percentage of the population all suggest a dynamic continent that is developing new ways of conducting business digitally. Innovations abound as African entrepreneurs devise solutions to low consumer trust and limited access to formal banking.
There are, however, a number of barriers to the fulfilment of this potential. This paper examines the reasons for these barriers, using insights provided by e-commerce entrepreneurs in several African countries. It then suggests avenues for reducing the obstacles and facilitating international e-commerce on the continent. Although the focus is on Africa, the paper’s findings can apply to the many practical challenges to digital trade for small and medium-sized enterprises (SMEs) in developing countries more generally. Africa is extremely diverse, and examples of local successes are presented such as Nigeria, which is seen by many as a leader in regional e-commerce, alongside examples which illustrate the challenges to replicating such successes elsewhere on the continent.
The paper, launched to coincide with the 10th Ministerial Conference of the World Trade Organization (WTO), draws on the growing body of work in this area, including UNCTAD’s Information Economy Report 2015 and an ITC survey of Tunisian SMEs, along with ITC interviews and case studies.
Domestic e-business thrives: International e-commerce remains marginal
There are two competing stories in Africa: vibrant domestic digital businesses, and feeble development of international e-commerce. Several domestic e-commerce businesses in large African countries (such as Nigeria, Kenya and South Africa) are strong and growing, even if similar platforms are currently absent from smaller countries. While considerable innovation is applied to serving local markets, international digital entrepreneurialism in Africa would appear to be blocked. This paper identifies six main issues, which also represent the greatest obstacles to international trade more generally:
-
Difficulties with international banking transactions. Some African countries place domestic restrictions on the amount of money that can be transferred across borders. Furthermore, a number of countries in the region may only receive payments from foreign credit card holders through costly intermediaries, because the domestic banking system lacks the necessary international links. Although global e-commerce platform providers offer integrated payment solutions, many African companies cannot actually use them because they lack the requisite foreign bank account or subsidiary. Compliance with banking regulations and related private-sector rules are yet another challenge, as are trust and perceived security issues.
-
Exclusion from international e-marketplaces. Negative risk/return calculations, and negative perceptions about doing business in Africa, mean that the SMEs of many African countries are blocked from listing their products on international marketplaces. This only compounds the banking barriers, since even if their goods were listed and sold, the companies would be unable to be paid for them.
-
Infrastructure deficit. Poor domestic and regional physical infrastructure, such as roads, ports and air transportation as well as the reliability of electricity supply are serious obstacles to e-commerce in much of Africa. While this can be overcome to some extent by local solutions, such as motorbike delivery, international logistics are far more complicated and costly, which puts many African companies at a particular disadvantage when competing globally.
-
Inexperience with sales tax and import duties. It is a common mistake for inexperienced African SMEs to export through e-commerce channels without accounting for sales tax or import duties, and few local transportation partners can offer Delivered Duty Paid services. The consequences can be a costly return shipment or a loss of business.
-
Sociopolitical barriers. Many governments and local institutions are not doing enough to create local services and structures in support of small businesses. And companies themselves are often challenged by the cultural requirements of doing business abroad, such as foreign language skills and customer service orientation.
-
The remaining digital divide. Internet connectivity in Africa continues to lag behind other regions, although the gap is closing rapidly thanks to mobile Internet. ITC’s SME Competitiveness Outlook 2015 found that limited access to broadband widens an already significant digital divide and noted that this gap deprives many businesses of economic development opportunities, such as business process outsourcing services. The ultimate digital divide for e-commerce may be a lack of awareness and understanding on the part of small enterprises.
E-commerce platforms have emerged as an equalizing force between large and small companies and offer the tantalizing potential for enterprises from Africa to reach profitable segments in international markets. For the reasons identified in this paper, these opportunities remain difficult and costly to access and have effectively stifled the growth of international e-commerce originating in Africa.
A substantial amount of work is under way at the international level to simplify customs and tax arrangements and deal with trade restrictions and network security, as described in this paper. The paper also outlines ongoing efforts at both the national and international level to build bandwidth and reduce the digital divide. However, all of these efforts are for the long term, and even when they have been completed, they will not address the more practical challenge faced by small African enterprises to increasing their competitiveness. In the meantime, players from outside the continent are building their market positions in international e-marketplaces, including Africa itself. What is the best strategy?
The new digital era calls for new approaches, as proposed in the concluding chapter. New types of partnerships, involving governments, local institutions and competing companies, are needed, and should be involved in a series of well-targeted practical initiatives to develop international e-commerce from Africa:
-
Working with policymakers: Useful public-private sector initiatives include enabling laws for the creation of e-commerce cooperatives, reviewing currency exchange controls on digital trade, adopting the Model Law on Electronic Signatures and promoting a conducive environment for ecommerce.
-
Institutional capacity-building: Traditional business associations need to support the collective access of small enterprises to international e-commerce, by operating marketplaces, sharing ownership of technologies and pooling promotional budgets. They should help local enterprises comply with international fiscal transparency requirements and work with international specialists to create “e-trust” and enable electronic transactions.
-
Enterprise capacity-building: Enterprises need training on the potential opportunities of ecommerce and how to overcome barriers. They need to know how to package, market and serve customers for international e-commerce, and how to comply with developed countries’ trading requirements.
-
Corporate structure-sharing: SMEs can set up collective representative structures abroad to handle import duties and sales taxes and provide access to finance and banking facilities in international markets.
-
Technology-sharing: Groups of local enterprises can, with the support of international partners, create locally owned and managed platforms and use open source software libraries and other technologies to list their products on international sites.
-
Improved access to international transport and logistics: Logistics partners in developed countries can develop optimized transport and logistics solutions, including e-commerce-enabled storage and handling (“e-fulfilment”) in international markets. Such solutions should be tailor-made to the type of goods and marketing strategies of the African firms.
Related News
Malawi: Tackling inflation key to sustainable growth
Reducing inflation is the most important policy issue for Malawi in the near term, the IMF said in its recent review of the country’s economy.
The report shows currency depreciation and uncertainty about the future direction of policies have kept inflation above 20 percent on average. The economy, heavily dependent on aid flows, is still feeling the effects of the large-scale theft of public funds uncovered in 2013.
The scandal, known as “cashgate,” prompted donors to suspend all budget support, forcing the government to print money to cover the deficit. A poor maize harvest caused by heavy floods and drought in early 2015 has exacerbated the problem by raising food prices and pushing inflation up further.
“If left unaddressed, inflation will become entrenched, continue to hurt investment and growth, and worsen living conditions, especially for the poor,” the study said.
Economic reforms bear fruit
But despite Malawi’s challenges, the report lauded bold economic reforms undertaken in mid-2012 that greatly improved the economy’s resilience. Devaluing the Kwacha, adopting a floating exchange rate regime, the liberalization of the foreign exchange market, and the introduction of an automatic fuel price adjustment mechanism have helped increase the country’s foreign exchange reserves from one month of import cover to over 3 months.
The report also acknowledged significant progress in the social sector such as achieving gender parity in primary school enrollment, improving access to water, and further lowering infant mortality, which has been below the average for sub-Saharan Africa since 2004.
The report noted, however, that high inflation is hampering real GDP growth, which averaged only 4 percent during 2012-15 and significantly below the 7 percent targeted under Malawi’s Growth and Development Strategy.
Fiscal, financial sectors interlinked
Inadequate fiscal adjustment following the “cashgate” scandal affected the financial sector through several channels, the report said. Non-performing loans, for one, increased due to the accumulation of domestic payment arrears to private suppliers who experienced difficulties in servicing loans. Credit risk has since emerged as the most significant threat to the banking sector.
Financing the deficit through increased recourse to domestic financing crowded out bank lending to the private sector, and stubbornly high inflation contributed to higher interest rates and greater exchange rate volatility. These factors, according to the report, have in turn impacted Malawi’s budget and increased the cost of servicing its domestic debt.
The report found that while financial sector depth and inclusion increased steadily through 2012, they have since stagnated in the face of the persistently high inflation and multiple structural obstacles such as limited access to credit, unreliable electricity supply, and high transportation costs. Furthermore, half of the people living in the rural areas do not have access to financial services, as these services are mainly available in urban areas. The report said alleviating these structural barriers would bring substantial benefits to the economy in terms of reducing poverty and attaining sustainable and inclusive growth.
Given Malawi’s dependence on a narrow commodity export base dominated by tobacco and the economy’s exposure to large shocks, the report emphasized the importance of restoring macroeconomic stability in the near term through the pursuit of tighter fiscal and monetary policies geared toward placing inflation on a declining trend.
The report also encouraged the authorities to implement structural reforms to remove supply bottlenecks, increase agricultural productivity, and improve the business environment.
Related News
Lesotho and Georgia, two additional ratifications for the Trade Facilitation Agreement
Lesotho and Georgia are the two new members that have ratified the Trade Facilitation Agreement (TFA). The WTO Secretariat received the countries’ instruments of acceptance on January 4th. These two ratifications bring to 65 the number of WTO members that have formally accepted the TFA. Several ratifications were submitted by ministers during the organization’s Tenth Ministerial Conference in Nairobi.
Concluded at the WTO’s 2013 Bali Ministerial Conference, the TFA contains provisions for expediting the movement, release and clearance of goods, including goods in transit. It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. It further contains provisions for technical assistance and capacity building in this area.
The TFA will enter into force once two-thirds of the WTO membership has formally accepted the Agreement.
In addition to Lesotho and Georgia the following WTO members have already accepted the TFA: Myanmar, Norway, Viet Nam, Brunei, Zambia, Ukraine, Hong Kong China, Singapore, the United States, Mauritius, Malaysia, Japan, Australia, Botswana, Trinidad and Tobago, the Republic of Korea, Nicaragua, Niger, Belize, Switzerland, Chinese Taipei, China, Liechtenstein, Lao PDR, New Zealand, Togo, Thailand, the European Union (on behalf of its 28 member states), the former Yugoslav Republic of Macedonia, Pakistan, Panama, Guyana, Côte d’Ivoire, Grenada, Saint Lucia and Kenya.
The TFA broke new ground for developing and least-developed countries in the way it will be implemented. For the first time in WTO history, the requirement to implement the Agreement was directly linked to the capacity of the country to do so. In addition, the Agreement states that assistance and support should be provided to help them achieve that capacity.
A Trade Facilitation Agreement Facility (TFAF) was also created at the request of developing and least-developed country members to help ensure that they receive the assistance needed to reap the full benefits of the TFA and to support the ultimate goal of full implementation of the new agreement by all members.
Implementation of the WTO Trade Facilitation Agreement (TFA) has the potential to increase global merchandise exports by up to $1 trillion per annum, according to the WTO’s flagship World Trade Report released on 26 October. Significantly, the Report also found that developing countries will benefit significantly from the TFA, capturing more than half of the available gains.
More information on trade facilitation and the TFA can be found at www.wto.org/tradefacilitation.
Related News
tralac’s Daily News selection
The selection: Wednesday, 6 January 2016
Selected WTO Trade Policy Reviews: Malawi (27, 29 April), DRC (15, 17 June), Zambia (21, 23 June)
Recently launched: the UNEP Environment and Trade Hub
By working through a network of national, regional, and international partners, the Hub is able to offer interdisciplinary services that are tailored to local needs and circumstances while being delivered in an effective and demand-oriented manner. The specific objectives of the Hub are to: enhance capacity of countries to design and implement trade policies that foster environmental sustainability and human well-being; assist countries in the realization of trade opportunities arising from a transition to greener economies; strengthen the sustainability aspects of cross-border trade and investment agreements in bilateral, plurilateral and multilateral negotiations; realize a shift of trade practices and trends to more sustainable patterns.
Foresight Africa: Top priorities for the continent in 2016 (Brookings)
In this year’s Foresight Africa, the Africa Growth Initiative and its colleagues discuss six overarching themes that place Africa at this tipping point and give their view on what they perceive to be key areas for intervention to keep Africa on its current rising trajectory. This year’s format is different from years past, encompassing viewpoints from high-level policymakers, academics, and practitioners, as well as utilizing visuals to better illustrate the paths behind and now in front of Africa.
The chapters:
-
Managing economic shocks: African prospects in the evolving external environment
-
Sustaining domestic growth: structural transformation depends on jobs, industry, and SMEs
-
Supporting human development: triumphs and challenges on the continent
-
Capitalizing on urbanization: the importance of planning, infrastructure, and finance for Africa’s growing cities
-
Maintaining governance gains: the national and regional agendas
-
Expanding African trade: creating a comparative advantage and strengthening regional partnerships
Towards a regional gender trade index: EOI (AfDB)
The following deliverables are expected from the Junior Consultant: a report with key findings of primary research which should include mapping tariff and non-tariff barriers as well as opportunities for supporting cross-border traders along the North-South corridors and opportunities to better facilitate trade at border post; a report on the feasibility of a gender trade index and stakeholder/partnership mapping.
Master's programme in African regional integration (WAI)
The effective implementation of the regional integration agenda in West Africa requires highly skilled and trained experts in order to consolidate and improve the integration process. Also Individuals working in the field need to have a well-rounded understanding of the multi-dimensional complexities of integration in order to successfully manage the challenges and utilize the opportunities provided by integration. With a strong will to meet these critical needs, WAI and UNI-CV in cooperation with ZEI and with its network of scholars across Africa have taken the next step to implement the Master in African Regional Integration which is meant to support the targeted capacity-building efforts of WAI. In addition to the training of the new generations of elites in the sub regions the Master Program also includes comparative aspects. To this end, comprehensive and innovative training programs have been developed to strengthen the analytical capacity needed to understand the implications of regional integration, the ability to handle complex processes and appreciate the different dimensions of regional integration; including economic, social, legal and political.
SADC: developing harmonised regional guidelines on use and disposal of agrochemicals and fertilisers
Kenya: Small traders smell death in new import rule (Daily Nation)
Traders who import goods in small quantities are likely to be hard hit by a new rule by the Kenya Bureau of Standards requiring all cargo to be accompanied by a certificate of conformity. On Tuesday, traders claimed it would be difficult to bring into the country goods that are imported in small quantities, with manufacturers preferring to deal with those buying in bulk. “Items such as sewing machines are not consumed in huge quantities in the country. I import them from China and the manufacturers there are not ready to be subjected to such requirements for low value exports,” said an importer who declined to be named for fear that his identity would compromise his relations with KRA.
SA-AGOA: selected updates
AGOA row about a deeper discord (editorial comment, Business Day)
Just as the dispute over chicken imports from the US was not really about chickens, so is SA’s likely suspension from the benefits of the African Growth and Opportunity Act (Agoa) not entirely about trade. Rather it is a case of the US saying to SA that it cannot have it both ways. Pretoria cannot line up with the Brics (Brazil, Russia, India, China) bloc on foreign policy issues and bad-mouth Washington — while still demanding privileged access to US markets. It cannot take measures that frustrate trade and investment flows from the US and Europe — but still expect special favours from these regions. Most of all, if SA cannot get its act together to meet the deadlines in a trade dispute, it should not be surprised if it is punished for its incompetence, or perhaps arrogance.
Related: South African farmers see pain as US trade deal unravels (Bloomberg), Agriculture fears loss of benefits from AGOA (Business Day), Ayabonga Cawe: 'AGOA: What are the real issues?' (Daily Maverick), SA poultry slammed for 'protectionism' (Fin24)
India chomping at the BIT (Politico)
India quietly published the final version of its model bilateral investment treaty over the holiday week, setting the stage for the Asian country of roughly 1.3 billion to get negotiations back on track with the U.S. and craft a deal that would dramatically stabilize the investment climate in one of the world’s most dynamic economies. But don’t expect the talks to conclude under this administration.
Zimbabwe: Government engages expert for Beitbridge border post (NewsDay)
Finance minister Patrick Chinamasa said the government was in the process of upgrading the border post to international standards, but it was necessary to put in place interim measures to alleviate the current challenges and also take advantage of the strategic position of the border post. “Government will engage an independent border post expert to reorganise Beitbridge and the expert will work in collaboration Zimbabwe Revenue Authority officials and report to the chairperson of the Zimra board. This measure will be implemented during the first quarter of 2016,” he said. [Moyo appointed CEO for BBR (NewsDay)]
Mozambique: INE household survey shows widening gap between rich and poor (Club of Mozambique)
The survey [conducted by Mozambique’s National Statistics Institute] shows an across the board improvement in living standards since the previous survey, held in 2008-09, but the gains are much sharper for the richer strata of the population than for the poorer. At current prices, average monthly household expenditure per capita rose from 324 meticais in 2002/3 to 721 meticais in 2008/9 to 1,408 meticais (31.3 US dollars at current exchange rates) in 2014/15. The full report breaks this down into fifths (quintiles). The richest quintile saw its monthly per capita expenditure rise from 1,487 meticais in 2008/09 to 5,812 meticais now. This is more than the other four quintiles put together.
Mozambique economy stimulated by infrastructure financed by China (MacauHub)
The focus of Mozambique’s foreign policy, said the same source, is “to connect to new partners” such as China, India and Brazil, “with the long-term goal of reducing the weight of external aid with more investment revenues in the energy and mines sectors.” The interest from major Chinese state-owned enterprises, such as China Three Gorges and China State Grid, in Mozambique’s big hydroelectric projects has been widely publicised.
US eyes Kenya crude pipeline amid China dominance (Business Daily)
The US has shown interest in Kenya’s planned crude oil pipeline as it seeks a piece of the East African country’s mega infrastructure deals dominated by Chinese contractors. The pipeline linking Kenya and Uganda’s newly found oil fields to the Coast was one of the issues discussed between US ambassador Robert Godec and new Energy secretary Charles Keter on Tuesday. “We also discussed the question of an oil pipeline in the northern part of Kenya to help extract Kenya’s oil,” Mr Godec told the Press after meeting top Energy ministry officials, including principal secretary Joseph Njoroge.
Record energy production at Cahora Bassa (Club of Mozambique)
According to a press release from Hidroelectrica de Cahora Bassa, the company that operates the dam, total production last year was slightly more than 16,978 gigawatt-hours. This is the largest amount of electricity produced since commercial operations began at Cahora Bassa in 1977. The previous record was in 2009, when production reached 16,574 gigawatt-hours.
West Africa Power Pool: first phase update (World Bank)
The development objective of the WAPP program is to establish a well-functioning, cooperative, power pooling mechanism for West Africa, as a means to increase access of the citizens of ECOWAS to stable and reliable electricity at affordable costs. The WAPP APL program would help the ECOWAS Member States to develop a robust platform for WAPP, comprising five (5) distinct but mutually reinforcing sub-regional infrastructure development projects.
Eskom: No secrecy around Zim power deal (NewsDay)
Eskom has confirmed the sale of electricity to Zimbabwe, but denied that the power supply agreement with its Zimbabwean counterpart the Zimbabwe Electricity Supply Authority (Zesa) is secret. Eskom is part of the Southern African Power Pool (Sapp), and so is Zesa, where member utilities sell surplus electricity to each other depending on the need, Eskom said.
Addis Ababa: Enhancing urban resilience (World Bank)
A CityStrength Diagnostic was conducted in Addis Ababa, Ethiopia, in February 2015 at the request of the city. The city currently faces potential shocks and stresses related to its unprecedented rapid urbanization including urban flooding, fire, earthquakes, water scarcity, unemployment and social vulnerability. The Diagnostic found that enhancing resilience in Addis Ababa requires actions and investments oriented toward implementing existing plans and regulations, establishing clear and capacitated leadership on risk management topics, and investing in infrastructure that meets existing and future needs. Priority actions include: [Download]
Kaduna State: rural access and mobility project update (World Bank)
The small entrepreneur in fragile and conflict-affected situations (World Bank Blogs)
A recent World Bank report 'The small entrepreneur in fragile and conflict-affected situations’ looked into the motives and challenges of small entrepreneurs in FCS countries [including some in SSA] and made a number of interesting discoveries. They found that compared to entrepreneurs elsewhere, entrepreneurs in FCS have different characteristics and face significantly different challenges. FCS enterprises tend to be small, informal and to be engaged in sectors that are trade and service oriented. Three other things they found are illustrated in the charts below. These findings came as quite a surprise to us.
Access to finance and enterprise growth: evidence from an experiment in Uganda (ILO)
American Economic Association: access the conference papers
tralac’s Daily News archive
Catch up on tralac’s daily news selections by following this link ».
SUBSCRIBE
To receive the link to tralac’s Daily News Selection via email, click here to subscribe.
This post has been sourced on behalf of tralac and disseminated to enhance trade policy knowledge and debate. It is distributed to over 300 recipients across Africa and internationally, serving in the AU, RECS, national government trade departments and research and development agencies. Your feedback is most welcome. Any suggestions that our recipients might have of items for inclusion are most welcome. Richard Humphries (Email: This email address is being protected from spambots. You need JavaScript enabled to view it.; Twitter: @richardhumphri1)
Related News
Foresight Africa: Top priorities for the continent in 2016
Africa is at a tipping point in 2016. Despite all the success the continent has achieved in recent years, new and old dangers – economic, political, and security-related – threaten to derail its progress. With sound policymaking, effective leadership, and enough foresight, however – Africa can meet and defeat these challenges as well as the many more to come.
In this year’s Foresight Africa, the Africa Growth Initiative and its colleagues discuss six overarching themes that place Africa at this tipping point and give their view on what they perceive to be key areas for intervention to keep Africa on its current rising trajectory. This year’s format is different from years past, encompassing viewpoints from high-level policymakers, academics, and practitioners, as well as utilizing visuals to better illustrate the paths behind and now in front of Africa.
In the first chapter, the authors cover the adverse effects of recent external economic shocks on Africa’s already slowing economic growth. While threats like the economic slowdown in PREFACE China and falling commodity prices may sound menacing to African economies, they actually provide opportunities in 2016 for implementing sound (and often innovative) policies for maintaining future growth.
Domestic growth and structural transformation is the theme of the second chapter, where the authors discuss jobs and the changing face of Africa’s economies. Despite Asia’s experience with industry as a driver of sustained growth, Africa’s growth is centered on the services sector – which raises a red flag for some experts. With the Sustainable Development Goals’ new emphasis on industry and jobs, 2016 is the perfect time to jump-start industrialization in Africa.
Human development in recent years has seen a myriad of successes and disappointments: Poverty rates continue to fall, but the number of poor in sub-Saharan Africa is actually rising. Malawi, Uganda, and others finally have agricultural sectors strong enough to support savings and investment by farmers, but the five countries with the highest food and nutrition security needs in the world are also in the region. Contributors in the third chapter cover these issues (as well as inequality, fragile states, women’s empowerment, and climate resilience) and what to do about them in 2016.
As Africa rapidly transforms both demographically and geographically, successful planning for urbanization must be on the agenda in 2016. The African population’s rapid move to cities is quickly creating megacities and huge population growth in intermediate cities before officials have the chance to implement good policies or finance robust infrastructure to support their inhabitants. In fact, the majority of urban residents in Africa live in slums, and access to electricity, sanitation, and clean water is not adequate.
2016 also brings a number of complex political and governance challenges, following on from the year before. While 2015 did see many successes (Nigeria peacefully transitioned to a new regime and the Tripartite Free Trade Agreement was signed), it also experienced upheavals (the civil wars in the Central African Republic and South Sudan raged on and the Nile riparian states continued their heated dispute). As the upcoming year could see a continuation of these trends, the fifth chapter covers how leaders might address the continuing obstacles to peace, prosperity, and good governance at both the national and regional levels in 2016.
With the signing of the Trans-Pacific Partnership Agreement, trade relationships the world over will drastically change in 2016 – just as African countries are taking major steps towards regional economic integration and enacting their own export-oriented policies. The sixth and final chapter explores the changes in and implications of the shifting global trade environment on Africa’s prospects for enhancing its own competitiveness and trade performance.
With our sixth annual Foresight Africa, we aim to capture the top priorities for Africa in 2016, offering recommendations for African and international stakeholders for creating and supporting a strong, sustainable, and successful Africa. In doing so, we hope that Foresight Africa 2016 will promote a dialogue on the key issues influencing economic development in Africa in 2016 and ultimately provide sound strategies for sustaining and expanding the benefits of economic growth to all people of Africa in the years ahead.
Over the course of the year, we will incorporate the feedback we will get from our readers and continue the debate on Africa’s priorities through a series of events, research reports, and blog posts. We look forward to this important conversation on how Africa might best flourish in 2016.
Chapter highlights
Ch 1. Managing Economic Shocks: African Prospects in the Evolving External Environment
In this chapter, Amadou Sy explores the recent external economic shocks to African economies – including the economic slowdown in China, declines in commodity prices, and the likely continued U.S. Federal Reserve interest rate hikes – that have affected and will continue to affect growth trajectories in the region. With growth slowing across the continent in 2016, policymakers must take this opportunity to discuss and enact economic policy reform for both the short and long terms.
Ch 2. Sustaining Domestic Growth: Structural Transformation Depends on Jobs, Industry, and SMEs
Growth in Asia and elsewhere has shown that industrialization is crucial to job creation, a value that is enshrined in the new Sustainable Development Goals. In this chapter, John Page provides recommendations on how African governments and their international partners can revitalize the region’s stagnating industrial development and spur structural transformation.
Ch 3. Supporting Human Development: Triumphs and Challenges on the Continent
The region has witnessed remarkable improvements in poverty reduction in recent years, but persistent challenges in inequality, education, health, and violence, among others, still plague it. As the first year of the Sustainable Development Goals, 2016 provides the opportunity to be a jumping-off point for strong policies and efforts to accomplish these goals. In this chapter, Kathleen G. Beegle and Luc Christiaensen cover the assortment of opportunities 2016 provides for supporting human development efforts and argues for the central role that better data plays in addressing them.
Ch 4. Capitalizing on Urbanization: The Importance of Planning, Infrastructure, and Finance for Africa’s Growing Cities
With Habitat III in 2016, Jérôme Chenal takes the opportunity in this chapter to explore the consequences of Africa’s rapid urbanization. Africa is the second-fastest urbanizing region in the world, which historically has facilitated other regions' transition from a reliance on agriculture to industry and jobs. However, without strong policies to deliver services, finance and build infrastructure, and support the urban poor, Africa’s rapidly growing megacities and intermediate cities cannot deliver on their potential.
Ch 5. Maintaining Governance Gains: The National and Regional Agendas
2016 sees a number of governance milestones and obstacles, including elections across the continent (particularly in Uganda, in the Democratic Republic of the Congo, and for the African Union chairperson), as well as increasing regional integration and a seemingly stalled march towards good governance. In this chapter, Richard Joseph reflects on the region’s growth-governance puzzle and the complex institutional changes necessary to move from economic growth to economic transformation.
Ch 6. Expanding African Trade: Creating a Comparative Advantage and Strengthening Regional Partnerships
In this chapter, Joshua P. Meltzer explores the impacts on Africa of the changing global trade environment. In particular, the Trans-Pacific Partnership Agreement will transform global trade architecture, likely to the disadvantage of Africa. However, our viewpoint contributors believe that, if African countries can successfully leverage regional integration and better utilize the African Growth and Opportunity Act, they might be able to maintain global competitiveness.
The Foresight Africa project is a series of reports, commentaries and events that aim to help policymakers and Africa watchers stay ahead of the trends and developments impacting the continent. Since 2011, the Brookings Africa Growth Initiative has used the occasion of the new year to assess Africa’s top priorities for the year.
Related News
South African farmers see pain as U.S. trade deal unravels
South African fruit, wine and nut farmers are bracing for hardship as the U.S. looks set to rescind their duty-free access to the world’s largest market at a time when they’re already facing the worst drought in more than two decades and rising input costs.
South Africa missed a Dec. 31 deadline to remove barriers on beef and chicken imports from the U.S., placing it at risk of losing trade preferences for its agricultural goods under the Africa Growth and Opportunities Act, or AGOA. South Africa exported $154 million worth of farm goods under the program in the first nine months of last year, according to the Trade Law Centre, which is based in Stellenbosch, near Cape Town.
“The U.S. is the crown jewel of our markets,” Piet Smit, a citrus farmer in the southwestern town of Citrusdal, said by telephone on Tuesday. “If we lose the AGOA benefits there will be extra costs that the farmers will have to swallow.”
Adopted in 2000, AGOA eliminates U.S. import levies on more than 7,000 products ranging from textiles to manufactured items from 39 African nations. To remain beneficiaries, countries are required to cut barriers to U.S. trade and investment, operate a market-based economy, protect workers’ rights and implement economic policies to reduce poverty.
Agricultural goods accounted for about 14 percent of total South African exports under AGOA in the first nine months of last year, according to the Trade Law Centre. The bulk of its shipments were vehicles and car parts.
Deal Possible
South Africa has made substantial progress in addressing outstanding issues and a deal may still be reached to avoid a loss of the trade preferences, Trade Minister Rob Davies told reporters in the capital, Pretoria, on Monday.
If the negotiations collapse, the hardest hit will be farmers in the Western Cape province, which exports 78 percent of the South African agricultural goods shipped to the U.S. under AGOA.
“The province’s wine and citrus industries benefit substantially from duty-free access to the U.S. market via AGOA,” Tim Harris, the chief executive officer of trade and investment promotion agency Wesgro, said by e-mail. “We are extremely concerned that these industries will be collateral damage if these benefits are not retained.”
Drought has already curbed farming in South Africa, extending a recession in the industry into the third quarter as output contracted an annualized 12.6 percent. South Africa is the world’s second-biggest exporter of oranges and the top producer of macadamia nuts.
Wine, Citrus
South Africa sold 10.7 million liters (2.8 million gallons) of wine to the U.S. last year, or 2.5 percent of its total wine exports, according to Wines of South Africa, an industry body. The wine industry employs 289,000 people nationally, and job losses are likely if the trade preferences are lost, said Andre Morganthal, the group’s spokesman.
South Africa is the world’s seventh-biggest wine producer and its largest international customers include the U.K., Germany and the Netherlands.
“The U.S. is the last great hope for South African wine exporters,” Etienne Heyns, global sales executive for Graham Beck Wines, said by phone from Franschhoek, near Cape Town. “Should wine be excluded from AGOA benefits it will add about five rand ($0.32) extra to every bottle.”
South Africa’s export volumes of citrus climbed 11 percent in 2014, the Citrus Growers Association said in its 2015 annual report. About 6 percent of the country’s soft citrus and 3 percent of its oranges was shipped to the U.S. that year, the CGA said.