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Commodity exporters facing the difficult aftermath of the boom
With a weak outlook for commodity prices, particularly for energy and metals, growth in commodity-exporting emerging and developing economies could slow further over the next few years, says a new study.
The study, published in the forthcoming 2015 World Economic Outlook, suggests that the recent declines in commodity prices could shave off one percentage point annually from the growth rate of commodity exporters over 2015-17 as compared with 2012-14. In exporters of energy commodities, the drag is estimated to be even larger – about 2¼ percentage points on average.
This slowdown is not just a cyclical phenomenon, the study finds. “It has a structural component as well,” says lead author Oya Celasun, Deputy Division Chief in the Research Department. “Investment, and accordingly, potential output, tend to grow more slowly in exporters during commodity price downswings.”
The decline in potential growth exacerbates the post boom slowdown, Celasun says. “This means that policymakers in commodity-exporting countries must go beyond demand-side measures and tackle structural reforms to improve human capital, increase investment and, ultimately, unleash higher productivity growth.”
Upswings and downswings
Commodity prices are unpredictable and can be very volatile. They can remain high or low for prolonged periods, giving the impression that their levels are permanent, only to exhibit very sudden and large changes.
Recent history is no exception. The first decade of the 2000s saw a persistent surge in commodity prices from record lows in the mid-1990s to record highs by 2011. More recently, however, the prices of commodities have fallen again, some in a dramatic fashion, and are expected to remain weak for some time (Chart 1).
Procyclicality, a common concern
In commodity-exporting economies, output growth, and economic developments more broadly, are unavoidably driven by commodity price cycles. To understand the channels better, the study examines data for more than 40 commodity exporters in emerging and developing economies for the last 50 years. It finds that output and, particularly, investment grow faster during commodity price upswings than in subsequent downswings (Chart 2). Much of this cycle reflects a strong investment response in the commodity-producing sector itself, which spills over into supporting industries such as construction, transportation, and logistics.
But it also reflects other mechanisms. In countries that rely heavily on resource revenues, fiscal policy is often procyclical with respect to the terms of trade. Government spending tends to increase when commodity terms of trade are improving, influencing economic activity more broadly. At the same time, governments, firms, and households in commodity-exporting economies all tend to borrow more easily during commodity booms than during downturns, amplifying the economic cycle set in motion by commodity prices.
Cyclical trends versus structural shifts
The appropriate policy responses depend not only on the extent of the growth slowdown but also whether commodity-price-related fluctuations in output are mostly structural or cyclical in nature. That is, policies would have to be designed differently if commodity price changes affect potential output and not just the cyclical fluctuations around it.
The study finds that both cyclical and structural factors tend to be at play during commodity-price driven fluctuations in output growth. On average, about two-thirds of the decline in output growth in commodity exporters during a commodity price downswing is cyclical, and one-third is structural, reflecting lower potential growth. This means that for commodity exporters that have enjoyed a prolonged surge in commodity prices, the recent slowdown also reflects weaker growth potential, as investment growth collapses.
What to expect going forward
What does the behavior of economic activity during past commodity price cycles imply for the current downswing? While the size and duration of the 2000s commodity boom exceeded its historical average, its reversal could lead to a sharper slowdown now. However, a typical commodity exporter is now better equipped to deal with a downswing than in earlier episodes.
Despite the more pronounced commodity price boom, growth rates over the last decade have been in line with earlier boom episodes and inflation rates have remained more subdued. This suggests that macroeconomic policies were more successful in smoothing the impact of the commodity windfall than in the past, as there was less of a growth boost than one would have expected given the size of the increase.
More specifically, fiscal policy has been less pro-cyclical – allowing for greater savings out of resource revenues – exchange rates have been more flexible, and financial depth has increased relative to the earlier episodes. All these factors were associated with smaller drops in output growth during previous downswings.
In addition, commodity exporters are entering the current downswing with stronger external positions, which can also help mitigate the effect of the commodity price downturn on their economies.
What are policymakers to do
The findings of the study imply that the growth slowdown in the immediate aftermath of a commodity price boom most likely represents a return to a more sustainable level of output. At the same time, slowing investment and economic capacity can lead to lower potential output growth.
Policymakers in commodity exporting countries therefore need to be careful not to overestimate the extent of excess capacity in their economies. A significant deceleration in growth rates is unavoidable for many economies.
Looking beyond the current juncture, the findings suggest that more flexible exchange rates and policy frameworks that avoid excessive pro-cyclical fiscal spending can help policymakers smooth the impact of commodity price swings on their economies.
Where growth is disappointing, policy efforts that focus on structural reforms to foster sustained medium-term growth are likely to be very fruitful. The structural reform priorities vary across countries, but removing infrastructure bottlenecks, improving the business climate, and enhancing the quality of education are common goals across many.
The authors of this study are Oya Celasun (team lead), Aqib Aslam, Samya Beidas-Strom, Rudolfs Bems, Sinem Kılıc Celik, and Zsoka Koczan, with support from Hao Jiang and Yun Liu and contributions from the IMF Research Department’s Economic Modeling Division and Bertrand Gruss.
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Azevêdo: “WTO accession is a success story of the organization”
Director-General Roberto Azevêdo launched a new publication entitled on Day 1 of the Public Forum on 30 September 2015, entitled “WTO Accessions and Trade Multilateralism: Case Studies and Lessons from the WTO at Twenty”.
He highlighted that since the WTO was established 20 years ago, 33 economies have joined the WTO, representing approximately 20 per cent of the WTO membership.
DG Azevêdo said that the ideals of the post‑war Bretton Woods framework – global economic governance, greater openness, prosperity and stability among nations – “remains central to our vision of the WTO today”.
“By bringing an increasing number of countries together in an atmosphere of cooperation and shared rules”, he said, “the multilateral trading system is a means not just to achieve growth and development, but also to support peaceful relations.”
“Increasing the membership of the WTO has always been a priority for us – not as an end in itself, but as a means to extend the coverage of multilateral trade rules and principles. Whenever a new country goes through the process of integrating into the multilateral trading system we see tariffs being lowered, market access increased, and the principles of non-discrimination, transparency and predictability further affirmed.
“The overall effect of increasing the membership is therefore to boost growth, increase stability in the global economy, strengthen the Organization and therefore to improve global trade governance – which is what the WTO is all about.”
DG Azevêdo’s full speech is available here.
The book, co-edited by Uri Dadush and Chiedu Osakwe, reviews the impact that 20 years of WTO accession negotiations has had on domestic reforms. It tackles a number of questions: What have WTO accessions contributed to the rules-based multilateral trading system? What demands have been made by original WTO members on acceding governments? How have the acceding governments fared?
The volume of essays offers critical readings on how WTO accession negotiations have expanded the reach of the multilateral trading system not only geographically but also conceptually, clarifying disciplines and pointing the way to their further strengthening in future negotiations.
In the age of globalization there is an increased need for a universal system of trade rules. Accession negotiations have been used by governments as an instrument for domestic reforms, and one lesson from the accession process is that there are contexts which lead multilateral trade negotiations to successful outcomes even in the complex and multi-polar twenty-first century economic environment.
The publication, co-published by the WTO and Cambridge University Press, brings together contributions from 54 authors, including Accession Working Party chairpersons, chief negotiators and technical experts.
Speaking at the launch, Foreign Affairs Cabinet Secretary Amina Mohamed of Kenya congratulated members that have joined the WTO since 1995 – and those still in the queue – for choosing the path of domestic reforms to join the WTO.
She said: “They have not only expanded the reach of multilateral trade rules and their values, they have expanded and deepened these rules which are more progressive, contemporary and meaningful, in tune with the 21st century commercial agenda and reality.” Ms Mohamed’s full speech is available here.
Co-editor Uri Dadush noted that he and his fellow co-editor, Chiedu Osakwe, Director of the WTO Accessions Division, had decided at the outset of this project that “the focus of the book was on the welfare outcomes and not on the fairness of the negotiating process”.
The co‑editors had determined that “the value of accessions should stand or fall on the answer to two questions: did they help the Article XII member achieve better development outcomes? Did they strengthen the multilateral trading system?” He said that the contributions by the 54 authors demonstrated clearly that the answer to these questions had to be in both instances: “yes”.
Co-publisher Kim Hughes from Cambridge University Press noted that this co-publication has the largest number of contributors for any single volume in the 15-year history of the WTO and Cambridge University Press publishing partnership, and looked forward to more joint projects.
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tralac’s Daily News selection: 30 September 2015
The selection: Wednesday, 30 September
Underway, in Lusaka: the African Green Revolution Forum
Launched, in Lusaka: AECF Impact Report 2014
Starting Thursday, in Kigali: 6th African Grain Trade Summit
Profiled commentary, by David Bornstein: 'Energizing the Green Revolution in Africa' (New York Times)
South Africa’s August trade data out later today (Standard Bank)
The SARS trade balance data for August is due for release today at 14h00. Bloomberg consensus pencils in a widening of the deficit to -ZAR3.4bn in August from -ZAR0.4bn in July. Our economics team’s forecast is in line with consensus at -ZAR3.4 billion. The rand is likely to remain under pressure ahead of the data release.
Zambia trade data: Imports increase to over K6bn (Daily Mail)
At regional level, Mr Kalumbi said Southern African Development Community was the largest source of Zambia’s imports accounting for 46.7% in August. Within SADC, South Africa was the major source of Zambia’s imports with 59.1%. Other notable markets were DRC, Mauritius, Mozambique and Zimbabwe. Mr Kalumbi said Asia was the second largest source of imports accounting for 27.7% with China being the main market. “The Common Market for Eastern and Southern Africa was the third largest source of Zambia’s imports accounting for 22.1%. The European Union accounted for 10.4% with the United Kingdom imports into Zambia accounting for 30.2%,” he said.
China's slowdown: an opportunity to boost Indo-Africa ties (Observer Research Foundation)
The past few months have seen a significant deterioration in Africa’s trade balance with China. In fact, the lower forecast growth rate of 3.1% of China depicts the fragile picture affecting the dynamics of Sino-African relationship. So, what is the exact impact of the Chinese slowdown on African economies?
Carlos Lopes: 'Preparing Africa for the next trade negotiations' (UNECA)
Africans have now to do their homework. And that homework is pressing and becoming heavier. First, there is little evidence of strategic consistency between the trade policy framework and industrial policy objectives. Secondly, all too often, there is lack of policy coherence at the different level of trade negotiations, namely bilateral, regional and multilateral. Thirdly, no matter how well they are designed, trade policies have little value unless they are put to good use.
Trade in sustainable fisheries (UNCTAD/Commonwealth Secretariat)
The main difference between multilateral, regional and bilateral trade negotiations often boils down to the level of ambition in terms of the rule-setting. The speed at which bilateral and regional trade negotiations have been concluded relative to the respective rounds of negotiations under the multilateral trading system and the WTO are testimony to this. For example, 14 years of fisheries subsidies negotiations under the Doha Development Agenda have not yet produced an outcome. The Bali package agreed at the 9th WTO Ministerial is a pale reflection of what was originally envisaged in the Doha Development Agenda and round of negotiations, the first since the WTO inherited the multilateral trading system in 1995. In comparison, some 260 regional trade agreements have been notified to the WTO. [Remarks by Commonwealth Deputy Secretary General Deodat Maharaj]
Improving fish post-harvest management and marketing in Malawi and Zambia (Cultivate Africa's Future Fund)
The Global Competitiveness Report 2015-2016 (WEF)
Sub-Saharan Africa continues to grow close to 5%, but competitiveness and productivity remain low. This is something countries in the region will have to work on, especially as they face volatile commodity prices, closer scrutiny from international investors and population growth. Mauritius remains the region’s most competitive economy (46th), closely followed by South Africa (49th) and Rwanda (58th). Côte d’Ivoire (91st) and Ethiopia (109th) excel as this year’s largest improvers in the region overall. [Downloads available]
Higher index ranking a boost for SA (Business Day), India 55th most competitive economy, moves up 16 positions (Hindustan Times)
Global Financial Centres Index 2015 (QFC), Joburg ranked as one of the most economically powerful cities in the world (Business Tech)
Global Forum on Competition: does competition kill or create jobs? Contributions from Zambia, Kenya
Kaushik Basu: 'Development in the digital age' (World Bank)
Activities that did not even have a name till a few years ago, now overwhelm our lives. There are 4.2 billion Google searches each day. 6000 tweets go out every second. That is on average. The record is 143,199 tweets in a second on 3 August 2013, when the Japanese were excited about watching a new animation film and Tweeted about it. These are fun statistics but the underlying technologies can change our lives. That is what this World Development Report explores and we have reason to believe that it will be a very influential report. [WDR regional consultation workshop, Nairobi: the presentations]
Technical workshop on labour migration statistics for the Africa region (AU)
As international migration moves to the forefront of policy agendas, there is a corresponding interest in accurate and up-to date data and statistics. However, accurate and up-to date information on migration levels and trends is largely incomplete, notably on a special category of migrants such as migrant workers which is a focus of the JLMP. In order to better implement the JLMP, accurate data and statistics on labour migration are needed to describe, reflect and support a better understanding of what is happening and to make more policy informed decisions on all facets of labour migration. For this reason, the international labour migration data collection was launched in June 2015 by the AUC for the Africa region. [Kigali March 2015 workshop]
South Africa: Home Affairs Stakeholder Summit (GCIS)
Last year we began a total review of the out-dated 1999 White Paper on International Migration; this process is now at an advanced stage. While it would be premature to outline specific policy positions, I can promise this house and the nation at large, that we will emerge with a modern, progressive and robust policy on International Migration. It will take into account the enormous current and potential contribution of immigrants to our society, and our connectedness with the rest of the world, while minimizing associated risks and protecting our national interests.
We need you to help us move from a zero sum mentality where we view immigrants working in the country as taking opportunities from South Africans, to one which recognizes that immigrants help us grow our economy and create jobs through their contributions as purchasers of South African goods, entrepreneurs, employers, employees and taxpayers;
South Africa: Tourism and Migration June 2015 (StatsSA)
The ten leading SADC countries in terms of the number of tourists visiting South Africa in June 2015 were Zimbabwe (28‚7%); Lesotho (21‚3%); Mozambique (19‚4%); Swaziland (12‚9%); Botswana (8‚2%); Namibia (2‚9%); Zambia (2‚7%); Malawi (2‚0%); Tanzania (0‚6%) and Angola (0‚6%).
Mozambique transport minister opposed to Shire-Zambezi Waterway (AIM)
The German consultant who drew up a viability study on the Malawian government's plans to turn the Shire and Zambezi rivers into a commercial waterway for the country's imports and exports concluded that the two rivers are not navigable in their natural state, according to Mozambican Transport Minister Carlos Mesquita, cited by Radio Mozambique. Mesquita was speaking after Wednesday's meeting in Lilongwe with his Malawian and Zambian counterparts. Mesquita pointed out that the study concluded that the rivers can only be used for commercial shipping if they are dredged. This would be extremely expensive.
Working on water across borders: spillover benefits for the SDGs (World Bank Blogs)
The CIWA program is one vehicle by which the World Bank and its Water GP contribute to the implementation of SDG #6 in Sub-Saharan Africa. Moreover, the results of the program to date – US$8.9 billion in infrastructure investments influenced that will potentially benefit 48.6 million people – have contributed to progress on a number of other SDGs, demonstrating the strategic value of targeting water development interventions at the trans-boundary level. Here are three ways in which the World Bank’s work in trans-boundary waters in Africa advances the SDGs:
TPA warns against VAT on transit goods services (IPPMedia)
Charging value added tax on transit goods’ auxiliary services will drive away clients and affect Dar es Salaam port’s competitiveness, Tanzania Ports Authority has warned. Acting Dar es Salaam Port Manager, Hebel Mhanga told The Guardian last week that many stakeholders in the business were against the tax. He said his office was coordinating their efforts to have audience with Tanzania Revenue Authority Commissioner General, Rished Bade, on the issue. Dar es Salaam Corridor Group (DCG), which has become the first casualty following failure to conclude a transit cargo shipping deal with Tanzania Zambia Railways Authority and Malawi Cargo Centre Limited because of fears of VAT on transit goods, said the worst is yet to come.
Mauritius expands freight rebate scheme (Southern Times)
Mauritius has expanded the Freight Rebate Scheme (FRS) for firms exporting to Africa, and Reunion Island to enhance the competitiveness of products from the Island to Africa vis-à-vis exports from Asia and other parts of the world, Enterprise Mauritius has said. EM said the scheme consisted of a 25 percent refund of freight costs, up to maximum of US$300 per 20ft container (standard container) for export to selected approved ports in Africa, Madagascar, and Reunion Island.
KAM signs 2yr funding pact with TMEA (Capital FM)
The Kenya Association of Manufacturers and TradeMark East Africa have signed a two-year agreement that will see an extension of a financial grant to KAM. The grant is aimed at supporting KAMs advocacy work in the area of Non Tariff Barriers, Standards and Counterfeits.
President Kenyatta woos US firms to invest in Lamu port (Daily Nation)
President Uhuru Kenyatta on Tuesday invited American firms to invest in the multibillion-shilling Lamu Port project. President Kenyatta argued that Kenya had taken measures to make it easier for investors to conduct business. He said the country had opened up opportunities for US multinationals to invest in mega infrastructure projects such as the Lamu Port-South Sudan-Ethiopia (Lapsset) project, which links the region.
US companies invest US$16bn in Mozambique (MacauHub)
US private investment in Mozambique exceeded US$16 billion in the past decade, the deputy minister for Foreign Affairs, Nyeleti Mondlane said Thursday in Maputo, the Mozambican press reported. The deputy minister of Foreign Affairs and Cooperation of Mozambique also pointed out that in the last ten years, the US had positioned itself as the largest contributor to official development assistance to Mozambique, totalling about US$2 billion in multifaceted support, focused on the provinces of Sofala and Zambézia in central Mozambique, and Niassa in the north.
Reaping the benefits from global value chains (IMF)
Against the backdrop of the rise of global value chains, particularly in Asia, this paper documents key developments of GVCs and investigates what factors cause economies to reap greater benefits from GVC participation. Key findings include: first, moving toward a more upstream position in production and raising economic complexity are associated with the country increasing its share of GVC value added. Second, fostering GVC participation and expanding the share of the domestic value added in a value chain require efforts to reduce trade barriers, enhance infrastructure, foster human capital formation, support research and development, and improve institutions. [Related: Exchange rates still matter for trade (IMF)]
Exchange agreement with China could allow Angola to overcome lack of dollars (MacauHub)
Trains will link Mozambique, Zimbabwe and Zambia (MacauHub)
Carbon pricing, divestment, and fossil fuel subsidy reform options for climate deal (ICTSD)
DEMO Africa: Scaling up African innovations for global market (Vanguard)
Foreign entry and domestic innovation (Vox)
Jomo Kwame Sundaram: 'We can overcome poverty and hunger by 2030' (IPS)
Restructuring of the Uganda National Roads Authority (EPRC)
US Chamber launches West African Business Initiative (World Stage)
Nigeria: Regional policy for accelerated infrastructure development (The Guardian)
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‘New normal’ productivity spells uncertainty for global economy
A failure to embrace long-term structural reforms that boost productivity and free up entrepreneurial talent is harming the global economy’s ability to improve living standards, solve persistently high unemployment and generate adequate resilience for future economic downturns, according to The Global Competitiveness Report 2015-2016, which is released today.
The report is an annual assessment of the factors driving productivity and prosperity in 140 countries. This year’s edition found a correlation between highly competitive countries and those that have either withstood the global economic crisis or made a swift recovery from it. The failure, particularly by emerging markets, to improve competitiveness since the recession suggests future shocks to the global economy could have deep and protracted consequences.
The report’s Global Competitiveness Index (GCI) also finds a close link between competitiveness and an economy’s ability to nurture, attract, leverage and support talent. The top-ranking countries all fare well in this regard. But in many countries, too few people have access to high-quality education and training, and labour markets are not flexible enough.
First place in the GCI rankings, for the seventh consecutive year, goes to Switzerland. Its strong performance in all 12 pillars of the index explains its remarkable resilience throughout the crisis and subsequent shocks. Singapore remains in 2nd place and the United States 3rd. Germany improves by one place to 4th and the Netherlands returns to the 5th place it held three years ago. Japan (6th) and Hong Kong SAR (7th) follow, both stable. Finland falls to 8th place – its lowest position ever – followed by Sweden (9th). The United Kingdom rounds up the top 10 of the most competitive economies in the world.
In Europe, Spain, Italy, Portugal and France have made significant strides in bolstering competitiveness. Thanks to reform packages aimed at improving the functioning of markets, Spain (33rd) and Italy (43rd) climb two and six places respectively. Similar improvements in the product and labour market in France (22nd) and Portugal (38th) are outweighed by a weakening performance in other areas. Greece stays in 81st place this year, based on data collected prior to the bailout in June. Access to finance remains a common threat to all economies and is the region’s greatest impediment to unlocking investment.
Among the larger emerging markets, the trend is for the most part one of decline or stagnation. However, there are bright spots: India ends five years of decline with a spectacular 16-place jump to 55th. South Africa re-enters the top 50, progressing seven places to 49th. Elsewhere, macroeconomic instability and loss of trust in public institutions drag down Turkey (51st), as well as Brazil (75th), which posts one of the largest falls. China, holding steady at 28, remains by far the most competitive of this group of economies. However, its lack of progress moving up the ranking shows the challenges it faces in transitioning its economy.
Among emerging and developing Asian economies, the competitiveness trends are mostly positive, despite the many challenges and profound intra-regional disparities. While China and most of the South-East Asian countries performing well, the South Asian countries and Mongolia (104th) continue to lag behind. The five largest members of the Association of Southeast Asian Nations (ASEAN) – Malaysia (18th, up two), Thailand (32nd, down one), Indonesia (37th, down three), the Philippines (47th, up five) and Vietnam (56th, up 12) – all rank in the top half of the overall GCI rankings.
The end of the commodity super cycle has strongly affected Latin America and the Caribbean, and is already having repercussions on growth in the region. Greater resilience against future economic shocks will require further reform and investment in infrastructure, skills and innovation. Chile (35th) continues to lead the regional rankings and is closely followed by Panama (50th) and Costa Rica (52nd). Two large economies in the region, Colombia and Mexico, improve to 61th and 57th, respectively.
It’s a mixed picture in the Middle East and North Africa. Qatar (14th) leads the region, ahead of the United Arab Emirates (17th), although it remains more at risk than its neighbour to continued low energy prices, as its economy is less diversified. These strong performances contrast starkly with countries in North Africa, where the highest placed country is Morocco (72nd), and the Levant, which is led by Jordan (64th). With geopolitical conflict and terrorism threatening to take an even bigger toll, countries in the region must focus on reforming the business environment and strengthening the private sector.
Sub-Saharan Africa continues to grow close to 5%, but competitiveness and productivity remain low. This is something countries in the region will have to work on, especially as they face volatile commodity prices, closer scrutiny from international investors and population growth. Mauritius remains the region’s most competitive economy (46th), closely followed by South Africa (49th) and Rwanda (58th). Côte d’Ivoire (91st) and Ethiopia (109th) excel as this year’s largest improvers in the region overall.
“The fourth industrial revolution is facilitating the rise of completely new industries and economic models and the rapid decline of others. To remain competitive in this new economic landscape will require greater emphasis than ever before on key drivers of productivity, such as talent and innovation,” said Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.
“The new normal of slow productivity growth poses a grave threat to the global economy and seriously impacts the world’s ability to tackle key challenges such as unemployment and income inequality. The best way to address this is for leaders to prioritize reform and investment in areas such as innovation and labour markets; this will free up entrepreneurial talent and allow human capital to flourish,” said Xavier Sala-i-Martin, Professor of Economics at Columbia University.
Background
The Global Competitiveness Report’s competitiveness ranking is based on the Global Competitiveness Index (GCI), which was introduced by the World Economic Forum in 2004. Defining competitiveness as the set of institutions, policies and factors that determine the level of productivity of a country, GCI scores are calculated by drawing together country-level data covering 12 categories – the pillars of competitiveness – that collectively make up a comprehensive picture of a country’s competitiveness. The 12 pillars are: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation.
Read more from The Global Competitiveness Report 2015-2016 at http://wef.ch/gcr15
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Preparing Africa for the next Trade negotiations
The deadlock in the World Trade Organisation (WTO) so called Doha Development Round negotiations remains firmly in place. Negotiators seem unable to meet deadline after deadline for delivering on many of the Round promises. Last year in the meeting that was held in Bali, Indonesia, there were some baby steps that were painted as a breakthrough. That optimism has evaporated since.
If development is at the heart of the Doha Round, agreement on agriculture contentious issues provide the legs on which the Round will stand or fall. Achieving concrete results in agriculture is critical not only to fulfil the Doha mandate and unlock this main “gateway issue”, but more fundamentally because the development of African economies cannot overlook a sector which employs two thirds of its labour force, and plays a pivotal role for food security and poverty eradication.
Twenty years after the entry into force of the Agreement on Agriculture, international agricultural markets remain heavily distorted, and characterized by relatively high protection. Developed countries have continued to subsidize (mainly large) producers, ultimately at the expense of small-holder farmers in the developing world. At the same time, whilst some emerging economy countries have been able to exploit the flexibilities in the agreement and adopt their own forms of domestic support, other developing countries, including most African countries, have so far been unable to do the same, and end up being disadvantaged twice.
New challenges have also emerged since the Agreement on Agriculture was signed: from market concentration among a few large corporations (notably on products of immediate interest to Africa, such as coffee or cocoa), to the financialization of commodity markets which has failed to redress the volatility in international prices; from the impact of climate change, to the increasing weight of non-tariff barriers. So far there is no breakthrough on meaningful reductions in domestic support (or domestic subsidies) by the major subsidizers including the US, EU and Japan. Given the clear understanding that the outcome in agriculture will be calibrated with the outcome in the other areas under negotiation, including non-agriculture market access (NAMA) and services, this in effect means that the possibility of concluding the Doha Round is not in sight. This also implies that the WTO is not yet in a position to provide impetus for a significant contribution towards the post-2015 development framework, although trade has been recognized in the new Sustainable Development Goals (SDGs) as a ‘means of implementation’ for a new, bolder agenda.
However, in view of the upcoming biennial WTO ministerial conference (MC10) that is due to be held in Nairobi in mid-December, there is broad consensus on the need to deliver some development-related outcomes especially since the conference will be held in Africa for the first time. In agriculture some movement with regard to export competition (export subsidies) is likely, since the modalities for a possible agreement have been in place since 2005. There may also be movement on the rules on ‘special products’ that developing countries want to protect for food security considerations; as well as on the rules on a special safeguard mechanism for agricultural products to guard against import surges. A comprehensive agreement on cotton in the areas of market access, domestic support and export competition may also be possible. Cotton is seen as a test for progress in other soft commodities. A permanent solution to the issue of public stockholding of food supplies which India pushed in Bali may be agreed.
On development, a package for Least Developed Countries (LDCs) that includes operationalization of the services waiver, improvements to duty-free quota-free market access and preferential rules of origin is within reach. There may also be movement in 25 areas that have been identified by developing countries for special and differential treatment. They are mostly aimed at enhancing policy space for industrial development and strategies for building productive capacity.
The African negotiators are now called to show unity and leadership in light of the next meeting taking place in Africa. An informal meeting of African ministers was held on 20 July and a follow up meeting is being planned to take place soon. Coordination meetings with the African, Caribbean and Pacific (ACP) Group, the LDC Group and the G90 group of developing countries are also expected to be held. On the side lines of the Africa Growth and Opportunity Act (AGOA) Ministerial Forum that was just held in Libreville on 24-27 August, African ministers engaged the US Trade Representative. These discussions included the main issues for an acceptable outcome from Nairobi.
Meanwhile, African ministers have signalled that if agriculture as the gateway issue is not resolved in Nairobi, it should be kept on the WTO’s agenda as it remains central to a development outcome from the Doha Round.
Africans have now to do their homework. And that homework is pressing and becoming heavier.
First, there is little evidence of strategic consistency between the trade policy framework and industrial policy objectives. Various countries have adopted a swathe of incentives to industrialize, yet they often lack focus, ushering in opaque discretionary and arbitrary practices. In this respect, there is a growing recognition that regional integration and gradual liberalization are the most promising avenues to harness trade for structural transformation of the African economies. Accordingly, the “Africa first” principle should be the polar star in the process of reconciling trade policy and industrial policy.
Secondly, all too often, there is lack of policy coherence at the different level of trade negotiations, namely bilateral, regional and multilateral. This is also an issue that the 2015 Economic Report on Africa discusses in detail. Let me take a couple of examples: Africans fought hard to obtain the decision on preferential rules of origin for LDCs in Bali… Now, how many African countries have called for the implementation of those preferential criteria in their bilateral negotiations with the EU under the Economic Partnership Agreements or the US under AGOA, or other partners? Furthermore what is the use of hard-fought flexibilities at the WTO, if Africa forgo the same flexibilities vis-à-vis large trading partners at the bilateral level?
Thirdly, no matter how well they are designed, trade policies have little value unless they are put to good use. In 2013, LDCs obtained an extension of the transition period for the implementation of the agreement on Trade-Related Intellectual Property Rights. What have they done to leverage this window of opportunity, and aggressively foster innovation, technology transfer and acquisition?
These issues are to be raised because there is a need to change gear in the way Africans conceive trade and industrial policies, and – even more importantly – in the way they implement them.
Carlos Lopes is the Executive Secretary of the UN Economic Commission for Africa.
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African Green Revolution Forum to elevate role of youth and women in agriculture
Leaders target investments and polices for African farmers and enterprises to meet rising food demand in an urbanizing Africa
The rapid rise of urban food markets across sub-Saharan Africa represents an unparalleled opportunity to drive development of African agriculture, and ultimately to engage millions of youth who enter the continent’s labor market each year, according to conveners of the African Green Revolution Forum (AGRF), which began on 29 September 2015 in Lusaka, Zambia.
More than 500 leaders from over 40 countries are expected to attend the AGRF, including high-level government officials, leaders of pan-African development organizations, representatives of youth and women’s organizations, academic experts, investors and agriculture business innovators.
“The AGRF can generate huge momentum for policies and programs that support Africa’s farmers and African-owned agriculture businesses to capture a bigger stake in the agricultural sector and rising urban markets,” said Sindiso Ngwenya, Secretary General, Common Market of East and Southern Africa. “Rather than meeting this demand through food imports, Africans need to grow, process, package and market the food consumed in our rapidly growing cities and towns.”
AGRF 2015 comes at a time when there is a growing consensus that rapid growth in all aspects of agriculture is crucial, both for food security and also because the sector is uniquely capable of rapidly generating economic and employment opportunities at all income levels across sub-Saharan Africa.
Agriculture is viewed as particularly promising for African women who produce 80 percent of the region’s food – their manual labor directly feeding their families and communities – and for the 200 million Africans under 25 who make Africa the world’s youngest continent.
The theme of this year’s AGRF is “Walking the Talk on Youth and Women: Bringing Inclusive Agricultural Markets to Life.” It comes at a time when Africa’s young population is searching for increased employment and meaningful opportunities. Of the 10 million young Africans who enter the job market every year, only a minority find formal employment.
“The African Union in 2014 pointed to the potential for agriculture-related jobs to employ at least 30 percent of African youth. Yet many young Africans are pessimistic about agriculture, because they see too many farmers and agriculture businesses struggling to survive,” said Dr. Agnes Kalibata, president of AGRA. “The good news is that economic opportunities in agriculture are much bigger than many realize, and with the right kinds of support, Africa's rapidly growing food sector can become as much as a $1 trillion source of a wide array of financially rewarding opportunities for Africa’s youth, on and off the farm."
AGRF 2015 also comes during the African Union designated “Year of Women’s Empowerment and Development.”
“Agriculture is the largest employer of women, employing up to 90 percent of women in some African countries,” said H.E. Rhoda Peace Tumusiime, commissioner for rural economy and agriculture, African Union. “Women anchor rural economies. Yet they farm without secure land rights, remuneration or the machinery and technologies essential to commercial agriculture. Policies and programs that address these gaps and link rural farmers to urban markets can transform livelihoods for smallholder farmers.”
The AGRF 2015 will define clear strategies to enable youth and women to engage in agriculture as a business enterprise and generate a triple dividend of improved food security, increased incomes and job creation. It will delve into issues including access to land, finance, energy and inputs, and the development of infrastructure, trade and markets, all with a particular eye toward overcoming challenges and expanding opportunities for women and youth.
AGRF will strive to call its partners and stakeholders to align themselves to measure, track and report their own progress at subsequent AGRFs in support of country priorities and African Union’s 2014 Malabo commitments, which pushed for accelerated agricultural growth. In the Declaration last June, African heads of state called for the doubling of food productivity in Africa, halving of poverty and significant progress toward the elimination of child undernutrition by 2025.
“The government of Zambia is honored to host this year’s AGRF, said the Hon. Given Lubinda, Minister of Agriculture and Livestock, Zambia “Together we will map the policies and investments needed to build a sustainable, diversified and competitive agricultural sector that assures food and nutrition security, creates jobs, and maximizes the sector’s contribution to Africa’s growth.”
The sponsors of the AGRF – the AGRF Partners Group, the Government of Zambia and the Common Market for East and Southern Africa (COMESA) – will engage with thought leaders from Africa and the world to shape policies and practices that can make the most from Africa’s once neglected but now rapidly expanding agriculture business sectors.
AGRA will be releasing its annual Africa Agricultural Status Report, providing a framework for how agriculture can become a viable and lucrative option for Africa’s young entrepreneurs.
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Nigeria: Regional policy for accelerated infrastructure development
In recent articles we have been talking about many issues ranging from the need to create enabling environments for investment, the infrastructure challenge for Africa, the financing gap and government policy formulation process among other issues.
All the issues we have been discussing require solid policy frameworks. We discussed in the most recent article the government policy formulation process proposed by John Kingdon, Emeritus Professor at the University of Michigan, who reasoned that decision making in government follows three main streams: the problem stream, the policy stream and the political stream.
We often prefer to illustrate things with real life examples, and the most recent pdf SADC Industrialization Strategy and Roadmap, 2015-2063 (2.34 MB) is a good example. This was crafted in the context of existing national and regional policies and specifically the decision taken at August 2014 Summit at Victoria Falls which was held under the theme: “SADC Strategy for Economic Transformation: Leveraging the Region’s Diverse Resources for Sustainable Economic and Social Development through Beneficiation and Value Addition”.
Decision making streams in action
In developing the SADC strategy, first was identification of the problems hindering sustainable economic development and poverty reduction in the SADC region (the problem stream). This was then followed by the Victoria Falls summit decision and the strategy development process (the policy stream), and there was overwhelming political support (the political stream). The outcome was a resounding strategy document for SADC industrialization and regional integration to be implemented in 3 phases up to 2063. The first phase lasts until 2020 focusing on laying down the foundations for long term development. The second phase, covering 30 years to 2050, constitutes a period of heavy lifting development and establishing strong momentum for competitiveness. The final third phase, covering 13 years to 2063, builds up for the convergence with the African Union long term Agenda 2063 and crossing into a fully developed country stage.
Interesting in this SADC strategy is that it identifies that accelerated industrialization is being hampered by three binding constraints – inadequate and poor quality infrastructure, a severe deficit of the skills needed for industrial development and insufficient finance. So the issue of inadequate infrastructure and lack of finance always takes centre stage. We have always argued that skills can always be imported from global partners and local people up-skilled as long as the funding is there, with an enabling policy environment and with adequate political will.
Strategy on infrastructure development policy
On infrastructure, the SADC strategy notes that increased investment in new infrastructure, soft as well as hard, allied with improved management and additional spending on maintenance, are prerequisites for industrial take-off. We have been discussing these issues in this column over the past few months. The SADC strategy hits the nail on the head in identifying these issues, the challenge remains accelerating the implementation of the strategy. To quote the strategy, it notes that Efficient and affordable infrastructural services (consisting of transport, communications, ICT, energy and water supply) are critical inputs for reducing transaction costs for industry and trade, as well as for enhancing the economic and social wellbeing of society at large. Effective implementation of the strategy would indeed require the building and/or close coordination of these services in a timely and optimal manner. To this effect, the strategy calls for
(i) enhanced access to quality infrastructure;
(ii) timely and locational availability of services to reduce input and transaction costs;
(iii) addressing the infrastructural deficits at the national and regional levels;
(iv) provision of quality infrastructure for the implementation of the Industrial Upgrading and Modernization Programme; and
(v) upgrading the transport, energy, ICT and water supply infrastructure.
The strategy notes that in tackling the infrastructure deficit through increased investment in new facilities, extra attention should be paid to maintenance and quality, as it is not just the supply of infrastructure that is constraining economic development, but the failure to provide adequate resources for the upkeep and maintenance of existing infrastructure, while ensuring that due attention is paid to the quality of infrastructure provision. The strategy then advocates that (i) the current Regional Infrastructure Development Master Plan (RIDMP) should be fast-tracked and aligned to meet the varied needs of the industrialization strategy; (ii) a strategy for leveraging the RIDMP should be developed to catalyze industrial development and reduce current high costs of doing business; and (iii) the infrastructure support programme for industrialization should be planned and implemented as a continuum, extending beyond the medium term.
Strategy on financing policy
To overcome the severe constraints imposed by the infrastructure and skills deficits, the strategy notes that governments will need to re-order their public expenditure programmes to give greater priority to public and private investment in physical infrastructure and human capital development. In part this will depend on the willingness of governments and electorates to embrace the paradigm of change in the form of a switch from consumption-led economic growth to investment-driven expansion. This is a very important paradigm shift that requires careful planning and re-orientation of both the electorate and the civil service.On domestic sources of capital, the strategy notes that existing savings and investment levels in the SADC region fall well short of what will be needed to drive structural transformation, economic diversification and poverty reduction.
Given the present and likely future state of the global economy, SADC countries cannot afford to rely on foreign savings to make good shortfalls in domestic savings, hence the need to develop the domestic sources that includes the internal fiscus, the financial sector, the capital markets, the private equity funds, the public-private partnerships, SADC Development Fund, Sovereign Wealth Funds, remittances and institutional savings including Pension Funds. The strategy recognises that exploiting the potential of these sources will require deepened financial sector reforms, innovative mechanisms and effective frameworks to maximize and sustain the high level of resources necessary for industrialization.
Alongside this, we believe that foreign direct investment plays a critical role early in the process. We noted in the most recent article on government policy formulation process that Finance Ministers will need to work very closely with the global financial network to tap into both existing and new and innovative ways of financing for projects. It will be practically impossible for the SADC industrialsation strategy to succeed in its objectives within the envisaged timeframe without taping into the global financial resources. Initially, external funding will be needed to address the bottlenecks. Key to attracting this external capital is creating an enabling environment, a theme that we have always repeated.
The SADC strategy notes that Governments’ central roles is the creation of enabling policies and regulatory environments for accelerated industrialization with a particular focus on tackling the binding constraints of infrastructure, skills development and financing. Once again, the SADC strategy hits the nail on the head and political will should lead to accelerated infrastructure development to support industrialization.
Nigeria seems well placed to lead regional integration in West Africa starting with sorting out key policy issues at home.
Russell Duke is Chairman and Managing Principal at National Standard Finance, LLC. Michael Tichareva is Principal and Managing Director of Africa operations at National Standard Finance, LLC.
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Experts discuss new ways to use trade policy to protect the world’s fish and oceans
UNCTAD and the Commonwealth Secretariat gather leading experts to discuss options to further advance trade in sustainable fisheries.
A gathering of leading experts in sustainable fisheries met in Geneva on 29 September, the first meeting at this level since world leaders signed up to the aim of conserving life under the sea and using oceans, seas and marine resources sustainably by adopting Goal 14 of the Sustainable Development Goals.
UNCTAD Deputy Secretary-General, Mr. Reiter, emphasized the importance of oceans and ocean resources, like fish, for livelihoods of population, especially in developing countries. He stressed that “We can do much for fish conservation and trade but we have no luxury of time; time has run out, now we need concrete and strong actions to stop the depletion of fish.”
Fisheries, if sustainably managed, have the potential to become one of the main contributors towards poverty reduction and food security, especially in developing countries. According to the World Bank, around 350 million jobs are linked to fisheries, port management and related activities[1] and the livelihoods of 10-12 percent of the global population depend on the sector.
Fish is also one of the most traded food commodities worldwide. It represents about 10 percent of all agricultural exports and 1 percent of all merchandise trade in value terms. The importance of trade in fish and fish products has been steadily increasing in the past two decades. World trade flows in fish and fish products reached $264 billion in 2013, a 76 percent more in terms of trade value than the amount traded in 1995. Developing countries are the main exporters of fish (56 percent), while developed countries account for approximately 69 percent of global imports.
However, instead of protecting and ensuring the sustainability of this valuable resource, the fisheries sector is being threatened on many levels, including by an over-exploitation of its resources, destructive fishing practices, ecosystem degradation and declining biodiversity, climate change, ocean acidification and pollution. Currently, 87 percent of the world’s marine fish stocks are fully exploited, overexploited or depleted. In addition, the consumption of fish is growing as population expands at an increased rate, adding to the stress endured.
The Food and Agriculture Organization of the United Nations estimates that rebuilding overfished stocks could increase production by 16.5 million tons and annual rent by $32 billion. The benefits of re-building fisheries in general outweigh the costs.
Despite national, regional and multilateral efforts in the past 20 years, the attempts made still seem insufficient to reverse the decline of global fish stocks.
At the Geneva expert meeting, Mr. Deodat Maharaj, Deputy Secretary-General of the Commonwealth Secretariat, said that: “The achievement of targets such as the end of overfishing and destructive fishing practices and the implementation of science-based management plans to restore fish stocks by 2020 will be extremely difficult to achieve without coherent global action.”
UNCTAD and the Commonwealth Secretariat convened governments, international experts, businesses and other relevant stakeholders to discuss and identify possible approaches and options within the trade policy toolbox to mainstream sustainable fishing practices.
[1] World Bank (2012). Living oceans. See http://go.worldbank.org/A2MYFIUQM0
Trade policy negotiations should contribute to sustainable fisheries
Remarks by Commonwealth Deputy Secretary General Deodat Maharaj issued during the Commonwealth-UNCTAD Expert Group Meeting on Trade in Sustainable Fisheries, 29 September-1 October 2015
Many of our Commonwealth member states are small island developing states (SIDS) – 25 out of a total membership of 53 countries – and oceans and their evolution are central to their socio-economic development. Many have jurisdiction over significant ocean areas that far, far exceed the land area of the countries themselves.
For example, the exclusive economic zone of The Bahamas covers an area that is 50 times larger than its land territory. Similar characteristics prevail throughout the Commonwealth – in St Vincent and the Grenadines and St Kitts and Nevis in the Caribbean, in Seychelles and Mauritius in the Indian Ocean, and in the Cook Islands, Kiribati, Solomon Islands, Tuvalu and Vanuatu in the Pacific.
For all of these Commonwealth member countries, the management of such expansive areas of ocean space and the creation of an ocean economy creates many challenges. The management of fisheries forms an integral element of this challenge for many of our members and is integral to their efforts to achieve sustainable development.
The global ocean market is estimated to be valued at approximately US$1,345 billion per annum, contributing approximately two per cent to the world’s gross domestic product. Approximately 350 million jobs globally are linked to the use of ocean space and resources through fishing, aquaculture, coastal and marine tourism, shipping and research activity. In excess of one billion people depend on fish as their primary source of protein.
The increased reliance on the oceans coupled with mismanagement of ocean resources is placing the oceans under enormous pressure, with implications for humanity that we are only now beginning to fully appreciate.
We have known for some time that global fish stocks are over-exploited and that many fisheries are in a parlous state. The seriousness of the situation was highlighted in figures released only this month in the Living Blue Planet Report, which revealed for the first time that there has been a 50 per cent reduction in utilised fish stocks globally between 1970 and 2010. For fish stocks of particular importance to regional economies and livelihoods, the decline may be even more dramatic. This trend is echoed in the status of marine biodiversity generally.
This illustrates very clearly that there is an urgent need to better manage our ocean space and to focus more on the conservation and rebuilding of global fish stocks. Whilst a series of national, regional and multilateral efforts have been undertaken over the past two decades to address fish stock depletion with some success, much more work remains to be done to improve marine species conservation and the protection of related ecosystems.
This year, I highlighted the need for a collective effort to establish a fairer, more inclusive and sustainable future for all of humanity. This collective effort is equally pertinent as we look for feasible approaches and frameworks to ensure that multilateral and regional trade policy negotiations can, and should, contribute to.
As we all know, 2015 is a significant year for the international community. Last weekend world leaders adopted the Sustainable Development Goals (‘SDGs’), which replace the Millennium Development Goals. The SDGs include a specific goal on our oceans (Goal 14), which urges the international community to take action to “conserve and sustainably use the oceans, seas and marine resources for sustainable development”.
The level of ambition within the SDGs is commendable, and there are hopes that they may reinvigorate and build momentum at the multilateral level. However, the question of how to balance sustainable development and conservation remains, as does the challenge of translating the SDG goals into practical action by WTO members within the existing framework of multilateral trade rules.
The main difference between multilateral, regional and bilateral trade negotiations often boils down to the level of ambition in terms of the rule-setting. The speed at which bilateral and regional trade negotiations have been concluded relative to the respective rounds of negotiations under the multilateral trading system and the WTO are testimony to this. For example, 14 years of fisheries subsidies negotiations under the Doha Development Agenda have not yet produced an outcome. The Bali package agreed at the 9th WTO Ministerial is a pale reflection of what was originally envisaged in the Doha Development Agenda and round of negotiations, the first since the WTO inherited the multilateral trading system in 1995. In comparison, some 260 regional trade agreements have been notified to the WTO.
SDG Goal 14 builds upon many of the provisions for oceans and fisheries conservation contained in the Rio+20 outcome document, the Samoa Pathway and the Istanbul Programme of Action – an LDC-led initiative that expires in 2020. The focus on creating a coherent strategy for developing countries includes recognition of the need for special and differential treatment and technical co-operation (Goal 14.7) for SIDS and LDCs.
Because of the level of ambition within the SDGs, some critics have said that implementation is likely to be difficult. The achievement of targets such as the end of overfishing and destructive fishing practices and the implementation of science-based management plans, to restore fish stocks by 2020 (Goal 14.4) will indeed be extremely difficult to achieve without coherent global action.
To conclude, multilateral and regional trade policy negotiations can and should contribute to more sustainable fisheries. Aligning negotiation strategies in view of the stated objectives of the SDGs is important.
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Carbon pricing, divestment, and fossil fuel subsidy reform options for climate deal
A series of reports regarding the use of carbon markets as a central means for achieving international climate goals were released as the seventh annual multi-stakeholder New York Climate Week unfolded from 21-28 September in the US, just ahead of the adoption of the new “2030 Agenda for Sustainable Development” by the UN General Assembly at its headquarters.
While the number of carbon pricing schemes worldwide has increased over the past few years, nations must accelerate their deployment in order to achieve an internationally agreed upon goal of limiting temperature rise to no more than two degrees Celsius above pre-industrial levels, according to a report on the state and trends of carbon pricing released by the World Bank last week.
Several parties support the use of global carbon markets as an option to meet emissions reduction targets as part of a new climate deal under the UN Framework Convention on Climate Change (UNFCCC) to be inked in December in Paris, France. These players specifically call for the agreement to include reference to the use of international transfers of mitigation units. However, no consensus has formed as to whether, or to what extent, market mechanisms will be cited.
Some strong ideological opposition and practical hesitations abound among other countries and analysts over the use of market-based mechanisms to tackle climate change, ranging from a desire to avoid commodification of the environment, to fears such policies will not result in credible emissions reductions.
Despite a lack of certainty in the international sphere, the number of implemented or planned carbon pricing schemes has almost doubled since 2012 with some 40 nations and 23 cities, states, or regions using emissions trading schemes and carbon taxes. These schemes now cover some 12 percent of annual global greenhouse gas (GHG) emissions and are worth approximately US$50 billion.
Carbon market developments
Recent developments in this area include the launch of South Korea’s carbon market at the start of this year, the approval of a national carbon tax by the Chilean government that is set to come online in 2017, and China’s announcement of a proposed national scheme that once operational in 2017 would overtake the EU’s Emissions Trade System (ETS) to become the largest in the world.
The World Bank, together with the Organisation for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF), also published a series of principles last week designed to help governments craft and implement carbon-pricing policies.
The principles, shortened to the acronym “FASTER” for short, stands for Fairness; Alignment of policies and objectives; Stability and predictability; Transparency; Efficiency and cost effectiveness; and Reliability and environmental integrity.
Higher carbon price
Although not setting a specific target price, the World Bank’s carbon pricing state and trends report calls for more ambitious carbon prices in order to significantly incentivise a shift for investors away from carbon-intensive industries towards cleaner sources of energy.
The price of carbon in the schemes covered in the report range from less than US$1 a tonne of carbon dioxide equivalent (CO2e) in Mexico to US$130 a tonne in Sweden. More than 85 percent of the schemes have a carbon price lower than US$10 CO2e, and according to the study, these numbers are “considerably” lower than what is required to avoid the worst consequences of climate change.
In addition, the report emphasises the importance of cooperation and supports the linking of carbon pricing instruments across borders, suggesting that this could result in net annual flows of financial resources of up to US$400 billion by 2030 and up to US$2.2 trillion by 2050.
While many experts supportive of market-based mitigation policies have echoed the benefits of linking carbon markets, concrete progress on the ground towards cooperation, particularly between the EU ETS and other countries, remains slow.
It is likely that the EU may finalise plans to link schemes with Switzerland within the next year or so, however, experts do not expect any linking with either China’s proposed national carbon market or South Korea’s scheme before the end of the decade, as the schemes must first be aligned in many key areas.
International credits
In a bid to boost demand for international carbon offset credits, the UN launched the “Go Climate Neutral Now” initiative on 22 September, a new online platform to purchase carbon offsets generated by one of the UN’s emissions crediting programmes, the Clean Development Mechanism (CDM).
The platform aims to make the CDM competitive on the “voluntary market” – in other words, where greenhouse gas cuts are not mandated – and purchases of offsets through the online platform can be made by any individual, government, or company without commission fees normally expected by brokers. The offsets generate revenue for projects and programmes geared towards reducing emissions in over 107 developing countries.
However, a number of analysts do not think that the initiative will have a significant impact on the current glut of CDM credits, and some experts have voiced concerns that it could possibly jeopardise high quality emissions reductions. Recent reported trends in carbon markets reflect these apprehensions, players such as the EU that used to accept international credits from the CDM have now transitioned to accepting only domestic offsets.
Shifting investments
Some members of the international community last week also hailed progress in a shift of investments away from fossil fuels, particularly from the high-emitting coal industry.
Some 436 institutions and 2040 individuals across 43 countries and representing US$2.6 trillion in assets have committed to stop supporting fossil fuels, according to a report from Arabella Advisors, an investment research firm, also unveiled during the New York Climate Week.
These numbers showcase a 50-fold increase since Arabella’s last report, which found that 181 institutions and 656 individuals representing US$50 billion had committed to divest in 2014.
While the total value of the holdings that investors are selling is not known, an analyst at Arabella has reported that in a sample of just seven percent of the investors involved, they had sold or promised to sell about US$6 billion of fossil fuel investments.
As the world shifts towards decarbonisation to tackle climate change in the long-term, some analysts contend that profits from investing in high-emitting industries could plummet. A report from global consulting company Mercer released in June, for example, found that the average annual returns from the coal sub-sector could fall by anywhere between 18 percent and 74 percent for investors over the next 35 years.
This could be partially attributed to the growing number of carbon pricing schemes and other associated policies that place a greater emphasis on the “negative market externalities” generated by greenhouse gas emissions.
Reforming subsidies
Industrialised and key emerging economies are still spending some US$160 to US$200 billion a year on policies that support fossil fuel consumption and production, according to a report by the Paris-based OECD released last Monday. The report identifies close to 800 spending programmes and tax breaks used by 34 OECD countries and governments in Brazil, China, India, Indonesia, Russia, and South Africa.
“The time is ripe for countries to demonstrate they are serious about combating climate change, and reforming harmful fossil fuel support is a good place to start,” said Angel Gurría, OECD Secretary-General, with the report highlighting that around two-thirds of the fossil fuel support measures were introduced before the year 2000 under different economic and environmental contexts.
Countries have been pledging to phase out or reform inefficient fossil fuel subsidies for several years, with the latest commitment coming from the meet of G7 leaders in June, and in the recent post-2015 development agenda.
The report concludes that while it appears that global support for fossil fuel subsidies may have already peaked in 2008 and then again in 2011-2012, it estimates that global progress towards reform remains slow.
For example, the OECD has been locked in negotiations to phase out a form of coal subsidy that helps developed countries export technology linked to fossil fuel generation. Another round of negotiations held earlier in September stalled, however, and reports indicate that the talks on understanding the role of export credits in achieving climate goals will resume again in mid-November.
Some experts suggest a positive agreement among these developed countries on export credits and the reform of other fossil fuel subsidies would help the global economy shift financial resources towards greener sources of energy and possibly open up much needed financial pathways for climate finance to developing countries before the Paris meet.
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China’s economic slowdown: An opportunity to boost Indo-Africa ties
Compared to China, the Indian economy is expected to grow faster, at 7.5%, and offers a large consumer market
As China is confronting property market challenges, overcapacity in industries, debt burden and financial risks, the recent slowdown in the economy and the devaluation of the Chinese currency has heightened major concerns for the various economies across the globe, including Africa.
Over the past decades, China has been a major and the largest trading partner of Africa, with bilateral trade amounting to $220 billion in 2014. China imports a wide range of products – from copper to oil – from Africa and the continent has become an increasingly important source for feeding the appetite of the consumer-rich Chinese economy. However, the dramatic slowdown of the Chinese economy has left the African region looking vulnerable.
The past few months have seen a significant deterioration in Africa’s trade balance with China. In fact, the lower forecast growth rate of 3.1% of China depicts the fragile picture affecting the dynamics of Sino-African relationship.
So, what is the exact impact of the Chinese slowdown on African economies? According to researchers at IMF: “No region may be more affected by the financial meltdown in China than Africa. If China sneezes, Africa can now catch a cold.” China is highly dependent on Africa for its mineral resources, oil and cheap labour. Given the fact that exports to China from Africa accounted for 30% of the region’s total exports between 2005 and 2012, African resource exporters are going to suffer negative shock-waves to their industries. Lower demand from China will shrink the economies of Africa and eventually heightened the debt burden.
For the top five exporters – Angola, South Africa, the Republic of Congo, Equatorial Guinea and the Democratic Republic of Congo – a 1% decline in domestic investment growth would mean a 0.8 percentage point decline in the region’s growth. According to Fathom Consulting research, Zambia – which has the large community of Chinese immigrants, having established successful businesses in the retail and the construction industries, followed by South Africa – is most exposed to the Chinese economic slowdown. Last month, with the devaluation of the yuan, South African stock markets suffered from heavy losses with the fall in the value of the rand by almost 8%. In addition to the damage caused on the rand, analysts also noticed the impact of the slowdown on the South African steel industry, which found it difficult to compete against cheaper Chinese steel exports. Moreover, Chinese firms are finding themselves increasingly at odds with their African hosts over environmental and labour issues.
Additionally, the tourism sector of Africa may have to bear the burden of the slowdown. The favourable exchange rate and wildlife has attracted Chinese tourists to Africa. A devaluation of the yuan would lower spending from China and thereby impact tourism. In South Africa, the situation is compounded by new complex visa regulations. For that country, the global volatility would create a double jeopardy for the local tourism industry.
Given these developments, the slowdown may bring benefits to the Indian economy. The India-Africa Forum Summit (IAFS) in October will be a testing time for India to seek a proactive and meaningful engagement to make the best of the times. Though not as strong as China, India’s commerce with Africa has seen considerable progress over the years. In 2013, the trade between both the regions stood at $70 billion. Nigeria and Angola account for more than a quarter of India’s oil and gas imports. India’s private sector has established a significant presence in South Africa, Kenya, Tanzania and Mauritius, which has led to strong entrepreneurial ties in sectors such as retail services, mining and commodities trading.
In light of Africa’s increasing dependency on and trouble with Chinese actors, African leaders are beginning to look beyond China in an attempt to diversify. Considering that the demand for African resources will get affected from the Chinese slowdown, India and the long-standing presence of Indian businesses in the continent can help Africa deal with the losses. Compared to China, the Indian economy is expected to grow more rapidly, at 7.5%, and offers a large consumer market. With growing energy demands and Make-in-India, further engagement with Africa is possible. Moreover, India provides a useful model for democratic development. The learning experience from India can help Africa strengthen its judicial system. Additionally, India can be a useful partner to support Africa against terrorism.
The upcoming IAFS will be an occasion to harness this opportunity and a meaningful strategic engagement beneficial to both the countries.
The author is research assistant, Observer Research Foundation, Delhi, and researcher, Wikistrat
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tralac’s Daily News selection: 29 September 2015
The selection: Tuesday, 29 September
Starting, Wednesday: WTO’s 2015 Public Forum
India to host 53 African trade ministers (LiveMint)
The fourth India-Africa trade ministers’ meeting will be held on 23 October prior to the summit scheduled for 26-30 October. The industry department will also host the India-Africa business council meeting the same day. “It will be the largest meeting of trade ministers in India. It will give us an opportunity to review our status trade relation and take our engagement forward,” a government official said under condition of anonymity. On 26 October, India will host senior officials of the 54 countries, while on 27 October, foreign minister Sushma Swaraj will host her African counterparts. The official said India considers the tripatrite free trade agreement recently signed in June as an important milestone and is keenly watching the development. “We will keep ourselves engaged with the larger community that is emerging,” he added.
Dubai’s 2014 Africa trade (AME)
The value of Dubai’s foreign trade with Africa amounted to AED118 billion in 2014, according to figures released by Dubai Customs, where imports amounted to AED 60.8bn, exports AED13.7bn, and re-exports to AED44bn.
‘Mistrust’ hampering continental trade (IOL)
Ernst & Young tax partner Charles Makola said there has been an increase in bilateral and multilateral tax instruments intended to create harmony in the corporate tax base. However, in Africa tax is a political instrument. "This leads to an element of protectionism in each state with everyone looking inward and looking at what is best for the country."
SA’s investment in Africa is positive, should be celebrated, says Davies (Business Day)
Kenya’s exports to Uganda up for first time in 4 years (Business Daily)
Kenya’s exports to Uganda have grown for the first time in four years over the seven months to July amid a political storm over the countries’ bilateral trade. Data from the Kenya National Bureau of Statistics shows the country sold goods worth Sh36 billion to Uganda in the period to July, up from Sh27.7 billion in a similar period last year. Exports to Uganda — the largest buyer of Kenyan goods — have been declining since 2011 on what experts attributed to a vibrant manufacturing sector in Kampala and local firms opening shop in the neighbouring country. The drop defied the creation of the East African Community common market in 2010, which was expected to boost commerce among five member states, including Tanzania, Rwanda and Burundi. [Leading Economic Indicators July 2015]
Contribution of UNCTAD to the implementation of the Programme of Action for the Least Developed Countries for the Decade 2011-2020: 4th progress report
At its 62nd regular session, UNCTAD's Trade and Development Board reviewed progress in the implementation of the Istanbul Programme of Action for least developed countries for the decade 2011-2020. Since the 2008-2009 global financial crisis, the economies of the world's 48 least developed countries have remained weak, despite averaging 5.2% in growth per annum. This growth figure is short of the 7% agreed in the Istanbul Programme of Action as necessary to address underdevelopment and widespread poverty in these countries. At this rate, the goal of half of all least developed countries meeting the criteria to graduate from the category by 2020, which is an aspiration of the Istanbul Programme of Action, cannot be met.
The Africa Urban Agenda: Presidential Dialogue
In order to harness the benefits of intra-African regional trade and investment, African Heads of State and Government will need to invest in both national and sub-national urban planning as well as regional, cross-border territorial planning. This calls for coordinated collaboration across borders and hence the significant role of the concerted efforts of Heads of State, the African Union and the regional economic bodies. Global attention is currently on climate change and the Sustainable Development Goals. The need for Africa to take advantage of the window of opportunity created by the Sustainable Development Goal 11 cannot be over emphasized. Concrete decisions need to be made through a deliberate consolidation of commitments by African leaders to ensuring inclusive, safe, resilient and sustainable cities and human settlements across the region. [Aide Memoire], [Download: Sustainable Urban Development in Africa]
TICAD VI: selected updates
Japan to focus on African health system, extremism at 2016 summit: Abe (Japan Times)
Assessing progress in Africa toward the Millennium Development Goals (UNECA)
Having made encouraging progress on the Millennium Development Goals, African countries have the opportunity to use the newly launched Sustainable Development Goals to tackle remaining challenges and achieve a development breakthrough, according to a report released here today. Leadership, innovation and targeted investments in a number of social sectors have led to transformative interventions and in many cases revolutionized people’s lives, says an annual report produced jointly by the Economic Commission for Africa, the African Union, the African Development Bank and the United Nations Development Programme, called “Assessing Progress in Africa Toward the Millennium Development Goals”. [Download]
African leaders cite ‘remarkable’ progress on MDGs and urge commitment to post-2015 agenda (UN News Centre)
African leaders speaking at the UN General Assembly debate today noted that their countries were guided by the Millennium Development Goals over the last 15 years, and that the post-2015 development agenda and the new goals adopted last week, embody the collective ambition to transform the world by 2030. “Similarly to other countries, I believe, Mozambique has achieved remarkable progress in the implementation of the Millennium Development Goals,” said Filipe Jacinto Nyusi, the President of the southern African nation which recently celebrated 40 years of independence. Worth highlighting, he explained, is the expansion of access to education, gender balance in the access to primary education and compliance with the target on infant mortality reduction. “The commitment of Mozambique to the [post-2015 development agenda] is unequivocal and it has been expressed from the onset,” the President continued. “As you might be aware, Mozambique has been one of the 50 countries selected by the United Nations to host national consultations.”
Christine Lagarde: the Post-2015 Development Agenda (IMF), Roberto Azevêdo: Ending poverty and hunger (WTO)
United Nations taps African oil, mineral wealth to fight hunger (Reuters)
Four African countries have agreed to divert a portion of revenue from oil, gold and other resources to an innovative financing scheme that will tackle childhood hunger, the United Nations official behind the program said. Mali, the Republic of Congo, Guinea and Niger will each year contribute a portion of sales from gold, oil, phosphate and uranium from their state companies. The countries will pay 10 cents for every barrel of oil and 60 cents for every gram of gold into a fund managed by the U.N. children's agency UNICEF to buy nutritional supplements at a reduced price. [Background]
Conference alert: 'Towards a strategy for a strong agricultural sector in Africa' (AfDB)
Malawi’s farm subsidy benefits the poor but doesn’t come cheap (The Conversation)
Given the scale of the programme, there is, correctly, strong interest in its effectiveness and a number of evaluations have been conducted. In a recent paper, we present a comprehensive evaluation of the programme and its macroeconomic effects. While the statistical fog that characterises Malawi precludes definitive conclusions, the available evidence indicates that the programme has resulted in: [The authors: Channing Arndt, James Thurlow, Karl Pauw]
Dar set to produce 5,000 tractors yearly (Daily News)
Olam plans to go big on Africa coffee plantations (Staits Times)
Fairtrade Africa at 10: perspective by UK High Commissioner to Kenya (News Hour)
Zim, EU sign five financial agreements (The Herald)
Zimbabwe and the European Union have signed five financial agreements amounting to €89 million (about $97,9 million) and expect to add a further €40 million under the 11th European Development Fund 2014-2020 National Indicative Programme by year end. By the end of the year, the European Union expects to release more than two thirds of the €234 million under the NIP. Finance and Economic Development Minister Patrick Chinamasa, however, called for the complete removal of the political and trade embargoes for the normalisation of relations if Zimbabwe is to see foreign direct investment coming into the country. Minister Chinamasa said although the intervention by the EU is commendable, investors “remain standing on the fence” until political differences between the Zimbabwe and the bloc are resolved. [Govt consults EU to implement EPA, NewsDay]
EAC states pulls out of regional power pool for new, larger EAPP (The East African)
The EAC’s senior energy officer Peter Kinuthia said the EAC member states also belonged to the wider Eastern Africa Power Pool under which the EAC Power Pool falls. EAPP is meant to link up nine countries by 2018. The overlap would not make investment sense as member states are required to contribute to each initiative. This means that the five countries will have their power lines connected to the larger power pool, whose headquarters will be in Addis Ababa. Four other countries – Egypt, Ethiopia, Democratic Republic of Congo and Sudan – are members of the wider pool.
ECOWAS Energy Centre, UN women to establish 5m euro grant facility (StarAfrica)
Kenya now introduces special economic zones (The East African)
President Uhuru Kenyatta has signed into law the Finance Bill 2015, which spells out key measures to revamp activities in the special economic zones. The zones are currently undergoing a pilot programme in Mombasa, Lamu and Kisumu. Through the Act, the government exempted all supplies of goods and services to companies and developers in special economic zones from VAT and reduced the corporate tax rate for enterprises, developers and operators to 10 per cent for the first 10 years and 15 per cent for the next 10 years.
Kenya transport sector support project: implementation status results report (World Bank)
The project development objectives are to: (a) increase the efficiency of road transport along the Northern Corridor and the Tanzania-Kenya-Sudan road corridor; (b) enhance aviation safety and security to meet international standards; and (c) improve the institutional arrangements and capacity in the transport sector.
Tanzania: Call for aggressive AGOA strategy (Daily News)
Strengthening Nigeria-UK trade relations (The Guardian)
Buhari vows to address double taxation avoidance agreement (ThisDay)
Ease of biz: Govt pushes states to implement over 300 proposals (The Indian Express)
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After the MDGs, renewed commitment and financing required to spur Africa’s development
With advances made in their social indicators, African countries to focus on implementing the next generation of development goals
Having made encouraging progress on the Millennium Development Goals (MDGs), African countries have the opportunity to use the newly launched Sustainable Development Goals to tackle remaining challenges and achieve a development breakthrough, according to a report released in New York on Monday.
Leadership, innovation and targeted investments in a number of social sectors have led to transformative interventions and in many cases revolutionized people’s lives, says an annual report produced jointly by the Economic Commission for Africa (ECA), the African Union (AU), the African Development Bank (AfDB) and the United Nations Development Programme (UNDP), called “Assessing Progress in Africa Toward the Millennium Development Goals”.
Africa has seen an acceleration in economic growth, established ambitious social safety nets and designed policies for boosting education and tackling HIV and other diseases. It has also introduced women’s quotas in parliament, leading the way internationally on gender equality, and increased gender parity in primary schools.
Although overall poverty rates are still hovering around 48 percent, according to the most recent estimates, most countries have made progress on at least one goal. For instance, The Gambia reduced poverty by 32 percent between 1990 and 2010, while Ethiopia decreased its poverty rate by one third, focusing on agriculture and rural livelihoods.
Some policies and initiatives have been groundbreaking. For example, Niger’s School for Husbands has been successful in transforming men into allies in promoting women’s reproductive health, family planning and behavioral change towards gender equality. Cabo Verde increased its forest cover by more than 6 percentage points, with millions of trees planted in recent years.
Much more work lies ahead to ensure living standards improve for all African women and men. While economic growth has been relatively strong, it has not been rapid or inclusive enough to create jobs. Similarly, many countries have managed to achieve access to primary schooling however considerable issues of quality and equity need to be addressed. The continent’s new development priorities, as embodied in the African Union’s Agenda 2063 and the 17 Sustainable Development Goals, are both comprehensive and universal, while their implementation will entail mobilizing additional resources and partners, and putting in place more robust monitoring systems.
The Sustainable Development Goals replace the Millennium Development Goals (MDGs), which in September 2000 rallied the world around a common 15-year agenda to tackle the indignity of poverty.
“Africa’s regional strategy for sustained and inclusive development complemented by the global post 2015 development agenda provide an appropriate framework for sustainable development. Nevertheless, an important lesson of the MDGs is that success will hinge on a credible means of implementation,” say the authors of the report.
Poor implementation mechanisms and excessive reliance on development aid undermined the economic sustainability of several MDG interventions, the report adds. With official development assistance to Africa projected to remain low over the period 2015-2018, at an average of around US$47 billion annually, the focus should be on boosting and diversifying economies, mobilizing domestic resources and new partners, unleashing the economic potential of women and fighting illicit financial flows.
Achieving sustainable development will also be impossible unless African nations and communities are resilient, able to anticipate, shape and adapt to the many shocks and challenges they face, including climate-related disasters, health crises such as the Ebola epidemic in West Africa and conflict and instability. Investments now in prevention and preparedness will minimize risk and future costs.
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African leaders at UN cite ‘remarkable’ progress on MDGs and urge commitment to post-2015 agenda
African leaders speaking at the UN General Assembly debate on 28 September noted that their countries were guided by the Millennium Development Goals (MDGs) over the last 15 years, and that the post-2015 development agenda and the new goals adopted last week, embody the collective ambition to transform the world by 2030.
“Similarly to other countries, I believe, Mozambique has achieved remarkable progress in the implementation of the Millennium Development Goals,” said Filipe Jacinto Nyusi, the President of the southern African nation which recently celebrated 40 years of independence.
Worth highlighting, he explained, is the expansion of access to education, gender balance in the access to primary education and compliance with the target on infant mortality reduction.
“The commitment of Mozambique to the [post-2015 development agenda] is unequivocal and it has been expressed from the onset,” the President continued. “As you might be aware, Mozambique has been one of the 50 countries selected by the United Nations to host national consultations.”
The leader further underlined that in line with the theme of the 70th session of the General Assembly – “a commitment to action” – for Mozambique, this should include the adoption and implementation of effective structures for the prevention and management of conflicts, as well as the need to conclude a convention against terrorism.
“Emphasis should be on preventive diplomacy,” he stated. “The commitment to action we celebrate here should establish platforms for dialogue among cultures and civilizations as an essential tool to promoting tolerance, the culture of peace and a dignified and peaceful world.”
President Nyusi added that the celebration of the 70th anniversary of the United Nations is being shadowed by an unprecedented crisis at the international level.
“I am referring to the humanitarian crisis arising from the flow of refugees and migrants with no parallel in the recent history of the humanity,” he declared, urging leaders to redouble efforts. “This shocking situation is a manifestation of a succession of unresolved crisis or poorly settled situations in relation to which the international community had already forecast.”
Meanwhile, during his address to world leaders in New York, the Prime Minister of Ethiopia said his country never lost confidence in multilateralism and remained a staunch supporter of the principle of collective security embodied in the UN Charter.
“It is based on this conviction that Ethiopia has been actively contributing to the advancement of the principles and purposes of the United Nations, including by deploying its forces as part of the blue helmets since the early days of the UN,” said Hailemariam Dessalegn. “It gives us great satisfaction to note that Ethiopia is now the second largest contributor to UN Peacekeeping.”
He also underlined that despite the “many failures” of the Organization, the global community cannot afford to live without it.
“In spite of its shortcomings, the United Nations remains the only universal organization that we have – whether big or small, rich or poor – providing us with a unique platform to advance our common objectives and address those myriad problems we collectively face.”
Echoing the President of Mozambique, he noted that the reason for the remarkable progress Ethiopia has made over the past fifteen years, including in achieving most, if not all of the MDGs, is because the country took charge of its own destiny, devising its own development strategy and mobilizing domestic resources.
“But we also made the best use of development cooperation we have had with the United Nations and other partners,” the Minister added.
In his remarks, Yoweri Kaguta Museveni, President of Uganda, said that 70 years after the founding of the United Nations, inequalities among States persisted in defiance of the underlying messages of brotherhood and solidarity every religion preached. Underdeveloped countries are in their current state today because of various internal and external factors, which the world could no longer afford to debate.
“The adoption of the Sustainable Development Goals constitutes a landmark in humanity’s quest for peace and prosperity and was a prescription closely aligned with the national strategy Uganda has been following,” he said. For the first time, the Goals proclaim in bold letters the concept of universal prosperity, which would assist the prioritization of the use of scarce resources by international agencies.
In particular, the use of the word “transformation” in the Goals is most revealing, he said, stressing that the purpose of sustainable development was to ensure growth both qualitatively and quantitatively.
The President of Gabon, Ali Bongo Ondimba, expressed concern about the rising threat of terrorism in Africa and called on the international community to strengthen its action against groups such as Boko Haram and Al Shabaab.
He called on the international community to redouble efforts against terrorism, including by urging donors to devote more "supervision of financial circuits that power this phenomenon."
For greater efficiency in the fight against terrorism and to better address the other global challenges, Mr. Bongo also called for reform of the UN Security Council towards greater democratization of its operation. He thus called for better representation of the various regions of the world and a reform of the veto power.
The Gabonese head of State noted his concern about the delays in the negotiations prior to the holding of the climate summit in Paris in December, saying the process is still far from the required consensus on the overall deal that is ti be agreed in the French capital.
In his Assembly address, President Uhuru Kenyatta, of Kenya, said the just adopted 2030 Agenda was the culmination of more than three years intensive intergovernmental negotiation, which began with the UN Conference on Sustainable Development in Rio, Brazil in 2012.
“We are glad to note that the Agenda recognizes ending poverty in all its forms everywhere as its overarching goal. The goals and targets set by the Agenda are universal and will apply to all countries while recognizing different realities and capabilities,” he said.
Moreover, the new Agenda recognizes that sustainable development cannot be realized without peace and security; and peace and security will be at risk without sustainable development. This therefore calls for building peaceful, inclusive and well-governed societies with responsive institutions as the basis for shared prosperity.
“Fundamentally, the Agenda reckons that we cannot reach our development goals without addressing human rights and complex humanitarian issues at the same time” said President Kenyatta, adding that the new development framework “commits all of us to be responsible global citizens, caring for the less fortunate as well as for our planet's ecosystem and climate action on which all life depends.”
Also addressing the Assembly, Macky Sall, the President of Senegal, said that 70 years after the founding of the United Nations, peace, which is not simply the absence of war, continues to be threatened by poverty, disease hunger and environmental degradation. With that in mind, he hoped the upcoming climate change conference in Paris could set the world on a path towards a more sustainable and low-carbon future.
There could only be true peace when all nations realized that all peoples are connected and that only by working together, could real change be affected. “We can no longer have business as usual. Common sense requires that we change our vision of the present, as well as the future,” to ensure that the UN and its institutions better reflect modern realities. To that end, he called for reform of the UN Security Council in line with the African position; reform the global financial institutions, efforts to combat illicit financial flows; and measures to democratize business practices.
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Energizing Africa’s future, benefiting the world
African Development Bank Group (AfDB) President Akinwumi Adesina delivered an impassioned speech to high-level leaders Sunday morning about why putting all of Africa on the power grid is not only good for the continent, but also for the world.
“The private sector is frozen in time,” he said, and “the lack of energy has put the brakes on Africa’s industrialization.” That stunted internal development prevents the continent’s 54 resource-rich nations from attracting the external investment that would allow everyone to prosper.
He told the crowd that now is the time to push past the days when more than half a million people die each year simply because they have no access to clean cooking energy. He insisted that the era of factories lying dormant due to lack of electricity must come to an end.
“Africa cannot stand by with such massive energy resources and yet be known for the darkness, not the brightness, of its cities and rural areas,” Adesina said. “Africa is blessed with limitless potential for solar, wind, hydropower and geothermal energy resources. And, of course,” he added, its “abundant supply of natural gas and coal.”
Adesina delivered his remarks on the eve of the general debate of the 70th United Nations General Assembly (UNGA). He stressed the point that one of the most important components of the Sustainable Development Goals (SDGs), officially endorsed this week, is number 7, energy.
“Africa is simply tired of being in the dark,” he said. “That is why the African Development Bank has launched a ‘New Deal for Energy in Africa’, to fast-track universal access to power by 2025.” The goal: “Lighting up and powering Africa in 10 years, not 50.”
Adesina addressed leaders including World Bank Group President Jim Kim, United Nations Deputy Secretary General Jan Eliasson, UN General Assembly President Mogens Lykketoft, Liberia’s President Ellen Johnson Sirleaf, among others.
Jim Kim publicly congratulated Adesina on his new position as head of the AfDB, and commended his commitment to powering up the second-largest continent on the planet.
Adesina said the only way to do that is to band together with partner organizations and nations to raise expectations, aspirations and financing. So in back-to-back meetings Sunday afternoon he worked to spark the excitement needed to make that happen. He strategized on energy, job creation, industrialization and more with Ghana’s President, John Mahama, the UN Under Secretary General and Special Advisor on Africa, Maged Abdelaziz, and US Assistant Secretary of State for the Bureau of African Affairs, Linda Thomas-Greenfield. And for the first time in his tenure as AfDB President, Adesina met with Luis Moreno, President of the Inter-American Development Bank, Werner Hoyer, President of the European Investment Bank, and others leaders of multilateral development institutions around the globe.
A flourishing Africa is good for the world. So with a five-point plan in place, Adesina is making clear this week that he has a master plan to unlock Africa’s energy potential – both conventional and renewable.
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Helen Clark: Speech at the UN GA Side Event, “Towards TICAD VI: Africa’s Transformation through Industrial Development and Agenda 2063”
The TICAD VI High-Level pre-event was held on the margins of the 70th United Nations General Assembly in New York, USA, on 28 September 2015. The objective was to discuss Africa’s new strategic direction in addressing its development and integration agenda, as enshrined in AU Agenda 2063 and its First Ten Year Implementation Plan. It would also be an opportunity to launch a joint research report titled: “Industrial Policy and Economic Transformation in Africa”.
I am pleased to join you for this High Level Event to kick-start substantive discussions on TICAD VI. UNDP is proud to be a founding partner of the TICAD process.
Since its inception in 1993, guided by the dual principles of African “ownership” and “international partnership”, TICAD has been a driver of sustainable and people-centered development in Africa. It has consistently aimed at generating inclusive economic growth, which is backed by good governance which is important for creating the enabling environment for growth, and is made sustainable through investments in the productive capacities, health, and education of the people of Africa – the true wealth of the continent.
Now, as TICAD VI is being planned, I have no doubt that the new publication by Akbar Norman and Joseph Stiglitz of Columbia University, “Industrial Policy and Economic Transformation in Africa”, will make an important contribution to the agenda for TICAD VI.
Africa’s emerging opportunities and constraints for economic transformation
Africa’s quest for economic transformation is well reflected in Agenda 2063 adopted by the African Union – and it’s important that our work as development partners is aligned with that. Agenda 2063 aims to translate Africa’s robust growth into economic and social transformation. That growth has averaged over five per cent for the last ten years. Africa’s GDP growth rate is expected to be 4.5 per cent this year, and five per cent in 2016 .
The history of human development tells us, however, that it is the quality of economic growth which matters – and not just its speed. For maximum human development benefits, growth needs to be inclusive, sustainable, and job-rich. The manner of industrialization can support that.
TICAD V was supportive of:
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boosting economic growth;
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accelerating infrastructure and capacity development;
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empowering farmers as mainstream economic actors; and
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promoting inclusive, sustainable, and resilient growth.
TICAD V also aimed to reverse the declining share of added value manufacturing in Africa’s Gross Domestic Product (GDP) and in the share of manufacturing in its exports.
Already the Yokohama Plan of Action under TICAD V is helping to address infrastructure challenges, including transportation corridor development, urban transportation, provision of low-carbon energy and optimization of energy use, and ICT infrastructure.
The African Business Education (ABE) initiative is helping to strengthen the industrial skills base and technological capabilities on the continent, including by offering young people training opportunities.
Africa’s own African Productive Capacity Initiative and the Action Plan for Accelerated Industrial Development for Africa are promoting industrialisation and economic diversification.
Africa’s path to transformation will benefit from:
(1) Diversifying economies. Industrialization itself enables the rapid acquisition of new skills and technological capabilities. Japan and the TICAD process are relevant here; for example, the vocational and technical training center in Senegal, supported by JICA, has contributed to skills acquisition. As of 2013, it had around 2,300 alumni with a post-training employment rate exceeding eighty per cent.
Industrialization can support inclusive growth across the local economy. For example, adding value to the primary production of extractives and agriculture creates jobs and lifts national income.
(2) Mitigating the impact of external economic shocks. Economic diversification, including by adding value to primary commodities through industrialisation, also helps protect countries from external economic shocks, including the terms of trade shocks which are often associated with commodity trade.
UNDP’s Regional Bureau for Africa is currently finalizing a study on the booms and bursts of primary commodity prices in Africa. It is documenting African experiences with a view to sharing and advocating good practices in mitigating external shocks associated with the fall in primary commodity prices.
(3) Addressing inequalities. We see successes on the continent in this area; for example, Ethiopia succeeded in reducing income inequality by fifteen per cent between 1995 and 2010; and in a period of seven years (2006 and 2012), Rwanda reduced income inequality by 4.2 per cent. By actively targeting the reduction of inequalities, African countries will harness the full potential of women and marginalized groups. The agricultural sector in particular would be greatly boosted by gender equality measures which give women equal access to productive assets, inputs, and finance.
(4) Harnessing the potential of youth. Youth will energise Africa’s transformation – if countries invest in and create opportunities for them. Lifting education and skills levels and enabling youth entrepreneurship will reap big rewards.
(5) Improving jobs and livelihoods. Eighty per cent of Africa’s workers remain in low productivity jobs in agriculture, or in low-value service sector livelihoods with little or no income. This can change with industrialisation and smart strategies which upskill the workforce.
Conclusion
The alignment between TICAD V and Agenda 2063 on using industrialization as a strategy for economic transformation provides some insights into what could be the areas of focus for the next TICAD.
TICAD VI, the first TICAD summit to be held in Africa, can draw on experiences from Africa’s industrialization to date. Industrial policy needs to encompass development of the capabilities of people. Addressing infrastructure deficits and financing gaps is very important.
Against the backdrop of strong strategic collaboration with Japan, and with the African Union and other co-organizers of TICAD, UNDP looks forward to working closely with all stakeholders to advance substantive discussions on African development and a successful TICAD VI.
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India to host 53 African trade ministers
The fourth India-Africa trade ministers’ meeting will be held on 23 October prior to the summit scheduled for 26-30 October
With an eye to boost its trade relationship with African countries and fast-track long-pending trade agreements with groupings from that continent, India will host a meeting of 53 African trade ministers, the largest such congregation, in New Delhi next month ahead of the India-Africa Forum Summit.
The fourth India-Africa trade ministers’ meeting will be held on 23 October prior to the summit scheduled for 26-30 October. The industry department will also host the India-Africa business council meeting the same day. “It will be the largest meeting of trade ministers in India. It will give us an opportunity to review our status trade relation and take our engagement forward,” a government official said under condition of anonymity.
On 26 October, India will host senior officials of the 54 countries, while on 27 October, foreign minister Sushma Swaraj will host her African counterparts. The summit between the Indian government and African heads of state will take place on 29 October, with 30 October set aside for bilateral meetings between visiting heads of state and Prime Minister Narenda Modi.
India is currently engaged with various African groupings such as the Southern African Customs Union (SACU), the Economic Community of West African States (ECOWAS) and the Common Market for Eastern and Southern Africa (COMESA) for preferential trade agreements.
“As far as SACU and COMESA are concerned, negotiations are already in progress, but both the groupings are taking time to decide how to proceed further, while on ECOWAS, India has to make a move,” the official said. He added that progress on all these agreements will be reviewed during the meeting.
Established in 1910, SACU is the oldest customs union, comprising South Africa, Namibia, Botswana, Lesotho and Swaziland. India and SACU started negotiations on a preferential trade agreement in 2005 following the India-South Africa Joint Ministerial Commission. A so-called memorandum of understanding was signed between the two in 2008 to facilitate the negotiations. While India sought a tariff reduction in 30-50% of goods, the grouping is ready to offer only 10% of total traded goods.
The official said India considers the tripatrite free trade agreement (TFTA) recently signed in June as an important milestone and is keenly watching the development. “We will keep ourselves engaged with the larger community that is emerging,” he added.
TFTA is a proposed free trade agreement between COMESA, the Southern African Development Community and the East African Community, representing 26 African countries, worth $1 trillion and 600 million people.
Africa is considered the next growth frontier and is already an important trade partner for India. Trade with Africa increased from $39 billion in 2009-10 to $71.4 billion in 2014-15, with exports rising faster than imports.
India’s key export interests are in processed petroleum products, drugs and pharmaceuticals, and motor vehicles. Crude petroleum is the biggest imported item from Africa, followed by gold, coal and other mining products.
The official said India is already encouraging its industry to intensify its engagement with African nations. “We have supported several trade events for market access and market development initiatives. In 2015-16, 20 such events have been supported by the government in African countries,” he added.
The official said that all countries of Africa have their unique trade baskets and India is currently examining which countries are more important from its export perspective. “There is tremendous potential for India in engineering, textiles, pharmaceuticals, automobiles, processed food and vegetable products,” he added.
Biswajit Dhar, a professor of economics at Jawaharlal Nehru University, said India should engage with African nations at the bilateral and multilateral levels. “While we can push for the LDC (least developed country) agenda at the World Trade Organization (WTO), we can help individual African countries in capacity-building to help them export more,” he added.
India became the first developing country to extend a duty-free, quota-free facility to LDCs, which will benefit 21 such countries from Africa. It has also announced to provide preferential treatment in services trade to LDCs ahead of the Nairobi ministerial meet of WTO countries in December where the decision is expected to be notified.
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Kenya now introduces special economic zones
Kenya has introduced special incentives to attract more investments to the country, but they could sound the death knell for export processing zones.
Investors have expressed concern over controlled market access and the creation of special economic zones, whose investors will enjoy unlimited access to local and international markets.
Kenya plans to set up the special economic zones in key urban areas as part of its Vision 2030 goal to diversify manufacturing activities and create employment.
President Uhuru Kenyatta has signed into law the Finance Bill 2015, which spells out key measures to revamp activities in the special economic zones. The zones are currently undergoing a pilot programme in Mombasa, Lamu and Kisumu.
Through the Act, the government exempted all supplies of goods and services to companies and developers in special economic zones from VAT and reduced the corporate tax rate for enterprises, developers and operators to 10 per cent for the first 10 years and 15 per cent for the next 10 years.
Kenya also retained 150 per cent investment deduction allowance for investments of Ksh200 million ($1.86 million) or more outside the cities of Nairobi, Mombasa and Kisumu, which had been abolished by the Cabinet Secretary for the National Treasury Henry Rotich in the 2015/2016 budget.
The business community expressed fears that investors at the EPZ would pull out due to what they say is skewed treatment by the government.
Investors at EPZs are entitled to, among other things, a 10 year-corporate tax holiday and 25 per cent tax thereafter; a 10-year withholding tax holiday, stamp duty exemption, 100 per cent investment deduction on initial investment applied over 20 years and VAT exemption on industrial inputs.
But the EPZ investors who have been pushing for the enlargement of the domestic market to include the East African Community are restricted to selling only 20 per cent of their produce to the Kenyan market while 80 per cent is exported.
“You can’t have different incentives for EPZs and special economic zones. Investors at the EPZ have their own negotiated markets and the danger is that they are likely to move out,” Laban Onditi, vice national chairman of the Kenya National Chamber of Commerce and Industry told The EastAfrican.
According to Mr Onditi, tax incentives are not enough to boost activities in the economic zones unless infrastructural challenges and the overall business environment in the country is improved.
It is hoped that the certainty around tax exemption will encourage the setting up of industries in the specially designated zones, which should spur economic growth.
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EAC states pull out of regional power pool for new, larger EAPP
East African Community members have pulled out of a proposed regional power sharing pool to avoid duplicating the intentions of a bigger initiative.
The five EAC countries have since 2003 been interconnecting their power lines to improve supply, stabilise access and foster trading in electricity across national borders.
The EAC’s senior energy officer Peter Kinuthia said the EAC member states also belonged to the wider Eastern Africa Power Pool (EAPP) under which the EAC Power Pool falls. EAPP is meant to link up nine countries by 2018.
The overlap would not make investment sense as member states are required to contribute to each initiative.
This means that the five countries will have their power lines connected to the larger power pool, whose headquarters will be in Addis Ababa. Four other countries – Egypt, Ethiopia, Democratic Republic of Congo and Sudan – are members of the wider pool.
Mr Kinuthia said the experience of EAPP has shown that contributions from member states and member utilities are not sufficient to cover the recurrent and development budget. As a result, resources have to be mobilised from development partners. EACPP would face a similar scenario; besides, it would be approaching the same development partners currently supporting EAPP.
Under the Tripartite Free Trade arrangement, a regional power market linking EAPP and the Southern Africa Power Pool (SAPP) is envisaged. It is estimated that about a quarter of electricity generated in EAPP countries comes from hydropower with future investments creating a greater dependence on the resource.
“Linking up national grids would provide a bigger pool of resources and mean one state can tap idle supplies in another,” said Mr Kinuthia.
The power interconnections between Ethiopia, Kenya, Uganda, Rwanda and Tanzania are expected to be complete in three years.
Under the EAPP, a high-voltage line between Ethiopia and Kenya will be ready in 2017, a Kenya-Uganda link will be complete by the end of 2016, and a Kenya-Tanzania connection will be working in 2018.
The Kenya-Ethiopia link will be a 500 kilovolt (kV) line, while the lines to Uganda and Tanzania will be 400kV. The line to Uganda would then connect to Rwanda and Burundi.
Kenya, which relies heavily on hydropower, geothermal and other renewables, aims to expand installed capacity to 6,700MW by 2017, from about 2,500MW currently. Tanzania aims to double generation to 3,000MW by 2016.
Ethiopia aims to become a major power exporter through large new dams and other renewable energy projects. By 2020, it aims to add 12,000MW to its grid.
The EAPP is being supported by the US government, the World Bank, African Development Bank, and the region’s governments.
Power shortages are common across East Africa and businesses often complain that poor or erratic supplies deter investors and push up prices of local products, as many firms rely on costly generators.
Other African regions like West Africa have already connected up their grids. Southern Africa has a series of links between South Africa, Zambia, Zimbabwe and Mozambique, allowing the countries to trade power.
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Comprehensive policies are needed to address ‘growth paradox’ in the world’s poorest countries
Weak productive capacities and a lack of structural economic transformation continue to accentuate the “growth paradox” seen in least developed countries in which growth has little or no impact on reducing poverty, UNCTAD’s Trade and Development Board hears.
At its sixty-second regular session, UNCTAD’s Trade and Development Board reviewed progress in the implementation of the Istanbul Programme of Action for least developed countries for the decade 2011-2020.
Since the 2008-2009 global financial crisis, the economies of the world’s 48 least developed countries have remained weak, despite averaging 5.2 per cent in growth per annum.
This growth figure is short of the 7 per cent agreed in the Istanbul Programme of Action as necessary to address underdevelopment and widespread poverty in these countries.
At this rate, the goal of half of all least developed countries meeting the criteria to graduate from the category by 2020, which is an aspiration of the Istanbul Programme of Action, cannot be met.
Weak productive capacities and a lack of structural transformation in these economies are both causes and consequences of their underdevelopment. The combined effect of this continues to accentuate the “growth paradox” in least developed countries: jobless growth with little or no impact on reducing poverty.
Furthermore, growth in these countries remains in a narrow economic base and often the benefits are not widely shared or distributed. In this context, the Trade and Development Board emphasized the need for governments of least developed countries with the support of development partners to put comprehensive policies in place to address socio-economic stagnation, marginalization and underdevelopment.
The Trade and Development Board also encouraged UNCTAD, with the support of member States, to continue helping least developed countries to build their productive capacities in order to bring about the necessary structural transformation for achieving sustainable development.
Member States recognized the contribution that official development assistance, enhanced market access and foreign direct investment make in the development process of the poorest countries of the world.
The annual session of the Trade and Development Board reviewed progress in implementation of the Istanbul Programme of Action as part of its standing agenda item, on 18 September 2015.
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