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We can learn a lot from China – Ramaphosa
Deputy President Cyril Ramaphosa has called on South Africans not to scoff at the government’s close relationship with China because China was bound to be the biggest economy in the world and South Africa wanted to learn from the best.
Ramaphosa was answering questions in the National Assembly on Wednesday afternoon and had been asked about aspects and key outcomes of the bilateral discussions with the People’s Republic of China during his official visit to that country earlier this year.
Ramaphosa said the main purpose of his visit to China was to review progress made in the implementation of the Five-to-Ten Year Strategic Programme for Cooperation signed by President Jacob Zuma and President Xi Jinping, with specific focus on China’s experience in the management of state-owned companies.
“The trip was quite an eye-opener on a number of levels for many of us who participated in it because the success that they have achieved is quite phenomenal and their state owned-enterprises play a critical role in the development of their economy,” he said.
“There is much that we can learn from them and we intend to do so,” added Ramaphosa.
Ramaphosa said they discussed alignment of industries to accelerate South Africa’s industrialisation process, enhancement of cooperation in special economic zones, enhancement of Ocean Economy cooperation, infrastructure development, human resource and skills cooperation and concessionary finance.
He said among the key outcomes from bilateral discussions was a commitment from China to cooperate with South Africa in promoting industrialisation and improving our economic capacity and ability to create jobs.
This aims to enhance the capacity of the state to position SOEs to drive industrialisation and unlock private sector investment between the two countries.
“Some of the outstanding things that we learnt from them is just the mere management of the SOEs has been so well streamlined and it has to do with coordination. The coordination of their SOE is done through one central body that manages up to 111 SOEs.
“Their governance structure is something that we can learn from,” said Ramaphosa.
He announced that the Chinese were coming to this country to hold a workshop which will expose managers and executives from South Africa’s state owned enterprises to the Chinese experience.
This statement drew much heckling from the DA in the opposition benches.
“And I know that members on the other side are very dismissive of the China experience, and you do that at your own peril because China is bound to be the biggest economy in the world.
“On our side, we say we want to learn from the best and they are now running the best corporations in the world, corporations that you are accustomed to in the West are diminishing and diminishing in size and in value,” he said.
“So don’t scoff at the lessons that we can learn from China. We have a strategic relationship with China and we intend to exploit it to good effect because they have offered to assist us and they have not offered to dominate us and that to us is an important part,” said Ramaphosa.
Among the lessons learnt from the trip was the Chinese accountability process which Ramaphosa said was “fairly high”.
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SADC in food deficit
All Southern African Development Community (SADC) member states except Zambia, Tanzania and South Africa will this agricultural season experience food deficit due to poor rainfall pattern caused by climate change.
Director, food agriculture and natural resources at SADC, Margaret Nyirenda, told journalists here during a press briefing at the ongoing SADC summit that the weather has not been favourable in the region, resulting in very poor rainfall and in some cases floods and prolonged dry spells.
This, she said, affected crop production, especially maize which is a staple food.
Mrs Nyirenda said athough the three countries (Zambia, Tanzania and South Africa) will not have food deficit, they will all still fall below one million metric tonnes of maize at the end of the season as compared to past seasons.
“Agriculture, food security and prudent management of natural resources continue to be at the epicentre of the SADC region. To this end, the SADC region is cognizant of the increased number of vulnerable people who require both food and other humanitarian assistance,” she said.
Mrs Nyirenda said Zambia is at the top of the chart expecting to reap over 880,000 metric tonnes with Tanzania at 810,000 metric tonnes.
She said these countries will still need assistance with 798,948 people in Zambia requiring relief food.
At the bottom of the list of the countries with a poor yield in the region are Malawi with 2.8 million people requiring assistance and Zimbabwe with 1.49 million stalked by hunger.
In Namibia, 370,000 people will be in dire need of food assistance.
“The humanitarian outlook looks challenging. It is important to note that this year, availability of maize which usually makes up more than 75 percent of the total cereal production is forecast at 31.73 million metric tonnes compared to 36.79 million metric tonnes last year.”
“The total requirement for the region this year is estimated at 32.93 million metric tonnes, reflecting an overall maize deficit of 1.20 million metric tonnes,” Mrs Nyirenda said.
Mrs Nyirenda said SADC has not yet called for humanitarian assistance from outside the region although most individual countries have already begun to look far and wide for help.
“We wish to appeal to countries that have maize surplus to be generous enough and trade the extra to those lacking. This is part of regional integration,” she said.
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TFTA: Africa’s crucial inflection point
On June 10, 2015, at the 25th African Union Summit in Cairo, Egypt, African leaders signed the Tripartite Free Trade Agreement (TFTA). Prior to its signing, the agreement had been in negotiations for seven years.
Several bodies have existed in Africa to foster regional economic integration: the Southern African Development Community (SADC), the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA), the Inter-Governmental Authority on Development (IGAD), the Economic Community of West African States (ECOWAS), the Community of Sahel-Saharan States (CEN-SAD), the Economic Community of Central African States (ECCAS), and the Arab Maghreb Union (UMA).
TFTA intends to unite three of these existing blocks, SADC, EAC, and COMESA, into one unified region. In doing so, the agreement renews the long-standing dream of an economically-integrated entity stretching from Cairo, Egypt to Cape Town, South Africa.
If ratified, the agreement will create the largest free trade zone in the continent’s history with a membership of over 26 African states, a population of 632 million, an area of 17.3 million square kilometers, total trade of US$1.2 trillion, and 60% of continental output.
TFTA also establishes a framework to bring in the Central and West African nations that are currently excluded from the agreement at a later date, which would create an even larger free trade zone across the entire continent.
Details of the TFTA
TFTA seeks to fulfill three main pillars: market integration, infrastructure development and industrial development.
In terms of intra-regional trade flows, Africa is the least economically integrated region in the world with intracontinental trade constituting around 10% of its total trade. In sharp contrast, within both Europe and Asia, intracontinental trade constitutes around 60% of the totals.
One of the primary reasons for the deal is the desire to ease the movement of goods across the continent. TFTA would benefit the organization’s member states, foreign investors, and African citizens by more readily harnessing the potential of the continent’s people both as a labor force and rapidly growing consumer base.
However, going forward, TFTA will confront a number of obstacles that have reduced the effectiveness of other free trade zones both within and outside of Africa. In order for TFTA to capitalize fully upon its potential, it must recognize these challenges and avoid falling victim to the mistakes of the past.
Challenges to Implementation
1. The Scale of the Effort
TFTA requires approval from three-fourths of the 26 states to enter into force. Furthermore, even after ratification, in order to be successful, the agreement has to bind together and unify drastically different economies and regulatory regimes. In this regard, the sheer scale of the task may prove troublesome.
The Free Trade Area of the Americas (FTAA), another ambitious, continent-spanning free trade zone, is all but defunct for similar reasons.
2. The Inertia of the Status Quo
The larger, more advanced economies of Africa possess industries and companies that would probably displace or absorb those of the continent’s smaller states. While this transformation would probably lead to a more productive reconfiguration of capital, it also requires large-scale economic disruption, at least in the short-term. This would be especially true for states with small economies that currently produce few exportable goods. Without addressing the free flow of people, this aspect of TFTA may sow the seeds for the type of economic resentment that is currently gripping the EU. Worse yet, this may herald the return of beggar-thy-neighbor policies that will not only set the ambitious trade agreement back, but also may trigger wider regional instability and resource crises.
Troublingly, periods of economic disruption, especially when exacerbated by the presence of inefficient, corrupt institutions and ethno-religious heterogeneity, can catalyze armed conflict and violence. For example, from the mid-1980s onward, East Asian imports decimated the mostly industrial economy of northern Nigeria and created conditions amenable to the rise of groups such as Boko Haram. Considering the economic and political risks involved with ratification, many parliaments may simply veto the TFTA treaty.
3. Non-tariff barriers to trade (NTBs)
Following the model of Africa’s previous free trade areas, TFTA intends to reduce tariffs between its member states. Fatima Haram Acyl, the African Union Commissioner for Trade and Industry, has recently cited the EAC as a model of tariff reduction for TFTA to follow.
However, many doubt that the tariff reduction that Africa’s regional blocs have undertaken has actually improved the intraregional trade of their members. In regard to the performance of the East Africa Community (EAC), Jeffrey Lamoureux, an expert on African economic institutions, states, “For every step toward liberalization made, an equal step is taken backward. So, for example, the reduction in headline tariff rates has been accompanied by, if anything, a retrenchment of non-tariff barriers to trade (NTBs).”
If TFTA members continue to overemphasize tariff reduction as a metric for institutional success, they will continue to suffer from the same myopia that has marred EAC and the other regional blocs.
4. Lack of Infrastructure
While African states have been attempting to pursue economic integration since the colonial period, the poor quality of interstate infrastructure has proved to be a persistent stumbling block.
In addition to being the largest free trade zone in Africa, TFTA would be the most geographically expansive free trade zone over contiguous land, creating an added burden to bring the region’s infrastructure up to par.
Hopefully, the advent of the new agreement will help spur much-needed infrastructure developments, including interconnected systems of roads, bridges, airports, and internet and electricity networks.
5. Institutional Weakness
The last major factor undermining EAC, SADC, and COMESA has been the lack of courts that are able to enforce effective compliance among their member states and the existence of active opposition to their establishment and jurisdiction.
While nearly all of Africa’s economic organizations possess a judicial body of some sort or another, they are unable to enforce their decisions. Moreover, the courts have seen their enumerated powers erode merely for levying politically unpopular decisions. For example, in 2010, following a series of unfavorable rulings against Zimbabwe’s government and its long-time president Robert Mugabe, SADC’s leaders suspended its Tribunal indefinitely.
While there has been significant talk of reconstituting the SADC Tribunal on a more limited basis, the fact that a regional strongman was able, with relative ease, to pressure other leaders to dissolve and dismember it does not bode well for the impartiality and strength of such institutions in the future. As Lamoreux states, “I don’t expect that the TFTA will have much of an ability to ensure compliance and I would think that would seriously undercut its effectiveness.”
Future of the TFTA Going Forward
Most predict that TFTA will take effect in 2017. At the same time, on June 15, at another AU meeting in Johannesburg, South Africa, African leaders initiated negotiations to expand TFTA to the West African states that it currently excludes.
On the heels of President Obama’s state visits to Kenya and Ethiopia, political commitment to TFTA can not only spur a wave of regional trade, but also it can accelerate the rate and permanence for foreign direct investment (FDI) to the region. As the continent is already the fastest growing FDI recipient, the story of Africa being merely a destination for extractive investors is beginning to change. Nairobi’s vibrant entrepreneurial and technical hubs and the advent of global African entrepreneurs are emblematic of this change.
Successful implementation of TFTA will solidify Africa’s role on the global economic stage.
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tralac’s Daily News selection: 12 August 2015
The selection: Wednesday, 12 August
First Annual Southern Africa Business Forum: Savuti Declaration
The Southern Africa Business Forum proposes [inter alia] the following as a way forward:
The revised RISDP and Industrialisation Strategy acknow-ledge the private sector as at the centre of plans for growth and employment creation in SADC. The documents should be made available to the private sector and input sought into the activities and timelines for action, including the plans for public-private dialogue, inclusive business and creating an enabling environment that focus on implementation of specific issues.
SADC needs to urgently address the movement of goods, services and business people in the region and provide certainty with regards to processes, regulations and timeframes. The private sector is very disappointed to see the lack of progress in the negotiations on the movement of business people under the Tripartite Free Trade Agreement. [Download]
SADC to set new Customs Union deadline (Mmegi)
Briefing the media on standing committee meetings being held in Gaborone ahead of next week’s Summit, SADC Director of Policy, Planning and Resource Mobilisation, Dr Angelo Mondlane said although the original target was not met, significant progress has been made towards regional integration efforts with all but two of the SADC members now part of a Free Trade Area . “We have not set a new deadline for transforming into a customs union. It is one of the items to be discussed here as we realised that operating without a target is not very helpful,” he said. The Heads of State and Government Summit will take place in Gaborone from August 17-18, 2015.
According to Mondlane, there are numerous reasons why the original target was not met, which include overlapping membership with some SADC countries belonging to multiple organisations such as East African Community and Comesa. Under the envisaged SADC CU, a country can only belong to one union. Mondlane however said that SADC is being cautious in implementing its integration blue print, the Regional Indicative Strategic Development Plan, as fresh thinking is needed around regional integration, due to changes brought about by globalisation.
Power surplus in Southern Africa to harm independents, SADC says (Bloomberg)
New independent power producers in southern Africa will increasingly struggle to win sales agreements from governments as the area moves closer to a projected electricity surplus in 2019, a regional economic cooperation body said. While the region had a power deficit of 8,247 megawatts at end of June, that shortfall is expected to be eliminated within four years, said Remmy Makumbe, the Southern African Development Community’s infrastructure and services director. SADC estimates that member countries will add 24,062 MW of new generation capacity in the next four years, 70% of that from renewable energy sources.
SADC states agree on roaming charges (The Namibian)
Namibia, Botswana, Zambia and Zimbabwe have agreed on a pilot project to lower mobile phone roaming charges. The Communications Regulatory Authority of Namibia (Cran) and the Ministry of Information and Communication Technology last week hosted officials from the four countries in Windhoek to discuss the idea. The meeting was chaired by Mbeuta Ua-Ndjarakana, permanent secretary of the ministry of information. The pilot project will commence among all the operators of the four countries by 1 September.
Tanzania-Malawi: SADC border row panel meets again soon - govt (IPPMedia)
SADC: Botswana to promote industrial agenda (Daily News)
Official urges regional postal sector to be innovative (Daily News)
South African Futures 2035: can Bafana Bafana still score? (ISS)
Using updated population forecasts, this paper presents alternative growth scenarios for South Africa up to 2035, and their implications for employment, politics and poverty. ‘Bafana Bafana Redux’ is the expected current trajectory. This scenario takes into account the impact of policy incoherence and the electricity supply crisis on South Africa’s long-term prospects. With concerted effort and much greater focus, an improved future, dubbed 'Mandela Magic Lite’, is possible – but neither scenario has a significant impact on structural unemployment. South Africa will only achieve long-term stability and prosperity with a leadership committed to inclusive political and economic practices.
South Africa: Mid-year State of the Nation Address implementation update by President Zuma (GCIS)
South Africa and AGOA: US demand proof South Africa ready to lift meat bans (Business Day), South Africa under pressure to implement US poultry trade agreement (The Poultry Site)
MTN takes a firm grip on Kenya online business space (Business Daily)
South Africa’s telcom giant MTN has made a stealth entry into the booming e-commerce business in Kenya, steadily taking a commanding lead in the online shopping space. The mobile company, which is Africa’s biggest, had unsuccessfully tried to enter Kenya in 2008. Apparently, the firm never gave up on Kenya and has been covertly making forays into the local online shopping market, a strategy that seems to have found its rivals off-guard.
East Africa: the next hub for apparel sourcing? (McKinsey)
What is the true potential of East Africa to grow into a major garment-sourcing hub? To find out, we visited factories in the region; interviewed stakeholders, including manufacturers and buyers; and analyzed market data. In addition, we conducted our third survey of chief purchasing officers (CPOs), this time with a series of questions focused on East Africa. This year, 40 apparel CPOs, representing a combined $70bn in 2014 purchasing volume, responded to our survey. We found that East Africa could indeed become a more important center for apparel sourcing, but only if stakeholders - buyers, governments, and manufacturers - work together to improve business conditions in the region. As part of our analysis, we created, tested, and refined three scenarios for the evolution of East Africa - in particular, Ethiopia, Kenya, Tanzania, and Uganda - over the next decade.
Win for Museveni as Kenya cedes sugar regulation (Business Daily)
Kenya is set to cede regulation of its sugar industry to a regional agency in the latest bid to end a long running market access war with Uganda. The joint agency, described by the two states as “the long term solution to intermittent sugar wars”, will take up the role of licensing and vetting dealers, currently undertaken by national agencies. The two states are yet to agree on the nature of the inter-state agency — whether to make it a single entity located at border points or a joint committee made up of officials from national agencies. “We will meet in Nairobi in coming days to lay down long term solutions so that this problem does not recur,” Foreign Affairs and International Trade secretary Amina Mohamed said in a statement.
Kenya’s first oil export expected in October 2022 (Daily Nation)
Kenya’s push to start oil production by 2017 will be delayed by at least five years going by the detailed design and construction timeline for the proposed crude oil pipeline connecting Uganda and local oil fields to Lamu. The Toyota Tsusho design released yesterday shows that the flow of the first oil is expected in October 2022 at the earliest. This will come after the commissioning of the oil pipeline in the last quarter of 2020.
Uhuru and Museveni strike deal on route for oil pipeline (The East African)
Nigeria's Tomato King battles an unlikely duo: Chinese imports, SA's Shoprite (ThisDay)
Eric Umeofia steers the wheel of Africa’s biggest tomato paste plant, providing jobs and driving economic growth. But in an economy dominated by substandard but cheap tomato paste from China, Umeofia is left to fight for the life of his local plant. “If you don’t patronise your own, nobody will patronise you. Every country in this world eat their own food, except Nigerians. Look at Shoprite, 95% of goods there are imported from South Africa, yet they are packing Nigerian money. We’ve approached them to sell our tomatoes, but they refused. They are importing more from South Africa. Government should do something about these people; they are killing us, packing our money away.”
Africa’s hidden underemployment sink (World Bank Blogs)
Next, I took a closer look at labor inputs. Many workers are counted as agricultural because they spend at least some time working on farms. A striking pattern across household surveys is that agricultural workers work fewer hours per year -- 700 hours per agricultural worker compared to 1,900 hours per non-agricultural worker. Interestingly, it turns out that productivity in agriculture is a lot closer to productivity outside of it when one accounts for these differences in hours worked. On a per-hour basis, then, labor is only 1.6x more productive outside of agriculture. Why don’t agricultural workers work more hours per year?
UN body stresses vital role of geospatial data to achieving sustainable development goals (Common African Position)
Although it is probably not as well-known as some other UN committees, the Committee of Experts formulated the first geospatial resolution adopted by the General Assembly in February this year. This landmark resolution recognized the global importance of location and positioning for many areas of development. This year’s session of the Committee brought together over 290 participants consisting of ministers, heads of national mapping agencies, geospatial information management authorities and industry observers from over 85 countries. Twenty countries participated for the first time, signalling – according to the Committee – the increasing global reach of the body and the growing awareness of the use and value of geospatial information to underpin economic growth and as a vital part of sustainable development.
Money, knowledge and controversy in Brazil’s Development Bank (Inter Press Service)
“With the gradual dismantling of the state apparatus for planning and intervention since the end of the (1964-1985) military regime, the BNDES became the last of the Mohicans, the only institution left capable of formulating economic policies in the country, although in relatively restricted fields,” Cardim de Carvalho said. The Planning Ministry “was reduced to exercising oversight and control over the implementation of budgets, and in the process of erosion that demolished Brazil’s public sector, only two organs survived in the economic arena: the BNDES and the Central Bank,” said Cardim. But the bank, although “essential” for financing infrastructure works, is no longer able to cover investment needs in Brazil, which require additional financing mechanisms, he added.
UNCTAD's Trade and Development Board - documents prepared for the 62nd session, 14-25 September: Development strategies in a globalized world: multilateral processes for managing sovereign external debt, Evolution of the international trading system and its trends from a development perspective
Rwanda: Private sector urged to invest in 'emerging' export products
Is Museveni’s 2019 middle income agenda attainable?
Chile wakes up to African trade potential
NamWater threatens with dire consequences
Zimbabwe: Govt to improve investment climate
Egypt seeks to strengthen trade with rest of continent
India hits Nestle with $99 million lawsuit after noodle scare
India, US to hold key commercial talks next month
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Southern Africa Business Forum: Savuti Declaration
The Savuti Declaration details the findings of the Southern Africa Business Forum and commitment of the private sector to act towards regional economic integration in the SADC region.
The declaration document was read by Stanley Subramoney, Chairman of the NEPAD Business Foundation at the close of the Southern Africa Business Forum on Wednesday, 12 August 2015 in Gaborone, Botswana.
The Savuti Declaration
The First Annual Southern Africa Business Forum was held on 11 and 12 August 2015 in Gaborone, organised by Business Botswana, the Business Council of Southern Africa and the NEPAD Business Foundation.
It took place in the margins of the Southern African Development Community (SADC) Heads of State Summit. It brought together over 100 business leaders from across the region to identify shared priorities for enhancing regional integration through trade, investment, industrial development and infrastructure projects in Southern Africa.
The following are the key messages that emerged from the discussions that took place during the Forum and at a facilitated dialogue on promoting socio-economic cohesion held in the evening of 11 August. Additional detail is provided in the summary of the various sessions below.
SADC has extensive plans for regional integration. The private sector of the region calls for the focus to now shift to implementation. Investors require legal certainty and failure by SADC member states to implement their regional obligations have serious implications for business. The removal of access by private actors to the SADC Tribunal has reduced the legal remedies available to ensure legal compliance in SADC.
The Southern Africa Business Forum should become an annual event that provides a platform for public-private sector dialogue in SADC. Specific initiatives should be discussed further in sectoral or thematic working groups supported by a fully functioning secretariat.
The Southern Africa Business Forum proposes the following as a way forward:
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The revised RISDP and Industrialisation Strategy acknowledge the private sector as at the centre of plans for growth and employment creation in SADC. The documents should be made available to the private sector and input sought into the activities and timelines for action, including the plans for public-private dialogue, inclusive business and creating an enabling environment that focus on implementation of specific issues.
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SADC needs to urgently address the movement of goods, services and business people in the region and provide certainty with regards to processes, regulations and timeframes. The private sector is very disappointed to see the lack of progress in the negotiations on the movement of business people under the Tripartite Free Trade Agreement.
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A SADC Railway Development Master Plan is needed as a framework for prioritized and synchronized implementation of hard and soft projects identified in the Regional Infrastructure Development Master Plan and to re-balance road/rail market share.
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The monitoring mechanism for non-tariff barriers must continue to be operational and a procedure for the resolution of priority issues should be developed in partnership with the private sector, particularly to address key transport related barriers such as harmonized road user charges and transit documentation and procedures. This could include greater business involvement in the Joint Border Committees in SADC.
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Sustainable and affordable access to energy and water is critical for all of the economic development goals of SADC. Member states must prioritise joint infrastructure projects between two or more member states which deal with both water and energy requirements. The role of the private sector lies in financing, providing innovative technologies and technical expertise.
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Win for Museveni as Kenya cedes sugar regulation
Kenya is set to cede regulation of its sugar industry to a regional agency in the latest bid to end a long running market access war with Uganda.
The joint agency, described by the two states as “the long term solution to intermittent sugar wars”, will take up the role of licensing and vetting dealers, currently undertaken by national agencies.
The two states are yet to agree on the nature of the inter-state agency – whether to make it a single entity located at border points or a joint committee made up of officials from national agencies.
“We will meet in Nairobi in coming days to lay down long term solutions so that this problem does not recur,” Foreign Affairs and International Trade secretary Amina Mohamed said in a statement.
The sugar wars between the two countries have eluded several bilateral agreements since Kenya slapped an initial ban on Uganda sugar in 2012.
“The two countries are considering formation of a joint body to manage the sub-sector in the region,” Ms Mohamed said.
Under the East African Customs Management Act, sugar produced in the region should be sold in any of the member states without attracting tariffs or administrative restrictions.
Under pressure from farmers and millers, Kenya banned sugar from Uganda in 2012 with regulatory agencies accusing dealers from the landlocked neighbour of abusing the free trade treaty to ship in cheap sugar imported and repackaged from other regions.
Kenyan millers have frequently blamed their woes on cheap sugar smuggled through neighbouring countries.
“They (Ugandan millers) should tell us how it is possible that they are able to produce a surplus, transport it all the way and still offer it for sale below our ex-factory prices,” former Nzoia Sugar boss Saul Wasilwa told the Business Daily in June.
The Uganda Manufacturers Association (UMA) has, on the other hand, blamed the Kenya Sugar Directorate, Kenya Bureau of Standards and Kenya Revenue Authority (KRA) of frustrating free trade.
At a forum in Kampala attended by presidents Uhuru Kenyatta and Yoweri Museveni on Sunday, Kenya pledged to give Ugandan dealers permits to enable them export surplus sugar to the Kenyan market.
In Kampala, Ms Mohamed did not make any reference to sustained pressure from farmers as well as the underperforming state-owned millers, insisting instead that reorganisation that included merging of the Kenya Sugar Board with other government parastatals to form the Agriculture, Fisheries and Food Authority was responsible for the delay.
“There was a technical problem in processing of permits but I would want to assure the government of Uganda and the private sector that the issue has been dealt with,” she said.
For President Museveni, the plan to set up a joint sugar regulatory agency comes as a second major gain in as many years since he forged close ties with President Kenyatta’s administration.
Two years ago, he secured a deal to station his customs officers in Mombasa, allowing them to clear goods that pass through Kenya without KRA’s intervention.
Kenya produces about 600,000 tonnes of sugar annually, against a demand of 800,000 tonnes. The remaining 200,000 tonnes is imported duty-free from Comesa states by dealers licensed by the sugar directorate.
Under the deal struck in Kampala on Sunday, Kenya will reserve a quota of 97,000 tonnes to Ugandan traders every year. UMA claims that Uganda’s millers have a capacity of 373,000 tonnes annually against domestic consumption of 70,000 tonnes.
The millers are Kakira Sugar Works, Kinyara Sugar Works, Sugar & Allied Industries, Sugar Corporation of Uganda, Sango Bay Estates and Mayuge Sugar Industries.
Kenya’s Foreign Affairs ministry officials said licences would only be issued to suppliers who have been in the cross-border business.
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SADC to set new Customs Union deadline
After missing the 2010 deadline, the South African Development Community (SADC) will now negotiate a new target date for the transformation of the organisation into a Customs Union (CU), during the 2015 Ordinary Summit.
A CU is where a group of countries that have established a free trade area agree on common external tariffs and a common external trade policy, in a bid to drive increased trade and economic development in the region.
Originally scheduled for 2010, the formation of CU is seen as key to deepening regional integration before the region incrementally moved towards a common market and a monetary union.
Briefing the media on standing committee meetings being held in Gaborone ahead of next week’s Summit, SADC Director of Policy, Planning and Resource Mobilisation, Dr Angelo Mondlane said although the original target was not met, significant progress has been made towards regional integration efforts with all but two of the SADC members now part of a Free Trade Area (FTA).
“We have not set a new deadline for transforming into a customs union. It is one of the items to be discussed here as we realised that operating without a target is not very helpful,” he said. The Heads of State and Government Summit will take place in Gaborone from August 17-18, 2015.
According to Mondlane, there are numerous reasons why the original target was not met, which include overlapping membership with some SADC countries belonging to multiple organisations such as East African Community (EAC) and Comesa. Under the envisaged SADC CU, a country can only belong to one union.
“But this does not make the establishment of the SADC CU a mission impossible. Significant regional integration initiatives have already been accomplished apart from the formation of the FTA. We have started negotiating for free movement of services while a regional payment systems linking SADC central banks is now in place,” he said.
Under the original target, a regional central bank and a common currency was expected by 2018.
Economic theory dictates that regional integration blocs move from FTA to Customs Union before graduating to a Common Market and finally a Monetary Union.
While SADC has not achieved speedy progress in its regional integration endeavours, other blocs such as the East African Community (EAC) have already ratified a monetary union protocol, kicking off plans to have a common currency for the block.
Mondlane however said that SADC is being cautious in implementing its integration blue print, the Regional Indicative Strategic Development Plan (RISDP), as fresh thinking is needed around regional integration, due to changes brought about by globalisation.
“The classical economic theory of regional integration has to be re-thinked as factors such as prices of goods and services have been significantly changed by globalisation. For as long as the prices of chickens from Malawi are more expensive than the prices of the same goods from Brazil, fresh thinking is needed.
“It takes a quarter of the time to move a container of goods from Hong Kong to Gaborone than it takes from Abidjan to here. It is not supposed to be like that; there is something missing there. We have to address such issues first,” he said.
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Egypt seeks to strengthen trade with rest of continent
Egypt’s Ministry of Industry and Foreign Trade is looking to double its exports of agricultural crops and is looking to African markets to realise this goal.
Through free trade agreements with Nigeria and Senegal (with more between West and Central Africa on the way) the North African nation is seeking to trade with notable African markets such as the International Maritime Organisation (IMO), and the Economic and Monetary Community of Central Africa (CEMAC).
Egypt’s Minister of Industry and Foreign Trade, Mounir Fakhry Abdel Nour, highlighted that Egypt had already reached a preliminary agreement with IMO in 2004. After negotiations were halted, the ministry is now seeking to reach a final agreement through the current negotiations.
Abdel Nour added that the volume of African total product amounts to $2.5 trillion, that annual exports amounts to about $599.5 billion and that total annual imports are worth $605 billion. However, Egypt’s share of these amounts is no more than $4 billion.
Egypt is developing its trade relations with the rest of the continent based on three approaches:
1) Re-forming Egypt’s mutual interests with other African countries, moving from merely water-based interests to achieving broader economic outcomes
2) Strengthening Egypt’s presence in African markets by leveraging its commodities; the ministry seeks to transform the country into a major supplier of goods to needy African countries
3) Increase the size of the technical assistance provided by Egypt which assist with social and economic development.
Abdel Nour said: “The ministry implemented important steps to strengthen cooperation with Africa, including the signing an agreement with the African export-import bank for the allocation of a credit line worth $500m to finance Egyptian exports to the African markets. Furthermore, encourage the hosting of expos for African products in Egypt, which took place with the Food Africa expo.”
Egypt has launched the tripartite Free Trade Area (FTA) agreement between the main three economic blocs in Africa: the COMESA, The East African Community (EAC) and the Southern African Development Community (SADC) to facilitate trade between the member states.
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Development strategies in a globalized world: Multilateral processes for managing sovereign external debt
Document prepared for the sixty-second session of the Trade and Development Board, to be held on 14 to 25 September 2015 in Geneva
The present document summarizes the main aspects of the analysis of the external debt situation of developing countries and countries with economies in transition, as presented in chapter V of the forthcoming Trade and Development Report 2015. It provides a brief overview of the core issues in the external debt of developing countries, and reviews the main trends in the evolution of external debt indicators and composition. It then analyses the underlying causes of the debt crises of developing countries in the world economy today, and discusses essential features and limitations of the current fragmented system of sovereign debt restructuring. Finally, it discusses different proposals to enhance sovereign debt restructuring mechanisms, in particular a multilaterally based statutory approach.
External debt: Main issues
The present document addresses a long-standing deficiency in the international monetary and financial system, namely the lack of an effective mechanism to help better manage external debt crises. It pays particular attention to sovereign debt since, even when financial crises originate in the private sector, as often occurs, they usually result in public overindebtedness and a prolonged period of economic and social distress. Estimates vary, though a recent paper by the International Monetary Fund (IMF) found that such a crisis had eliminated 5 to 10 percentage points from current growth figures and that after eight years, output was still lower than country trends by some 10 per cent. International awareness of the need to consider more effective approaches to sovereign debt resolution has grown in recent years, as evidenced by a series of United Nations conferences and resolutions.
In the last eight major crises in emerging economies (beginning with Mexico in 1994, followed by Thailand, Indonesia, the Republic of Korea, the Russian Federation, Brazil, Turkey and, finally, Argentina, in 2001), a significant proportion of the private debt, both domestic and external, was socialized through Government bailouts, often through a recapitalization of insolvent banks, which increased sovereign debt levels. Much the same pattern has been repeated in Ireland and Spain during the recent crisis in the eurozone.
External debt is not a problem in itself. Indeed, debt instruments are an important element of any financing strategy. Yet it can easily become a problem when foreign borrowing is unrelated to productive investment, or when a net debtor country is hit by a severe external shock that undermines its capacity to repay its debt. In such circumstances, the claims on a debtor can quickly exceed its ability to generate the required resources. If these claims are not matched by new credit inflows, servicing the external debt amounts to a transfer of resources to the rest of the world, which, if significant, will reduce domestic spending and growth in the debtor country. This, in turn, may eventually affect the country’s ability to make payments when they fall due.
High levels of external debt have diverse causes and dissimilar impacts in different groups of economies. In most low-income countries, they are the result of chronic current account deficits, primarily reflecting limited export capacities and a high degree of dependence on imports for both consumption and investment purposes. Most of the capital inflows that have had a direct debt-generating effect on these economies have come from official sources. By contrast, in several middle-income countries that are much more integrated into the international financial system, a core driver of the accumulation of large stocks of external debt has been their increasingly easy access to international financial markets and private creditors since the mid-1970s. A significant proportion of the private capital flows to these countries exceeded those required to finance current account deficits and ended up as residents’ private capital outflows or reserve accumulation by a central bank.
The sustainability of an external debt burden depends on the relationship between the growth of domestic income and export earnings, as well as on the average interest rate and maturity profile of the debt stock. Thus, to the extent that foreign capital inflows are used for expanding production capacities, they contribute to boosting domestic income and export earnings that are required to service the debt. However, where external debt primarily results from large surges in private capital inflows relative to a country’s gross domestic product and if those inflows are unrelated to current needs for the financing of trade and investment, they can lead to asset bubbles, currency overvaluation, superfluous imports and macroeconomic instability, thereby increasing the risk of default.
The sustainability of external debt also depends on its structure and composition. The commonly used definition of gross external debt (including in the present document) adopts the residence criterion, which refers to non-resident claims on the resources of the debtor economy. Other criteria used to distinguish between domestic and external debt are whether the debt is denominated in domestic or foreign currency and the jurisdiction under which the debt is issued. When most external debt consisted of loans, the criteria of residence, currency and jurisdiction tended to coincide (i.e. the lender was non-resident and the loan was issued in a foreign currency under foreign law). This has changed significantly since the early 1990s. Over the past two decades, increases in the stock of outstanding debt have been accompanied by a shift in debt instruments from syndicated bank loans to more liquid bond debt. Since bonds issued in a local currency and under local law may be held by foreign investors and, conversely, sovereign debt denominated in foreign currency may be held by residents, there is a share of debt that may be considered external under some criteria and domestic under others.
The amount of debt that has been issued in foreign currencies will significantly affect debt sustainability. This is because, in order to service such debt, a debtor must not only generate the required income but also obtain the corresponding foreign exchange. This depends on the state of a country’s balance of payments. However, it can also produce a significant policy dilemma, whereby domestic currency devaluations and tight macroeconomic policies, while intended to improve export performance, will also increase the real value of the foreign denominated debt and reduce the debtor’s income.
In mostly higher income developing countries, a recent trend has been a shift in the denomination of external debt from foreign currency to local currency. This has been made possible largely as a result of a strong expansion of global liquidity and concomitant surges of capital inflows into these economies, reflecting the willingness of lenders to assume the exchange rate risk. Yet the residence criterion remains relevant for debt sustainability, as investments in local bonds and securities by non-residents make domestic debt markets more liquid. Moreover, growing non-resident participation in these markets also means less stability in holdings relative to participation by domestic institutional investors, as the latter are usually subject to regulations that oblige them to hold a given percentage of their assets in local debt instruments. The decision by non-resident creditors to liquidate their local currency denominated debt and repatriate their earnings could weigh heavily on the host country’s balance of payments.
Finally, the jurisdiction of debt issuance affects debt sustainability, since it defines the rules under which any dispute between debtors and creditors will be negotiated, such as the extent to which non-cooperative creditors will be allowed to disrupt State-private creditor majority agreements on debt resolution. More generally, if the external debt of developing countries has mostly been issued under foreign jurisdictions as a supplementary guarantee for investors that are distrustful of the judicial system of the debtor country, this has the potential to complicate crisis situations, since the debtor economy may have to contend with multiple jurisdictions and legal frameworks.
Sovereign debt deserves special attention for a number of reasons. In some instances, Governments may encounter difficulties in servicing the external debts they have incurred to finance their public expenditures. In many other instances, however, the initial cause of a sovereign debt crisis is the imprudent behaviour of private agents, on the side of both borrowers and creditors. In principle, a private debtor’s defaults on its external debt fall under the insolvency law of the jurisdiction in which the debt was incurred. This legal framework typically provides for a certain degree of debtor protection and debt restructuring (with or without a partial debt write-off) or for a debtor’s bankruptcy and subsequent liquidation of its assets. Yet when a series of private defaults threatens to disrupt the financial system, the public sector often assumes private debt, especially that of large banks, and as a consequence becomes overindebted itself.
However, sovereign debt problems are not subject to the legislation that governs private defaults. They therefore necessitate specific treatment, not least because they often have significant social, economic and political impacts. This raises the question of how best to approach sovereign debt restructuring in an increasingly globalized economy, which is addressed in chapter IV of the present document
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Government on mission to achieve higher impact industrial development
The Minister of Trade and Industry, Dr Rob Davies says government has embarked on a mission to take the country’s industrialisation to the next level by ensuring that the Industrial Policy Action Plan (IPAP) accomplishes higher impact industrial development in South Africa.
Minister Davies was speaking in Cape Town on 4 August 2015 where he was briefing members of the Parliamentary Portfolio Committee on Trade and Industry on progress made in the implementation of the sixth iteration of IPAP.
In his presentation, Minister Davies highlighted various positive milestones that have been achieved in the implementation of IPAP so far. These included the highlights of achievements that IPAP interventions in priority sectors such as automotive, clothing and textile, metal fabrication, capital equipment, agro-processing and the green economy have attained.
“In the automotive sector, government support has taken the industry from production of 356 800 units in the year 2000 to over 566 000 units in 2014. This support has grown auto exports from 11 000 units in 1995 to over 270 000 units in 2014 300 000 jobs have been created in the automotive sector,” said Minister Davies.
He reiterated that government’s intervention aimed at arresting the decline of the clothing, textiles, leather and footwear sector resulted in 68 0000 jobs been retained in the sector and 6 900 new jobs created since 2010. By the end of March this year, a total of R3.7 billion in support of the private sector had been approved since the inception of the Clothing and Textile Competitive Programme in 2010. Since 2009, the Department of Trade and Industry (the dti) supported agro-processing industries to the value of R1.2 billion through various schemes.
Minister Davies said that what government has achieved so far through the implementation of previous iterations of IPAP shows that the policy was working. However, there is a need to scale up industrial development in the country.
“We need to scale up the impact of our industrial policy as we are not yet where we need to be. In order to achieve this we need stronger conditionalities to be attached to existing incentive programmes when it comes to competitiveness raising, Broad-based Black Economic Empowerment (B-BBEE), supplier development and localisation. We also need to roll out the Black Industrialists Programme and also develop new sector-specific incentive schemes which have proved to be effective in leveraging investment,” said Minister Davies.
He added that there was also a need to develop an agro-processing and smallholder agriculture linkage support programme which will also support agri-park initiative, as well as the development of a new incentive to support Greenfield investments.
“We also need procurement. We have designated 16 products already. Given the R3,6 trillion infrastructure build programme, we do need to localise and make sure we reduce import leakages. We also need to ensure that there is compliance across government departments, spheres of government, State-Owned Entities and government agencies to all the procurement policy levers such as designations and the Competitive Supplier Development Programme,” emphasised Minister Davies.
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Evolution of the international trading system and its trends from a development perspective
Document prepared for the sixty-second session of the Trade and Development Board, to be held on 14 to 25 September 2015 in Geneva
Paragraph 18(d) of the Doha Mandate of the thirteenth session of the United Nations Conference on Trade and Development (UNCTAD XIII) states that UNCTAD should “Continue to monitor and assess the evolution of the international trading system and its trends from a development perspective”. Accordingly, the present report
(a) examines the relationship between international trade and inclusive and sustainable development in the context of the unprecedented trade integration of the last two decades;
(b) reviews issues relating to: the gender dimension of trade policy, value chains and production networks, food security, trade and environmental sustainability, and commodity dependence;
(c) analyses recent trends in international trade in goods and services and trade policy;
(d) examines current issues related to the multilateral trading system and regional trade agreements (RTAs).
On the eve of the expiry of the Millennium Development Goals focused development agenda and a transition to a new development paradigm characterized by inclusive and sustainable development, the report reviews the contribution made by international trade.
Trade integration
The last two decades have been characterized by unprecedented trade integration. International trade in goods and services has grown dramatically from about US$5 trillion in 1994 to about US$24 trillion in 2014, notwithstanding the slump in the years of the great recession. World trade has been doubling every decade for the last four decades, facilitated, inter alia, by the reduction of trade costs, including tariff barriers. Developed countries continue to constitute the main players in international trade. However, developing countries account for an increasing share. By 2013, developing countries accounted for over 45 per cent of world trade. The trade integration process has brought many benefits to the world and has created enormous opportunities for economic development of many countries.
However, the benefits and opportunities of trade integration have not always been inclusive and have not always translated into sustainable economic, social and environmental well-being. The trade growth has been mainly in China and in East and South Asia. Least developed countries (LDCs) in particular (apart from some oil- and petroleum-exporting countries) remain less integrated into and marginalized from the global economy. Exports per capita are very low for African countries (less than US$200) as compared to other developing and developed countries. The export growth has also been uneven, with East Asian countries showing much faster growth of exports than other developing countries.
International trade and inclusive and sustainable development
For the ultimate objective of inclusive and sustainable development, trade integration should not only foster economic growth but should also address socioeconomic and developmental concerns such as poverty reduction, job creation, food security, gender equality and environmental sustainability. The close linkage between trade and sustainable development and poverty alleviation will be a defining feature in the post-2015 development paradigm if trade is to have an impact on the sustainable development goals.
Some of the critical areas in which more inclusive and sustainable approaches to international trade, trade policy and the trading system are required are discussed: Gender dimension of trade policy; Value chains and production networks; Food Security; Energy and environmental sustainability; The green, blue and creative economies; and Commodities.
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tralac’s Daily News selection: 11 August 2015
The selection: Tuesday, 11 August
SADC: Time to open up (Tutwa)
To many, the convening of the Southern Africa Business Forum may not sound like much but it represents an important step in the region towards enhancing the engagement of a broader range of stakeholders in the debates on regional development. The private sector has a critical role to play in this regard and similar interactions regularly take place in other regional communities in Africa, including COMESA and the East African Community. Despite having one of the strongest and most vibrant formal business communities on the continent, it has taken time for SADC to acknowledge that there are mutually supportive objectives that could benefit from greater levels of cooperation with the private sector. [The author: Catherine Grant Makokera] [Follow SABF discussions on Twitter: @cathgmak, #SABF]
The SADC Summit: selected resources
SADC Summit: official website
SADC Legal Texts and Policy Documents: tralac’s resource page
Regional integration on track - SADC chief (Daily News)
Regional integration still a dream for SADC – Angelo Mondlane (StarAfrica)
Role of the SADC Tribunal in promoting human rights and regional integration (EOI from SADC Lawyers Association)
A reposting: National policies and regional integration in the South African Development Community
Botswana not in position to sign SADC gender protocol (Daily News)
Beyond good intentions: agricultural policy in the SADC region (Oxfam)
In countries such as Zambia, Malawi and Mozambique, between a quarter and half of the population are classified as being chronically undernourished. This briefing note argues that although policy makers in the Southern African Development Community (SADC) are aware of these challenges, they urgently need to move beyond rhetoric to an action-based agenda that will catalyze smallholder-led development in the region.
Can 'beneficiation' work for Namibia? (The Namibian)
There is simply little point in refining zinc or copper unless we think about exactly where we want to go in the value chain in 20 years and, like the Japanese 40 years ago, we are willing to spend the huge resources needed to get there. The problem is that Namibia alone is simply not big enough a producer of any base metal to dream of repeating alone what Japan and Korea did a lifetime ago. Beneficiation on a national scale in Namibia can only be a modest affair with limited economic benefits. But SADC could, at least in principle, repeat what Japan did because between Cape Town and the Congo, SADC has all the resources, skilled and enterprising people it needs to be as rich as Japan. But SADC is simply unwilling to do much in this regard as most of our neighbours think only of their narrow national commercial interests. Until our neighbours change, nothing will happen seriously on beneficiation that will benefit Namibia and all of Southern Africa in a significant way. [The author: Roman Grynberg]
South African cabinet publishes Border Management Agency Bill for public comment (GCIS)
The Bill seeks to establish a BMA that will balance secure cross-border travel, trade facilitation and national security imperatives, within the context of South Africa’s regional, African and international obligations. This single authority for border law enforcement provides the potential for more cost-effective services as well as enhanced security and management of the border environment. [Download]
Beitbridge one-stop border post soon: VP Mphoko (The Herald)
VP Mphoko said the rationale behind the concept of a one-stop border post was to put in place physical facilities, systems and processes that improve the ability of the two countries to perform joint border controls. He said the delays at the Beitbridge border post had seen other countries in the SADC region, Zambia, Malawi and the DRC in particular looking at the possibility of opening up another border post in the Nakala area of Mozambique. He said Zimbabwe risked losing a lot of potential revenue in the event the Nakala concept succeeded.
Shire Zambezi waterway project gets needed support from Zambian Government (Maravi Post)
First COMESA Transporters and Logistics Services Industries Regional Dialogue: concept note
Towards the establishment of a framework for combating illicit trade (COMESA Business Council)
The commissioning of this study by COMESA Business Council stems from an understanding and strong consensus from key stakeholders, that illicit trade, due to its far reaching negative impacts cannot be ignored. This report highlights the challenge of illicit trade at a national, regional and international level. It showcases the existing regulatory frameworks on combating illicit trade and demonstrates best practices. Drawing from experiences of key stakeholders, the report provides positions of selected industries on illicit trade. Above all, the study presents a sustainable approach to curbing illicit trade within the COMESA region which includes among others drafting a COMESA anti illicit trade protocol. Finally, the report concludes by highlighting recommendations to be considered and adopted by key stakeholders.
Nigeria: Ring-fencing the economy through ban on illicit financial flows (ThisDay)
The general assembly of the African Organisation For Standardisation General Assembly is being held this week: official www [from the concept note: as regional markets become increasingly integrated, divergent and inconsistent national and regional trade policy and standards issues constrain intra-regional trade of most commodities]
Shawn Donnan (@sdonnan): PBOC is trying to sell today's devaluation as reform. Not sure that's how it will be read in Washington. Or at IMF. [PBOC statement]
Africa’s throwing away dollars it can’t afford in currency rout (Bloomberg)
Address by Lesetja Kganyago, SARB Governor, at the Thomson Reuters Economist of the Year Awards (SA Reserve Bank)
Empowering SMEs to participate in local supply chains (COMESA)
The COMESA Business Council, working with the private sector, has launched a technical capacity strengthening project to empower small and medium entrepreneurs in standards and food safety management systems. The programme known as the Local Sourcing for Partnerships Project aims at helping SMEs to effectively participate in trade by addressing constraints which prevent them from being integrated into national and regional supply chains. The project will first be piloted in six COMESA countries namely Ethiopia, Kenya, Malawi, Rwanda, Uganda and Zambia. Chairperson of the CBC Dr Amany Asfour said through the Local Sourcing for Partnerships Project, food suppliers will be trained on key standard requirements and food safety management systems. She said this was necessary for them to competitively integrate into the supply chains of the hospitality and other potential markets for the SME businesses.
Mozambique: Agricultural competitiveness in light of the resource boom (SPEED)
To contribute to a better understanding of the potential impacts of resource boom on agriculture, SPEED prepared a study 'Mozambique’s natural resource boom – what potential impacts on agriculture’s competitiveness?'. The study commissioned by CTA, highlights the potential resilience or vulnerability of the agriculture sector (looking at cotton, rice, soy, tomato and banana value chains) to possible Dutch disease pressures and review factors driving the competitiveness of five agricultural value chains in Mozambique. Although it emphasises cost analysis, other qualitative dimensions such as productivity or 'innovation', quality, agro-processing services, processed value-added, and risk management issues were also considered. [Downloads available]
Landscape for impact investing in East Africa
A total of $9.3bn in ‘impact-investment’ funds have flowed into East Africa over the past five years, with almost half of that amount being disbursed in Kenya, according to a new report. The ‘Landscape for impact investing in East Africa’ report, based on research funded by the UK Department for International Development’s impact programme, said the investments in Kenya exceeded $650 million in that period. Direct investments by development finance institutions 'favoured financial services', which represented nearly 40% of all direct deals, the report said. “The energy sector has received 25% of capital deployed to date (driven by large energy projects such as dams and wind farms), while infrastructure and mining have also been prominent.” [Downloads available]
Uhuru Kenyatta urges East Africa region to aim for growth (The East African)
Kenya’s President Uhuru Kenyatta has urged the East African region to harness its “shared identities” as the strongest asset to develop its economy. Addressing the Ugandan Parliament in Kampala on Monday, President Kenyatta said the close ties between the people of Kenya and Uganda should encourage similar policies that would guide the region out of poverty. “It is such shared identities and people-to-people links that tie our partnership. We will need these links more than before in future,” he told Ugandan MPs. [Download]
Joint communique by Uhuru Kenyatta and Yoweri Museveni
Museveni asks DRC to join EAC Common Market (The Citizen)
40 African innovators to watch (Ventures)
As part of our special focus on innovation in Africa, we have developed a list of 40 remarkable African innovators. Actually, it’s more like 47 but we counted teams as one. Our decision to celebrate these idea creators and solution providers stems from our belief that the true wealth of Africa is not buried under its soil, but in the brains of its best minds. This list is a testament to that belief. It comprises Africans from every part of the continent, across diverse fields. We have brought them together because of the impact and potential of their ideas and processes in transforming the continent.
Entrepreneurship and ICT innovation in Africa - evidence from Kenya (EOI from the AfDB)
Zimbabwe national business seminar: report (COMESA Business Council)
Zambia: Over 20000 undergo post-harvest training (Daily Mail)
Tanzania: Fertilizer consumption doubles in five years (Daily News)
When China met Africa (World Bank)
Sam Kutesa: 'We must think outside the box in fresh anti-poverty global agenda' (The East African)
Water in the GATS: methodology and results (OECD)
The main conclusion of the analysis is that, generally speaking, current services trade policies are much more open than what countries have committed in the GATS. It was known before, but the actuallevel of water is maybe higher than what could have been expected. Another interesting finding is that most of the water in the GATS comes from sectors that are “unbound”. Again, it was widely recognised that the absence of commitments in GATS could not be interpreted as sectors that are closed with no trade allowed. But the analysis highlights that these sectors are nonetheless, as a matter of fact, often fairly open.
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Uhuru Kenyatta urges East Africa region to aim for growth
Kenya’s President Uhuru Kenyatta has urged the East African region to harness its “shared identities” as the strongest asset to develop its economy.
Addressing the Ugandan Parliament in Kampala on Monday, President Kenyatta said the close ties between the people of Kenya and Uganda should encourage similar policies that would guide the region out of poverty.
“It is such shared identities and people-to-people links that tie our partnership. We will need these links more than before in future,” he told Ugandan MPs.
Mr Kenyatta, who was on his first ever state visit to Uganda since his election, used the podium to challenge the region to reorganise policies if they have to catch up with the ‘Asian Tigers’ – the emerging economies of the Far East.
These ‘Tigers’ include Malaysia and Singapore, “countries who have managed to move from wretched poverty to great wealth in just two generations.”
Of concern to him is corruption and poor governance, which he argued were eating into any progress the two countries make.
Standard gauge railway
Both Uganda and Kenya belong to the East African Community, which also includes Rwanda, Burundi and Tanzania.
The region has been involved in key infrastructure projects such as the multibillion-dollar standard gauge railway, improving the Port of Mombasa and reducing road blocks on goods in transit.
But President Kenyatta admitted there are “enemies” who may want to stand in the way of these projects.
He never named them, but hinted at corrupt officials and political detractors who he argued posed challenges that “are the other side of the coin for peace and security.”
“We must build robust institutions from the detractors of our promise. Our institutions will need to converge around common standards of excellence,” he said.
This, he argued, would require joint participation of parliamentarians, judiciary, the public and the civil society; groups he said will have an invaluable role in pushing the region forward.
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Kenya ‘attracting lion’s share of investments’ in East Africa, says report
A total of $9.3 billion in ‘impact-investment’ funds have flowed into East Africa over the past five years, with almost half of that amount being disbursed in Kenya, according to a new report.
The ‘Landscape for impact investing in East Africa’ report, based on research funded by the UK Department for International Development’s impact programme, said the investments in Kenya exceeded $650 million in that period.
Direct investments by development finance institutions (DFIs) “favoured financial services”, which represented nearly 40% of all direct deals, the report said. “The energy sector has received 25% of capital deployed to date (driven by large energy projects such as dams and wind farms), while infrastructure and mining have also been prominent.”
‘Impact investors’ are defined in the report as “those who invest with the intention to generate a beneficial social or environmental impact alongside a financial return and who seek to measure the social or environmental returns generated by their investments”.
Kenyan investments were “more than triple the amount” deployed in neighbouring Uganda and Tanzania, the countries with the next highest amounts at around 13% and 12% respectively, the report said.
According to the report, Kenya’s capital city of Nairobi “is the physical hub for impact investing in the region, where 48 impact investors have local offices, and is often the first port of call for impact investors operating in the region, even if they look for opportunities beyond Kenya”.
Of other East African nations, Ethiopia has received only about 7% of disbursements to date, the report said. However Rwanda, “with an economy just one-eighth the size of Ethiopia’s, has received half as much impact capital, or 4% of all disbursements in the region”.
Common investment challenges in the region include “insufficient investment-ready opportunities, insufficient human capital and difficulty accessing bank financing”, the report said. “Though investors acknowledge that there are many businesses with exciting potential, investors encounter few companies that they believe are truly investment ready.”
Challenges are also posed by international decision makers who can “frustrate entrepreneurs”, the report said. “Many non-DFI impact investors have investment committees based abroad and whose members may not have on-the-ground experience with investments in East Africa. These remote investment committees often interpret risk differently than their investment teams operating on the ground.” The report said this can cause due diligence and deal closing procedures for both debt and equity investments to take up to 18 months before completion.
However, the report said there is still a “substantial gap in the market” that impacting investing seeks to fill.
The African Development Bank said last year that recent discoveries of oil, gas and coal could help propel Kenya to “middle-income country status in the medium term”. The bank said in its Country Strategy Paper for Kenya for 2014-18 that it wants to work with development partners and the private sector to “leverage funding” for infrastructure development in Kenya, rather than act as a sole financier.
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South African Cabinet publishes Border Management Agency (BMA) Bill for public comment
The South African cabinet has approved the publishing of the Border Management Agency (BMA) Bill for public comment.
The Bill seeks to establish a BMA that will balance secure cross-border travel, trade facilitation and national security imperatives, within the context of South Africa’s regional, African and international obligations. This single authority for border law enforcement provides the potential for more cost-effective services as well as enhanced security and management of the border environment.
BILL
To provide for the establishment, organisation, regulation and control of the Border Management Agency; to provide for the transfer, assignment, and designation of law enforcement border related functions to the Border Management Agency; and to provide for matters connected thereto.
PREAMBLE
RECOGNISING that border management is exercised by multiple organs of state with a purpose of securing borders and protecting the national interest;
FURTHER RECOGNISING the need for integrated and coordinated border management that facilitates secure travel and legitimate trade, in accordance with the Constitution, international and domestic law, in order to
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contribute to the prevention of smuggling and trafficking of human beings and goods;
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prevent illegal cross -border movement;
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contribute to the protection of the Republic's environment and natural resources;
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contribute to the facilitation of legitimate trade and secure travel;
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ensure effective and efficient border law enforcement at ports of entry and on the borderline;
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contribute to the socio-economic development of the Republic; and
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protect the Republic from harmful and infectious diseases, pests and substances;
ACKNOWLEDGING that the circumstances of modern travel and trade require a single Agency to be responsible for ports of entry and the borderline of the Republic and the need to balance the facilitation of legitimate trade and travel with security;
AND FURTHER ACKNOWLEDGING, the constitutional responsibility of the Defence Force to defend and protect the Republic, its territorial integrity and its people; and
BE IT THEREFORE ENACTED by the Parliament of the Republic of South Africa, as follows:
» Download: Border Management Agency Bill, 2015 (PDF, 8.22 MB)
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Promoting manufacturing competitiveness in COMESA: Towards the establishment of a framework for combating illicit trade
Illicit trade is a global menace that seriously affects both the public and private sectors within the COMESA region and all other parts of the world. It undermines the concept of a free and open market place which is fundamental to improving competitiveness, increasing investment, generating jobs and ultimately contributing to economic growth of COMESA member states.
Illicit trade, in its varying forms poses number of adverse effects which include among others: revenue losses, unfair competition, health risks, and huge financial loses for companies, industries and governments.
The industry in the region recognizes the fact that some COMESA Member State governments are doing their best to combat illicit trade but without a regionally coordinated mechanism. The fragmented nature of the enacted laws makes it difficult to prosecute illicit trade cases effectively. Institutions working to combat illicit trade have failed to collaborate in combining their efforts when discharging similar mandates and corruption has taken root affecting the prevention and prosecution of the vice. In addition, challenges of accessing up to date and reliable data on illicit trade continues to make it impossible to fully understand and articulate ways of resolving the problem.
As COMESA continues to ensure free movement of goods as a key feature of the Customs Union, it makes no sense to have national efforts that are in isolation of the regional realities, mainly because, COMESA member States without anti illicit trade laws will serve as entry points and conduits of illicit goods into the whole region.
In light of this fact, many stakeholders argue that, without concerted regional collaboration approach, national efforts alone will not achieve much. What remains to be done, therefore is to enact a COMESA regional anti-illicit trade protocol to be adopted and implemented by COMESA member states.
The commissioning of this study by COMESA Business Council (CBC) stems from an understanding and strong consensus from key stakeholders, that illicit trade, due to its far reaching negative impacts cannot be ignored. This report highlights the challenge of illicit trade at a national, regional and international level. It showcases the existing regulatory frameworks on combating illicit trade and demonstrates best practices. Drawing from experiences of key stakeholders, the report provides positions of selected industries on illicit trade. Above all, the study presents a sustainable approach to curbing illicit trade within the COMESA region which includes among others drafting a COMESA anti illicit trade protocol. Finally, the report concludes by highlighting recommendations to be considered and adopted by key stakeholders.
Introduction and background
The Common Market for Eastern and Southern Africa (COMESA) is the largest regional economic community/trade bloc in Africa, with membership of 19 Countries, a geographical area of 12 Million (sq km), a population of about 490 million people, an annual import and export bill of approximately US$170 billion and US$ 113 billion respectively. COMESA membership comprises of the following countries: Burundi, Comoros, D.R. Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe.
COMESA has slowly progressed from a Preferential Trade Area with lower duties charged on goods originating from member countries to a Free Trade Area (FTA) in 2000 and finally a Customs Union in 2009, with the ultimate goal of establishing a Common Market. The Customs Union provides a framework for coordination and harmonisation of policies in a broader range of areas, and strengthens COMESA into a coherent group that has clout in international relations and in its engagement with the rest of the world.
Illicit trade is an international phenomenon that seriously affects both the public and private sectors within the COMESA region and all other parts of the world. Illicit trade leads to various adverse economic and social impacts; including revenue losses, unfair competition, health risks, and huge financial loses for companies, industries and governments. In light of these challenges, the manufacturing sector in the COMESA region continues to call upon COMESA to strengthen the means and mechanisms of combating illicit trade in a sustainable manner.
Recognizing the need to address illicit trade and building on the general observations from key players (public and private), a number of COMESA’s key stakeholder institutions in the respective member states, COMESA Business Council (CBC) and the COMESA Secretariat, have with serious determination responded to the call of the private sector through commissioning a study to propose guidelines for developing: a COMESA anti-illicit trade regulatory framework, consumer, enforcement action and a “Made in COMESA” Label that will facilitate and promote the movement and purchase of COMESA goods that meet the required Origin standards.
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Ring-fencing the economy through ban on illicit financial flows
The prohibition of the acceptance of foreign currency cash deposits by deposit money banks announced by the Central Bank of Nigeria (CBN) last week will ultimately ring-fence the Nigerian economy against illicit financial flows as well as check the activities of economy saboteurs like foreign exchange speculators and money launderers.
The resolve of the Central Bank of Nigeria (CBN) to give an official stamp to the recent suspension of the acceptance of foreign currency cash deposits by money deposit banks couldn’t have come at a better time.
Financial sector watchers who hailed the move at the weekend said the measure was expected to give relative relief at the foreign exchange market.
The outright ban on the acceptance of foreign currency cash deposits by commercial banks by the CBN was to stem illicit financial flows. This followed the decision of commercial banks to either cap or ban such deposits a fortnight ago due to the unavailability of outlets that could absorb their cash.
A circular by Olakanmi I. Gbadamosi, CBN Director of Trade and Exchange Department, directed to all authorised dealers and the general public said, “The Central Bank of Nigeria has considered the recent statements by Deposit Money Banks (DMBs) concerning the large volume of foreign currencies in their vaults and the decision to stop accepting foreign currency cash deposits into customers’ domiciliary accounts as a welcome development.
“Therefore, in its continued efforts to stop illicit financial flows in the Nigerian banking system which aligns with the anti-money Laundering stance of the Federal Government, the CBN hereby prohibits from the date of this circular the acceptance of foreign currency cash deposits by DMBs.
“For foreign currency cash lodgments made prior to the date of this circular, the account holder has the option to either withdraw his or her foreign currency cash or the Naira equivalent. For the avoidance of doubt, only wire transfers to and from Domiciliary Accounts are henceforth permissible,” the central bank statement added.
A domiciliary account allows an individual or business to make transfers and save directly in British pounds, euro or dollars from within the Nigerian banking system.
Central Bank Governor Godwin Emefiele said last month that the naira, which has lost around 15 per cent against the dollar over the past year, with an official devaluation in November and a de facto one in February, was “appropriately priced” at its current level.
The latest development came amidst reports that some desperate bank customers were moving their dollar cash to the neighbouring countries of Benin, Ghana and Togo to repatriate their funds to their various account overseas.
A market source, which gave the hint, said such an action was inevitable at a period when the Nigerian foreign exchange market is awash with excess dollars put at $1 billion by President of Nigeria’s Bureau de Change Association, Aminu Gwadabe.
The flurry of activities at the market, which was exacerbated by the crackdown by the Central Bank of Nigeria on foreign exchange market speculators, combined to put currency traders on edge as the exchange rates at the parallel market fluctuated throughout the period.
Tumbling Rates
Depending on which market one sourced his information from; different rates were dished out by currency traders as the prevailing exchange rates in the various parallel markets in the country last week. For instance, the naira was said to have closed at N209 to $1 on Monday in some locations in Lagos, while the rate was N216 per dollar in some markets on the same day. Whatever was the case, the current black market rate is a significant improvement compared with the N240 to a dollar the currency went for penultimate Friday and market watchers are optimistic that the current push for a moderation in the exchange rate is yielding fruits.
“Banks are rejecting dollar deposits… they are not able to transfer excess liquidity to their correspondent banks abroad, which is restricting importers from using domiciliary accounts,” said Gwadabe.
The naira had weakened on the parallel market to as much as 242 to the dollar, on persistent dollar shortages. The central bank last month limited importers’ access to dollars on the official interbank market to buy a wide range of goods, in order to save its reserves.
After the restrictions, importers bought dollars on the unofficial market and deposited them in their bank accounts for transfers abroad, Gwadabe said. But now banks are rejecting cash dollar deposits “due to large speculation on the currency,” the chief executive of First City Monument Bank, Ladi Balogun, said.
Pressure from Importers
However the naira, according to market survey by Reuters, reversed its gains against the dollar on the parallel market on Tuesday on increased demand for the US currency by some importers.
In a report based on market intelligence, the naira was trading at 224 to the dollar on Tuesday, weaker than 216 the previous day.
On the official interbank market, the naira traded at 199 to the dollar, unchanged from the previous day and near the central bank’s pegged rate of 197.
“We have seen increased demand for dollars again by some end users taking advantage of the gains recorded in the past few days,” Harrison Owoh, a bureau de change operator, said.
There was concern that the naira gain on the black market would be short-lived, triggering a surge in dollar buying.
The naira had weakened on the parallel market to as much as 242 to the dollar last month, on persistent dollar demand after central bank month limited importers’ access to dollars on the official interbank market to buy a wide range of goods, in order to save its reserves.
Nigerians had been celebrating the temporary improvement in the value of the national currency, which was attributed to the decision of banks to reject dollar deposits. Traders explained that there had been a surfeit of dollars in the bank vaults and the rejection of dollar deposits had seen an influx of forex into the parallel market, where most individuals and small businesses do business. However, by close of work on Monday, naira had fallen N215/$1, and by Tuesday morning the downward journey continued. Naira started the day at N220 and closed at N235 at most bureaux de change (BDCs) in Lagos, leading to speculations that the temporary appreciation was a bubble.
As the foreign exchange market continues its volatility amidst a cocktail of policies by the regulatory authorities to put the activities of foreign exchange speculators and money launderers in check, it is certain that the current decision of banks to reject dollar deposits will eventually stabilise the market.
Managing Director, Wema Bank Plc, Mr. Segun Oloketuyi, pointed out that banks were currently under pressure by some categories of customers, especially importers of some goods currently exempted from sourcing dollars at the official market because the door had been shut against them. According to him, these people are mounting pressures on banks to keep their idle dollars.
He said, “People also go to the market because goods had been banned and it is pretty difficult to get things from the official market, so what they do is to change their money into dollars, dump them in the vaults of banks and immediately they say, I have put this money in my domiciliary account, help me wire it or send money to UK or to US. Now the money is sitting in your own vaults here, you are not able to pick that money and get them into your offshore account. If you don’t have much money in your offshore accounts, how will you be able to fund your account to be able to meet those kinds of demand?”
Removing Fuel Subsidy
But the momentary reprieve felt in the foreign exchange market notwithstanding, Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, believe it will be impossible for the local currency to firm up appropriately until certain bottlenecks are removed by the current administration.
He argued that as long as the government is hesitant to remove subsidy on petroleum products, the heightened demand for dollars by the marketers, among others, will continue to haunt the economy. Rewane, however, raised the hope that the recent activation of Kaduna and Port Harcourt refineries will help reduce the pressure on fuel import with a corresponding reduction in the demand for the dollars by fuel importers.
On how banks are responding to the pressure by customers seeking to dump their dollars deposit on banks, Oloketuyi said operators are looking at the situation on a case to case basis. He said, “For instance, if a customer come and open a domiciliary account with me few days ago and come today and dump $200 million dollars in the account, and tomorrow he does the same, and then come two days after and tell me to move the money, then I will know that he is trying to achieve something, using the vehicle of the bank. If I see a pattern of behavior from a customer that doesn’t look reasonable, I may say sorry, I don’t want it because it is going to create service problem. It creates problems for the bank because if I don’t have enough in my offshore account to meet the demand, why do I want to offer that service to you. There is still a lot of instability in the foreign exchange market.”
Currency Trafficking
Interestingly, various reasons have been given for the excess dollar supply in the country. From the apex bank came the warning to the banks to be wary of currency traffickers who may wish to use Nigeria as conduit for moving foreign exchange around in the global financial system.
The bank said the warning became necessary to let bank users know the several protocols on illicit fund flows now being used for money laundering, and terrorism financing both in Nigeria and around the world.
The Global Financial Integrity, GFI, the international financial monitoring and assessment group, in a recent report ranked Nigeria as one of the 10 largest countries for illicit financial flows in the world.
The CBN said although it was yet to independently confirm details of the report that an estimated $15.7 billion of illicit funds go through the Nigerian banking system annually, saying it was important to warn Nigerians to avoid being used as a conduit for these illegal flows.
“We note and applaud that in line with global best practice, Nigerian banks have started to curtail the acceptance of foreign currency cash deposits, much the same way as customers in other countries cannot just walk into banks and make foreign currency cash deposits without proper documentation,” the bank said.
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EAC to integrate customs systems to fast-track movement of goods
The East Africa Community (EAC) member states are set to integrate all their custom systems into one platform in Tanzania, Kenya, Uganda, Burundi and Rwanda to enhance regional bond for goods in transit as well as fast-track movement of goods under customs seals and allow transparency on customs operations.
This was said during a regional meeting in Nairobi that discussed the implementation of the EAC Single Customs Territory (SCT) projects.
The meeting comes ahead of the forthcoming 11th Northern Corridor Integration Projects Summit, to be held in Nairobi.
The one day meeting brought together the Commissioners General of Revenue Authorities from Kenya, Uganda, Rwanda, Tanzania, Burundi and Democratic Republic of Congo to discuss cargo clearance time and costs.
The Commissioners also discussed the implementation of the Warehousing Regime, Integration of Regional Customs Transit Guarantee (RCTG) and Customs Systems and Reintroduction of Export Declaration by Kenya.
KRA’s Commissioner General, John Njiraini said the meeting addressed ways to reduce the cost of doing business and enhancing compliance.
“The Revenue Authorities met to discuss the implementation of the East Africa Community, Single Customs Territory projects that will ensure faster clearance of goods at the first point of entry within East Africa and cut time and resources used by various governments to collect customs tax at various borders,” said KRA’s Commissioner General, John Njiraini.
Currently Kenya’s Revenue Authority (KRA) uses Simba System, Tanzania uses Tanzania Customs Information System (TANCIS) while Uganda and Rwanda use Asycuda World.
Mr. Njirani also pointed out that KRA had implemented a Customs Reform and Modernisation programme that aims at enhancing performance of the Simba System that is used to process customs documents. KRA’s Simba System has been at the centre of customs modernisation and has enabled the automation of 90 per cent of Customs operations.
The regional revenue authorities are working towards strengthening the single customs initiatives, upgrading customs systems and are working towards adopting a single window.
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We must think outside the box in fresh anti-poverty global agenda
When Uganda’s Foreign Affairs Minister Sam Kutesa completes his one-year tenure as president of the 69th Session of the United Nations General Assembly next month, among the things he will be remembered for is his push for the adoption of the new global anti-poverty agenda.
Over the past year, Mr Kutesa has been pressing for a change of mindset and new means of financing for the action-oriented post-2015 Sustainable Development Goals, which are to replace the Millennium Development Goals.
“We need to think outside the box and find alternative means of financing if we want the post 2015 development agenda to be transformative,” he said.
While the MDGs, adopted in the year 2000 helped to reduce poverty rates and inequality, Mr Kutesa, says they failed on most targets because the developing world relied on aid to finance their implementation.
The eight goals sought to eradicate extreme poverty and hunger, achieve universal primary education, promote gender equality and empower women, reduce child mortality, improve maternal health, combat HIV/Aids, malaria and other diseases, ensure environmental sustainability and develop a global partnership for development.
It is expected that the three key summits in this calendar year – the Third International Conference on Financing for Development that took place from July 13-16 in Addis Ababa, the UN Summit for the adoption of the post-2015 development agenda due in September in New York, and the COP21 UN Conference on Climate Change due from November 30-December 11 in Paris – will chart a way forward for achieving the 17 SDGs.
However, the “Addis Ababa Action Agenda,” the blueprint adopted at the Addis conference, makes no mention of new resources to fund the investments needed to end poverty by 2030.
According to Romilly Greenhill, team leader for development finance at the UK-based Overseas Development Institute, while the document does not provide new commitments to increase the share of aid allocated to least developed countries, it is helpful in setting the framework for action.
“It sets out key priorities in terms of financing the sustainable development goals,” said Ms Greenhill at the Addis summit.
Countries will have to look within their own boundaries to mobilise resources by, for example, widening the revenue base, improving tax collection and combating tax evasion and illicit financial flows.
The financing gaps for sustainable development across the globe are daunting.
The UN estimates that in order for the world to surpass the accomplishments of the MDGs by wiping out extreme poverty (defined as the proportion of the population living on less than $1.25 a day), additional financing in the range of $135 billion to $195 billion is required per year, and between $5 and $7 trillion is needed for investments in critical infrastructure.
For the private sector, especially small and medium enterprises, which form the bulk of the developing world’s businesses, the unmet credit needs are estimated at around $2.5 trillion in developing countries and about $3.5 trillion globally.
“The level of partnership for development will have to be expanded to tap into other resources such as sovereign wealth funds and pension funds to finance long term strategic investments particularly in infrastructure development,” said Mr Kutesa.
“It will also be essential to mainstream private sector and civil society participation, and establish partnerships with other philanthropic organisations.”
The Secretary General of the United Nations Conference on Trade and Development Dr Mukhisa Kituyi concurs, saying that for the world to achieve the SDGs, it must deal with impediments such as the lack of infrastructure and financing for SMEs, while working on partnerships and synergies that will deliver growth and end poverty.
“For sub-Saharan Africa to emerge from poverty, it should not just repeat China’s economic miracle of the past 20 years; it must better it in the next 20 years,” he said.
The impact of climate change on the other hand, is critical because it has the potential of reversing the gains made with the MDGs.
Last year, during the Conference of Parties in Lima, Peru Mr Kutesa called for collective political will and financing to address the challenge when the world gathers to craft a legally binding deal in Paris.
“Increasing financing for climate change technologies, including investment in renewable clean technologies, will be critical for many developing countries,” he said.
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The African century
If, as has been observed, demography is destiny, this will be the African century.
Most countries in sub-Saharan Africa are on the cusp of a demographic transition – the years when the share of young and old in the population declines and those in working age range (15-64 years) increases.
Elsewhere, this transition has generally been accompanied by higher savings, incomes, and economic growth. Our latest Regional Economic Outlook for sub-Saharan Africa looks at how the transition might play out and the implications for economic policies.
What we found striking is the truly global dimension and consequences of the demographic trends underway in the region. Consider the following:
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By 2030 or so, sub-Saharan Africa’s contribution to the increase in global labor force will exceed that from the rest of the world combined (Chart 1).
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This is forecast to occur in the context of a marked decline in the number of entrants into the working age range globally, from around 2 percent annually between 1980-2000 to 0.5 percent or so for 2030-2050 (Chart 2).
The global dimension
As global economic growth continues to disappoint, the extent to which many advanced and some emerging market countries have benefitted from demographic tailwinds over the past several decades is becoming clearer. Conversely, as populations age and labor force participation rates decline in these countries, both potential and actual growth look set to be adversely impacted in the years ahead. To be sure, the drag on growth is modest and can be offset by policies and, indeed, higher productivity growth. Still, the fact remains that for the economies accounting for over 60 percent of current global GDP (G7 countries, China and Russia), the working age population had peaked by 2010.
It stands to reason then that the global economy would benefit greatly from integrating Africa’s labor force into global supply chains. Indeed, given the aging population for much the rest of the world, there may be little alternative. This issue is something that needs to move up to the top of the agenda in the international economic discourse, in both the private and public sectors.
The regional angle
The ongoing demographic transition offers a huge opportunity for sub-Saharan Africa. The increasing share of working age population provides a direct channel for increasing per capita incomes, as more workforce employed implies greater economic output and labor income per household. However, much of the demographic dividend will also depend on the quality of economic and social policies.
Overall, harnessing the demographic dividend will depend on the suitability of the economic environment and policies to translate the potential benefits from the demographic transition into higher growth from both the increase in the number and quality of human capital – a growing labor force that is also better educated and healthier – and physical capital – including the upgrading of public infrastructure and continued private capital formation.
Concomitantly, saving rates tend to be higher for working age individuals, hence aggregate saving will also tend to rise, thereby allowing more funding of investment. Saving, investment, and economic activity may receive a boost during the demographic transition, provided that the economic environment does not hamper saving and it is efficiently allocated to productive investments.
Finally, increased female labor force participation can also provide additional dividends. The demographic transition comes when both mortality and fertility decrease. But we know that declining fertility rates tend to be associated with higher female labor force participation, And with higher female labor participation, comes higher and more inclusive growth. Hence, removing legal and institutional impediments to female participation is one of the factors that will allow the region to benefit the most from the demographic change.
What experience says
Historical experiences are useful to shed some light on key aspects that help exploit the demographic dividend. East Asian countries managed to capture a larger demographic dividend than Latin American thanks to the following factors.
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The demographic transition occurred faster in East Asia thanks in part to policies encouraging couples to reduce childbearing and investment in human capital that upgraded the skills and productivity of the growing labor force.
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Flexibility of labor markets permitted a better reallocation of workers toward labor intensive manufacturing with higher productivity in East Asia, while financial development allowed channeling increased saving to investment.
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Structural transformation was also more intense, with faster increases in average productivity in the economy as a whole, as well as integration in global trade, bringing foreign investment and technology transfers.
In a nutshell
Reaping the potential demographic dividend puts an urgent onus on addressing the key constraints to sustained higher growth in the region – particularly gaps in infrastructure (mainly electricity and transport) and skilled human capital (improving health and education systems).
In addition, fostering saving and investment – including from abroad – and enhancing competitiveness to boost exports can generate much needed employment for young job-market entrants.
Contingent on these policies, we are firmly of the view that the demographic transition will leave sub-Saharan Africa in a much stronger position by boosting savings, investment, and thus raising economic growth.