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Kenya, Mozambique in deal to boost trade
Kenya and Mozambique on Wednesday signed a bilateral agreement to cut restrictions on air travel between them.
The deal signed by Transport Cabinet Secretary Michael Kamau and Mozambique Deputy Minister for Transport and Communications Manuela Joaquim Rebelo is also aimed at increasing the volume of trade between the two countries while improving bilateral relations.
It also allows privately owned airlines with substantial local ownership from both countries to apply for licences to fly between Maputo and Nairobi.
Currently national carrier Kenya Airways and LAM Mozambique Airline are the only ones allowed to operate between the two countries with five frequencies weekly.
The introduction of other airlines will spur competition which will likely lead to a fall in the cost of flying with Mr Kamau insisting that the government would not try to regulate the price but provide conditions that would attract more players in the industry.
“It is a free market and there is no way we can control ticket prices. The only thing we can do is to promote an environment that supports growth.”
While calling for privately owned airlines to apply and operate on the route, Mr Kamau said the government was committed to implementing an open sky policy with all African countries.
“There is no reason why someone travelling to a destination in Africa has to go through the Middle East or Europe,” the minister said, adding that Kenya was negotiating with Rwanda to sign a similar agreement.
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“As a ministry, we are committed to negotiating and renewing bilateral air service agreements to expand the air route network available to local airlines on the continent in order to improve connectivity which will allow flexibility in movement of cargo and passengers,” he said.
The agreement also allows airlines to sign code share agreements which will make it cheaper for smaller airlines to travel between the two countries with minimal losses.
A code share agreement is a deal where two or more airlines share the same flight to cut losses associated with below capacity flights.
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Sub-Saharan Africa implements the most business regulatory reforms worldwide
A new World Bank Group report finds that Sub-Saharan Africa had the highest number of business regulatory reforms globally in 2013/14, with 74 percent of the region’s economies improving their business regulatory environment for local entrepreneurs.
Doing Business 2015: Going Beyond Efficiency finds that Benin, the Democratic Republic of Congo, Côte d’Ivoire, Senegal, and Togo are among the 10 top improvers worldwide, having improved business regulation the most in the past year among the 189 economies covered. Since 2005, all countries in the region[1] have improved the business regulatory environment for small and medium-size businesses, with Rwanda implementing the most reforms, followed by Mauritius and Sierra Leone.
The report series shows that over the past five years, 11 different Sub-Saharan African countries have appeared on the annual list of the 10 global top improvers. Some have done so multiple times, such as Burundi, Cabo Verde, Côte d’Ivoire, and Rwanda.
“Sub-Saharan African economies have come a long way in reducing burdensome business regulations,” said Melissa Johns, Advisor, Global Indicators Group, Development Economics, World Bank Group. “Our data show that Sub-Saharan Africa accounts for the largest number of regulatory reforms making it easier to do business in the past year, with 75 of the 230 documented worldwide. Yet despite broad regulatory reform agendas, challenges persist in the region, where business incorporation continues to be costlier and more complex on average than in any other region.”
The report finds that Senegal implemented regulatory reforms in six of the 10 areas tracked by Doing Business – a global high for the year. Thanks to such reforms, Senegal is gradually narrowing the gap with best practices seen elsewhere. For example, in 2005, completing every official procedure to import goods from overseas took 27 days. Today it takes 14 days, the same as in Poland.
This year, for the first time, Doing Business collected data for a second city in the 11 economies with a population of more than 100 million. In Nigeria, the report now analyzes business regulations in Kano as well as in Lagos.
The report this year also expands the data for three of the 10 topics covered, and there are plans to do so for five more topics next year. In addition, the ease of doing business ranking is now based on the distance to frontier score. This measure shows how close each economy is to global best practices in business regulation. A higher score indicates a more efficient business environment and stronger legal institutions.
The report finds that Singapore tops the global ranking on the ease of doing business. Joining it on the list of the top 10 economies with the most business-friendly regulatory environments are New Zealand; Hong Kong SAR, China; Denmark; the Republic of Korea; Norway; the United States; the United Kingdom; Finland; and Australia.
[1] Excludes South Sudan, which was added to the Doing Business sample in 2013.
About the Doing Business report series
The annual World Bank Group flagship Doing Business report analyzes regulations that apply to an economy’s businesses during their life cycle, including start-up and operations, trading across borders, paying taxes, and resolving insolvency. The aggregate ease of doing business rankings are based on the distance to frontier scores for 10 topics and cover 189 economies. Doing Business does not measure all aspects of the business environment that matter to firms and investors. For example, it does not measure the quality of fiscal management, other aspects of macroeconomic stability, the level of skills in the labor force, or the resilience of financial systems. Its findings have stimulated policy debates worldwide and enabled a growing body of research on how firm-level regulation relates to economic outcomes across economies.
Each year the report team works to improve the methodology and to enhance their data collection, analysis and output. The project has benefited from feedback from many stakeholders over the years. With a key goal to provide an objective basis for understanding and improving the local regulatory environment for business around the world, the project goes through rigorous reviews to ensure its quality and effectiveness. This year’s report marks the 12th edition of the global Doing Business report series.
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Doing Business rankings use expanded data analysis
Singapore tops the list of business-friendly economies globally, while five of the top 10 most improved countries are in sub-Saharan Africa, according to the World Bank Group’s Doing Business 2015 rankings.
The 12th annual report finds that the 10 economies with the most business-friendly regulatory environments are Singapore; New Zealand; Hong Kong SAR, China; Denmark; the Republic of Korea; Norway; the United States; the United Kingdom; Finland; and Australia.
The 10 economies that have improved the most since the previous year are Tajikistan, Benin, Togo, Côte d’Ivoire, Senegal, Trinidad and Tobago, the Democratic Republic of Congo, Azerbaijan, Ireland, and the United Arab Emirates.
Sub-Saharan African countries had the highest number of regulatory reforms – 75 of 230 around the world – while emerging Europe and Central Asia had the highest percentage of improving countries. Progress was uneven in the Middle East and North Africa, with conflict-affected Syria near the bottom. South Asia saw the lowest number of reforms.
While 80% of countries in the study improved their business regulations last year, only about one-third moved up in the rankings. However, the gap between the best- and worst-performing countries continues to narrow as countries improve their business climates, said Rita Ramalho, manager of the Doing Business Project.
“It’s easier to do business this year than it was last year, than it was two years ago or 10 years ago,” she said. “We see that the economies that score the lowest are reforming more intensely, so they are converging toward the economies that do the best.”
For example, in 2005 it took an average of 235 days to transfer property in the lowest-ranked countries and 42 days in the top-ranked countries – a difference of 193 days. The gap now has narrowed to 62 days (around 90 days for the lowest-ranked and less than 40 for the top-ranked).
The report measures the ease of doing business in 189 economies based on 11 business-related regulations, including business start-up, getting credit, getting electricity, and trading across borders. The report does not cover the full breadth of business concerns, such as security, macroeconomic stability, or corruption.
This year’s report, “Doing Business 2015: Going Beyond Efficiency”, uses new data and methodology in three areas: resolving insolvency, protecting minority investors, and getting credit.
“We want people to be aware this is a different report and that we’re measuring new areas we weren’t measuring before,” said Ramalho.
For that reason, the report cannot be directly compared with last year’s, she said. (The 2014 rankings have been recalculated based on the new methodology.)
“Doing Business is by and large about the efficiency of regulations – how fast, how cheap, how simple it is to get a transaction completed. But now we’re branching out to also measure the quality” of regulations, she said.
New data reveal regulatory efficiency and regulatory quality go hand in hand. “We see a high correlation between the two. Countries that do it fast and cheaply are also likely to do it well,” said Ramalho.
The resolving insolvency indicator, for example, previously focused on the efficiency of the bankruptcy court system. This year’s report looks at the strength of the underlying legal system governing insolvency and whether laws follow good practices. Countries that rank low on this indicator often have outdated laws or lack an insolvency law altogether. Some countries have good laws on the books but do not implement them efficiently. Yet, without a well-functioning insolvency process in place, it’s more difficult for entrepreneurs to get financing and less likely they would risk failure or venture into a new business, said Ramalho.
“No one, looking ahead, would start a business if it’s very hard to close one,” she said. “Failure is part of life, so you want to have a legal system that knows how to deal with that.”
The 2015 report also includes data from two cities rather than one for 11 countries with more than 100 million people (Bangladesh, Brazil, China, India, Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian Federation, and the United States). In most cases, the report did not find significant differences between the two cities in terms of business climate.
Next year, Doing Business will enhance methodology, data collection, and analysis for five more indicators: obtaining construction permits, getting electricity, registering property, paying taxes, and enforcing contracts.
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WTO publishes annual package of trade and tariff data
The WTO released on 28 October 2014 new editions of its key statistical publications: International Trade Statistics, Trade Profiles, World Tariff Profiles and Services Profiles. The four publications provide a detailed breakdown of the latest trade developments.
International Trade Statistics 2014 provides a detailed overview of world trade up to the end of 2013, covering merchandise and services trade as well as trade measured in value-added terms.
A variety of charts illustrate noteworthy trends in global trade while numerous tables provide more detailed data. A chapter on methodology explains how the data are compiled.
World Tariff Profiles 2014 provides a unique collection of data on tariffs imposed by WTO members and other countries. It is jointly published by the WTO, the International Trade Centre (ITC) and the UN Conference on Trade and Development (UNCTAD).
The first part of the publication provides summary tables showing the average tariffs imposed by individual countries. The second part provides a more detailed table for each country, listing the tariffs it imposes on imports (by product group) as well as the tariffs it faces for exports to major trading partners. The profiles show the maximum tariff rates that are legally “bound” in the WTO and the rates that countries actually apply. This edition of World Trade Profiles has anti-dumping measures as its special topic, and includes a compilation of frequently asked questions.
Trade Profiles 2014 provides a snapshot summary of the most relevant indicators on growth, trade and trade policy measures on a country-by-country basis.
The data provided include basic economic indicators (such as gross domestic product), trade policy indicators (such as tariffs, import duties, the number of disputes, notifications outstanding and contingency measures in force), merchandise trade flows (broken down by broad product categories and major origins and destinations), services trade flows (with a breakdown by major components) and industrial property indicators.
Services Profiles 2014 provides key statistics on “infrastructure services”, i.e. transportation, telecommunications, finance and insurance, for some 150 economies.
The information is derived from multiple sources, such as national accounts, employment statistics, balance of payments statistics, foreign affiliates’ trade in services statistics, foreign direct investment statistics and quantitative indicators largely sourced from international/regional organizations and specialized bodies. The profiles reflect data as contained in the WTO’s Integrated Trade Intelligence Portal (I-TIP) services database as of July 2014.
All three profiles – World Tariff Profiles, Trade Profiles and Services Profiles – are now available in the WTO Statistics Database in Excel and HTML formats, and the PDF versions are available in English on the WTO web site. The WTO Statistics web page also contains updates of the International Trade and Market Access data online application, the Tariff Analysis Online and Tariff Downloads applications, new versions of World and Regional Export Profiles (a PDF snapshot of 2013 merchandise exports globally and by region) and World Commodity Profiles (a PDF snapshot of 2013 merchandise exports and imports for total merchandise trade, agriculture, fuels and mining and manufactured products), and World maps, which allow for comparison between countries or customs territories on selected economic indicators.
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‘The only way to stop Ebola is at its source’ – UN chief
Secretary-General Ban Ki-moon on Tuesday urged countries that have imposed travel bans or closed their borders in response to the Ebola outbreak of the need to convey a sense of urgency without inciting panic, saying “the only way to stop Ebola is to stop it at its source.”
Mr. Ban spoke to reporters alongside African Union Commission Chairperson Nkosazana Dlamini-Zuma and World Bank President Jim Yong Kim in the Ethiopian capital of Addis Ababa, where they had discussed how the three organizations and their partners can help efforts to stop the Ebola epidemic unfolding in West Africa.
Meanwhile, the Geneva-based UN World Health Organization (WHO) welcomed the approval by Swissmedic – the Swiss regulatory authority for therapeutic products – for a trial with an experimental Ebola vaccine at the Lausanne University Hospital, saying “this marks the latest step towards bringing safe and effective Ebola vaccines for testing and implementation as quickly as possible.”
Also today, the UN Mission in Liberia (UNMIL) reported that its Chinese peacekeeping contingent will assist in the construction of an Ebola Quarantine and Control Center in the Liberian capital, Monrovia. The project is expected to take 21 days to complete.
The UN continues to work with its partners to ramp up efforts to tackle all aspects of the outbreak, and in Addis Ababa today, Mr. Ban said: “Ebola is a major global crisis that demands a massive and immediate global response. No country or organization can defeat Ebola alone. We all have a role to play.”
In that regard, the Secretary-General said he was very heartened to learn of the pledges by African nations, most recently Ethiopia, Burundi and Nigeria and the Democratic Republic of the Congo, to deploy medical personnel to assist Ebola victims that have claimed nearly 5,000 lives in Guinea, Liberia and Sierra Leone.
“I am particularly encouraged by the decision of Nigeria and the Democratic Republic of the Congo to deploy medical personnel, and of Senegal to serve as a logistics hub for the response, following success in containing their own outbreaks,” he said.
The UN chief said he is in constant contact with world leaders “to help us create dedicated medical facilities for in-country treatment of responders and to put in place medical evacuation mechanisms.”
“We have a long way ahead to contain and curb the Ebola outbreak and to help the affected countries rebuild their health systems to better withstand future shocks,” he said.
According to WHO spokesperson Tarik Jasarevic, the agency has 176 health personnel on the ground, while 700 had been deployed and rotated since the beginning of the outbreak. At any given time, he said there were about 200 people on the ground. In addition, medical teams from other organizations including medical teams from Cuba, China, and other countries.
Mr. Jasarevic stated that 230 more burial teams are needed, to ensure 70 percent of safe burials. Eight to 10 people are needed for one burial team.
In response to a question about the politicians in Australia and the United States calling for restrictions on people returning from affected countries, Mr. Jasarevic said mandatory quarantine was not recommended, as people were not contagious until they were showing symptoms.
The Secretary-General in Addis Ababa drew attention to travel bans and border closures imposed by some countries, saying such measures will only isolate the affected countries, and obstruct response efforts.
“The only way to stop Ebola is to stop it at its source,” Mr. Ban said.
“I thank the African Union (AU) for its strong and consistent position on this point,” he said, and asked the AU to continue to appeal to its member states not to impose travel restrictions or close their borders, but rather to deploy the essential human resources.
“We urgently need more trained foreign medical teams to deploy to the region,” he said.
Meanwhile, the UN World Food Programme (WFP) noted that the spread of Ebola was disrupting food trade and markets in the three affected countries. In Geneva, WFP spokesperson Elisabeth Byrs said that in Sierra Leone, local weekly markets were banned. In Monrovia, the price of cassava flour had more than doubled after the closure of the border with Sierra Leone, and in Liberia prices for imported rice had continued to increase beyond the summer pattern, Ms. Byrs said.
“Should the Ebola epidemic last another four to five months when farmers would begin to prepare their lands, there would be a real concern that planting for the 2015 harvest could be affected,” she said.
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Are we heading for “same old, same old” for the proposed Tripartite FTA Rules of Origin?
SADC, COMESA and EAC comprise 26 Southern and East African Countries currently negotiating a comprehensive tripartite FTA with new preferential origin rules.
The SADC-COMESA-EAC Tripartite Free Trade Area (TFTA) was formally launched at a summit in Johannesburg, South Africa, in June 2011. This followed a Tripartite Summit in Uganda in 2008 where the heads of State and Government of the respective regional economic communities (RECs) agreed on a “programme of harmonization of trading arrangements amongst the three RECs, free movement of business persons, joint implementation of inter-regional infrastructure programmes as well as institutional arrangements on the basis of which the three RECs would foster cooperation”.
The comprehensive TFTA would be negotiated in tranches, with market access forming part of the first 3-year tranche. This self-imposed deadline has come and gone, with significant progress made on market access offers and in other areas.
Rules of Origin (RoO) are the regulations that specify the level of local processing of materials and goods, where these contain imported content, that must be undertaken in order to earn local origin status, and thus qualify for trade preferences. With so much at stake – since RoO count among the critical fine-print that defines trade liberalisation at a practical level – this aspect of the negotiations was always going to be fraught with challenges. Key amongst them is the fact that each of the respective RECs apply their own set of origin rules, notwithstanding a frequent misperception that two of the RECs (COMESA and EAC, with overlapping membership) already employ the same rules.
Towards a common TFTA RoO standard
In order to give effect to the notion of a preferential trade area, the regions will have to adopt a common RoO standard. In this respect, history is not particularly kind, given that the SADC FTA RoO negotiations took a decade to complete (exceptions remain), having switched to a line-by-line approach under the Amended Trade Protocol. SADC adopted the “European style” RoO, similar to what South Africa already had in its bilateral agreement with the EU, and which the other partner states already knew from the EU GSP and Cotonou arrangements. This ‘new’ model has implications for the TFTA negotiations, as it significantly increases the areas of divergence with COMESA and EAC rules.
TFTA negotiations are conducted through the Tripartite Trade Negotiations Forum (TTNF), with specific technical areas being dealt with by Technical Working Groups (TWG), for example on RoO (the RoO TWG had met seven times as of August 2014), the TWG on trade remedies, the TWG on customs cooperation and so forth. Given the substantial differences between the respective REC RoO, and the sensitivities around RoO, the TWG adopted a somewhat practical approach, involving an audit of the respective RoO instruments and drawing up three matrices identifying cases where the product-specific rules (also known as the ‘list rules’) are substantively the same across the RECs, instances where they are similar, and those where they are different. Given the complexities involved in achieving a common outcome, and the pace of the negotiations, it was agreed in the TTNF not to re-open negotiations in those categories where ‘common or identical’ rules exist. These commonalities would thus represent a low hanging fruit, so to speak, to cover at least some product categories when the trade agreement launches.
This exercise resulted in 15 percent of tariff headings being identified as having common rules – not necessarily verbatim but to equal effect. An additional 29 percent were found to have ‘similar’ rules. More than half of the rules were found to be different (in other words neither common nor similar) across the RECs, implying that common rules would need to be negotiated on a line-by-line basis in these instances. This has not happened yet but indications are that the process could begin in earnest later in 2014 at the next TWG meetings.
Without doubt, this is a daunting process not only given the divergent economic offensive and defensive interests within the 26-member TFTA group and the different levels of development, but also from an entirely different perspective: This involves negotiations
(a) that are often highly technical in nature and therefore demanding on the officials tasked with negotiations (along with the fact that there is often personnel change among officials, which risks undermining continuity);
(b) that by nature (should) require broad national consultations and scenario planning to derive informed positions;
(c) whose outcomes and implications are often difficult to measure or predict; and
(d) which potentially impede on current or future policy space, often leading to reservations or intense caution among those involved in the negotiation process.
What progress thus far?
Essentially, the focus to date has been both on the RoO audit (the ‘matrices’), broad agreement on how to deal with the common rules, and on the RoO Protocol. This text – the main RoO Protocol – comprises the general RoO clauses representing the overall framework, dealing with important principles such as cumulation, certification, principles and definitions of what constitutes “wholly produced”, simple (or insufficient) processing, aspects around fisheries (definition of vessels, ownership and registration criteria), agreement on the type of competent authorities tasked with administering origin certification, and so forth.
Notable (albeit expected) early outcomes include provisions for full cumulation among TFTA member states, thus allowing joint compliance with the respective origin requirements among Member States, an aspect that reduces the individual burden of compliance and which is a common feature among preferential trade agreements.
While these developments represent headway towards a TFTA that significantly liberalises trade between Member States and is an important stepping stone in relation to a continental FTA, they might represent relatively little practical benefit to traders and other stakeholders within the region initially. This is notwithstanding the recently agreed roadmap, which proposes signature on at least a partial FTA and agreement on the remaining processes of ratification at the Third Tripartite Summit later this year (with formal launch of the TFTA early in 2015).
The crux for traders however is to what extent tariff liberalisation offers have been agreed and concluded, what is considered ‘sensitive’ and thus excluded from liberalisation, and what the RoO will look like. This process, concerning more than half of the applicable RoO, will no doubt be a difficult and likely time-consuming task.
For example, in terms of the design of RoO, how will countries weigh up local development needs and possible incentives for local production against competing interests in neighbouring countries? What will textile RoO look like, when some countries – as has historically been the case – seek to protect upstream cotton (and to a far lesser extent fabric production) by in effect barring an outcome that would see producers being able to tap into global supply chains for competitive (in terms of price, quality and variety) fabric and yarn to ensure competitive local manufacture of garments? How will say coffee bean or tobacco leaf interests weigh against the needs for some flexibility of downstream beneficiation activities?
How will potentially protectionist leanings by say more industrialised Member States (with greater vested interests relating to established industries) reconcile with those countries that would benefit from greater flexibility? Questions like these raise the all-important issue of development in the TFTA and the role that RoO can, or indeed should, play. The evidence whereby highly restrictive RoO induce development is tenuous, especially within an environment of decreasing tariff barriers (in a sense the counterweight to restrictive rules), which raises the question to what extent ‘development’ should even be considered as something for which RoO are an ‘appropriate’ tool, and to what degree they should carry the burden of responsibility for this.
In that regard, how do we even begin to define ‘development’ in the RoO context? Is a set of (RoO) criteria, designed to induce local economic activities in the hope that a “captive” downstream sector will later utilise these supplies for further beneficiation, a realistic outcome that leads to development? Will these (final) products still be internationally competitive in the respective export market? Or can it not be accepted as realistic that development may more likely flow from “development-friendly” rules where the incentive is provided by flexibility in sourcing (since this is attractive to producers of intermediate and final goods), given that producers would in any case most likely (still) chose local supplies over imports if these are competitive, irrespective of RoO? It is critical not to overlook the link between restrictions that protect upstream suppliers or impose heavy local processing requirements, and the ultimate objective of final goods being able to still compete in the export market.
There is little doubt that rules that simply mitigate (or avoid) the risk of trade deflection and transshipment will often not lead to significant benefits under a preferential trade framework. The regional evidence in TFTA points to relatively low levels of intra-regional trade.
While a good overall balance between these somewhat opposing approaches to RoO is desirable, this will likely remain a challenging task in the broader TFTA context. Given the complexities of RoO negotiations, and the task of doing this for such an extensive list of products currently subject to dissimilar rules within the respective RECs, it may be worthwhile to focus less – perhaps – on the line-by-line negotiations with all its complexities, but rather to ensure first and foremost that mechanisms are agreed that will reduce the effective restrictiveness and compliance burden of the RoO outcome. Specifically, this means a strong focus on extensive and full cumulation among Member States, but also mechanisms for administrative cooperation between all customs bodies and border agencies, to ensure smooth passage for regionally traded goods and agreed instruments to ensure efficient cooperation on the enforcement side.
At a practical level, this could involve a number of features, including:
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A common free-standing instrument on administrative cooperation on all RoO matters and signed by all parties (rather than bilateral arrangements), to ensure seamless application and respect for the principle of cumulation.
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Comprehensive and ongoing training and capacity building programs for RoO ‘operators’ (both within customs agencies and private sector) and a priority focus on trade facilitation.
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A facility such as the Binding Origin Information (BOI) certification, currently available for imports into to the European Union, which could give operators greater long-term certainty through an advanced and binding ruling on the origin status of their goods, usable throughout the TFTA region and respected at each border.
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A RoO “helpdesk”, specifically to assist regional operators and customs bodies on technical matters relating to the interpretation of rules (or resolution of RoO-related disputes), could potentially play an important role in facilitating and growing regional trade under TFTA preferences. Inconsistent application and adjudication of the rules has been an issue afflicting operators throughout the TFTA region, imposing significant yet avoidable costs on traders and creating uncertainty.
Conclusion
It is worth recalling that it is primarily individuals and firms, not States, which trade with each other and who are the ultimate beneficiaries of RoO. It is they who carry the burden, or enjoy the practical benefits, of regional trade preferences and the associated RoO criteria. While is known that limited consultation between private sector stakeholders and government negotiators does take place, there is an overriding sense that this is not necessarily so throughout the TFTA region and positions are often developed by second-guessing what might be a desirable (and desired) outcome. The TFTA process offers the opportunity of a RoO outcome that deals with some of the challenges and at times highly restrictive practices of the past. A little bit of thinking outside the box here and there may be some of the tonic that is needed during the next phase of negotiations.
Eckart Naumann is a consultant economist, and Associate of the Trade Law Centre (TRALAC), based near Cape Town, South Africa.
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Kenya to review growth target after rebasing – central bank chief
Kenya will review its economic growth target for this year after it recalculated the size of the economy, a move that led to a jump in annual growth rates, its central bank governor said on Monday.
Government officials put 2013’s gross domestic product at $53.4 billion – 25 percent higher than previously stated – after updating the base year for its calculation.
Growth for 2013 was revised up to 5.7 percent from 4.7 percent. The higher growth trend was confirmed when the statistics office said the economy expanded by 5.8 percent in the second quarter, up from 4.4 percent in the first three months.
In September, Treasury Cabinet Secretary Henry Rotich said Kenya was expected to grow by between 5.3 to 5.5 percent in 2014, down from 5.8 percent previously forecast.
“The National Treasury (finance ministry) will review the previous growth target that was based on the old GDP series and is expected to announce new targets,” Njuguna Ndung’u told Reuters.
Ndung’u said he expected the economy to remain resilient this year and in the medium-term mainly due to its diverse nature.
The 5.8 percent expansion in the second quarter surprised many because it came about despite a slump in the tourism sector following a spate of attacks blamed on Islamists.
Output from the construction, manufacturing and financial services rose during the period.
“Various economic and financial indicators including cement and electricity production and consumption coupled with the sustained confidence in the economy suggest a continued pick-up in economic activity,” the central banker said.
He also cited increased foreign direct investment in transport and energy infrastructure, declining commercial lending rates and improvement in the management of spending by new local government units called counties.
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Why banks should embrace structured trade finance
A number of developments have taken place in the banking industry globally and in Rwanda, in particular, with regard to the way conducting of business.
We have recently witnessed mergers and acquisitions in Rwanda’s financial sector and opening shop of new banks on the market.
These developments imply growing competition in local banking industry and call for a lot of innovation on the part of the banks, especially in aggressively rolling out of the existing trade products and developing of new ones.
Structured financing of commodity trade could be one of the measures banks should consider. These techniques of financing and the different applicable trade finance tools originated from the Latin American financial crisis in the mid-1980s. During that period banks were involved in international commodity finance and relied on balance sheet analysis and government guarantees for ascertaining the credit worthiness of borrowers. Security was at times enhanced by tangible assets such as real estate offered as collateral.
However, the international environment for commodity finance has continued to evolve, driven especially by the development of information technology, consolidation of commodity trading and processing industries and increasing liberalisation.
With the consolidation of the commodity industry, only a small number of large creditworthy traders are actively involved in trade, in addition to an increasing number of niche players that are difficult to finance. These niche players if they come for finance, they want the money almost at zero cost.
Due to the effect of consolidation, companies have become much large, with increased credit requirements (compared with own equity), modest capital base and limited access to government guarantees. However, given the high default rate of commodity traders, banks have become hesitant to advance unsecured credit.
Due to privatisation, commodity-trading activities are now controlled by private companies, which has seen the previous government-to-government business backed by state bank letters of credit being replaced by commercial bank funding.
These developments have increased economic and political risks in emerging markets; and the traditional tools are no longer sufficient to dealing with the growing risks and are, therefore, less viable. Producers, processors, traders and banks that fail to adapt to the new realities of international commodity and financial markets risk losing out.
That’s why financial institutions need to adapt the basics of using the new trade finance tools.
The future will see various structured finance tools like pre-shipment or pre-export financing, post-shipment financing, warehouse receipt financing, and structured trade and commodity financing utilised by a number of banks. Large continental and regional banks have already moved in this direction, but most local banks in the market in are yet to embrace it.
All these fundamental tools rotate around identifying the probable risks at whatever level, and the best possible mitigation measures. As banks take on the credit risk, independent collateral managers take on the performance risks on ground.
Commercial banks can make better use of increasingly common external tools that ease the risks, like collateral management services while extending pre or post shipment finance, not just to control goods at one point in the marketing chain (inventory or stock financing), but to control trade flows in the value chain from farm gate to final destination expecting reimbursements through export receivables.
Collateral management services are available locally and globally. In Rwanda, commodities being handled under these highbred services include maize, fertilisers, sugar, rice, petroleum products and pharmaceuticals, among others.
The benefits of these new trade finance services go both ways; for banks, these services provide the ability to lend out more than it would been possible if only physical assets were considered; they reduce the number of non-performing loans as these are transactional based financing and the banks have a constant flow of information through the independent third party. For the trader, the ability to borrow more than what their physical collateral permits is second to none, plus a certain level of proper business management through the collateral manager’s reports.
These services provide comfort to both the financing and borrowing parties that a collateral manager is willing and able to take on the performance risk on ground.
Importantly, there banks need to build their capacity and improve skills in structured finance to be able to apply the tools effectively.
Greater skills in structured finance will, among other things, enable bankers to identify new revenue streams that can be used to underwrite medium and long-term financing.
The writer is the ACE Global Depository Rwanda country manager.
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Trade and Industry working on accelerating manufacturing
The Ministry of Trade and Industry is in the process of developing the first set of sector growth strategies as part of an industrial policy implementation strategy to accelerate manufacturing activities and value addition, and develop local value chains within the country as well as beyond Namibia’s borders.
“We are pursuing industrial cooperation at bilateral and regional level through the Southern African Customs Union (SACU) and the Southern African Development Community (SADC). Just a few days ago I had the privilege to launch the negotiations towards a Retail Charter for Namibia that would, amongst others, provide for local sourcing and supplier development, aimed at enhancing access for local manufacturers to retail shelf space. In addition, we are also reviewing the SME policy, which is largely aimed at assisting SMEs with entering formal business and the manufacturing sector in particular, to enhance linkages and coordination,” said Trade and Industry Minister, Calle Schlettwein.
Speaking at the Namibian Manufacturing Association (MNA) Manufacturer of the Year gala event on October 23, Schlettwein said that in the current financial year a total of 1006 companies, mostly SMEs, have benefited through the ministry’s Business Support Service Programmes
“In our quest to industrialize, Namibia can expect tough competition from a number of sources. In order to remain competitive and relevant, Namibia will have to frequently review and analyze her incentive regime that includes tax and non-tax incentives. I’m glad to inform you that the manufacturing incentives are being reviewed at the moment. The main aim of the incentive regime is to develop our industrial competencies and capacities with the ultimate view to explore the frontiers of our production possibilities. In this, regard, government will deliberately strive to implement measures that will make it easier for businesses to set up and operate in Namibia,” said Schlettwein.
The minister continued that the manufacturing sector plays a strategic role in economic development and is the component of industry that presents significant opportunities for sustained growth.
Such growth, he said, must further translate into sustainable employment and equalized wealth distribution.
“To illustrate, in NDP4, the manufacturing sector is identified as a priority which in the year 2012 generated exports to the value of N$21 billion, the equivalent of 53 percent of total exports of goods that year. Of the N$21 billion, 49 percent consisted of food products and beverages, 13 per cent of refined zinc and blister copper, and the remainder – other manufactured goods. The constant growth in the sector (1.2 percent in both 2011 and 2012) can mainly be attributed to the sub-sector ‘other food products and beverages’ that recorded an increase of 6.5 percent in real value added, following a decline of 5.4 percent a year earlier. This sub-sector alone contributed 40.4 percent of the total manufacturing in 2012 (NSA, National Account 2012),” said Schlettwein.
According to the Namibia Statistics Agency’s Labour Force Survey 2013, there are 32 769 employed workers in the manufacturing sector compared to 28 409 employed in 2012 and related industries which effectively comprises 4.8 percent of the total labour force. This figure shows that the sector is still relatively small in employment terms but expanding (despite the trend towards automation in manufacturing).
- Related: Public Procurement Bill to benefit manufacturing industry (The Villager, 27 October 2014)
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Agreement reached to launch Africa’s largest Free Trade Area
The Tripartite Sectoral Committee of COMEA-EAC-SADC Ministers meeting in Bujumbura, Burundi from 24-25 October 2014 has agreed that the Tripartite Summit of Heads of State and Government to be held in Egypt in mid-December 2014 would launch the Tripartite Free Trade Area (FTA).
The decision to launch the Tripartite FTA took into account the fact that the majority of the Tripartite Member/Partner States have made ambitious tariff offers and were agreed on Rules of Origin to be applied in the interim whilst further work continues on product specific Rules of Origin.
The Tripartite TFA encompassing 26 Member/Partner States from the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC) and the Southern African Development Community (SADC), with a combined population of 625 million people and a Gross Domestic Product (GDP) of USD 1.2 trillion, will account for half of the membership of the African Union and 58% of the continent’s GDP.
The Tripartite FTA popularly known as the Grand Free Trade Area, will be the largest economic bloc on the continent and the launching pad for the establishment of the Continental Free Trade Are (CFTA) in 2017.
The Tripartite FTA offers significant opportunities for business and investment within the Tripartite and will act as a magnet for attracting foreign direct investment into the Tripartite region. The business community, in particular, will benefit from an improved and harmonized trade regime which reduces the cost of doing business as a result of elimination of overlapping trade regimes due to multiple memberships.
The launching of the Tripartite Free Trade Area is the first phase of implementing a developmental regional integration strategy that places high priority on infrastructure development, industrialization and free movement of business persons. In order for the Tripartite FTA to realize inclusive and equitable growth, the meeting agreed on the need for expeditious formulation and implementation of a regional industrial programme.
The Chairperson of the Ministerial meeting, Honourable Chiratidzo Iris Mabuwa, Deputy Minister of Commerce and Industry of Zimbabwe, hailed the agreement to launch the Grand FTA as a milestone in regional and continental integration.
“Africa has now joined the league of emerging economies and the grand FTA will play a pivotal and catalytic role in the transformation of the continent,” she declared at the close of the meeting. “We have made significant progress in negotiations on trade in goods, and we now need to expedite negotiations on trade-related areas, including trade in services, intellectual property and competition policy to ensure equity, among all citizens of the wider region.”
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Leaders commit billions in major new development initiative for the Horn of Africa
UN Secretary-General, WBG and IsDBG Presidents, and other Agency Heads Visit Region to Link Peace Efforts with Economic Progress
Leaders of global and regional institutions today begin an historic trip to the Horn of Africa to pledge political support and major new financial assistance for countries in the region, totaling more than $8 billion over the coming years. UN Secretary-General Ban Ki-moon, the World Bank Group (WBG) President, Jim Yong Kim, as well as the President of the Islamic Development Bank Group and high level representatives of the African Union Commission, the European Union, the African Development Bank, and Intergovernmental Agency for Development (IGAD) are combining forces to promote stability and development in the Horn of Africa.
On the first day of the joint trip, the World Bank Group announced a major new financial pledge of $1.8 billion for cross-border activities in a Horn of Africa Initiative that will boost economic growth and opportunity, reduce poverty, and spur business activity.
The initiative covers the eight countries in the Horn of Africa – Djibouti, Eritrea, Ethiopia, Kenya, Somalia, South Sudan, Sudan, and Uganda.
“This new financing represents a major new opportunity for the people of the Horn of Africa to make sure they get access to clean water, nutritious food, health care, education, and jobs,” said World Bank Group President Jim Yong Kim. “There is greater opportunity now for the Horn of Africa to break free from its cycles of drought, food insecurity, water insecurity, and conflict by building up regional security, generating a peace dividend, especially among young women and men, and spurring more cross-border cooperation.”
Leading the trip to the Horn of Africa, the United Nations Secretary-General, Ban Ki-moon said: ”The countries of the Horn of Africa are making important yet unheralded progress in economic growth and political stability. Now is a crucial moment to support those efforts, end the cycles of conflict and poverty, and move from fragility to sustainability. The United Nations is joining with other global and regional leaders to ensure a coherent and coordinated approach towards peace, security and development in the Horn of Africa.”
The European Union also announced that it would support the countries in the region with a total of around $3.7 billion until 2020, of which about 10 percent would be for cross-border activities; the African Development Bank announced a pledge of $1.8 billion over the next three years for countries of the Horn of Africa region; while the Islamic Development Bank committed to deploy up to $1 billion in new financing in its four member countries in the Horn of Africa (Djibouti, Somalia, Sudan and Uganda).
The Horn is diverse, with some of the fastest growing economies and huge untapped natural resources. However, it also has many extraordinarily poor people and populations that are now doubling every 23 years. Unemployment is widespread among growing numbers of young people. Women, in particular, face huge obstacles because of their gender, including limited land rights, limited education, and social customs that often thwart their ability to pursue economic opportunity, and improve living conditions for their families and communities.
Countries in the region are also vulnerable to corruption, piracy, arms and drug trafficking. Terrorism, and related money flows are significant and interconnected threats in the Horn of Africa. People-trafficking is also a growing problem in the region. However, there are commendable efforts being made through regional cooperation in parts of the Horn to tackle the root causes of these problems.
The new financing announcement will support those efforts and comes on the first day of the trip led by UN Secretary-General Ban Ki-moon, to discuss peace, security, and resilience. In addition to the UN Secretary-General, other leaders making the trip are World Bank Group President Jim Yong Kim; Islamic Development Bank Group President Ahmad Mohamed Ali; African Union Commission Deputy Chairperson Erastus Mwencha; Intergovernmental Agency for Development (IGAD) Executive Secretary, Ambassador Mahboub Maalim; African Development Bank Group Special Advisor to the President, Youssouf Ouedraogo;Deputy Director General for Development and Cooperation, European Commission, Marcus Cornaro and European Union Special Representative for the Horn of Africa, Alexander Rondos.
The World Bank Group said its new $1.8 billion packaging, which is in addition to its existing development programs for the eight countries, would create more economic opportunity throughout the region for some of the most vulnerable peoples, including refugees and internally displaced populations and their host communities. Wars and instability have generated more than 2.7 million refugees along with over 6 million internally displaced people. The Bank Group will also help the region build up its communicable disease surveillance, diagnosis, and treatment capacity.
Many of these diseases are associated with or exacerbated by poverty, displacement, malnutrition, illiteracy, and poor sanitation and housing. Increased cross-border trade and economic activity in the Horn of Africa will necessitate simultaneous investments in strengthening disease control efforts and outbreak preparedness.
The Bank Group will also support greater regional links between countries with regional transport routes, stronger ICT and broadband connectivity, more competitive private sector markets, increased cross-border trade, regional development of oil and gas through pipeline development, and the expansion of university and other tertiary education.
The Bank Group’s pledge includes $600 million from the IFC, its private sector arm, which will support economic development in the countries of the Horn. IFC investments under the new Horn Initiative will include a regional pipeline linking Uganda and Kenya; greater investment in agribusiness expansion in storage, processing, and seeds; possible public-private partnerships in pharmaceuticals, renewable energy and transport; and financial advice and support to government and companies to improve business confidence and investment, access to markets, and access to private finance. Another $200 million is for guarantees against political risks from the Multilateral Investment Guarantee Agency.
A new World Bank Group paper forecasts that the Horn will undergo dramatic and lasting change when oil production starts in Kenya, Uganda, and possibly Somalia and Ethiopia.
For its part, the European Union’s Horn of Africa approach is based on a strategic framework adopted in 2011. Support programs for 2014-2020 will be guided by the same analysis that underpins the World Bank’s Horn of Africa Initiative and will focus on the development challenges that must be tackled to unlock the region’s considerable potential. EU support will mostly target the three pillars of the Horn of Africa Initiative: boosting growth, reducing poverty by promoting resilience, and creating economic opportunities.
“The EU stands ready to further deepen its long-standing partnership with the Horn of Africa – helping to build robust and accountable political structures, enhancing trade and economic cooperation, financing peace keeping activities and providing humanitarian assistance and development cooperation,” said European Development Commissioner Andris Piebalgsprior to the trip.
Other leaders on the trip said that the Horn of Africa region needs new development assistance in order to secure peace and opportunity to thrive and prevent future conflicts.
The Islamic Development Bank Group said its new financing for Djibouti, Somalia, Sudan and Uganda over 2015-2017 would focus on critical infrastructure development, food security, human development, and trade. A further $2 billion could be provided by the Arab Coordination Group over the same period.
Commenting on this announcement, Islamic Development Bank Group President Ahmad Mohamed Ali said: ”The Horn of Africa is an important gateway to Africa and a bridge to Western Asia. Bringing stability and sustainable development to the Horn of Africa will undoubtedly significantly contribute to stability across the entire African continent. The Islamic Development Bank Group salutes this renewed focus on the Horn of Africa and stands ready to work with all partners, including the Arab Coordination Group, to support regional cooperation and the economic revival of the Horn of Africa, especially in its four member countries.”
“Given the complexity of the environment prevailing in the region, we must convince ourselves that it is not the financial means that will win in the Horn of Africa region, but our commitment and determination to act under the leadership of the countries in a united and coordinated manner,” said African Development Bank Group Representative, Youssouf Ouedraogo, Special Advisor to the President.
African Union Commission Deputy Chairperson, Erastus Mwencha, added, “Our efforts to create peace and stability must be reinforced by investments in the peoples and countries of the Horn.”
A new WBG regional study on the Horn of Africa released today at the start of the trip found reasons for hope for the region: “Despite the challenges the Horn of Africa faces, there are encouraging signs of political momentum for enhanced regional economic interdependence. Increasingly, Horn of Africa countries are members of the East African Community, IGAD in Eastern Africa, and the Common Market for East and Southern Africa. Some countries are showing strong political will to solve both security and development issues through increased cooperation – for example, many have sent troops to participate in peace-keeping efforts and have participated in diplomatic initiatives.”
“This mission is the apex of an ambitious partnership approach that will provide the necessary instruments to strengthen the resilience agenda in the IGAD region,” said IGAD Executive Secretary, Ambassador Mahboub Maalim.
For the UN’s Ban and World Bank’s Kim, this is their third trip in 18 months together to Africa. In 2013, the two travelled to the Great Lakes and Sahel regions, drawing attention to the need to promote both peace and development. During the two previous trips, Kim pledged $2.7 billion for regional projects for programs to improve health, education, nutrition, access to energy, and job training.
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How should the WTO reform itself?
The World Trade Organization’s director-general, Roberto Azevêdo, has called for an urgent shakeup of his institution. Last week, he declared the WTO to be in “the most serious situation [it] has ever faced,” and now he is convening crisis talks with member countries. One of the main reform proposals, reportedly advocated by the United States and the European Union, is to move away from consensus-based decision-making – one of the WTO’s founding principles. That might boost efficiency, but it also could jeopardize one of the WTO’s greatest assets: its legitimacy.
The current impetus for reform is driven by the desire to bring global trade negotiations back to the WTO. With multilateral talks floundering – the WTO’s Doha Round talks stalled again this summer, as India blocked implementation of the “Bali Package,” the modest agreement reached at last year’s ministerial conference – some of the WTO’s largest members, notably the US and EU, are pursuing bilateral and regional trade agreements.
These efforts include the US-EU Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership. The US and the EU are also leading the charge on the Trade in Services Agreement (TiSA), assembling a coalition of like-minded WTO members for closed-door negotiations on further liberalization and new rules for their mutual trade in services. To date, none of these non-WTO talks include the other major players in global trade – China, India and Brazil.
The reason most of the large “plurilateral” negotiations are taking place outside of the WTO is simple: agreements within the WTO need the approval of all members to proceed. But unanimous approval is likely only when the content of agreements is not controversial – hence the proposal to abandon the rule.
Such a reform would eliminate individual countries’ veto power, allowing agreements to progress within the WTO even if certain members oppose them. This proposal is a game changer. The result is that plurilateral negotiations – talks involving only some countries rather than the WTO’s entire membership – would likely become the organization’s main way of doing business.
To be clear, the WTO, like its predecessor, the General Agreement on Tariffs and Trade, has always allowed sub-groups of countries to form “members-only” plurilateral agreements, including regional integration initiatives, like the EU, and bilateral deals. Many of these agreements benefited members and non-members alike.
Countries are also allowed to negotiate regional trade agreements outside of the WTO. But the WTO’s consensus norm has helped to ensure that such agreements do not undermine the global trading system’s multilateral core. Currently, if a sub-group wants to pursue talks on a specific issue like trade facilitation or government procurement, it generally must do so within the WTO, with all members approving the agreement. Trade governance has remained fundamentally multilateral.
Though dropping the consensus norm might help deliver agreements and make the WTO more “efficient,” it poses real risks to the organization’s legitimacy. Moving from consensus to voting, as some advocate, would disenfranchise the WTO’s smallest and poorest members. These countries lack the market size to be invited into plurilateral clubs. Their major avenue for influence is the threat of a veto.
Some commentators suggest that letting plurilateral agreements become the norm for trade liberalization is not a problem as long as their benefits are extended to all WTO members. That misses the point. Modern trade negotiations are as much about setting a new regulatory agenda as they are about reducing tariffs. The risk for small countries is that in a world of globalized production, all states would be forced to conform to regulatory standards set by clubs of big market players.
Marginalizing the smallest countries would hurt not only them, but also the WTO as a whole. The WTO is widely perceived as having greater legitimacy than many international organizations, including the International Monetary Fund and the World Bank, precisely because all members have a say. The short-term efficiency gains from dropping consensus may well be outweighed by higher long-term costs.
So what is the way forward? One possible reform would be to spell out clear criteria for when a country may use its veto power. An individual member’s interest in holding up talks needs to be weighed against the interests of all, and in light of the WTO’s mandate.
In the current stalemate over the Bali Package, India argues that its stance is legitimate, because it is helping millions of poor, food-insecure Indian farmers. Opponents, including the US, argue that India’s food-security program is distorting world prices and harming poor farmers in Africa. An independent panel could play the role of arbiter, evaluating the competing claims and helping to overcome the political posturing on both sides.
Moreover, plurilateral negotiations need clear guidelines, which should include transparency, with all WTO members allowed to observe proceedings. For example, the TiSA talks on new services rules exclude other WTO members. There must also be mechanisms clearly specifying how countries can join an existing plurilateral agreement, including the possibility of opt-out clauses. Crucially, those countries that join later should not have to make greater concessions than founding members.
As the WTO’s members debate reform proposals, they need to ensure not only that the WTO becomes more efficient, but also that it is inclusive and delivers on development. Anything else would risk the institution’s long-term legitimacy and effectiveness.
Published in collaboration with Project Syndicate
Emily Jones is deputy director of the Global Economic Governance Program, University of Oxford.
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SA, Kenya sign maritime integration strategy
Transnet National Ports Authority (TNPA) was taking a lead in the maritime regional integration strategy by sharing its expertise with the rest of the continent’s ports, it said on Friday.
The authority, which is one of five operating divisions of Transnet Group responsible for functioning of the eight national ports systems, has signed a memorandum of understanding (MOU) with several ports in the region.
Kenya Port Authority (KPA) was the fourth to sign, after the Maputo Port Development Company, Namibian Port Authority and the Ghana Ports and Harbours Authority.
The TNPA will later this year extend these agreements to Angola, Tanzania and Sudan.
An objective of the MOUs is to boost intra-regional trade within the Southern African Development Community, which sits at 12 percent.
“There are a number of obstacles hindering the progress of African ports. These include the lack of deep water berths, poor equipment and lack of maintenance and infrastructure, limited or no training, limited capital to develop and port infrastructure that is lacking,” said TNPA’s chief executive Tau Morwe.
The signing of these MOUs put Transnet in a position to share best practices with other countries as well as learn from them in areas in which they operated efficiently, he said.
Durban is Africa’s busiest port. Its container terminal handles about 60 percent of the country’s container volumes.
“This also puts us in a position where we can contribute towards the objectives of the AU 2050 Africa’s Integrated Maritime Strategy – the development of infrastructure and development of skills.”
Morwe indicated his division’s interest in signing with Africa’s powerhouse Nigeria, which recently overtook South Africa to become the continent’s largest economy. But even at second place, South Africa remains its most advanced economy.
“We also need to agree that there are areas in which we compete but also identify areas of collaboration; that is our relationship with Nigeria,” he said.
Unlike the TNPA whose mandate is that of being the national ports landlord, the KPA is landlord and operator.
KPA’s corporate services general manager Justus Nyarandi said its port authority would use TNPA’s expertise in separating the ports into two different entities, landlord and operational divisions.
Nyarandi said Kenya’s strategic and principal port, Mombasa, was busy constructing an additional terminal. The current container terminal is 840m with a capacity of 1 million twenty-foot equivalent units (TEUs). This year, the port was expected to handle more than 1 million TEUs, a sign that it was overstretched, he explained.
“We are fast-tracking the construction of the second terminal and we have decided that it is going to be operated by a private operator.
He said the new operator would be selected through a bidding process and Transnet had been invited to bid.
Through the MOUs, Transnet has started an intensive training programme with Namibian Ports Authority which will include training of tug masters, engineers, marine pilots as well as skipper port operations among other initiatives.
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‘Nigeria is committed to WTO multilateral trading system’
The Minister of Industry, Trade and Investment, Mr. Olusegun Aganga, has said that Nigeria is committed to the World Trade Organisation (WTO) and the multilateral trading systems.
Aganga stated this during the opening ceremony of the national workshop on implementing the WTO Trade Facilitation Agreement (TFA) in Abuja.
He noted that the implementation of the WTO Trade Facilitation Agreement was critical to enhancing global trade.
The minister, who was represented by the Director of Trade in the Ministry, Mr. Felix Askipta, said: “The main purpose of the workshop is to enhance participants understanding of the Trade Facilitation Agreement and its implication as well as determine Nigeria’s target categorisation of the remaining TFA commitments on B and C and enhance participants awareness on the key success factor for setting up and strengthening of a National Trade Facilitation Committee.
According to him, WTO members had failed to meet the proposed deadline of July 31, 2014 to conclude the Protocol Agreement on amendment of the WTO Agreement on Trade Facilitation.
“This was the first test of WTO members’ commitment to implementing the outcomes of the Bali WTO Ministerial Conference,” he said.
He said TFA contains provisions that will enable faster and more efficient customs procedures through effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues.
The minister stressed that international trade was critical to the economic development of any nation, adding that it would enable a country to expand its market and generate much foreign exchange.
“Nigeria has provided detailed information on technical assistance requirement and a valuable basis for the eventual implementation of the result of the WTO negotiations. The outcome of the workshop would assist Nigeria to negotiate more effectively on Technical Assistance and Special and Differential Treatment (TA and SDT), as well as on trade facilitation measures that should be included in the final results of the negotiations,” he said.
Speaking at the event, the Associate Economic Affairs Officer, United Nations Conference on Trade and Development, Julian-Fraga Camos, said that the International Trade Centre was the technical agency of UNCTAD and WTO, adding that their special mandate was to work with the government and private sector, especially the Small and Medium Enterprises, to improve export, import.
“We are assisting and collaborating with the government and whatever decision government made on categorisation a,b,c, of the WTO Trade Facilitation Agreement should not be based on the regulatory agencies alone but the point of view of the traders/private sector of Nigeria has to be take into consideration regarding the inefficiency and bottlenecks in the implementation of procedure or law,” he said.
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South Africa lobbies the US to extend Agoa
In August this year, US President Obama made a commitment to support the continuation of the African Growth and Opportunity Act (Agoa), a legislation that provides duty-free market access to the United States for qualifying sub-Saharan African countries.
Obama mentioned particularly South Africa, Nigeria and Angola, saying the US still does a lot of trade with these three countries. “We need more Africans, including women and small- medium-sized businesses, getting their goods to market,” he said, addressing delegates at the US-Africa Business Forum in Washington.
South Africa had welcomed Obama’s comments, with Ambassador to the United States, Ebrahim Rasool, saying the US is the biggest source of foreign investment to the country. Since then, South Africa gone all out to woo leaders of the US Senate and House of Representatives to include South Africa when Agoa is extended. Agoa expires in 2015.
Agoa allows more than 98% of South Africa’s exports to enter the US duty-free. Agoa was approved by the US Congress in May 2000 to assist Africa’s sub-Saharan economies and to improve economic relations between the US and the region. Agoa has seen total African exports to the US more than quadruple, and US exports to sub-Saharan Africa more than triple, since its inception.
South Africa-US trade
The US is the second largest destination for South African exports after China, accounting for 7% of exports. It is by far the largest destination for South Africa’s automotive manufacturing sector, making up 21% of all vehicle exports and 42% of car exports.
Obama’s commitment has given South Africa impetus to lobby for Agoa to be renews for the country. On 22 October, Business Day Live reported that Rasool met the American Chamber of Commerce to discuss the way forward.
“The chamber is very supportive of having Agoa renewed for South Africa, even though American companies don’t benefit from it directly. To ensure that it gets renewed … we want to show the US that South Africa is giving something back to the US that will benefit American business,” the chamber’s executive director Carol O’Brien had told the publication.
Doing business with South Africa
During the US visit, the chamber discussed the finer details of doing business with South Africa, which included the ownership element of black economic empowerment, local content requirements, labour laws and strikes, lack of policy and cohesiveness among different government departments, according to O’Brien.
South Africa is eligible for Agoa this year and also qualifies for textile and apparel benefits, according to the Office of the US Trade Representative. South Africa is the United States’ 39th largest supplier of goods imports in 2013. US goods imports from South Africa totalled $8.5-billion in 2013, a 2.2% decrease ($193- million) from 2012, but up 83% from 2003.
The five largest import categories in 2013 were: precious stones which includes platinum and diamonds ($2.6-billion); vehicles ($2.3-billion); iron and steel ($696- million); ores, slag, ash ($577-million); and machinery ($404-million).South Africa exported agricultural products worth $253 million in 2013, and leading categories included wine and beer ($69 million); fresh fruit ($59 million); and tree nuts ($42 million).
South African exports to the US
South Africa was the US’s 36th largest goods export market in 2013. US goods exports to South Africa in 2013 were $7.3-billion, down 3.4% ($259 million) from 2012, but up 159% from 2003.The top export categories for 2013 were: machinery ($1.6-billion), precious stones, mainly gold ($1.1-billion), vehicles ($1.0-billion), electrical machinery ($418-million), and optic and medical instruments ($362-million).
US exports of agricultural products to South Africa totalled $295-million in 2013 and the top categories included dairy products ($28-million), wheat ($25-million), planting seeds ($24-million), and poultry meat ($24-million).
Foreign direct investment
The latest data (2012) on US foreign direct investment (FDI) in South Africa was $5.5 billion, a 5.6% decrease from 2011. This FDI was led by the manufacturing and wholesale trade sectors. On the other hand, South Africa FDI in the United States totalled $1.5 billion in 2012, up 55.4% from 2011.
In 2012, the US and South Africa signed a Trade and Investment Framework Agreement (TIFA), which amends the United States-South Africa TIFA originally signed in 1999. The most recent meeting of the United States-South Africa Council on Trade and Investment was held in June 2012 in Washington D.C.
In addition, the US and the Southern Africa Customs Union (SACU), which includes South Africa, signed a Trade, Investment, and Development Cooperative Agreement (TIDCA) in 2008. The TIDCA establishes a forum for consultative discussions, cooperative work, and possible agreements on a wide range of trade issues, with a special focus on customs and trade facilitation, technical barriers to trade, sanitary and phytosanitary (SPS) measures, and trade and investment promotion.
South African Competitiveness Forum
Brand South Africa will host its second South African Competitiveness Forum in Johannesburg on 4 and 5 November 2014 under the theme “Active citizenship and its role in changing the South African brand reality”. Top minds from business, government, civil society and the academic world will come together to discuss our position in the world, and uncover ways to give South Africa a competitive edge on the global stage. Click here to find out more.
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EAC law to regulate trade coming in Dec
The East African Community law on competition will come into force in December promising a boost to cross-border trade. The EAC Competition Act 2006 seeks, among other things, to promote fair trade and ensure consumer welfare and to establish the EAC Competition Authority.
It grants consumers the legal right to take on unscrupulous traders who sell them substandard products and those who offer poor quality services.
The EAC Council of Ministers recently decided that the law should become operational in December bringing to an end an eight-year delay occasioned by intermittent haggling and backpedalling by partner states.
Trade specialists say that while some EAC partner states had enacted national competition Acts, these laws are deemed inadequate to deal with cross-border and multi-jurisdictional competition cases. They add that co-operation at the bilateral level may be enough to redress some non competitive and restrictive business practices, but a regional framework provides a more consistent and sustainable way of addressing these regional issues.
The East African Business Council executive director, Mr Andrew Luzze said that as the cross border trade grows, a regional competition law becomes crucial to check unfair trade practices.
Available statistics show that the EAC’s total intra-regional trade soared from $2 billion in 2005 to $5.8 billion in 2012, while the total intra-regional exports grew from $500 million to $3.2 billion in the period under review.
“Without regional competition law, monopolies or firms with a lion’s market share can easily abuse their market dominance by engaging in such activities as price fixing, sharing of markets and compromising quality to the detriment of consumers” Mr Luzze said.
According to him the EAC competition law will create a level playing ground for major and small companies, contrary to the current environment where major merchants tend to collude and fix prices.
EAC spokesperson, Richard Owora said that the Secretariat is working overtime to establish a regional competition authority to oversee the operationalisation of the law.
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New revenues can offset Africa’s rising income inequality
Combating rising income inequality in sub-Saharan Africa will require a pragmatic, multipronged approach to uncover new sources of revenue while also enabling critical investments in human capital, seminar participants agreed.
The “Fiscal Policy and Income Inequality in Sub-Saharan Africa” seminar explored practical areas where taxation and public investment can contribute to greater incomes for all. The October 10 seminar was held on the sidelines of the 2014 IMF-World Bank Annual Meetings in Washington, D.C.
Sub-Saharan Africa’s remarkable growth over the past two decades has not translated into shared prosperity. The subcontinent remains marred by inequality, despite being one of the world’s fastest growing regions.
To be sure, income inequality has caught the attention of policymakers for some time, and momentum is building to develop innovative strategies to fight it. Making growth inclusive was one of the central themes of the Africa Rising conference held in Mozambique in May 2014. It was also discussed in depth in the April 2014 edition of the Regional Economic Outlook. In addition, an IMF staff report published earlier in 2014 found that fiscal policy is the primary tool for governments to affect income distribution.
Focus first on boosting revenue
Governments should first ensure that they raise enough revenue, the seminar heard. “In sub-Saharan Africa, the revenue-to-GDP ratio is still relatively low compared to other parts of the world,” said Antoinette Sayeh, Director of the IMF’s African Department. “You cannot have the fiscal space to spend on things that will help reduce inequality if you do not have enough revenue,” she added.
This can be achieved by implementing progressive taxation, for example by substituting consumption-based taxes with levies on income or property. Additional revenue could come from the removal of across-the-board tax breaks such as generalized fuel subsidies, which tend to benefit the well-off far more than the poor. Where appropriate, these need to be replaced with targeted alternatives, such as conditional cash transfers, Sayeh said.
For Martin Ravallion, a professor at Georgetown University who has done extensive research on poverty and inequality, African governments should make smart investments in broader economic enablers that do not cause a conflict between promoting growth and fighting inequality. These include spending on health and education, as well as making the legal system accessible to all. “It’s important to get the priorities right for sub-Saharan Africa,” he said.
Shared strategy
According to Lucien Marie Noel Bembamba, Finance Minister of Burkina Faso, fighting inequality requires inclusive governance. “Governments need first to formulate a common vision, because when the strategy is shared, it is much easier to succeed,” he said. He recalled how, in 2008, a food crisis sparked riots in several cities across the country.
The authorities responded with a series of short-term safety nets. First, the government bought local staples and sold them at reduced prices to meet the immediate needs of the most vulnerable. This in turn led to an overall drop in food prices. In addition, targeted cash transfers were channeled through local entities to minimize waste and abuse.
Over time, a series of consultations were held to work out a long-term growth and resilience plan in five-year increments with a focus on sectors where Burkina Faso can claim a decisive advantage. Agriculture proved to be a vehicle of choice. “We found that agricultural development helps boost growth, provides food security, and generates income for the poor,” Bembamba said.
Targeted intervention
“Distribution through expenditure works,” said Henry Rotich, Kenya’s Secretary of the Treasury. To combat inequality, the government relies on a combination of revenue-boosting measures and targeted interventions. In addition to increased spending in health and education, Rotich said, the government changed the procurement code to set aside a percentage of public works contracts for women-owned enterprises and to promote youth employment.
Tapping into the technological innovation that has swept through the country, policymakers were able to reach more easily underserved populations. As a result, the number of people excluded from the formal banking system has declined. “Innovation has changed lives in Kenya,” Rotich said.
How the IMF helps
“Ultimately the outcome we’re pursuing is that the rising tide of African economic expansion does indeed lift living standards for ordinary families and communities across the continent,” said Antoinette Sayeh. “The IMF can help by ensuring that relevant models of success seen in other parts of the world are replicated in Africa.”
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Trade without trade-offs
Economic Partnership Agreements (EPAs) present an opportunity to strengthen and foster intra- and inter-regional integration, an opportunity which should not be wasted. The long-stigmatised EPAs process has the potential to become a catalyst of improved Africa-Africa and Africa-EU political and business relations.
Towards genuinely fair trade
Free and fair trade can be a powerhouse for job creation and growth if the conditions are right. Resources and know-how brought about by properly regulated and transparent foreign direct investment are crucial aspects for success. Trade and investment policy must create and sustain conditions to add value to the complex cross-border supply chains of the world we live in.
Globalisation has demonstrated its capability of lifting millions out of poverty by creating and upgrading jobs. If properly governed, it can improve standards of living and boost economic and social integration. But if left to the forces of the free market and crony capitalism it has proven time and again to be the cause of social and environmental degradation.
The European Parliament and its Committee on International Trade (INTA) are deeply committed to ensuring that trade is not only free, but fair; balancing values and shared interests. We are convinced that only a rules-based trade regime without distortions, red-tape, arbitrary import and export bans and discrimination of foreign businesses and investors is free. We also believe that trade policy must be used to uphold sustainable development, social inclusion and protection of human rights to be considered as fair. In this spirit, trade and investment policy must be used to contribute to advancing not only economic interests, but also civil, political, social, environmental and solidarity rights.
The European Parliament analyses every EPA and related legislation, putting it to the interests, values and development test. And of course it has the last word in ratifying any agreement. During the long-drawn-out EPAs negotiation process, the European Parliament re-focused the EU’s Generalised System of Preferences (GSP) on the countries most in need. We have extended the phasing out of the Market Access Regulation (MAR) 1528/2007, approved interim EPAs with the Pacific, Eastern and Southern African countries and Cameroon and scrutinised the implementation of the CARIFORUM EPA. Our work is far from being complete: the agreements with the Western and Southern African groupings will soon be on the agenda of the INTA committee and soon after debated by the entire European Parliament.
EPAs – a rocky road to success
The EU’s trade policy in general and EPAs in particular are the outcome of extensive discussions and consultations involving EU institutions, EU member states and stakeholders from within the EU and beyond. In spite of long delays, a breakthrough in key talks launched back in 2002 between the EU and African, Caribbean and Pacific (ACP) groupings of states on the conclusion of WTO-compatible and development-oriented regional EPAs was reached this summer.
Both the conclusion of regional EPAs with the Western African and Southern African groupings and the ratifications of further interim EPAs mark important milestones for EU-Africa trade relations. Even though flawed, the oftentimes bumpy and protracted EPA process can nevertheless be considered a success story for several reasons:
In terms of content we have coupled the principle of substantial trade liberalisation with an improved rules of origin and development component, adding a boost to regional cohesion for our partner countries. Up-front access to the EU’s market and asymmetrical and gradual market opening in partner regions characterise our approach.
We have also succeeded in terms of process. The years African and European negotiators dedicated to trade talks were not wasted. We have proven our political will when making necessary policy choices showing a remarkable degree of flexibility. We reached compromises when we were close to losing hope, and maybe most importantly, we have confirmed our commitment to trade-driven development. And we have remained flexible: the doors for expanding membership and deepening interim EPAs when the time is ripe remain wide open.
And this option will remain important. It is clear that bilateral and plurilateral trade agreements which replace unilateral preferences continue to be essential while uncertainty looms around the implementation of the WTO Trade Facilitation Agreement.
Furthermore, mobilisation of civil society and the interest of the academic community triggered substantial discussions and valuable analysis, helping to raise awareness and clear up concerns among our partners. While monitoring the EPA negotiating process, the European Parliament carefully listens to the voices of the civil society and business community from within and outside the EU and will continue doing so. Let me reiterate that the “non-execution clause” in EPAs is a red line for the European Parliament. The protection of human rights as well as social and environmental standards is deeply embedded in the EU’s trade relations and the European Parliament will continue to act as Europe´s democratic conscience when protecting these.
However painful for some partner countries, “the choices deadline” of the Market Access Regulation, which phases-out preference discrimination, gave an extra boost for policy-makers to think regionally. Nevertheless, it should be obvious that regionalisation and development cannot be forced upon any country or region. It is therefore encouraging to see a feeling of genuine ownership of the process emerging throughout different regional blocks. We must seek to transform the EPAs process into a catalyst for genuine positive change, facilitating qualitatively new Africa-Africa and Africa-EU political and business relations.
EPAs partners have undertaken WTO-compatible contractual obligations aiming to facilitate regional integration and trade-driven development. But efforts are required: painful structural reforms will be needed and economic operators will have to adapt to their new realities of increased competition.
Although trade is among preconditions for development, it is not sufficient by itself. Therefore, the EU must fulfil its duty to support countries that take responsibility to play the role of engines for long-term integration within their respective regions, willing to accept short-term pains for the sustained growth benefiting their businesses and societies. Effectively targeted aid for trade must be put at the service of trade mainstreaming. The EU must walk the extra mile and continue assisting developing countries to create regional value chains and eventually join the global production lines.
A process rather than a destination
Let’s not forget that however difficult the process of negotiating and ratifying agreements is, it is just the first step of the long process. Implementation is the key. The CARIFORUM EPA is a case in hand.
The challenges and opportunities for the different ACP groupings, including Africa’s regional economic communities, are clear. Many steps forward seem to be self-evident. One piece of the growth puzzle will be to minimise or eradicate barriers to trade amongst African countries. Without a doubt these are an impediment to development. To put it differently: it is obvious that total isolation from world trade and overreliance on raw-material exports are not a formula for sustainable growth and development.
It is up to our ACP partners to tap into their potential and use available instruments to trigger positive socio-economic transformation. In this process, the success of partnerships will very much depend on the credibility and effectiveness of regional bodies, the involvement of parliaments and civil society and the capacity of national authorities to deliver on promises made in the past.
The creation of a strong agricultural and industrial backbone is not possible without a functioning “hard” and “soft” infrastructure and services that glue economies together. As ample successful examples illustrate, fostering linkages within an economy, diversifying trade and investment flows and trading partners are key for capturing “value-added” elements. In times of scarce public finances, technical assistance targeted at trade mainstreaming, public-private partnerships and the role of emerging economies, it is ever more important.
Moving-up the value chains is impossible without legal certainty and sound regulatory environment, enabling transfer of technologies and skills that increase competitiveness and productivity. In this regard, the role of national and regional parliaments in shaping policies and holding governments accountable for the policies they implement and agreements they conclude is essential.
Ambitious targets and visions, like the one of creating an African Continental Free Trade Area by 2017 are important focal points. However, we must remain realistic and start with bringing down barriers between individual countries. Only genuine intra-regional integration and effective inter-regional coordination can make continental ambitions come true. After a critical mass within a regional block is attained and common institutions are strengthened, we may be able to witness further “enlargements” and “mergers” of regional economic communities, such as the envisaged Tripartite COMESA-EAC-SADC initiative.
EPAs ensuring “traditional” market access to the EU market by themselves are not solutions to Africa’s economic challenges. While EPAs were negotiated, a complicated network of interlinked intermediate inputs covered by a “spaghetti bowl” of free trade agreements has emerged. The EU has both concluded and embarked upon a wide range of trade talks, including the comprehensive Transatlantic Trade and Investment Partnership.
Nevertheless, in this context the EPA-process can still become a stepping stone for long-term economic reforms, preparing developing partners to use the potential offered by investment, services and trade-related rules. I am convinced that despite the challenges, Economic Partnership Agreements have the potential to play an important role for countries seeking sustainable economic growth and deepened integration. Furthermore, EPA partners should strive to adhere to environmental and labour standards, ensure sustainable use of resources and promote Corporate Social Responsibility. Although flexibility is important, double standards and discrimination among trade partners in this field have to be avoided. Monitoring in this area is indispensable. EPAs must now be put to the service of sustainable and sustained development.
Bernd Lange is a member of the European Parliament within the Progressive Alliance of Socialists and Democrats and Chair of the European Parliament Committee on International Trade (INTA).
This article was published in GREAT insights Volume 3, Issue 9 (October/November 2014).
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Sustaining Africa’s development by leveraging on climate change
By leveraging knowledge about climate change, through adopting improved agriculture technologies and using water and energy more effectively, Africa can accelerate its march towards sustainable development.
Policy and development practitioners say Africa is at a development cross roads and argue that the continent – increasingly an attractive destination for economic and agriculture investment – should use the window of opportunity presented by a low carbon economy to implement new knowledge and information to transform the challenges posed by climate change into opportunities for social development.
“Climate change is not just a challenge for Africa but also an opportunity to trigger innovation and the adoption of better technologies that save on water and energy,” Fatima Denton, director of the special initiatives division at the United Nations Economic Commission for Africa (ECA), told IPS.
“At the core of the climate change debate is human security and we can achieve sustainability by using climate data and information services and feeding that knowledge into critical sectors and influence policy making.”
Africa, while enjoying a mining-driven economic boom, should look at revitalising the agriculture sector to drive economic development and growth under the framework of the new sustainable development goals, she said.
Denton said that for too long the climate change narrative in Africa has been about agriculture as a vulnerable sector. But this sector, she said, can be a game changer for the African continent through sustainable agriculture. In Africa, agriculture employs more than 70 percent of population and remains a major contributor to the GDP of many countries.
Climate-smart agriculture is being touted as one of the mechanisms for climate-proofing Africa’s agriculture. CGIAR – a global consortium of 15 agricultural research centres – has dedicated approximately half its one-billion-dollar annual budget towards researching how to support smallholder farmers in sub-Saharan Africa through climate-smart agriculture.
When announcing the research funding in September, Frank Rijsberman, chief executive officer of CGIAR, said there can be no sustainable development or halting of the effects of climate change without paying attention to billions of farmers who feed the world and manage its natural resources.
Although Africa has vast land, energy, water and people, it was not able to feed itself despite having the capacity to.
The inability of Africa’s agriculture to match the needs of a growing population has left around 300 million people frequently hungry, forcing the continent to spend billions of dollars importing food annually.
Climate change is expected to disrupt current agricultural production systems, the environment, and the biodiversity in Africa unless there is a major cut in global greenhouse gas emissions.
The Intergovernmental Panel on Climate Change’s (IPCC) Fifth Assessment Report has warned that surpassing a 2°C temperature rise could worsen the existing food deficit challenge of the continent and thereby hinder most African countries from attaining the Millennium Development Goals (MGDs) of reducing extreme poverty and ending hunger by 2015.
Economic and population growth in Africa have fuelled agricultural imports faster than exports of agriculture products from Africa, says the 2013 Africa Wide Annual Trends and Outlook Report (ATOR) published by the African Union Commission.
The report shows that the agriculture deficit in Africa rose from less than one billion dollars to nearly 40 billion in the last five years, highlighting the need for major agriculture transformation to increase production.
Francis Johnson, a senior research fellow with the Swedish-based Stockholm Environment Institute, told IPS that renewable energy like wind, solar and hydro-power, are vital components in Africa’s sustainable development toolkit given its unmet energy demands and dependence on fossil fuels.
He added that developing countries should embrace clean energy as they cannot afford to follow the dirty emissions path of developed countries.
“In Africa competition is more about water than about land. And right decisions must be made. And when it comes to bio energy, it is the issue of choosing the right crops to cope with climate change,” Johnson said.
According to research by the Ethiopia-based Africa Climate Policy Centre, the cost of adaptation and putting Africa on a carbon-growth path is 31 billion dollars a year and could add 40 percent to the cost of meeting the MGDs.
Adaptation costs could in time be met from Africa’s own resources, argues Abdalla Hamdok, the deputy executive secretary of the ECA. He said that Africa could do this by saving money lost to illicit financial flows estimated to be more than 50 billion dollars a year.
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Thirst for a seamless bloc growing among political leaders, captains of industry
When the Treaty for the establishment of the East African Community was signed in November 1999 and thereafter enforced in July 2000, it heralded a new dawn for the people of this region after efforts to form a political federation collapsed in 1977.
Since then, the presidents of the five member states – Kenya, Uganda, Tanzania, Rwanda and Burundi – have gone into overdrive to ensure that the objectives of this union become a reality.
Such conviction was clear when Kenya’s President Uhuru Kenyatta and his Rwandan counterpart Paul Kagame took stock of the state of the EAC and expounded on their vision of the integration agenda during the just concluded 2014 East African Business Summit in Kigali, Rwanda.
As I moderated the panel session where the two presidents tackled the various issues, opportunities and challenges facing the region, the thirst for a seamless bloc was visible, coming from the political leaders as well as the hundreds of EAC captains of industry present.
One unique aspect that the EAC has expressly confirmed is the crucial role of the private sector and civil society. Article 7 of the EAC Treaty states that the principles that govern the objectives of the community shall be “people-centred and market-driven.”
By 2020, measured by the size of population, the East Africa region will be equivalent to the seventh largest country in the world. As such, the region must prepare its business and political environment for the coming challenges and ooportunities.
According to the World Bank’s latest Doing Business Report (2014), the EAC economies have an average ranking on the ease of doing business of 117 (among 185 economies globally). But there is great variation among them – from Rwanda at 52 in the global ranking to Burundi at 159.
This wide variation in business regulations is among the issues that the EAC needs to tackle to achieve the desired level of integration. The growth of the EAC economies is hinged on the removal of critical obstacles to entrepreneurial activity by all stakeholders in the region.
Apart from the need by the EAC economies to create an enabling environment for doing business, some other key elements need to be harmonised to ensure uniform multisectoral development:
The EAC member states have continued to lag behind in terms of human resource development and mobilisation. The absence of uniform labour laws has seen the region lose great minds as a result of brain drain to its competitors; restricting work permits to highly skilled workers, exorbitant permit fees and tedious documentation processes are among the factors stifling free movement of labour within the East African bloc.
Presidents Kagame and Kenyatta were categorical on the bitter pill citizens and governments in the region must swallow to achieve full integration. They termed as “primitive and unfounded” fears that opening up domestic job markets to regional job seekers would erode opportunities for nationals.
To quote President Kagame, “We do have unwarranted worries. We have experimented with this in Rwanda. When we opened our borders, removed restrictions on work permits and visas, everyone benefited… It is about leaders making decisions and involving the people.”
So a lot of work still needs to be done to make free movement of goods, capital and labour across all partner states a reality.
KCB, as a regional business with footprints in all the EAC countries and South Sudan, believes that the removal of trade barriers across all EAC countries will go a long way towards facilitating regional commerce and driving economic growth.
Labour market demands have changed over time; to facilitate free movement of human resources, harmonisation of education curricula, standards and assessment needs to be made a priority issue.
With agriculture being one of the region’s most important sectors, accounting for about 44 per cent of GDP in Burundi and Tanzania, 30 per cent in Uganda, 24 per cent in Kenya and 38 per cent in Rwanda, the EAC economies still face serious supply constraints on competitive agricultural production, ranging from poor road infrastructure to high energy costs.
Investment in value-addition for agricultural products as well as increasing labour productivity are thus another priority issue.
The extractive and manufacturing industries remain the economic bedrock for many developing countries, generating revenues, foreign-exchange earnings and surpluses to finance development. Most industrialised nations have witnessed exponential economic growth as a result of prudent use of minerals resources.
Flagship projects like Base Titanium’s Kwale Mineral Sands project, and the discovery of oil reserves by Tullow Oil and Africa Oil in Uganda and northern Kenya, signal the strong potential for growth in the sector with the possibility of creating thousands of jobs for local people and generating revenue.
It goes without saying that the ICT sector plays a significant role in the development agenda of most sectors. The sector will definitely be a key growth driver in coming years. According to McKinsey & Company estimates, the overall telecommunications sector in EAC has experienced explosive growth since 2003 with the telecommunications market in the region witnessing tremendous growth in the past decade, thanks to the expansion of the mobile telephony sub-sector.
Even though EAC member countries have committed to investing in ICT as an important part of their national growth plans, there are variations in government involvement within each country, hence the need for an integrated policy framework by the East African Community Secretariat.
Investment in innovation has changed the way East Africans do business and operate. With mobile money, Internet banking, agency banking and lifestyle products such as Biashar@Smart, which KCB has created in partnership with Safaricom, more people in East Africa now have access to financial and advisory services.
At KCB Group, we have contributed immensely to the development of the EAC given that we have a presence in all the EAC members states, employing more than 5,300 employees and extending loans worth over $2.5 billion in the past one year.
Joshua Oigara is the chief executive of KCB Bank Group.