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Angola is the only country in Africa that makes more foreign investments than it receives
The large size of Angolan investments abroad, namely in Portugal, is already reflected in the country’s statistics, which showed that in 2013 Angola was the only country in Africa that made more investments than those it received from abroad.
Figures from the United Nations Conference on Trade and Development (UNCTAD), cited by financial news agency Bloomberg, put Angola, Mozambique and Sao Tome and Principe amongst the African countries that attracted most foreign investment last year.
In fact Mozambique was the Portuguese-speaking country that received most investment, considering the country’s population – the equivalent of US$248 per capita, only behind Gabon (US$550), the Republic of Congo (US$496), Namibia (US$321), Mauritania (US$320) and Liberia (US$268).
Most of the analyses available point to a continued high inflow of foreign investments to Mozambique, given the size of natural gas projects and related infrastructure support, as well as other ongoing mining projects.
Sao Tome and Principe is also well placed, with US$168 per capita, ahead of South Africa and Zambia, while Angola is higher, with US$219, although it has the distinction of being the only African country “that made more investments than those it received” from abroad, according to the Bloomberg analysts.
Angolan state oil company Sonangol has spearheaded Angolan investments abroad in recent years, notably in the energy sector in Portugal (Galp Energia), Brazil (oil exploration), Sao Tome and Principe and Cape Verde (fuel distribution and logistics).
Some of the latest investments include banking, Sonangol being the main shareholder of the largest Portuguese private bank, Millennium bcp, as it recently accompanied a capital increase involving investment of almost 435 million euros, according to the Africa Intelligence Monitor.
More recently, Angolan private groups have begun to take an interest in the construction and banking sectors, especially in Portugal, with businesswoman Isabel dos Santos leading the way.
The daughter of President José Eduardo dos Santos, listed by Forbes magazine as the first African female billionaire, shares control of Portuguese telecommunications operator Nos, with Portugal’s largest private group Sonae, is one of the largest shareholders of Banco BPI and continues to increase her investments.
More recently, other Angolan businesspeople have taken stakes in the media sector, as is the case of António Mosquito in the Controlinveste group and Álvaro Sobrinho in weekly newspaper Sol and, now, in daily newspaper “I”.
The fact that Angola has is now a provider of foreign direct investment (FDI) is particularly surprising given the large volume of investments that Angola has received in recent years, particularly in oil exploration, natural gas exploration and road and rail infrastructure.
On UNCTAD’s FDI list, Cape Verde and Guinea-Bissau are ranked more modestly, with US$39 and US$9 per capita.
Analysts Jeanna Smialek and Jeff Kearns largely relate the level of investment Africa is receiving to efforts made by China, which is already the largest trading partner with Africa as a whole, and to attempts by the United States to take on a major role once again.
“China’s investments in sub-Sharan Africa have increased 40 fold since 2003 and its state-owned enterprises have been able to implement projects quickly in all of the continent’s countries, especially works like building dams on the Nile, highways to oil regions and railways to carry copper,” Bloomberg said.
More recently, China, in partnership with the African Development Bank, launched construction of garment and other factories, whilst also opening up its own market to African imports.
“Chinese and American investments in transport and electricity should make it easier for African companies to carry goods and services to and from the continent,” and it is hoped that this will bring an increase in African per capita income, Bloomberg said.
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Strategic funding unveiled at UN island conference
Financial commitments of up to US$1.9 billion were pledged across almost 300 sustainable development partnerships last week at a UN gathering focused on small islands. Over one-third of these partnerships were unveiled for the first time at the event.
The four-day international meet held in Apia, Samoa, known formally as the Third UN Conference on Small Island Developing States (SIDS), brought together a range of actors to discuss and galvanise international action around the specific vulnerabilities and economic challenges presenting a group of 30-plus small-island countries.
Spread across three geographic regions, the group is home to some 63.2 million people, with a combined GDP of approximately US$575.3 billion.
Although great variations exist between SIDS economies, the group as a whole faces a number of similar hurdles to achieving sustainable growth including multiple threats posed by climate change, limited resources, small populations, health and nutrition concerns, debt sustainability, susceptibility to external shocks, and a high level of dependence on international trade.
The partnerships – which involve some 166 states and governments, 85 UN bodies and nearly 1,200 civil society groups – target pertinent areas for this group and are also addressed in an outcome document from the conference dubbed the Samoa Pathway.
In an unprecedented move, the Samoa Pathway was negotiated at UN headquarters in New York, US weeks ahead of the conference, and signed off during the closing session last Thursday without further debate.
The document recognises the landscape of past international declarations relating to SIDS and acknowledges the efforts made by the group to advance on previously outlined goals. It also underscores, however, that progress on the three dimensions of sustainable development - namely, the social, environmental, and economic pillars - has been uneven, with some countries regressing economically in recent years.
As a result, a number of key areas are addressed in the document to help bolster SIDS’ sustainable development opportunities and equitable growth capacities, ranging from investment in infrastructure and education, to boosting sustainable energy capacities, disaster risk reduction commitments, and blue economy conservation and sustainable use.
Island trade
Trade policy is included as a sub-section of the “means of implementation” (MoI) section in the document. Re-emphasising the unique and particular vulnerabilities of SIDS, which includes limited negotiating capacity and remoteness from world markets, the document outlines a series of actions to facilitate integration into the international trading system.
These include special and differential treatment provisions at the WTO; also referring to the global trade body’s programme on small economies; technical and trade-related assistance; the development partnerships to scale-up the participation of SIDS in the international trade of goods and services; and the mitigation of the impact of non-tariff barriers (NTBs) including through, among other things, the implementation of the Trade Facilitation Agreement.
The 2001 WTO Doha Declaration that launched the ongoing round of trade talks mandates that the body consider and make recommendations on trade-related measures geared towards improving the integration of small economies into the multilateral trading system.
Over the past decade a number of decisions have been taken to that effect, including most recently, at the WTO’s ninth ministerial conference held last December in relation to linking small economies to global value chains for trade in goods and services.
In the international community as a whole a special programme area on sustainable development and SIDS was first included in “Agenda 21,” the non-binding action plan outcome of the 1992 joint environment-development UN “Earth Summit” held in Rio de Janeiro, Brazil, which also called for a global SIDS conference.
Convened two years later in Bridgetown, Barbados, the inaugural SIDS event produced a 14-point programme identifying priority areas and actions for the group including the need to scale-up trade capacities. Among the various follow-up events a major implementation meeting was later held in Port Louis, Mauritius resulting in a series of additional strategic areas for SIDS.
Renewables boost
A high dependence on fossil fuel imports is among one of the most significant sustainable development challenges faced by SIDS. The cost of oil imports and debt servicing can reach up to 60-70 percent of GDP for the group, according to a report on SIDS’ blue and green economic opportunities, released by the UN Environment Programme (UNEP) in Samoa last week.
As a way out of this trade deficit and to help mitigate the effects of climate change, a number of SIDS are pursuing sustainable energy development strategies.
The conference last week accordingly saw a number of new partnerships struck and previous ones cemented in this area. Among others, the International Renewable Energy Agency (IRENA) announced a “SIDS Lighthouses” initiative that will seek to raise US$500 million to assist small islands’ sustainable energy projects.
Ocean partnerships
A host of new ocean-related partnerships with governmental and non-governmental actors alike were also unveiled at the Samoa conference in recognition of SIDS’ symbiotic relationship with marine ecosystems and the blue economy.
For example, a group of Pacific SIDS launched a framework designed to help island nations protect and conserve critical nature areas. In addition, the conference also saw the launch of the Pacific Ocean Alliance set to help support ocean governance and policy cooperation, coherence, and implementation including in relation to the high seas – the area of the ocean beyond the control of any one single nation.
“No one nation or industry is solely responsible for putting pressure on our ocean, nor can any one entity find the solution in isolation. It is simple – we cannot protect and manage our ocean without working together,” said Tuiloma Neroni Slade at the conference, Pacific Oceans Commissioner and Secretary General of the Pacific Islands Forum Secretariat.
Many SIDS fisheries resources are highly valuable; for example, 1.4 million tonnes of tuna caught from the Pacific Island region weighs in at US$2.8 billion, according to the UN Food and Agriculture Organization (FAO).
“SIDS are basically environment-based economies, they depend heavily on fisheries and tourism. So they depend on their environment assets and that is where the opportunities lie for them,” explained Kaven Zahedi, Regional Director and Representative for Asia and the Pacific at the UNEP.
A project related to monitoring ocean acidification and modelling its impacts was also announced last week between the Global Ocean Acidification Observing Network (GOA-ON) and a series of institutions, including the UN Education, Scientific and Cultural Organization (UNESCO). The partnership will also seek to provide practical support for local fisheries communities by communicating the collected data.
Ocean acidification is caused by an increased volume of carbon dioxide in the atmosphere, in turn absorbed by the world’s waters, and thereby changing its chemistry.
Increased ocean acidity can cause the decay of coral systems that contribute to the support of a variety of fish stocks, a challenge particularly faced by the Caribbean, for example. The shellfish industry is another likely victim with shifting ocean pH balances hindering oyster development.
Additionally the conference highlighted and gave fresh impetus to other ongoing projects relating to sustainable fisheries management, illegal fishing, food security and nutrition.
The road ahead
Almost 30 percent of SIDS’ populations live on areas of land less than five metres above sea level. Meanwhile climate scientists have warned of expected rising sea levels and increasingly extreme weather patterns. Last month news came that authorities in a town in the Solomon Islands had decided to relocate – a first for the Pacific Island region.
The Samoa outcome document correspondingly included strong language around international climate action. UN members have pledged to hammer out a global climate deal by the end of next year with key markers, such as the upcoming Climate Summit in New York and an end-of-year climate conference in Lima, Peru, being closely watched for progress.
“This conference actually starts what the Secretary-General calls the drum roll of action,” said Christiana Figueres, Executive Secretary of the UN Framework Convention on Climate Change, (UNFCCC), the UN body home to the international climate talks.
While a degree of uncertainty reportedly remained at the end of the conference around the monitoring of the commitments made, according to Earth Negotiations Bulletin (ENB), the UN has indicated that this will be overseen by its Department of Economic and Social Affairs (DESA).
The “partnerships” model adopted by the SIDS conference nonetheless appeared to be welcomed by a number of parties.
“We are working with our partners – bilaterally and multilaterally – to help resolve our problems,” Ambassador Ali’ioaiga Feturi Elisaia, permanent representative of Samoa to the UN said in August.
“You don’t have to bring the cheque book to the [negotiating] table,” he added. “It’s partnerships that matter,” he continued.
SIDS issues are also featured in the recently proposed sustainable development goals (SDGs) set to be discussed later this month as part of the post-2015 development agenda deliberations.
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Raw deal for African women traders
Unfriendly trade policies cripple progress
Daily, millions of women in Africa are engaged in one form of trade or another, either within their countries or across national borders. They buy and sell everything, from agricultural produce to manufactured products. It is mostly women who conduct cross-border trade, delivering goods and services, reports the World Bank. They also run the majority of agricultural small landholdings. Indeed, women traders’ contribution to national economies has become essential in boosting trade in Africa.
However, trade policies in the region are not necessarily favourable to women, because men have better access to resources. If anything, the constraints women face undermine Africa’s efforts to realize its full trade potential. These constraints include non-tariff barriers that impinge on trading, notes a World Bank 2013 study titled pdf Women and Trade in Africa (3.64 MB) . For example, lack of access to finance, information and formal networks often pushes women into the informal economy, where their capacity for growth is limited.
Cross-border trade and the informal sector
Women’s participation in informal trade is often not fully appreciated. Their involvement in informal cross-border trade hardly draws attention in international trade circles, says a paper by the United Nations Inter-Agency Network on Women and Gender Equality, an advocacy group. Informal trade, which women dominate, is a major source of job creation in Africa, providing between 20% and 75% of total employment in most countries, according to the interagency network. For example, within the Southern African Development Community region, informal cross-border trade, mostly in processed and unprocessed food, constitutes between 30% and 40% of the total trade volume annually.
TradeMark East Africa (TMEA), an organization that promotes cross-border trade in the subregion, reports that women conduct up to 74% of the informal trade along Rwanda’s borders with its neighbours – Burundi, the Democratic Republic of the Congo, Tanzania and Uganda. Cross-border trading is the only source of income for the majority of these women. However, TMEA is concerned that this form of trade is predominately in low-value and low-profit products, such as fruits and vegetables, livestock, meat and dairy products.
Women’s lack of knowledge about their rights under trade treaties and protocols exacerbates the problems they face in cross-border trading. In some cases women are forced to pay bribes or subjected to harassment by customs and immigration officials. To help them deal with these problems, TMEA started a project in 2012 that facilitates women’s cross-border trading activities in East Africa. It provides free legal services to small-scale traders, mostly women, who, often unaware of their rights, use illegal routes to cross borders to avoid harassment by customs officials. TMEA teaches them to exercise their rights in cases of arbitrary arrest or illegal application of rules by officials. As a result, many women traders in the region now spend less time at the borders figuring out the right procedures to follow. In addition, TMEA has helped organize them into cooperatives to strengthen their collective bargaining powers.
But more policies are required to encourage informal trading by women, experts say. They are more than likely to benefit from policies that address problems associated with access to credit, social safety nets, transport, foreign currency exchange, storage facilities, health care and sanitation.
Women and trade liberalization
Although trade liberalization began in the 1990s and in some cases has increased the competitiveness of African traders, when it comes to women, the UN Inter-Agency Network on Women and Gender Equality says it has had the opposite effect. The network says women have been badly affected by these policies because of gender biases in education and training, inequalities in the distribution of income and resources, and unequal access to credit, land and technology. In Africa, “women receive 7% of the agricultural extension services and less than 10% of the credit offered to small-scale farmers,” according to the network.
But some experts urge opponents of trade liberalization to consider the other side of the coin, which is that these policies encourage eliminating tariffs and consequently reduce the price of goods. Trade liberalization critics counter by saying that if women have no access to credit, technical knowledge or international markets, they have trouble competing internationally even if the markets are opened up.
A major aspect of trade liberalization is the opening up of labour markets to international manufacturing and apparel jobs, as was the case in the tiny Southern African nation of Lesotho. A 2012 study on Lesotho by the UN Conference on Trade and Development (UNCTAD), pdf Who Is Benefitting from Trade Liberalization in Lesotho? A Gender Perspective (896 KB) found that liberalization has expanded trade in that country over the last 30 years, especially in labour-intensive exports such as clothing. It also led to an increase in the number of women employed in the formal sector.
Lesotho’s example
How did Lesotho do it? First, it imposed import quotas on clothing originating from markets in Asia, the US and the European Union; second, Lesotho’s textile products are a major beneficiary of the Africa Growth and Opportunity Act (AGOA) of 2000, a law that allows African exports into the US duty-free; and third, Lesotho increased its exports to the US by taking advantage of a clause that permits AGOA-eligible countries to source fabrics from third-party countries such as China. These policies have had a major positive impact on Lesotho’s women traders.
The clothing industry is Lesotho’s biggest employer, with women making up the bulk of the work force. “Trade-led developments have created a large number of new jobs for underprivileged, relatively unskilled women who would otherwise have little chance of being formally employed,” says UNCTAD. Basotho women holding formal jobs have access to health programmes, and those living with HIV receive free care and treatment.
Yet while Lesotho’s garment sector is providing jobs for women, it is also contributing to new patterns of inequality and vulnerability. Wages in the textile and apparel sectors are low. Workers earn only between $5 and $100 per month, despite having access to medical benefits. In the face of the high cost of living, these wages are enough to cover only the basic necessities, and do not enable workers to save for small business activities.
Also, Basotho women are particularly vulnerable to external shocks and changes in the international trade system. If the apparel factories were to shut down, it would be disproportionately difficult for women workers to relocate. This is because women tend to face more obstacles in labour mobility due to discriminatory social and cultural practices such as limited access to education, technology and financial resources, according to UNCTAD.
Towards a gender-sensitive trade policy
Economies that depend on a single commodity are vulnerable to external shocks, which in turn affect women. UNCTAD says oil-producing countries have not diversified their economies. For instance, Angola’s economy, which is primarily extractive, has not created enough jobs to absorb the female work force. According to the UN trade agency, a lack of progress in diversifying the Angolan economy has confined women to low-productivity jobs.
Unlike in Lesotho, trade liberalization in Angola has not produced export-oriented manufacturing jobs, and hence few women have joined the manufacturing sector, where they make up only 17% of the total work force.
To improve the plight of women, African governments must enact policies that remove the constraints they face as traders, experts advise. The UN Inter-Agency Network on Women and Gender Equality proposes three such policies. First, governments must provide female workers with the necessary skills and access to information. Second, they must pass legislation on labour standards and working conditions to eliminate the exploitation of female workers. And third, they must formulate social and labour policies that support equal household responsibilities.
There is no doubt that significant gender gaps exist in many sectors. UNCTAD recommends using trade as an “enabler” for future development. With the right policies, women traders could be motivated to contribute even more towards Africa’s development.
This article appears in the August 2014 edition of Africa Renewal, published by the United Nations.
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How IOCs fleeced Nigeria of billions of dollars in M&A fees, taxes
Nigeria reportedly lost about $10 billion in revenue which should have accrued to the country from mergers and acquisitions (M&As) by multinational oil companies over 10 years ago.
A report of an investigation by the Committees on Justice and Finance of the House of Representatives, exclusively obtained by THISDAY, reveals how oil companies manoeuvred their way and avoided payments of fees they were under obligation to pay.
The report also shows that Nigerian officials were willing collaborators as they failed to make demands from these companies monies due to the country.
Although the affected companies assigned their assets to the successor companies following the M&As of the 1990s to the early 2000s, they however failed to pay to Nigeria fees mandated by statutes before their new status could be perfected.
In a bid to improve economies of scale and hedge against oil price volatility, there were a rash of M&As in the oil and gas sector starting in 1998.
It started with British Petroleum’s (BP) acquisition of Amoco in 1998 and ARCO in 2000; Exxon’s merger with Mobil in 1999 to form ExxonMobil; Total’s merger with Petrofina in 1999 and with Elf Acquitaine in 2000, renamed Total S.A.; Chevron’s acquisition of Texaco in 2001; and the merger of Conoco Inc. and Phillips Petroleum Company in 2002 to form ConocoPhillips.
However, even when the companies denied the existence of these M&As under the Nigerian company and petroleum laws, they still turned around to claim capital allowances and investment tax allowance, which they would not have qualified for except by the virtue of being a new entity.
In its investigation, the joint committee discovered that three major oil companies that took over or bought into other companies years ago failed to update their status as required by law, and thereby deliberately avoided paying the charges that home and host countries alike enjoyed when the M&As took place.
“By international best practice procedures, Nigeria would have netted from these transactions a minimum of $10 billion,” the report said.
The companies involved are: (a) Chevron and Texaco which formed ChevronTexaco, (b) Total, Elf and Fina which formed TotalFinaElf, and (c) Exxon which merged with Mobil to form ExxonMobil.
Although these firms admitted that there were mergers between their parent companies around the world, they however denied the existence of such mergers between their subsidiaries in Nigeria. This denial, the House committees believed was “just to avoid payment of required fees”.
In their response to the committees’ investigation, all the companies denied any wrongdoing, saying they complied with all extant laws. But the joint Committee on Finance and Justice found otherwise.
Under Nigerian laws, merging companies are required to comply with the following processes:
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Application for assignment of interest in each oil block;
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Payment of reserve values in each block;
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Payment of a sign-on or signature bonus in respect of each block;
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Fresh registration of the new entity at the Corporate Affairs Commission; and
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Re-evaluation of all the books being operated by the merger companies.
According to the House’s investigation, the affected companies failed to comply with the following laws:
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Paragraphs 14-16 of the First Schedule of the Petroleum Act 1969;
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Petroleum (Drilling and Production) Regulations 1969 which state the application fees payable on assignment of blocks;
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Article 2 (Operator) and 19 (Assignment and Transfer) of the various Joint Operating Agreements.
The combined effect of these laws and regulations is that when a company transfers the right of operation of its blocks to another company, hitherto not approved to operate it, then it is bound to seek approval of the merger, which may be given after the necessary payments have been made.
In the course of investigation, the House received copious submissions from the Corporate Affairs Commission (CAC), the Federal Inland Revenue Service (FIRS) and the Department of Petroleum Resources (DPR).
The House also engaged the services of experts in the oil industry, a legal expert in oil and gas transactions, as well as tax consultants.
The report noted that Chevron set the precedent in 1984 when it acquired Gulf Oil Company. The report said: “Following the worldwide acquisition of Gulf Oil Company by Chevron in 1984, Chevron was meant to pay $75 million as premium but ended up paying $10 million.
“Chevron did not agree to pay this premium until ten years after the merger, when it became obvious that it could no longer operate as Gulf.”
However, that transaction was not the subject of the investigation.
The report said although the authorities were aware of these anomalies, they did not confront these companies due to weak institutional oversight and dishonest officials.
Following the Chevron/Gulf marriage, Total in 2000 merged with Elf in a N54.2 billion deal. On this merger, however, the House’s report found that Nigeria was the only country excluded from getting revenues from the merger.
The report said: “In Nigeria, Elf Petroleum Nigeria Ltd., a subsidiary of the global Elf, denied any merger but went ahead to change its name to Total Exploration and Production Nig. Ltd.
“It paid a controversial $5million for the name change. Even this payment was not done until 2008.
“But in reality there was merger in Nigeria because the oil blocks that Elf operated was granted only to Elf and if it had to be operated by another company, as they presently are, then there must be a consent from the federal government after payment of fees.
“The Joint Operating Agreement between Elf and NNPC did not define Elf to be able to pass its own interest to any other company or successor in title.
“It was to Elf and Elf alone, and if it is transferred to someone else, then payment of fees for validation is inescapable.
“Total knew some payment must be paid and 6 years after the name change, it paid a paltry $5 million. There is no law that requires a company to pay as much just for change of name.”
Despite Total’s denial of a merger, FIRS’ documents show that it claimed capital allowance and investment post-merger.
Capital allowance claims are reserved for newly established companies as incentives and not for companies already in operation.
With respect to Chevron, unlike other companies that denied the existence of a merger or acquisition, Chevron admitted there was a merger between Chevron Nigeria Ltd and Texaco Overseas Nigeria Petroleum Company Ltd in 2002.
Assets on which the merger was based included Texaco’s multibillion barrels Agbami discovery offshore Nigeria.
Chevron paid $8 million as “assignment fee” to the federal coffers as demanded by DPR but claimed it was not caught by the fee-paying provisions on the grounds that (a) the merger was sanctioned by a Federal High Court in Lagos and not by a separate deed of assignment; and (b) that it paid $8 million as assignment fee as required by DPR only gratuitously because the company did not want to join issues with the authorities.
However, after a thorough investigation, the House found as follows:
“That the dateline of events did not support Chevron’s claims but shows deliberate steps to evade payment. This is because the payment was made over one-and-a-half years before the court order was procured. It may be suggested that the order was sought having discovered under-payment and in order to avoid further payment.
“The actual merger took place in 2002. The DPR letter was dated 6th December 2002 and payment made on 6th January, 2003. The order of the Federal High Court Lagos did not come until 29th October, 2004.
“Apart from the law, the JOA between the different oil companies signed in 1991 provided that successors in title of the named parties must seek ministerial approval to operate the newly-acquired assets.
“Chevron and Texaco have different JOAs with NNPC. The licences to operate the different OMLs (Oil Mining Leases) are yet to be re-assigned to a different entity.”
The law excludes the usual clause that empowers successors in title to step into the shoes of the original parties’ agreement without first seeking and getting government’s approval and payment of premiums.
“The committee discovers that no one granted Chevron approval or consent to operate OMLs previously held by Texaco.
“Thus the committee determined that Chevron has been operating the OMLs illegally without approval since 2002.
“Interestingly, Texaco has become defunct in Nigeria, as it is no longer registered with CAC, it no longer pays taxes, and no longer has subsisting records with DPR,” the report of the committees revealed.
The committees said they were considering how these OMLs would revert to the federal government.
With respect to the Exxon merger with Mobil in US in 1999, the House said the global $75 billion merger of Mobil and Exxon was never in doubt.
The House, however, found that the Nigerian subsidiaries – Mobil Producing Nigeria Unlimited and Esso Exploration and Production Nig. Ltd. – have not changed and still operate different blocks differently.
The report stated: “But staff and management, vehicles, building, etc, are interchanged among them.
“It can be said that there is merger of sorts between the two companies even in Nigeria, given information gathered elsewhere and on the ExxonMobil website.
“For instance, Mobil Producing does not have a website, or vehicle or building separate from ExxonMobil.
“To cleverly avoid payment of fees, the two companies work together (merge) except when it comes to rights of operation of oil blocks between one company and the other.
“In other words, there was merger in all respects (staff, logo, etc) except the formal ownership and formal operation of oil blocks. Thus the two companies avoid the legal problem associated with inability of a third party wearing the shoes of a named party in a JOA.”
The House described the method adopted by Mobil as a sophisticated way of avoiding approval from government.
However, it said: “Smart as this is, the name ‘ExxonMobil’ is boldly scripted in all its offices. However, the website, vehicles and documents are not known or registered under any Nigerian law.
“Similarly, lawsuits in the Niger Delta have been dismissed on the basis that ExxonMobil is not a juristic person.
“The company has thus engaged in one of the most bizarre corporate deceptions in Nigeria.
“It amounts to fraudulent misrepresentation of identity by a company that is the fifth biggest in the world; all in a bid to avoid payment of fees in a developing country with weak oversight and enforcement capacity.
“Mobil and Esso also claimed capital allowance and investment tax credit after the global merger, a move that suggested existence of a merger, or the claims and allowances become illegal.”
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Railway deal: Chinese government clears firm to start work
The State Minister for Works, Mr John Byabagambi said yesterday China Harbour Engineering Corporation (CHEC) has been cleared by authorities in Beijing-China and has already started work on the eastern (Malaba-Kampala) route of the Uganda Standard Gauge Railway.
Mr Byabagambi said the Chinese Transport ministry had written to him approving the company for the work-conducting feasibility studies and later to “possibly” construct the $8 billion railway Greenfield project.
“The Memorandum of Understanding we signed was to conduct feasibility for the SGR because we are slightly behind schedule. When this is done and approved then we shall have to go back to the table and negotiate the construction and related work.”
The August 14 letter signed by Chinese Transport minister Yang Chuantang said CHEC has completed and is constructing several railways projects in China including the two contract packages of high speed rail which forms part of the Lanzhou to Xinjiang and Shanghai to Kunming High speed rail network.
“These high speed (250 km/h) railways have higher technical and engineering requirements than the standard 120 km/h railways such as Uganda’s standard gauge railway,” the letter stated. Adding:
The latest development settles the dust that has been hovering over the project since June when the minister controversially cancelled a similar agreement with another Chinese company- China Civil Engineering Construction Corporation (CCECC) to construct/upgrade a railway line.
Mr Byabagambi, defending his decision said the MoU government had and signed in 2012 with CCECC was to upgrade the existing railway before the SGR was envisioned by the East African Heads of States of Uganda, Kenya and Rwanda.
The SGR is expected to run from Mombasa to Kampala to Kigali and with a northern route to the South Sudan capital, Juba. The leaders set a 2018 deadline for completion of construction.
Mr Byabagambi also clarified that the total cost of the project-the Uganda route-is still unknown pending completion of the feasibility studies to detail the geological and geotechnical assessments of the sites, railway engineering structures, and the cost of construction, among others, which will form the basis for negotiating a deal.
Feasibility study
The Permanent Secretary in the Ministry of Works and Transport, Mr Alex Okello told Daily Monitor recently, that government had separately hired a German contractor, Gauff Ingenieure, to conduct and compile a separate feasibility studies report, which will be compared with the report submitted by CHEC.
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Cement exporters unlikely to concede South African markets
Pakistan cement makers, facing anti-dumping probes, are unlikely to lose South African market as their offered prices are still attractive for the African importers, industry officials said on Saturday.
The International Trade Administration Commission (ITAC) is investigating claims by cement producers that cement from Pakistan is being dumped in the Southern African Customs Union (SACU), of which Botswana, Lesotho, Namibia and Swaziland are also members.
At least four African cement manufacturers – Afrisam, Lafarge, NPC Cimpor and PPC – claim that bagged cement from Pakistan has been dumped at a 48 percent lower price than is the normal value in Pakistan.
Pakistan’s Lucky Cement and DG Khan Cement are the leading exporters to SACU.
Amin Ganny, chief operating officer at Lucky Cement, cast aside the perception that the cement sector would face huge losses if the ongoing probe on anti-dumping proves them at fault.
“There is a common perception that the industry would face a significant loss (on anti-dumping probe), and that the lucky cement would take huge hit, which is not correct,” Ganny told The News.
“These allegations are only going to strengthen our resolve to stay ahead of the industry in terms of innovation and strategy,” he added.
Industry officials said the quality of Pakistani cement is superior, thus, other manufacturers find it difficult to compete with the shipments from Pakistan in their markets. They try and impose non-tariff barriers on to block exports from Pakistan, they said.
“We have seen similar tactics in African markets before where we were blamed for shipments of low quality cement, but we managed that issue. We are facing similar issues in the Indian markets and have requested our governments to solve it, to make Pakistani cement accessible to Indian consumers,” Ganny said.
SACU is a lucrative market for the Pakistani cement manufacturers, as they exported around 1.6 million tons during the last fiscal year. Pakistan’s total cement exports were 8.3 million tons in FY14.
Industry officials said South Africa is a cement-deficit country, which may not afford to ban cement imports from Pakistan. Shipments from Pakistan are economically viable for them, as the manufacturers here are quoting much cheaper price of the commodity then the competitors India and or the Middle East, they added.
An industry source said the gap between export price and the price within Pakistan was not as huge as African manufacturers were quoting. “The existing price gap is reasonable,” he said.
Industry officials said high local taxes is the reason behind low export prices offered by the manufacturers.
“There is one percent rebate on cement exports. On the contrary, there is 33 percent corporate tax, 17 percent general sales tax, and five percent federal excise duty on local sales,” another official said. “The taxes on local sales have made exports cheaper,” he added.
Cement manufacturers expect probes by South African authorities on anti-dumping charges may end with some new duties on cement import in Africa.
“This non-tariff barrier might be taken by the African regulatory body to protect its local manufacturers,” he added.
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SA suspends citrus exports to EU
South Africa on Monday voluntarily suspended its export of citrus fruit to the European Union following the latest reports of traces of the citrus black spot (CBS) on the country’s fruit, said the Citrus Growers Association (CGA).
Export of all citrus to the EU, except mandarins, would cease but fruit which was already packed and inspected for export on Monday could still be shipped, said CGA’s envoy to the EU, Deon Joubert.
“The Western and Northern Cape are not included in this voluntary suspension,” he said.
The EU had informed the department of agriculture, forestry and fisheries (DAFF) that four citrus consignments from South Africa had contained the fungal disease which appears as black spots on the skin of citrus fruit.
The CGA intended to ask the DAFF to get evidence from EU authorities which would verify the presence of the fungus at the point of inspection.
If no evidence was received, the voluntary suspension would be reconsidered.
“Earlier this year, the EU announced it would consider imposing additional measures on the import of SA citrus once five interceptions had been made,” said Joubert.
“While the CGA maintains that this threshold is both arbitrary and unscientific in nature, and that CBS does not pose any threat to the EU, today’s decision to suspend trade before the EU threshold is reached was made in the interests of maintaining the ongoing trade with the EU in the medium to long term,” he said.
The country had gone to great lengths to ensure that it met the EU’s citrus export requirements.
“This has included new testing regimes as well as a comprehensive CBS risk management programme,” said Joubert.
Despite the substantial efforts made by the South African citrus industry as a whole, no agreement has been reached with the EU since 1992 on the risk of CBS being transmitted by fruit to citrus orchards in the EU.
Earlier this year, the DAFF said South Africa had always maintained that although it differed with the EU on the risk of the CBS disease, it would continue to work with authorities to comply with EU conditions.
In November, the EU stopped importing citrus fruit from South Africa as there were concerns that CBS could infect local crops.
About 70 percent of the EU’s citrus consumption comes from South Africa.
In June, South African ambassador to Belgium, Mxolisi Nkosi, told Sapa that the EU wanted to stop importing citrus fruit from South Africa. He said the EU was increasingly using protectionism to block certain imports.
The citrus sector contributed about R6 billion to South Africa’s gross domestic product, he said at the time.
Statement from the Department of Agriculture, Forestry and Fisheries, 9 September 2014: Limiting the risk of more citrus black spot (CBS) detections in South African citrus exported to the European Union (EU)
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Angola’s growth set to rally after dip in oil output
Lower oil production is set to cut Angola’s economic growth in 2014, before a rebound in the oil industry boosts growth next year.
In its regular assessment of the southern African nation’s economy, IMF staff said the authorities had restored macroeconomic stability after the country was hit hard by the global economic crisis.
Inflation is at historic lows, international reserves are adequate, and the country has started to save part of its oil wealth for future generations through Angola’s Sovereign Wealth Fund. But emerging fiscal deficits (see Chart 1) should be addressed to preserve space for the authorities’ objectives of rebuilding infrastructure and reducing poverty and inequality while continuing to save part of the oil revenues, the IMF staff report said.
IMF staff projected that Angola’s economic growth would slow to 3.9 percent in 2014, and then rally to 5.9 percent in 2015. Oil production fell in the first half of 2014, reflecting unscheduled maintenance and repair work in some fields. But the drop in oil output was offset by robust growth in the nonoil economy, supported by the agricultural sector and the manufacturing and services sectors.
Slow decline in poverty
Despite Angola’s significant oil wealth – the country is sub-Saharan Africa’s second-largest oil producer – income inequality remains high and poverty has been declining only slowly, the IMF staff report said. Angola has been successful in capturing a large share of the rents from its oil resources (see Chart 2) and generating robust economic growth, but this has yet to translate into significant improvements in its welfare indicators such as poverty, life expectancy, and educational attainment.
To accelerate the reduction in poverty and inequality, Angola could benefit from the experience of other countries in sub-Saharan Africa and other regions that have implemented well-targeted safety nets for the poor, including conditional cash transfer programs, the IMF staff report said. Evidence shows that such programs are
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Highly efficient – almost all the expenditure reaches the poor;
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Affordable and sustainable – their costs as a share of national income are modest; and
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Among the most progressive forms of public expenditure – they cut out as beneficiaries become wealthier.
The IMF staff report urged the authorities to phase out costly and regressive fuel subsidies, while mitigating the impact on the poor through well-targeted social assistance. Noting that Angola is one of the world’s largest fuel price subsidizers, IMF staff stressed that the fiscal cost of the country’s fuel subsidies has been increasing in recent years due to higher international fuel prices.
Fuel subsidies should be reviewed and gradually reduced. International experience indicates that a public campaign and open consultations with key stakeholders to explain the move can ease the process.
The analysis in the IMF staff report also showed that there is significant room to improve the efficiency of public capital spending. An increase in efficiency could help to increase the amount of infrastructure available without the need to allocate additional resources to capital spending.
Favorable growth prospects
Angola’s medium-term economic growth prospects are favorable, the IMF staff report said, projecting that the oil sector will grow by more than 2 percent each year on average over the next five years. Declining production in some oil fields would be more than compensated by the commissioning of new fields.
Large investments in the nonoil sector as well as the authorities’ policies to improve the business environment are expected to generate much-needed diversification and job creation, mainly in agriculture but also in electricity, manufacturing, and services.
The report said that economic diversification is not only imperative to reduce oil dependency, but also to increase employment and reduce poverty. A sustainable reduction in poverty should be achieved through job creation, mainly by developing small and medium-sized enterprises in the nonoil sector that provide the bulk of national employment.
The report cautioned, however, that the country’s medium-term fiscal outlook is challenging, as oil revenues are expected to decline as a share of GDP while there is high demand for increased spending on infrastructure and poverty alleviation. Efforts to improve the fiscal position could start already this year, IMF staff said, by moderating growth in the wage bill and spending on goods and services.
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SA pounces on weak Zim industries
Zimbabwe’s crumbling industry sector has allowed investors to scoop up struggling companies.
The collapse of industry in Zimbabwe has provided a boon for South African companies, which have been making inroads into the country by snapping up ailing companies.
South Africa remains one of Zimbabwe’s biggest trade partners alongside China and the United Kingdom. According to Zimbabwe Statistics, the country imported $3.4-billion in products from South Africa and exported goods, especially minerals, worth $2.43-billion. The dominance of South Africa in Zimbabwe’s economy and the rest of the Southern African region came under the spotlight during last month’s Southern African Development Community summit, where President Robert Mugabe openly expressed unhappiness with South African President Jacob Zuma’s refusal to sign the SADC protocol on trade in services. Mugabe chastised Zuma, saying South Africa must co-operate and not turn the continent into an open market for its products.
The Confederation of Zimbabwe Industries has already warned of the gloomy state of industry in the country and says its annual manufacturing survey report, to be released later this year, will show that factory capacity utilisation has slipped to 30% from 39% last year.
Economic commentator, John Robertson said that the entry of South African investors has been slowed down by Zimbabwe’s 51% indigenisation law, which has put many investments on hold.
“The level of involvement by South Africans is welcome, but we need more. South African investors must bring in more capital for infrastructural development projects and not only the retailers such as
Pick n Pay, which bring already finished goods into the country, because at this point we are carrying large stocks of South African goods,” said Robertson.
‘If they comply, that is fine’
Francis Nhema, the minister of youth development, indigenisation and economic empowerment said there was no concern from government’s point of view if there was an influx of South African companies operating in the country and they would not be stopped from taking over ailing firms.
“When they come in here, they comply with the laws of the land. If they comply with the laws of Zimbabwe that is fine and they are not doing anything wrong. If they buy the companies, they do so also complying with the regulations of the country,” Nhema told the Mail & Guardian this week.
In one of the biggest deals for the country recently, JSE-listed packaging concern Nampak said it would invest $10-million in the next year to expand its Zimbabwean business after consolidating its shares in Zimbabwe operations – Hunyani Holdings, MegaPak and Carnaud Metalbox – under a new company, Nampak Zimbabwe Ltd, in which it will own a 51.43% shareholding, and which listed on Monday on the Zimbabwe Stock Exchange, replacing Hunyani.
In July, Kentucky Fried Chicken reopened its Harare branch after seven years.
Last year popular South African franchise Mugg & Bean made an entry into Zimbabwe. Other local companies that have South African firms lying in wait to snap them up include Mutare-based Kenrose Filters, which in July received a $6-million offer from South African automotive parts manufacturer GUD Filters to buy it.
Robertson said the government was in conflict over how to proceed with the 51% indigenisation law. Some officials are determined to keep the law in its harsh form whereas others are willing to make concessions for investors.
“The people in government who are supportive of indigenisation are hoping to get something from nothing. But they do not realise that most companies will not invest additional money if the current structure of the law is kept as is,” said Robertson.
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States put monetary union protocol in high gear as November deadline looms
The four laggards in ratifying the East African Monetary Union Protocol are pushing their parliaments to endorse the pact within two months.
Uganda EAC Affairs Minister Shem Bagiene said the protocol has already been approved by the Cabinets of Uganda, Kenya, Rwanda and Burundi, setting the region on course towards a common currency.
Ministers responsible for EAC affairs have agreed to have the pact adopted before the next Council of Ministers meeting in November.
“I believe we shall meet the deadlines set for us because, unlike other protocols that are signed by ministers of foreign affairs, this one was signed by President Yoweri Museveni; so there is no room for changing its contents,” Mr Bagiene said.
Mr Bagiene added that he would meet Finance Minister Maria Kiwanuka this week to agree on when the protocol would be presented to parliament.
The date of the ministers’ meeting has not been set but it will be followed by a Heads of State Summit where the presidents of the member states are expected to fast-track the integration of financial systems in the region.
In Kenya, the Parliamentary Regional Integration Committee is discussing the protocol after receiving it from the executive.
Set for parliament
“The protocol is being processed by the Integration Committee,” Finance, Trade and Planning Committee chairman Benjamin Lang’at told The EastAfrican. “We expect it to be brought to the House when parliament comes from recess next month.
“Parliament is ready to work overtime to meet any deadlines.”
Jean Rigi, the Permanent Secretary in the Ministry of EAC Affairs in Burundi, said the country’s Cabinet had approved the ratification and that the protocol was due for consideration by parliament.
Zeno Mutimura, the chairman of the Foreign Affairs Committee in the Rwandan parliament, said the Senate had approved the protocol, which is now awaiting to be published in the official gazette. The Lower House of parliament had passed the protocol in June.
The Heads of State signed the protocol on the establishment of the EAMU in November last year and directed that the partner states ratify it by July this year.
Mr Bagiene said that the Council of Ministers agreed in a meeting last month that the protocol should be ratified by the partner states before they next meet, in November.
Tanzania has signed, ratified and deposited the instruments of ratification of the protocol with the EAC secretary-general.
Tanzanian Deputy East African Co-operation Minister Dr Abdallah Saadalah said drafting was under way of Bills for establishment of the four institutions to implement the protocol – the East African Monetary Institute; the East African Statistics Bureau; the East African Surveillance, Compliance and Enforcement Commission; and the East African Financial Services Commission.
According to the protocol’s timelines, the laws are supposed to be signed by November next year.
The single currency is the third pillar of the EAC integration after the Customs Union and the Common Market, which have paid off through improved turnaround for movement of cargo from Mombasa to Kampala from 18 to four days and from Mombasa to Kigali from 21 days to six days.
Pilot projects along the Central Corridor, Dr Saadalah said, had raised hopes that cargo from Dar es Salaam can reach Kigali and Bujumbura in three to four days, from more than 21 days.
The November Summit will also consider proposals for drafting an EAC Constitution in readiness for the final pillar, which is a political federation.
“Other activities towards laying the foundation for the political federation continue being implemented,” Dr Saadalah said.
“They include the programmes under peace and security, foreign policy co-ordination, good governance and strengthening of electoral processes.”
In the drive towards a common currency by 2024, the East African Payment System has been established to facilitate cross-border transactions and bolster intra-regional trade without requiring traders to convert from one national currency to another. The payment system should be harmonised by 2018.
EAC member states will also harmonise monetary and fiscal policies and establish a common central bank. As a first to achieving the goal, Kenya, Uganda, Tanzania and Rwanda present their budgets simultaneously every June.
The states have also set fiscal and monetary convergence targets of headline inflation below eight per cent, fiscal deficit of three per cent, gross public debt below 50 per cent and foreign reserve cover equivalent of 4.5 months of domestic import. These should be achieved by 2021.
“The regional monetary union will only hold when all the member states are able to respect and strictly observe the convergence criteria,” IMF president Christine Lagarde warned in January while on a visit to Nairobi.
She said monetary union organs such as the proposed East African Central Bank should have powers to supervise national central banks in order to ensure the targets are kept.
Foreign exchange reserves
Lack of such powers by the European Central Bank saw Portugal, Italy, Greece and Spain exceed sustainable borrowing levels, plunging the Eurozone into a debt crisis.
Under the EAC protocol, central banks of member states will be required to deposit foreign exchange reserves with the EACB so as to stabilise the common currency.
These will comprise gold and foreign currencies that each state holds as at the time of launching the monetary union – excluding East African currencies.
International Monetary Fund reserves and special drawing rights will also qualify as foreign-exchange reserves.
Once the protocol is effected, all foreign exchange transactions by the EAC governments will be carried out through the EACB or the relevant national central banks within the target set out in the region’s common monetary and exchange rate policy.
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Congestion crisis at Mombasa port
Kenya Ports of Authority is facing congestion crisis and has issued a notice to shipping lines and agents to limit empty export containers to 500 units per vessel.
This has prompted the Kenya Ships Agents Association to write to managing director Gichiri Ndua complaining of the delays.
In a letter signed by its chairman David Mackay, the association says despite continuous dialogue with the management, the situation was worsening.
“Waiting time across all vessel types has drastically increased in 2013 and 2014. There is a clear worsening trend especially from April 2014, and total time lost is regularly on average above 25 days,” he says in the letter copied to Ministry of Transport principal secretary Nduva Muli, Kenya Maritime Authority director-general Nancy Kariguthi and KPA chairman Danson Mungatana.
As a result of this, Mr Mackay notes, productivity for container operations on berth 13 and 19 are headed towards the lowest point since January 2013.
“The situation is especially dire for the container terminal where productivity does not exceed 30 berth moves per hour across the vessel stay – about a half of the benchmark for an efficient port,” he says.
The chairman complains that this is happening when the port has enough equipment since “there are seven cranes for three vessels at a time” he adds.
He contends that a productivity of 50 BMPH and above should be expected which would keep the port stays below two days for even the largest vessels currently calling there.
According to him where there has been a decent performance that has come about as a result of the arm-twisting of payment of incentives so that people can work.
DECLINING PRODUCTIVITY
The chairman warns that with this declining productivity it is expected that KPA will be unable to improve the waiting time and number of waiting vessels at the port would definitely increase.
“These developments are very costly for ship owners,” he says.
He observes that ships either lie idling at anchorage or extra fuel is burned to make up for lost time and maintain schedule which is costing ship-owners up to Sh3.52 million ($40,000) per week.
Some of the measures the association wants to take is to start the process of introducing vessels delay surcharges at the port of Mombasa.
In its notice signed by general manager operations Captain Twalib Khamis advises that vessels with container exchanges of over 3,000 TEUs will be berthed at berth 17 and 18 on priority basis.
“This is a temporary measure to reduce ships waiting time and to address space constraints caused by ongoing yard civil works,” his notice says in part.
However, the manager says this will be reviewed periodically and revert to previous arrangements as soon as the situation normalizes.
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Setting guidelines, uniform tariff regime for freight forwarding practitioners
As the Ports Regulator puts finishing touches to the expected guidelines for operators in the ports industry, stakeholders are of the view that the freight forwarders, otherwise popularly referred to as customs agents, should not be left out as a way of checking the irregularities among the practitioners and a uniform tariff regime, reports Francis Ugwoke
As the wind of change blows in the ports industry, particularly with the coming of the Nigerian Shippers Council (NSC) as the ports economic regulator, expectations are high that the freight forwarding practice will not be left out in the sanitisation of the industry. The regulator has been involved in what concerned stakeholders describe as ‘cleanup up exercise’ in the ports industry in what is expected to facilitate trade in the country.
In the past few months of its appointment, the focus of the regulator has been largely on how to enthrone efficiency in the ports system. In doing this, the council has held series of consultations with the shipping companies, terminal operators, as major providers of shipping services, and of course, freight forwarders, as also major consumers of shipping services. Industry stakeholders are currently expecting the release of guidelines from the council as part of its regulatory functions. Since so much emphasis has been laid on the providers of shipping services, stakeholders are of the view that the consumers of shipping services should not be left out. The same consumers of shipping services are equally providers of shipping services to shippers, known as importers and exporters.
The freight forwarders, who are also referred to as customs agents, are equally providers of shipping services to their clients. They have direct interface with officials of Nigeria Customs Service (NCS), terminal operators and shipping companies. While the shippers bring in different goods into the country, they don’t have the time to do self-clearing as allowed by the Nigeria Customs Service (NCS). They rely on the professionals to do the clearing for them.
In doing this, the freight forwarders charge their professional fees. To ensure that the freight forwarders adopt acceptable standards practice is the need for the introduction of guidelines that will cover their practice. The council’s Executive Secretary, Mr. Hassan Bello, a lawyer by profession, believes that the industry can only be better when both providers and consumers of shipping services are fair and just to one another in their dealings. Bello promises that guidelines for all the practitioners in the ports industry will spell out clearly how businesses will be done in terms of the providers and consumers of shipping services. This is notwithstanding the fact that some measures have been taken by the council to check cases of illegal charges in the system. The guideline, therefore, promises to be a ‘Reference Book’.
Why Guidelines for Freight Forwarders
Customs agents as they have been traditionally known all these decades in Nigeria are internationally referred to as freight forwarders. In Nigeria, they are so unorganised in their professional practice, and it clearly appears that the practitioners are in a world of their own. Not even the reform exercise in the ports system since 2006 has meant anything to them as to wake up to the national call for change. Over the decades, customs agents in Nigeria have had bad image, as some of them are regarded as trade criminals who aid their importers to defraud the government. Although, they are just agents who do the clearing for the importers, they are seen as guilty as the importers in a number of fraudulent practices discovered against shippers. This is for a number of reasons. The importer is not directly involved in the clearing process in the ports. He makes documents available to his agents who do the rest. It is the agent who is given the task of ‘quelling’ the queries that will be raised by officials of the Customs and other government agencies.
This is where there are issues of undervaluation, concealment and other forms of malpractice. There is hardly any Nigerian importer that is interested in doing the right thing, and this includes many multinational agencies, corporations, bulk importers and other individuals. Most are interested in undervaluation of imports in order to attract low duties. Some go to the extent of forging documents of duty exemptions. Some big time politicians and those in certain position use their position to ensure that if they must pay duty on consignments, such as customised cars, it would be at a rate so much lower than what it ought to be. In doing this, it is the customs agent or freight forwarder that is assigned the task. In some cases, it is the agent who advises importers to advise their clients on how to evade payment of correct duties.
Some would even take advantage of the limited knowledge of the importers on trade procedures to defraud them. They may collect full duty for consignment only to pay less. He plays foul of the system by bribing his way to see that the goods are released, which is simply what the importer is interested in. Some agents would not even deliver, preferring to run away with importers’ money. There are also others who will lure importer to pay so much by coming up with spurious claims that the importer must pay for to clear his goods. This is even more so if the importer is known to have been involved in any form of malpractice.
Although, there are about five associations for clearing agents, there is no standard tariff that has been introduced for their agents to use. Each freight forwarder charges any amount that he feels like. Even when an agent defrauds his client, it is difficult to bring him to justice. He may simply walk away free, either by changing his phone number or address. In the ports industry, there are so many touts parading themselves as agents. Some of them collect the importer’s money and disappear into thin air. At the port gate, everyone with a big brown envelope or marked file claims to be an agent, and he may simply be moving about defrauding people.
Even the Council for the Regulation of Freight Forwarding in Nigeria (CRFFN) which is supposed to be a direct regulator of the agents has not been able to find its feet to do a good job following difficulties created by the council itself and, of course, the leaders of associations over clash of interests. The initial problem was disagreement on sharing formula from fees that would be collected from agents, and this was later said to have been settled. But it does not appear that the CRFFN is sound enough on its control of the agents even though these practitioners were registered by the council. The council was supposed to mobilise forces to check touts who parade themselves as agents in the ports, but this effort has failed, apparently because of the crisis rocking the council.
Regulatory Intervention
As the ports regulator finalises arrangement to release guidelines for the ports industry, stakeholders are of the view that the freight forwarding practice should be humbled to an honourable position of ensuring that there are rules and regulations that can check the practice of the profession. An importer of fairly used vehicles, Chief Edmund Ezea, who spoke to THISDAY, expressed the need for the guidelines for every operator, including freight forwarders. Ezea said people will refer to the guidelines when dealing with any operator, particularly the customs agent.
He said the guidelines for the industry should be all embracing to accommodate the tariff to be offered by customs agents against their clients. Similarly, a maritime lawyer, Mr Kasarachi Opara, who spoke to THISDAY on phone also identified the importance of guidelines for practitioners in the ports industry. Opara pointed out that the first thing the guidelines should address is the issue of qualification for freight forwarders. According to him, the current scenario is one in which there is complete absence of standard, adding that the practice is open to everybody. He expressed concern that even some leaders of associations who claim to be professionals were not truly so.
Opara added that another important issue is for the guidelines to come out with a strong tariff regulation that will be uniform for all practitioners based on the location. He argued that these measures will check a number of irregularities in the ports.
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Climate finance is flowing, but it isn’t enough – yet
Climate change is expensive, and dealing with it will only grow costlier the longer countries, cities, and industries delay reducing greenhouse gas emissions. The good news is that money is flowing to solutions, and a growing number of leaders in government and business are taking action. The challenge is that the volume of finance isn’t enough – yet.
About US$359 billion a year has been flowing within, to, and between countries to finance low-carbon development that can help lower emissions and increase resilience to climate change.
This money is collectively referred to as “climate finance.” The bulk of it – about 62 percent – comes from private investment, largely from project developers. The other third comes from public sector sources, such as development banks and government aid, according to the Climate Policy Initiative’s Landscape of Climate Finance 2013.
Climate finance helps expand access to cleaner energy sources such as wind, solar, and geothermal. It supports development of low-carbon buildings, infrastructure, and transportation, and it helps communities build resilience to climate risks. In countries around the world, it is driving development that communities already need, with the added benefits of building resilience, growing jobs, and reducing the human contributions to climate change.
But while just under US$1 billion a day in climate finance is flowing globally, it is barely half the volume required to equal the climate challenge, particularly for developing countries whose fast-growing cities are making energy and infrastructure decisions today that will set their development course for the future.
Estimates put the actual need for low-carbon development and clean energy investment at over US$700 billion a year and possibly more than US$1 trillion a year.
That level of money is available for investment – the bond market alone is worth US$80 trillion – and innovative public and private sector leaders are finding ways to help investors overcome perceived risks and connect with projects.
Sending the right signals for investment
Investors have an appetite for sustainable, low-carbon projects. In 2013, they put nearly US$250 billion into renewable energy, five times more than in 2004. But the conditions have to be right, and that means a combination of supportive and consistent government policies, targeted public finance, and innovative financing and business models.
Public climate finance can directly support projects and encourage investment by reducing costs and lowering risks. The World Bank Group, for example, is able to offer concessional loans, which are provided at more attractive interest rates, and grants that support projects; purchase projects' carbon credits; and provide guarantees that lower investor risk.
Governments also have the power to catalyze private sector climate finance by sending the right policy signals. They can use policy to help to unlock private sector investment in clean energy and low-carbon growth in a number of ways, including:
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Putting a price on carbon through market mechanisms or taxes;
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Removing fossil fuel subsidies;
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Implementing energy efficiency performance standards; or
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Creating strong investment frameworks for clean energy.
Morocco, for example, adopted aggressive targets for renewable energy and improvements in energy efficiency (42 percent and 12 percent by 2020, respectively), lowered fossil fuel subsidies, and created an attractive legal framework. As a result, the country is becoming known as a solar power innovation hub, and it saw its renewable energy investment grow from US$297 million in 2012 to US$1.8 billion in 2013. Other emerging markets such as Chile, South Africa, and the Philippines are following policy-driven strategies with similar results.
Almost 40 national and more than 20 subnational governments already have or plan to implement carbon pricing, and 144 countries have renewable energy support policies and targets.
Institutional investors & green bonds
Investors are also beginning to realize that their returns will be undermined by economic and social disruption resulting from climate change – and that climate-smart investments can offer stable, attractive returns.
Institutional investors have been channeling money into socially responsible investments while also encouraging the companies they invest in to shift to sustainable growth and clean energy. Swedish Pension Fund AP4 conducted a portfolio-wide carbon footprint exercise and then developed a climate indexed fund that has outperformed the market. Other investors, such as France’s ERAPF, have begun to systematically screen potential investments for their carbon footprint.
One relatively new and growing source of private climate finance is the green bonds market. The World Bank Group and others began developing green bonds about seven years ago to tap into the bond market to finance environment- and climate-friendly projects. The market has rapidly diversified to include banks, corporations, and governments as issuers and expanded their investor base to include more pension funds, insurance companies, asset managers, and retail investors. This summer, the market exceeded $20 billion for the year and continues to grow.
Green Climate Fund
Within the United Nations climate change negotiations, developed countries have also committed to bolster climate finance to developing countries by providing $100 billion a year by 2020, including through the establishment of a Green Climate Fund. This money has the potential to be catalytic – and mobilize much greater sums of private finance to those countries with attractive policy and investment environments.
Boosting that public finance will add to the work that innovative governments, development banks, climate funds and investors are doing through policy improvements, the green bonds market, investment screening, and innovative public finance.
Leaders across the public and private sectors are building a pathway for climate finance toward the international climate conference in Paris in 2015 to turn the climate challenge into an investment opportunity that supports low-carbon growth and builds resilience.
Source: World Bank
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Is the time right for regional infrastructure?
The story of Africa’s development is changing. Six of the world’s fastest growing economies are on the continent.
Democratic governance has been strengthened over the past five decades, enabling a platform for stable growth and prosperity in most parts of the continent. But, while we boast of having some of the fastest growing economies, what we do not generally say is that we also have seven of the ten most unequal economies in the world.
If we look at the GINI coefficients – an index which measures the extent to which the distribution of income or consumption expenditure among individuals or households within an economy deviates from a perfectly equal distribution – Africa is the most unequal continent in the world. On top of that, is the fact that 75pc of Africa’s population is under the age of 25.
This growing youth population, most of which has access to modern and rapid communications systems, and requires instant results, could impact adversely on the African countries if social inequality and the current systems of government are not revised. Inclusive policies are an absolute pre-requisite for political stability.
By ‘inclusive’, I mean creating jobs for the youth and facilitating access to public services. The equation of the most unequal yet youngest continent is one that could explode.
Tunisia is an interesting model that failed. The North African country was praised for its good transport system, high penetration of information and communications technology (ICT), good ports, relatively good airports, fairly good agricultural production and the highest literacy rate of girls, but still the country imploded.
Fundamentally, the majority of the population did not perceive the level of inclusion of the youth as satisfactory. This is why whatever we do in agriculture, infrastructure and ICT, if we do not resolve the key issue of inclusiveness, we are carrying very fragile systems that at one point or another will implode. So, inclusiveness is fundamental.
But, for real development in every sphere to happen, we need to improve our infrastructure. Infrastructural development is the key to all aspects of social and economic transformation.
Antonio Estache and Grégoire Garsous, both experts in infrastructure investment in Africa, state in their literal notes on “The impact of infrastructure on growth in developing countries” that there is, indeed, a plethora of anecdotal and more technical evidence that better quantity and quality of infrastructure can directly raise the productivity of human and physical capital, and hence growth. For example, transport access can improve education and markets for farmers’ outputs and others by cutting costs, facilitating private investment, and improving jobs and income levels for many.
Despite the gains registered in improving regional infrastructure connectivity across the continent since the establishment of the African Union, along with the New Partnership for Africa’s Development (NEPAD), Africa still faces serious infrastructure shortcomings across all sectors, both in terms of access and quality.
For instance, only 38pc of the African population has access to electricity, the penetration rate for internet is less than 10pc, while only a quarter of Africa’s road network is paved. Studies have shown that poor road, rail and port facilities add 30 to 40pc to the cost of goods traded among African countries, thus adversely affecting the private sector development and the flow of foreign direct investment (FDI).
Furthermore, a recent World Bank study found that the poor state of infrastructure in many parts of Africa reduced national economic growth by two percentage points every year and cut business productivity by as much as 40pc, making Africa – in spite of its enormous mineral and other natural resources – the region with the lowest productivity levels in the world.
In order to boost intra-African trade, we need to improve infrastructure. That is why we designed the Programme for Infrastructure Development in Africa (PIDA) – a 30-year strategy by NEPAD, the African Union and African Development Bank (AfDB), focusing on regional trans-boundary projects. The good thing about PIDA is that it was designed from the bottom up.
The priorities are consensual. Given our global context, some of the minimal conditions for structural economic transformation require a less top-down approach in our planning processes.
The 4,500km highway from Algiers in Algeria to Lagos in Nigeria, for example, would not have been possible without the political and technical support of each of the affected countries. Ten years ago, a private sector operator who wanted to discuss a regional project with two governments would be lacking a rational framework.
PIDA is just that; it provides the strategic framework for priority projects to transform Africa through the construction of modern infrastructure into an interconnected and integrated continent that is competitive domestically and in the global economy.
The programme also formed the basis for the Dakar Financing Summit for Africa’s Infrastructure, which took place in Senegal in June 2014. Hosted by President Macky Sall, who is also the Chairperson of the NEPAD’s Heads of State and Government Orientation Committee, the summit’s aim was to accelerate the mobilisation of both domestic and international financial support for the implementation of high impact regional infrastructure projects in Africa.
We have picked 16 out of 51 largely programme-based projects that were discussed at the Summit. The objective of this summit was to create a dialogue between policymakers, heads of government and private sector operators. Financing will develop from public-private partnerships.
The 51 projects require an estimated 68 billion dollars for their implementation up to 2020, whilst an additional 300 billion dollars is envisaged as a requirement for projects to be implemented through to 2040. With such quantum resource requirements in the long term, there exists a huge financing gap which needs to be addressed for the successful realisation of regional infrastructure projects.
When high level politicians, business entrepreneurs, industry experts and researchers met in Dakar, it was not just another talk-shop on Africa’s development. The summit was about producing results, in terms of new approaches to project preparation that will lead to an increased level of funding being directed to regional projects within a shorter timeframe.
The Dakar Summit highlighted the need to scale-up Africa’s domestic financial resource mobilisation and provided a unique high-level platform to convene and engage African leaders, businesspeople, regulators and policymakers on specific aspects that have hampered the roll out of transformative regional projects across the continent.
Working closely with the private sector, it was able to produce tangible outputs that will, over time, contribute to regional transformation. The summit marked the beginning of a strong collaboration between public and private capital, based on effective project risk mitigation and project structuring to match different investor groups with a range of investment securities.
These outcomes of the meeting, which was a new approach to tackling the changing landscape of Africa’s shifting development paradigm, will be an opportunity for Africa to focus on regional infrastructure projects. Surely, it could be a chance for multilateral institutions, such as the NEPAD, to serve as key points for investment in Africa’s infrastructure.
Ibrahim Mayaki is the Chief Executive Officer (CEO) of the New Partnership For Africa’s Development (NEPAD).
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SACU RSF Financial suicide – Prof. Grynberg
The Botswana Institute for Development Policy Analysis Senior Research Fellow, Professor Roman Grynberg has criticized the current Southern African Customs Union Revenue Sharing Formula (SACU RSF) calling it the worst model ever to be used.
Instead, the research fellow recommended for a ‘development policy formula’ over the current revenue sharing formula. He said Botswana and Namibia need to seek a ‘development agreement’ where SACU revenues are used to fund development projects.
“Collapse of SACU RSF could be worse than the ‘end of diamonds’. The way we do it is a mess. We need to move to development not compensation. We can make adjustments to it though it will be painful like diamonds; through infrastructure development, strengthening regional trade and promoting investment trade and competitiveness. We need 15 years to do this. Otherwise we will not move sustainability until South Africa (SA) comes to break the formula. Botswana is committing financial suicide by signing the RSF,” he said.
He highlighted that South Africa has an auto industry which other SACU member states, Botswana, Lesotho, Namibia and Swaziland (BLNS) largely subsidize.
SA, he said, has little incentive to reign in subsidies because it sees payments to BLNS under the customs component as excessive.
“Because it is based on share of intra-SACU imports, we cannot expand SACU and we cannot deepen SADC from a Free Trade Area (FTA) into a customs union. Mozambique cannot join,” said Grynberg.
He added that the only way out is an eventual move to the destination principle with long adjustment. Swaziland and Lesotho, he said, are too dependent to adjust therefore need to negotiate fundamentally different political/economic arrangement.
Meanwhile, he revealed that in 1994 the tariff in SA was 115% for cars and it is now 25%. It is believed that the Department of Trade and Industry in SA wanted to restructure and make the auto industry internationally competitive and introduced Motor Industry Development Program (MIDP) which from 1995 to 2012 subsidized exports by providing duty remissions through SACU.
It is understood that the MIDP was very successful as the auto industry in SA exported R122 billion in 2013, but it lowered import duty on cars and parts and created even more imports.
In 2012/2013, R16.9 billion was paid in duty rebates to auto firms – 83% of this was paid by BLNS and 17% by SA. Botswana paid an excess of R5.2 billion which is a 32% to subsidize the auto exports.
“There is no guarantee that the SA economy will not fall. As a result we need to shift from revenue sharing formula to a development policy formula. Again, MIDP has been replaced by Automotive Production and Development Programme (APDP) which is based in value added not exports but still funded largely by SACU customs rebates. Subsidies continue but no data on value yet,” he added.
In effect, Grynberg alleges that SA is using the rebates to claw back some of the cost of the subsidies it pays to the BLNS.
Professor Roman Grynberg was speaking at a recent conference, Are Diamonds there forever? Prospects of a Sustainable Development Model for Botswana, held from 27-28 August 2014 in Gaborone.
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Global summit urged to focus on trillion-dollar corruption
New analysis suggests that developing countries are losing a trillion dollars or more each year to tax evasion and corruption facilitated by lax laws in Western countries, raising pressure on global leaders to agree to broad new reforms at an international summit later this year.
These massive losses could be leading to as many as 3.6 million deaths a year, according to the ONE Campaign, an advocacy group that focuses on poverty alleviation in Africa. Recovering just part of this money in Sub-Saharan Africa, the organisation says, could allow for the education of 10 million more children a year, or provide some 165 million additional vaccines.
“Whenever corruption is allowed to thrive, it inhibits private investment, reduces economic growth, increases the cost of doing business, and can lead to political instability. But in developing countries, corruption is a killer,” a report on the findings, released Wednesday, states (download the report below).
“When governments are deprived of their own resources to invest in health care, food security or essential infrastructure, it costs lives, and the biggest toll is on children.”
The new analysis focuses on a spectrum of money laundering, bribery and tax evasion by criminals as well as government officials. The lost money is not development aid but rather undeclared or siphoned-off business earnings – immense tax avoidance resulting in a decreased base from which governments can fund essential services.
International trade offers a key point of manipulation, the report says, with the extractive industries particularly vulnerable. In Africa alone, exports of natural resources grew by a factor of five in the decade leading up to 2012, offering clear prospects for growth alongside lucrative opportunities for corruption on a mass scale.
“Between 2002 and 2011 we saw an exponential increase in illicit financial flows across the globe,” Joseph Kraus, a transparency expert at the ONE Campaign, told IPS.
“Yet while we’re all familiar with corruption in developing countries, it takes two to tango – that money often ends up in the financial centres of the Global North. Those banks, lawyers and accountants are all essentially facilitators of that corruption, so in order to get at the root of this issue we need to go after the problems there.”
Real opportunity
Advocates including the ONE Campaign are currently stepping up pressure on industrialised countries to institute a series of across-the-board transparency measures. Some are aimed at corruption in developing countries, such as strengthening disclosure laws impacting on the extractives industry and bolstering “open data” standards to allow citizens increased oversight over their governments’ dealings.
Several other reforms would need to be carried out by developed countries, particularly those housing major financial centres such as the United States and United Kingdom. These would include new standards requiring governments to automatically exchange tax information, to mandate the publication of full information on corporate ownership, and to force multinational corporations to report on their earnings on a country-by-country basis.
In certain circles, such demands have been percolating for years. But current circumstances could offer unusual opportunity for such changes.
“In the last two years we’ve seen an acceleration of this agenda,” Kraus says. “Eighteen months ago, no one was talking about phantom firms or anonymous shell companies. But these issues have gained a lot of momentum in a short period of time, and there is real opportunity coming up.”
This new energy has been motivated particularly by concerns in advanced economies over shrinking government budgets in the aftermath of the global economic downturn. Yet developing countries arguably stand to benefit the most from substantive reforms, provided they’re structured accordingly.
Advocates of such changes are now looking ahead to a summit, on Nov 15 and 16 in Australia, of the members of the Group of 20 (G20) world’s largest advanced and emerging economies as well as two major meetings of finance ministers in the run-up to that event.
The G20 represent about two-thirds of the world’s population, 85 percent of global gross domestic product and over 75 percent of global trade.
The members of the G20 are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States and the European Union.
The G20 has taken on a primary role in issues of global financial stability and, more recently, in pushing the automatic exchange of tax information between governments. A new global standard on such exchange could be approved by the G20 ministers in November, among other actions.
“For too long, G20 countries have turned a blind eye to massive financial outflows from developing countries which are channelled through offshore bank accounts and secret companies,” according to John Githongo, an anti-corruption campaigner in Kenya.
“Introducing smart policies could help end this trillion dollar scandal and reap massive benefits for our people at virtually no cost. The G20 should make those changes now.”
Coordinated response
In fact, many G20 countries have instituted some of these reforms on their own. The U.K. government, for instance, has taken unilateral action on publicising information on corporate ownership, while the United States was the first to pass strong transparency requirements for multinational extractives companies.
While such piecemeal national legislation can spur other countries to action, many feel only a comprehensive approach would have a chance at having a substantial impact. Further, many governments have pledged to act on these issues, but have yet to actually follow through.
“Illicit financial flows are a perfect example of a transnational problem, in that you have two legal regimes in which loopholes are being exploited,” Josh Simmons, a policy counsel at Global Financial Integrity, a Washington watchdog group that supplied data for the new ONE Campaign report, told IPS.
“So when an international cooperative body is able to identify these loopholes, they can get member countries to move in sync to address the situation. But if only one country tries to do so, businesses would probably just move elsewhere.”
Others are looking even more broadly than the G20. A paper released last month by researchers with the Center for Global Development, a think tank here, calls for the inclusion of anti-tax-evasion aims in the new global development goals currently being negotiated under the United Nations.
Indeed, even while there could be real movement at the G20 on several of these issues this year, the work on the other end of this equation – in developing countries – remains onerous.
“We need to get developing countries’ tax systems up to speed, strengthen their financial intelligence units and get their anti-laundering laws up to code. And that is proceeding, but much more under the radar given its complexity,” Simmons says.
“Still, that’s where people are actually bearing the brunt of this problem. Tax avoidance in the United States contributes to the national debt, but in developing countries it’s literally causing people to go hungry.”
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Food security: South Africa backs India’s stance at WTO
The current WTO norms limit the value of food subsidies at 10% of the total value of foodgrain production
South Africa supports India’s stance at WTO on public food stock holding issue as developing nations have responsibility to ensure that “those who are not able to feed themselves” are brought under the food security net, said South African High Commissioner to India F K Morule.
“The developing countries which includes South Africa support India. We are developing countries. So, the majority of people in our countries are not able to feed themselves. They must be supported by government,” Morule told PTI.
“So, government must subsidize to a large extent, especially to ensure that the poorest of the poor, ordinary people, those who are marginalised, are within the food security net,” he added.
India decided last month not to ratify WTO’s Trade Facilitation Agreement (TFA), which is dear to the developed world, without any concrete movement in finding a permanent solution to its public food stock-holding issue for food security purposes.
It has asked WTO to amend the norms for calculating agri subsidies in order to procure foodgrains from farmers at minimum support price and sell that to poor at cheaper rates.
The current WTO norms limit the value of food subsidies at 10% of the total value of foodgrain production. However, the support is calculated at the prices that are over two decade old.
India is asking for a change in the base year (1986-88) for calculating the food subsidies. It wants the change to a more current base year on account of various factors such as inflation and currency movements.
There are apprehensions that once India completely implements its food security programme, it could breach the 10 per cent cap. Breach of the cap may lead to imposition of hefty penalties, if a member country drags India to the WTO.
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BRICS non-members to hold stake in NDB
Asian, African emerging nations sounded out
The BRICS bloc comprising Brazil, Russia, India, China and South Africa will offer 45 per cent stake in the proposed New Development Bank (NDB) to non-BRICS developing countries, a top Indian government official said on Wednesday.
There would be no cap on the number of non-BRICS shareholders or their shareholding. But the BRICS members’ total shareholding will not be diluted below 55 per cent at any point of time, unless otherwise decided in future. All non-BRICS shareholders will be co-opted into the bank’s board of governors.
“Non-BRICS members can even hold the bank chairman’s position at some point of time and every shareholder will have one vote,” said Charanjeet Singh, joint secretary at India’s external affairs ministry. The idea is to broadbase the equity holding, board of governors and operations of the new bank, he said.
Singh said the bank would primarily focus on providing long-term finance for long-gestation infrastructure projects in the developing countries, especially BRICS nations.
Other developing countries in Asia, Africa and South America are seen as potential shareholders. Some of the non-BRICS countries that have been sounded out to become partners in NDB include large developing countries like Turkey, Indonesia and Mexico.
Several West Asian countries like the United Arab Emirates (UAE), Qatar, Bahrain, Kuwait and Iran are also being seen as potential partners, who may pick up stakes in the bank through their sovereign wealth funds (SWFs), officials clued into the negotiations told Financial Chronicle.
The five founding BRICS members are expected to complete the ratification process and secure Parliamentary approvals for the bank over the next few months.
The BRICS members have not taken a final call on the linkages that NDB might have with various multi-lateral development institutions like the World Bank and Asian Development Bank (ADB).
Other multi-lateral banks are unlikely to be invited to join the NDB board of governors or allowed any say in the running of the bank. But they would play a complementary role in development finance, another official said on the condition of anonymity.
NDB is expected to start operations on a modest scale to begin with. The BRICS members may chip in $16-18 billion towards equity holding and reserve fund in the first year, and scale it up to $100 billion over five years. Out of this, $50 billion would be towards equity and $50 billion would go into creating a reserve fund.
Officials who didn’t want to be identified said the member-countries were discussing several options for financing NDB. The first option is to depend on promoters’ capital for financing infrastructure projects. The second could be to finance business through issue of bonds on the strength of promoters’ capital. And a third model could be for promoters to underwrite the business risk from shareholders’ equity holding and leverage the robust credit ratings enjoyed by China and Russia, which have huge budget surpluses.
NDB will have one regional headquarter in South Africa, while the possibility of having a second regional office in the West Asian region is also being considered.
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The road ahead for the Environmental Goods Agreement talks
The next round of talks towards clinching an Environmental Goods Agreement is scheduled for mid-September. This paper maps the landscape in which the negotiations are taking place and offers a preview of the road ahead.
A group of 14 WTO members – counting the 28 member states of the EU as one – in July formally launched negotiations geared towards hammering out a new agreement aimed at liberalising trade in environmental goods. “The challenges we face, including environmental protection and climate change, require urgent action,” the participants said in a joint statement on the occasion.
The negotiations will be conducted as a plurilateral initiative outside the formal WTO Doha Development Agenda (DDA) mandate. Subsequent discussions during the first round of talks on 9-10 July largely focussed on the approach to be taken in terms of setting the stage for negotiations.
July’s news was much-anticipated following an announcement made by the group in January at an annual World Economic Forum event in Davos, Switzerland, which signalled plans to pursue “global free trade” in environmental goods. The Davos press release also suggested that the new initiative could be a “significant contribution” to participants’ efforts in other international negotiations with a specific reference to the ongoing UN climate talks.
The Davos announcement was itself preceded by signals from Washington last year that trade could be used to tackle climate change when US President Barack Obama unveiled his climate action plan outlining a series of measures including the possible liberalisation of environmental goods and services at the WTO.
Back in January the group said that the talks would build on a list of environmental goods developed to support a 2012 Asia Pacific Economic Cooperation (APEC) group commitment to reduce applied tariff rates to five percent or less by the end of 2015. More recently, delegates and experts gathered in Beijing, China in August as part a two-week APEC Senior Officials’ meet focused on building technical capacity among the 21-member alliance in order to implement the commitment on time.
The APEC initiative being voluntary also means that only the prevailing applied tariffs would be reduced and not bound tariffs. Applied tariffs are the actual customs duty levied while bound tariffs signify the maximum duty ceiling levels that WTO members could potentially levy.
The Environmental Goods Agreement (EGA) talks, while using the APEC goods list as a starting point, seeks to go further given that participating countries have committed to global free trade in environmental goods. Commentators suggest this would likely envisage a reduction of all bound tariffs on any eventual list of environmental goods to zero. A number of APEC economies are also participants in the EGA while the non-APEC participants include the EU, Norway, Switzerland, and Costa Rica.
Any agreement will become operational once a critical mass of members – in terms of a certain percentage of trade in the agreed upon goods – has been reached. The benefits of the outcome would then be extended to all 160 WTO members on a most-favoured nation (MFN) basis. Following this arrangement, the eventual agreement would be classed as an open as opposed to a closed plurilateral agreement such as the WTO’s Government Procurement Agreement, where benefits are extended only to members that participate in negotiations. While no threshold has been set for what such a critical mass might constitute, some trade-watchers have speculated that it could be 90 percent, following the figure chosen in the WTO Information Technology Agreement (ITA) that was also negotiated on a plurilateral basis.
Under the shadow of Doha?
The EGA group has sought to portray their effort as independent from the Doha Round. The DDA mandate under Paragraph 31 (iii) calls for “…the reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services.”
Multilateral negotiations on this front have stalled over the last decade, hamstrung by contention among WTO members as to what constitutes an environmental good, how such goods should be liberalised, and the general lack of momentum in the Doha Round as a whole. In the face of multilateral stagnation, WTO members appear to be increasingly turning to plurilateral initiatives as a possible avenue for advancing trade liberalisation – and potentially contributing to breaking the Doha deadlock – in line with instructions given by trade ministers at the 2011 ministerial conference to pursue new, more flexible negotiating approaches.
However, although a smaller group of countries implies that progress on reaching a plurilateral agreement may be smoother, negotiators will still have their work cut out for them. Discussions during the course of the voluntary APEC effort led to many goods eventually being dropped before the final 54 “Harmonised System” (HS) sub-categories were arrived at from an original starting list of around 300.
The HS-codes refers to the World Customs Organization’s framework used for identifying goods at the border. The HS customs classification used means that environmental goods under these 54 HS-6 digit subheadings are lumped together with other industrial products which may not have an environmental relevance. APEC economies can choose to liberalise tariffs on the entire HS 6-digit category or deploy an “ex-out” approach where only part of a subheading is deemed as an environmental good. Most of the goods in the APEC list, as well as the categories under which they have been classified, can be traced back to the various lists that WTO members submitted during the course of Doha Round talks on environmental goods.
Some observers have raised questions around how the process would be coordinated with the existing multilateral mandate on environmental goods – which sits under the special session of the Committee on Trade and Environment (CTE) where there has been no movement – and how any eventual outcome would be accommodated under the WTO. For instance, will the deal be administered by the CTE, or as a stand-alone agreement similar to the Information Technology Agreement (ITA)? The actual negotiations for the plurilateral agreement, however, will take place outside the WTO’s purview but largely within its physical locale. The talks are in principle open to other WTO members to join.
Assessing the goods
The goods in the APEC list are broadly relevant to a number of environmental product categories such as air-pollution control, waste-water treatment, solid and hazardous-waste management, and renewable energy. This list also contains a number of products relevant to environmental monitoring, analysis, and assessment and one example of an environmentally-preferable product, multi-layered bamboo flooring panels.[1] According to experts, however, only one subheading – HS 850231 for wind-powered generating sets – exclusively covers environmental goods. One study argues that 46 of the 54 HS subheadings of the APEC list cover products that are not used primarily for environmental purposes.[2] Other researchers have made similar comments. At the same time it is important to take into account that the APEC list only includes part of today’s internationally-traded environmental goods.
It may be desirable for EGA participants to consider adding products that could be clearly identifiable and relevant to attainment of major environmental goals, for example, climate change mitigation. Adopting a supply chain perspective would also be useful. Other considerations are goods deemed particularly important from a trade-perspective, including for developing countries, as well as products relevant for the delivery of environmental services.
Another potential hurdle to address will be how any future EGA will continue to be relevant to changes in technology. While it will not be possible to raise tariffs once bound at zero, in a rapidly-changing world, products agreed-upon for tariff liberalisation might quickly become outdated. Some newly emerging technology may be eligible to be classified under a specific tariff line or broader HS-subheading already benefitting from the EGA reduction in place. In other cases EGA participants may need to agree on a mechanism for continuous review of the list on a periodic basis so that newly emerging technologies that are not automatically captured can be added, in other words, there may be a need for a “living list” that is constantly updated.
Trade flows and tariff profiles
At the broad HS-6 digit level covering all 54 subheadings – and therefore inevitably including a number of non-environmental goods – the “G14,” as the current group has been dubbed by trade watchers, accounted for 86 percent of global trade in 2012 according to COMTRADE data.
The G14 group thus makes up a dominant share of trade in all of the 54 product subheadings. China, the EU, and the United States were, at the same time, the largest importers and exporters in 2011-12. Tariffs are already fairly low among current EGA participants. More than half of the HS subheadings and national or regional tariff lines of all the G14 combined are duty-free on an MFN basis. Similarly, more than half of the G14 group’s imports in value terms in the subheadings of the APEC list are duty-free. Again in value terms, 56 percent of all imports by G14 member of product groups in the APEC list are duty-free.
Imports into Hong Kong, Norway, and Singapore from the 54 subheadings are entirely duty-free while imports into Canada, Costa Rica, and Japan are almost entirely duty-free. In China and Korea, however, less than 30 percent of imports in value terms from the APEC-list are duty-free. The largest importers of dutiable goods are China, the European Union, the United States, and Korea. The average bound tariff for all 54 subheadings on the APEC list is 5.9 percent, excluding subheadings with unbound or only partially bound tariffs. Such averages are highest in Costa Rica, New Zealand and Korea.[3]
Despite the overall low-level of applied tariffs, their removal as “nuisance tariffs” could lead to a lowering of implementation costs at the border. The reduction of MFN bound tariffs on products to zero would also lead to greater certainty and predictability for the private sector. In addition the inclusion of new environmental products beyond the APEC list with higher tariff barriers could raise average tariffs faced by EGA participants. Ultimately non-tariff measures (NTMs) such as standards and certification would eventually need to be addressed in order to truly smooth trade. These will not, however, be the immediate focus of negotiators. EGA officials explained at the launch in July that the negotiations will initially focus on tariff issues related to environmental goods.
What will September bring?
At the first round of talks in July, some EGA participants expressed willingness to nominate products in September based on categories, in order to ensure the agreement’s environmental credibility. According to a trade delegate, to start with, EGA participants would be free to put forward for discussion in mid-September products of interest falling under two categories namely, air-pollution control, and solid and hazardous waste management.
For this purpose participants who wish to put forward products might use a spreadsheet with column headings useful for facilitating discussions – such as the relevant HS-6 digit code under which the product and/or products would be nominated – a descriptive column, and additional columns providing for additional product specifications or ex-outs. The HS version used for the EGA would be HS 2012 whereas the one used for the APEC negotiations was a mixture of HS 2002, 2007, and some 2012. While all categories have not yet been decided, participants could draw on categories that were been put forward during earlier APEC negotiations, as well as at the WTO. These include, for example, waste-water treatment, heat and energy management, renewable energy products, and noise and vibration abatement.
A trade delegate recently noted that while some participants may not yet be ready to nominate products for September there would be initial discussions on the categories and products that were nominated. According to another EGA-participant delegate the group will proceed with nominations on agreed categories in parallel with finalising a list of the latter. Another delegate suggested it might be useful to get a clearer picture of the categories to be discussed before entering into product nominations in order to safeguard the agreement’s environmental credibility. A rush to nominate products could jeopardise the talks in this respect, the delegate said, but also acknowledged that other participants might have differing views. The process would also be facilitated by inviting technical experts in the relevant categories to share their expertise and provide inputs during the week of discussions. The next round of discussions in November would go through a similar exercise on additional product categories.
According to one delegate, the objective at the end of these discussion rounds would be to consolidate sometime towards July/August 2015 the product compilations received after which actual negotiations would begin to retain, add, or drop products in the list, also taking into account various factors such as participants’ interests, concerns, and sensitivities, as well as seeking to strike a balance among the various categories. Another delegate was of the view, however, that it would be better not to set concrete timelines at such an early stage of the negotiations.
Most delegates contacted seemed to agree that while the objective was to reflect all the products agreed-upon in the APEC list, participants would be free to nominate additional products, and that these could be proposed at the HS-6 digit level or at the level of ex-outs indicating the relevant HS-6 digit code.
One trade source reflected on the possibility of the EGA participants agreeing on goods under the APEC list as part of a possible early harvest approach although it was not clear whether all participants would agree to such an approach. Criteria such as a systems-approach and relevance to supply-chains and environmental services could all be used by participants to nominate products. In that regard at least some degree of co-ordination by certain EGA participant negotiators with their TISA (Trade in Services Agreement) counterparts would be expected.
The EGA participants have stated that negotiations would remain open to any and all interested WTO members to join. Indeed it is anticipated that Israel would likely be the newest member to join the group for the third round of discussions slated for November. It should be noted that some of the current EGA participants might need to fulfil domestic consultation procedures every time a new participant intends to join. In particular, on the occasion of the EGA’s launch in July, China’s WTO Ambassador to the WTO Yu Jianhua said that the group would like to see more developing members join the process.
This article is published in BioRes, Volume 8 - Number 7, by the International Centre for Trade and Sustainable Development (ICTSD).
[1] Sugathan M., (2013), Lists of Environmental Goods: An Overview, ICTSD
[2] Reinvang, R., (2014), The APEC list of Environmental Goods: An Analysis of Content and Precision Level, Vista Analysis AS
[3] Vossenaar, R., (2014), Identifying products with Climate and Development Benefits for an Environmental Goods Agreement, ICTSD
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FEC ratifies N485trillion for 30-year infrastructure master plan
The Federal Government yesterday ratified a thirty-year National Integrated Infrastructure Master Plan (NIIMP) that would cost N485 trillion. This is as a document which is to serve as blueprint for accelerated integrated infrastructure development in the country from 2014 to 2043 was endorsed at the Federal Executive Council (FEC) meeting on Wednesday.
The draft NIIMP is a blueprint for integrated infrastructure development for the next 30 years based on the country’s economic growth aspirations and in line with the nation’s vision 2020:20.
The Minister of National Planning/Deputy Chairman, National Planning Commission (NPC), Dr. Suleiman Olarewaju Abubakar, who disclosed the ratification to journalists informed that the plan which would cover a period of 30 years was expected to take $3.05 trillion (N485 trillion) to execute.
To make it a sustainable document, the Minister said the NIIMP Bill was being drafted and would be presented to the National Assembly as an Executive Bill so as to provide an enabling legal framework for sustained implementation.
According to him, $166.1 billion would be needed to implement the first phase of the plan which would cover 2014-2018, adding that the plan would among other things address the lack of linkages in the infrastructure sector including energy (power, oil and gas), transport (roads, rail, ports and airports), housing, water, information and communication technology (ICT).
In the same vein, the FEC approved the award of a contract for the design and construction of four marine tug boats at the rate of €42.9 million to aid operations at the Nigerian Ports Authority (NPA).
The project, when completed, will improve the provision of functional and efficient marine services to its customers in consonance with the port concession policy.
The council equally approved a proposal for the award of a contract for the design, construction, installation, testing and commissioning of 2X60MVA, 132/33KV at Amasiri and 2X132KV Line Bays Extension at Abakaliki for the Transmission Company of Nigeria (TCN).
Speaking with State House correspondents after the meeting presided over by President Goodluck Jonathan, the Minister of Transport, Senator Idris Umar said the contract which would have a lifespan of 24 months was awarded to Messrs Depasa Marine International (Nigeria) Limited for €42,968,864.70 (equivalent of N8,778,423,042.28), inclusive of all taxes with a completion period of 24 months.
The Minister said there was a budgetary provision of N1.7 billion in the NPA’s approved 2014 budget under the heading of code, design, construction and procurement of four tug boats for Lagos and Port Harcourt while the balance would be provided in the 2015 and 2016 budgets.
Umar noted that the project was expected to generate 97 job opportunities for both professionals and non-professionals during its execution and about 112 direct and indirect job opportunities when in full operation.
Also speaking, the Minister of State for Power, Mohammed Wakil, explained that an award of contract for the Ebonyi/Cross River power transmission line was to boost electricity supply to the two states for increased economic activities. A similar approval was given last week for the boosting of electricity supply to some parts of Anambra State.
In Wakil’s words, “the Council approved the re-award of the contract in favour of Messrs North China Power Engineering Limited and NCEP (Nig) Limited in the sum of $5,835,368.47 payable at the prevailing exchange rate at the time of payment plus N505,788,083.58 inclusive of N67,211,298.58 for five per cent contingency with a completion period of 24 months.
“The project is designed to boost power supply to Ebonyi State and parts of Cross River and enhance the socio-economic development of the states. The funds are available under the Eurobond loan, 2014 appropriation and in the unutilized letter of credit earlier established for the terminated project to commence implementation of the project,” he said.