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Financial inclusion to hit 25% in Tanzania by 2016
The government wants at least 25% of the population to be included in the formal financial sector by 2016.
It is hoped that this will cause a substantial reduction in poverty levels by 2016 through an increase in the use of financial access especially mobile money transfers.
Speaking in Dar es Salaam recently, the Bank of Tanzania, Deputy Governor, Financial Stability and Access, Lila Mkila said the illegibility and affordability of financial services in the country are crucial to making it easily accessible by the public.
Mkila said there was need to ensure that 25% of Tanzanians living within a five kilometre distance have access point to financial services by 2016. Mkila said infrastructure plays an important role in realizing this target.
“There has been huge investments and innovations taking place in the mobile technology with current data showing out of over twelve million people using mobile phones one in every two individual mobile users, one uses it to remit, save, borrow and pay for their bills.
According to the Census of the Financial Access Point of 2013, there was a considerable increase of population’s access to financial services through mobile money services to 45% by 2013, being an increase of 10% from the records of 2012 which showed the figures at 35%, where as banks services only showed a record increase of 26% by 2013 being an increase of 2% up from the previous records of 24% recorded in 2012.
He said that according to the Finscope report of 2013 over six other million adults use mobile services to save or keep their money.
“Only when one has access to services and that such services are broad, and easily accessible that he is able to use them,” Mkila said.
He said that the Bank of Tanzania will ensure that financial access findings are used to improve and propel policies initiatives by ensuring that the majority of the public have access to financial services.
He said it was now possible for Tanzania to track changes in recent years due to a financial access mapping system carried out in 2012.
Tanzania can compare itself with other countries like Kenya, Uganda and Nigeria. Mkila said Tanzania has identified four drivers of financial inclusion which includes proximity, payments, straw value and information to drive economy through financial services.
Tanzania launched a National Financial Inclusion Framework (click here to download) in December 2013. The Framework sets the stage for the Financial Inclusion vision based on the concrete improvements that the country would like to see in the lives of all Tanzanians through the use of financial services. It galvanizes all relevant stakeholders in financial services under one common vision of success and provides strategic direction for all initiatives for Financial Inclusion in the country.
The Framework includes the ambitious goal of expanding access to formal financial services to more than half the country’s population by 2016.
The working definition of Financial Inclusion for Tanzania entails the “regular use of financial services, through payment infrastructures to manage cash flows and mitigate shocks, which are delivered by formal providers through a range of appropriate services with dignity and fairness”.
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Hearing on Advancing the U.S. Trade Agenda: Trade with Africa and the African Growth and Opportunity Act
House Ways and Means Trade Subcommittee held a hearing on trade with Africa and the African Growth and Opportunity Act on July 29, 2014 in Washington, DC.
BACKGROUND
In 2000, Congress first passed the African Growth and Opportunity Act (AGOA) to provide duty-free access to a wide variety of products from sub-Saharan African countries that meet certain criteria. Benefits under AGOA are extensive, allowing for duty-free access for many apparel and agriculture products that are not included in the Generalized System of Preferences (GSP) and providing preferential treatment on about 2000 more tariff lines than GSP. In addition, AGOA includes certain special rules of origin to further encourage trade and development in Africa.
The program is designed to promote economic development in sub-Saharan Africa by granting increased access to U.S. markets. The AGOA Ambassadors Working Group estimates that AGOA has generated about 350,000 direct jobs and 1,000,000 indirect jobs in Sub-Saharan Africa and about 100,000 jobs in the United States.
Since adoption of AGOA in 2000, U.S. trade with sub-Saharan Africa has grown about four-fold, rising from $7.6 billion in 2001 to $24.8 billion in 2013. Approximately 90 percent of imports from AGOA-eligible countries entered under the AGOA program, though the level of utilization varies from country to country. Major products exported to the United States under AGOA include crude petroleum ($20 billion), automobiles and parts ($2.1 billion), refined petroleum products ($1.2 billion), and textiles and apparel ($907 million).
AGOA has had a positive impact on foreign direct investment flows to sub-Saharan Africa, particularly in the textile and apparel sectors, as well as the automotive sector. U.S. investment since enactment of AGOA has increased six-fold. Even as trade and investment have grown, significant barriers remain in Africa, including high tariffs, forced localization requirements, legal restrictions on investment, and customs barriers, among others. Substantial supply-side constraints, such as poor infrastructure, lack of regional integration, and other obstacles, also contribute to depress trade and investment flows.
As Congress considers renewal of AGOA, which expires in September 2015, this hearing is an important element of the Committee’s fact-gathering activities. To this end, the Committee encourages interested parties to submit for the record specific comments on AGOA and AGOA renewal, pursuant to the below instructions. The period for comments will be held open longer than usual to accommodate comments from interested parties.
In announcing this hearing, Chairman Nunes said, “AGOA is an important development tool that has been proven to promote economic growth and jobs both in developing countries in Africa and the United States. I am committed to ensuring a bipartisan, timely, and seamless renewal of the program before it expires in September 2015. In addition, we are studying potential changes to the program to improve its effectiveness and utilization. We are also exploring how Africa can reduce barriers and become more attractive for trade and investment within Africa, as well as globally, such as through full implementation of the WTO Trade Facilitation Agreement.”
FOCUS OF THE HEARING:
The focus of the hearing is on AGOA and U.S. trade policy in sub-Saharan Africa. The hearing focus will include: (1) deepening and expanding trade and investment ties with sub-Saharan Africa; (2) the effectiveness of AGOA and potential revisions to the program to promote improved utilization; (3) barriers to trade in Africa; (4) barriers to regional integration in Africa; and (5) capacity building and efforts to promote regional integration and integration into global supply chains, including through implementation of the WTO Trade Facilitation Agreement.
Witness List
Ben Leo
Senior Fellow, Director of Rethinking U.S. Development Policy, Center For Global Development
William C. McRaith
Chief Supply Chain Officer, PVH Corp.
Witney Schneidman
Senior International Advisor, Covington & Burling LL; Nonresident Fellow, Africa Growth Initiative, Brookings
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Trade facilitation will support African industrialisation
In this column, Roberto Azevêdo, Director-General of the World Trade Organisation (WTO), argues that the Trade Facilitation Agreement delivered by the Bali package in December last year will support regional integration in Africa, complement the African Union’s efforts to create a continental free trade area and will begin to remove some of the barriers which prevent full integration into global value chains.
In the 1960s, there were high hopes for the development of the newly-independent sub-Saharan African countries but these hopes were quickly dashed following a series of shocks which began in the mid-70s, with the first oil price spikes, followed by a severe decline in growth and increase in poverty in the 80s and early 90s. However, by the mid-1990s, economic growth had resumed in certain African countries. Economic reform, better macroeconomic management, donor resources and a sharp rise in commodity prices were having a positive effect.
In the 2000s, many African countries witnessed high economic growth performance and during that period some of the world’s fastest growing economies were in sub-Saharan Africa. Angola, Nigeria, Chad, Mozambique and Rwanda all recorded annual growth of over 7 percent.
In 2012 Africa’s exports and imports totalled 630 billion dollars and 610 billion dollars respectively, a fourfold increase since the turn of the millennium. And the long term prospects for growth are good. The Economist Intelligence Unit has forecast average growth for the regional economy of around 5 percent yearly from 2013-16.
Despite all this, the continent still plays a marginal role in the global market, accounting for barely 3 percent of world trade. One significant reason – although, of course there are others – is that African economies are still narrowly based on the production and export of unprocessed agricultural products, minerals and crude oil.
Now, due to relatively low productivity and technology, these economies have low competitiveness in global markets – apart from crude extractive products. The low productivity of traditional agriculture and the informal activities continue to absorb more than 80 percent of the labour force. And growth remains highly vulnerable to external shocks.
This story of half a century of struggle, set-backs and progress shows two things:
One, the road to meaningful and inclusive development still seems long.
Two, we are in a better position than ever to make real, sustainable progress.
Many countries are striving to do more in turning their strength in commodities into strengths in other areas, using commodities as a means of spurring growth across various sectors. The United Nations Economic Commission for Africa’s 2013 Economic Report echoes this calling for the continent’s commodities to be used to support industrialisation, jobs, growth and economic transformation.
In line with this, I think there are a number of essential steps to take:
- diversification of economic structure, namely of production and exports;
- enhancement of export competitiveness;
- technological upgrading;
- improvement of the productivity of all resources, including labour; and
- reduction of infrastructure gaps.
Only by delivering in these and other areas can policymakers ensure that growth enhances human well-being and contributes to inclusive development. But how can we take these steps?
Of course I should say that although African countries share some common features, no unique set of policies, including those on trade and industrial policy, could ever fit for all in a uniform way. Even among the least-developed countries (LDCs), some are already exporters of manufactured products, although often they rely on a single product while others are more dependent on commodities. Nevertheless, I think it is clear that some preconditions of success are universal.
African regional integration is of course very high on the policy agenda. There is little doubt that the regional market offers good scope for African firms to diversify their production and achieve greater value addition. Already now, manufactures constitute as much as 40 percent of intra-African exports, compared with 13 percent of Africa’s exports to the rest of the world.
The Bali Package, which World Trade Organisation members agreed in December last year, will help to resolve some problems. Inclusive, sustainable development was at the heart of the whole Bali project and our African members played a crucial role in making it a success. It brought some progress on agriculture. It delivered a package to support LDCs. It provided for a Monitoring Mechanism on special and differential treatment.
And, in addition, Bali delivered the Trade Facilitation Agreement and this is a direct answer to some of the problems of fragmentation. Costly and cumbersome border procedures, inadequate infrastructure and administrative burdens often raise trade-related transaction costs within Africa to unsustainable levels, creating a further barrier to intra-African trade.
This Agreement will help to address some of these bottlenecks. It will support regional integration, and therefore complement the African Union’s efforts to create a continental free trade area. And it will begin to remove some of the barriers which prevent full integration into global value chains. As such it will create an added impetus for industrialisation and inclusive sustainable development.
And it is worth noting here that the Trade Facilitation Agreement broke new ground for developing and least-developed countries in the way it will be implemented.
Another vital issue here is the importance of agricultural development in industrialisation, and the role of industrial collaboration through regional cooperation. The contribution of the agriculture sector is of utmost importance for the establishment of a sound industrial base. It can provide a surplus to invest in industrial capacity building, and supply agricultural raw materials as inputs to the production process, especially for today’s highly specialised food processing industry.
Moreover, it can also significantly contribute to industrialisation by providing an ample supply of food products. This is because food constitutes a large share of what wage earners in African countries spend their money on. Its availability at low prices contributes to increase the purchasing power of wages, and therefore raise the competitiveness of a country in international markets.
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SADC Meeting of Ministers of the Trade, Industry & Finance & Investment Cluster – Gaborone, Botswana
The Trade Industry Finance and Investment Cluster of Ministers met in Gaborone on 17-18 July 2014. The meetings were preceded by the meetings of their senior officials who met from 11-16 July, 2014.
The Ministers first met in separate sectors to discuss issues specific to their mandates as follows:
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Finance and Investment - 17 July 2014
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Trade - 17 July 2014
The Ministerial Task Force on Regional Economic Integration met jointly with the Committee of Central Bank Governors on 18 July, 2014.
The meetings were attended by Ministers and Governors from all the SADC Member States – Angola, Botswana, Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, United Republic of Tanzania, Zambia and Zimbabwe
The meetings reviewed progress in various aspects of the SADC Regional Economic Integration agenda and proposals for moving it forward.
Ministers responsible for Finance and Investment
Ministers reviewed progress made in the operationalization of the Regional Development Fund and implementation of the Project Preparation Development Facility.
With regard to the Regional Development Fund, Ministers of Finance affirmed commitment to the operationalise the establishment of the fund and requested further investigations by the Secretariat to address modalities for capitalization and shareholding in the fund.
Ministers noted progress with regard to the Project Preparation Development Facility whose purpose is to prepare regional infrastructure projects to bankability stage and a component of the infrastructure window of the fund. In particular, Ministers noted that the facility is now operational and is currently capitalized to the tune of €16.55 million. The Facility will support preparation of infrastructure projects in Energy, Water, Transport, ICT and Tourism development to bankability.
Ministers also noted that the full operationalization of the Project Preparation and Development Facility will give effect to the Regional Development Fund.
Ministers of Trade
Ministers of Trade, among others considered and approved the tariff offer by Seychelles signaling the readiness of the country to join the SADC Free Trade Area. The Ministers also commended Mauritius for fully liberalizing all outstanding duties on SADC products and therefore completing its SADC tariff phase down processes. Ministers of Trade requested the Member States who have not signed the Protocol on Trade in Services to do so by the next Summit, scheduled for August 2014 and those who have not ratified the Protocol to initiate the requisite processes. Implementation of this Protocol is particularly important in facilitating trade in goods and enhancing competitiveness of the SADC productive sectors.
Ministerial Task Force on Regional Economic Integration
The Task Force on Regional Economic Integration and the Committee of Central Bank Governors discussed the issues pertaining to the SADC regional economic integration agenda. Amongst other issues, the joint meeting agreed to revise the macroeconomic convergence target, in particular, to revise the inflation target from the fixed target of three per cent to a range of 3-7%. The meeting also agreed to maintain the current targets for the fiscal deficit and public debt, at 3% of GDP and 60% of GDP respectively for the remaining period of the RISDP.
In addition, the meeting considered a Draft Revised Regional indicative Strategic Development Plan setting out achievements and challenges encountered as well as revised priorities for the region for 2015-2020, particularly focusing on Industrial Development and Market Integration. The cluster emphasized the importance of enhancing sustainable industrial development, productive competitiveness and supply side capacity.
The joint meeting directed the Secretariat to evaluate progress made towards the establishment of the SADC Customs Union. They also requested Member States to expedite processes aimed at enhancing efficiencies at selected border posts and to use the Trade Related Facility to address some of the identified needs pending the development of a comprehensive Trade Facilitation Programme. Enhancing trade facilitation measures in the region was particularly important in reducing the costs of doing business in the region.
SADC Secretariat
Gaborone, Botswana
18 July 2014
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Govt urged to create code of governance for Dar corporations
To enable smooth operations of businesses, stakeholders urge the government to form a code of governance that sets standards and principles on how corporate bodies much work.
African Corporate Governance Network (ACGN) Chairperson Jane Valls said in Dar es Salaam yesterday that governance is important for sustainability and success of any business and the country at large.
“Any country that wants to attract Foreign Direct Investment (FDI) must focus on improving corporate governance for that is what investors are looking for,” said Ms Valls, who is also the Chief Executive Officer of Mauritius Institute of Directors (MIoD).
Giving an example of Mauritius, she said MIoD and the government have spent a lot of time investing in corporate governance, structuring legal framework and institutions in order to turn the country into a financial service centre and attract FDI.
She said that the growing trend of inter-continental business transactions and the increase in the flow of DFIs in Africa is giving rise to the importance of Corporate Governance in the continent.
“It has become imperative to come up with initiatives that guide the formulation of Africa-specific guidelines to corporate governance that champion the business dynamics of the continent and capitulate with global standards,” she said.
She was speaking during ACGN Members bi-annual meeting held in the country.
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SD sugar production expected to increase post-EPA
Following conclusion of the economic partnership agreement (EPA) between the European Union (EU) and Southern African Development Community (SADC) member states, the local sugar industry expects to increase its production in the next five years.
Swaziland Sugar Association (SSA) Chief Executive Officer Professor Mike Matsebula said if the negotiations had not been concluded and the EPA not initialled, Swaziland would not have been able to export its sugar to the EU post-September 2014.
“We would have been forced to store the sugar in warehouses and wait for the conclusion and initialling. Storing the sugar would have forced us to borrow more heavily than would have been the case otherwise since millers and growers have to be paid weekly for the sugar produced,” he said.
Matsebula said this in turn meant interest costs would have been higher and the net proceeds remitted to millers as well as growers would have been lower.
“As you can appreciate, the conclusion of the negotiations and initialling of the EPA means a lot to the sugar industry in terms of net proceeds payable to millers and growers,” he added. Going forward, Matsebula said production levels would not be affected by the conclusion of the negotiations and initialling of the EPA. He said the industry was actually projecting to increase its sugar production over the next five years.
The country’s sugar exports to the European Union currently account for about 8% of total EU imports. Swaziland is also Africa’s fourth largest producer of sugar after South Africa, Egypt and Sudan.
The country’s sugar cane area has increased by 28% since the 2000/01 marketing year (MY), as more small-scale farmers took up sugar cane cultivation, and access to irrigation increased through significant investments by government, the EU and donor organisations.
As a result, sugar cane production increased by more than 30% to reach its highest level of 5.7 million mega tonnes (MMT) in the 2012/13 MY.
Expectations are that by the 2016/17 MY, the sugar cane area will increase to 65 000 hectares and sugar cane production could be more than 6.5 MMT.
The main features of the EPA with the SADC EPA Group – which comprises South Africa, Namibia, Botswana, Lesotho, Swaziland, Angola and Mozambique – include a goods market access deal with Botswana, Lesotho, Mozambique and Swaziland; as well as a fully fledged development cooperation chapter.
Complying with requirements of the World Trade Organisation (WTO), the EU was obliged to review its internal market. As a consequence the price of sugar paid by the EU will reduce gradually to approach world market prices.
Last year the EU decided to maintain its internal sugar production quota until October 2017, which raised fears that this might render the market less attractive for local exporters.
EU Ambassador Hans Duynhouwer noted that the 2006 EU sugar reforms had transformed the European Union from a net exporter into one of the world’s largest net importers of sugar, which all happened during a period of rising world prices.
“As a result, internal EU prices have fallen less than originally envisaged. ACP (African, Caribbean and Pacific) countries and Swaziland have benefited from this. As you will know, the European Union envisages further sugar sector reforms covering the period 2014 to 2020,” he said.
Duynhouwer said the sugar market of the European Union would be further aligned with world market conditions. He said a key question had been the abolition of the internal production quota as proposed by the European Commission.
Adding, he said the system of internal production quota had exercised an upward pressure on internal EU prices. The ambassador said after consultations and negotiations, it was now very likely that the production quota would be maintained until October 2017 (four more seasons).
“From October 2017, there will no longer be an internal production quota. As a result, internal EU sugar prices will be less high and therefore the market might be less attractive,” he said.
However, he said Swaziland would continue to benefit if it concluded and initialled the EPA. To this end, Professor Matsebula noted that conclusion of the EPA brings more certainty to EU access for Swazi sugar, which was extremely important for planning purposes.
The outcome of the finalised EPA will allow South Africa more access for its agricultural goods into the EU. Matsebula explained that South Africa would have more access for its agricultural goods because it was restricted under the Trade and Development Cooperation Agreement (TDCA) it concluded with the EU a few years back. He said in as far as the rest of the Southern African Customs Union (SACU) was concerned (including Swaziland); the member states have been able to export their agricultural products duty-free quota-free since 2009 under a special EU regulation.
SSA reduces price to compete against overseas sugar
The Swaziland Sugar Association (SSA) has had to reduce the price of its product to ensure it remains competitive against the backdrop of an influx from overseas suppliers into the region.
Chief Executive Officer Professor Mike Matsebula said the influx over the past two years was from overseas suppliers – mainly Brazil and to a lesser extent India and Thailand. He said SSA responded to this influx by reducing the price of Swazi sugar so that it remained competitive vis-à-vis the foreign sugar.
A continued downward pressure on the world sugar price is envisaged for the next few years, followed by a price recovery. An industry stakeholder said this was due to several reasons, including the fact that Brazil was the biggest producer and exporter of sugar in the world, making up 23% of total production and 50% of total exports.
Royal Swaziland Sugar Corporation (RSSC) Managing Director Nick Jackson last year said another reason for downward pressure on sugar prices was that the ability of the sugar cane plant to capture so much of the sun’s energy made it the most efficient feedstock for ethanol distillation.
“This is why Brazil, which ironically is now on its way to becoming a major petroleum producer, has steered its domestic vehicle fleet towards ethanol since the 70s. This means that increasingly less of Brazil’s sugar crop will be available for export,” he added.
Jackson said the over-supply and de-regulation of trade would therefore bring prices off until about 2016 when demand would outstrip supply, and prices would begin to climb again. He said by 2020, sugar producers would need to supply another 20 million tonnes – which would not come from Brazil nor much from Europe.
Meanwhile, Matsebula explained that the influx of foreign sugar into the region was not because the Southern African Customs Union (SACU) had changed its policy towards its sugar industry (that is, Swazi and South African sugar industries).
He said it was because the tariff on imported sugar had declined to zero due to out-dated information being used to determine the underlying Dollar-Based Reference Price (DBRP). Adding, he said latest information has since been used and a new DBRP was gazetted by South Africa (on behalf of SACU) with effect from April 2014.
“As a general point, the Swazi sugar industry is continuously finding ways of reducing production costs at the field, factory and administration levels. This is done on the realisation that cost-competitiveness is key to long-term sustainability of the sugar industry,” he added.
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OECD-AfDB seminar on addressing policy impediments to private investment in African infrastructure
Discussions related to fostering private investment in Africa’s infrastructure have multiplied in recent years. There is widespread recognition that the continent’s infrastructure gap is growing, and that African governments cannot afford to bridge this gap through tax revenues and aid alone. But, although investment opportunities are plentiful, investors are not yet fully seizing them.
In this context, and drawing on experiences from a range of developing countries, this seminar investigated how changes made in policy areas at national, regional and international levels can help generate more and better private investment in Africa’s infrastructure. Particular attention was devoted to three areas of public policy:
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Better regulation in both home and host countries, to unlock the supply of finance for infrastructure projects
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A proactive approach to managing risks across the project cycle
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Using public risk-bearing capital more effectively to leverage private investment in infrastructure
Jointly organised with the African Development Bank and the International Growth Centre, this event brought together institutional investors, representatives of host governments (including PPP practitioners), infrastructure utility companies, regional organisations, the international banking sector, and bilateral and multilateral development finance institutions.
This seminar follows on from the Roundtable on Stimulating Private Investment in Infrastructure in Africa and South Asia, hosted by the International Growth Centre in February 2014, where participants sought to clarify the spectrum of risks and the systemic organisational failures that are hampering greater investment flows into these regions’ infrastructure.
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Nigeria: Illicit flows and corporate tax dodgers compound poverty
In a recent speech, President Obama criticized corporate entities avoiding tax remittances through the exploitation of legal tax loopholes in a practice known as tax inversion. Recently, there have been a rising number of U.S. companies using international mergers to relocate their headquarters overseas in an effort to avoid paying U.S. corporate taxes.
Tax inversion is a process where companies in a particular country merge with foreign entities and use their foreign counterpart for their home addresses or tax base, thereby avoiding corporate taxes in their home country.
The effect of this move to the US, according to the US Treasury Secretary Jack Lew, is that it “hollows out the U.S. corporate income tax base.”
This leaves the government with a lot less resources at its disposal to fulfill its obligation to its public and its citizens. Such obligations include funding for health care, education and security among others.
US administration officials estimate that the tax inversion deals, if allowed to continue, will cost its Treasury $17 billion in lost revenue over the next decade.
Obama opined that the move was very unpatriotic as firms, who have benefited from the country’s resources, its infrastructure, its market and economy, have “shirked” away from their responsibility of giving back to the system.
“There are a whole range of benefits that have helped to build companies, create value, create profits,” Obama said. “For you to continue to benefit from that entire architecture that helps you thrive, but move your technical address simply to avoid paying taxes is neither fair nor is it something that’s going to be good for the country over the long term”, he said.
The US government corporate tax income is set to hemorrhage further in the near future with nine inversions still pending for this year.
The US Congress has been pushing for a law to make inversion rules stricter, by increasing the proportion of a company’s stock owned by foreigners from 20 percent to 50 percent, among other muted changes.
Pfizer, one of the largest pharmaceutical companies in the world, and based in the US, publicly stated earlier this year that it has plans to merge with London-based AstraZeneca, in a move that would see it do away with billions in U.S. taxes. Through an inversion deal, Pfizer was seeking to reduce its U.S. corporate tax rate (35%) to a much lower one (21%) in England.
Another U.S. drug company, AbbVie is in talks to buy Shire Pharmaceuticals in a $55 billion transaction. Shire is based in Dublin, Ireland but incorporated in Jersey, a popular tax haven off the coast of France. AbbVie plans to take advantage of its counterpart’s incorporation in Jersey to significantly diminish its tax payments.
This is the latest example of U.S. companies seeking tax savings through a merger with a foreign partner.
The Nigerian Story
While “tax inversions” as it is experienced in the US have not been common in Nigeria, corporate sharp practices in the Nigerian corporate environment have taken on more sinister forms, mostly through tax dodging, illicit outflows (comprised of illegal capital flight and illegally earned, transferred or spent funds) and collusion with the authorities.
Nigeria’s tax revenue to gross domestic product (GDP) fell to 12 percent after the rebasing exercise, which is one of the lowest in Africa, as well as for a country of its economic size.
The Federal Government’s revenue as a percentage of GDP also fell to 4.6 percent from 8.7 percent previously.
The greatest obstacle to establishing a robust safety net programme for Nigeria is the low tax base.
South Africa spends 13 percent of GDP, on social programs including health while the developed-world’s average, calculated by the Organization for Economic Cooperation and Development is put at 22 percent.
Mexico spends about 7.4 percent, and South Korea, 9.3 percent.
Assuming Nigeria decided to go with the mid-range and spend an equivalent of 10 percent of GDP on a new safety-net programme, it would mean the country would need to appropriate $51 billion (N8.1 trillion) – out of its total consolidated budget (Federal and State) of about N9 trillion – to social spending alone.
The need for safety nets in the country is huge however.
Fifteen people died in stampedes in four Nigerian cities earlier this year as the National Immigration Service was conducting aptitude tests to recruit new officers.
Seven people died in a crowd of about 68,000 who registered for the test on March 15 at the National Stadium in Abuja, the capital.
Five were killed in the oil capital of Port Harcourt, two in Minna in the north and one in Benin City.
Nationwide more than 522,000 applicants paid N1, 000 ($6) each to take the test for about 4,500 open job positions.
“Young people are desperate to get work,” Shamsudeen Yusuf, Program Officer at the Centre for Democracy and Development research group, said.
Nigeria has averaged growth rates of 8 percent per annum over the past decade; however the economic expansion has been unable to provide enough jobs to keep up with population growth.
The Government currently has a Safety net programme using funds saved from the removal of fuel subsidy or Sure-P.
The Government says it has been able to reach over 10,000 women and children with conditional cash transfer programs across 8 States.
That would however be a drop in the bucket compared to an estimated 70 million (40 percent) of Nigerians living below the poverty line.
Oxfam reports that Africa loses $63 billion a year to illicit flows and tax dodging. The resource drain from Africa over the last 30 years is almost equivalent to Africa’s current GDP. Illicit outflow of funds from the continent largely drives the problem of inequality.
The African continent has in the past decade, experienced high growth rates, with the continent having 6 of the 10 fastest growing economies in the world. Nigeria, in particular is poised to be among the top 20 economies in the world by 2030 according to a recently released Mckinsey Report. However, despite the progress made, the value of the wealth created has not had much of an impact on poverty reduction on a broader scale, as a result of illicit financial outflows, among other factors.
With sharp economic growth and wealth creation, whilst a high number of people still remain trapped in poverty, the African economic profile is disturbingly paradoxical. Persistent and ballooning inequality has increasingly undermined the effect of the economic growth achieved thus far.
Naturally, the continent, and Nigeria, as its largest economy has become a target for corporate exploitation.
Illicit outflows drives inequality
According to Winnie Byanyima, Oxfam International executive director, “inequality is being driven by factors including tax dodging, capital flight, reliance on private healthcare and education, mismanagement of extractive industries and failure to invest adequately in sectors that will increase employment such as agriculture.”
These large outflows from the continent mitigate the fiscal strength of African governments to pursue social welfare programs and policies which directly address poverty reduction.
Speaking more on foreign extractive industries which dot the economic landscape of the African continent, Byanyima says “extractive industries compound the trend because they create comparatively few jobs and are susceptible to tax avoidance. Without strong regulation and scrutiny, much of the financial benefit of these industries fails to translate into tax revenues or well-managed expenditures.”
She continues, “As long as most of Africa’s natural wealth continues to hemorrhage from the continent, inequality will continue to rise and all this spectacular growth will not do enough to help ordinary Africans.”
Illicit outflows from Africa are abetted by tax loopholes, poor regulation of Africa’s extractive industries and weak political and financial institutions. “It is an important issue as regards the development of Africa. The continent is losing a lot of capital through illicit flows,” said Thabo Mbeki, Former President of South Africa, at an Oxfam event with the theme ‘Tackling illicit financial flows and inequality in Africa’, on the sidelines of the recently concluded World Economic Forum (WEF), Africa.
“The principal sources of illicit outflows (about 60 percent) are the commercial and large companies operating in Africa. The rest take the form of illegal activities and corrupt practices,” said Mbeki.
Reversing the trend
Africa is the second most inequitable region in the world after Latin America; however, this can be reversed. “African countries must crack down on corporate tax dodgers and invest far more in free healthcare and education and in industries that can create more and decent jobs,” says Byanyima.
“One of the simplest things that governments can do to help diffuse the inequality time-bomb is to invest more in public services. Public services redistribute by putting virtual income into everyone’s pockets” she says.
The case of Latin America gives us hope that the global trend of rising inequality can be reversed. According to Oxfam, Brazil has had significant success in reducing inequality, through spending on public health and education, wide-scale cash transfers, and a surge in the minimum wage.
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WTO’s Least Developed Countries submit collective request on Services waiver
Earlier this week, the WTO’s poorest members, known as the Least Developed Country (LDC) Group, submitted a collective request regarding the preferential treatment they would like to see for their services and service suppliers. The move comes seven months after the global trade body’s ministerial conference in Bali, Indonesia, where members agreed to take steps for bringing this “services waiver” into operation.
The LDC services waiver, as it is referred to in trade circles, was initially an outcome of the 2011 WTO Ministerial Conference, held in Geneva, Switzerland. However, in the two years that followed, no preferences had been requested by LDCs or granted to them, prompting WTO members to reconsider ways to use the services waiver.
As a result, at the WTO’s subsequent ministerial conference in Bali, Indonesia last December, members agreed to initiate a process aimed at promoting the “expeditious and effective operationalisation” of the LDC services waiver.
This decision was one of the major outcomes of the “Bali Package” together with the WTO’s Trade Facilitation Agreement, and select decisions on other provisions relating either to development or agriculture. (For more on trade facilitation, see related story, this edition)
High-level meeting
Under the terms of the 2013 Bali Decision, the submission of the LDC collective request now triggers a six-month period for the Council for Trade in Services (CTS) to convene a “high-level meeting.”
At this event, those developed and developing countries in a position to do so shall indicate sectors and modes of supply where they intend to provide preferential treatment to LDC services and service suppliers.
The waiver, as outlined in the 2011 Geneva ministerial decision, releases WTO members from their legal obligation to provide non-discriminatory treatment to all trading partners – as outlined in Article II of the General Agreement on Trade in Services (GATS) – when granting trade preferences to LDCs.
It effectively operates as a new LDC-specific “Enabling Clause” for trade in services and follows a two-track approach. In trade jargon, an enabling clause allows developed members to give differential and more favourable treatment to developing countries.
Under the first track, quota-type measures falling within the six categories of market access listed in GATS Article XVI are automatically authorised. For the second track, non-market access measures falling under other GATS obligations – such as preferential national treatment or regulatory arrangements – are not automatic but can be authorised by the CTS.
The waiver is initially set to last 15 years from the date of adoption, 17 December 2011.
Collective request
According to sources familiar with the 21 July document, the request calls for the fulfilment of WTO members’ past commitments toward giving LDCs special priority in services sectors and modes of supply.
The commitments referred to include those provided under GATS Article IV.3, as well as the modalities for special treatment for LDCs in the negotiations (TN/S/13), Annex C of the 2005 Hong Kong Ministerial Declaration, and the 2011 waiver decision itself.
The LDC collective request also urges members to take initiative in their individual capacity to fulfil the Bali decision on the services waiver, referring to paragraph 1.3, which encourages members to extend preferences at any time to LDCs’ services and service suppliers – independent of the request process.
The document is based on country studies, interviews, experiences, and intensive research undertaken by the LDC Group in order to identify sectors and modes of supply of key interest to their countries, as well as barriers their services providers face when exporting to third markets.
The scope of the individual requests in the collective document is manifold, ranging from horizontal measures to very specific sectoral ones. These include, among others, measures in the area of tourism, banking, transport, education, information and communication technology (ICT), business process outsourcing (BPO), and creative industry services.
Preferences selected from offers tabled previously under the WTO’s Doha Round negotiations have also been requested, as have preferences related to work permits and allowing recognition of LDC professionals’ qualifications.
Next steps
Over the next six months, WTO members will engage in consultations with the LDC Group in order to respond to the collective request at the high-level meeting. The LDCs have reserved the right to modify the request’s terms ahead of the event.
“In my view, your aim should be high, but grounded in the fact that we are indeed dealing with new territory,” said WTO Director-General Roberto Azevêdo in a speech in June 2014 in Bangladesh, referring to the LDC Group.
“I will support you in the best way I can to advance this issue in the WTO,” the trade chief said.
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African Economic Outlook 2014: Regional Edition - Southern Africa
The African Economic Outlook (AEO) 2014 Regional Editions are now available. An extract from the Southern Africa report is reproduced below. Click here to download.
Overview
In Southern Africa, growth performance in 2013 was uneven across the countries. Angola, Botswana, Malawi, Mozambique and Zambia recorded the highest growth of between 5% and 7% (see table below). Growth in these countries was boosted by investment in infrastructure and in extractive industries. While Botswana is projected to maintain the momentum, the performance of the other countries is expected to accelerate to between 6% and 9% in 2014. On the other end of the scale, growth in Lesotho, Madagascar, Mauritius, Namibia, Swaziland and Zimbabwe remained low, ranging between 2.6% and 4.2%. By contrast, South Africa recorded depressed growth, mainly due to the persistent labour unrest and the weak global environment. With the recovery of the global economy and exports, further boosted by the weaker exchange rate, growth in South Africa is expected to accelerate to 2.7% in 2014 from 1.9% in 2013, thereby paving the way for improved prospects for the region, with gross domestic product (GDP) expected to grow by around 4% in 2014, up from 3% in 2013.
Inflationary pressures eased in 2013 mainly due to lower food prices, broadly constant energy prices, prudent macroeconomic policies but also country-specific circumstances. In South Africa, where the rand depreciated significantly, inflation edged up to the upper limit of the target range of 3%-6%. However, it remained within the target as higher import prices were not fully passed through to consumers but were partially borne by importers and traders. In Zambia, the central bank responded to the weaker currency, the lax fiscal policy and also the overrun of the inflation target by raising the policy interest rate. At the same time it capped interest rates on loans from commercial banks in order to limit borrowing costs for the private sector. In response to lower inflation, central banks in Botswana and Mauritius reduced policy interest rates. In Angola, interest rates were also reduced despite increasing inflation, which remained, however, within the target range of 7%-9%. Malawi was the only country in the region that was confronted with double-digit inflation. The monetary authorities responded to the higher inflation and currency depreciation by raising interest rates.
On the fiscal front, many countries have improved their positions since the deterioration emanating from the 2009 global recession by limiting growth of spending while at the same time increasing revenues. Botswana has achieved the most remarkable fiscal consolidation in recent years by converting its government budget from a deficit of over 11% of GDP in 2009 to close to balance in 2013. Both increases in revenues and cuts in expenditure have contributed to this improvement. In 2013 many other countries also followed prudent fiscal policies. But in a number of countries such as Angola, Mozambique and Zambia, the fiscal policy stance was expansionary and the fiscal position deteriorated.
The buoyant demand for oil, minerals and other natural resources over recent years has driven investment flows to Southern Africa. Not surprisingly, large resource-rich countries have been the biggest beneficiaries, with South Africa and Mozambique recording the highest foreign direct investment (FDI) inflows at USD 6.4 billion and USD 4.7 billion respectively. At the same time, Angola recorded a USD 1.7 billion disinvestment. The total FDI inflows are, however, gradually decreasing, reflecting the emergence of other investment drivers and the fact that some planned investment in the extractive sector has been put on hold. The slowdown of the global economy at the onset of the 2009 economic crisis has led to lower demand for Africa’s commodity exports, which delayed planned FDI in extractives. For their part, non-resource-rich countries have seen a strong increase in the share of FDI inflows in their GDP since the early 2000s.
Economic prospects for Southern African countries and for African countries as a whole can be expected to face major challenges, mainly related to preserving political and social stability. It is recognised that sustaining high growth, making growth more inclusive and reducing poverty will ultimately help to reduce political and social tensions. Nonetheless, these require pursuing appropriate macroeconomic policies and at the same time increasing access to key public services, notably education, health and security, and further improving institutions and regulations for private sector activity. Such actions would help improve human development, better attain the Millennium Development Goals and diversify the economy.
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SADC finally signs EU trade deal
After 10 years of negotiations, the Southern African Development Countries (SADC) has initialed an Economic Partnership Agreement (EPA) with the European Union, beating an October 1 deadline.
The deal will now grant Botswana and six other member states in the SADC bloc duty and quota free access to the EU market.
The coordinator of the seven SADC-EPA members, Banny Molosiwa revealed this last week at a two day SADC trade and finance and investment meeting held in Gaborone.
“I am pleased to tell you that we have finally reached an agreement on the EPA trade talks, I can assure you there will be no more negotiations as we have converged, agreed and initialed on the 15th July,” she said.
Molosiwa said after initialing, they agreed with the representatives to take the agreement to their countries to brief them. She expected the responsible minister in Botswana to place the agreement before Cabinet for signature.
“We also have to brief our stakeholders especially the National Committee on Trade Policy, which comprises the private sector, Non Government Organisations to mention a few, as they have been part of these negotiations throughout the whole process,” she added.
Molosiwa said that starting from October every country that has initialed would get free duty and quota access to the European market. The negotiations included five SACU countries; Botswana, Namibia, Lesotho, South Africa and Swaziland and two other SADC countries Angola and Mozambique.
The SADC-EPA was given the third deadline, which was due in October, after missing one that was set by the World Trade Organisation in 2007 and the other one that they set and subsequently missed in June 2013. This led to the EU trade Commissioner, Karel De Gucht visiting Botswana in July last year where he announced trade talks were 95 percent done and would be wrapped up in months.
When quizzed about the delays, Molosiwa said they had different expectations from the countries which hindered the progress as satisfaction was supposed to be achieved by each one of the members.
“You might have noticed that five countries of the SADC-EPA are part of the SACU, meaning that they have the common external tariffs, so they had to brief SACU first before taking the decision which SACU finally approved,” said Molosiwa.
Botswana could have faced a possible collapse in the local beef value chain in October as the EU was going to expire a seven year old market access directive under which 36 Caribbean and Pacific states including Botswana and other SADC countries enjoy duty and quota free access.
Loss of this favourable access would have meant key local exports to the EU such as beef would face intense competition from daunting and more developed rivals such as Brazil.
The two-day workshop was expected to address issues in the finance and trade sector. The focus was operationalisation of the SADC Regional Fund Development and an update on the project preparation and development facility.
The Ministers of Trade meeting was also to cover other issues related to implementation and consolidation of the SADC Free Trade Area (FTA), customs cooperation and trade facilitation matters as well as trade in services negotiations.
Also on the agenda were issues for follow-up under the continental Free Trade Agreement/Boosting Inter-African Trade Initiative (CFTA/BIAT) and the High Level African Trade Committee (HATC) on the African Union.
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Tanzanian products could be locked out of market
Tanzania risks having its products locked out of the rest of East Africa from November, as it lags behind in adopting harmonised regional standards.
The harmonised standards were set by the Sectoral Council on Trade, Industry, Investment and Finance in May, giving each country six months to adopt them.
The Tanzania Bureau of Standards (TBS) said last week that the country is facing several challenges in meeting the agreed standards as its market is flooded with substandard products because of “importers and manufacturers who are not faithful, and find ways of allowing substandard products into the market.”
Speaking at an East African Business Council breakfast meeting, TBS director for quality management Tumaini Mtitu cited inadequate personnel as one of impediments to conducting periodic surveillance.
On May 30, the EAC Sectoral Council approved and declared 41 standards for EAC members. In addition, 96 normatively referenced international standards were endorsed by the council for adoption by the partner states; four were withdrawn.
Challenges
Ms Mtitu said TBS is working on the challenges that are hindering adoption of the standards, especially the technological gap. She said the institution lacks laboratory capability in both human and financial resources.
To address these challenges, Ms Mtitu said TBS will increase its number of staff, and upgrade its laboratories and performance efficiency.
Quality control systems ensure the maintenance of proper standards in manufactured goods, especially by periodic random inspection of the product.
The Tanzania Bureau of Standards was established in 1975 by the government to strengthen the supporting institutional infrastructure for the industry and commerce sectors of the economy.
It was mandated to undertake measures for quality control of products of all descriptions and to promote standardisation in industry and commerce.
Tanzania is enforcing its national standards, most of them adopted from ISO, and a conformity assessment. The assessment is meant to help reduce trade barriers resulting from varying assessment criteria in different countries that have been used in the absence of harmonised regional standards.
The conformity assessment system also helps to reduce delays and lower the expense of multiple testing and approval. This allows industries to reduce their costs and enter markets faster with their products.
The resolution directed EAC partner states to withdraw any existing national standards with a similar scope and purpose as the harmonised East African standards as prescribed by the Standardisation, Quality Assurance, Metrology and Testing Act.
EABC trade economist Adrian Njau told The EastAfrican that non-conformity to the harmonised standards will result in difficulty in taking goods from Tanzania to other EAC countries after the November deadline.
In addition to resolving harmonisation of standards, the East African business community last year resolved to harmonise the duty on paper products.
According to EABC chairman Felix Mosha, a study conducted by the EAC Secretariat revealed that in this financial year, member states have reduced import duty on paper from 25 per cent to 10 per cent.
The EAC administrative mechanism on duty remission for manufactured exports was also developed and approved by the Sectoral Council in May.
The council also resolved to share information on tariff changes; the EABC has already circulated to its members the EAC Gazette of the 2014/15 financial year reflecting the amendments, stay application and duty remission.
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Azevêdo reports “very good level of engagement” on Doha Round work programme
Director-General Roberto Azevêdo, in his report to the General Council on 25 July as chair of the Trade Negotiations Committee, said that there had been “a very good level of engagement” in recent consultations conducted by him and the chairs of the negotiating groups on the key areas of agriculture, industrial goods and services. “How we move forward now is in your hands”, he said.
Thank you. Good morning everyone.
Reinforcing your statement of yesterday, Mr Chairman, I would like to take this opportunity to bid a very warm welcome to Yemen, as our 160th member. Congratulations on completing the process – it’s great to have you here now in the General Council, and I look forward to working with you.
I would also like to welcome Liberia’s Minister of Commerce and Industry, Axel Addy, who is observing proceedings again today. It is our honour to have you here with us.
Since the last meeting of the General Council in May, the TNC has held one informal meeting on 25 June 2014. At that meeting, we continued our discussions on the DDA work programme, focusing on the three pivotal and interlinked areas of agriculture, NAMA (non-agricultural market access) and services.
My statement and the oral reports of all the Negotiating Group Chairs were issued in document JOB/TNC/39. I would request that they form part of the record of this meeting.
In giving you this report today I am not going to discuss the implementation of the Trade Facilitation Agreement.
What happens there will have a significant influence on the progress that we are able to make in our other post-Bali work, and particularly on the DDA work program.
But this will be dealt with under a separate item on the agenda.
So I will focus now solely on the encouraging engagement that I had been seeing on the DDA – and which had been increasing throughout the year.
I think it was clear from the discussion we had at the TNC in June that members remain committed to advancing the Doha negotiations on all fronts.
At that meeting we heard from all the Chairs on their consultations and plans for future work. They each expressed their readiness to continue to provide a forum for Members to engage at a more specific level.
Since then, the Chairs have continued to consult delegations in different formats and configurations. And my own consultations with members on the DDA issues were encouraging.
In addition to the work I outlined at the TNC, I have been engaging with many delegations, including the regional coordinators, to seek their views and hear their ideas.
This has confirmed my view that we need to focus on the three key areas of agriculture, NAMA and services in the first instance – but that we also need to remain mindful of how to move other negotiating issues forward as well.
I want to be clear that the attention on agriculture, NAMA and services is not at the expense of other issues. It is just that members have been telling me that this is where the critical logjams are, and so they will need to be addressed before other negotiating issues can also come into play.
My discussions with regard to each of the 3 areas have been positive and encouraging, but are still at an early stage.
I have welcomed the willingness of members to think creatively and to be open to new ideas. They also recognise and take account of the significant progress that has already been made in the negotiations thus far, much of it reflected and consolidated in the 2008 texts.
A major challenge will be striking the right balance between agriculture, NAMA and services in an overall sense.
We can no longer sidestep the tough negotiating issues – for example, the need to tackle all forms of trade distorting agricultural subsidies; to find market access solutions on agriculture and NAMA; and to look at services in greater depth.
Here we need to recognise that the 2008 texts will need some adjustment, notwithstanding my belief that much of what is in those texts, including the overall architecture and goals contained in those texts, can still be maintained.
By talking about agriculture and NAMA together I believe we will be better able to find a way through this conundrum. Trying to sequence the conversation, expecting to solve one issue before we tackle the other, is not going to work.
We need to recognise that the level of ambition in agriculture will be related in part to the level of ambition in NAMA, and vice versa. And this balance will inevitably have some kind of impact on overall ambition.
Of course the Chairs have also been actively advancing this work in the negotiating groups. They will circulate fuller reports to you, as they deem appropriate, but here is a brief overview based on the reports of the Chairs to me:
On Agriculture, since the last TNC on 25 June, the Chair has pursued his informal consultations aimed at clarifying the perspectives that members have on the way forward for unresolved issues in this area.
The Chair held two open-ended meetings of the Special Session, on 3 July and 23 July to provide for transparency and full participation concerning discussions on the agriculture negotiations, and to provide for an exchange of views on progress towards the work programme mandated at Bali.
Two technical workshops were held by the Secretariat to help deepen understanding at the technical level of issues that have come up in the course of the negotiations so far.
During the Special Session on 23 July, three proposals were officially introduced by the G-33 – one on Public Stockholding, one on Special Products and one on SSM. Most Members used this opportunity to confirm and reaffirm their readiness to engage without delay on the work programme towards the identification of a permanent solution for the public stockholding for food security issue.
Members also had a first opportunity to answer questions circulated by the Chair, in advance of the meeting, seeking to further clarify Members’ views on key elements in the domestic support and market access pillars, particularly as they relate to levels of ambition and flexibilities.
The questions concerned these two pillars as recent discussions had highlighted that both areas require more in-depth consideration by Members.
The fact that Members addressed the questions constructively, sometimes in significant detail, was positive and sets the stage for more concrete discussions after the summer break, including on the most challenging issues.
Of course this focus does not exclude Export Competition or Cotton. Rather, all of the elements within the DDA agriculture framework are inter-related and there seems to be a general acceptance that they will need to be dealt with as an overall package.
In NAMA, an open-ended meeting of the Negotiating Group was convened on 9 July. The purpose was for the Chair to report on his consultations and to have an open discussion on the way forward. The Chair’s report was circulated to Members in document TN/MA/26.
The focus of his recent consultations has mainly been on those members that have previously been described as the “formula applying members”.
The Chair reached the conclusion that in order to strengthen the process, a meeting of minds among members on the goal of these negotiations would first be required.
For example: were members striving to level the playing field in respect of concessions granted by different members? Did members want substantial reductions in trade impediments? Or were they seeking a result which would bring more homogeneity and strength to the multilateral trading system?
The chair stressed that in establishing such goals members had to take into account the assumption of trade-offs between the different negotiating pillars. Some members underlined that the aims and ambition of members were often different in the 3 key areas of agriculture, NAMA and services — which could potentially cause difficulties.
On Special and Differential Treatment, the Chair of the Committee on Trade and Development Special Session convened an informal open-ended meeting on Monday.
At that meeting the proponents informed Members that they were still working on an overall assessment and review of all the Agreement-specific proposals with the objective of identifying those which they would like to bring to the Special Session.
The proponents have indicated that they hope to complete this exercise soon and to table the results of this work just after the summer break.
In the other negotiating areas, the Chairs have continued to make themselves available to any delegations wishing to discuss issues or make their views known.
So I am pleased to report that Members were engaging and, increasingly, we are talking about substance.
But, as I see it we are taking only very small, tentative steps forward. There is an old saying – you can’t cross a chasm with small steps. Sometimes you have to take a leap.
We need to be prepared to do that – to go further into the substance of the issues that we have before us and explore possible trade-offs.
There is a great deal still to be done. I urge you again to engage directly with each other. You have to start having those tougher conversations – to discuss what you can put on the table that would make trade-offs possible.
So I ask you to reflect long and hard on what the next steps will be.
As we move forward everyone must be involved in these conversations about the future.
We have had a very good level of engagement so far.
Whether, and how, that continues is likely to depend on other items on the agenda of our meeting today.
So how we move forward now is in your hands.
Thank you, Mr. Chairman. That concludes my report.
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AGOA failure blamed on private sector
Ugandan traders’ failure to exploit the huge American market under AGOA agreement is due to the private sector’s failure to produce enough and good quality products, an official has said.
Ms Susan Muhwezi, the presidential adviser on African Growth and Opportunity Act (AGOA) and Trade, said on Wednesday that right from its inception, the well-intended programme was messed up by its initiators who failed to provide production and transport linkages that would enable the country sustain production to feed the readily available market.
“This programme was very good but there are no backward linkages. How many farmers are adding value to products, what is the transport like and the budget to this office (AGOA)? Do you want traders to transport in briefcases?” Ms Muhwezi asked.
Ms Muhwezi made the remarks at the launch of the African Women Entrepreneurship Programme (AWEP) meant to provide mentorship, business linkages, encourage intra-Africa trade and also bring on board Uganda National Bureau of Standard for quality assurance.
The meeting in Kampala was attended by several small and medium sized entrepreneurs and the Uganda Export Promotion Board chairperson board of directors, Ms Maria Odido who pointed out paying little attention to quality, packaging, poor infrastructure and high bank loan rates as key issues that need to be addressed if Uganda is to increase its benefits from AGOA.
The AGOA offer ends next year but African heads of states are due to meet later next months to ask for an extension, Ms Muhwezi said she expects the leaderse to lobby for 15 to 20 years to enable investors in long maturing agriculture plants like cocoa to export.
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Aid for Trade funds can help advance infrastructure development in Africa
Aid for Trade (AfT) is one of several global initiatives launched, over the years, to help developing countries to integrate into the global economy through trade. It was launched in the context of the multilateral trade negotiations in December 2005.
As an innovation, the Aid for Trade initiative was conceived not only to mainstream trade into the broader national development strategies of the beneficiary countries but also to deal with broad trade-related constraints ranging from trade policy and regulations to hard infrastructure for trade. AfT also aims at ensuring country ownership, and helping to improve the absorptive capacity of beneficiary countries by assisting them in the development of appropriate AfT project proposals as well as effective monitoring and evaluation (M&E) mechanisms.
A critical review undertaken by ECA showed that the sectoral composition of AfT in Africa has been fairly stable since 2006 and is broadly in line with the worldwide trends. The bulk of AfT funds is directed towards trade-related infrastructure (50 per cent) and productive capacity (46 per cent); trade policy and regulations account for a further 3 per cent of disbursements, whereas a negligible share of the funds is earmarked for trade-related adjustments. In other words, at the peak of AfT disbursements to the region in 2011, Africa received USD 6.4 billion for trade-related infrastructure, USD 5.6 billion for productive capacities, USD 328 million for trade policy and regulation, and merely USD 3 million for trade adjustment.
Over 60 per cent of the funds allocated to trade-related infrastructure have financed transport and storage facilities (mainly roads, and to a much lesser extent rail, water and air), of which inadequate provision is often cited as one of the key constraint hampering the competitiveness of African firms.
The above statistics suggest that AfT has already contributed to Africa’s infrastructure development. AfT also appears to provide an opportunity to bridge the gap in preparing the continent’s infrastructure projects to levels that would attract the attention of potential financiers, particularly the private sector.
Overall, there seems to be a bond between infrastructure projects and trade development initiatives. On the one hand, improving trade is cited as a justification for most of these projects, while initiatives such as AfT highlight infrastructure development as a major area of funding, on the other. However, the following questions are often posed by infrastructure experts: Were the infrastructure projects reported under AfT funded deliberately because of their potential to promote trade and in the context of AfT? Were the recipient countries (the concerned African countries) aware at the time of disbursement that the funds received for an infrastructure project were in the context of AfT?
These questions are relevant because of concerns about possible opportunistic reporting of AfT for infrastructure development, where funding for any infrastructure project is automatically recorded under AfT whether or not AfT was the reason or context in which the project was funded. Some argue that what is important is the implementation of projects, irrespective of the source or context of the funding. While there may be some merit in this argument, disagreements about the actual amount of AfT channeled towards infrastructure projects may affect the credibility of the initiative.
To avoid such controversy, African countries should explore ways of purposefully seeking AfT funds to implement their infrastructure projects. This seems to be a logical approach as there is consensus among donors and recipients of AfT as well as between infrastructure and trade constituents that infrastructure is indispensable for trade.
The Regional Forum on the Implementation of Cross-Border Transport Infrastructure Projects in Africa is being held in Addis Ababa from 24-26 July 2014 under the theme, “Boosting Market Integration and Intra-African Trade through Effective Management of Regional Transport Infrastructure and Services”. Download the Concept Note below.
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‘We are exporting jobs’ – Schlettwein
Trade and Industry Minister Calle Schlettwein believes ‘jobless growth’ is a phenomenon partly caused by an over-reliance on raw material exports, which is currently one of the most pressing problems of this era.
The resulting consequences include the economic inequality observed in Namibia today, Schlettwien said during the inauguration of the Omulunga Industrial Park in the Grootfontien district last week Friday.
“It is only through beneficiation, adding value to our own resources and creating the value chains that derive from them that we will be able to diversify our economy and strengthen our competitiveness,” said Schlettwein, who added that a lack of productive capacity and technological expertise were other factors making Namibia a captive market.
According to Schlettwein raw materials are not made full use of due to the tendency to export them to other countries, where they serve as vital inputs for the production of finished consumer goods that Namibia is forced to import thereafter.
“We have to recognise that along with the export of raw materials we are also exporting jobs. Furthermore, our dependency on imports places huge pressure on our foreign currency reserves and balance of payments. The only remedy we have in this regard is to increase our export earnings in foreign exchange through growing the value of our exports, value addition to raw materials and resulting import substitution. The way to achieve this is to create the necessary industrial base,” Schlettwein said.
The trade minister cited that for this essential transformation of the economy to occur the country needs to overcome the lack of capital, technology and skills, as well as having access to financial and other resources that would enable local entrepreneurs to become globally competitive and overcome the high input costs of business.
“If electricity and other utility costs continue to spiral upwards, if costs to acquire industrial land soar and if transport and logistics costs, including port fees, continue to surge upwards faster than can be reasonably expected, this industrialization process will be even more of a challenge,” added Schlettwein.
According to Schlettwein government has decided to take an interventionist approach in order to bring about and accelerate industrialization.
“One of the priorities this government has to address is to balance out a skew economy and the resultant income inequality, which in Namibia manifests itself through slanted ownership and distribution of economic assets, wealth and income. Empirical evidence has demonstrated that economic inequality retards the pace of long-term sustainable economic growth,” he said.
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Nigeria’s renewal: Delivering inclusive growth
As global investors and business leaders look to Africa as the next region of transformative economic growth, they are paying increasing attention to Nigeria. With about 170 million inhabitants, the country has long been the most populous in Africa, but it is only now being recognized as the continent’s largest economy. In April 2014, the government began to release “rebased” data that showed a gross domestic product of $510 billion in 2013, compared with $354 billion for South Africa. The rebased data also revealed an economy that was far more diverse than previously understood and that, with the right reforms and investments, could become one of the world’s leading economies by 2030. A new report from the McKinsey Global Institute (MGI), Nigeria’s renewal: Delivering inclusive growth in Africa’s largest economy, examines how the country can live up to its economic potential while making growth more inclusive, thus bringing more Nigerians out of poverty.
Progress and productivity
Nigeria’s troubled history and its ongoing struggles with terrorism and poverty are well known. Yet the country has made solid economic progress since 2000, averaging annual GDP growth of 8.6 percent under civilian rule from 1999 to 2010, according to pre-rebased data, compared with just 1.5 percent a year under military rule (1983-99). And the new data show Nigeria is no longer just a petro-economy. While oil and gas remain critical sources of government income and of exports, the country’s entire resource sector today accounts for just 14 percent of GDP. Agriculture and trade are larger and faster growing. In addition, it is not generally recognized that Nigeria’s productivity, albeit low, has been growing recently and now contributes more to GDP growth than the country’s expanding population.
Yet the results of Nigeria’s economic progress have not been spread evenly. More than 40 percent of Nigerians live below the official poverty line. Seventy-four percent (around 130 million people) live below the MGI Empowerment Line[1], a level of consumption that constitutes a decent, “economically empowered” standard of living, which we calculate for Nigeria as $1,016 per person a year in cities and $758 in rural areas. The primary reasons for this persistent poverty include low farm productivity and an urbanization process that has largely failed to raise incomes and living standards.
While crop yields have improved in recent years, they remain far below those of peer nations, as Nigerian farmers have limited access to productivity-improving inputs, such as fertilizer and mechanized tools. In addition, between high postharvest losses and an inefficient market system, farmers receive a small share of the value their work creates. Urban poverty is driven by poor employment options and low productivity: in Nigeria, workers in urban-oriented industries such as manufacturing actually have lower productivity than farm workers. This is the opposite of what normally happens as economies develop and urbanize – productivity and incomes are supposed to rise in tandem as people move off the farm and take up work in the city.
Opportunities for growth
We believe that Nigeria can build on the momentum of the past decade and, if all goes well, achieve 7.1 percent annual GDP growth through 2030 (exhibit). The country is well positioned to benefit from trends such as rising demand from emerging economies, growing global demand for resources, and the spread of the digital economy. Nigeria also has a young and rapidly growing population and an advantageous geographic location in West Africa, which enables trade within the continent, as well as with Europe and North and South America.
Exhibit
Should Nigeria reach its full potential, annual GDP could exceed $1.6 trillion in 2030 and the country could be a top-20 economy.
Our forecast is based on a bottom-up analysis of the potential for five major sectors of Nigeria’s economy:
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Trade. Given the expansion of the consumer class, we project that consumption could more than triple, rising to almost $1.4 trillion a year in 2030, an annual increase of about 8 percent. This would make trade the largest sector of the economy and provide a particularly good opportunity for makers of packaged foods and fast-moving consumer items such as paper goods, categories that could grow by more than 10 percent a year.
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Agriculture. Improvements on several fronts could help raise both the volume and the value of Nigeria’s agricultural production in the next 15 years. The economic value of agriculture, already the largest sector of the economy, at 22 percent of GDP, could more than double, from $112 billion a year in 2013 to $263 billion by 2030.
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Infrastructure. On average, the value of a nation’s core infrastructure – roads, railways, ports, airports, and the electrical system – represents about 68 percent of GDP, but in Nigeria it is only about 39 percent. Between core infrastructure and real estate, total infrastructure investments in Nigeria could reach $1.5 trillion from 2014 to 2030. This would make building infrastructure not only a major contributor to GDP but also an enabler of growth across the economy.
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Manufacturing. Though growing rapidly, manufacturing in Nigeria contributed just $35 billion to the economy in 2013, or about 7 percent of GDP. If Nigeria could match the performance of nations such as Malaysia and Thailand when their manufacturing sectors were expanding rapidly, output could reach $144 billion a year in 2030.
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Oil and gas. While the oil-and-gas sector is expected to grow by 2.3 percent a year at best, its success is still vital to Nigeria’s economy. With the right reforms, we estimate that liquids production could increase from an estimated 2.35 million barrels a day, on average, in 2013 to a new high of 3.13 million by 2030. Oil and gas would then contribute $108 billion annually to the economy, compared with $73 billion in 2013. However, this estimate of potential output assumes renewed investment to reverse the production declines of recent years.
If Nigeria can achieve the upside economic-growth scenario, it could lift 70 million people out of poverty and bring as many as 120 million above the MGI Empowerment Line. To tie growth to rising living standards across the economy, the country will have to raise farm incomes and create more formal urban jobs. Meanwhile, the government will have to take such steps as reconsidering tariffs that raise the cost of imported food and the spending needed to reach economic empowerment. The most important step that government can take, in our analysis, is to improve its delivery of programs and services. A critical initiative for Nigeria, then, will be to adopt the best practices that have been well established around the world for doing just that.
[1] The MGI Empowerment Line was created to define a meaningful, economically empowered standard of living, rather than just bare subsistence. It is the income required to fulfill eight basic household needs: food, energy, housing, drinking water, sanitation, healthcare, education, and social security.
About the authors
Acha Leke is a director in McKinsey’s Johannesburg office; Reinaldo Fiorini is a director in the Lagos office; Richard Dobbs is a director of the McKinsey Global Institute, where Fraser Thompson is a senior fellow; Aliyu Suleiman is an associate principal in the London office; and David Wright is a consultant in the New York office.
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Uganda, Kenya finally resolve sugar disagreement
The Uganda Revenue Authority (URA) and their Kenyan counterparts have finally resolved the sugar trade dispute which has been raging between the two countries over the source of sugar entering Kenya.
According to Mr Jim Kabeho, the President Uganda Sugar Millers Association, the tri-lateral North Corridor Sugar trade meeting of the revenue authorities of Uganda, Kenya and Rwanda held on Monday in Kampala (download the summary from the meeting below), resolved that Kenya’s delays to issue permits for Ugandan sugar is becoming a non-tariff-barrier which has caused Ugandan millers heavy losses.
In an interview with the Daily Monitor yesterday, Mr Kabeho revealed that Uganda and Kenya instead blamed Rwanda for destabilizing the regional sugar market by importing and repackaging duty free sugar which it is dumping in the region.
“Sugar is a very sensitive commodity and I am happy that Kenya has accepted our Sugar there and now we shall be sending our trucks but still, Rwanda is importing duty free sugar which it is dumping here and this is destabilising the market,” he said.
Since 2011, Uganda and Kenya have been locked in a sugar trade dispute where Kenya has been blocking Ugandan sugar from entering its market claiming that Uganda was repackaging sugar which it was allowed to import duty free at the height of scarcity in the domestic market in 2011.
According to Mr, Richard Kamajugo the commissioner Customs URA, the three revenue authorities agreed that that Kenya Sugar Board reduces the number of days it takes to issue permits from three months to seven days and that the Uganda Sugar Millers Association and KSB begin sharing information with the respective revenue authorities to avoid suspicion.
“We agreed that Kenya Sugar Board will issue sugar permits within seven days as opposed to previously where it could take up to three months, and we also agreed that they will be exchanging information with the revenue authorities,” he said.
Asked if indeed Uganda has met domestic demand to warrant supplies to the export market, Mr Kabeho said Uganda is the first country in the region to hit surplus production and it has enough sugar to feed the export market.
“Our domestic consumption is 320,000 tonnes yet we are producing close to 450,000 tonnes annually we are selling to the export market,” he said.
Source of uganda, kenya sugar dispute
Uganda was hit by scarcity in 2011 resulting in riots popularly known as Walk-to-work which forced government to negotiate with the East African Community (EAC) member states to allow it import duty free sugar to stabilize the domestic market.
Later, Kenya suspected that Uganda imported sugar which was over and above what it had negotiated for and it was repackaging it as Ugandan milled sugar and exporting to Kenya. This formed the base for disputes. This has led to a number of technical team visits to verify Uganda’s capacity to produce surplus sugar for export which has been satisfactory.
Numbers
100% - The amount of tax levied on sugar coming from outside the East African community to protect local industries.
150 - The number (in thousands) of metric tonnes of surplus sugar Uganda is currently producing.
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Persistent vulnerability threatens human development, warns flagship UN report
Reducing vulnerability and strengthening resilience are critical to securing human development progress, the United Nations says in a flagship report released today that examines the risks posed by natural or human-induced disasters and crises and offers ways to tackle them.
The 2014 Human Development Report, launched in Tokyo by the UN Development Programme (UNDP), says that 1.2 billion people live on $1.25 a day or less. At the same time, the UNDP Multidimensional Poverty Index reveals that almost 1.5 billion people in 91 developing countries are living in poverty with overlapping deprivations in health, education and living standards.
Although poverty is declining overall, almost 800 million people are at risk of falling back into poverty if setbacks occur, according to the report, entitled “Sustaining Human Progress: Reducing Vulnerabilities and Building Resilience.”
“Setbacks are not inevitable. While every society is vulnerable to risk, some suffer far less harm and recover more quickly than others when adversity strikes,” noted UNDP Administrator Helen Clark.
“By addressing vulnerabilities, all people may share in development progress, and human development will become increasingly equitable and sustainable.”
This year’s report explores structural vulnerabilities – those that have persisted and compounded over time as a result of discrimination and institutional failings, hurting groups such as the poor, women, migrants, people with disabilities, indigenous groups and older people.
It also introduces the idea of life cycle vulnerabilities – the sensitive points in life where shocks can have greater impact. These include the first 1,000 days of life, and the transitions from school to work, and from work to retirement.
Speaking to the UN News Centre, Khalid Malik, Director of the Human Development Report Office, highlighted how the 2014 report differs from last year’s, which was more upbeat.
“The 2013 report was about how so many more people are doing better, particularly over the last decade. This year’s report is also trying to look at those who have not done so well. And also look at how the world itself is getting a little bit more fractious, a little less predictable,” he said.
“There is a growing sense of unease as if somehow people are not in control of their own destinies. It’s both at the country level and it’s also on the global level. And this report tries to dig into those issues of vulnerability and then try to understand what policies, what measures are needed to make people and societies more resilient.”
Among other recommendations, the report calls for universal access to basic social services, especially health and education; stronger social protection, including unemployment insurance and pensions; and a commitment to full employment, recognizing that the value of employment extends far beyond the income it generates.
It recognizes that no matter how effective policies are in reducing inherent vulnerabilities, crises will continue to occur with potentially destructive consequences. Building capacities for disaster preparedness and recovery, which enable communities to better weather – and recover from – shocks, is vital.
![While all regions are registering improvements on the Human Development Index signs of slow down are emerging. Credits: UNDP](http://www.un.org/News/dh/photos/large/2014/July/While-all-regions-are-registering-improvements-on-the-Human-Development-Index-signs-of-slow-down-are-emerging.jpg)
While all regions are registering improvements on the Human Development Index signs of slow down are emerging. Credits: UNDP
This year’s report also points to a slowdown in human development growth across all regions, as measured by the Human Development Index (HDI), pointing to threats such as financial crises, fluctuations in food prices, natural disasters and violent conflict that impede progress.
Zimbabwe experienced the biggest improvement due to a significant increase in life expectancy – 1.8 years from 2012 to 2013, almost quadruple the average global increase.
Meanwhile, the rankings remain unchanged at both ends of the Index. Norway, Australia, Switzerland, the Netherlands and the United States remain in the lead for another year, while Sierra Leone, Chad, Central African Republic, Democratic Republic of the Congo and Niger continue to round out the list.
The steepest declines in HDI values this year occurred in Central African Republic, Libya and Syria, where ongoing conflict contributed to a drop in incomes.
A new index featured this year is the Gender Development Index (GDI), which for the first time measures the gender gap in human development achievements for 148 countries. It reveals that in 16 countries (Argentina, Barbados, Belarus, Estonia, Finland, Kazakhstan, Latvia, Lithuania, Mongolia, Poland, Russia, Slovakia, Slovenia, Sweden, Ukraine and Uruguay), female HDI values are equal or higher than those for males.
For some of these countries, this may be attributed to higher female educational achievement; for others, to a significantly longer female life expectancy – over five years longer than that of males.
Afghanistan, where the human development index for females is only 60 per cent of that for males, is the most unequal country.
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Beyond Africa rising: Future of global economy’s ‘last frontier’
Is Africa Rising?
In the past decade Africa has emerged in the world’s consciousness in the context of an evolution in the continent’s image. Africa is not yet seen as the place to be, to go to, or to be envied in terms of economic and societal progress. Indeed, still too many people around the world hold a decidedly different view.
Gradually but surely, however, Africa is increasingly viewed less as a “hopeless” continent and more as one with promise for economic development, less as a haven of poverty, war and natural disaster and more as a continent that offers economic opportunity. In short, Africa is seen more as a “normal”, even if less prosperous place than many other parts of the world, than as the decidedly “abnormal” place off the map of the mental imagination that it once was.
This recent emergence and the positive evolution of the continent’s image has led to the growth of an “Africa-Rising” industry of analysts, commentators, scholars and business executives in which the continent is seen as the next big thing in the world’s economy.
The continent in this view can lay claim to a looming African century close on the heels of the economic rise of Asia in the 20th and 21st centuries.
Three main factors have shaped this trend. First, many of the wars for which Africa was famous have ended. The wars in Sierra Leone and Liberia, the Great Lakes region of Africa including Rwanda and the Democratic Republic of Congo, and the long armed conflicts in the Horn of Africa in Ethiopia, Eritrea and Sudan were and are only a few of the destructive orgies of annihilation of human capital, political stability and economic possibilities that shaped perceptions of Africa as a war zone writ large in the 1980s, the 1990s and the 2000s.
As most of these conflicts have ended, more recent ones have raged in Mali and the Central African Republic, keeping the world’s peacekeeping armies in business. But the continent is far more at peace now than it once was, clearing the path for a shift in attention to democratization and economic development.
Second, macroeconomic stability has been broadly established across the continent in the past decade. Inflation is down, at an average of 10 per cent in sub-Saharan Africa compared to the nearly 25 per cent in the 1980s and the 1990s. This trend can be traced to the evolution of better monetary policy by increasingly independent central banks, as well as improved fiscal management.
At the same time, GDP growth has continued apace. Average GDP growth in sub-Saharan Africa in the decade leading to 2013 was 5 per cent, with a third of Africa’s countries reaching growth rates of 6 per cent and others, such as Nigeria, growing at average rates of seven per cent.
According to the African Development Bank, Africa’s economies are growing faster than those of any other continent. Nearly half of Africa’s countries are now classified as middle income countries, the numbers of Africans living below the poverty line fell to 39 per cent in 2012 as compared to 51 per cent in 2005, and around 350 million of Africa’s one billion people are now earning between $2 and $20 a day.
The third factor is the global financial crisis and the subsequent recession in the Eurozone and other Western economies at a time in which African economies were growing rapidly.
This has led to opportunistic focus on Africa by several multinationals and global investment funds as the “final frontier” for wealth creation, with returns on investment that can only be the stuff of dreams in the world’s industrialized countries.
But the reality is more nuanced. Contrary to the breathless prognostications of enthusiasts, while Africa has become an economic opportunity in the world economy, the continent is yet to fully emerge, let alone rise, as an economic presence and a co-creator of global prosperity.
Let us look at another set of statistics. Africa’s share of world trade is a minute 3 per cent, with less than 4 per cent of global Foreign Direct Investment (FDI) flows going to the continent. With a combined GDP of S1.6 trillion, the combined GDP of the continent’s 54 countries is just about that of Brazil.
The GDP of the entire sub-Saharan Africa, including South Africa, is just about equal to that of Belgium or that of metropolitan Chicago. All the electricity produced in sub-Saharan Africa, half of which is, in fact produced by South Africa, is equivalent to that of Spain, which has 20 times fewer people than Africa.
The Argument for a New Paradigm of African Development
What all this suggests is that real questions regarding the “rise” of Africa include that of what parameters are used for measuring the continent’s progress and who does the measuring. Is Africa aspiring to holistic development that encompasses human development as a reflection of the real quality of life of Africans or is it focusing on economic growth statistics that do not necessarily translate into more jobs for its citizens and better education and healthcare? Have African economies become industrialized manufacturing economies, and will job creation outpace population growth and put Malthus to shame? What is the role of science, technology and innovation in African economies? Is Africa assessing its own progress against benchmarks it has set for itself, or is its “rise” the received wisdom from global institutions and the ambassadors of global capital seeking new frontiers of profit?
In Emerging Africa I make the case that Africa needs an endogenous growth model that is inside-out in its perspective, rather than the presently dominant one that is outside-in and globalization-centric.
Africa needs to manufacture goods for its own markets as a first foundation, spreading out regionally from that base and emerging as economic power in its own right through competitive advantage or at least self-sufficiency. What is being celebrated as Africa’s rise is the fact that the continent has increasingly become a market or a playground for globalization. Africans appear to have become excited merely to be participating in the wider globalization process, and the external economic players for whom the continent has become the new frontier are excited at the novelty of playing in new territory and the benefits it has brought or potentially will.
This is quite a different thing from structural economic transformation, which is what has happened in many Asian economies and which is what Africa really needs to achieve for itself and its peoples. Without a doubt, GDP growth is necessary for such a transformation, but is not an alternative for it because the two are not the same thing.
Africa’s recent economic growth statistics have been derived largely, but admittedly not completely, from a structural dependence on primary commodity products. This growth is thus not transformative, and it is only transformed economies that can truly rise, in the manner in which we speak, for instance, of the rise of China. The continent needs to decide whether it will continue to engage with the world as (a) a destination market for consumer goods and ideas, (b) a self-sufficient player based on endogenous growth, or (c) as a dominant actor. I argue that the first option is not an option for real progress, the third one is not realistic in the near to medium term given how far behind Africa really is in terms of the structure of its economies, while the second is realistic and achievable within the next 30 years.
The required approach to creating the real economic rise of Africa must be based on at least three things. The first is what I call fundamental understandings, a philosophical approach to wealth creation and economic prosperity that prioritizes the role of individual and collective minds in economic and social progress. In this context, what is required is nothing short of the reinvention of the contemporary African mind.
That mind must better understand foundational realities and its inherent power to alter these realities in favour of the continent. The second approach is the need for strategy and the active management of risk. The third is the role of governance, the rule of law, and institution-building.
Fundamental understandings – worldviews and globalization
The point of departure for Africa is the need for African states, their governments and their citizens to understand how the world is structured in reality, and why this is so. They will then need to develop mechanisms that can enable them arrive at a different interpretation from their own perspective, and stamp that interpretation as an alternative reality in their environment.
That is to say, African governments must create worldviews, and in that context develop a proper understanding of globalization as a dominant economic context, the implications of this concept and context for Africa in the world economy, and the possibility of creating an “African century”. Nothing is written in the stars in terms of Africa’s destiny. The continent can create the destiny it wants, just as other parts of the world have done.
This requires a reappraisal of a number of fundamental assumptions that have prevented Africa’s economic development and transformation such as a misunderstanding of where responsibility lies for the continent’s transformation.
From this point of departure, the fundamental understandings of issues such as globalization, foreign aid, capitalism and international economic governance as a framework for economic development, and so forth, can be applied to economic activities such as industrialization, finance, agriculture, foreign investment, science and technology, and world trade.
I argue in Emerging Africa that the fundamental reason for Africa’s condition of underdevelopment is the absence of a futuristic worldview. This is the most fundamental aspect of the African development dilemma.
A worldview is basically how we see the world, understand and interpret it, and how we engage with the world around us and beyond us. It is that inner world of the mind of an individual or group, which he or she or they project in their outward actions, and which influences the world around them by creating certain realities.
The Belgian philosopher Leo Apostel and his research collaborators identified seven core components of a worldview. These are: (a) a model of the world – an understanding of how the world is structured and how it functions; (b) an explanation of where we have come from and why the world is the way it is; (c) rational futurology, which addresses the question of where we are going, the possible destinations, and the options and alternatives to promote or avoid; (d) values, including systems of ethics that guide what we should or should not do; (e) action – how to get to our goals by developing and implementing plans; (f) knowledge – how to construct knowledge systems, addressing the questions of what’s true or false; and (g) building blocks that construct a worldview from what already exists in theories, concepts or models across various disciplines or ideologies.
Worldviews matter enormously, because their outcomes are never neutral. Indeed they are often reflected in or as world orders. Although initially subjective, they can with dogged application result in “objective” reality. The transatlantic slave trade was a world order based on a worldview – repugnant as it was – of the “superiority” of slave owners and the “inferiority” of the enslaved peoples. Emancipation and the abolition of slavery was also based on another worldview, and the hardiness of the worldview of the transatlantic slave trade, faced with a strong opponent in abolitionism, transmuted into colonialism in order to ensure and continue the economic benefits of the exploitation of Africa and the Africans.
Thus, the projection of these worldviews, backed up by the sustained deployment of certain comparative advantages such as military prowess based on technology, established realities that are accepted as “facts of life”. This has been demonstrated in diverse climes such as the Western world, with its worldview of scientific rationalism and individual freedoms leading to economic progress along a certain model, and the East, which has risen, represented by China, along another model of stability as an end in itself, and the importance of the clan or society above the individual.
From this foundation we can then situate globalization, its impact on Africa’s economic trajectory, and why Africans need to engage the phenomenon from a somewhat different and more sophisticated standpoint. Globalization is the process of increasing interconnectedness of the economies of previously well demarcated nation-states; the phenomenon of the instant transmission of ideas, events and culture over long distances through the instrumentality of technology, and the impact of these processes on local environments.
Thus, for our purposes here, there are two highly relevant dimensions of globalization. The first is that it has two main elements, the economic and the social, with technology as its chief instrument. This is why we all believe that the Internet has made the world a much smaller place, and Africa now has over 600 million mobile telephone users, more than the United States and Europe.
Second, a more comprehensive understanding of globalization must involve both its scope and its motives. We must go beyond issues such as the extent and the geographies, the boundaries of which have been breached by globalization, to the questions of who is globalizing and why.1 This is what has been termed “global intent” or strategic intent, without which globalization will not be what it is and would not have had the economic and other impacts it has had.
Economic globalization has, in fact, hurt Africa more than it has helped the continent, contrary to the received wisdom. The gains for African countries from opening up to international economic forces without adequate internal preparation have been limited and far outweighed by the adverse of the continent’s engagement with economic globalization.
Economic policies enunciated by the Bretton Woods institutions in the 1980 and 1990s led to lost decades of development opportunities and outcomes. Structural adjustment and liberalization without the proper foundations as a core condition led to the effective de-industrialization and unproductiveness of the continent by weakening the manufacturing sector and promoting import-driven economies. Trade liberalization under WTO regimes has not brought benefits. It has removed incomes from tariffs that have not been replaced by effective internal revenue mobilization.
It is against this backdrop – that of an uncritical embrace of globalization and its institutions or agents in the mistaken belief that these forces are benign in intent or impact, or agnostic in belief, or that African countries are obliged to do so as members of a presumed “international community” or “global village” – that Africa’s “rise” must be evaluated. The road to progress begins with asking and answering the right questions, and African countries must do so. Who is responsible for Africa’s development? Who will shape Africa’s destiny? The answer: Africans and no one else. Not foreign investors; not development “partners”; not the supposed international community; not foreign aid.
Nevertheless, one of the paradoxes of globalization is that the phenomenon has so opened up the world and its inhabitants to each other that the prospects and opportunities economic advancement are now almost universal. This process, underpinned by the invention and innovation of industrial technology, is not a secret. It is open to any country or region of the world that is prepared to harness it.
Perhaps the secret lies in what’s beneath the surface – the full understanding of all the dimensions of that process and the preparation to harness the recipe. It does not have as much to do with presence or absence of natural resources, with Africa is endowed more than any other continent. If it did, Africa would be the richest continent rather than the impoverished one it has been for far too long.
Paths to Economic Transformation
The first application of these fundamental understandings to take a very clear-headed approach to capitalist economics, the paradigm through which virtually all African states are now seeking to develop in the aftermath of the Cold War and the collapse of communism and socialism. Most of the growth of Africa’s economies is driven by the private sector. That’s ok, but not unreservedly so. To be clear, I am a capitalist.
But, to drive real economic transformation, capitalism must be managed by the state in a number of ways. The first is that clear choices must be made between the different kinds of capitalism – indeed there must exist in African governance and public policy an understanding of these different strands, and the implications of each as a possible choice for each African country.
Thus, African states must choose between state capitalism as practiced by China, welfare capitalism, crony or oligarchic capitalism, and entrepreneurial capitalism. I recommend a blend of at least two of these according to the peculiarities of each African country, but have a bias for entrepreneurial, small-business capitalism because that is what most suits Africa’s historical development, societies, and its large informal economies.
Second, African countries must revisit the role of the state as a guiding hand as opposed to the misguided abdication of the responsibility of the state to the private sector. This creates wealth but with too much inequality in the distribution of that wealth, which is in itself a long-term risk. There must be a public-private private approach to the three fundamental requirements for successful capitalism – access to finance, property rights, and innovation.
The next step in the application of fundamental understandings is that African countries must embrace industrialization. This imperative also extends to the industrialization of agriculture, a mainstay of many African economies but presently largely at a subsistence level. It would be foolhardy to be caught in the fanciful conceptual trap of a supposed post-industrial society that is assumed to have developed in the West, with 3-D manufacturing supposedly threatening traditional industries and service economies challenging manufacturing ones.
Africa must first create industrial societies because that is what creates jobs, which African countries need to outpace population growth and maintain economic growth and social stability by avoiding a youth bulge in the future. Moreover, 55 per cent of world trade is based on manufacturing, while seven per cent is based on agriculture. And massive infrastructure networks of electric power and transport infrastructure connecting the continent’s countries to one another and their component parts have rightly been recognized as a priority by many African governments which are moving to create such infrastructure over the next decade.
The next two key drivers of economic transformation are science, technology and innovation on the one hand, and education and human capital development on the other. Both must be linked. African countries need to make technology and innovation a strategic priority from the standpoint of a worldview that Africa can invent and innovate, and must do so if it is to liberate itself from the oppressive dominance of globalization.
Some African countries such as Kenya are making strides in the development of innovation with the development of an ambitious, $15 billion “silicon savannah” in Konza, a 2,000 hectare city 60 kilometres outside Nairobi that is designed to turn Kenya into an attractive location for technology businesses and incubators, and challenge South Africa’s dominance in this area.
Science, technology and innovation is one of the main paths which Africa can exploit to make a great leap forward in the world economy. Talent abounds in the continent, but African governments need to create an enabling environment for innovation and create incentives, institutions and markets to support it. Here the link between innovation and taking innovations to market as commercial products that are priced competitively to counter imports is key.
Human capital development in which African countries improve the falling quality of education in several countries and focus on education that builds technical and technological skills that are linked to industrial policies and job-creation strategies will play a major role in economic transformation.
Governance, Leadership and Institution-Building
The intervention of military governments in most African countries in the three decades between the 1960s and the 1990s set back the hand of the clock in Africa’s economic development because it led not to benign dictatorships that drove economic development as happened in some Asian countries, but to the restriction of the space for the evolutionary development of good, accountable governance. With the return of virtually all African countries to democratic status, this challenge remains, alongside that of economic development.
Governance and leadership determine to a large degree how much progress a country can make on the economic front. If the governance of an African country is based on the search for the economic progress of citizens, and the effort is well directed and managed, economic transformation can occur. But if governance is based on rent-seeking and competition for the spoils of public office, the resources of the state will be drained far more than real wealth can be created, in which case the dividends of democracy become questionable.
The best way to utilize governance as a tool for creating the wealth of Africa’s nations is for governments to create a number of paradigm shifts through public and economic policy. These include the establishment of economic complexity through an industrial policy that supports manufacturing.
Countries such as Nigeria and Ethiopia are making progress in this direction. Building strong, independent institutions that will ultimately have a positive impact on economic activity by assuring the rule of law and protecting investments from arbitrariness, and creating a level playing field for economic actors is also critical. Another fundamental requirement of good governance as a wealth creator is the manufacturing of consent of the citizens to a vision of economic transformation to which a nation’s collective energies can be channelled in a united manner.
The difference between the wealth and poverty of nations, their success or their failure, lies in the existence or absence of strong institutions. Institutions, when they function well, function dispassionately as systems that make predictable decisions based on benchmarks and thresholds that are clear to all. They serve to remove the system of economic incentives from the tyranny of the whims and caprices of individuals.
Where institutions are weak and caprice reigns, there will be little or no progress because there is no meritocracy. Rewards are aligned not to creativity or productivity, but along lines of unproductive patronage networks that sustain political power but do not create wealth for a nation. A society that functions in this paradigm is fundamentally unable to transform its economy because the playing field is not a level one. Rent-seeking is rampant, but creates pools of plenty for the tiny few that are linked to the patronage network within vast pools of poverty.
The manufacture of consent is absolutely essential for economic transformation in Africa. Because development is the result of the deployment of creative talent and economic activity in a productive direction, it is necessary for African governments to define economic policy visions and directions and obtain the buy-in of the citizens to such a vision.
We have seen this approach utilized by every dominant economic power in the world, whether it is the United States which applies a free-market oriented economic culture or China, which has achieved massive leaps in economic development in the past 30 years through an adaptation to state-directed capitalist activity while maintaining the dominance of the Communist Party. In all instances, this has been achieved through propaganda and mass mobilization.
Strategy and Risk Management
African countries have often not lacked an understanding of what the challenges to their economic development are. The real challenge has sometimes been to just get on with “doing it” effectively and creating the required transformation. This requires an understanding of strategy as a modern management concept and its application to governance. Sadly, this is still lacking inside African governments, with only very few exceptions.
Tony Blair, the former British prime minister, had a famous strategy unit in 10 Downing Street that drove his governance agenda and ensured that a single thread of vision, communication and execution priority – in this case, education – ran through all the narratives actions of his ten years in office. Strategy and risk management have just come into their as legitimate functions in Africa’s private sectors. Their application to the role of the government and the effectiveness of the state – which encompasses the private sector commercial space – is even more consequential for the future of Africa.
Strategy and risk management need to become embedded in governance thinking and architecture in Africa. Strategy is about shaping the future. It is about how to create the future of our imagination. If we are to create an African century, African countries will not succeed without a clear strategy and strategic thinking. That “how” is the difference between dreaming and visioning, and bridging the gap in between.
Strategy is first of all about thinking and about a way of thinking, before it becomes a matter of plans.
As Max McKeown writes in the context of corporate organizations, but also applicable to nations, it is about “outthinking your competition”. Thus strategic intent and ability are linked to the concept of worldviews, since strategy first requires strategic thinkers whose minds are open to vast possibilities. Second, worldviews, strategy formulation and strategy execution are intricately linked. Many African countries have been “planning” for decades but without the sort of strategic intent that has moved Asia forward in massive leaps. This requires focused objectives, an understanding of strategy management, especially in the context – framing choices and strategic possibilities, making the choice, and strategy execution management.
Africa’s Future
To conclude, then, contrary to the prevailing popular view about Africa Rising, the continent has no automatic, inexorable future. Growth, though a significant factor in economic development, is quite a different thing from transformation, which is what Africa really needs.
Transformation means fundamentally improved indicators in such things as education and healthcare, infant mortality, life expectancy, infrastructure, and industrial production, not resource-driven economic activity or subsistence agriculture that produces a “growth myth”, the myth that increases in GDP will make poor countries catch up with rich ones based on numbers that, while generally accepted as a standard of measurement, in fact have debatable exactitude.
The Cambridge University economist Ha-Joon Chang makes the provocative but thoughtful point that a society can become better off without marked increases in GDP. Thus the focus for African countries must remain that of a fundamental transformation in the structures of their economies, not the growth numbers that the current structures throw up. This implies a transformation away from the prevailing model that is presently being celebrated as the Africa “rising”.
Africa’s future is thus not on auto-pilot to some gilded age, but will be one that Africans create by their economic and public policy choices. What exists now, without doubt, is an opportunity for a turn-around in the continent’s trajectory from that of its not-too-distant past. In this context, then, there is no need for a return to defeatist Afro-pessimism, but what the continent needs is realism and a determined focus on the right priorities.
The most important factors that will influence Africa’s future, then, include: (a) whether African countries can develop and execute transformation strategies effectively and with discipline; (b); how Africa handles the continent’s burgeoning population, projected by some estimates to hit 2.4 billion people by 2050 – will it yield a demographic dividend or a youth bulge?; (c) how African countries handle the challenge of jobless and non-inclusive growth; and (d) whether the continent can develop and effectively deploy its human capital, the most important investment for competitiveness in a globalized world.
All of this, of course, will have to be anchored on the foundation that is the real secret for the success of Africa’s quest for prosperity – the African mind. That mind-set needs to change from one that is predominantly focused on day-to-day or short-term survival or “progress” as defined through this prism – not of a well-ordered society but of individual affluence in the midst of mass exclusion from prosperity – to one in which the mind-set takes a long term, past and future view of the world and the place of the African in that world, and what it takes to get to that place.
The African mind-set needs to place greater emphasis on “thinking it through” because action that is transformational is one that is guided by a philosophical or conceptual compass – a worldview. As we have seen, worldviews are the secret of the rise of the societies of the West and the Rest (mainly Asia).
These worldviews develop through a combination of historical and cultural evolutions, on the one hand, and through the instrumentality of propaganda and public diplomacy to the citizens of a state and the rest of the world.The place to begin is in the educational system. It is that combination of well-inculcated worldviews, knowledge and skills that produces human capital – the secret of transformation.
I rest the case for a truly Emerging Africa.
Public lecture delivered by Dr. Moghalu, Deputy Governor for Financial System Stability, Central Bank of Nigeria, at the London School of Economics on Wednesday, 23 July 2014.