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Growth in Africa’s services exports suggests move up value chain
Africa’s commercial services exports grew 6% in 2012, according to a report by the African Development Bank, suggesting the continent’s fledgling economies are starting to creep up the value chain.
Commodities still account for lion’s share of the continent’s exports and growth, but transportation, real estate, financial services, IT and telecommunications are increasingly contributing to economic growth, says the report. African consumption of home-grown goods and services coupled with growing regional integration underpinned the growth.
Fuels and minerals accounted for 69.5% of the continent’s total exports, reaching $438 billion in 2012, compared with the continent’s commercial services exports of just $90 billion.
Foreign direct investment (FDI) reached $56.6 billion in 2013 and the service sector received a small but growing share of the flows. Notably, remittances from Africans living abroad, which reached $62.9 billion in 2013, also contributed to the expansion of the African service economy.
The continent’s economies grew by an average of about 4% in 2013, compared with 3% for the overall world economy. East and West Africa boast the most rapidly expanding economies.
The poorer the country the more it grew, according to the report, which was co-authored with the Organization for Economic Cooperation and Development and the United Nations Development Program.
While upper middle income countries in the north and south of the continent grew by 3% in 2013, low-income countries posted double that growth.
Some countries on the continent look poised to resume pre-2009 recession growth, which the report attributed to increased political and social stability and a recovering world economy.
Africa’s manufacturing production, which is still nascent in large swaths of the continent, more than doubled in the past decade, going from $72 billion in 2002 to $189 billion in 2012.
The report urges African countries to follow in the footsteps of the Asian Tiger economies by focusing on the development of value-added products and services. Currently the continent accounts for only 2% of commercial service exports worldwide - a market worth $4.35 trillion in 2012.
Sophisticated value-added goods fetch a higher price on the global market and would potentially contribute to the continent’s earning power.
According to the report, for Africa to build a viable service economy it has to increase regional integration, which is still comparatively underdeveloped. Moreover in order to compete effectively with other top exporting nations, countries in Africa have to fix crumbling infrastructure, create reliable power sources and unleash private sector investment to address uneven production capacity.
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Progress slows in WTO Trade Facilitation prep talks
The process of drafting a protocol that would formally incorporate the WTO’s Trade Facilitation Agreement into the rest of the global trade body’s set of rules hit a rough patch this week, sources say. The drafting has now been postponed temporarily, after the African and Least Developed Country Groups called for the deal to be implemented on a “provisional” basis pending the conclusion of the overall Doha Round trade talks, sparking debate among members.
The Trade Facilitation Agreement, or TFA, was the main outcome of the WTO’s Ninth Ministerial Conference in Bali, Indonesia, last December, together with a few separate decisions on agriculture and development issues.
The hard-won deal is the first multilateral trade pact since the WTO opened its doors in the mid-1990s, and the first concrete deliverable from the Doha Round negotiations since they kicked off in late 2011. Some estimates, such as those of the Washington-based Peterson Institute for International Economics, have placed the potential gains from the pact – which aims to reduce red tape and unnecessary delays for goods to cross borders – at up to US$1 trillion.
Since then, WTO members have placed bringing the deal into force as their top priority for the coming months, together with outlining a work programme by year’s end for how to resolve the various other outstanding issues within the Doha Round.
Norway protocol proposal
The Preparatory Committee on Trade Facilitation, which is being chaired by Esteban Conejos – the Philippines’ ambassador to the WTO – has been tasked with performing whatever functions may be necessary to help the TFA enter into force.
The committee was meeting this week to begin the protocol drafting process, after having completed a legal review of the English version of the text earlier this month. This drafting work must be completed in time for the WTO General Council – the organisation’s highest decision-making body outside of the ministerial conference – to formally adopt the protocol by end-July. (See Bridges Weekly, 8 May 2014)
This, in turn, would allow for the WTO to open the protocol for acceptance by 31 July of next year, in line with what ministers agreed in Bali. Two-thirds agreement by the membership is required for the deal to enter into force.
A draft proposal for the Protocol has been put forward by Norway, under the document number WT/PCTF/W/1. The two-page Norwegian proposal is for both a General Council Decision and a Protocol amending the Marrakesh Agreement that established the WTO, and outlines the next steps for the TFA in light of the timelines set by ministers in Bali.
African, LDC Group call for provisional TFA implementation
According to sources familiar with this week’s committee meeting, Lesotho presented a paper on behalf of the African Group on Monday that specifically asked WTO members to implement the trade facilitation pact on a provisional basis, in line with paragraph 47 of the Doha Ministerial Declaration.
That particular paragraph says that the “conduct, conclusion, and entry into force of the outcome of the [Doha Round] negotiations shall be treated as parts of a single undertaking.” However, it also allows that agreements reached prior to the end of the full Round be implemented on “a provisional or a definitive basis,” with such agreements be then taken into account when assessing the balance of the Doha talks as a whole.
The African Group request was in line with the direction given by African Union trade ministers when they met in Addis Ababa, Ethiopia late last month. (See Bridges Weekly, 8 May 2014)
Furthermore, Lesotho said this week, additional clarity is needed from WTO members about the funding that developing countries will receive to help them develop the necessary capacity to implement the trade facilitation pact’s commitments.
Uganda, on behalf of the LDC Group, said Monday that its coalition will be submitting its own textual proposals, and similarly urged that paragraph 47 be referred to in the Protocol.
Consultations ahead
The suggestions by the African and LDC Groups fuelled an intense debate at this week’s committee meeting, sources confirmed to Bridges. Some members, namely various individual African countries, together with Bolivia, Cuba, and Nepal, spoke in support of the groups’ suggestions.
Others, such as the EU, US, and Mexico, reportedly warned that the suggestion put forward by the African and LDC Groups could get in the way of the committee’s goal of bringing the TFA into force “expeditiously,” in line with the Bali mandate. Some have warned that these new proposals on paragraph 47 would essentially go beyond the direction that ministers gave for the Preparatory Committee’s work.
Sources familiar with the talks say that further work on the drafting process has now been postponed, with Conejos reportedly telling members on Wednesday that resolution should first be reached on this “fundamental” issue.
Consultations on this topic are expected to be held in the coming weeks, in the hopes of achieving some progress on this matter before the next Preparatory Committee meeting, slated for 24-26 June.
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As Africa celebrates, it is total agony as Uganda’s AGOA dream fades
Lack of an AGOA policy seen as main cause of fading dream
It is exactly 14 years since the Africa Growth Opportunity Act (AGOA) was signed into law by the US Congress to spur development in Africa. Over the last 14 years, African exports under AGOA have more than quadrupled since the program’s inception. However for Uganda, one can safely describe the AGOA story as a fading dream.
In 2013 for instance, Uganda exported $56,000 (Shs 140 million) in AGOA products to the US – largely apparel and flowers – down from a peak of over $4 million (over Shs 7 billion) of AGOA exports in 2004.
Yet, according to the US Embassy Spokesman Daniel Travis, the East Africa Trade Hub based in Kenya has facilitated over $145 million in exports to the US under AGOA and has assisted over 200 firms with market access to the US, over the past five years.
“Despite the AGOA success stories, there are a number of eligible countries that have not taken full advantage of the potential benefits,” says Travis, before giving Uganda’s dismal figures as an example.
Dr. Fred Muhumuza, a Research Fellow at the Economic Policy Research Centre at Makerere University, and advisor to the Finance Ministry, paints an even darker picture of Uganda’s AGOA story. “In terms of anticipated benefits however, there has been little if any benefits,” he says.
He adds that even the little we exported under AGOA was because of a heavy subsidy by the government and debts to that effect are yet to be fully cleared. “Thus, we did succeed to enter the US market but with no gainful business results.”
What is even more shocking from a taxpayer point of view is that the AGOA initiative, which is funded to the tune of more than Shs 380 million per year, has become a bottomless pit of sorts. Is the taxpayer benefiting from allocating funds for AGOA promotion?
Stephen Kaboyo, the managing director of Alfa Capital, a Ugandan firm focusing on sovereign asset management, does not think that there is any promotion going on or any benefits to write home about. “Its broader economic impact has been modest in terms of real, broad and sustained growth as well as poverty reduction,” he says.
He adds, “Furthermore AGOA product coverage was too limited and did not include other products mainly in the agriculture sector where a country like Uganda would perform. For Uganda to enhance its export competitiveness under such programs, supply side constraints, poor infrastructure, unskilled labour markets which cloud Uganda’s export performance must be addressed.”
When the ebullient Susan Muhwezi was appointed Senior Presidential Adviser on AGOA and Trade, hopes were high that AGOA returns would be as cheery. However, she has been reduced to having photo opportunities at exhibitions, AGOA summits and factory tours. Now, it is easier for a business journalist to talk to Trade Minister Amelia Kyambadde than to get Muhwezi to pick our calls.
Nathan Irumba, the executive director of the Southern and East African Trade Information and Negotiations Institute (SEATINI), says Uganda has not meaningfully benefited because of conditions internal to the country, within the AGOA Act itself and also in the global trading environment.
Steven Kamukama, an official in the External Trade Department at the Ministry of Trade, Industry and Cooperatives, agrees. He says Uganda’s performance in AGOA has been poor due to trade and investment constraints. Ugandan companies, he adds, are constrained by poor infrastructure, corruption, high electricity costs and limited access to credit, all of which make it difficult for them to link products to the market requirements and standards.
Unlike Kenya and Tanzania which have access to the sea at the ports of Mombasa and Dar-es-salaam, and oil refineries that supply furnace oil needed for the cotton boilers, Uganda manufacturers must contend with higher costs of doing business.
However, Travis said while Uganda has not exported a significant amount directly under the AGOA program, the majority of Uganda’s exports including coffee, vanilla beans, fish, cocoa beans, and tea all enter the US duty free.” And because these products already have zero tariffs under the Most Favored Nation (MFN) program, they are not counted as AGOA products.
Way forward
On August 5 this year, US President Barack Obama will host 47 leaders from Africa at the first US-Africa Leaders Summit in Washington.
The Summit would seek to advance the US’s focus on trade and investment in Africa, and highlight America’s commitment to Africa’s security, its democratic development, and its people, according to a statement on the White House website. This summit is important as it comes barely a year before the AGOA initiative comes to an end in 2015 with an option for a renewal.
Travis says President Obama has made it clear that the US seeks “a seamless” renewal of AGOA before it expires.
“We encourage all AGOA countries, including Uganda, to share with us and with the US Congress their thoughts on the importance of AGOA over the past 14 years and their ideas on how AGOA can be made more effective,” says Travis. “In particular, we look forward to hearing Uganda’s strategy for taking greater advantage of the program should it be renewed.”
Irumba knows where the US should start – on the conditionalities within the Act itself, which he says make it ineffective for African economies.
“AGOA also has stringent eligibility conditions requiring countries to implement policies much similar to those of the structural adjustment programmes namely; market economy policies of liberalisation, deregulation and privatization. These policies have had far reaching negative implications on Uganda and EAC economies,” says Irumba.
He adds Uganda like most East African countries, other than Kenya, lack a viable local textile industry because of opening up of the sector especially to second hand clothes and other cheaper textiles. Therefore, there are very little backward and forward linkages to the local cotton industry. Most of the clothing used in producing apparel is imported from third party countries mostly Asia. This is why Kenya, which has some remnants of a textile industry, has managed to benefit.
Travis says they recognize that tariff preferences alone cannot address the many constraints that impact Africa’s regional and global trade competitiveness – such as poor infrastructure, non-tariff barriers, the thickness of African borders that limit regional trade, and the high cost of moving goods. “Still, there is room for Uganda to increase and diversify its exports to the US, including under AGOA,” he says. Establishing an AGOA strategy is where Uganda should start, according to Travis.
“One key step countries can undertake is to develop a national AGOA strategy. AGOA strategies come about through a dialogue between the public and private sectors, and they identify particular sectors for export growth,” he says. Uganda could do well to borrow a leaf from Kenya, where there is an AGOA unit (within the Department of External Trade in the Ministry of Trade) and the National Committee on AGOA (NC-AGOA), which were established in November 2011. The committee has four subcommittees to deal mainly in Agriculture, Non-agriculture, Textile and Apparel, and Policy and Advocacy.
Indeed, Kenya’s performance last year was a far cry from Uganda’s. Our neighbour’s primary exports under AGOA in 2013 were apparel ($305 million), edible nuts ($24 million), cut flowers ($3 million), fruit and vegetable juices, and sporting goods earned the country about ($1 million) each – quite massive compared to Uganda’s paltry $56,000.
No quick fixes
Irumba says government intervention is a must to spur local cotton industries, and other cost effective industries to supply the local market then have a surplus to export to the US market.
But Muhumuza however says the true gate keepers of international business are not governments but rather private sector dealers mainly supermarkets because agreements signed between governments cannot compel private businesses to add a country or its business people if they do not match their standards and conditions set by global value chain managers.
He says Uganda could not match the requirements in terms of timelines, and quality of cotton a reason why we still had to import fabric from Pakistan, Sri Lanka, etc to simply do the cutting and stitching. “We lost the opportunity to use our own cotton and benefit our own farmers. Our cotton and its growing areas were not certified by the US companies,” Muhumuza says. He concurs with Travis on the need to strategise through organization and leadership and etc if we are to benefit from what he describes as “a sleeping giant of great potential.”
The analysts say AGOA should be extended to cover all products including sensitive agricultural goods; its preferences made permanent to allow firms to plan for the future and make investments and AGOA would be more effective with less restrictive rules of origin, which would allow firms more flexibility in sourcing inputs in order to exploit their comparative advantage in low-cost labor, including helping beneficiary countries reducing supply-side constraints (such as poor infrastructure), and a longer time horizon for the agreement in order to reduce firm uncertainty.
Travis says AGOA is the “foundation of the US’s economic partnership with Africa, and just last August, the US Trade Representative Michael Froman announced that a top-to-bottom review would be done not only of the AGOA program, but also of the various structures that support and feed into that program.
“We are in the midst of that review right now, working closely with our stakeholders in the US and [in Africa], with Congress, and with experts in African trade and investment,” he adds. He adds that the aim of this review is to develop a set of proposals that would have broad support across all these parties and would lead to the passage of a renewed and modernized AGOA regime that expands trade, and contributes to the impressive record of growth on this continent.
But Travis suggests that African countries like Uganda should look beyond AGOA. He says it is important that African countries like Uganda take steps such as implementing the WTO Trade Facilitation Agreement, which was completed at the recent WTO Bali Ministerial.
If implemented, he says, this agreement would be beneficial for African countries, which stand to gain the most from trade facilitation reforms considering that they suffer disproportionately from difficult customs and border procedures and a range of other challenges that constrain both regional and global trade.
Going forward, Travis also suggests that given what has been observed in other countries, Uganda should look on the inside instead of looking solely to the US for answers.
“We have seen that AGOA benefits largely accrue for those countries that have done the most to make themselves an attractive business environment, both for foreign investors and domestic firms, by encouraging investment and trade, maintaining political stability, observing the rule of law, and demonstrating respect for human rights and worker rights,” he says, adding that the US looks forward to hearing Uganda’s strategy for taking greater advantage of the program should it be renewed. Indeed, the sooner this is done the better or else the AGOA “opportunity” would continue to remain a far off dream.
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Offsets to cushion South African carbon tax
To curb greenhouse gas emissions, South Africa wants to put a tax on carbon emissions from big polluters.
The aim of making polluters pay for the carbon they pump into the atmosphere is to help South Africa, the world’s 12th highest emitter of greenhouse gas carbon dioxide, transition to a low-carbon economy.
“We have one of the most carbon intensive economies in the world,” Anton Cartwright, a researcher on the green economy at the University of Cape Town’s African Centre for Cities, told IPS.
Coal-burning power plants provide close to ninety percent of South Africa’s electricity, making the economy highly carbon intensive.
“We don’t get a great bang for buck on our coal,” said Cartwright. “We use a low-grade coal with a very high CO2 content.”
The tax was slated to take effect in 2015 but in February this year National Treasury announced it would be pushed back to January 2016, citing the need for “further consultation.”
Offsets to cushion blow to industry
Initially, the carbon tax would see big polluters, including companies in the mining, fossil fuel and steel sectors, paying 11.50 dollars per tonne of carbon dioxide equivalent on between 20 and 40 percent of their total carbon emissions.
To cushion the effect on industry, the National Treasury has proposed allowing polluters to lower their tax liability by investing in carbon offsets.
“The combination of a tax and offsets is very sensible,” said Cartwright. “You’re priming the market and then providing flexibility.”
A carbon offset is a measure that reduces, avoids or sequesters emissions. Polluters buy credits, each equivalent to one tonne of carbon, from verified projects — including, for example, reforestation programmes and initiatives that increase energy efficiency in the housing sector — at prices cheaper than the tax.
South Africa’s large-scale carbon offset market is currently stagnant.
“There is no trading happening at the moment,” Robbie Louw, director of Promethium Carbon, a South African carbon and climate change advisory firm, told IPS. “The international price for offsetting credits is very low at the moment.”
In Europe, carbon credits are selling for less than 50 cents, Louw said.
Without the carbon tax big South African emitters have no obligation to reduce their emissions or engage with carbon offsetting programmes, Carl Wesselink, director of SouthSouthNorth, a Cape Town based non-profit organisation that focuses on climate change and development, told IPS.
The carbon tax should change that.
The proposed carbon tax and offset legislation will increase demand and price for carbon credits, Roland Hunter, a consultant at C4 EcoSolutions, told IPS. C4 EcoSolutions is a firm that consults on a government offset project which involves reforesting degraded parts of the Eastern Cape province with Spekboom, a succulent tree with a high potential for capturing carbon.
Flagship offset project faces challenges
South Africa’s flagship carbon offsetting initiative, the Kuyasa CDM Pilot Project, which is registered with internationally recognised credit scheme the Clean Development Mechanism (CDM) — established under the Kyoto Protocol — has been slow to issue carbon credits.
The initiative involved retrofitting 2,300 low-cost homes in Khayelitsha, a semi-informal township outside Cape Town, with solar water heaters, ceiling insulation, and energy efficient light bulbs.
These energy efficient measures save 7,000 tonnes of carbon dioxide equivalent per year. But despite being registered with the CDM in 2005, and being completed in 2010, the award-winning project has not yet issued any carbon credits.
A combination of bureaucratic red tape, from local and national government, combined with the CDM’s protracted verification process, is to blame for the lack of credit trading at Kuyasa, said Wesselink, whose organisation developed the project and, as a partner to the City of Cape Town, is responsible for trading the carbon credits.
An estimated 10,000 CER (Certified Emissions Reduction) credits should be issued this year, he said.
The money from the credit sales will go into maintenance costs, which are currently being shouldered by SouthSouthNorth with donor funds.
The funds are needed since the solar water heaters made by a Chinese company, and numbering 1,500, are prone to rusting and leaks, and have a short-life span, Zuko Ndamane, project manger for the Kuyasa CDM project, told IPS.
“A day, maybe about 10 people will come and report their geyser is leaking,” he said. “If I’m [not in the office] they’ll go to my house.”
When the credits are sold, the project will invest in replacing the rusting geysers with units from a South African company, which have a 20-year lifespan, he said.
Kuyasa was not established to make a financial profit. With the project costing about 3.5 million dollars it would take decades to recoup the costs through selling carbon credits alone.
“Putting solar water heaters and insulation in houses is something government, or someone, should be funding — it’s a good thing,” said Wesselink. “A project like Kuyasa will happen because it’s a social good but it won’t happen because carbon is a kicker.”
The return on investment from a public health and social development perspective is worth the financial outlay. But such projects need to be done at a larger scale to make financial sense, he explained.
Tax still to be finalised
The carbon tax and associated offset options should see an uptick in trade for carbon offsetting projects in South Africa. But industry remains concerned about the looming tax, especially state-owned power supplier Eskom.
Eskom would not be able to absorb increased production costs from the carbon tax, Gina Downes, Eskom’s corporate consultant for environmental economics, told IPS.
“It’s unfortunately not like we can switch off any of our production, particularly now with the low reserve margin,” said Downes. “We probably can’t, in the short-term, even try to optimise based on emissions.”
The utility has been in talks with National Treasury about ways to account for the costs associated with the implementation of the Department of Energy’s 2010 Integrated Resource Plan, which lays the path for the share of coal-fired electricity generation in South Africa to drop from around 90 percent in 2010 to 65 percent in 2030, Downes added.
Analysts expect to see some changes in the final tax related to its impact on the national utility.
“I think there may be substantial changes in [the tax’s design], especially relating to the Eskom emissions,” said Louw, of Promethium Carbon. “That’s the thing that has got the biggest impact on the economy.”
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Plant Health: Commission strengthens rules on citrus fruit imports from South Africa
Stricter import requirements for South African citrus fruit were today [27 May 2014] endorsed by Member State experts. These emergency measures are being taken to protect European crops from citrus black spot, a harmful plant disease not native to Europe.
According to the new measures, citrus fruits imported from South Africa will be subject to more stringent criteria such as recording pre and post-harvest chemical treatments and mandatory registration of packing houses as well as on-site official inspections at citrus orchards. A sample of at least 600 of each type of citrus fruit per 30 tonnes will need to be taken by the South African authorities. All fruit showing symptoms will be tested. Moreover, a sample per 30 tonnes of 'Valencia' oranges will also be tested. No distinction between citrus fruits for fresh consumption and citrus fruits for processing is made.
Commissioner for Health, Tonio Borg said: "Plant protection on EU territory is of the utmost importance and the EU had no choice but to impose a stricter inspection regime for South African citrus fruit. Systematic sampling and testing of consignments should prevent this harmful plant disease from taking hold in Europe's citrus orchards to the detriment of our farming sector. We had to take these measures because of the high number of recent interception of infected citrus fruits at European border controls."
Today's measures are also based on a recent European Food Safety Authority's pest risk assessment.
The aim is to prevent the disease from entering the EU and affecting the EU´s citrus black spot free status. The introduction of citrus black spot into the EU would pose a serious threat to the EU's citrus producing areas, mainly found in Southern Europe. During the 2013 export season (from April to November) around 600 000 tonnes of citrus fruit were imported from South Africa. This represents approximately one third of the EU's total import of citrus fruit, with oranges being the main citrus commodity.
Next steps
The measures will be adopted by the Commission in the coming days. In the event that recurring interceptions of citrus fruit contaminated with citrus black spot are detected in the coming months, these measures will be further strengthened and additional restrictions may be imposed.
Background
Citrus black spot is a harmful fungal disease caused by Phyllosticta citricarpa (McAlpine) Van der Aa. The disease attacks citrus plants causing high losses to citrus fruit production, but is not contagious for humans.
Today's measures will apply for this year's growing season and strengthens the safeguards that have been in place for the last growing season. They are a follow-up to the restrictions taken at EU level in November 2013 which applied to citrus fruit imports for the growing season 2012-2013, which have since lapsed.
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SA’s slow internet crippling economic growth and job creation
The recent release of the 2014 World Economic Forum’s (WEF) Global Information Technology (IT) report has unfortunately confirmed a devastating decline in South Africa’s IT infrastructure and the skyrocketing costs of internet connectivity.
Although our overall ranking has stabilised – or rather, stagnated – at 70th out of 148 countries surveyed, there has been a drastic decline in speed (73/144, a 7 spot drop since 2013) and accessibility (87/144, a 2 spot drop since 2013). Our prepaid mobile cellular tariffs (128/144) and fixed broadband internet tariff (91/144) rankings have also plummeted compared to previous years.
The high cost, lack of access and slow internet connectivity in South Africa is unquestionably hampering economic growth and job creation.
The World Bank has identified broadband connectivity as a key catalyst for economic growth with every 10% increase in connectivity enabling a 1.38% growth in Gross Domestic Product (GDP).
The Global IT Report is not the first to indict South Africa’s internet connectivity. Last year’s First Quarter 2013 Akamai State of the Internet report confirmed that South Africa has one of the lowest average internet connection speeds in the world.
At an average connection speed of 2.1 Mbps, South Africa is below the global average of 3.1 Mbps and far behind the top ten countries who all achieve average connectivity speeds between 8.2 and 14.2 Mbps.
It is imperative that South Africa reach this standard in order to stimulate economic growth and job creation.
We urge Trade and Industry Minister, Rob Davies, and the Minister of Telecommunications, Siyabonga Cwele, to prioritise this crucial economic resource and work together to ensure its improvement and expansion.
Written by Wilmot James, Democratic Alliance Shadow Minister of Trade and Industry
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The myth of the ‘land grab’
Researchers debunk the theory that the Chinese Government is tackling food security by buying African land
It’s the kind of headline that sells magazines: “China Buys Up the World.” It appeared in a November 2010 issue of The Economist, illustrated by a faceless, militaristic figure loading cars, oil barrels, power lines and various manufactured goods into a giant shopping basket. But reports of the Chinese Government buying up hundreds of thousands of acres of land in Africa to grow crops for Chinese dinner tables, or to secure political or military interests, are simply a misrepresentation of the far more complex issue of Chinese aid to Africa, said panelists at a May 16 conference sponsored by the Johns Hopkins University School of Advanced International Studies (SAIS) in Washington, D.C.
“Agriculture is part of the general framework of policies and preferences for going global, but there hasn’t been a real highlighting of attention to this. I think these issues are still controversial in China in terms of how much food security should be a domestic matter that can be controlled within the borders of China and how much it should rely on global trade,” said Deborah Brautigam, Professor, Director of the SAIS China Africa Research Initiative, and author of The Dragon’s Gift: The Real Story of China in Africa and Chinese Aid and African Development: Exporting Green Revolution.
It’s easy to overestimate China’s agricultural interest in Africa, Brautigam said. China has 20 percent of the world’s population, but only 9 percent of the world’s arable land and 6 percent of its fresh water resources. The growing middle class has increased demand for meat and soybeans that are used to feed livestock. It seems likely China would be interested in the millions of acres of uncultivated land in Africa.
False reports
Media histrionics over large-scale farming projects funded by the Chinese Government, however, are demonstrably false. Reports of “land grabbing” can be broken into five categories, according to Brautigam: media myths and false reports; aid projects that have now been privatized; construction contracts; government projects that were launched more than a decade ago; and real, current interests.
Case in point is a 2010 joint venture agreement between the China National Agricultural Development Group and the China-Africa Development Fund to carry out agricultural investment in Africa.
“This fund was mistakenly described in one medium as being a $5-billion fund to invest in agriculture in Africa and that’s far from the real story,” Brautigam said. “The real story is that it is a 1-billion-renminbi fund, which is $161 million. This is still a sizeable amount of money, but it’s a small fraction of $5 billion – and so far what they’ve done is to buy into existing Chinese ventures that have been around for quite a while.”
According to research published by economists Jean-Jacques Gabas and Tang Xiaoyang for French agricultural research group CIRAD, China is considered a major donor of agricultural aid in sub-Saharan Africa, though the amount of its aid remains well below that of Organization for Economic Cooperation and Development countries (about $130 million from 2009 to 2012). Of the 100 projects included in the study, 60 percent were given grants and the remaining were awarded public or private loans. Chinese aid, however, is expected to increase with the growing needs of China’s developing infrastructure and the search for mineral and oil resources. The preferred method for aid and investment is trending toward joint ventures, privatization and government grants.
But is “land grabbing” a part of the package? Absolutely not, conclude Gabas and Tang. According to Land Matrix data, China’s public and private land acquisitions represent 290,000 hectares – 15 times less than the land acquired by the United States and almost 10 times less than the United Arab Emirates. Chinese agricultural companies almost exclusively develop food crops for local African markets. Products that are exported are goods such as palm oil for the Chinese agro-food industry or sisal for the textile industry.
“Contrary to the idea that the government in Beijing is orchestrating a surge of Chinese companies and entrepreneurs, Chinese cooperation is marked by the multiplication – most often uncoordinated – of diverse operators. Until the 1990s, the Chinese Government controlled all interventions in the agricultural sector in Africa. But since then, the institutional landscape has become more diversified and complex,” wrote Gabas and Tang.
‘Friendship farms’
One African country where the Chinese state actually has made investments is Zambia, with eight, current and viable projects. Since political changes in the 1990s, Zambia has had a marked openness to foreign investment and China has cooperated on a series of “friendship farms” in areas such as poultry. The largest Chinese-owned farm in the country is a 3,500-hectare egg producer called Johnken Farm, which supplies 10 percent of eggs sold in Zambia.
“For some reason, the Western media have been fascinated with Chinese chicken farms in Zambia,” said Solange Chatelard, a researcher with the Max Planck Institute and Ph.D. candidate at Sciences Po in Paris. “There’s an over-inflation of what China is actually doing on a large scale on the African Continent and at the same time a preoccupation with state-driven investment and large scale agro-business that is masking the phenomenon of private investment on a small scale. They are very different kinds of agricultural investment.”
Most of the Chinese in Zambia who are involved in agriculture are small entrepreneurs growing crops for local markets. These “highly diverse” rural entrepreneurs are unlikely to receive loans from Chinese banks or investors. They are not professional farmers and more likely have stumbled across their trade as a way to make money, Chatelard said.
In the West African country of Mali, Chinese investors have entered the sugar market. The country produces just 35,000 tons of sugar and consumes 200,000-250,000 tons annually. China is a main world sugar producer and has advanced production technology, so an investment into meeting the Malian need for sugar is logical, said Nama Ouattara, a Ph.D. candidate at the University of Paris-Sud. In 1984, China and Mali signed a memorandum of understanding that resulted in the establishment of Sukala SA, a sugar producer that was 60 percent owned by a Chinese state-owned enterprise and 40 percent owned by the Malian Government. In 2009, the cooperation was transformed into a joint venture agreement. The agreement specifically mandates that sugar production techniques used by the Chinese should be shared with local employees, she said.
In total, there are 123 overseas agricultural investments by the Chinese state or state-backed businesses, said Xu Xiuli, Associate Professor of development studies at the China Agricultural University in Beijing. Most of these investments are on the provincial or local level, she said, far from the type of agro-imperialism that the media portray.
Rectifying misconceptions
The Johns Hopkins University SAIS launched the China Africa Research Initiative this year to promote research and collaboration to better understand the economic and political dimensions of China-Africa relations and their implications for human security and global development. In its initial efforts, the initiative is focused on agriculture, a topic that touches on multiple concerns, such as supply chains, global manufacturing, trade, peacekeeping and strategic cooperation between major powers in Africa, said David Lampton, SAIS Professor of China studies.
In addition to conferences, the initiative includes the development of new courses for students, seminars, educational opportunities and efforts to rectify media and public misperceptions on Chinese-African relations, Robert Thompson, SAIS Professor of global agriculture, told Beijing Review.
“China’s motive is for Africa to feed Africans,” Thompson said. “If Africa doesn’t produce enough food it will be a massive importer, driving up food prices. It makes no economic sense to grow food in Africa and ship it back around Singapore and up to China.”
The author is a contributing writer to Beijing Review, living in New York City
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Imperative of developing African market for natural gas
The key to extensive international trade in natural gas lies in developing a global integrated/substantial pipeline grid, and increasing Liquefied Natural Gas (LNG) fleet, where navigable water access is available.
Integrated pipeline facilities do not presently exist in much of the world, but are being built rapidly. By 1991, international gas trade was focused in North America, Europe and the Former Soviet Union (FSU).
By 1997, around 54% of world’s natural gas production was exported to world markets in the form of LNG, whereas only 19% of the world’s natural gas production was exported across any international border.
However, there are new pipelines that are operating and some under construction in South-East Asia, South America and Africa. Also, there is a growing list of potential new transportation projects using natural gas.
Presently, the international gas markets are made up of three grids and seven isolated markets. The three grids are found in the NAFTA Zone (North American Free Trade Agreement) made up of US, Canada, and Mexico; Western Europe; and the FSU / Central Europe.
The seven isolated markets are found in: Brazil/Central South America (made up of Bolivia, Peru, and Argentina); the South American (Southern Cone) made up of Chile, Uruguay, etc; the Eastern Mediterranean; the Indian Subcontinent; South-East Asia; North-East Asia; and the Coastal Trio (made up of Japan, South Korea, and Taiwan).
Absence of gas market
The foregoing would suggest the absence of an international gas market, and also the absence of an isolated African gas market. The absence of an international gas market is largely influenced by the fundamental factors that drive natural gas economics. The most critical of these factors is the high cost and relative inflexibility of the transport systems required to get gas to market. High transportation costs and inflexible delivery systems have tended to isolate regional gas markets from one another, thereby making it difficult to create a ‘world gas market’. The second major factor is that gas transportation costs also exhibit strong economies of scale. The higher the volumes, the lower the average unit cost of production.
In international gas trade, large gas discoveries and large markets enjoy substantial economies of scale over small gas discoveries and small markets.
Therefore, the critical drivers of natural gas economics are principally high cost of gas transport systems and scale requirements.
Consequently, natural gas markets have historically developed first in countries with substantial natural gas reserves of their own, and later in countries with insignificant or no gas reserves but with large energy demands to justify importation of natural gas through international pipeline grid systems or through the LNG transaction.
The second observation relates to a lack of African regional gas market. The presence of substantial gas reserves in Nigeria, Libya, and Angola, etc is enough stimuli for the development of an isolated gas market in Africa.
Of all the African countries with gas reserves, Nigeria has far more natural gas reserves than all of the other countries combined. Therefore, the initiative to construct a regional gas market in Africa falls squarely on the court of the Nigerian Government.
There have been two initiatives from the Nigerian Government in this regard: the West African Gas Pipeline (WAGP), and the Trans-Saharan Gas Pipeline (TSGP) Projects. Both projects have experienced severe bottle-necks, not unconnected with funding problems and politicking.
The priority for Nigeria at the moment would be to develop strong internal gas pipeline grids and harness the huge natural gas reserves to achieve the all-important goal of electricity generation.
However, it is also useful for the major gas nations in Africa to meet under the aegis of the African Petroleum Producers Association (APPA) to establish modalities for constructing a functional African regional market for gas.
To achieve the desired objective, natural gas pipeline grids in Africa must be developed internally; within and between nations; and grids should be linked to target markets (electricity generators and industrial users, particularly those that use natural gas as a feedstock). Achieving a regional natural gas market for Africa will thus alleviate the problem of electricity generation, reduce the consumption of petroleum products, boost industrialization and GDP, and minimize environmental pollution.
Dr Chijioke Nwaozuzu wrote from Emerald Energy Institute, University of Port Harcourt.
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Harsh truths are necessary if Fairtrade is to change the lives of the very poor
Consumers need to know who benefits from projects supported by the premium they pay
The findings of our research may be disturbing for Fairtrade officials and for ordinary people who hope to make a difference to the plight of poor rural people in developing countries through informed choices about the products they buy.
But how well-informed are the choices that consumers make? Is Fairtrade fair for all involved in the production of tea, coffee and other commodities? The Fairtrade, Employment and Poverty Reduction in Ethiopia and Uganda project set out to improve our understanding of how global trade in agricultural commodities affects the lives of poor rural Africans, especially through wage employment.
Our research took four years and involved a great deal of fieldwork in Africa. We carried out detailed surveys, we collected oral histories, we talked to managers of co-operatives, to owners of flower companies, to traders and government officials, to auditors, to very young children working for wages instead of going to school, to people who had done fairly well out of Fairtrade, and to people who appeared not to have benefited.
It did not come as a huge surprise to us to learn from our data that people who depend for their survival on access to manual agricultural wage employment, often as seasonal or casual labour, are much poorer than others in the same area. Their diet is poorer. They own fewer assets – watches, pieces of furniture, mobile phones. And in the households where these people live, girls and women have less schooling.
We also knew that Fairtrade standards for tea and coffee have always been far more concerned with the incomes of producers than with wage workers’ earnings. What did surprise us is how wages are typically lower, and on the whole conditions worse, for workers in areas with Fairtrade organisations than for those in other areas.
Careful statistical analysis allowed us to separate out the possible effects of other factors, such as the scale of production. Still, the differences were in most cases, and especially for wages, statistically significant. Explaining why it should be that workers in areas dominated by Fairtrade organisations are so often worse off than workers in other areas is a complex and challenging task. Our full report explores some possible reasons.
It was also surprising to learn that many people do not benefit from the “community” projects supported with funds generated by the “social premium” consumers pay for Fairtrade products. Researchers at London’s School of Oriental and African Studies (Soas) found that many of the poorest are unable to use these facilities. In one Fairtrade tea co-operative the modern toilets funded with the premium were exclusively for the use of senior co-op managers.
One of our interviewees, James in Uganda, is desperately poor and lives with his elderly father in an inadequate shack very close to a tea factory supported by Fairtrade. Despite the fact that his father was once a worker at the tea factory, James is charged fees at the factory’s Fairtrade health clinic. He cannot afford them and instead has to make his way on one leg to a government clinic more than 5km away to get free treatment.
At another Ugandan co-operative supported by Fairtrade, we spoke to poor children who had been turned away from the Fairtrade-supported school as they owed fees. In this case, the Fairtrade premium did not support the very poor but was used to build houses for the teachers.
What comes out of this research is that what we buy in supermarkets could make a difference to the lives of the poorest, those employed in producing the goods we buy. But it is difficult for shoppers to make informed choices.
Wages and working conditions vary significantly across employers. There are many off-the-peg but unconvincing reasons given for paying people shockingly little: it is what the price of coffee allows, you can’t pay more when there is an excess supply of people wanting the jobs, and so on. But then it is surprising to find that there are employers who evidently can pay much more. This variation is what our research allows us to explore.
And in the process it raises questions for Fairtrade. If we are interested in what makes a difference to extremely poor people, it is important to compare areas with Fairtrade organisations not only with other smallholder producing areas, which we did, but also with areas where producers are much larger. If larger farmers can pay better and offer more days of work, this is surely an important thing to understand. It is not the “distorted comparison” that Fairtrade alleges.
We hope that our findings will help to inform consumers’ choices and feed into Fairtrade’s efforts to establish an auditing process that is more relevant to the lives of the poorest rural people. And we hope that they will commit to clearer information for consumers about who benefits from the social premium and how well rural wages and working conditions are monitored.
Christopher Cramer is professor of the political economy of development at the School of Oriental and African Studies, University of London
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US and EU trade talks ‘make progress’ says negotiator
The US and the European Union have made “steady progress” on a trade and investment agreement, according to America’s chief negotiator.
His European counterpart said the two teams had continued with work towards an ambitious agreement.
The US and EU have been negotiating now for almost a year as they seek a deal to stimulate commerce between them.
The project is called the Trans-Atlantic Trade and Investment Partnership, or TTIP.
The aim is to reduce or even eliminate tariffs – taxes on imported goods. They also want to reduce the barriers to trade that result from differences in regulation, though they insist there will be no reduction in the protection of consumers, health or the environment.
They also want to make it easier for businesses in one of the two economies to bid for government contracts in the other.
Regulation talk ‘challenging’
The talks in Arlington Virginia are the fifth round in this process. Dan Mullaney, the US chief negotiator, said it has been a “good week”. He said there were talks in nearly all areas.
Europe’s Ignacio Garcia Bercero said they were already working on the basis of texts – they are trying to see how they can bring together the European and American proposals.
Mr Mullaney acknowledged however that the talks on regulation are proving to be “challenging”.
TTIP (usually pronounced T-tip) is very controversial in Europe, though less so in the US. European campaigners fear that it could reduce health and environmental standards, despite reassurances from negotiators that it won’t.
Many are particularly critical of the plans for what’s called investor state dispute settlement. That’s an arrangement that would enable foreign investors to seek compensation from a host government through arbitration in some circumstances; exactly what those circumstances would be is itself a matter of controversy and uncertainty.
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Zimbabwe fails to adhere to key Sadc Protocols
The subdued economic performance in Zimbabwe has led to the country failing to adhere to key Sadc protocols on trade related to tariff reductions, the Competition and Tariff Commission (CTC) has said.
Although the country experienced a modicum of economic stability soon after the inception of the multi-currency regime in 2009, most local industries failed to recapitalise and achieve requisite capacity utilisation levels to effectively compete at national and regional fronts.
Zimbabwe’s manufacturing sector inevitably continues to suffer in the face of an influx of cheap imports.
Government has continued to use protectionist measures for key products made by the few operating industries in the country.
However, Zimbabwe is a signatory to the Sadc Protocol on Trade where member states agreed to phase down tariffs for goods in four categories, depending on the degree of sensitivity of the goods.
The criteria for sensitivity includes factors such as revenue generation, employment creation and strategic importance, among others.
The CTC is currently carrying out consultations with the manufacturing sector under the Sadc Protocol on Trade, with a view to initiating a tariff phasedown for sensitive products classified under category C.
“Zimbabwe phased down its tariffs for categories A and B, constituting 87% of tariff lines,” the commission said.
The CTC said due to the economic challenges faced by the country, the phasing-down of tariffs under category C was supposed to commence in 2009 and end in 2012 but was not implemented.
Zimbabwe applied for derogation from implementing the phase down pursuant to the Sadc Trade Protocol.
The derogation entailed that Zimbabwe would suspend phasing down its tariffs for category C products until 2012 after which yearly reductions would resume and be completed by 2014.
However, the economic challenges faced by the country remain unabated resulting in the country failing to honour its obligations.
“The commission intends to carry out consultations with industry to gather inputs that would inform the way forward with regard to whether or not to apply for further derogation for category C,” the commission said.
Products under C category range from cements, soap, matches, sugar, fish or crustaceans, ceramic products, electrical machinery to paper, among others.
The commission said any sector affected and intending to apply for further derogation would need to submit stipulated information from a sectorial perspective.
Zimbabwe National Chamber of Commerce vice-president David Norupiri said industry would most likely prefer a further derogation as the economy was not performing well.
“Industry will certainly not entertain that, the reason why those tariffs were never adjusted is due to the need to control the inflow of imports into the country. Industry gave the nod to the Finance ministry to use those tariffs to enable industry to operate competitively,” he said.
Norupiri said Zimbabwe’s situation was not unique and pointed out that a whole lot of inconsistencies were occurring within Sadc trade as some countries were abusing certificates of origin.
He said South Africa, for example, currently has regulations governing the supply of cooking oil, where between 40 to 60% of local demand must be catered at local procurement level while the excess cooking oil would be exported using certificates of origin.
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Exports, not jobs should be main gauge of industrial-policy success
The primary measure of South Africa’s industrial-policy success should be the expansion of exports rather than the creation of direct jobs, a leading economic-policy academic argues, cautioning that the domestic manufacturing sector is unlikely to create as many jobs as services sectors such as construction, transport and retail.
Speaking at a dialogue in Ekurhuleni on the United Nations Industrial Development Organisation’s (Unido’s) latest Industrial Development Report, University of Cape Town’s professor David Kaplan said that, increasing manufacturing jobs would be a welcome development, but should be a secondary objective. Instead the focus should be on significantly expanding manufactured exports, as this would create the conditions for growth in the nontradeable sectors “where the really big employment numbers” reside.
Kaplan’s thesis was underpinned by an assessment of the structure of demand in the South African economy, which was itself shaped by deep inequalities in income distribution. These inequalities were driving middle-class and business consumption patterns, which were typically more services intensive than would be the case of a country where income inequality was less acute. He illustrated the point by highlighting that there were more than a million people employed in the private security sector in South Africa.
In the absence of labour-market reform, Kaplan was also not optimistic that domestic industry was likely to shift from its current labour-saving and capital-demanding manufacturing trajectory.
“If you compare us to Brazil, our manufacturing output has grown at similar rates, but every year since 1988 we have shed 1.5% of our manufacturing labour force,” he noted. Had South Africa grown its manufacturing labour force at the same rate as Brazil over the period, the country would have an additional one-million manufacturing jobs.
In light of that trajectory as well as South Africa’s low growth outlook for the foreseeable future, expanded exports were likely to be key to expanding manufacturing output. Export earnings would be key to paying for the imports consumed by those employed in the services sector.
“The real importance of manufacturing is not the employment manufacturing generates, but that it makes it possible for a society to create jobs in the nontradeable sectors,” Kaplan averred. Even in China, where Unido estimates there to have been 68.8-million manufacturing jobs in 2010, employment was far higher in sectors such as construction and retail.
“So it is wrong to think of our industrial strategy largely as an employment strategy,” he added, while also cautioning against decoupling South Africa’s manufacturing fortunes from the resources industry, which still provided the basis for much of the country’s manufacturing activities.
The ongoing deterioration of the mining investment climate and output could, he warned, further accelerate the country’s deindustrialisation, with some mining-focused manufacturers already considering alterative territories from which to service the growing African resources sector.
Kaplan’s view found some resonance in the Department of Trade and Industry’ latest Industrial Policy Action Plan, or Ipap, which placed greater emphasis than was the case in the previous five versions on raising the country’s export competitiveness as part a ‘Smart Reindustrialisation’ strategy.
When releasing the plan in early April Trade and Industry Minister Dr Rob Davies said government would increasingly demand that those benefitting from industrial incentives become active exporters, particularly into growing African markets.
The Ipap export strategy, which was conceived against a backdrop of South Africa’s persistent trade-account deficit, would seek to reward export-oriented firms with conditional incentives, increased industrial financing and export-promotion assistance.
Davies saw export growth as central to raising the overall competitiveness of industry, noting that there were strong arguments to suggest that Asian industrial policies did not so much pick winners as “weed out losers”, with losers identified through their lack of export penetration.
“The ability to be involved in the production of exportable, tradeable manufactured goods is very, very important, in particular, as we confront a serious balance of payments problem [and] as we also confront the reality that the rents that we are earning from mineral products are not what they used to be and we cannot count on them coming back any time soon.”
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Alliance generates investments in Africa’s agriculture
A growing global alliance devoted to improving food security and nutrition now covers 10 African countries, includes more than 160 companies and has generated more than $7 billion in planned investments, according to a new U.S. report on accelerated progress to end global hunger.
The 2014 Feed the Future Progress Report, released May 19 in Washington, says that organizations supported by the New Alliance for Food Security and Nutrition are showing results. One organization is the Alliance for a Green Revolution in Africa (AGRA), established in 2006 by the Rockefeller and the Bill & Melinda Gates foundations.
AGRA leads a $47 million Scaling Seeds and Technologies Partnership to expand production by African companies of high-quality seeds and increase the number of smallholder farmers who have access to innovative technologies.
Through the New Alliance and Grow Africa, more than 2.6 million smallholders have been reached through services, training or production contracts and 33,000 jobs have been created.
Grow Africa seeks to accelerate investment and change in African agriculture based on national agricultural plans. Grow Africa supports the Comprehensive African Agricultural Development Programme (CAADP), established in 2003 by the African Union’s New Partnership for Africa's Development (NEPAD). So far, 40 African countries have now completed national agricultural plans.
The African Union has proclaimed 2014 as the “Year of Agriculture and Food Security.”
In 2012, President Obama, African leaders and other members of the Group of Eight industrialized nations launched the New Alliance to significantly expand public-private partnerships and investment in smallholder agricultural development in sub-Saharan Africa. The New Alliance complements the Feed the Future program, which Obama launched in 2009 as part of an effort to leverage resources to improve food security, reduce malnutrition and strengthen resilience to recurrent crises in vulnerable areas of the Horn of Africa and the Sahel caused by climate change and other factors.
“I believe that the United States has a moral obligation to lead the fight against hunger and malnutrition … we’ve put the fight against hunger where it should be – at the forefront of global development,” Obama said in October 2012.
“Growth in the agriculture sector is a powerful driver in advancing economic opportunity, peace and security, markets and strong trading partners,” the report says. “We will win our fight against poverty and hunger by improving value chains and leveraging investment, trade and science” and by working with civil society and the private sector, it continues.
The New Alliance for Food Security and Nutrition focuses on Benin, Burkina Faso, Côte d’Ivoire, Ethiopia, Ghana, Malawi, Mozambique, Nigeria, Senegal and Tanzania.
The text of the 2014 Feed the Future Progress Report (PDF, 13MB) is available on the U.S. Agency for International Development’s website.
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UK’s Pearson targets SA’s education sector
Pearson, the UK-based education and media group, aims to chalk up a meaningful presence in South Africa’s fast-growing private education sector.
The company, which owns the Financial Times newspaper, on Wednesday announced an initial R28m investment for the development of technology-driven low-cost private schools in South Africa.
It will partner eAdvance, the company behind Spark Schools, to grow its network of primary schools. Pearson is already a major player in the global education sector, generating revenue of more than £4.3bn last year.
Pearson SA CEO Riaan Jonck said the eAdvance transaction was the first push into private education. “We have specifically targeted South Africa, and aim to be a meaningful player in this sector in the years ahead.
“We are looking at opportunities to buy private schools.”
Currently Pearson is involved in tertiary education only through Pearson CTI and the Midrand Graduate Institute. Mr Jonck said Pearson – aside from the Spark Schools initiative – was hoping to operate up to 15 private schools in the short to medium term.
The Pearson pitch seems well-timed as the private education sector has become a darling of the JSE with well-established Advtech and fast-growing Curro Holdings attracting strong market ratings.
Vunani Securities analyst Anthony Clark said the injection of capital from Pearson in the scale of costs in South Africa was small. “I do not see the investment by Pearson as having any material effect on the two established players of Advtech and Curro – though they will surely have noted the deal given the depth of experience Pearson has in global education and learning technology.”
Mr Jonck said Pearson hoped to use the initial Spark Schools investment to build eight low-cost “blended” learning schools over the next three years.
He described preliminary academic results from Spark’s first class as “overwhelmingly positive”, with 91% achieving 18 months worth of reading last year and more than half of the learners concluding the year above international grade level standards in mathematics.
He said Spark’s blended model allowed delivery of high-quality education at a price point significantly lower than the majority of South Africa’s private schools.
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IMD releases its 2014 World Competitiveness Yearbook Ranking
A country’s image abroad can also influence future competitiveness
IMD, a top-ranked global business school based in Switzerland, today [22 May 2014] announced its annual world competitiveness ranking. As part of its ranking of 60 economies for 2014, the IMD World Competitiveness Center also looks at perceptions of each country as a place to do business.
“The overall competitiveness story for 2014 is one of continued success in the US, partial recovery in Europe, and struggles for some large emerging markets,” said Professor Arturo Bris, Director of the IMD World Competitiveness Center. “There is no single recipe for a country to climb the competitiveness rankings, and much depends on the local context.”
Highlights of the 2014 ranking
The US retains the No. 1 spot in 2014, reflecting the resilience of its economy, better employment numbers, and its dominance in technology and infrastructure.
There are no big changes among the top ten. Small economies such as Switzerland (2), Singapore (3) and Hong Kong (4) continue to prosper thanks to exports, business efficiency and innovation.
Europe fares better than last year, thanks to its gradual economic recovery. Denmark (9) enters the top ten, joining Switzerland, Sweden (5), Germany (6) and Norway (10). Among Europe’s peripheral economies, Ireland (15), Spain (39) and Portugal (43) all rise, while Italy (46) and Greece (57) fall.
Japan (21) continues to climb in the rankings, helped by a weaker currency that has improved its competitiveness abroad. Elsewhere in Asia, both Malaysia (12) and Indonesia (37) make gains, while Thailand (29) falls amid political uncertainty.
Most big emerging markets slide in the rankings as economic growth and foreign investment slow and infrastructure remains inadequate. China (23) falls, partly owing to concerns about its business environment, while India (44) and Brazil (54) suffer from inefficient labor markets and ineffective business management. Turkey (40), Mexico (41), the Philippines (42) and Peru (50) also fall.
A matter of perception: Countries’ images abroad
Seven of the top 10 countries in the overall ranking for 2014 are also in the top 10 for having an image abroad that encourages business development, according to an exclusive IMD survey of executives based in each of these countries. In general there is a strong correlation between a country’s overall competitiveness ranking and its international image as a place to do business (see second table below).
Executives in Singapore are most bullish on their country’s overseas image, while Ireland, Chile, Qatar and South Korea are all far higher on this criterion than in the overall ranking.
By contrast, executives in the US, France, Taiwan and Poland are far gloomier about their countries’ international images. The US results may reflect international conflicts and domestic political gridlock, while perceptions of France continue to be colored by slow reforms and the country’s negative attitudes toward globalization.
“While economic performance changes from year to year, perceptions are longer-term and shift more gradually. They can also lead to a virtuous circle of better image and better economic performance,” Professor Bris said. “So how executives feel their country is being perceived is a potentially useful guide to future competitiveness developments there.”
The IMD World Competitiveness Yearbook, which will be published at the end of June, measures how well countries manage all their resources and competencies to increase their prosperity. The overall ranking released today reflects more than 300 criteria, two-thirds of which are based on statistical indicators and one-third on an exclusive IMD survey of 4,300 international executives.
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India asks BRICS nations to use flexibilities under TRIPS for increased accessibility to medicines
India has urged other members of the BRICS nations (Brazil, Russia, India, China and South Africa) to use flexibilities and safeguards under TRIPS like compulsory licencing and parallel imports to push down the prices and increase accessibility to medicines.
Addressing a meeting of the BRICS countries alongside the World Health Assembly in Geneva recently, additional secretary in the union health ministry, C K Mishra called for maintaining balance between IP use for the development of new healthcare products and public interest.
India suggested that the countries should use flexibilities like compulsory licenses, parallel imports, provisions allowing for early entry of generics and adoption of strict patentability criteria, according to reports reaching here.
Accessibility has been the “driving force” of health policy, and reducing costs a priority for India, with initiatives for the distribution of free drugs and promotion of generic production, he said.
Mishra urged “developing countries should consider revising national IP legislation” to include these flexibilities. He also warned against countermeasures adopted in “TRIPS-plus” bilateral trade agreements and investor states disputes, and asked international organisations and civil society to “actively advocate much more in support of national governments in use of all these flexibilities.”
Referring to the Glivec case decided in India in 2013, Mishra said, “any attempt at subverting the patent regime or ever-greening of the product or process can be effectively checked in the public health interest to restrict the patent regime.”
At the event, “Access to Medicines: challenges and opportunities for the developing countries”, the BRICS nations extended mutual support to possible mechanisms to bring down the prices and improve the accessibility to medicines.
Event moderator Luis Loures, UNAIDS deputy executive director and assistant UN secretary-general, lauded the development of the BRICS group as a “new power in terms of global governance,” with a “built in capacity for innovation.”
The BRICS countries account for about 40 per cent of the global population, and their responsibility arises not only from political leadership “but also the size of the populations of these countries,” he said.
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Africa must accelerate integration to promote trade and industrialization
African countries should accelerate integration to promote trade and industrialization by changing mindsets, participants at a meeting on trade said on Tuesday, May 20 in Kigali.
Participants at the African Development Bank Group’s Annual Meetings session on “Facilitating Africa’s Trade” agreed that changing mindsets would enhance integration, create economies of scale and promote industrialization that Africa direly requires to become an effective actor in global trade.
Noting that Africa cannot prosper with 54 fragmented markets, the conference attended by Ministers of Trade, representatives of international organisations, business leaders, researchers and representatives of civil society across the world, said that it was time to “just do it” (integration).
Inter-African trade is said to be rising slowly to around 11% in 2013 while Africa’s trade with the rest of the world is below 3%.
Some participants suggested the banning export of unprocessed primary commodities and raw materials, as well as allow free movement of persons, goods and services across African borders in order to encourage production, jobs creation and trade.
The conference analyzed global and regional trends in trade facilitation and drew lessons to better inform future interventions in the light of the potential impacts of the WTO’s ongoing Trade Facilitation Agreement.
Rwanda’s Commerce and Industry Minister, Francois Kanimba, said that harmonisation of government policies and well as the political will to implement such policies were crucial to the realization of Africa’s integration agenda.
For her part, the Executive Director of International Trade Center (ITC), Arancha Gonzalez, said Africa needed to invest in productive capacity, educational skills acquisition, leverage competitiveness among the SMEs and promote market linkages were inevitable facilitators to African trade.
On the role of financial institutions in promoting trade facilitation, the President of African Export-Import Bank, Jean Louis Ekra, urged African governments to exploit the fast changes taking place in the African banking system to allow financial flows to support business transactions. He also urged greater cooperation among the commercial banks on trade related issues.
Technical skills education and the full involvement of the private sector were advertised as potential game changers in Africa’s quest for integration, large scale production and full participation on global trade.
Other key participants at the conference included Frederick Agah Yonov of the World Trade Organization (WTO), Richard Sezibera of the East African Community, and Johny Smith of the Walvis Bay Corridor Group (WBCG).
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East African banks launch payment system
Central bank governors drawn from the East African countries of Kenya, Uganda and Tanzania on Friday launched the East African Payment System (EAPS), allowing for faster cross-border transfers.
EAPS is a funds transfer system that will transfer money on a gross basis, with the ultimate plan the creation of monetary union within East Africa in the next 10 years.
Speaking at the launch ceremony, Central Bank Of Kenya (CBK) governor Prof Njuguna Ndungu said the system currently integrates with the respective Real Time Gross Settlement (RTGS) systems of the three East African central banks that use the SWIFT messaging network for safe and secure delivery of payment and settlement messages.
“It sends and receives cross border payments in the region’s currencies, that is the Kenya shilling, Tanzania shilling and Uganda shilling, from any commercial bank in the three East African countries on a real time basis for the region’s business community,” said Ndungu.
Ndungu was flanked by Dr Enos Bukuku, deputy secretary general of the East African Community (EAC) and Mwanamaka A Mabruki, principal secretary at Kenya’s Ministry of East African Affairs, Commerce and Tourism.
“Its implementation will address deficiencies in the current cross-border payment methods, through enhanced efficiency and risk controls,” he said.
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Expand women’s access to financial services, EAC told
The East African partner states need to harmonise laws that increase access of credit to women, activists have said.
Women entrepreneurs from Kenya and Uganda operating small, medium and large scale enterprises observed that despite the formulation of the East African Common Market protocol, laws, regulations and practices that hinder women access to financial assistance are still present.
The women under the Women and Girls Empowerment project (WOGE) echoed their concerns during an advocacy meeting organised by the East African sub-regional Support Initiative for the Advancement of Women (EASSI) at the Blue York Hotel in Busia recently.
EASSI is a regional civil society organisation advocating for effective mechanisms for the advancement of women’s rights and gender equality.
Fridah Oyugah, the chairperson Wamama pamoja (Funyula) Samia group, noted that many women operating along the borders have been empowered, but added that more sensitisation is needed.
he said although the regional governments have eased movement across borders, a lot still needs to be done to promote free movement of people and goods
“As women cross border traders, we still face hurdles while crossing with our merchandise. Issues of clearance at the customs border point still dog the process,” she said.
Oyugah observed that despite the customs union and common market protocol, the borders in Busia and Malaba are always congested due bureaucratic clearing procedures.
“It is such procedures that force many cross border women to engage in smuggling,” she observed. Mwajuma Bahati Toloyi from Nambale constituency in Nambale town said the process of empowering women in business is encumbered by the tedious paperwork that is required.
“EASSI has done its best to empower women, but the EAC states need to do more for women to benefit from the EAC common market protocol,” she said.
Kenya deputy commissioner Valentine Cherono urged the cross border women traders to be vigilant when doing business.
“As we trade, we need to be aware of security because with - out security we cannot have peace,” she said.
She urged Kenyans customs officers at the border to handle foreigners with care.
“Busia is the face of Kenya. The number of visitors we get from Uganda, South Sudan and DRC will be determined by the way you treat them when they enter through Busia,” she noted.
Busia resident district commissioner Hussein Batanda noted that empowering women is the main way of ad - dressing poverty at the house - hold level.
“The Government will continue to work with organisations such as EASSI that empower women and girls. Once we empower the women, who contribute 65% of production, then poverty will be eradicated,” he said.
EASSI executive director Marren Bukachi said the project has helped over 1,200 women form groups to have a collective voice.
“The women now have practical skills to do business. They have been empowered to produce, and we are now helping them get market access in the region,” Bukachi said.
Elizabeth Ampairwe the EASSI WOGE coordinator, said over 6,000 rural women from the border districts of Busia, Rakai and Kabale will be financially empowered with funds from the Netherlands government in the next four years.
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South Africa-Brazil FTAs will impact Namibian beef industry
Free Trade Agreements (FTAs) won’t hold favourable implications for Namibia’s weaner industry and the opportune thing for local producers along with government, is to get together and have a round table discussion to come up with plans on how to convert potential challenges into opportunities.
Meatco’s Chief Executive Officer (CEO), Vekuii Rukoro , says regarding South Africa’s negotiations with Brazil to sign FTAs to allow the import of cheap meat into South Africa. Rukoro says reacting to questions raised by the Osire/Waterberg Farmers Association and producers who wanted to know how this will impact meat prices in Namibia. If South Africa’s negotiations with Brazil concludes successfully, it will have implications for the Namibian beef industry. South Africa is one of Namibia’s most important markets, especially for weaners which she export to South African feedlots.
Rukoro says one thing Namibia can do is to try and keep more of her weaners inside the country, raising them locally and adding value to them instead of doing what she is doing at the moment, which is exporting them to South Africa on-the-hoof. “This will mean we’ll have to talk about how to produce our own feed locally on a large scale because without that, it is not going to go easy. That’s where we need the government’s help – to start implementing the Green Scheme, which she is currently busy with. At the moment the Green Scheme is based on food security for people, but we would like to convince government that food for cattle is just as important,” he notes.
Rukoro says Namibia by producing her own feed on a large scale and by putting up feedlots at strategic places – she can afford to reduce the number of weaners that would normally have gone to South Africa. South Africa is traditionally one of Meatco’s important markets, but what has been happening over the past couple of years is that Meatco has been diversifying its export markets so that it is no longer dependent on one market. “Currently South Africa does not take more than 30% of our beef exports. We also sell to the local market and export to Europe, Norway, Italy and the UK. We’ve also recently opened markets to Greece, Germany and Russia. We can actually get a better price from countries like Russia for beef we traditionally put in the South African market. This is a strategy to position ourselves so that if the South African market is no longer profitable, we have alternatives.
We are also hard at work addressing the possibility of entering markets in the East such as China and Hong Kong.”
He says Meatco fought very hard to have the Norway quota split more equitably as the ”previous 50/50 split between us and Witvlei Meat was not fair. Meatco slaughters more than 100 000 cattle per year while Witvlei only slaughters 8000 which is just enough for the Norway market. The government then heard and accepted our arguments and made the allocation. This year we got 75% of the quota”.
Norway is the most lucrative market in the world and what Meatco gets out of there in terms of profit is also strengthened by the exchange rate which is positive at the moment. This means Meatco has been able to adjust prices drastically.
Regarding producer prices, Rukoro states that Meatco does not change its policy from year to the next regarding price. “It depends solely on environmental and market factors. If the price in South Africa begins to fall, then there is no reason for us to use the South African price as a basis. Then we only use what we get out of the market, and for every dollar we get, we look at how much is needed for our operational costs, and pay the rest to the producer, since we don’t have shareholders and we also don’t pay specific dividends to any party. If it goes well with producers, then it will go well with Meatco,” he says.
“We need to be a successful, profitable business in the interests of our producers, because the more successful and profitable we are, the more profit we will be able to put back in the pocket of the producer. Of all the profit we make, we don’t even keep one percent for the organisation. We feel that after we have deducted our business costs, we should give all of it back to the producer.”
“To show that we really performed well, we are going to give producers back pay. I don’t know how much, but it will be done within the next two months,” he concludes.