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Commodities sector should be an engine of growth, rather than a poverty trap, UNCTAD secretary-general tells forum
Corrupt and opaque financial practices deprive resource-rich developing countries of “staggering” amounts of money, UNCTAD Secretary-General Mukhisa Kituyi said at the opening of the UNCTAD Global Commodities Forum in Geneva on 7 April.
“For example, the Africa Progress Panel recently estimated that trade mispricing deprived countries in sub-Saharan Africa of approximately US$38 billion per year, and that other illicit outflows deprived them of an additional US$25 billion,” Dr. Kituyi said. “These illicit outflows are greater than the total inflows of aid and foreign direct investment that these same countries receive on an annual basis.”
The sensitive issue of transparency, and the linked matter of global value chains in the commodities sector, was probed by experts from intergovernmental organizations, academia and the private sector at this year’s Global Commodities Forum.
Since its creation in 1964, UNCTAD’s aim, Dr. Kituyi said, “has been to identify solutions that transform the commodity sector from a poverty trap to an engine of growth.”
Acting Director-General of the United Nations Office at Geneva Mr. Michael Møller said that “consumers want to know where there goods are coming from, that they have been produced sustainably and without corruption, and that taxes have been paid.”
Mr. Møller placed the discussion into the context of the post-2015 development agenda, the goals of which are now being debated by a body of the United Nations General Assembly. “The global value chain and how to make it work better for developing countries has to be placed firmly at the centre of that debate,” he said.
Dr. Kituyi said that global value chains – which describe a sequence of activities undertaken to bring products to market that are coordinated by several firms across geographic regions – account for more than 60% of all international trade. Whereas in the past such chains were controlled by vertically integrated companies, Dr. Kituyi said, “advances in transportation and communication technologies have disaggregated supply chains globally.”
“This new, disaggregated framework shifts the types of opportunities available to commodity-dependent developing countries,” Dr. Kituyi added.
Ms. Arancha González, Executive Director of the International Trade Centre, said the international community has to “collectively change the mind-set that richness of natural resources and dependency on commodities is a curse”.
Citing ITC programmes in agricultural commodities sectors such as cotton, spices and fruit, Ms González said that private voluntary standards aimed at increasing transparency and improving governance were delivering measurable benefits to the small and medium-sized enterprises working in those sectors.
Mr. Addis Alem Balema, Director-General of the Commodity Exchange Authority of Ethiopia, said his country had tackled the resource curse head on and was now one of the fastest growing economies in Africa.
He said the Ethiopian Commodity Exchange that was set up in 2008 “has been transforming the agricultural market by relying on technology and knowhow tailored to the local context. [The Exchange] has brought efficiency integrity and transparency to the agricultural marketing system.”
The opening ceremony of the Forum was presided over by Mr. Triyono Wibowo, President of the Trade and Development Board of UNCTAD, who said that the Forum’s theme was topical at this time.
The two-day Global Commodities Forum, which took place 7-8 April, aimed to generate partnerships and innovative policy ideas for public, private and civil society leaders who specialize in commodity-based development.
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More household spending plus increased investments in natural resources and infrastructure mean higher growth for Africa
For the past 19 years Sub-Saharan Africa has continued to make impressive strides in sustaining economic growth. After five years of prolonged weakness in the global economy, most countries in the region have continued to register relatively vigorous growth.
Despite emerging challenges, economic activity throughout the region continues to expand: GDP growth is projected to reach 5.2% in 2014, compared with 4.7% in 2013, and will rise to 5.4% in 2015, according to the World Bank’s new Africa’s Pulse, the twice-yearly analysis of the economic trends and latest data on the continent.
According to Africa’s Pulse, the growth in the region is broad based and the prosperous economic activity is supported by strong public and private investment demand and robust household consumption. The rise in commodity prices, and the surge of foreign capital spurred by accommodative monetary policies in high-income economies, is key to the region’s sustained growth since the mid-1990s, the report notes.
“Although Sub-Saharan Africa’s exports remain concentrated in a few strategic commodities, the region’s countries have made substantial progress in diversifying their trading partners,” says Francisco Ferreira, Chief Economist for the World Bank’s Africa Region. “Over the last decade, exports to emerging markets such as the BRICs – Brazil, Russia, India, China – have grown robustly, primarily due to the prolonged boom in commodities demand. The BRICs received only 9%of Sub-Saharan Africa’s exports in 2000 but accounted for 34% of total exports a decade later.”
Across the region there has been a rapid growth in foreign direct investment (FDI). Two investment trends are central todriving this expansion – the extended commodities boom brought about by the unprecedented scale of development in Asia, and the massive expansion of moving international trade activities offshore. The new wave of FDI not only delivers investment and employment but also opens up new opportunities through deeper global trade integration.
Patterns of growth in Sub-Saharan Africa show considerable variation across countries, with resource-rich countries growing at a faster pace than non-resource-rich countries. In fact, the best growth performers in the region (in terms of median annual rates) grew nearly four times as fast as the slow-growing nations in Africa (3.3 and 0.9 percent per annum, respectively, during 1995-2012). Among best performers, resource-rich and non-resource-rich countries such as Rwanda and Ethiopia had comparable growth rates (that exceed 4 percent per annum).
Natural Resources and the Services Sector
Africa’s Pulse shows that the resources and services sectors are Sub-Saharan Africa’s best performers: The share of the resources sector rose from 9%during 1995-99 to 12.5%during 2007-11 while that of services grew from 40% to 47%.
Sub-Saharan Africa’s exports grew at a robust pace, driven by the region’s natural resources. During 1995-2012, the region’s total exports increased from $68 billion to over $400 billion. Most of this increase came from natural resources export. For example, petroleum, minerals, and metal exports ballooned from $38 billion to $300 billion during this period.
While high commodity prices have helped the region in recent years, the heavy reliance on resource-based exports also makes the region highly vulnerable to the shocks in commodity prices.
Growth and Trade Patterns
Export diversification has been limited, mirroring sectoral shifts in the region’s economies, but there has been substantial progress in diversifying trading partners. Strong growth in countries in the region have characteristics that are associated to the structure of production, advances in structural reforms, the influence of the country to the world economy, or sound macroeconomic frameworks.
The challenge for many African countries, particularly oil exporters, is to diversify their exports. Oil-exporting countries rely heavily on a single commodity as their revenue source. For example, Angola, Chad, Equatorial Guinea, Gabon andNigeria received, on average, more than 92% of their export earnings from oil during 2010-13.
Although, the export revenue share from minerals and metals may not be as high as that from oil, it is still high for some nonoil resource-rich countries – Botswana, Guinea, Mauritania, and Sierra Leone – with earnings more than 50%of their revenue from natural resources.
Some countries have had success in diversifying exports. An example is Tanzania. The country saw major increases in and diversification of output and exports. The production and export of traditional agricultural cash crops (such as cashew nuts, coffee, cotton, tea, sisal, and tobacco) declined considerably in importance. The geographic distribution of Tanzania’s exports also changed considerably over the last decade. Exports to the EU fell, while regional trade, especially with the East African Community (EAC) and South Africa, increased.
Looking Into the Future
There are broad areas in which Sub-Saharan Africa governments need to invest to ensure that growth continues and is shared among entire populations. The report suggests that good governance and institutions; investing in the people of Africa – especially the youth; promoting infrastructure across the region; reducing barriers to trade and investment; and making sure there are adequate services and infrastructure for the rapidly expanding urbanization of African cities and secondary cities are key to maintaining and sharing growth within the region.
Globalization of services is a potentially important source of growth for the Africa region. Several favorable trends that support this view include: services trade is the fastest-growing sector within global trade; the share of modern services is rising; and the share of developing countries in world service exports has been rising. Technology and outsourcing are enabling traditional services to overcome their old constraints such as physical and geographic proximity. Modern services, such as software development, call centers, and outsourced business processes, can be traded like value-added, manufactured products, enabling developing countries that focus on such services, innovation, and technology to leverage services as an important driver of growth.
The question that the region faces is, “Has Sub-Saharan Africa tapped this potential?” The region’s services exports, which total $50 billion, trail all other developing regions; however, these exports are expanding annually at about 12%, on average. Traditional services such as transportation and travel have declined from 73% of total services in 2005 to less than 64%in 2012, while modern services exports in the region have increased their share by over 10 percentage points from just over 26%of total services to about 36% over the same period.
In some countries such as Mauritius, Rwanda, and Tanzania, modern services recorded annual growth rates of over 10%between 2005 and 2012, with Rwanda starting from a low base of less than $40 million in modern services exported in 2005 to over twice that amount at almost $85 million by 2012. In both Mauritius and Rwanda, rapid expansion in modern services is a result of increased activity in tradable business and financial services. Over 60% of those employed in large companies in Mauritius work in the service sector, which offers more employment opportunities than either agriculture or manufacturing. While these countries have experienced the fastest increase in modern services, others like Kenya are also emerging as places where modern services are becoming drivers of growth and development.
“This,” says Punam Chuhan-Pole, Lead Economist in the World Bank’s Africa Region, and author of Africa’s Pulse, “is exciting news for other African countries looking to expand into the globalized services business.”
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IPAP 2014-2017: Breaking through to industrial success
The Minister of Trade and Industry Dr Rob Davies launched the sixth iteration of the Industrial Policy Action Plan (IPAP) at the Industrial Development Corporation (IDC) in Sandton on 8 April. IPAP 2014/15-2016/17 is the last iteration under the current administration.
Minister Davies highlighted several instruments that will contribute in industrialising the country in terms of growing the economy, enhance manufacturing, job-creation, poverty alleviation. These instruments will promote the integration of the region (including SADC) and the continent.
SMART RE-INDUSTRIALISATION
The Industrial Policy Action Plan’s overarching vision of growth with inclusivity is grounded in the imperative of ’smart re-industrialisation’: a systematic revitalisation of South African industry with a consistent focus on growing the dynamism, competitiveness and labour-absorbing capacity of the manufacturing sector – especially in the traditional and non-traditional tradable and value-adding sectors of the economy. This is the baseline from which everything else can grow.
SA POISED FOR MEASURED TAKE-OFF
After five gruelling years of global and local economic headwinds, South Africa now finds itself realistically poised for a sustainable breakthrough as a robustly re-industrialising, competitive, forward-looking regional economic power. This is not to suggest some sort of imminent, spectacular transformation. What lies ahead will be a tough, incremental process, with advances and setbacks.
Nevertheless – whilst recognising that global economic prospects remain uncertain and difficult domestic constraints persist – we can now say with some confidence that the instruments and capacity developed over the past five years of this administration have placed the manufacturing sector in a much stronger position than before to take advantage of emerging positive factors on the local economic scene. These include a more competitive currency; significant recent investments in competitiveness improvements by firms – which will continue to be strongly supported by key interventions like the Manufacturing Competitiveness Enhancement Programme (MCEP) – and a growing range of export opportunities, not the least of which lie on the rest of the continent.
THE “5 BIG DRIVERS”
The IPAP’s guiding mission over the next 3 years will therefore be to push South Africa’s potential for industrial step-change to greater intensity – with infrastructure development and localisation, beneficiation, a sharper focus on regional integration and exports and enhanced industrial financing serving as five of the major drivers of industrial development.
Infrastructure
The importance attached to South Africa’s infrastructure-build programme is underscored by the fact that, when this administration ends its term in May of this year, R1 trillion will have been spent on the programme, with infrastructure projects valued at R840 billion to be rolled out over the next 3 years of the Medium Term Expenditure Framework.
It is critical on the one hand that the infrastructure build programme is accompanied by strong local procurement. On the other hand the sustainability of investments on this scale with local procurement programmes will be a parallel commitment to building the export-competitiveness of domestic manufacturers in an increasingly wide range of value-added manufactured products – both in the domestic market and through more rapid export growth.
By way of practical example, this means for instance that as our rail recapitalisation programme peaks South African companies must have accumulated greater capabilities to become exporters of locomotives and rolling stock and components.
Localisation
The second key driver – localisation – focuses on all government procurement including the construction of infrastructure as a tool to build wider and deeper industrial capacity. It was for this reason that government introduced designations to support local manufacturing according to prescribed percentages and without additional costs to the fiscus. This initiative would be immeasurably strengthened if private sector procurement, especially by large corporations, could increasingly shift towards local strategic sourcing and supplier development.
Beneficiation
In order to move decisively away from a growth path locked into dependency on primary commodity export, South Africa must vigorously leverage its own enormous resource endowment and develop strategic partnerships in the burgeoning regional oil and gas economy. Taking this path offers ‘game-changing’ long term opportunities for value-added beneficiation, enhanced manufacturing competitiveness and integrated upstream and downstream industrial growth and diversification. It also has the potential, over the next decade, to stabilise energy supply and secure dramatically reduced energy prices for industry and household consumers alike.
Domestic demand – regional integration and exports
International experience demonstrates that successful industrialisation efforts should rest on the combination of maximising domestic demand for manufactured products and developing a focussed export drive for value-added and tradable goods. In our case work to ensure a much tighter concentration of resources and coordinating mechanisms to achieve this is in place.
Beyond this: in order to reap the full benefits of regional integration, for ourselves and for our African neighbours, two preconditions have to be met. First: a common drive to diversify away from primary and semi-processed products exported largely outside the continent, to a range of industrial inputs and consumer products demanded by growing and linked infrastructure, construction, manufacturing, retail and service sectors. Second: a commitment to building regional markets to sufficient scale – and with the necessary degree of complementarity – to create a platform capable of sustaining long term industrialisation. To be at the heart of the process – and at the same time grow our own domestic manufacturing base and global export competitiveness – South Africa needs to ensure that it positions itself as a key player in the development of this emerging regional and continental dynamic.
This means energetically supporting integration across the existing regional communities – with the first important step being accelerated development of a free trade area linking SADC (Southern Africa Development Conference), COMESA (Common Market for Eastern and Southern Africa) and the EAC (East Africa Community). Government sees this process as a flagship development in its own right and as a trailblazer towards an eventual continental free trade area.
Industrial financing
In terms of government efforts to support (re-)industrialisation, IPAP focuses on the development of strong economic incentives for competitiveness. One of the key instruments for achieving this is concessional industrial financing and an incentive regime with reciprocal commitments from the private sector, characterised particularly by mechanisms that incentivise competitiveness upgrading.
The provision of more integrated support packages for South African companies competing in both domestic and export markets – including on-budget programmes, strategically-targeted Industrial Development Corporation (IDC) financing, enhanced export financing through the Export Credit Insurance Corporation (ECIC) and a more strategic focus for our system of export promotion is critical.
IPAP 2104-2017 commits the Competition Commission to resolutely crack down on collusion and price-fixing. Concerted and collective action by state institutions against the clear and present threat of the illicit economy – especially illegal imports – must be the subject of greater focus and action. The consolidation of the Industrial Development Zones (soon to be Special Economic Zones – SEZs – under new legislation) is a priority including with respect to building on the considerable investment promotion achievements registered in the recent past.
OWNERSHIP AND “BELONGING”
IPAP 2014-2017 is fundamentally premised on the understanding that there is no necessary contradiction between economic growth and development and the extension and deepening of socio-economic rights to all South Africans. IPAP must belong to all of us – departments of state, State Owned Companies (SOCs), industry stakeholders and associations, organised labour, academia and think-tanks, budding and emergent entrepreneurs – but, perhaps above all, to the poor, the rural, unemployed youth, the ‘precarious’ and the still many marginalised amongst our fellow South African citizens.
There is much to do, with no room for complacency.
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Azevêdo asks members to shift up a gear on Doha preparation
Director-General Roberto Azevêdo told the Trade Negotiations Committee that “it’s time to shift things up a gear” in developing a work programme for the conclusion of the Doha Round.
“We must now move into a second phase, focused on resolving the problems that we have been outlining – testing what went wrong and putting forward potential solutions,” he said.
Director-General Roberto Azevêdo’s statement
Formal Trade Negotiations Committee meeting,
7 April 2014
In my remarks to the General Council on 14 March, I said that we had made a strong start in our discussions towards developing a work programme for the conclusion of the Doha round.
Since then the level of activity has increased again. And we have been making good progress.
All of the negotiating groups have held an open-ended meeting – with the exception of the Rules Group which will be doing so shortly.
Everyone has had the chance to make their views known.
I have also been meeting with the Chairs during this period – both individually and collectively – to hear their reports onwhat has been discussed and what progress has been made.
My impression is that there has been a positive atmosphere in the consultations. Many members have expressed their willingness to be open-minded, creative, and to work together to find a way forward.
While positive, the consultations have not yet produced anything very new in terms of members’ stated positions. Well known arguments around the “status of the modalities texts” or “the question of balance” or “sequencing” or the need for “new data” have been rehearsed.
I have also been carrying on my own consultations with delegations in Geneva individually and in groups, such as the special meeting of the Africa Group held a couple of weeks ago.
I have also been taking the opportunity in my travel outside Geneva to consult with Members – with ministers, senior officials and leaders.
In all these conversations I have sensed that people want to find a way forward – they know what is at stake for the multilateral trading system. People want to finish the job.
Our task now is to match our desire for progress with an acceptance of the practical steps we need to take to achieve it.
In my view we have reached the end of the first phase of this process.
It’s time to shift things up a gear.
We must now move into a second phase, focused on resolving the problems that we have been outlining – testing what went wrong and putting forward potential solutions.
Everything I’ve heard in recent days and weeks suggests that we now need to be deepening our discussions, and engaging in a more direct, purposeful manner in order to identify the best way forward.
Rather than restating old positions and aiming for our perfect outcomes, we have to accept that there are no perfect outcomes. Instead we have to focus on the art of the possible.
For example, some have been saying that we need to conclude our negotiations using the 2008 texts as they are. Of course these texts are an important – indeed fundamental – part of how to assess the situation.
They are the result of a genuine attempt by the respective Chairs to strike a balance and to move towards a zone of convergence acceptable to all Members.
However, despite their obvious contribution to the negotiations, Members could not agree on those texts when they were issued in 2008.
Members could not agree on them at that time, Members cannot agree on them now.
If any of you insists that those texts are cast in stone and unalterable, then you have made a choice; a choice that irreparably condemns our efforts to failure.
We therefore must resume our task of finding the balance and the convergence that would enable progress towards the conclusion of the Round.
Let me stress however, that while it is true that the 2008 texts are not agreed, I firmly believe that they can offer very useful parameters to frame our efforts in shaping a work program to conclude the DDA. We must build on the insights and recommendations contained in those texts. We cannot disregard all the work that was put into them.
So let’s use these texts as an important input to our work, but we have to look for solutions that can lead to convergence today.
Again, it is my view that we need to be creative in this exercise – rather than repeating well-known positions.
I don’t think that kind of discussion is conducive to where we need to go.
Instead, we need to test what options we have to find new solutions.
In carrying out our work in this phase, it may be helpful to recall the parameters from the TNC meeting in February, which many members have adopted:
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Balancing realism and ambition by focusing on what is doable
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Being creative and open-minded
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Recognising that the issues are interconnected so must be tackled together
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Being inclusive and transparent
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Maintaining our sense of urgency
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And keeping development at the heart of the efforts
As members begin to put forward concrete ideas and proposals, these parameters will be even more crucial. In my view they are the sine qua non of everything we are trying to do here.
And as we move into this new phase, I have asked the Chairs to further broaden their contacts with you and conduct increasingly focused conversations – aimed at identifying what we can do. Let’s concentrate on what is possible; on what is doable.
Unfortunately, every time I talk to a delegation about “doability”, I get the very same reaction from each and everyone of you. You all fear that “doability” is about taking the pressure off somebody else and keeping or increasing the pressure on you.
Let me assure you that, as far as I am concerned, “doability” is about finding a balance that works for everyone. So I suggest we put aside the conspiracy theories for the moment. I invite you to move into the second phase of our discussions with an open mind and in good faith.
We will only succeed if we are all equally unhappy with the final outcomes.
So please be prepared. I urge you all to remain fully engaged.
And don’t wait for the Chairs. Talk to each other – test out your ideas.
Let me assure you all that I do not have a magic solution.
But on the basis of my own consultations and what I have been hearing from Chairs, I am increasingly of the view that whichever approach we take, we will need to tackle the really tough areas of agriculture, NAMA and services.
I am increasingly of the view that we must look at these issues in a more integrated way than we have before. Of course agriculture is a central focus, as was made clear in the Bali Declaration itself, but we cannot hide from the reality that once we start talking about one of these issues, the other two inevitably come into play.
I am not for a moment suggesting that the round should be based only on these issues – but I think it is clear that if we do not make progress in the toughest areas first, then progress on other issues would be limited, if any.
This is why I am planning to intensify my own work in these areas, working closely with these three Chairs – and of course with the others as well.
I will certainly begin to consider what kind of approaches on these three core issues might be possible. I think we need to do this in a way that respects the levels of ambition inherent in the draft texts under discussion in 2008, but equally we need to do it in a way that respects the flexibility that was sought by many of you and which is also somewhat reflected in those texts.
Perhaps with some creative thinking – and openness to testing new possible solutions – we may be able to square this circle.
We have set ourselves a big challenge.
We are trying to get an automobile that has been stuck in the mud, at the bottom of a very deep lake for 6 years, up and running and back on the road.
We can’t just jump in and drive it away. It will take a lot of work – a lot of cleaning, a lot of oiling – but we can do it.
This phase of work will be tougher – so I urge you be ready to increase your engagement, and maintain the positive, constructive tone that we have seen so far.
As I have said – this is the moment to shift up a gear.
Time is passing quickly. We are already in the second quarter of the year. Our December deadline is not so far away.
But as long as we have engagement, I am sure that the task is achievable.
Thank you.
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Tanzania grapples with Bali Agreement trade challenges
Tanzania is working round the clock to see how it can best implement and gain from the challenging Bali WTO Agreement by making a needs’ assessment as well as working on trade facilitation awareness creation at ministry and stakeholder level. Trade facilitation is a main component of the Bali deal.
According to the WTO, the objectives of the trade facilitation deal are: to speed up customs procedures; make trade easier, faster and cheaper; provide clarity, efficiency and transparency; reduce bureaucracy and corruption, and use technological advances.
These are encompassed in more than 24 key disciplines of the Agreement, which also include reduced documents and formalities, utilising common customs standards, promoting use of single window and uniformity in border procedures and documents.
The Bali Trade Facilitation Agreement was hailed by the Office of the US Trade Representative as saving money, boosting trade and raising incomes worldwide. For Tanzania, the Agreement has brought some difficult challenges.
It is an open secret that Tanzania imports more and exports less. Eventual ratification of the Trade Facilitation Agreement within the next 12 months implies that Tanzania shall be compelled to import even more goods from developing countries, thus further threaten its ailing local industries and ignite job losses.
In January 2014, Tanzania recorded a balance of trade deficit of more than USD 450 million. This deficit can only be cleared by a huge increase in exports, a feat that is too difficult for Tanzania to accomplish as things stand at the moment, given its low capital base for local manufacturers, harsh loan conditions for factory owners, farmers and dairy industries; crippled train haulage services, chronic power woes and ever escalating power tariffs, among others.
Moreover, Tanzanian producers find it difficult to meet international competitiveness standards and other technical standards, this being an area which still needs a lot of capacity building.
Yet Tanzania is part and parcel of the global multilateral system, and is bound to adhere to this crucial international agreement. Quite interestingly, Tanzania was among LDC countries which played a key role in the signing the breakthrough agreement at the MC9 in Bali, Indonesia.
At the WTO headquarters in Geneva, where all member countries are represented at ambassadorial level, the LDC group at WTO have their own system. Every year they choose among themselves the LDC coordinator. Last year (2014) the coordinator was Nepal. This year it is Uganda.
But they also have LDC group focal points on different issues that the LDCs groups have to turn attention to. For example, last year on the run up to Bali, Tanzania was a leader of a group focal point on trade facilitation.
Trade facilitation was a big chunk of the Bali ministerial meeting in December 2013. In the run up to Bali, Lucas Songora, a senior diplomat in Tanzanian Embassy at the WTO headquarters, spearheaded the negotiations on trade facilitation modalities. He was recalled in November 2013, just a month before the Bali Ministerial meeting.
The work was thus capped by his successor at the Tanzanian Embassy in Bali. Songora is now the Director of Trade Integration at the Ministry of Trade and Industries. The Bali outcome is thus a clear reflection of increased LDC capacity to negotiate.
Some of the observers who have been at the WTO for a very long time say they have seen the strength go up very steeply in the latest years. Credit also goes to the WTO for its Joint Integrated Programme for technical assistance assessment of export and market potential (JITAP), through which it has been building the human capacity of LDCs on trade negotiations, legal capacity, development and implementation of trade policies and regulations etc.
In order to take advantage of the Trade Facilitation Agreement, Tanzania has no option other than increasing its exports, in spite of the aforementioned obstacles. For its existing products that are available for export, Tanzania must build its capacity to meet international product and service standards.
In that sense, the Bali Agreement is a blessing in disguise due the challenges it has brought. For the sake of boosting agricultural exports, more efforts need to be made for putting in place group certification agreements for Tanzanian farmers.
Discussing the issue, the immediate former vice-president of TCCIA Dar Regional Chamber, Mr Peter Lanya, says: “In Tanzania, the certification and accreditation process of crops is very expensive.
Attainment of crop standard and quality is largely the responsibility of government in the sense that it encompasses the availability of international standard laboratories. There is an organisation known as TAHOMA which deals with organic food certification, but it has no capacity to cover the whole country.
“The Tanzania Bureau of Standards provides certification services in phases, but has not reached the level of covering the whole country. This makes it impossible, for example, for a farmer in Rukwa who wants to export cereals to Zambia.”
Lanya further states that crop certification requires proper recording of crop standard, starting with farm preparation, planting etc. “The certifying authority monitors all these stages up to harvest and storage.
I therefore lack the understanding how TBS uses a professional method to arrive at crop certification. This is because agricultural crop history is vital for certification,” he says. There is also a problem on the side of EU and US authorities.
It is generally agreed that technical standards (Non-Tariff Barriers or NTBs) increasingly shape the conditions of market access. However, there is a feeling that much as developed countries have agreed to open up their markets for LDCs’ goods under the Bali Agreement, experience has shown that Non-Tariff Barriers (technical standards) are being used by the US and some EU countries as a tool to curb the flow of goods from LDCs, even though the standards are met.
“The issue was not properly addressed in Bali,” says Songora. At the home front, Tanzania is working to actualise the deal. Recently, a WTO facilitation seminar took place in Dar es Salaam, during which a needs assessment was made so as to help the country identify what they want in order to implement the Trade Facilitation Agreement.
The assessment has helped Tanzania to categorise the measures. These are:
(i) Measures which are already being implemented and do not need donor support.
(ii) Measures that need time to implement and do not need donor support and
(iii) Those which need time and donor funding to implement.
The draft of categorization still needs more work, and more meetings will have to take place before WTO is notified. The Ministry of Trade and Industry is working on trade facilitation awareness creation at ministry and stakeholder level.
Read the full article here.
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Africa, EU agree to work on outstanding EPAs issues
Africa and the European Union (EU) agreed at the end of the EU-Africa summit held in Brussels, Belgium last week, to continue working on outstanding Economic Partnership Agreements (EPAs) with the aim to foster intra-African trade, Africa’s regional integration efforts and the planned Continental Free Trade Area (CFTA).
Prime Minister Hage Geingob represented Namibia at the summit. Namibia currently enjoys free access to the EU market. Namibian products whether industrial or agricultural, do not pay duties at the EU’s borders and are not subject to quotas. But the country has so far refused to sign the interim EPA agreement and is seeking for more favourable terms.
“In this regard, both parties should continue negotiations on EPAs by exploiting all the possibilities to reach a satisfactory conclusion of development oriented and World Trade Organisation compatible EPAs that promote African integration, economic transformation and industrialisation, and ensure the prosperity of nations to the benefit of both continents,” a communique released at the end of the Brussels meeting said.
Competitive industries
The statement said it is important that Africa and Europe develop globally competitive industries that can succeed in today’s global markets and contribute to sustainable development.
“EPAs should be structured to ensure that our trade expands and that it supports growth of intra-regional trade in Africa,” the communique said.
The EU and North African countries are also committed to continue bilateral negotiations for Deep and Comprehensive Free-Trade Areas that will expand market access in areas not yet fully open, the communique said.
“We will explore modalities to exchange information on the implementation of trade agreements and their implications for Africa’s regional integration and industrial development agenda. It is time for a fundamental shift from aid to trade and investment as agents of growth, jobs and poverty.”
The EU and Africa agreed cooperate more closely in the field of maritime policy, especially blue growth, protection of the marine environment and biodiversity, maritime transport and maritime safety and security.
Climate change
The EU and Africa said they were determined to adopt, in Paris in 2015, a fair, equitable and legally binding Agreement under the UN Framework Convention on Climate Change and guided by its principles, which will apply to all parties and come into effect by 2020 at the latest.
“The EU recognises that developed country parties should maintain continuity of mobilisation of public finance at increasing levels from the fast-start finance period in line with their joint commitment of mobilising US$100 billion per year by 2020 from a wide variety of sources in the context of adaptation and meaningful mitigation and transparency of implementation.”
Fast track
The EU pledged its support to the African Union decision to fast track the establishment of a CFTA in Africa and offered to draw on its experience of building the single market to provide capacity support to this initiative.
The communique said serious social and human impact of irregular migration should be effectively tackled in a comprehensive way, including by addressing its root causes and among other means by ensuring an effective and concerted return policy between countries of origin, transit and destination.
“We are appalled by the loss of life caused by irregular migration and remain more than ever committed to further action to avoid such tragedies in future. We reiterate our unambiguous commitment to continue fighting trafficking in human beings, which is a new form of slavery.”
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Revised WTO Agreement on Government Procurement enters into force
The revised WTO Agreement on Government Procurement (GPA) entered into force on 6 April 2014, some two years after the Protocol amending the Agreement was originally adopted. The parties to the revised GPA will see gains in market access of an estimated US$ 80 billion to US$ 100 billion annually for their businesses.
The gains in market access result from numerous government entities (ministries and agencies) being added to the scope of the GPA and from new services and other areas of public procurement activities being included in its expanded coverage.
The Agreement’s text has been streamlined and modernized to include, for example, standards related to the use of electronic procurement tools. Other changes include a new provision relating to the prevention of corrupt practices in the parties’ procurement systems. The revised GPA also reinforces the scope provided by the original Agreement to promote the conservation of natural resources and to protect the environment through the application of appropriate technical specifications.
Two-thirds of the parties to the GPA were required to accept the Protocol of Amendment before the revised GPA could enter into force. This condition was met when Israel approved the Protocol on 7 March.
The revised Agreement is now in force for the first ten parties to have accepted the Protocol of Amendment. Listed in order of acceptance, these are Liechtenstein, Norway, Canada, Chinese Taipei, the United States, Hong Kong (China), the European Union, Iceland, Singapore and Israel. The revision will come into force for Japan on 16 April 2014.
The entry into force of the revised GPA fulfils ministers’ undertaking at the Bali Ministerial Conference in December 2013 to try their best to achieve this goal within two years of the adoption of the revised Agreement. The Chair of the Government Procurement Committee, Mr Bruce Christie of Canada, congratulated the parties and said that the timely coming into force “augurs well for the Agreement’s future as an increasingly important element of the framework for global trade”.
WTO Director-General Roberto Azevêdo had earlier noted: “This is a very welcome achievement. The revised WTO Agreement on Government Procurement will open markets and promote good governance in the participating Member economies. The fact this has been achieved so quickly shows the importance that the Parties attach to the GPA and is further evidence, after the successful Bali Package, that the WTO is back in business. The modernized text of the revised GPA and the expanded market access commitments should prompt other WTO Members to consider the potential advantages of joining.”
The revised Agreement also incorporates improved transitional measures to facilitate accession to it by developing and least-developed economies. In addition to the 43 WTO members that already participate in the GPA (including the European Union’s 28 member states), ten other WTO members – Albania, China, Georgia, Jordan, the Kyrgyz Republic, Moldova, Montenegro, New Zealand, Oman and Ukraine – have applied to join. A further five WTO members – the former Yugoslav Republic of Macedonia, Mongolia, the Russian Federation, Tajikistan and Saudi Arabia – have provisions regarding accession to the Agreement in their respective WTO accession protocols.
Background
The Government Procurement Agreement ensures that signatories do not discriminate against the products, services or suppliers of other parties to the Agreement with respect to the government procurement opportunities that are opened to foreign competition. The Agreement also requires transparent and competitive purchasing practices in the markets covered. The GPA is a plurilateral agreement, which means that it applies only to those WTO members that have agreed to be bound by it.
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Obama’s African trade problem
An important trade agreement with Africa is causing headaches for the administration.
With the first ever U.S.-Africa Head of State Summit inching closer by the day, the Obama administration has a problem: the African Growth and Opportunity Act. The act was passed in 2000 and it is set to expire this year. It is the only Africa-specific economic development and trade agreement legislation ever passed by Congress, and it has been the cornerstone of our overall policy towards Africa for the past 15 years.
Some have called it the North American Free Trade Agreement for Africa, but it differs significantly from NAFTA, which essentially provides two-way trade and investment. The African Growth and Opportunity Act, meanwhile, was designed exclusively for African development and as a political incentive tool, primarily by opening the U.S. market to African products. Unlike NAFTA, there was never an agreement of reciprocity. Indeed, that would have required a different agreement with each of the nearly 40 African nations that qualified, an impossibility in 2000 and not much easier now.
With the exception of textiles, however, the African Growth and Opportunity Act has been rather ineffective as a development tool and trade between Africa and the United States has not increased significantly. For the most part, Africa has lacked the infrastructure capacity to use the act, and some would also say that the political will to make those changes has been slow in coming, as well.
This is no secret to the Africans nor to all but the most ardent supporters of the act. Yet for years, both sides have praised it, citing statistics that have included oil in the figures. The problem with including oil is that it was almost entirely tariff-free before the act, and there has been little benefit to the oil industry since its passage. Oil comprises about 93 percent of all African Growth and Opportunity Act trade figures. For that reason, the more cynical often believe that it was simply a tool for the oil industry. In this political era, it is not easy to dismiss the cynics, but in this case the cynics are wrong. The oil companies benefit little from the act and eliminating it would not affect their bottom line measurably.
The administration’s problem, then, is two-fold. If the act is not renewed before the summit in August, the U.S. stands to be embarrassed, bringing together nearly every leader in Africa while it still looks uncertain if the main U.S. policy anchor towards Africa will be continued. The Obama administration will need to have a package that would either replace the act, or be able to reassure Africa that its interests are better served through relations with the U.S. over China, Europe, the so-called “BRICs,” India and the Middle East, all of which are putting significant investment and incentives into Africa. To many in Africa, no renewal, perhaps unfairly, equals a sign of a lack of commitment by the Obama administration to Africa.
The second part of the dilemma is what to do with oil in the act’s formula. Many believe that oil should not be a part of the statistics. Its inclusion gives the impression that the act is only about oil, when in fact that was never the intention. The statistics become more accurate and useful without the inclusion of oil. However, they also become significantly lower too, raising the question of whether the act should be continued. Plus, if one removes oil from the equation, then Nigeria and Angola, sub-Saharan Africa’s two largest oil producers, may both feel that they are unfairly being penalized by the administration. Having two of Africa’s fastest growing and largest economies feeling that way wouldn’t be helpful to our political relations either. Nigeria is a key to our security concerns in Africa, and the Angolans are playing an increasingly positive role as mediator and benefactor in the war-torn Congo area.
The decision whether to include oil in the act’s formula will largely be within the realm of the U.S. Trade Representative Michael Froman. The decision whether to extend the act at all, meanwhile, will be Congress’, where many lawmakers are skeptical of its worth, particularly when we seemingly receive little benefit to our own economy. Some argue for a two-year extension of the current trade agreement, giving the administration time to set in place a more effective trade regime with Africa, while also saving face at the summit. Others say that to do this solves nothing.
What is clear is that work behind the scenes between Congress and the administration will be intense over the next three months. Our relationships with Africa for years to come may depend how adeptly the administration handles the African Growth and Opportunity Act and prepares for the U.S.-Africa Summit.
Stephen Hayes is president and CEO of the Corporate Council on Africa
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Global perceptions key to competitiveness and foreign investment
Creating a favourable global perception of South Africa can go a long way to attracting foreign direct investment. As a result, government stakeholders would like to broaden the country's image beyond mining and tourism to bring investors from a wider range of sectors.
Managing perceptions of South Africa is essential to increasing the country’s global economic competitiveness and attracting foreign investment. This was the key message coming out of a seminar hosted by Brand South Africa at Wits Business School in Johannesburg on Wednesday 2 April, titled International Perceptions of South Africa in a Complex Emerging Market.
Petrus de Kock, Brand South Africa’s research manager, said the country’s competitiveness in an increasingly globalised world depended on understanding how it was perceived by its trading partners, both traditional markets and the emerging markets set to drive global growth in coming decades.
De Kock presented findings from a 2013 survey to determine the world’s perception of South Africa. This questioned 860 investors in 18 countries, including the US, UK, Nigeria, Kenya and Japan, as well as South Africa’s Brics partners Brazil, Russia, India and China. It also aimed to find out what drove investment decisions, identify barriers to investment in South Africa, and determine which industry sectors investors associated with the country.
Familiarity, said De Kock, played a major role in shaping perception among both established and potential investors. At least 61% of respondents were familiar with South Africa to varying degrees, 32% were investing or doing business in the country and 87% had heard, read or seen something recently about the country. “It is a relatively high level of awareness. People among that group know about us, which is important.”
Brand South Africa interviewed 860 businesspeople from 18 countries to determine South Africa’s global perception. The weight factors applied to the final data are based on each country’s GDP figures.
South Africa’s infrastructure a major investment attraction
A main concern foreign investors have with South Africa is its geographical distance from major markets. But De Kock said the country’s developed infrastructure could overcome the issue of distance. The World Economic Forum, he said, ranked South Africa 11th in the world for the quality of its air transport infrastructure, and the country can confidently claim to be a hub for trans-shipment, logistics and services.
The survey backed this up: despite their concerns, investors were attracted to South Africa for its infrastructure.
But infrastructure, De Kock said, remained a concern for local businesspeople. “Last year, in preparation for the South African Competitiveness Forum, we had lots of input from the manufacturing sector and many other sectors, and often the issue of infrastructure would come up. However, what I do think we should have is a balanced view of what already exists within the country.”
Examples of thriving and sophisticated infrastructure, De Kock said, included Richard’s Bay, the biggest export hub in the southern hemisphere, and the Dube trade port being built between Durban and Richard’s Bay. “We are constantly adding to the infrastructure capabilities to unlock some of those bottlenecks that we have, especially for some of our mineral products.”
To further gauge global inventors’ general knowledge of the country, Brand South Africa questioned respondents about the Square Kilometre Array. Eighty-percent were aware of the massive telescope project, with 44% well-informed about it. “It’s such a big story for us as a country and it’s a very important selling point in terms of our national capability.”
The survey also asked about the Trilateral Free Trade Area (TFTA), a pending agreement between the Southern African Development Community, East African Community and the Common Market for Eastern and Southern Africa to open up borders. Around 33% said they were aware of the TFTA; 90% of those agreed that such a pact would create opportunities for increased interaction, trade and investment.
Dr Shima Nokaneng, the group executive of Business Intelligence at the Gauteng Growth and Development Agency, said the TFTA was a huge drawcard for foreign investors looking to do business in Africa. When the TFTA was fully implemented, he said, investors would be able to freely trade between 26 countries in eastern and southern Africa.
Despite South Africa’s attractions for investors, the survey found there were concerns that might prevent investors from doing business here. Their main worry was crime, of which 17% were aware. Political corruption (16%), safety and security (7%), high costs and low profit margins (6%), and geographical distance (5%) were the other factors that caused concern.
But, De Kock said, there was a difference between the concerns raised by those not invested in South Africa and those with a presence here, as the latter had exposure to the market. Intervention was required to dispel those concerns, De Kock said. “It’s the kind of intervention needed to bring people from a state of semi-knowledge about the country through a structured process into learning about how we work and what the country offers.”
Sectors associated to South Africa
Most investors still associate South Africa with mining and quarrying, said De Kock, even though this sector only constitutes 7% of the country’s GDP. “It’s only for historic reasons we have this association with mining and quarrying.”
Agriculture was the second highest sector associated with South Africa, followed by tourism, which De Kock said dropped in perception from 49% in 2012 to 44% in 2013.
Awareness of manufacturing increased from 29% in 2012 to 36% in 2013, but the wholesale and retail trade dropped from 36% to 28% in the same period. “Last year, we saw quite a dramatic spike in the association to retail because in the year before that [2012] there was a lot of news about the Walmart deal in the global press. So this year we're just seeing a tapering off of that awareness,” De Kock said.
South Africa has seen significant changes in the sectors associated with the country. In recent years, manufacturing has become increasingly associated with South Africa.
Perception key in global competitiveness
An important component of a country’s global competitiveness is its reputation, which is largely tied to perception. For De Kock, there is no single answer to what defines the reputation of a country. “The answer will differ from market to market, and even sector to sector depending on who you are dealing with and what they are exposed to in terms of knowledge about the country.”
Nokaneng called for action to improve the country’s competitiveness. He that for South Africa to grab the new growth opportunities elsewhere in Africa, the country would need to be competitive in a number of sectors. To do that, it would have to improve some of the competitive pillars the World Economic Forum identifies in its global competitiveness index. These include quality of institutions, infrastructure, health and education, labour market efficiency, macro-economic environment and financial market development.
In the WEF’s 2013-2014 Global Competitiveness Report, South Africa was ranked 53rd out of 148 countries based on the competitiveness index. It was the leader in five criteria including strength of auditing and reporting standards, efficacy of corporate boards, protection of minority shareholders’ interests, regulation of securities exchanges, and the legal rights index.
South Africa had improved in four of the 12 competitiveness pillars – institutions (41), goods and market efficiency (28), and business sophistication (35).
The country also made progress in the innovation pillar, improving by three positions to 39 this year. Despite this, Nokaneng said, the country was not as ready as it should be when it comes to technological innovation. “Other regions have surpassed us. Countries, especially in Africa, like Rwanda and Kenya, are moving faster in terms of technological development.”
Nokaneng said technological readiness attracted investors as it allowed them to expand their market. South Africa needed to commercialise and patent more of its business-enhancing innovations.
The structure of the country’s economic profile would be changed by innovation, Nokaneng said. In WEF’s report, South Africa was considered an efficiency-driven economy, focused on resources. But by allocating and using its resources productively, he said, it could head towards the next level – an innovation-driven economy.
Mogotsi of the City of Johannesburg, referring to the South African Competitiveness Forum Research and Outcome Report, said that there was something missing in the country’s innovation. In the report, South Africa ranked cost and availability of labour and materials as its major competitiveness driver. But Mogotsi pointed out that, in the same report, the rest of the world ranked talent-driven innovation as the leading driver of competitiveness. “Is this because there is something really special about manufacturing in South Africa that is different to what’s happening in the global environment? I think we’re missing something about innovation.”
He added that a lot of countries view competition as both between countries and something that took place within its borders. “Many cities are positioning themselves as the best [in certain fields]. For instance, Barcelona is a creative city and it attracts the best creative talent from all over the world. It said, ‘If you want to run a creative business, the best place you could operate from is Barcelona.’“
China’s story in the last 20 years has been about manufacturing, said Mogotsi. What, he asked, was South Africa’s story? “Good capital is already aggregated here. Financial services talent is here. A great deal of mining talent and mining technology capabilities are here. So what else do we need in the mix to attract [foreign businesspeople] in order to make this a competitive place for business?”
Read the full article on the Media Club South Africa website.
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On bumpy roads and rails
Unprecedented investments in Africa’s ground transpor-tation are hardly enough.
The Democratic Republic of the Congo (DRC), which sprawls over 905,000 square miles, is the second largest country in Africa. Fifty-four years after independence, the DRC has few roads connecting one end of the country to the other. In fact, the only way to travel between two distant points is by air and canoes. Many Congolese cannot afford air travel, and most feel as if their country is made up of different countries.
But imagine multi-lane tarred roads linking Kinshasa in western DRC to Goma in the east, or roads and railway lines from Cape Town in South Africa to Cairo in Egypt, and from Dakar, Senegal to Nairobi, Kenya. Just imagine the endless possibilities that would bring.
Improving road and rail systems in Africa will boost the transportation of goods and raw materials, facilitate transactions and negotiations, especially when face-to-face meetings are required, boost tourism and positively impact ordinary lives in diverse ways such as ensuring that people get to the hospital quickly during emergencies, for example. Countless other activities depend on reliable roads and rails.
Most of Africa’s railway lines and roads are in bad condition and need huge investments, according to the African Development Bank (AfDB). The proportion of paved roads on the continent today is five times less than those in developed countries, notes the Bank. As a result, transport costs alone are 63% higher in Africa than in developed countries, hampering its competitiveness in the international and local markets.
The AfDB further points out that transport costs represent between 30% and 50% of total export value in Africa. These costs are even higher in 16 landlocked countries, including Zimbabwe, South Sudan, Mali, and Niger, and constitute up to three-quarters of their total export value.
Poor roads and railways also have a negative impact on intra-African trade, which is currently just 11% of total trade. Development experts believe this figure might have been higher with better roads and railway lines. Trade among Southeast Asia’s 10 countries, at 37%, is much higher than in Africa, for example.
Railway lines in most African countries were built during colonial times to connect mines and other natural resources to ports. In fact, most of the lines were constructed by mining companies. Even now, passenger services account for no more than 20% of rail traffic, says the AfDB. Over the years, passenger business has been shrinking steadily, viable only when road networks are inadequate or non-existent, it says. According to the bank, the costs of maintaining rail tracks and signalling systems, and the level of spending needed to reach passenger speeds, run into billions of dollars and, if not subsidized, passengers would be unable to afford to pay for operating costs alone.
Programme for infrastructure development
With Africa’s economy growing at 5% a year on average, African leaders worry that without a good road and rail network, such impressive economic growth may not translate into real socioeconomic development for Africans. In order to turn the situation around, they established the Programme for Infrastructure Development in Africa (PIDA) in July 2010. An initiative of the AfDB, New Partnership for Africa’s Development (NEPAD), and the African Union, PIDA is an ambitious effort to boost African infrastructure, including rails and roads.
Ibrahim Mayaki, the chief executive officer of NEPAD, says PIDA was designed to transform Africa and bridge its massive infrastructure gap. “At the moment,” he noted, “Africa is the least integrated continent in the world, with low levels of intra-regional economic exchange and the smallest share of global trade.”
One of PIDA’s remarkable projects is the construction of the 4,500 km Algiers-Lagos highway. Also known as the Trans-Sahara highway, the project is already 85% finished and the remainder is expected to be completed this year, according to PIDA. Upon completion, the highway will create a corridor through the desert that will facilitate trade between North Africa and sub-Saharan Africa. This means countries such as Nigeria, Algeria and Niger will be able to conduct trade by road transport easily. Historically, the Sahara Desert has hindered trade between the two sub-regions.
Many other rail and road construction projects are underway across Africa. In Kenya, a $25 billion infrastructure development plan, including a road construction that links Kenya to South Sudan and Ethiopia, was recently launched by the governments of the three countries. In addition, the AfDB is financing several roads projects in Central Africa.
State of rail transport
Today, only South Africa has a fairly good railway system, according to the World Bank. Before the FIFA World Cup in 2010, South Africa revamped its railway system, including the new underground commuter train between Pretoria and Johannesburg. Some mining companies in Africa also have dedicated railway lines for transporting their goods. For example, African Minerals, a company mining iron ore in Tonkolili Province in northern Sierra Leone, has invested up to $2 billion in mining and rail infrastructure, according to Africa Review, a Kenyan publication.
Most rail networks in Africa are as old as 100 years and have not been upgraded since they were first constructed in colonial days due to lack of funds. These networks cannot meet the demands of modern times, says the AfDB. “Most lines are low-speed, small-scale, undercapitalized networks carrying low axle loads.”
Big projects and China
China is throwing a lifeline for Africa’s railway infrastructure. Some 2,000 Chinese companies are in Africa and many of them are heavily involved in roads and rail construction, reports Der Spiegel, a German newspaper. A study by PricewaterhouseCoopers (PwC), a global finance company, says that China’s goal is to take advantage of the increasing growth of African markets. In the DRC, two Chinese construction companies and a copper company, all state-owned, have signed a $9 billion contract for the construction of a rail and road network, which is more than the DRC’s entire national budget.
Rail infrastructure in Angola, one of China’s top oil suppliers, is rapidly expanding as part of an ‘infrastructure-for-oil’ trade agreement between the two countries. Kenya recently signed a $5 billion deal with China to construct a 952-km rail link from the city port of Mombasa to Malaba, a town near its border with Uganda. This is expected to be extended to Rwanda, Uganda and Tanzania by 2018. And that is not all. In September 2012, the China Railway Construction Corp. (CRC) signed a $1.5 billion contract to rehabilitate a railway system in Nigeria. The CRC has ongoing projects in Djibouti, Ethiopia and Nigeria worth about $1.5 billion in total.
China South Locomotive and Rolling Stock Corporation, a major train manufacturer in China, is bringing $400 million worth of locomotives to South Africa. And China’s Export-Import Bank is financing the Mombasa-Nairobi railroad line with $4 billion, while the Addis Ababa-Djibouti line is being rehabilitated at a cost of $3 billion.
Investing in infrastructure
Raising enough finance for infrastructure development is one of the key challenges facing Africa’s expanding economies. Although most state-owned railroads have been privatized in recent times, and many conceded to programmes funded by international financial institutions, leading to increased traffic volumes, only a few railway systems are able to generate sufficient revenues to fund significant track maintenance. The AfDB recently announced plans to launch a pan-African infrastructure bond totalling about $22 billion. Part of this money will be ploughed into rail and roads projects, most of them in East and Central Africa.
There have been suggestions that governments and the private sector could develop infrastructure in partnership. Examples of successful public-private partnerships are the Citadel Capital of Egypt, the largest investment company in Africa and the Transcentury of Kenya, a company that is involved in infrastructure projects. These efforts are supported by African banks, which are coming up with innovative products, such as syndicated loans, that provide the necessary financial support. The banks are also bringing on board development finance institutions such as the German Investment Corporation, Netherland Development Finance Company, Industrial Development Corporation of South Africa, as well as transnational finance institutions such as European Investment Bank, the International Finance Corporation and the AfDB.
Ongoing rail and road projects will help accelerate Africa’s industrialization efforts, says Dr. Mayaki. Experts add that there has to be a transfer of knowledge to local managers, local experts and local workers. This means that when the expatriates leave, locals can continue to maintain the infrastructure. The urgent task now is to commit more resources to improving Africa’s rail and roads networks. Without good roads and railways, industrialization is impossible.
This article appears in the April 2014 edition of Africa Renewal, published by the United Nations.
» Infrastructure is key to progress | Africa Renewal, April 2014 (PDF, 7.9 MB)
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New era as one-stop-post starts at Tanzania and Kenya border
One-Stop-Border Post (OSBP) means placing border officials of two adjoining countries at each other’s adjoining border post so that each border post controls only the traffic entering the country and not the exiting one.
Tanzania and Kenya have OSBP system at Holili-Taveta. Of late the post has produced desired results by reducing 30 per cent.
The Holili border currently serves between 40 and 50 trucks a day but the volume of traffic is likely tosignificantly increase up to between 400 and 450 trucks once the Voi -Taveta part of the road is upgraded. This is according to Trade Mark East Africa (TMEA) that funded the project.
The increase in traffic is likely because the distance by road from Mombasa to Himo junction in Tanzania is much shorter (by about 472 kilometres) compared to the much longer distance from Dar es Salaam to Himo junction (935 kilometres).
Journalists from Tanzania and Kenya who visited Holili and Taveta witnessed a handful of trucks from Mombasa port offloading goods, including the cars for clients from Northern Regions of Tanzania.
The introduced system will take place at the border post of Taveta in Kenya and Holili border post in Tanzania, of which the Kenya Revenue Authority (KRA) and Tanzania Revenue authority (TRA) are the leading agencies in implementing the project.
The OSBP project is funded by the Trade Mark East Africa (TMEA) and the operation of the system to the funded area will start immediately after the signing of bilateral agreement.
At the end of lat year the media visited the project at Taveta in Kenya along the Voi road and about 285 kilometers from Mombasa. The Holili building is completed while the one for Taveta is expected to be ready by the end of May.
Theo Lymo, a Trademark Director of Integrated Boarder Management based in Nairobi said the time reduction in clearing cargo will in turn increase in intra-regional and foreign trade in East Africa.
Lymo said the main aspect of the OSBP concept is that traffic crossing the border stops once instead of stopping at the border post of exit for formalities and at the border-post of entry for entry formalities.
“One stop is achieved by placing the border officials of two adjoining countries at each other’s adjoining border post so that each border post controls only the traffic entering the country and not that exiting,” he elaborated
He added that exit formalities of the exit country and the entry formalities of the country are carried out at the border post in the country of entry and the Traffic to either direction will thus bypass the exit border post and go directly to the border post of entry in the other country.
The system will start as soon as bilateral agreements are signed. Tanzania has already finished with the text, and in Kenya the matter has been submitted to the cabinet for approval.
According to TMEA, OSBP projects on each side of the border are completely independent of each other. This means that OSBP arrangements can start only when construction on both sides is completed.
However, border agencies have decided that once construction on one side is completed one stop controls should start on a pilot basis.
This will enable the two countries concerned to reap the benefits of OSBP arrangements before construction on both sides is completed.
In this regard three pairs of OSBPs are expected to implement one stop arrangements by June 2014: Holili-Taveta OSBPs will be fully operational by June 2014 as construction on both sides will have been completed.
The Holili OSBP has been fully furnished: all the furniture is in place, computers have been delivered and installed with the software of the agencies concerned, and wide area networks (WANs) and local area networks (LANs) have been installed and tested.
It has been agreed with JICA that their Real Time Monitoring (RTM) and Cargo Clearing Systems, which would enable border agencies at the OSBP to share data, will be rolled out to the Holili-Taveta OSBPs following the piloting of the systems at the border posts of Namanga.
Given the poor condition of border posts in the region, the introduction of OSBPs also carry out upgrading and modernising parking for trucks and office accommodation, and provision of inspection sheds and special facilities required by border agencies, such as ramps for offloading vehicles from trucks or containers, animal holding buildings, incinerators and isolation rooms for people with notifiable diseases.
Speaking during the visit, TMEA Director of OSBP Sjorerd Visser said the project at the side of Holili, Tanzania, has been completed since December last year, costing $ 5.7 million, the same amount being spent by TMEA for Taveta-Kenya project which is in progress.
Sjored noted that TMEA is providing funding and technical support to facilitate implementation of integrated border management system jointly with border agencies.
The project focuses on setting up institutional and legal frameworks necessary for increasing collaboration in boarder management at inter-agency and bilateral levels, reviewing and implementing one stop border post procedures, training boarder agency officials and installing Information and Communication Technology (ICT) networks, hardware, furniture and equipment.
Integrated Border Management (IBM) is a framework for increasing collaboration among agencies responsible for border controls. The IBM framework is useful for establishing OSBPs as it lays down areas of collaboration among border agencies. It is also useful as tool for bringing together agencies with a stake in border controls.
For the OSBPs of Holili (Tanzania) and Taveta (Kenya), for example, about thirty ministries, departments and agencies are involved.
However, in a 30 minutes tour inside the Holili border post building the media personnel witnessed a number of facilities. Daniel Muturi, a Programme Manager for Integrated Boarder Management (IBM) showed media how the offices will be used by officials from both sides of the country, the same system which will be applied at the Taveta border post.
The building consist double offices for officials from Tanzania, for example, the Immigration or TRA officers and counterparts -Kenya Immigration and KRA.
Meanwhile, Mombasa-Voi-Taveta-Arusha road is one of the alternative transport corridors in East Africa that link the northern corridors at Voi,160 kilometres to the central corridor at Dodoma and Singida via Arusha.
Efficient movement of goods and people through the two border posts is critical to facilitate trade within the region.
After full implementation of OSBP arrangements or implementation on a pilot basis, a tentative survey of clearance times will be carried out, together with a user satisfaction survey.
However, the IBM project will continue for another six months to enable TMEA to support review of OSBP procedures and processes with a view to their simplification or integration where feasible. At the end of the period, a final survey of traffic and clearance times will be carried out and the project closed.
TMEA will work with border agencies and other development partners like JICA and IOM to take care of the training needs of border officials. It will support training needs assessment at border posts to establish the institutional and personal needs of border officials.
Training will include OSBP induction courses for border officials and CFAs. Border agencies have also pointed out the need for all border officials to be familiarized with the responsibilities of all border agencies and how they work at the border.
Officials agencies at the border will need short training on Microsoft applications, especially Word, Excel, PowerPoint and Outlook. All officials will also benefit from training in Risk Management in cross border clearance and in security risk assessment.
Meanwhile, Traders who import goods from various countries have called up on the Tanzania Revenue Authority (TRA) to modernise their system used in clearing cargo so as to reduce the cost incurring by traders for waiting documents from TRA.
On Tuesday, this paper interviewed a number of traders at the Holili-Taveta. They claimed they wait for up to one month for documents from TRA headquarters because of ‘slowness’ of the system used.
Emanuel Justin (36) a Moshi resident and traders who import goods via Holili-Taveta border post told this paper that, for the cargo to be released they have to wait for their documents from TRA headquarters in Dar es Salaam for clearance. Said Justin said: “But we spend a lot of time for waiting feedback and when we query why the delay they tell us to be patient because the system is down.
“We spend a lot of money to import goods for profit but instead we suffer much at the border, spend more money on accommodation… we thereby lose and this is disappointing us.”
John Vuo (33), a driver who uses Holili-Taveta boarder post expressed disappointment. “I came here on Sunday last week (March 23), I have been told to wait for government permission for my cargo to be released as they said the system is slow.”
Meanwhile some of traders have raised their concern over the cargo owners who delayed to take their cargo.
Rashid Bakari (26) told The Guardian that sometimes they wait for two weeks at the boarder for the cargo owners.
Bakari said that truck drivers did not know the owners as most of them were known by the clearing and forward agencies, adding that most of traders who importing goods used to shunting the cargo at the border.
It is so because it is expensive for the truck from outside the country to get in another country. He proposed the government should put a new law that will force the owners to shunt their cargo as in the case with Kenya.
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EU, Africa shift focus to trade
Trade, security and migration top the agenda at biggest summit ever staged by the EU.
Africa and the European Union have agreed that “it is time for a fundamental shift from aid to trade and investment as agents of growth, jobs and poverty reduction”, a strong declaration intended to reinforce efforts to reframe the two continents’ relationship as a “partnership of equals”.
The statement is just one of 63 points of agreement set out by EU and African leaders at the end of a two-day summit in Brussels, but the two continents’ shift in focus reflects a desire by both sides to move beyond an agenda historically dominated by development aid and a wish to establish a relationship that is more strategic, economically and politically.
The leaders met at a point when Europe’s economy has been in, or emerging from, crisis for six years, while the pace of Africa’s economic growth has eclipsed Asia’s for five years.
Despite the perception that relations between the EU and Africa have been too narrowly based, the leaders stated that “we take particular pride in the breadth and depth of our partnership”. The range of the EU’s and Africa’s co-operation is seen by many European officials as an particular advantage that Europe has over China, the United States and other large economies, including Brazil and India, that are now very active economically in Africa.
The leaders emphasised that policies to promote growth should be “based on agriculture, green growth, industrialisation and value addition, the development of economic infrastructure and the service sector”. The stress laid on the importance of “transformation and value-addition of raw materials at the source as a catalyst for industrial development” is an implicit rejection of a model that China is commonly perceived of pursuing in Africa – of exploiting Africa’s natural resources without helping development of the local economy – but similar criticisms are routinely levelled at Western mining and energy companies. The declaration says that the two sides should engage in a “dialogue” about “responsible mineral sourcing”.
Africa’s economic potential was a common theme touched on at the summit, including by countries – such as Slovakia – with few historical or economic ties to Africa. Slovakia was one of just six EU countries not represented by a head of state or government, but its foreign minister, Miroslav Lajčák, talked of the summit of the “huge opportunities” offered by Africa.
The summit was the biggest top-level event ever staged by the EU. Of the two EU’s and Africa’s 82 states, 80 were represented, with 61 presidents or prime ministers attending.
Migration
The two continents did not announce major initiatives. The intention, rather, was to cement a political consensus that reflected African calls for the relationship to be put on a new footing, with Africa in the lead. Nonetheless, the declaration, and an accompanying 75-point ‘roadmap’, indicates a large number of areas in which the EU and Africa will place extra emphasis.
Policymakers had originally hoped even more political guidance would emerge. They had been working in a very hectic run-up to the summit on specific declarations on climate change, agriculture, migration, the international agenda on development and (at one point) on food security. However, only one specific additional declaration was made, on migration, an issue that is one of the principal EU-African relations for many European states.
The declaration says the two continents will strengthen efforts to limit illegal migration, to create more routes for managed migration, and also made a promise to ensure that migrants and their families enjoy more of the fruits of their work, by committing themselves to “stepping up efforts to significantly reduce the costs of remittances”.
The summit did not revise the joint Africa-European strategy adopted in 2007 and reaffirmed at the last summit, in 2010. Policymakers had felt, instead, that the focus should be on making collaboration more effective, a feeling made explicit on occasion in the summit’s documents. “Some of the technical expert structures have not always been efficient,” the roadmap noted.
Security
One area where European officials believe the two continents are now co-operating well is in security, but the summit indicated that the de facto division of labour – with Europe paying much of the bill for African Union military missions – will be adjusted, with Africa contributing more funding than in the past. “We agreed to sustain the level of resources available to [the EU’s African Peace Facility, used for funding African military missions] and to seek ways of redefining targets, while complementing it with African resources,” the declaration states.
The weaknesses of the EU’s own military contributions in Africa emerged in discussions about the Central African Republic, where France and the African Union have had peacekeepers in place since late last year. The EU gave its preliminary go-ahead for a military mission in January, but failure by EU states to provide logistical support meant that the mission was only formally launched on 1 April – on the eve of the summit and amid an upsurge in violence that had prompted many thousands to flee the capital, Bangui, despite the presence there of international peacekeepers. The crisis resulted in 25 states holding a mini-summit devoted to the Central African Republic in the hours before the main summit began yesterday afternoon.
The debate about the crisis in central Africa was, however, accompanied by a potentially announcement by France’s President François Hollande and Germany’s Chancellor Angela Merkel, who said that Germany and France were now “are seeking to be a motor” for security and development in Africa. Germany was on “a new path”, Merkel said. France has historically been the European state most willing to use its troops in Africa, while Germany has been reluctant to go beyond providing funds and technical or logistical support.
The UK – a greatest European power in Africa during the colonial period and France’s closest military ally in Europe – was represented only by its foreign minister.
Development
EU officials and diplomats repeatedly emphasise the significance of security as a precondition to achieving the EU’s objectives of helping Africa’s development, boosting trade and managing the flow of migrants. The UN estimates that by 2050 one in three births will be in Africa. While population growth has contributed to the expansion of Africa’s economy, it has also focused European policymakers’ minds on the challenge of how to ensure that enough jobs are created for young Africans in Africa, encouraging the shift in focus from development aid to trade, investment and industrialisation.
The economic potential for Africa it can harness its population growth and continue to develop its social services – specifically, health care – was brought to the fore by the president of Mozambique, Armando Guebuza. Addressing a side-event whose audience included the UN secretary-general and a range of African presidents, Guebuza said that “in this century, we will be reaping the demographic dividend but also the disease-free dividend”. He was referring primarily to malaria.
The president of the African Union Commission, Nkosazana Dlamini-Zuma, identified health as an issue that must be made central to the EU’s and Africa’s discussions with the United Nations about the long-term development agenda. “Health encompasses every aspect of development,” she said. “Health can be a fulcrum around which we can look at development.”
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Competitiveness and economic transformation – Africa’s imperative
Africa has recorded robust economic growth since 2001 with average gross domestic product (GDP) of 6.0 per cent that has outpaced the rest of the world, with potential for sustained growth.
The resilience observed in the continent was attributed to its modest inflation, relatively stable exchange rates across economies, lower debt profile, huge untapped natural resources and large labour force with a population of about 1.0 billion, about 60.0 per cent of which are youth. Consequently, Africa has witnessed renewed global interest as an emerging investment destination. This must be leveraged towards attaining inclusive and sustainable growth as was theexperience in South-East Asia in the 1980s and 1990s. In order to sustain the growth momentum achieved so far, African economies must strive to be competitive for sustainable development.
Economic competitiveness captures the extent to which economies possess the essential factors to enhance productivity and transform the well-being of their people. It is defined as the set of institutions, policies, and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the level of prosperity that can be reached by an economy. The productivity level also determines the rates of return obtained by investments in an economy, which in turn are the fundamental drivers of its growth rates. In other words, a more competitive economy is one that is likely to grow faster over time and produce a higher level of income in the medium to long term. The concept of competitiveness thus involves static and dynamic components. Although the productivity of a country determines its ability to sustain a high level of income, it is also one of the central determinants of its returns on investment, which is one of the key factors explaining an economy’s growth potential. Economic transformation, on the other hand, involves all-inclusive growth and development in the social, political and economic institutions of a country.
Enhancing the competitiveness of economies transcends the issue of pricing to include critical factors such as industrialization, cost of labour and doing business, economic diversification, infrastructure, security, investment climate and institutions as well as corporate governance, transparency and accountability.
Enhancing Africa’s competitiveness is important because the continent needs to secure its position in the global market for trade, investment and services. The continent should enhance its competitiveness by harnessing its huge endowments in natural and human resources in an efficient manner that promotes global and intra-regional trade. This imposes a strategic imperative for African countries to improve their individual investment and business environments through the development of infrastructure, strong institutions, human capital, stable political and macroeconomic environment, as well as technological advancement and innovation. All of this will translate into sustainable economic growth and transformation.
Industrialization is a sine qua non for the transformation of the continent. The notable growth recorded in Africa over the past decade has mainly been attributed to commodity price increases rather than value-added production and enhanced competitiveness. Given the volatility and distortionary effect of commodity prices, this is not a sustainable growth model. Therefore, the undue reliance on commodity exports and failure to diversify their economies has been a major impediment to the industrial development of African countries as the continent remains the least industrialized region accounting for a dismal percentage of global manufacturing. Most countries in the continent are characterized by a weak industrial base with minimal structural changes and a general lack of economic diversification. The industrial competitiveness of a region is premised on its ability to export more in value-added products than it imports. The manufacturing sector in Africa currently provides relatively little employment with limited access and support for private entrepreneurs.
According to the index for the comparison of relative industrial competitiveness of economies computed for 133 countries in the Competitiveness Industrial Performance (CIP) Report for 2013, the upper ranking was mainly populated by transition and emerging economies in Asia and Latin America while most African economies fell at the bottom of the ranking with the exception of South Africa, Egypt, Tunisia, Morocco and Mauritius. Of the 133 countries, South Africa, ranked as the first African nation on the index at 41st, followed by Tunisia 58th, Egypt 62nd, Morocco 66th and Mauritius 79th. Botswana, Nigeria, Kenya and Ghana positioned at 86th, 95th, 102nd and 118th, respectively. The continent accounts for 1.0 per cent of global manufacturing with manufacturing representing 10.0 per cent of its GDP compared with 35.0 and 16.0 per cent in East Asia and Latin America and Caribbean, respectively. With the current statistics, it is evident that Africa lives on imports of manufactured goods.
• The region has been unsuccessful in the achievement of complete industrialized exports due to a limited openness to imported inputs, old technology, minimal foreign investment as well as a general lack of full information on the needs of potential markets. Multidimensional integration of trade which entails the free movement of people, innovation and capital also required for production of competitive goods and services is virtually non-existent. The region is plagued by poor and obsolete infrastructure, poor regulation, cartels and corruption which hamper its industrialization efforts. According to UNIDO, the region loses about 2.0 – 3.0 per cent of its GDP due to lack of reliable power and energy. It was also estimated that the amount of gas flared in Africa could supply half of the continent’s electricity requirements if suitably channeled.
Low productivity by African firms have increasingly constrained and stagnated Africa’s competitiveness in most economic sectors. Strategic policies have to be adopted in certain sectors to expand productive capacities through improved infrastructure, enhancement of workforce capacity and the promotion of entrepreneurship. To enhance productivity and competitiveness in the region, various strategic plans have been adopted to fix supply-side problems, promote entrepreneurship, expand technology and ease the effect of Free Trade Areas on tariff-dependent economies.
As a continent, the agricultural sector is a promising area for specialization and competitiveness if suitably developed. However, African agriculture is largely dominated by subsistence farming despite its huge youth population with low skills and limited mobility. An example of a scheme developed to enhance productivity and competitiveness in agriculture is the Nigerian Incentive Based Risk-sharing System for Agricultural Lending (NIRSAL) introduced by the Central Bank of Nigeria. The scheme is aimed at bridging the financing gap through leveraging of about 60.0 per cent of agricultural financing requirement in the country. NIRSAL is designed to establish long term capabilities and institutionalized lending to the agricultural sector which had previously been perceived as high risk due to a wide-spread lack of understanding of the agricultural sector, intricate credit valuation processes as well as high operating costs.
NIRSAL seeks to create incentives and catalyze processes to encourage the growth of formal credit, direct and indirect, for the agriculture value chain, as a mechanism for driving wealth creation among value chain participants. Under the scheme, lenders have the prospect to net latent proceeds, sustain long term human, institutional and cultural capacity for value chain financing and achieve lower loan initiation and distribution expenses. While the goals of NIRSAL would boost productivity and competitiveness in the agricultural sector, its realization is dependent on provision of infrastructural facilities such as stable power supply, good road networks and effective transportation system. This will facilitate the movement of farm inputs and finished goods. However, despite these potentials of the scheme, factors such as low productivity, poor technology, low research and development as well as an under-financing of the agricultural value chain has impeded significant progress.
Africa’s labour market is largely populated with unskilled labour with limited technical know-how to promote efficient production and competitiveness. Production in most African countries is factor-driven and depends mostly on natural endowments; the industries are mostly at the extractive stage and employ a high portion of unskilled workforce with low productivity and low wages. Ensuring efficiency in Africa’s labour market through human capital development will unlock large untapped potentials. This will involve skill acquisition and training which governments must be ready to invest in to make the sector virile and competitive. It is worth noting that efficiency of labor contributed in developing Asia which has over the years become more productive to the point of converging with the averages in Organization for Economic Co-operation and Development (OECD) countries. In 2012, GDP per hour worker in sub-Saharan Africa was about US$18.0 compared to US$40.0 in developing Asia. The prevalence of low value-added production reduces the returns on capital which have resulted in Africa contributing less than 3.0 per cent to global trade.
From the foregoing, it is clear that a number of bottlenecks exist that hinder the emergence of a competitive public and private sector in Africa, such as high cost and lack of access to credit, the poor quality of infrastructure services, high unskilled labour force, lack of a transparent and friendly regulatory environment as well as corruption.
Since maximizing the return on investment is the ultimate goal of all investors, one way to achieve this is to minimize investment costs. Prospective investors will be attracted to invest in an environment where costs and risks are minimized. Some of the issues usually considered include legal requirements, tax regulations, foreign exchange controls and other statutory regulations or obligations to be met in the investing country, in order to set up the investment in the most cost-effective way.
The cost of doing business has a direct link to the return on investment. In many African countries, the return on investment is relatively low compared to most developed economies due to a number of factors which include multiplicity of taxes and tarrifs, land acquisition and ownership, business registration cost, high port charges, weak infrastructure such as poor road networks, epileptic power supply and inefficient communication systems. Other factors include high cost of funds, policy inconsistency as well as high level of insecurity. All these factors combine to heighten the cost of operation that undermine the realization of corporate objectives. To make African economies competitive, the high cost of doing business must be drastically reduced through sustainable economic and institutional reforms. There is also a need for substantial reforms in the banking sector so that African banks will be able to finance long term growth enhancing projects to enhance the competitiveness of the African economy.
A major economic challenge in Africa is the need to diversify the productive base of African economies of countries away from commodity exports to manufacturing. Economic diversification is vital to countries’ long-term economic growth, but many resource-rich countries in Africa remain heavily reliant on revenues generated from export of primary products, mining or oil production, thus jeopardizing their chances for sustainable growth.
Economies heavily dependent on natural resources can face serious challenges in sustaining growth because of swings in prices of those resources. African economies depend heavily on commodities as the main source of their foreign earnings accounting for over 81.0 per cent. This dependence is particularly high in West and Central Africa, where commodities accounted for some 95.0 per cent of exports in 2009-2010 as compared to 56.0 per cent for Latin America and the Caribbean and 28.0 per cent for developing Asia. This over-reliance on primary commodities makes African economies susceptible to price fluctuations since the value of most of these commodities (mainly mineral resources like gold, diamond, and columbite) and hydrocarbons like oil and gas are exogenously determined. The mono product nature of these African economies has led to the neglect and underdevelopment of other sectors of the economy which could have contributed immensely to GDP growth and the overall development of the African economy.
The non-diversification of African economies is further evident in the 2011 UNIDO report on “Economic Diversification in Africa”. The report showed that only South Africa and three North African countries, achieved substantial economic diversification in Africa. It also indicated that the performance of agricultural and manufacturing sectors has been stunted by lack of innovation and modernization. This fact was buttressed by the competitive industrial performance index (CPIx) of 2012/13 where Sub-Saharan Africa accounted for less than 1.0 per cent of both world manufacturing value added and world manufactures indices as compared to Latin America/Caribbean countries with 4.2 and 3.7 per cent and developing Asia’s 3.0 and 2.4 per cent respectively.
A further downside evidence of the lack of diversification of economies of African countries is that the global share of Africa’s trade to world total in 2012 stood at 3.5 per cent compared with developing Asia’s 31.5 per cent and South and Central America’s 4.2 per cent. Africa has experienced decreasing trade in virtually all sub-sectors of world trade, owing partly to the concentration of its exports in primary products such as oil and mining whose portion of world trade has been declining.
Only through diversifying their economies and transforming towards manufacturing, adding value to their natural resources, can African countries create jobs, create wealth, raise the living standards of their people and be competitive. In my book Emerging Africa – How the Global Economy’s ‘Last Frontier’ Can Prosper and Matter , I advocated a number of paradigm shifts as conditions precedent for economic transformation, one of which is economic complexity. African countries need to understand that truly transformative economic growth is based on the development of complex products and differentiated exports that confer competitive advantage, and not basic or comparative advantage such as natural resources, as is presently the basis of most economic policy thinking. Dependence on the export of natural capital has prevented African countries from creating true wealth for their citizens compared to industrialized countries.
The economic secret of wealth creation is to invest in manufacturing products that have more value and insight embedded in them, and also to create such products in a manner that is competitive, not just in terms of content, but also in terms of costs and specialization.
Malaysia is an example of an economy endowed with natural resources that has been successful in diversifying its economy over the past 40 years of post-independence growth and development. The economy has shifted from being one dominated by agriculture and the exports of agricultural commodities and tin to an economy that is now more industrialized. Manufactured exports now account for more than 70 percent of total exports.
Malaysia’s Industrialization was fuelled by a combination of state intervention in the economy and the growth of public enterprise, the use of fiscal policy and incentives to attract foreign direct investment (FDI), and the provision of industrial infrastructure and low cost labor.
Their story highlights the fact that a diversification policy requires a longer-term perspective; the outcome of diversification will only be seen in the long term. For diversification to succeed, concerted efforts are required to channel resources, especially financial ones, and to build effective institutions. Specialized institutions for agriculture and manufacturing are needed to spearhead diversification. An export-oriented industrialization strategy will require a combination of macroeconomic and fiscal policies to attract FDI as well as investments in human capital and infrastructure, among others.
Too often however, some African countries seem to lack clear policy guidelines on how to diversify, and policymakers appear to have limited understanding of why diversification is imperative.
A critical element for sustainable economic transformation is the existence of strong, sound and independent economic and social institutions that serve as a bedrock for growth and competitiveness. The continuous synergy among institutions needs to be coordinated in a sustainable fashion to propel economic growth and transformation. Public institutions in Africa are characterized by high bureaucracy, high degree of centralization and a perception of corruption which are inimical for economic transformation and competitiveness. Also, occasional instances of political instability especially in parts of North, Central and West Africa creates uncertain environment for investment and thus, hampers economic growth. Hence, creating strong institutions devoid of bureaucracy, corruption (perceived or factual) and government interference will help create a conducive environment for investment and other economic activities that engender competitiveness.
I had mentioned that in 2012, Africa’s proportion of world trade was 3.5 per cent and has been experiencing decreasing volumes/value of trade because of the tendency for its exports to be concentrated in primary products. This is underscored by the fact that over half of Africa’s (sub-Saharan Africa) trade is concentrated on oil and mining products. Heavy reliance on these commodities means that the terms of trade vary with unstable international market prices. Ironically, the proceeds from these products constitute a large portion of many countries revenue base which are subject to the vagaries of external shocks. This could have undesirable effects on growth and fiscal stability and thus reduce competitiveness. The way forward towards achieving economic transformation and competitiveness would include export diversification, and transition from primary stages of production to tertiary and innovative-driven stages which would ensure value addition to the economy.
Some achievements have been recorded in the area of trade and market integration by some regional economic communities (RECs) in Africa. These include the establishment of the Economic Community of West African States (ECOWAS), Economic Community of Central African States (ECCAS), Common Market for Eastern and Southern Africa (COMESA), South African Development Community (SADC) and East African Community (EAC). The EAC achieved a customs union in 2005, while COMESA launched its customs union in 2009. By 2015, ECOWAS is expected to launch its customs union. In addition to these achievements, other RECs are in the process of harmonizing their Free Trade Areas (FTAs) into larger trading blocs. The ongoing initiative on the grand FTA (SADC, COMESA and EAC) is a good example of this new trend towards unifying the sub-regional markets. All these will promote intra and inter–regional trade in the continent and enhance competitiveness as countries leverage on their comparative advantages in production. It is only through collective efforts that Africa can conveniently overcome the multiple obstacles preventing the realization of increased trade and sustainable economic transformation.
Competitiveness among countries across the world is becoming apparent. Africa unlike its Asian counterparts has not been able to establish regional production chains that would eventually feed into international chains. Asia on the other hand, built on their inter-regional trade and promoted the diversification of their economies to ensure production complementarity. Asian economies have continued to ascend the value chain in their production processes. Africa must therefore, direct her efforts towards international economic value chains to be competitive. Polices should be export-oriented, value-add biased and structural bottlenecks must be tackled aggressively.
Africa must improve the state of infrastructure and promote innovative public-private partnerships that would drive rapid industrialization for sustained growth in the decades ahead. Infrastructure is vital in supporting inclusive growth in any economy. Huge investments in infrastructure will lower the cost of doing business, thus lowering the cost of production and providing other alternatives for promoting production efficiency and competitiveness. Also, encouraging public-private partnership (PPP) initiative in the infrastructural sub-sector will deepen the financing base of most of the economies.
Africa must actively promote the development of sound and stable financial markets that are competitive, since finance stimulates growth and investment. Currently, the financial system in the continent has remained, relatively, shallow and unable to adequately finance long-term growth. The productive sector is starved of investible capital; banking services are expensive with high interest rates and soaring overheads which encourage rent and create un-competitive intermediation processes. A viable, active and strong financial system is thus a prerequisite for competiveness and economic transformation in the region. Individual countries and regional groupings must focus on building strong institutions and financial architecture that provide funds at competitive rates from international markets and within Africa. In addition, governments should promote vibrant bond markets that provide long term funds for development.
At this juncture, it is pertinent to ask where Africa is currently in terms of competitiveness. This is an important question in view of the topic of this plenary session. Using the World Bank’s 2013 Global Competitiveness Index (GCI), the general picture of Africa’s performance was mirrored by the ranking of 14 African countries in the bottom 20 countries out of 144 countries worldwide. On regional aggregates, Africa as a group was ranked less competitive than Asian economies, for instance the GCI for North Africa averaged 3.82, and Sub-Saharan Africa 3.57, while Latin American/Caribbean and South East Asian were 3.97 and 4.46 respectively. Also, Africa’s competitiveness, in terms of the IMF 2012 purchasing power parity GDP per capita index, at US$3,000.0 was far below developing Asia at US$6,000.0; and Latin America/Caribbean with over US$12,000.0.
It should be noted that the heterogeneity of economic development among African countries indicates that competitiveness cannot be pursued on the same scale, but rather should be country specific. Borrowing from the recommendations of the 2013 Global Competitiveness Indicator (GCI) report, countries that are still in the factor-driven stage must accord priority to the establishment of effective public and private institutions, robust infrastructure, stable macroeconomic environment, and a strong educated and skilled labor force.
For countries that are already into manufacturing, increased efficiency in production processes and improved product quality must be pursed to be competitive. This should include the promotion of high quality goods and services and organized labour markets, development of efficient financial markets and the use of technological innovation. Highly skilled and active labour force should drive these processes. African countries identified in this stage include: South Africa, Egypt, Cape Verde, Mauritius and Namibia.
Countries that feature at the innovation-driven stage are able to sustain higher wages and the concomitant standard of living only by developing competing new and distinctive products. Seychelles is the only African country believed to be in transition from the production to the innovation stage.
Let me conclude by quoting Michael Porter who stated that almost everything matters for competitiveness. The schools matter, the roads matter, the financial markets matter and customer sophistication matters. These and other aspects of a nation’s circumstances are deeply rooted in a nation’s institutions, people and culture. This makes improving competitiveness for African countries a special challenge, because there is no single policy or grand step that can create competitiveness, only many improvements in individual areas that inevitably take time to accomplish. Improving competitiveness is a marathon, not a sprint. How to sustain momentum in improving competitiveness over time is among the greatest challenges facing African countries.
Dr. Kingsley Bosah Chiedu Moghalu is Deputy Governor of the Central Bank of Nigeria
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Negotiations on the Tripartite Free Trade Agreement are moving forward
African high-level officials indicated recently that negotiations for the establishment of a free-trade area spanning three major regional economic communities in Africa have progressed well and could conclude by the end of this year.
“Once we complete (the negotiations), it will be the engine of the continent’s economic and political empowerment. I am satisfied with the pace of the negotiations. I look forward, as I am sure we all do, to the conclusion of these negotiations before the last quarter of 2014, remarked President Kenyatta, who was the Chairperson of the Summit of the East African Community (EAC) Heads of State during the East African Legislative Assembly held in Arusha, Tanzania on 25 March.
Echoing President Kenyatta, the outgoing Executive Secretary of the Southern African Development Community (SADC), Tomaz Salomão, said significant progress has been recorded towards the launch of the Tripartite Free Trade Area (TFTA) in a recent SADC summit in Lilongwe, Malawi.
The three main regional blocs in Africa – the Common Market for Eastern and Southern Africa (COMESA), the EAC and the SADC – are expected to conclude the TFTA that will cover 26 countries with an estimated gross domestic product (GDP)of about USD 1 trillion by the end of this year.
The TFTA will then serve as a basis for the completion of a Continental Free Trade Area by 2017 and is expected to boost trade within Africa by at least 25-30 per cent in the next decade and ultimately establish an African Economic Community.
Negotiations: half way through
According to the roadmap for establishing the TFTA – which was adopted during the second Tripartite Summit of Heads of State and Government in Johannesburg, South Africa in 2011 – all negotiations should be completed within three years of the signing of the Memorandum of Understanding (MoU) establishing the Tripartite in January 2011. Thereafter, the COMESA, the EAC, and the SADC are expected to launch a single FTA by 2016, building on the FTAs that are already in place.
The negotiations for the TFTA are being conducted in different phases: the preparatory phase, phase one, and phase two.
The three economic communities are now engaged in phase one negotiations, which cover core FTA issues of tariff liberalisation, rules of origin, customs procedures and simplification of customs documentation, and transit procedures among other issues.
The movement of business persons is dealt with during the first phase of negotiations as a separate track.
The preparatory phase, which ran from December 2011 to November 2012 mainly, covered the exchange of all relevant information, including tariffs as well as trade data and measures.
Phase two, the last stage of the negotiations, is expected to start soon and will cover trade in services and trade-related issues, such as intellectual property rights, competition policy, and trade development and competitiveness.
The TFTA is expected to be built on three pillars of market integration, infrastructure development, and industrial development and consolidate the progress on trade liberalisation that has already been achieved within the three regional economic communities.
With respect to market integration, meetings of the Tripartite Trade Negotiation Forum, which is the institution charged with negotiations on this pillar, yielded the following: Adoption of a Work Plan for negotiations on Trade in Goods; recognition of the draft FTA Agreement and Annexes for the negotiations; agreement to adopt the outcome of the negotiations; and the establishment of Working Groups on Customs Cooperation, Documentation Procedures and Transit Instruments; Technical Barriers to Trade, Sanitary and Phytosanitary Measures and Non-Tariffs Barriers (NTBs); and Rules of Origin.
Tackling the challenges ahead
While acknowledging the potential benefits of increased trade, some experts have underlined the fact that the TFTA could be sustained only if obstacles currently undermining trade in Africa are lifted. These obstacles include, for example: overlapping memberships, which can hinder harmonisation processes as well as the enforcement of unified rules of origin; the lack of economic diversification; and infrastructure deficiencies.
Sceptics believe until these challenges are dealt with a TFTA will not be feasible. But, other factors mostly in the form of non-tariff barriers to trade are considered equally costly to trading across the region. World Trade Organization (WTO) 2012 statistics show that intra-African trade stood at a low level of 12 per cent of total trade, compared with 60 per cent for Europe, 40 per cent for North America, and 30 per cent for ASEAN. Although a TFTA may not eliminate infrastructural hurdles for intra-African trade – at least in the short term, experts believe it will drastically reduce the cost of trade in terms of border restrictions and deficiencies, issues related to rules of origin, general non-tariff barriers, and the cost of trade.
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Uhuru tells Africa to support infrastructure investment
President Uhuru Kenyatta has challenged African governments to accelerate reforms that will encourage more private sector investment in infrastructure projects.
Citing Kenya as an example, the President said the country has taken steps through enactment of Public Private Partnership (PPP) legislation, to facilitate the private sector in the development of projects in transport, energy, water and ICT.
He said the establishment of the Africa 50 Fund – an initiative of the African Development Bank that was endorsed by African leaders – to address the inadequacy of resources for infrastructure development in the continent required African countries to undertake requisite reforms geared towards facilitating private sector to invest in infrastructure development and maintenance.
“The private sector should be encouraged to take advantage of the new funding initiative by investing and partnering with African Governments in infrastructure development,” the President said.
President Kenyatta made the remarks in his statement to the 4th European Union-Africa Summit in Brussels, Belgium on Wednesday.
He said the Kenya Government is committed to ensuring that all parts of the country have developed adequate roads, affordable electricity supply and clean drinking water to satisfy all basic infrastructural needs.
At regional level, the President said the East African Community has prioritised the development of key regional transport corridors to support trade and investments.
The East African infrastructure projects include the rehabilitation and expansion of the Northern Corridor connecting the port of Mombasa with Kampala, Kigali, Bujumbura and the Eastern parts of the Democratic Republic of Congo (DRC) and the improvement of the Central Corridor connecting the port of Dar-es-Salaam with Bujumbura, Kigali and the DRC.
Other infrastructure projects are the Lamu Port South Sudan Ethiopia Transport (LAPSSET) project – a transport corridor that will form important transport connectivity between Eastern Africa and Western Africa countries further promoting intra-Africa trade and investment.
“Further, we believe that the entry point into developing a comprehensive continental infrastructure hinges on regional integration and cooperation, which is high on the political agenda of Africa,” the President said.
President Kenyatta, who is the chairman of EAC, told the summit that development of key transport corridors will further contribute to the realisation of Africa Union’s vision of an inclusive growth agenda, for an integrated prosperous and peaceful continent.
He welcomed continued collaboration between Africa and the European Union in achieving the continent’s development goals.
“Together we can realize the vision of developing Africa’s regional and continental infrastructure and promote socio- economic development and poverty reduction across the continent,” President Kenyatta said.
Speaking at the opening of the summit, United Nations Secretary-General Ban Ki-moon commended both Africa and Europe for showing leadership in crafting a new sustainable and inclusive development agenda.
The UN Secretary-General, however, said more focus must be directed to empowering women and ensuring that the voices of young people are heard.
“I know these are key elements in your post -2015 work as well as the African Union Agenda 2063,” the UN Secretary-General said.
Other speakers included European Council President Herman Van Rompuy, African Union Council Chairperson, Dlamini Nkosazana-Zuma and European Commission President Jose Manuel Barroso among others.
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FG: Why Nigeria scuttled the EU-ECOWAS trade deal
The federal government has stated that it declined endorsing the Economic Partnership Agreement (EPA) with the European Union because acting otherwise would have been inimical to the advancement of the varied growth policies currently being implemented by the government.
The Minister of Industry, Trade and Investment, Mr. Olusegun Aganga, who offered the explanation in Abuja said Nigeria did not sign the trade liberalisation agreement being pushed forward by the EU under the Economic Partnership Agreement (EPA) with ECOWAS, due to consideration of the overall well-being of the Nigerian economy.
The EU has been subtly goading Nigeria and its neighbours in the West African subregion for the past decade to endorse the agreement which would eventually throw the region’s market open to uncontrolled entry of goods and services from Europe.
Speaking during a meeting with the Director-General, United Nations Industrial Development Organsation(UNIDO), Mr. Li Yong, Aganga, whose ministry played a major role in the EPA negotiations, said certain provisions of the agreement, which Nigeria was expected to sign at the ECOWAS Heads of States meeting in Yamoussoukro, Cote D’Ivoire, last week, were not in the overall interest of the nation’s economy.
Under the botched agreement, the EU was expected to offer the 15-member ECOWAS and non-member state Mauritania, full access to its markets. In return, ECOWAS will gradually open up 75 per cent of its markets, with its 300 million consumers, to Europe over a 20-year period.
Technical negotiations wrapped up last month with the European Union offering a 6.5 billion euro (about $8.94 billion) package over the next five years to help ECOWAS cushion the effects and costs of integrating into the global economy.
ECOWAS includes Cape Verde, Gambia, Ghana, Liberia, Mali, Nigeria, Sierra Leone, Benin, Burkina Faso, Ivory Coast, Guinea, Guinea-Bissau, Senegal, Niger and Togo.
Aganga said, “The EPA is not ready for endorsement by the Heads of State and Government. During the meeting last week, Nigeria raised 10 objections to what was presented to us and the Summit of Heads of State ratified it.
“Consequently, a committee from Nigeria, Cote D’Ivoire , Ghana and Senegal looked at the issues raised by member states, particularly Nigeria, and came up with a proposal. When we went into the meeting, the whole idea was to endorse it, but of course, we had various reservations concerning the agreement based on our model and the feedback we got from our private sector.”
He added, “One major reservation was that the way the agreement was done, which of course they expected us to sign, would not be in the overall interest of the Nigerian economy over the long term. For instance, in the area of market access, the EU wants us to open our market by 75 per cent over a 20-year period.
“This appears harmless because over the first five years, there will be no major impact because they will open all their doors for us to export to Europe. However, the problem here is that, currently, we are not exporting much to Europe and so the benefit will not be significant.”
The minister explained that, given Nigeria’s current condition as an import-dependent economy, it would be counter-productive to completely open its doors for imports without first of all developing its industrial sector to compete globally, especially in those sectors where the country has comparative and competitive advantage as provided in the Nigeria Industrial Revolution Plan recently launched by President Goodluck Jonathan.
He said, “Another major point we raised was that those items that were in Category D, and excluded in the 25 per cent, should include those areas and sectors that we want to develop in line with the Nigerian Industrial Revolution Plan. Some of those areas are already under Category C and D, meaning that they are the sectors that the EU wants us to liberalise imports. If we do that, it will have a very negative impact on the NIRP.
“Nigeria is the biggest country in the ECOWAS and we are already producing some of those goods that they want us to liberalise their importation. Also, what this means is that, not now, but from 2025-2026, based on the items that have been included and excluded, there will be significant loss of revenue to the government. There will be loss of jobs, investment and loss of even the ECOWAS market.”
Aganga, however, said it was important to remain as one unit in the ECOWAS region, saying that “even if they import those items into our neighbouring countries, they will end up in Nigeria and this will have negative impact on the Nigerian economy. So, it is important for us to work together as ECOWAS members and not to allow EPA to divide us.”
Speaking during the event, the Director-General, UNIDO, Mr. Li Yong, pledged UNIDO’s unflinching support towards the growth and development of Nigeria’s industrial sector in line with the organisation’s Inclusive and Sustainable Industrial Development Programme.
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Customs Territory promising
Barely a month into the implementation of the Single Customs Territory (SCT), Uganda seems to have started reaping the fruits of the first pilot project.
During a press briefing convened to announce the monthly revenue performance last week, officials from Uganda Revenue Authority (URA) announced that the volumes of fuel imported during the month of February 2014 posted a growth of 37.3% compared to the same period last year.
Richard Kamajugo, the Commissioner Customs at URA attributed the increase to the ease with which fuel dealers can now clear their products under the EAC Single Customs Territory clearance procedures.
He said despite the initial challenges experienced during the early stages of the implementation, the SCT has surpassed the projections especially in the clearance of petroleum products.
“The SCT now allows the fuel dealers to load from either Mombasa or Eldoret as long as they have met their tax obligations. This has eliminated the queues at the fuel depot in Eldoret, leading to delays in clearance times. So if one has volumes in Mombasa and the pipeline cannot move it faster, they can simply load it from there.”
He said: “The Kenya Pipeline Company has also increased its working hours and this has reduced the turnaround time from three days to just eight hours. As a result of this, for the first time we handled 135.2 million litres of fuel in one month.”
This also reflected in the petroleum duty collected in February 2014 leading to an overall performance of 98.9% in International taxes alone. In February 2014, URA managed to mobilize net revenue of Ush645b. Although this represents a growth of 11.83 % (or Ush68.25b) compared to February 2013, it was still Ush6b short of the target for the month.
This was attributed to exchange rate fluctuation which led to an estimated revenue loss of Ush14b in February 2014 as well as excise duty on imports which declined as a result of the decline in volumes of neutral spirits by 51.8% compared to February 2013 leading to a loss in revenue of Ush4.1b in February 2014
This financial year has so far proved to be a tough one given that the economy has not really shown the buoyancy that had earlier on been predicted by pundits. The continued drop in corporation tax paid as well as withholding tax proves this.
“Withholding tax on dividends, foreign transactions management fees, general supplies and government payments remained muted. The low profitability in the corporate world has translated into low dividends to shareholders. As such there was a decline in dividends by 83.35 % (Ush3.68b) compared to the same period last year,” Kamajugo explained.
He added, “Some companies have also hired less consultancy services which has resulted in low withholding tax onmanagement services especially in the oil exploration, energy and Banking sub-sectors.”
The financial services sector as at the end of last FY was the main contributor to the revenues as banks posted impressive results.
Th going seems to be getting tougher as Kamajugo puts it, “Some of the major banks retruned nil citing some of the provisions put in place by Bank of Uganda. Some of the things happening in the economy right now have their roots dating back two to three years back.”
He adds that Corporation tax performance was affected by companies that were previously posting profits, declaring smaller profits or losses and low access to affordable credit.
This FY, URAis expected to collect Ush8.5trillion which is an increase of 19.4% over the Ush7.2trillion collected in the FY 2012/13.
So far, the tax body has been able to collect about Ush5.2trillion for the period of July 2013 to February 2014, which a 13.3% increase compared to the same period last financial year. However, this is still Ush270b short of the Ush5.5trillion they should have mobilized.
At the half way mark, the revenue body was Ush247 short of their half year target.
However, the officials are still adamant that they will be able to minimize the deficit by the end of the financial year.
They point to initiatives such as Asycuda World, the SCT and the Electronic Cargo Tracking that will be rolled out on May 2, 2014 as some of the measures that will help reduce the huge deficit.
Kamajugo says that following the successful implementation of the SCT clearance procedures on petroleum products, the process is being extended to other products such as neutral spirit, cigarettes and cement between Uganda and Kenya beginning this April. It will also be extended to trade in cement and products from Mukwano Industries between Uganda and Rwanda.
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SACU appoints new Executive Secretary
The South African Customs Union (SACU) council of ministers has recently appointed a Namibian national, Paulina Mbala Elago, to the position of SACU Executive Secretary.
SACU Chairperson of the Council of Ministers Leketekete Ketso said Elago’s appointment came at the end of Tswelopele Moremi’s term as executive secretary in January this year after holding the position since January 2004.
Ketso is also Lesotho Minister of Finance.
“Elago started working in this portfolio recently and has been given a five year contract. She previously served as Country Director for Tanzania, for Trade Mark East Africa (TMEA).
“She was responsible for designing, managing and implementation of the TMEA Tanzania’s country programme designed to support implementation of East African Community (EAC) regional integration frameworks, improving intra-regional trade and trade competitiveness through improved trade facilitation, streamlined procedures and infrastructure development,” he said in a press release.
Ketso noted that Elago has over twenty years of professional experience in international trade, primarily trade policy, regional integration and trade related capacity building.
He said the new executive secretary also boasts of 10 years experience in managing and delivering multi country and multi-year programmes.
She was involved in the development of programmes to support regional integration, primarily in Africa, Pacific and Caribbean (ACP) states and regional organisations across ACP regions and served as a chief trade negotiator for the government of Namibia.
“She has in-depth knowledge and understanding of the trade and socio–economic context of the SACU and SADC regions as well as the global arena.
“SACU is a Customs Union which comprises five countries, namely Botswana, Lesotho, Namibia, South Africa and Swaziland with its Headquarters being in Windhoek, Namibia. It has been in existence since 1910.”
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EU-Africa summit to debate free trade
EU and African leaders from 80 states are poised to meet in Brussels for a two-day summit as a deadline for tariff-free trade agreements draws near. Presidents Jacob Zuma and Robert Mugabe are staying away.
Who will be coming, who will be staying at home? Which African heads of state have been invited and which ones will actually be attending are questions which have dominated media coverage in the run-up to the Africa-EU summit on Wednesday (02.04.2014) and Thursday (03.04.2014) in Brussels.
Eritrea has not been invited because of grievous human rights violations. Zimbabwe’s controversial leader Robert Mugabe was invited, but says he does not wish to attend because his wife has been denied a visa. South African President Jacob Zuma also announced he would also be staying away because of “other commitments.”
Pretoria refused to be drawn on whether Zuma’s decision was taken in solidarity with Mugabe.
Yet there is more to this fourth EU-Africa summit than just attendance and appearances. The summit’s official theme “Investing in people, prosperity and peace” offers broad scope for speeches and discussions on various subjects. But when addressing the signing of Economic Partnership Agreements (EPA) between the EU and African countries, delegates will find it rather more difficult to avoid issues they may find unpalatable.
October free trade deadline approaching
“Since the Doha round in the year 2000, the EU has had an offer on the table – approved by the World Trade Organization – which would give the world’s poorest countries, 33 of which are African, tariff-free access to Europe’s markets,” said Francisco Mari, specialist in trade, agriculture and fisheries at the German development aid organization “Bread for the World.” This would include all countries in which per capita income is less than $500 (363 euros) a year. In return, those countries would open up their markets to goods from the EU. The deadline for the deal set by the EU is October 2014.
The world’s poorest countries have until that date to sign EPAs with the EU which include provisions for tariff-free trade. Otherwise the EU will begin to impose tariffs on goods from those countries.
So far only four African countries have ratified this agreement. African governments are nervous about the consequences of opening up their markets to EU goods and have been delaying any decision for as long as possible.
“Politically they really need to push EPAs center-stage,” said Jack Mangala, professor of political science and Africa studies at Grand Valley State University in Michigan, USA. “The African heads of state need to be aware of the political consequences of not signing these agreements before the October deadline,” he said.
A new market for Europe’s service industries?
Now that the EU has opened up its markets for development policy reasons, it wants African nations to open up their markets to EU goods. This would give European firms an edge over competitors from elsewhere. “The Europeans obviously want to sell their plant and machinery and spare parts to Africa. And there would be no tariffs, so they would be a better position than the Americans or the Chinese who would face such levies,” said Mari.
The EU does not want just a free trade zone for goods with Africa, but also for service industries as well such as banks, insurance companies or consultancies. If tenders were to be invited for the building of a hospital, for example, then companies from all over the EU would be able to bid for the contract. African companies would find it difficult to compete with them.
Even though time is running out, a breakthrough is not to be expected at this summit, says Alex Vines, head of the Africa Program at Chatham House, London, UK. “Africa is divided on this issue,” he said. The agreement will probably be mentioned in the final communique but the tough negotiating won’t start until after the summit.
Mari believes that Africa will adopt a more self-confident posture at this summit, because it is no longer dependent solely on the EU as a partner in development. China, South Korea and the United States are alternatives.
“If one examines the relative strengths of Africa and the EU, then this is clearly not a level playing field and won’t be for some time,” said Mangala. “But that is at least the objective - to transform the relationship between donor and recipient into one of partnership rooted in equality. We haven’t got there yet,” he said.
The EU and its 28 member states are the largest donors of development assistance to Africa, spending over 18.5 billion euros in 2012 alone. This was over half of the state support provided worldwide to combat poverty on the continent.
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EAC competition law yet to be enforced
Regulating competition in East the African Community bloc still faces challenges as some countries are not enforcing the relevant law, the East African Competitions Act 2006.
The regional act seeks, among others, to promote fair trade and ensure consumer welfare and to establish the East African Community Competition Authority.
Experts warn that failure to enforce the competition laws threatens the growth of small and medium enterprises as it exposes them to anti-competition practices.
It is believed that monopolies or firms with very large market share can easily abuse their dominance by engaging in price fixing, sharing of markets, reducing quality of product, among others, to the detriment of consumers.
“Even after protection, some businesses are still inefficient and do not innovate. The cost of production is still high anddo not care about consumers,” said Tania Begazo, an economist at the World Bank Group’s competition policy thematic group, investment climate department.
“The world needs a competitive market to check inefficiency,” Ms Begazo added calling upon regional governments to enforce the competition laws.
The call was made recently during a two-day Technical Training Workshop on competition policy assessment in Rwanda.
In the EAC, it is only Tanzania and Kenya enforcing the Competition Laws through Fair Competition Commission for Tanzania and the Monopolies and Prices Commission for Kenya.
However, failure to enforce the competition laws across the region has also been linked to absence of a regional competition authority, a body that would be charged with enforcing the laws.
Rwanda adopted the Competition and Consumer Protection Policy in 2010.
The policy emphasises competitive pricing and creates an environment for consumers to choose from a variety of products.
Currently, the National Inspectorate and Competition Authority (NICA) is in place to enforce.