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Emerging markets can manage evolving mix of global investors
The mix of investors in emerging markets stocks and bonds has evolved considerably over the past 15 years, which has made capital flows and asset prices in these countries more sensitive to events outside their own borders, according to new research from the International Monetary Fund.
In its latest Global Financial Stability Report, the IMF investigates the effects of changes in the mix of these global investors.
The role of bond funds – especially local-currency bond funds – has been on the rise since the early 2000s. Savers in advanced economies now increasingly channel their money through global mutual funds that invest both in advanced and emerging market economies. The participation of sovereign wealth funds and central banks in these financial markets is growing as well.
Back in the 1990s, by contrast, investing in emerging market economies mostly meant purchasing equity though funds specialized in these countries.
The IMF said that different investors behaved distinctively. During the sell-off of emerging market stocks and bonds in 2013 and early 2014, institutional investors such as pension funds and insurance companies with long-term strategies broadly maintained their emerging market investments. Retail-oriented mutual funds withdrew. Different types of mutual funds – such as those focused on bonds and equity – also have shown varying degrees of sensitivity to global financial turbulences.
“Knowing who the investors are is critical for understanding the evolving stability of capital flows into emerging markets,especially when the uncertainty over advanced economies’ monetary policy remains high,” said Gaston Gelos, Chief of Global Stability Analysis Division in the IMF’s Monetary and Capital Markets Department and the head of the team that produced the analysis.
No emerging market is an island
Changes in the mix of global investors in emerging market stocks and bonds are likely to make overall capital flows more sensitive to global financial conditions, according to the IMF.
The analysis found the share of more volatile bond flows had risen as more opportunities opened up to invest in emerging markets, and that larger direct foreign participation in local financial markets could transmit global volatility to local asset prices.
Investment from mutual funds is more sensitive to the ups and downs of global financial conditions than that of institutional investors. Many of the small investors putting money into mutual funds are less informed savers, who may panic-sell at signs of volatility. Mutual funds also invest in stocks and bonds that performed well in the short run, while selling those that did badly – a strategy called momentum trading. This may contribute to induce boom-bust cycles in asset prices, the IMF said.
Receiving more investment from institutional investors is generally good for capital flow stability during normal and moderately volatile times, because they tend to invest for the long term. However, the report cautions that these investors can pull more money out of a country and take longer to return after more extreme shocks – such as during the global financial crisis, or if a country’s government bonds are downgraded below investment grade.
Fundamentals matter
After two decades of investing, have global investors learnt more about emerging markets and become less prone to panics? There is little evidence for that, according to the IMF.
Economic conditions in a country affect investment and local asset prices, the IMF observed. For instance, in the months following the initial sell-offs in May and June 2013, global investors started to treat economies with better fundamentals differently from those with weaker ones.
But overall, there is no evidence that investor choices in times of stress in recent years were driven any more by countries’ economic fundamentals than they were in crises in the late 1990s and the early 2000s, according to the IMF.
The IMF also said investors’ tendency to mimic each other’s choices, known as herding behavior, has not declined either.
Options for policymakers
This does not mean that emerging markets efforts to strengthen their economies are ineffective and that these economies are at the mercy of global investors and policies in advanced economies, according to the IMF.
Together with stronger economic fundamentals, emerging markets have strengthened and deepened their financial systems over the past 15 years. The size of the domestic investor base – local mutual funds, pension funds, insurance companies, and banks – has grown, sometimes helped by direct participation of foreign investors in local markets.
In addition, more emerging markets can now sell local currency-denominated bonds to foreigners, overcoming the so-called “original sin” problem. The institutional quality of local markets has also improved substantially.
The report’s analysis highlights that local financial systems with more domestic services, products, and liquid markets help reduce the sensitivity of emerging economies’ stock returns and bond yields to the changes in global financial conditions. And the reductions are quantitatively large as well, the IMF said.
Therefore, policies to promote a more developed financial system, will better equip emerging markets to reap the benefits of financial globalization, while reducing its potential costs, the report adds.
The IMF also notes that initiatives to support the development of local-currency bond markets are generally beneficial. Countries should monitor the size of direct participation of foreign investors in local markets, as a very large foreign presence may transmit new volatility. This also underscores the importance of developing a local investor base.
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New economic report urges Africa to build credible institutions to boost industrialization
African countries need to introduce credible industrial policies and promote effective industrial policy organizations to enhance the structural transformation of the continent, says a new report jointly produced by the United Nations Economic Commission for Africa and the African Union Commission.
Transforming Africa’s industrial landscape has failed partly because countries used industrial blueprints characterised by lack of dynamism and high level coordination, as well as inadequate consultations with stakeholders, according to this year’s Economic Report on Africa.
Until now, says the report, an examination of Africa’s failure at industrialization had ignored the policy processes and institutions governing industrial policy in Africa or the impact of their inherent weaknesses on industrialization. “Indeed, weak institutional structures and poor policy design have been at the root of Africa’s industrial policy problem throughout its post-independence history,” the report declares.
The theme of this year’s report is “Dynamic industrial policy in Africa: innovative institutions, effective processes and flexible mechanisms.” While acknowledging Africa’s impressive economic growth in the past decade on the back of better commodity prices, improved governance and increasing domestic demand and trade and investment ties with emerging economies, it says that industrialization is a “precondition for Africa to achieve inclusive and sustainable economic growth.”
Beyond an analysis of the continent’s industrialization problems, and based on the experience of industrializing countries in the global south, the report offers an institutional framework for designing and implementing industrial policy in Africa.
The report recommends that top-level coordination of the industrial policy framework is required to deal with potential problems that could undermine the efficiency of industrial policy. Making provision for dialogues between public sector and private stakeholders allows governments and the industrial policy organizations to be adaptable to the changing needs of industry, it counsels.
Regarding the provision of modern infrastructure and logistics necessary for industrialization, the report wants governments with few resources to create “pockets of infrastructure” focused on sectoral or clustering needs of industrial expansion. It recommends industrial parks as one approach which “provides high potential for growth and value addition as well as for solid linkage development and related spillovers among companies, suppliers and service providers.”
The report builds on the previous work of the 2011 edition – on the role of the state in economic transformation – and last year’s – on leveraging Africa’s comparative advantages in commodities to industrialize.
Key messages
“There is a strong consensus that an expanding and prosperous industrial sector is crucial to the structural transformation of African economies and that, given the ubiquity of market failures, industrial policy interventions are usually required. Markets by themselves are also generally incapable of undertaking the kinds of structural transformation needed to move from low- to high-productivity activities...”
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Many African countries have experienced structural transformation in reverse
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African countries need a new industrial policy framework
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Successful frameworks for industrial policy are dynamic and organic
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Public-Private dialogue is essential to identify obstacles
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“Embedded Autonomy” is an imperative for dynamic industrial policy
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Effective industrial policy frameworks require high-level coordination and political support
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Regulatory effectiveness is needed to ensure policy coherence
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Governments need to incrementally create “Pocket of Efficiency” when they lack bureaucratic experience
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Integrated Development Policy frameworks can promote industrial policy effectiveness
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East African Common Market Scorecard 2014
The EAC Common Market Scorecard 2014 assesses progress toward the development of a common market in capital, services, and goods across the Partner States of the East African Community (EAC) – Burundi, Kenya, Rwanda, Tanzania, and Uganda.
Focusing on how each EAC Partner States’ laws and regulation conform to their commitments to the EAC Common Market protocol, the report reviews 683 laws and regulations relevant to the common market (124 in capital, 545 in services and 14 in goods) and several legal notices, reports and trade statistics. Its objective is to contribute to the accelerated implementation of the common market, thereby creating more and better opportunities for the private sector. The scorecard was requested by the East African Community Secretariat.
About the EAC Common Market Scorecard
The rationale for creating the EAC Common Market is compelling – it would combine the region’s economies, create new opportunities for the private sector and increase competitiveness. However, a common market requires that people, goods, services and capital move freely.
The EAC Common Market Scorecard measures the degree of Partner States’ legal compliance with their obligations to liberalize the cross-border movement of capital, services and goods.
Strong and integrated financial markets in the region help mobilize domestic capital, raise the amount and productivity of investment, bolster competition in the financial sector, facilitate information flows, and improve corporate governance. They can also help make EAC a more attractive destination for both foreign and domestic investment by shoring up the liquidity of the region’s capital markets and creating financing avenues for investors and issuers.
The services sectors are important for EAC’s growing economy. As the region’s markets expand, so does the share of services in the economy. Services are also a strong avenue for export growth. A dynamic service economy can make significant contributions towards the achievement of EAC’s development objectives of economic diversification, investment, employment generation, poverty reduction and an overall improvement of social welfare.
When goods circulate freely, manufacturers can access this larger market competitively and consumers get better choices and better products.
Why monitor compliance to the Protocol?
The purpose of monitoring the implementation of regional integration arrangements is to ensure that the member countries comply with their obligations. Effective monitoring and addressing identified bottlenecks to implementation can help address constraints connected to integrating economies. It also contributes to good regional governance practices, such as openness, transparency, participation, accountability, and effectiveness.
What the Scorecard measures
The scorecard tracks de jure compliance with commitments by the EAC Partner States to enable free cross-border movement of capital, services and goods. It provides an assessment of de jure compliance rather than de facto implementation of the integration commitments. The analysis is based on a review of 683 laws and regulations relevant to the common market (124 in capital, 545 in services and 14 in goods), along with key legal notices, reports and trade statistics.
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Europe-Africa relations: Well-intentioned diplomatic disaster?
At the 4th EU-Africa Summit, a number of issues might push tensions high.
The 4th EU-Africa Summit takes place in Brussels on 2-3 April. For months, there seemed to be a cascade of challenges that have, at different times, threatened the holding of the summit. Starting with tensions related to the push by the EU to force African countries to sign Economic Partnership Agreements (EPAs), the source of the tension shifted to the issue of the International Criminal Court (ICC) and the case against the Kenyan leadership.
Diplomatic issues have also coloured the pre-summit preparations after the EU announced that it has not invited Omar al-Bashir of Sudan and representatives from the Sahrawi Arab Republic, a member of the African Union, due to Morocco’s participation at the summit.
Now, just few days before the summit, Zimbabwe’s President Robert Mugabe has announced that he will boycott it due to the failure of the EU to grant a visa to his wife.
Besides diplomatic hiccups, leaders attending the summit will need to work around – or with – two key issues that are likely to influence the discussions in Brussels.
Trade issues back on the table
The question of the EPAs, thought to have been resolved after West African negotiators came to a technical agreement with EU negotiations in February, is now back on the table. Just days before the summit, West African leaders, gathering in Nigeria, failed to come to a political agreement to back the technical agreement. This leaves the trade negotiations in limbo.
The trade negotiations are a long-standing controversy between Europe and Africa. The EPAs have been dubbed a “well-intentioned diplomatic disaster”. On the African side, the key concern is that the trade agreement offered by the EU is not in line with the WTO regulations, nor is it in line with the African priorities notably on industrialisation. From theEuropean side, the trade is seen as a way to modernise trade relations with Africa.
The EPAs are no longer considered a technical issue but a political one. For a few years, observers have called on the EU’s political leadership to take over the negotiations. At the EU-Africa Summit of 2007, African leaders called for a thorough discussion on the EPAs to take place so as to defuse the tensions. But that summit took place without the issue being discussed. African leaders and the African Union are now arguing that the Brussels summit will not be a success, unless the issue of economic agreements is properly tackled.
Old controversies, new issues
On March 25, Ethiopia became the latest African country to announce its intention to introduce tougher measures targeting homosexuals making its already existing anti-gay law, as enshrined in the Criminal Code of 2005, more stringent. Ethiopia is the third African country to announce such measures this year after Nigeria and Uganda. More African countries, including some communities that accept homosexuality – as is the case in Kenya – are said to be drafting similar bills.
The laws triggered several reactions from within Africa. Some lauded the new laws, arguing that it is against “African culture” and religious beliefs. Others criticised them, such as South Africa’s Archbishop Desmond Tutu, who equated the laws to the apartheid regime’s attempt to legislate love by forbidding inter-racial marriages. Health activists also argued that it is not only a matter of protecting individual rights but that the laws would compromise progress in the fight against HIV/AIDS.
Some in the international community, especially in Europe and the US, have expressed their concerns. A handful of European countries, such as the Netherlands, Norway, Denmark and Sweden have gone further and have suspended aid to Uganda in protest. The European Parliament also called for “targeted sanctions” towards Uganda and Nigeria. Such targeted sanctions, it suggested, include travel bans and visa bans against “the key individuals responsible for drafting and adopting these two laws”.
The EU has launched a political dialogue with Nigeria to discuss the law and has held its first political dialogue meeting with Uganda on Friday. For many in Europe, civil society and leadership alike, the reaction is an attempt to reflect European values in Europe’s international relations.
A number of Africans, officials and non-officials, have admitted that there is a need to tackle attempts at alienating entire sections of the society. A West African parliamentarian told me: “We cannot deny the existence of homosexuality in Africa. But culture is dynamic and there will come a day when homosexuality is no longer a taboo. But maybe now is not the right time.” She argued that Europe is pushing for an agenda without allowing for a natural progression in African societies.
Some in the Lesbian, Gay, Bisexuals and Transgender (LGBT) community in Africa are also concerned. The reaction of the West seems to have resulted in “an unpleasant and contagious backlash”. It has indeed diverted the attention from the human rights question at hand to the political bickering between African and Western leaders.
The issue of LGBT rights, therefore, adds to the mix in an already bumpy road. It has reignited an old debate around conditionality: a traditionally controversial issue in EU-Africa relations. Africans feel times have changed and they are no longer obliged to rely on relations with Europe and therefore comply with externally imposed values. African and European policy-makers alike are increasingly embracing the argument that Africa’s new fortunes and its close relations with a new set of emerging global powers have provided it an alternative to Europe.
The tensions that the anti-gay laws have generated are a reminder of the long-standing tensions between Europe and Africa. Despite some positive cooperation that is scattered across different sectors such as agriculture, the two continents still have a long way to learn to move beyond old stereotypes and patronising attitudes to modernise their partnership in a way that meets the modern-day needs and interests of both.
Mistrust will need to be slowly abated. Africans still perceive Europe as a patronising continent. They would also be quick to note that Europe is inconsistent in the application of its so-called principles within Africa and between Africa and the rest of the world.
Europe’s engagements to strengthen its partnership with China despite human rights violations is a reoccurring example. In Europe, many will equally be quick in arguing that Europe is the largest aid donor to Africa – even though this approach is criticised by many who feel aid dependency should not be the main anchor of the partnership. In many ways indeed, the tensions between Europe and Africa are of psychology.
A summit that meets expectations
On March 27, African ambassadors to the African Union in Addis Ababa, Ethiopia advised their presidents not to attend the summit, partially due to tensions around LGBT rights. So far only Mugabe has withdrawn.
But the success of the Summit will depend on how important issues will be address. West African countries, such as Nigeria are expected to want to push for a debate on the economic partnership agreements. The EU is reportedly less keen on it. Divergence on the way forward on this issue therefore risks derailing the summit.
The EU has also tried to downplay the tensions around homosexuality in order to secure a smooth running of the summit. There is also a sense among some African policy-makers, closely associated with the preparations of the summit, that it would be best to focus on long-term cooperation between the two continents and use the opportunity to discuss the added value of the partnership, considering that this is the first international gathering that African leaders will take part in this year before they head to the Japan-Africa Summit in June and to the US-Africa Summit in August. However, they noted that, should the EU raise the issue at the summit, African leaders would respond strongly.
Faten Aggad-Clerx is an Africa analyst covering African development issues. She is currently the Program Manager for Africa at the European Centre for Development Policy Management. She writes in her personal capacity.
The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.
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Africa loses $60 billion annually through illicit financial flows – Mbeki
Monies for infrastructure and social amenities for the poor African population are being transferred to other countries via illicit financial flows.
A former South African President, Thabo Mbeki, on Sunday in Abuja said African countries lose between $50 billion and $60 billion annually through illicit financial flow, IFF.
Mr. Mbeki said this while presenting the Progress Report of the High-Level Panel on IFF at the ongoing 7th AU-ECA Conference of Ministers of Economy and Finance.
The former South African President was the Chairman of the panel set up by the Economic Commission for Africa, ECA, in 2012 to look into the nature of illicit funds in the continent.
He said the huge sums did not include capital flight as that came from proceeds of commercial transactions through multinational companies, criminal activities and corruption.
Mr. Mbeki lamented that the monies which would have been used to provide infrastructure and social amenities for the poor African population were transferred to other countries.
“Consequently, this left the continent in poverty,” he added.
Mr. Mbeki said the situation was occasioned by the weakened tax regime of some countries in the continent, adding that proper mechanism needs to be put in place to check the trend.
“In terms of the phenomenon of mis-pricing, the estimates are between 50 and 60 billion dollars which the continent loses as illicit financial flows, with capital flight not included.
“In order to understand the impact of this phenomenon on Africa, we decided that we carry out a number of country case studies in Nigeria, the Democratic Republic of Congo, Kenya, Liberia, Mozambique, Algeria, Mauritius and South Africa.
“From our study, it is quite clear that the continent is losing huge volume of capital which would have been used for investment and the process of industrialisation,” he said.
Mr. Mbeki said the study was conducted to enable the panel draw up a comprehensive report generally on the continent, as it was not possible for it to prepare a country-by-country report.
He added that the panel’s findings showed the main beneficiaries of IFFs from African countries were developed countries and emerging economies, which were Africa’s major trading partners. He said the illicit financial flow poses developmental challenges on the continent, in terms of draining hard currency reserve, reduced tax collection, deepening income gap, depleting investment and weakened governance.
The Liberian Finance Minister, Amara Konneh, said IFF has drained the continent of hard currency and deprived her of resources needed for human capital development.
Mr. Konneh urged African leaders to put in place measures to stop further outflow and recover what had been taken away.
“Multinationals are responsible for the outflow, through trade mis-invoicing and tax haven, by taking advantage of some countries’ weak tax regime,” he said.
The minister urged African countries to review their tax laws to improve their weakened system and stop the illicit outflow from the continent.
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Delegates debate scoring countries on regional integration
Mr. Rene Kouassi, Director of Economic Affairs, African Union Commission has urged experts this week to advance regional integration goals and move from ‘intergovernmentalism to supranaturalism and from corporation to integration.’ Mr Kouassi was speaking to the Committee of Experts of the Seventh Joint Annual Meetings of the ECA Conference of African Ministers of Finance, Planning and Economic Development and AU Conference of Ministers of Economy and Finance this week in one of key sessions aimed at a final report to be presented at a ministerial segment starting Saturday.
He said that the major obstacle to making this transition was what he termed as “attachment to sovereignty.”
“In order to integrate successfully, states must sacrifice some of their sovereignty, but this is often difficult to accept,” stated Mr. Kouassi.
He reminded delegates that the Abuja Treaty, which established the creation of the African Economic Community (AEC) and set integration goals for Africa, had been entered into force in 1994.
He discussed the progress of the Regional Economic Communities (RECs), pointing out that the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA) have both already launched their respective Customs Unions, and that EAC has a Common Market. The Economic Community of West African States (ECOWAS) is on track to institute a Customs Union in 2015.
“Africa is due to complete a continental customs agreement by 2019′, said Mr. Kouassi adding; “if current progress continues, meeting this deadline is very much within reach.”
While there are some successes, he acknowledged that there are still many communities lagging behind.
Existing barriers to integration include the lack of free movement of people between countries without visas, the very limited amount (12%) of inter-country trade, and the fact that the continent has over 40 currencies. He also said poor infrastructure and under-industrialization in Africa are, among others, obstacles to integration.
“However, if agreements that are currently under discussion become reality, then the continent will be in a good position to accomplish its integration goals,” he said.
Mr. Kouassi reiterated the need for economic and political integration stating that it would lead to a prosperous and peaceful Africa, one that is managed by its own “sons and daughters.”
He also emphasized that Africa must move from corporation to integration or risk compromising the vision for inclusive development.
“If we don’t agree to share our sovereignty, I believe we will be wasting our time,” he added.
In the discussions that followed, delegates suggested the need for evaluative criteria around integration, such as a ‘score card’ that could be regularly disseminated.
Delegates from several countries cited lack of political will as the greatest obstacle to integration, with the delegate from Sudan acknowledging that “losing sovereignty frightens many people.”
Delegates suggested touting the advantages of integration more clearly and more vocally, and using the “scorecard” to hold countries accountable. The delegate from Sierra Leone underscored the importance of integration in pointing out that conflict and disease always cross borders, but discussions around economics often fail to see commonalities.
The delegate from Mauritius added that maritime transportation was notably absent in the integration analysis and should be included in future reports as it could benefit the island countries and many of the continental countries as well.
He described how Mauritius proactively opened up its borders and now permits citizens from 47 African countries to enter without a visa.
Mr. Kouassi commended Mauritius on this point, and challenged the other countries to break that record.
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Customs experts reflect on rules of origins in the effort to establish the Continental Free Trade Area
The first African Union consultative meeting on Continental Free Trade Area (CFTA) Rules of Origin kicked off today in the Senegalese capital. Convened at the initiative of the Department of Trade and Industry of the African Union Commission, the meeting was co-organized with the Customs Directorate of Senegal.
Within two days, participants, for the most part, delegates of Member States and Regional Economic Communities (RECs) will reflect on the need to implement action plans to promote and strengthen Intra-African Trade in an effort to create the African Common Market. Customs experts will make concrete proposals to be submitted first to the Directors Generals and later on to the trade ministers for them to make decisions on rules of origin.
In his opening remarks, Mr. Jean-Nöel FRANÇOIS, Head of Delegation of the Department of Trade and Industry of the African Union Commission welcomed the consultative meeting as one of the pillars of the development of the Continental Free Trade Area through the Continental Rules of origin. “Africa is increasingly recognized as the next growth pole. It belongs to our countries to seize the opportunity of this favorable situation so that we can regain our rightful place in international trade, “he reiterated.
Taking the floor, Mr. Guidado SOW, Director of Regulation and International Cooperation of Senegal, expressed his gratitude to the African Union Commission for the nomination of his country to host the consultative meeting on rules of origin. He also explained that the rules of origin are used to determine the original country of origin of goods in the international trade field. To this end, the fact of establishing a geographical link between goods in a given country where they are actually made, can establish good trade policy in the context of preferential trade agreements, including those from free exchange areas. “I remain convinced that African states can apply their trade policy measures only if they are able to determine the origin of imported products,” he stressed. He then invited the participants to open debate on all issues on the agenda in order to provide a framework for rules of origin to facilitate the establishment of the Continental Free Trade Area.
This meeting is conducted in line with the recommendations contained in the report of the 5th Ordinary Meeting of the Subcommittee of Customs Directors General of the African Union, held 12 – 13 September 2013 in Cotonou under the theme: “Towards a trade facilitation Strategy for the Continental Free Trade Area”.
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Southern African Customs Union (SACU) benchmarks with EAC
Senior officials from Southern African Customs Union (SACU) together with their counterpart EAC concluded a two-day meeting aimed at benchmarking similar activities, learn the best practices and share ideas at the EAC Headquarters in Arusha ,Tanzania.
The 27-28 March benchmark visit of the South African Custom Union team to the EAC secretariat aimed at sharing ideas and learn best practice on areas such Competition Policy, Trade in Services, Agriculture Policy, Revenue Mobilization and Industrial Policy.
The Visit of SACU saw the Senior Officers from the EAC Secretariat made exhaustive presentations and provided clarifications where necessary. The East African Business Council also had a chance to make a presentation on their strategic plan particularly on issues such as Institutional strengthening, Policy and Advocacy, Value adding services and Membership development, Increased Visibility and Partnerships creation and maintenance.
Speaking during the opening of the meeting the EAC Deputy Secretary General in charge of Finance and Administration Mr. Jean Claude Nsengiyumva appreciated the trust that SACU has on EAC and proud that they chose to benchmark with the EAC.
Mr. Nsengiyumva reiterated that for the Regional Economic Communities (RECs) to be strong they ought to share best practices which will lead to development of not only the RECs but Africa at large.
Mrs. Moureen Matomola Deputy Director Policy Development and Research SACU and leader of SACU’s delegation to the EAC, commended the EAC for accepting SACU’s request to come and learn the best practices and share ideas which will lead to collaboration and strengthen the relationship between SACU and EAC.
She appreciated the information they got from the EAC at a time when they are in the process of transforming their organization into an Economic Community. Mrs Matomola also applauded the efforts undertaken by EAC in the EAC-COMESA-SADC tripartite in easing trade relations in the regions.
The visit is the continuation of the relationship between SACU and the EAC.
Background
The Southern African Customs Union (SACU), an African regional economic organization, is the world’s oldest customs union, founded in 1910. Its members include Botswana, Lesotho, Namibia, South Africa, and Swaziland.
The five member states maintain a common external tariff, share customs revenues, and coordinate policies and decision-making on a wide range of trade issues.
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Business schools respond to demand in courses for Africa
Business schools can hear the call of Africa. The IMF forecasts that the sub-Saharan African region will enjoy growth of 6 per cent in 2014. But there is a dearth of management expertise – even though there appears to be a healthy demand for acquiring it.
Overseas business schools interested in expanding their reach will have noticed data from the Graduate Management Admission Council that show 5,490 GMAT tests were taken in the African region in 2012-2013 – more than in eastern Europe and only about a thousand fewer than in Canada and Latin America respectively.
“We believe that Africa is a very dynamic economic environment. It’s the fastest-growing market in the world,” says Annette Nijs, executive director of Ceibs’ global initiative.
However, the different ways some overseas business schools are responding to that fast-growing market are in some cases inspiring deep resentment and accusations of neo-colonialism and exploitation.
Jon Foster-Pedley, dean of Henley Business School Africa, based in Johannesburg, says that a few years ago there was a crackdown on the fly-in, fly-out business school model many overseas business schools were adopting to gain a feel for the African market. There had been a feeling that some operators were cynically capitalising on the emerging world. “What you have to do if you want to operate here is play by the rules,” he says.
Nonetheless, there is a need for management education in Africa.
Read the full article on the Financial Times website.
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Kenya should push for concessions in EPA negotiations
Kenya should use its geopolitical standing in the East Africa region to get concessions from fellow EAC states and the European Union in negotiating the new trade agreement.
Experts at audit and advisory firm KPMG on Tuesday said that Kenya plays a crucial role in the East African context and thus deserves to be heard by all parties on the negotiating table.
“Kenya is especially in a tricky position because ‘we are poor but we are not poor enough’, that’s our challenge, and therefore some of the benefits that fellow EAC members can obtain from these agreements are not accessible to us,” said Josphat Mwaura, chief executive of KPMG East Africa.
“But there’s a perspective that one can present that should enable Kenya to access some concessions, especially the geopolitical issues that we are dealing with as a country. The position we hold in East Africa – in the context of Somalia, DRC, South Sudan – should enable us to obtain some concessions even when classified as a developing country,” he said.
The East African Community and the EU have been negotiating a new Economic Partnership Agreement over the last 12 years, whose deadline is set for this October. If nothing will have been agreed to, exporters and importers in either of the blocs will incur taxes on goods, making them uncompetitive.
“It is unfortunate that they have been negotiating for that long,” said John Scott, KPMG’s global deputy chairman, who is in Kenya as part of his Africa visit.
The EPA is expected to provide free market access and co-operation support between the two trade blocs. Presently,Kenya exports to the EU under the Market Access Regulations since 2007, but this will be repealed on October 1. Flower exports to EU, for instance, will instantly attract a 8.5 per cent tax.
Kenya is categorised as a developing country while Uganda, Rwanda, Burundi and Tanzania are considered least developed countries, and thus stands to lose more. The LDCs will continue to gain favourable access to the EU market under the ‘Everything-But-Arms’ scheme, which grants ‘duty-free, quota-free’ access to imports of all their products.
Mwaura said EAC states must look internally to establish a position and present that at the negotiating table.
“East African economies are at different maturity paths in terms of economic development but when looked at as a whole, there is a lot in comparative advantages that each presents,” he said.
“We have the power of opportunity in this region and it is about defining and refining that case and presenting it with clarity and with conviction. This way we would make a clear case for EAC and whoever sits across the table would want to be part of that case.”
The EAC could also take advantage of the ongoing transition in the EU Parliament, which presents opportunity for dialogue. The parliament will hold elections in May and may usher in legislator who are political-friendly to the EAC region.
“The political environment in the EU is changing slightly… and I think there is an opportunity there for Kenya, East Africa and other countries negotiating trade agreements with the EU,” said Scott.
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Trans-Kalahari railway to ease corridor congestion in SADC
Once completed in 2016 the Trans-Kalahari railway would serve as an alternative relief to the already congested corridors within the Southern African Development Community (SADC) and grant landlocked countries much-needed access to European, Asian and American markets.
The railway connection being developed at a cost of about N$100 billion (about US$9.2 billion), to connect Botswana to the Atlantic Port of Walvis Bay in Namibia, would ensure that the SADC vision for regional integration is realized, according to the Minister of Minerals, Energy and Water Resources of Botswana, Onkokame Kitso Mokaila. The two countries signed the agreement last week in Walvis Bay.
The project is expected to create jobs, new business and trade opportunities for citizens of both countries. “Trans-Kalahari Railway is so important to SADC and Africa, since it will further afford alternate transportation routes for landlocked countries such as Malawi, Zambia and Zimbabwe. It will be ideal for the exportation of bulk commodities destined for Europe, Asia and America,” he said. According to Mokaila, Namibia and Botswana are also aware of the environmental challenges associated with coal and coal generated electricity, but went on to say that coal will be a source of fuel for power generation for years to come. “It is in this regard that the development of TKR and commodity handling facilities in Walvis Bay will go a long way in facilitating the development of the estimated 212 billion tonnes of coal resource in Botswana in power generation and others,” Mokaila explained.
He said with the ever growing demand for power in the region and elsewhere, the Walvis Bay commodity terminal is expected to handle about 65 million metric tonnes of coal per year.
President Hifikepunye Pohamba and late president Sir Seretse Khama of Botswana received plaudits for taking a personal interest in the realisation of the railway line. “Was it not for the two presidents and other important role-players that were instrumental toward the realisation of the project, we would not have been signing this agreement today,” said Mokaila. Namibian Minister of Mines and Energy, Erkki Ngmintina said the signing of the Trans-Kalahari Railway agreement provides an added impetus and a new platform for people of both countries to lay the groundwork for industrialisation.
“It does not hamper existing gateways, but creates a new path for new and additional role-players,” Nghimtina said. He added that the two countries will further consult and engage to assist the technical ministries as the implementation ofthe project continues.
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Governments urged to direct resources in manufacturing to create jobs and reduce poverty
African countries need to channel their resources to activities in industry, manufacturing and modern services in order to create more employment and improve the welfare of vulnerable groups, Deputy Executive Secretary of the United Nations Economic Commission for Africa, Abdalla Hamdok, said today in Abuja.
The continent should focus on developing a manufacturing sector that is interlinked to other sectors of the economy and is capable of raising productivity,” Hamdok said today at the opening of a meeting of African finance, economy and development experts in the Nigerian capital.
“Both resource-rich and resource-poor African countries should also build capacities to invest in new non-commodity-based industries,” he said at the meeting which precedes the Seventh Economic Commission for Africa and the African Union joint annual meetings of the Conference of African Ministers of Finance, Planning and Economic Development which opens on March 27.
Hamdok said despite its rapid economic growth over the last decade, Africa continues to display glaring contradictions between economic and social indicators, as poverty remains pervasive while unemployment among women and the youth remains very high. In a bid to tackle the challenge, the focus of this year’s gathering is on industrialization for inclusive and transformative development of Africa.
For his part, Dr. Anthony Mothae Maruping, Commissioner for Economic Affairs at the African Union Commission said most African economies have been performing well in terms of headline numbers without significant impact on the lives of the people.
“Africans are therefore calling for major structural transformation to sustain the current economic performance,” he said, stressing that the next critical level is industrialization as the means to “meaningfully join the global value and supply chains where opportunities and jobs are created.”
He also said that governments would have to develop institutions that can effectively implement industrialisation plans and strategies.
Present at the opening were representative of the Government of the Federal Republic of Nigeria, Mr Anatole Yehoan Tohougbe, Chairperson of the Outgoing Bureau of the Committee of Experts, Mr Abraham Nwankwo, Director General of Debt Management Office, Federal Republic of Nigeria; African Ambassadors; Members of the Diplomatic Community; and Senior Officials from Ministries of Finance, Planning and Economic Development as well as Central Banks.
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US claims victory in trade dispute with China
The World Trade Organization ruled Wednesday that China has violated international trade rules with its restrictions on the export of 17 “rare earths” and two other minerals that have key industrial and high-tech uses.
Responding to complaints filed by the United States, the European Union and Japan, the WTO dispute settlement panel found that China’s restrictions “breach” its obligations to the world trade body because the country could not properly justify them.
“China’s decision to promote its own industry and discriminate against U.S. companies has caused U.S. manufacturers to pay as much as three times more than what their Chinese competitors pay for the exact same rare earths,” said U.S. Trade Rep. Michael Froman.
The case applies to 17 rare earth minerals which, despite their name, are for the most part relatively abundant, and are commonly used to make goods including hybrid cars, weapons, flat-screen TVs, mobile phones, mercury-vapor lights and camera lenses.
China accounts for more than 90 percent of production of rare earth minerals, though it has only about 30 percent of the deposits of rare earths in the Earth’s crust. In 2009, it alarmed foreign companies by limiting exports of the rare earths in an attempt to boost its domestic manufacturing base. Chinese officials had also expressed the hope that foreign companies which use rare earths would shift production to China and give technology to local partners.
But the WTO panel decided that trade in a country’s natural resources, once extracted from the ground and put onto the market for sale, is subject to WTO rules. The U.S., EU and Japan argued that the export restraints artificially increased world prices for the minerals, while artificially lowering prices for Chinese producers.
In a statement on the panel’s ruling, the EU’s mission to the WTO said the ruling affects minerals used as essential components by a wide range of European industries. And while no one contests China’s right to impose environmental and conservation policies, EU officials said the panel’s ruling affirms that “the sovereign right of a country over its natural resources does not allow it to control international markets or the global distribution of raw materials.”
The panel’s report on China’s export restraints, which include export duties and quotas, may be adopted or appealed within 60 days. If adopted, the U.S., EU and Japan would be entitled to retaliate trade-wise if China did not comply with WTO rules.
China’s WTO mission in Geneva did not immediately respond to a request for comment.
WTO Dispute Panel Reports in the case “China – Measures Related to the Exportation of Rare Earths, Tungsten, and Molybdenum”, 26 March 2014
- Panel Reports (257 pages)
- Addendum (120 pages)
Update: 8 April 2014
US appeals rare earth panel report (WTO News item)
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Obama defends proposed EU trade pact
President Barack Obama defended a proposed U.S. trade deal with the European Union against charges it might weaken environmental standards and consumer protection, saying he wouldn’t allow that to happen.
While voters may have “legitimate questions” about the impact of the trade talks, neither side will agree to a bad deal that allows companies to run around the rules, Obama said. The Trans-Atlantic Trade and Investment Partnership, which the U.S. and the EU began negotiating last year, aims to maintain or strengthen consumer safeguards, he said in Brussels today.
“I have no intention of signing legislation that would weaken those protections,” Obama said when asked about the deal’s consequences at a news conference following an EU-U.S. summit. “There is a way of doing this right that will help us make sure that we remain at the cutting edge of innovation.”
The U.S. and the EU are working toward a trade deal after sparring for decades over issues including agricultural protections, food safety and other regulatory standards. Talks, which have been given renewed impetus by the standoff over Ukraine, also are taking aim at $10.5 billion in tariffs.
“In days like these, forging strong economic ties across the Atlantic is a political sign,” EU President Herman Van Rompuy told the same briefing.
U.S. Trade Representative Michael Froman on March 22 called on the EU to renew pledges to eliminate tariffs by the time the deal is complete. Each side has complained about the offers presented in negotiations so far.
Tariffs are already low and could shrink even further if the deal proceeds, European Commission President Jose Barroso told the same Brussels briefing today. “We are trying to get it even lower,” he said.
‘Residual Protection’
The EU’s ambassador to the U.S., Joao Vale de Almeida, said the final agreement may not be able to wipe out every tariff on every product. Services and procurement are other essential elements of the proposed trade deal, he told reporters after the press conference.
“The purpose that we had from the very start is to reduce tariffs as close as possible to zero,” Vale de Almeida said, adding that there may be a need for “residual protection here and there.” There are “other issues in our view equally or more important than tariffs,” he said.
Barroso called for the trade talks to gain a “new impulse” that “will be very important to give a decisive injection of dynamism.” The EU and U.S. economies stand to add jobs and give a boost to households and small businesses if the deal succeeds, he said.
Talks Timetable
EU and U.S. trade officials originally set the end of 2014 for completing the talks. Froman said there isn’t a hard schedule for how the talks should proceed, especially given impending elections to the European Parliament in May and the European Commission’s term expiring later this year.
Obama said he was confident the U.S. and the EU could find a deal that offered benefits across their respective economies.
“I think it is important for us as leaders to ensure that trade is helping folks at the bottom and folks in the middle, and broad-based prosperity, not just a few elites,” Obama said. “That’s the test that I’m going to apply in whether or not it makes sense for us to move forward in a trade deal.”
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Ten emerging countries hot on the heels of the BRICS
Indonesia, Bangladesh and Ethiopia are among 10 countries set to take over as emerging economies from the powerful BRICS nations as they struggle with growing pains, a French credit body said on Tuesday.
“After 10 years of frenetic growth” the big five emerging economies of Brazil, Russia, India, China and South Africa – the BRICS – “are slowing down sharply,” the French trade credit and insurance group Coface said.
In a report entitled “Coface identifies 10 emerging countries hot on the heels of the BRICS,” the organisation said that average economic growth by the BRICS this year would be 3.2 percentage points less than the average in the last 10 years.
But “at the same time, other emerging countries are accelerating their development,” it said.
The growth of emerging economies and the effect this has on world trade flows is closely analysed by economists because of the huge impact on every aspect of the global economy and power balances.
Coface broke the 10 new emerging economies it has identified into two groups.
The first comprises Peru, the Philippines, Indonesia, Colombia and Sri Lanka, which it named the PPICS.
They had “strong potential confirmed by a sound business environment,” Coface said.
The second group comprises Kenya, Tanzania, Zambia, Bangladesh and Ethiopia.
But these countries are marked by “very difficult or extremely difficult business environments which could hamper their growth prospects,” Coface said.
However, the head of country risk at Coface, Julien Marcilly, said that in 2001 “the quality of governance in Brazil, China, India and Russia was comparable to that of Kenya, Tanzania, Zambia, Bangladesh and Ethiopia today.”
But the 10 “new emerging countries” currently accounted for only 11.0 percent of the world population whereas the BRICS had accounted for 43 percent of the population in 2001.
The total gross domestic product of the new 10 was only 70 percent of the output of the BRICS in 2001, and they had a current account deficit of about 6.0 percent of GDP whereas the BRICS had run a surplus on average.
On a positive note, the new 10 had inflation which was about 2.8 percentage points lower than BRIC inflation in 2001, and their public debt was about 40 percent of output compared with 54 percent for the BRICS at that time.
Coface said that growth in the BRICS was slowing down, despite favourable trends for consumption, because of an adjustment in supply and “a marked slow-down in investment.”
Local businesses could no longer satisfy strong demand, it said.
Marcilly said that the BRICS were moving into a new phase since their exports were becoming less competitive, and because they were not yet competitive in offering products with very high added value.
This was why Coface had set out to identify the next wave of driving emerging markets, looking for potential annual growth exceeding 4.0 percent, a diversified economy without undue dependence on the sale of raw materials, and some capacity to absorb economic shocks.
These conditions had to be matched by a financial system capable of supporting investment, but without raising risks of overheating.
The chief economist at Coface, Yves Zlotowski, said that the organisation had tried to combine measures of growth potential and risk potential.
This method had excluded Vietnam from the list of new emergers because although it had strong economic potential, its financial system was out of control, he said.
Coface said that its list of so-called neo-emerging markets could not be compared with the BRICS in terms of size and population.
The use of the word PPICS as an acronym comes in a line of attempts by economists to group various types of new emerging economies.
Among these are MINT for Mexico, Indonesia, Nigeria and Turkey, or CIVETS for Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.
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Africa CEO Forum 2014: Meeting of African Private Sector Leaders has kept its promises
After three days of intensive and productive discussion, the Africa CEO Forum 2014 closed at midday on Wednesday, March 19 in Geneva. Organized by Groupe Jeune Afrique, in partnership with the African Development Bank (AfDB) and Rainbow Unlimited, this was second meeting of African private sector leaders. Over 700 employers, banks, investors, ministers and journalists took part in discussing the big economic questions in Africa.
From the competitiveness of African businesses to the digital revolution, taking into consideration the specific questions of processing the continent’s natural resources, and facilitating financial integration in Africa, the forum addressed numerous issues.
Three lessons can be drawn from the Africa CEO Forum 2014:
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Ongoing mobilization of the private sector, a sign of the vitality of African entrepreneurs and the success of the event;
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Removal of divisions between francophone and anglophone Africa; this second meeting attracted a large number of CEOs from Nigeria, Tanzania and also South Africa;
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Finally, the very useful discussions; the forum made it possible to consider somewhat detailed questions such as the state of the African economy in comparison to Asia.
The Africa CEO Forum Awards
The Africa CEO Forum also gave the organizers a chance to honour the companies and investors whose strategies are proof of their determination to be part of the African growth dynamic. The aim of this initiative was to encourage the creation of competitive African enterprises. In addition to commitment and outcomes, four key areas were taken into account: promoting the African private sector, strengthening regional integration, developing intra-African exchanges, and social and environmental responsibility.
There were two particular high points during prize-giving:
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Asky Airlines was chosen as best African enterprise of the year. The company was founded by Gervais Koffi Djondo from Togo, a former director of Ecobank.
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Daphne Mashile-Nkosi from South Africa, the first African woman to head a mining company, was named African CEO of the year.
Next CEO Forum to be held in Africa
During the forum closing ceremony, warm thanks were given to this year’s participating private sector companies by both Amir Ben Yahmed, Director General of Groupe Jeune Afrique and Chairman of the Africa CEO Forum, and Mouhamadou Niang, Acting Director of the AfDB’s Private Sector Department. The companies were told to save the date for the third meeting, in Africa!
“It was important to hold the first two meetings outside of Africa, to make African capitalism visible to investors around the world. It was also necessary to find a meeting place that could mobilize anglophone and francophone Africa, along with the international mass media. Now that we have a brand, a reputation, we will organize the third meeting in Africa,” said Ben Yahmed.
Speaking on behalf of AfDB President, Donald Kaberuka, Mouhamadou Niang stressed that “there was a positive atmosphere and spirit during the discussions, which were serious, useful and of very high quality. What we will take away from this meeting is that African business must have faith in its enormous abilities while remaining realistic about the constraints it has to face.”
Niang explained that the AfDB strategy regarding the private sector will put special emphasis on several elements, including support for States, and particularly their investment-promoting agencies, in order to make them effective partners for private enterprise, especially within the PPP framework. Another priority will be processing natural resources, with attention all along the value chain, SMEs included. In addition, the AfDB will support professional training in order to improve the correlation between supply and demand for productive skills, along with education in general.
About the Africa CEO Forum
Developed in partnership with the African Development Bank, the Africa CEO Forum is organized by Groupe Jeune Afrique, publisher of Jeune Afrique and The Africa Report, and by Rainbow Unlimited, a company specializing in the organization of business events and manager of the Swiss-African Business Circle (SABC).
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Deeper integration: SADC sets priorities for 2014
At least seven priority areas have been identified for implementation this year as southern Africa intensifies efforts to deepen integration for socio-economic development. The priority areas were adopted by the SADC Council of Ministers, which met in March in Lilongwe, Malawi.
The ministers agreed to intensify efforts towards finalizing the review process of the Regional Indicative Strategic Development Plan (RISDP) and consolidation of the SADC Free Trade Area (FTA) launched in 2008.
Other key priorities are conclusion of negotiations to establish a single market covering 26 countries in eastern and southern Africa; fast-tracking implementation of the Regional Infrastructure Development Master Plan; strengthening measures to improve food security; and implementation of the HIV and AIDS cross-border initiatives.
The seventh priority is on peace building and consolidation of democratic practices in the region. The SADC Council of Ministers that oversees the functioning and development of SADC is made up of ministers of Foreign Affairs, Economic Planning or Finance from the 15 Member States.
The current Chairperson of the SADC Council, the Malawian Foreign Affairs Minister Ephraim Chiume, said implementation of the priority areas is critical in promoting regional development, particularly in an era of the weakening global economic outlook.
“The world economy is showing signs of slowing down, and this may have the domino effect on the economies of SADC and that calls on us to find innovative ways of subduing these effects,” said Chiume.
A multi-stakeholder task force has been set up to implement recommendations of an independent review of the RISDP that was concluded last year.
The task force is expected to propose new priorities, main focal areas, milestones, outputs, targets and timeframes for the remainder of the implementation period of the RISDP; and suggest new policy, strategy, and institutional innovations for the post-2018 period after the development plan comes to an end.
The team is expected to prepare a summary of key recommendations and priorities for completion of the RISDP and present these to Council for deliberation and endorsement when the latter meets again in Zimbabwe in August.
The review of the 15-year SADC development blueprint that was adopted in 2003, aims to ensure its targets are realistic and in line with regional agreements as well as continental and global dynamics.
Council resolved to devote greater energy to implementation of the Regional Infrastructure Development Master Plan that aims to create an efficient and cost-effective infrastructure network in southern Africa by 2027.
Implementation of the master plan got a boost in February following the signing of a €12 million (about US$16.5million) agreement between SADC and the European Union for the operationalization of the Project Preparation and Development Facility (PPDF).
The PPDF aims to facilitate preparation of bankable projects in the region.
Under its ambitious US$64-billion infrastructure programme, SADC aims to develop cross-border infrastructure in the six key areas of energy, transport, tourism, water, information communication technology and meteorology.
Implementation of this programme started in 2013 and will be done in three five-year phases of short term (2012-2017), medium term (2017-2022) and long term (2022-2027).
With regard to food security, the region is aiming to boost capacity through greater commitment to various regional measures on agriculture such as those identified in the Dar es Salaam Declaration on Agriculture and Food Security.
Adopted in 2004, the Dar es Salaam Declaration encourages member countries to allocate at least 10 percent of their national budgets to agriculture annually.
Other measures include improving the availability and access to agricultural inputs for farmers, consisting of improved seed varieties, fertilizers, agrochemicals, tillage services and farm implements.
Significant progress has been made in meeting some of the targets. However, a number of countries still lag behind in implementing the plan - a development that could derail efforts to boost production and make the region food self-sufficient.
Full implementation of the HIV and AIDS cross-border initiatives would enable the region to curb the spread of the virus, allowing SADC to strengthen its human resource base – a key component in advancing the regional integration agenda.
As part of the initiative, Member States are expected to improve the regional response to HIV and AIDS among mobile populations, including long-distance truck drivers, commercial sex workers and communities that live close to border areas.
At least two mobile clinics are expected to be established in each Member State to provide various services such as testing and counselling, and medical referrals as well as behaviour change communication.
In addition to fast-tracking the various regional targets and programmes, SADC plans to deepen integration this year by consolidating gains from the FTA and the peace that prevails in the region.
The SADC FTA came into force on 1 January 2008 following implementation of agreed tariff phase-down commitments between 2000 and 2007.
From 2008, producers and consumers no longer pay import duty on an estimated 85 percent of all trade in goods between participating member states, which are Botswana, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. Two countries, Angola and DRC, have said they will join the FTA later.
With regard to engagement with other Regional Economic Communities, the finalization of the tripartite agreement with COMESA and EAC would boost intra-regional trade, by creating a wider market covering 26 countries in eastern and southern Africa.
SADC companies will have access to a combined population of approximately 600 million people, spanning from Cape to Cairo.
The single market would serve as one of the building blocks of an African Economic Community.
The target for COMESA-EAC-SADC is to reach an agreement by June, paving the way for the launch of the grand FTA that will become a new benchmark for deeper regional and continental integration in Africa.
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Euro-Africa ties: Africa should be more assertive
Africa cannot remain submissive while the West rides roughshod over its social and cultural heritage. Where is the independence then when a cabal of Western nations wantonly impose their will on Africa? The African Union should by now be upset about the boisterous behaviour of Western nations.
With a shameful background of slave trade and colonialism, it is insulting that the West still wants to claim the moral high ground to chaperone Africa.
Decades after colonialism, the West has continued to invade African nations like Libya and Ivory Coast, stoking eternal conflicts in the DRC and other places while at the same time imposing unjustified sanctions on countries like Zimbabwe.
Given such an ugly backdrop, the arbitrary and disruptive meddling by the former colonialists in Africa’s internal affairs should be denounced with the contempt it deserves.
Not only is Africa’s right to self-determination undermined but its sovereignty and territorial integrity are equally adulterated. Quite a number of questions arise out of this matter: Why should Africa continue to have its destiny choreographed from places yonder? Where is the independence then when a cabal of Western nations wantonly impose their will on African states or create difficult conditions that encumber their development through unjustified sanctions?
Instead of the current master-servant relationship, it is time the West treated Africa with respect.
The West should disabuse itself of the narrow-minded belief that Africa should take lessons from it.
Africa should not be forced to conform to Western ideals on politics, economics or social norms. Africa has an inalienable right to self-determination and should thus be duly accorded the right to chart its destiny.
With this in mind, the forthcoming summit between Africa and the European Union scheduled for May should provide the AU with a proper platform to register its unambiguous displeasure over the way the West has been treating its members.
Already, the EU had disdainfully tried to play its Big Brother role by picking, on behalf of the AU, the African countries that it deems suitable to attend the forthcoming Euro-Africa summit.
Countries like Zimbabwe, which are inexplicably bandied as threats to EU interests, were initially barred from attending the summit.
It is encouraging that the AU rejected such condescending manoeuvres and warned the European bloc against blocking any African leaders from the summit.
Similarly, it is reassuring that during the 35th African, Caribbean and Pacific (ACP) Parliamentary Assembly session held in Strasbourg, France, the AU registered its intention to reject a motion by the EU to invoke Article 96 of the Cotonou Partnership Agreement to impose sanctions on Uganda and Nigeria. The ACP Parliament said it would discourage African heads of state and government from attending the Euro-Africa Summit should Western nations impose sanctions on Uganda and Nigeria over their anti-gay laws.
The EU wanted to impose sanctions on them to arm-twist them to embrace this alien practice.
The Ugandan parliament unanimously passed the Anti-Homosexuality Bill on December 20, 2013 and the Bill was subsequently signed into law by President Yoweri Museveni on February 24 2014.
In Nigeria, President Goodluck Jonathan signed the anti-gay Bill into law in January 2014 after it was passed by the legislature in November 2013.
These developments in the two African nations did not go down well with the Westerners who expect all African nations to conform to their crusade to impose homosexuality on Africa in exchange for aid.
One hopes that the aforestated flexing of diplomatic muscles by the AU against the bullying tactics of the EU is a foretaste of a new assertive disposition of Africa to stamp its right to self-determination in the future.
Africa cannot remain submissive while the West rides roughshod over its social and cultural heritage.
Ironically, the EU stands as a poignant example of the essence of consistent regional integration, which Africa must emulate.
In all matters, the Europeans speak with one voice and present a unified front when confronted with what they deem to be threats to their aspirations.
For example, when the British cried foul over Zimbabwe’s land reform programme, the European bloc closed ranks and hijacked the bilateral dispute.
Without adhering to the consultative underpinnings of the Cotonou Agreement between the ACP and EU, the EU unilaterally imposed sanctions on Zimbabwe in 2002.
This is not to sanitise or praise-sing about the unwarranted imposition of sanctions on Zimbabwe but simply to highlight that the reaction of the European bloc to a bilateral matter between Britain and Zimbabwe proffers a pertinent lesson to the AU on how to fight in the corner of its members when confronted with external threats.
It did not matter that those sanctions would hurt the economic interests of other members such as Belgium, who were eyeing Zimbabwe’s rich natural resources. What mattered was the EU’s obligation to honour its code of defending the interests of its member states.
On the other hand, some African countries could not rally around Zimbabwe. Instead, countries like Botswana came out in support of the illegal sanctions imposed on Zimbabwe despite being neighbours. At some stage, Botswana was even fingered in some Western-engineered plot to stage military attacks on Zimbabwe.
In the Libyan case, some African nations in the Security Council unwittingly voted for the invasion of the sister nation in support of Western machinations. Investigations by the United Nations also revealed that some East African nations, in cahoots with some Western nations, are actively involved in fuelling the longstanding conflicts in the DRC.
Apparently, Africa has no united front against the intrusive intrigues of the West. But, if the recent flexing of diplomatic muscles by the AU against the EU is anything to go by, the disparate approach to external threats could be dissipating.
What is left is for African countries to use this as a springboard to form a united front under the aegis of the African Union. African countries should consistently speak with one voice against Western machinations that threaten to undermine the continent’s sovereignty and territorial integrity.
The forthcoming Euro-Africa Summit should therefore provide the continent with a chance to unapologetically assert its right to self-determination.
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Why free trade agreements are ever more vital for India
Giant agreements like the Trans Pacific Partnership will change global trade. India needs more FTAs tocompete
The direction of global trade is set to change as mega agreements like the Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (TTIP) come into force. The TPP includes 12 of the Pacific Rim countries including the US and Australia, whereas TTIP is between the US and the European Union. Respectively, they represent around 39 per cent and 60 per cent of the world GDP. They have the potential to adversely affect excluded countries such as India by diverting trade and investment away from them and weakening their positions in global value chains.
In a study that CUTS had done we found an increasing number of products in India’s export basket being threatened by either TPP or TTIP. According to another study by Sao Paulo-based Center on Global Trade and Investment, as a result of TPP and TTIP, India’s nominal GDP (gross domestic product) is expected to be reduced by more than one per cent and the resultant negative multiplier effects on revenue and employment generation will be substantial.
Much of this impact will not be on account of reduction in tariffs in TPP and TTIP countries, as they are already low, but as a result of removal and/or harmonisation of non-tariff measures, particularly in respect to process and product standards, the application of intellectual property rights and other behind-the-border trade facilitation measures.
As a result, some of the TPP and TTIP countries are expected to enhance their internal supply potential which can further shrink the existing export markets that India enjoys with them. The data show that both agriculture and manufacturing sectors are expected to be threatened by these agreements.
Most of those products are highly sensitive to our economy, meaning they are produced and exported in large quantities from India. For example, automobile products where India has considerable amount of production and export capacity are under potential threat from TPP. The effect of TTIP also seems to be on a similar list of products.
This calls for immediate actions including taking appropriate measures through India’s National Foreign Trade Policy, which will expire this year. The new trade policy should have strong linkages with other major macroeconomic policies such as monetary, fiscal, manufacturing policies. There should be specific emphasis on simultaneous reforms in the markets of factors of production for improving trade competitiveness and the existing free trade agreements should be utilised to their full potential.
Furthermore, specific trade policy measures including their compatibility with India’s commitments to the WTO regime and its negotiating strategy with respect to free trade agreements should be taken to safeguard Indian exports and enhance its trade competitiveness against far-reaching expected changes in the global trade scenario over the next five years or so. Enhancing trade competitiveness through subsidies will not be a viable option in the long-run because many such subsidy schemes will gradually become WTO-incompatible.
Although the enhancement of trade competitiveness is a gradual and long-term process, negotiations and implementation of other free trade agreements can be effectively utilised to reduce trade costs and, thus, partially improve trade competitiveness. Unfortunately, Indian industry has remained sceptical about many of these FTAs, particularly in respect to their effectiveness in the long-run, and has under-utilised these channels to get integrated into the global value chains. The government is under considerable pressure to review them. Industry is concerned that the existing FTAs are eating into their domestic market share, which may be true in the short-run.
On the other hand, there is little attempt to use them effectively to integrate into the global value chains. Integrating into and moving up the global value chains is essential conditions for greater competitiveness and higher growth. Effective participation in global value chains is intrinsically linked with foreign direct investment, which can result in more trade through export obligations of FDI. When TPP and/or TTIP come into force they could attract potential investment among its members, some of which may otherwise possibly come to India. This means that India’s hope of integrating into and moving up the global value chains will be hampered.
The options left for any excluded country in such a scenario are either to join these agreements or negotiate counter agreements. At this point the former is not an option for India because the standards set by the members of both these agreements are very high and would be higher than the standards set by the WTO members.
Among others, these agreements propose numerous WTO-plus and extra rules such as enhanced intellectual property protection, harmonisation of process and product standards, regulation of e-commerce, competition rules, liberalisation and protection of investments, regulation of trade-related aspects of state-owned enterprises, provisions on small and medium-sized enterprises, rules of international supply chains.
The Indian economy is not in a position to adhere to such high standards and still be competitive. There should be gradual and incremental progress. The quality and effectiveness of domestic regulatory institutions hold the key.
The latter option is more viable and India has started exercising it in the form of the Regional Comprehensive Economic Partnership agreement, which is being negotiated among India, Australia, New Zealand and Asean+3 countries (China, Japan and South Korea). India is also negotiating free trade agreements with Australia, New Zealand and the European Union. Furthermore, FTAs with the Asean group of countries and with Japan and South Korea are already in place. The coverage of RCEP and many of these FTAs is similar to that of TPP and TTIP. Their scope should remain relatively lower than TPP and TTIP and should be gradually expanded by taking into account domestic regulatory and development concerns.
As over the last two decades the centre of gravity of India’s trade has shifted towards the East, our trade policy officials have rightly decided to strengthen the country’s economic partnership with those in the Asia-Pacific region, particularly in East and South East Asia. India should effectively negotiate the RCEP agreement and its FTAs with key trading partners such as the European Union and Australia in order to gradually remove and/or harmonise non-tariff measures affecting trade among these countries and improve its domestic regulatory regimes for process and product standards, intellectual property rights and other behind-the-border trade facilitation measures.
Simultaneously, there should be gradual reforms in the markets of factors of production – land, capital and other means of production – not only to make reforms in goods and services markets sequentially compatible with those in the factor markets but also and more importantly to enhance India’s trade competitiveness through stronger linkages between inputs and outputs for enhancing the incremental capital-output ratio of the Indian economy. It is true that FTAs are posing some challenges but they should be addressed proactively in order to convert them into opportunities.
The writers are with CUTS International
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AfDB moots trade strategy for Africa
Africa is losing more than $30 billion in trade due to lack of effective infrastructure development, African Development Bank (AfDB) country director to Zambia Freddie Kwesiga has observed.
In a presentation at the just ended four-day African Congress on Conservation Agriculture (ACCA) held in Lusaka, Dr Kwesiga said due to lack of efficient infrastructure, countries were losing a lot of money.
“Most of African countries do not trade together due to limited infrastructure, that is why they trade with countries abroad,” he said.
Dr Kwesiga said AfDB had put up a transformation strategy which would run from 2013 to 2022 to change the landscape of trade in Africa.
He told delegates that the strategy would among other things, scale-up agricultural financing and technology as well as supporting regional integration.
Dr Kwesiga said over 20 per cent of population live in fragile states with weak economic institutions and that, more jobs are needed and that this could only be attained by supporting value chains.
He urged countries to develop strong energy infrastructure in order to support irrigation to reduce dependence on rains.
Dr Kwesiga said more than $35 million has been committed towards reducing fragility while $100m would be spent on research, building bridges, roads and markets which were aimed at increasing trade.
There was need for countries to improve innovation to tackle the impact of global warming by engaging in climate smart activities such as conservation agriculture in respective countries.
The objective of the congress was to offer knowledge and information to guide informed decision on how to increase the extent of Conservation Agriculture (CA) adoption in Africa.
In one of the thematic discussions on Integrating CA in a holistic manner into the farming system, the proposed strategy was to create platforms for sharing and learning experiences among the various stakeholders and forge synergies.
In a presentation entitled harnessing the power of collaboration, African Conservation Tillage Network coordinator Janet Achora said farmers should complement each other rather than competing in the promotion of CA.
Ms Achora called for addressing of the entire agriculture value chain creating partnerships that promote value addition through processing and transformation in farming communication.