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India-SACU free trade agreement needs ‘fine-tuning’
The increasing amount of trade between Namibia and India is expected to balloon even further once the India-Southern African Customs Union (SACU) Preferential Free Trade Agreement (PTA) is finalised. “It is important to reach an understanding that has a reasonable level of ambition,” said India’s Minister of Commerce and Industry, Anand Sharma, yesterday while paying a courtesy call on Prime Minister, Dr Hage Geingob.
Sharma added that the details of the agreement still have to be ‘fine tuned’ and emphasized that such an agreement should be beneficial for both India and Namibia. “This (PTA) will connect our people through both regional and global value chains, which would be hugely beneficial for both economies,” Sharma added. Also commenting on the agreement Minister of Trade and Industry, Calle Schlettwein, who accompanied Sharma to the PM’s office, said South-South cooperation is very important for Namibia. Schlettwein added that it is crucial that the agreement recognizes the different developmental stages of the all countries involved. Prime Minister Geingob also remarked that SACU is a building block for an eventual Southern African Development Community (SADC) agreement with India. Geingob reminded all parties that any SACU agreement will most likely be transferred over to SADC in due course.
The agreement is however still at the negotiation stage, but the PTA could see the light of day sooner than later with the official visit of the Indian minister. Namibia, as the chief negotiating party within SACU, has been working on the preferential trade agreement with India, and the final Memorandum of Understanding was initially set for conclusion in December 2013. Imports from India in 2012-2013 were valued at just over US$74 million, while during 2013-14 this figure stood at about US$64 million and it is estimated that Namibia exported close to US$10 million worth of goods to India during the same period. Last week members of the Indian business community remarked that bilateral cooperation in the energy and agricultural sectors has excellent prospects. Accordingly, business owners expressed the opinion that the volume of trade between Namibia and India could be much more than the reflected figures.
India’s principle commodities exported to Namibia include drugs and pharmaceuticals, inorganic/organic/agro chemicals, glass and glassware, plastics and linoleum products, manufactured metals, machine tools, machinery and instruments, transport equipment, manufactured rubber goods and electronics. The main products exported from Namibia to India include non-ferrous metals, ore and metal scraps, transport equipment and machinery. The Southern African Customs Union (SACU) currently consists of Namibia, South Africa, Botswana, Lesotho and Swaziland. A customs union is a type of trade bloc composed of a free trade area with a common external tariff. The member countries set up a common external trade policy, but in some cases they use different import quotas. Reasons for establishing a customs union normally include increasing economic efficiency and establishing closer political and cultural ties between member countries.
SACU is the oldest existing customs unions in the world and was established in 1910 pursuant to a Customs Union Agreement between the then Union of South Africa and the High Commission Territories of Bechuanaland, Basutoland and Swaziland. When these territories gained independence the agreement was updated on 11 December 1969. The customs union was relaunched as SACU with the signing of an agreement between the Republic of South Africa, Botswana, Lesotho and Swaziland. The updated union officially entered into force on 1 March 1970 and after Namibia’s independence from South Africa in 1990, it joined SACU as the fifth member. SACU meets annually to discuss matters related to the customs agreement. There are technical liaison committees such as the customs technical liaison committee, the trade and industry liaison committee and the ad hoc sub-committee on agriculture, which meet three times a year. SACU’s aim is to maintain the free interchange of goods between member countries and enforces the common external tariff, as well as a common excise tariff to this common customs area. All customs and excise duties collected in the common customs area are paid into South Africa’s National Revenue Fund. The revenue is then shared among members according to a revenue-sharing formula as described in the agreement. SACU revenue constitutes a substantial share of state revenue in Botswana, Lesotho, Namibia and South Africa.
Source: http://www.newera.com.na/2014/02/06/india-sacu-free-trade-agreement-fine-tuning/
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EU seals free trade deal with West Africa
Negotiators from West Africa and the EU have put pen to paper on a €42 billion-a-year free trade deal with the West African trade bloc after 10 years of haggling, but ongoing talks with East African states remain mired in fine print.
The deal, which covers trade and development cooperation, will guarantee full long-term duty and quota-free access to the EU market for West African nations. When it enters into force, it will eclipse bilateral interim agreements with Côte d’Ivoire and Ghana.
“We are very satisfied with the progress at expert level achieved during the negotiations in Dakar in January,” John Clancy, the EU’s trade spokesman told EurActiv. “The results of these negotiations are still subject to political endorsement,” he cautioned.
This is seen as a formality by sources close to the talks. Negotiators publicly stress that they have merely completed their task and “escalated” the deal to a higher level, but optimism is in the air.
“From the outset, heads of state said they would only be willing to negotiate if there was a strong development dimension [to the free trade deal] and I believe this is a statement of what is currently on the table, Kolawole Sofola, a trade officer for the Economic Community of West African States (Ecowas) told EurActiv from Nigeria.
Chief Ecowas negotiators may now meet on 7 February, with the block’s heads of state expected to officially endorse the first regional economic partnership since 2007 at the end of February or in early March.
All the Ecowas countries, apart from Nigeria, are classified as Least Developed Countries (LDCs) and so can already export anything except weapons to Europe, without exposure to costly tariffs or quotas.
The final stumbling block was overcome when the EU agreed that the African states could liberalise 75% of trade over 20 years, rather than the 80% over 15 years that Brussels originally wanted. Ecowas states had originally asked for a 60% figure.
An EU decision to halt all export subsidies to Africa last month was also seen as pivotal to the eventual compromise, as were a number of West African compromises.
‘Most Favoured Nation’ clause
The Ecowas negotiators accepted a ‘Most Favoured Nation’ clause in the text, with some exceptions, and agreed that EU development financing under an Economic Partnership Agreement Development Programme (PAPED), would remain at €6.5 billion, €8.5 billion short of their demands.
Observers say that this money may be counted as new or additional, despite having been pledged some time before.
Fears of regional disunity if the deal was not inked were rife, and the final deal was warmly welcomed by the European Center for Development Policy Management (ECDPM) think tank.
“Reaching an agreement is a very good deal for West Africa and a big victory for Europe,” said San Bilal, an ECDPM spokesman.
“But if there are no agreements with other regions then Europe will say ‘Why is it acceptable to sign a deal with West – but not East or Southern – Africa?’ And that will obviously create tensions,” he added.
East Africa Community
The East Africa Community (EAC) countries have been more hesitant to ink a trade deal guaranteeing Europe preferential market access in a region that other powers such as China are increasingly focused on.
“If we sign the EPA (Economic Partnership Agreement) and other sub-regions do so too, we would be giving up the better option we had before us, which allows for real industrialization,” the Tanzanian president Benjamin Mkapa reportedly said in a 2012 speech.
Mkapa queried whether a deal would help local economies, increase food security, or support regional transition from exporting raw materials to producing sophisticated products.
East Africa’s capacity to tax exports – including mined raw materials and associated products – will be a tough but to crack in any deal. Similar disagreements threaten any free trade agreement with Southern Africa.
“We liberalized without regulation and now we have nothing to plough back,” the Ugandan MP and trade committee chairman, Mukitale Birahwa complained, of a previous free trade deal.
Dutch flowers
The region’s economic powerhouse, Kenya, has asked to be allowed to maintain tariff-free access to Europe for its flower exports, even though it has a GDP of €25 billion, and is not considered an LDC.
“If ministers don’t find an agreement, the question for Kenya is: do they do deal with the EU on their own or stay with the region even though a lot of their flower businesses are suffering?” Bilal said.
“That might have negative consequences for the very many Dutch importers Kenyan flowers,” he went on. “There will be tensions among partners.”
For all East Africa’s economic potential though, West Africa accounts for 40% of trade between Europe and the Africa, Caribbean and Pacific (ACP) regions.
The EU buys West African products worth more than €42 billion a year from the ACP states.
NEXT STEPS:
7 February: Chief ECOWAS negotiators due to meet
End of February/Beginning of March: ECOWAS heads of state expected to officially endorse the Economic Partnership Agreement with the EU.
Source: http://www.euractiv.com/development-policy/eu-seals-free-trade-deal-west-af-news-533293
Related news story: “Commission on brink of major trade deal in Africa” (EuropeanVoice, 6 February 2014)
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Africans roast SA for lack of openness
Frustration over Africa’s disparate tax, travel, investment and trading regimes boiled over yesterday as Chris Kirubi, a leading Kenyan businessman and one of the wealthiest people on the continent, tore into South Africa’s failure to be a leading light in opening up the continent for business.
Kirubi was a participant in a panel discussion at the “Africa: The Outlook, the Opportunity” event hosted by former New York City mayor Michael Bloomberg in downtown Johannesburg.
To underscore his frustration, the outspoken Kirubi questioned why African travel businesses kept going to Europe and North America to sell African tourism, leaving behind Africans like him who needed no further convincing about visiting Africa.
“Open markets are not happening yet. We must open markets for people, goods and services,” Kirubi said. “South Africa needs to take leadership by opening up for smaller countries. How many of us have been allowed to invest here?”
His sentiments on the issue of openness were echoed by Reserve Bank governor Gill Marcus, who said the focus in Africa should be about co-operation and less about competition. Marcus, who seemed rather at ease five days after a slide in global emerging market currencies prompted her to hike interest rates, said the issue was “how do we use our different strength to benefit Africa as a whole”. She said co-operation would be particularly critical in dealing with three core challenges facing the continent: water, food and energy.
To illustrate what was possible if African governments worked together to create a more open investment environment, Aigboje Aig-Imoukhuede, the vice-president of the Nigerian Stock Exchange (NSE), said there was an emerging notion in west Africa, in terms of which Ghana was seen as the gateway and Nigeria as the destination.
Former New York City mayor Michael Bloomberg hosted a forum on African opportunities in Newtown, Johannesburg, on Monday. Photo: Simphiwe Mbokazi
He added that the NSE was planning to visit the JSE in the coming months to explore areas of possible co-operation.
In that regard, as an economic powerhouse, South Africa had an important role to play in reshaping how Africa did business, not only with the rest of the world but more importantly with itself.
“There are major issues we are not addressing and it is an issue of laws,” added Kirubi, who is also the east Africa chairman of a joint venture with Tiger Brands, South Africa’s biggest consumer goods company.
On tax, he asked why South Africa and Kenya did not have a tax agreement and why he needed to go via Mauritius each time he needed to open a holding company. “We have a problem. We’ve got to wake up.”
Finance Minister Pravin Gordhan was also among the panellists. He acknowledged that there were “huge challenges” in the mining sector, but reiterated the need for perspective on issues relating to labour strikes. “There is a lot of good work being done. In the next few years, skills development and training will be [enhanced] a lot more.”
On the issue of emerging market volatility and recent currency slides, Gordhan said: “We will survive this crisis as we have survived others”, referring to a sharp depreciation in the rand and investment outflows triggered in part by the US Federal Reserve’s bid to gradually reduce the availability of easy stimulus money.
Nonkululeko Nyembezi-Heita, the outgoing chief executive of steel group ArcelorMittal South Africa, and Sizwe Nxasana, the chief executive of FirstRand, spoke about local labour market conditions.
Nyembezi-Heita identified education as the biggest constraint to progress, and added that “people feel that there is an unnecessary level of rigidity in the South African labour market system”.
A rigid labour market has often been cited as one of the factors that make investing in South Africa unattractive.
However, Nxasana said he was not sure that such a view was based on facts because, as a chief executive of a telecoms company, he found rigidity in places like India and Ghana. The argument must be based on facts, he said.
He also raised the issue of a need for South Africa to have a real conversation about income inequality, especially in view of a clear misalignment between executive pay and pay for the average worker. Gordhan agreed, saying income inequality could be a social destabiliser.
Bloomberg, the founder of news and information provider Bloomberg, was the 108th mayor of New York City. He is in South Africa this week for the C40 Cities mayors’ summit on development and climate change.
Source: http://www.iol.co.za/business/budget/africans-roast-sa-for-lack-of-openness-1.1641343#.UvKCF_mSya8
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Greater competitiveness and regional integration critical for South Africa’s growth and opportunity
Greater export competitiveness and deeper regional integration could help propel South Africa towards faster-growing exports, allowing it to achieve higher, more inclusive, job-intensive growth as laid out in the country’s National Development Plan (NDP) 2030, according to the South Africa Economic Update released on 4 February 2014.
“Helping South Africa achieve its export potential is essential for rapid job creation, high growth, and more opportunity, especially for young people.” said Asad Alam, World Bank Country Director for South Africa. “We hope this report provides concrete evidence to help shape the country’s ongoing debate on its economic and development future.”
The South Africa Economic Update 5 assesses South Africa’s economic prospects in the context of the global economic environment and prospects. The Special Focus Section on Export Competitiveness examines the performance of South African exports over 2001-12 relative to peers in other emerging markets and analyzes the challenges.
Recent Economic Developments
The report forecasts real gross domestic product (GDP) growth in South Africa to recover to 2.7% in 2014, from the estimated 1.9% in 2013 and to reach 3.4% in 2015. However, it will remain well below the average 5.4% projected for Sub-Saharan Africa for 2014-2016.
“The medium-term outlook is that growth will improve gradually, but that this recovery will be more subdued than previously forecast,” said World Bank Lead Economist Catriona Purfield. “The under the baseline forecast the recovery in growth is expected to be led by strengthening exports, as the recovery in high income economies gains pace and export capacity expands. As such, the forecast is subject to potential downside risks from developments in international markets as well as regional and domestic issues.”
Special Focus on Export Competitiveness
South Africa has identified exports sector as an engine for higher, more inclusive and job intensive growth with the NDP, aiming for export volume growth of 6% a year in order to achieve an annual increase in real GDP growth of about 5.5%. This Economic Update shows that despite successes in some areas, South Africa will need to greatly improve its export performance to meet these targets.
The report examines the facts behind South Africa’s export performance by some 20,000 companies during the 2001-2012 period, stripping out the impact of the large minerals sector, looking at services and comparing performance with emerging market peers.
The report shows that South African exports are falling short of their potential as they are increasingly concentrated and losing dynamism. They also continue to be focused on capital intensive goods, which contribute less to job creation.
The report argues that while trading in products that are technologically sophisticated and highly capital-intensive has positive implications for competitiveness, it also means that the dominant export companies are failing to tap into South Africa’s large pool of low-skilled labor, thus failing to create enough jobs to make the export sector a major direct contributor to employment growth and poverty reduction.
“A key development in South Africa’s export pattern is the emergence of Sub-Saharan Africa as the main destination for South Africa’s non-mineral exports,” said Thomas Farole, World Bank Senior Economist. “While this has generated market opportunities for newer and smaller exporters, so far these exports have remained somewhat smaller and shorter-lived than exports to other markets.”
The report identifies three opportunities to help ignite export growth: greater competition among firms in South Africa, resolving infrastructure bottlenecks and cutting logistic costs, and deeper regional integration in goods and services.
By promoting competition in the domestic market South Africa would boost productivity and efficiency and enable entry to new more productive firms, which would place downward pressure on high markups, the report states. This would lower input costs and tip incentives in favor of exporting by reducing excess returns in domestic markets.
Resolving infrastructure bottlenecks and cutting logistic costs present a second opportunity to support export growth. Cutting the charges exporters incur for the use of ports, rail and telecommunications would promote competitiveness and benefit small and medium-size exporters and nontraditional export sectors.
Thirdly, promoting deeper regional integration in goods and services within Africa would generate the right conditions for the emergence of ‘Factory Southern Africa’, a regional value chain of production that could feed into global production networks. South Africa could play a central role in such a chain, leveraging the scale of the regional market, exploiting sources of comparative advantage across Africa to reduce its production costs, and providing other countries in the region a platform for reaching global markets.
Progress on all three fronts would help catapult South Africa toward faster-growing exports, allowing it to realize the higher, more inclusive, job-intensive growth articulated in the NDP.
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‘SA needs more open dialogue on mines’
The government needs to focus more on working together with the mining sector in a way that will benefit all people in the country, Randgold Resources CEO Mark Bristow said on Tuesday.
Speaking to 567 CapeTalk/Talk Radio 702’s Bruce Whitfield, he argued mining needs to benefit all who live in the country where it takes place.
“Mines and mineral rights are the nation’s assets and as miners and politicians, neither of us have ownership of them,” Bristow says.
“We are charged with ensuring that they are brought to account in a way that the whole nation benefits, including the investors that risk that capital to unlock it.”
But he says South Africa is merely managing, rather than excelling, in achieving this goal.
“It’s always trying to force people to do things rather than find solutions that are important and constructive.”
Bristow says finding an appropriate balance between the industry, government and labour is the first step that needs to be taken.
“There’s still a lot of work to be done. I think we’re all lecturing each other and in most cases, passing each other like ships in the night instead of engaging with the hard issues and collectively searching for solutions that deliver value to the economy and the wider group of stakeholders.”
At the same time, Bristow says the annual Mining Indaba currently underway in Cape Town should push the debate around the balance of roles between private capital and government.
“I would love to see politicians, particularly the South African government, embrace this and really make it something that would align Africa and attract investment into our continent.”
Listen to the full interview below, where Bristow also discusses the rest of Africa and gives his suggestions on where South Africa should be going with mining.
Click here for a feature on the Investing in African Mining Indaba by EWN
Source: http://ewn.co.za/2014/02/04/SA-needs-more-open-dialogue-on-mines
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Lagarde calls for a ‘new multilateralism for 21st century’
Responding to current and future economic trends requires a renewed commitment to international cooperation, IMF Managing Director Christine Lagarde said in delivering the 2014 Dimbleby Lecture in London.
She pointed to “two broad currents” that would dominate the coming decades – increasing tensions in global inter-connections; and increasing tensions in economic sustaina-bility.
To address these emerging global tensions, she proposed:
“A solution that builds on the past and is fit for the future: a strengthened framework for international cooperation. In short, a new multilateralism for the 21st century.”
Elements of the new multilateralism
The major elements of this reinvigorated multilateralism would include:
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A renewed commitment to economic openness and to the “mutual benefits of trade and foreign investment;”
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Managing an increasingly complex international monetary system that has traveled “light years” since the original Bretton Woods system; and
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Building a global financial sector for the post-crisis era that “serves the productive economy rather than its own purposes.”
In addition, Lagarde said that the “new multilateralism” would demand a stronger sense of global responsibility if major issues such as climate change and inequality are to be tackled effectively.
“The kind of 21st century cooperation that I am thinking of will not come easy,” she said. “It might even get harder as time passes, when the curtains fall on this crisis and when complacency sets in – even as the seeds of the next crisis perhaps are being planted.”
Lagarde noted that there are already specific, working, forms of cooperation at hand, citing the UN, the World Bank, the World Trade Organization, and the IMF. These institutions might be termed concrete – or “hard” – forms of global governance, Lagarde said.
There are also a number of “soft” instruments that include such groupings as the G20 as well as networks of nongovernmental organizations. Lagarde said that these “hard” and “soft” forms of cooperation can complement each other:
“The new multilateralism must be made more inclusive – encompassing not only the emerging powers across the globe, but also the expanding networks and coalitions that are now deeply embedded in the global economy. The new multilateralism must have the capacity to listen and respond to these new voices.”
Getting beyond the current crisis
The immediate priority for growth, Lagarde said, is to get beyond the financial crisis, which began six years ago and is not yet over.
“This requires a sustained and coordinated effort to deal with problems that still linger – a legacy of high private and public debt, weak banking systems, and structural impediments to competitive-ness and growth – which have left us with unacceptably high levels of unemployment.”
Lagarde also warned that financial integration can make crises more frequent and more damaging, and instant and wide communication can sow discord and confusion. “Because of this, the global economy can become even more prone to instability.”
Lagarde emphasized that strengthened international cooperation is key to managing these risks.
Longer-term impediments to global stability
Lagarde set the current crisis in the context of major long-term challenges facing the world in the coming decades:
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Demographics, both the challenge of aging populations in the advanced economies, and the “youth bulge” in many emerging and developing countries. Almost three billion people – half the global population – are under 25. A great deal depends on generating enough growth and jobs to satisfy the aspirations of this rising generation.
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Environmental degradation, as more people with more prosperity stretch natural resources to the limit. Phasing out energy subsidies that mostly benefit the relatively affluent and not the poor must be part of the solution. Reducing these subsidies and properly taxing energy use can be “a win-win prospect for people – and for the planet.”
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Income inequality, as skewed income distribution harms the pace and sustainability of growth over the longer term. Fiscal systems can help to reduce inequality through careful design of tax and spending policies.
Lagarde also renewed the call for greater equality and empowerment for women. “By not letting women contribute, we end up with lower living standards for everyone,” she said.
“‘Daring the difference,’ as I call it – enabling women to participate on an equal footing with men – can be a global economic game-changer. We must let women succeed: for ourselves and for all the little girls – and boys – of the future.”
Lagarde said the risk is of a world that is more integrated – economically, financially, and technologically – but more fragmented in terms of power, influence, and decision-making. “This can lead to more indecision, impasse, and insecurity – and it requires new solutions.”
Strengthened cooperation – a new multilateralism – is key to these solutions, she said.
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Swaziland knocked by falling tax revenues
The flight of foreign direct investment out of Swaziland is apparent in falling tax revenues and is one sign of expected challenges to the economy this year.
Gross domestic product (GDP) growth has been surpassed by population expansion for two decades. This has resulted in more Swazis falling into poverty in a country where already two-thirds of the population is ranked as chronically poor.
“The depreciation of the domestic currency (the lilangeni, which is linked to the rand on a one-to-one basis) has led to an increase in public external debt stock and by extension, total public debt, which has increased by 2.5 percent to reach R6.3 billion at end of December,” the central bank reported.
Total public debt now stands at 18 percent of GDP. Total public external debt stock, which includes public and publically-guaranteed debt, stands at R3.4bn, or 9.7 percent of GDP, and again is attributed to the rand’s decline against major overseas currencies.
The good news associated with the fall of the rand/lilangeni is that Swaziland’s exports improved last year, resulting in a trade account surplus during the final quarter of last year of R1.06bn. Merchandise exports rose an impressive 31.3 percent to R5.1bn during the third quarter of last year compared with the third quarter of 2012. Imports were up 14.5 percent, to R4.05bn, quarter to quarter.
King Mswati III of Swaziland. AFP
An International Monetary Fund (IMF) mission visiting Swaziland recently found that as long as it continues to be supported by receipts from the Southern Africa Customs Union (Sacu), the economy will not dip into recession. However, Sacu funds, which account for over 60 percent of government revenue, are not sufficient to push the country forward economically because the revenue is being used for consumption rather than investment.
“Swaziland’s economic performance has improved since the fiscal crisis of 2010/11, which followed a significant reduction in revenues from Sacu. For the first time since 2006/07, the country recorded a fiscal surplus in 2012/13, though a fiscal deficit of 2 percent of GDP is expected for 2013/14. International reserves exceeded four months of imports by the end of 2013,” Jiro Honda, the head of the IMF delegation, said.
Perhaps foreign business interests are wary of investing in a country kept from insolvency only by Sacu grants. During 2012/13, tax revenue earned from countries fell by half. The Central Bank of Swaziland reported a decline in taxes paid by companies from 14 percent of government revenues in 2011/12 to 7 percent last year.
“Swaziland’s challenges remain significant. In light of these challenges, there is a need to safeguard the exchange rate peg (with the rand),” Honda said.
“Not only is no new investment coming into the country, but businesses already operating here are not earning as much, trade surplus or not, and are paying less tax,” said Lester Dlamini, an accountant and investment adviser in Manzini.
“Businesses are worried that government has so mismanaged the economy that the lilangeni may have to be decoupled from the rand. That would lead to hyperinflation, economic collapse and any investments becoming worthless. The only good economic news is the result of things completely out of government’s hands, like Sacu receipts and the boost in export profits from the rand’s drop,” he said.
Swaziland’s corporate tax rate of 27.5 percent may be lower than that of Mozambique and South Africa, but it can not offer sea port access or the large local markets enjoyed by its neighbours. Botswana, Lesotho and Namibia, which like Swaziland are smaller and less developed countries, offer the inducement of corporate tax rates lower than Swaziland, at 22 percent, 25 percent and 18 percent, respectively.
Swaziland also has underdeveloped, but expensive telecoms systems and internet access. High electricity prices have been cited by businesses as a disincentive for more local investment.
Food prices are also high.
As for the country’s political system, foreign business interests find it problematic that despite King Mswati’s suppression of political dissent and public demonstrations, an absolute monarchy form of government can remain viable in Africa’s age of emerging democracies.
“Why take the risk of the unknown?” Dlamini said.
“The threat posed by a Renamo-led civil war now seems minimal in Mozambique, and against the country’s wealth of natural resources what risk there is can be overlooked. South Africa has political scuffles but they are non-lethal and the country is still where the action is. Swaziland needs to be imaginative to attract investors and not be lazy about relying on Sacu receipts,” Dlamini said.
Source: http://www.iol.co.za/business/news/swaziland-knocked-by-falling-tax-revenues-1.1640528#.UvFP3_mSya8
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Africa mineral resources ‘grossly under-explored’: Shabangu
Africa’s unmined metals and minerals lie waiting for investors, Mineral Resources Minister Susan Shabangu said on Monday.
Speaking at the start of the African Mining Indaba in Cape Town, she called for greater investment in exploration by both local and international partners.
“Africa remains grossly under-explored for its mineral potential. For instance, the exploration expenditure per square metre averages US65 dollars in Canada, Australia and Latin America, whereas the African equivalence remains below US5 dollars per square kilometre.
“The mineral exploration prospect in Africa remains extremely high, requiring both local and international partners and investment to unearth.”
Shabangu said tapping into this needed “responsible” investment, not investment based on exploitative principles centred solely on expectations for unrealistic rates of returns, disguised by the principle of high-risk, high-return.
“As you know, mining is a long-term investment, and not about quick wins. Those who balance Africa’s mineral development with growth will ultimately receive the greatest reward in the long-term.”
Such development should be coupled with community development, nurturing human capacity growth and development, as well as institutional collaboration on joint technology development and deployment.
It was also important that mining development in Africa be integrated and interlinked with its infrastructure development initiatives, such as the Programme for Infrastructure Development in Africa, adopted by the African Union.
Shabangu said Africa needed a “gigantic” shift and transformation in its traditional mining jurisdictions.
“This should entail a shift from [the] exporting of largely raw material to ensuring that minerals serve as a catalyst for accelerated industrialisation through mineral value-addition.”
The fundamentals for investing in mineral development, both globally and in Africa specifically, were sound.
“The huge impact of the increased demand on earth’s shrinking resource-base, as a result of unprecedented population explosion of recent years, will be even more important for Africa’s mineral development.”
Related articles:
“African mining: ‘prepare for a rebound’” (SouthAfrica.info, 3 February 2014)
“Urgent action needed to link mining with region’s development objectives” (UNECA, 3 February 2014)
“Local communities must prosper from Africa’s natural resources” (Africa Progress Panel, 3 February 2014)
“Forum underlines private sector role in the Africa Mining Vision” (UNECA, 4 February 2014)
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Zuma: AU committed to tackling intra-Africa trade bottlenecks
President Jacob Zuma says the African heads of state have prioritised tackling infrastructure bottlenecks to enable intra-Africa investment to happen in a bid to boost the continent’s growth.
Speaking at the Bloomberg “Africa: Economic Outlook and Opportunities” Conference at the Turbine Hall in Newtown on Monday, Zuma said this commitment was made at the African Union Summit that took place in Ethiopia at the weekend.
The conference, founded by the 108th Mayor of the City of New York, met to discuss the economic outlook of the African continent, with Finance Minister Pravin Gordhan and Reserve Bank Governor Gill Marcus also in attendance.
Zuma said while intra-African investment has been growing since 2007, at more than 32%, a lack of access to trade-enabling infrastructure on the continent remained a fundamental challenge.
“We discussed this matter at length again at the African Union summit in Ethiopia this past weekend. We recommitted ourselves as African heads of state to continue building cross-border infrastructure, to unlock growth and development in our continent.
“In addition to a focus on trade-enabling infrastructure, we are intensifying our continental integration efforts through the negotiation of the Tripartite Free Trade Agreement.
“We have made considerable progress in the negotiations, which aim to integrate 26 countries of Eastern and Southern Africa. This involves a population of nearly 600 million people and a combined GDP of US $1 trillion,” he said.
On the home front, Zuma said South Africa had introduced the National Development Plan (NDP) – the country’s policy framework to eradicate poverty, reduce inequality and create employment by 2030.
He said the plan outlined the country’s intentions of transforming the economy and creating jobs through promoting sectors in which the country has competitive advantage.
This includes the minerals sector, agro-processing, mining, manufacturing, construction, general infrastructure and the green economy.
Zuma said the plan also committed the country to invest in a strong network of economic infrastructure designed to support the country’s medium and long-term economic and social objectives.
“We are building roads, bridges, dams, schools, hospitals, universities, colleges and a lot of other infrastructure.
“We believe we are making progress. Very few nations have gone through the repression, subjugation and divisions that we went through and emerged to build a new society and a stable democracy in such a short space of time.
“It is through the support of development partners like Bloomberg and many of you in this room, that we have been able to achieve our goals,” he said.
The NDP also envisions South Africa to invest into Africa, and Zuma said government has already been contributing to that goal.
Since 2007, there has been a compound growth of 57% in South Africa-originated foreign direct investment projects into the rest of Africa.
“South Africa was the single largest FDI investor in the rest of Africa in 2012, with cumulative FDI jobs created, standing at more than 45 000 to date,” he said.
He also said the conference took place at a time that the African economy was growing and has tripled since 2000.
“This growth is predicted to continue in the foreseeable future, giving rise to a new African paradigm: Africa as the new growth frontier. The South African government and private sector have a critical role to play in this continued growth.
“There is a need to redefine and to strengthen our partnerships on the continent towards realising the vision of an integrated Africa, underpinned by greater levels of intra-Africa trade and even greater levels of intra-Africa investments.”
Related: “Zuma Says Eastern, Southern Africa Moving Toward Free Trade Area” (Bloomberg, 3 February 2014)
Source: http://www.sanews.gov.za/south-africa/zuma-au-committed-tackling-intra-africa-trade-bottlenecks
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Free trade area: Looking beyond the EAC
Experts believe that the creation of a bigger free trade zone beyond the East African Community through opening borders and addressing policies that impede trade is the gateway to boosting regional economies.
This involves elimination of non- tariff barriers, harmonization of tax regimes, implementation of a single customs union and creation of one-stop border posts along regional blocs to expedite trade.
“A bigger free trade area will attract more investment and make the blocs competitive,” said Mark Priestley, the Trade Mark East Africa country director for Rwanda.
In essence, the linking of the EAC to other regional blocs on the continent will create a more expanded market for products within the regions, thus enhancing business opportunities.
“Harmonizing trade policies across the three blocs would enhance business and investment and create jobs,” noted Peter Kiguta, EAC director general for customs and trade.
Indeed, experts believe that for a bloc such as the EAC to achieve free movement of goods as well as persons, other blocs must harmonize their trade policies.
Angelo Musinguzi, a consultant on the single customs territory tax issues at the Private Sector Federation, says that similar trade regimes facilitate ease of doing business and cut down costs within the blocs, thus boosting competitiveness.
Indeed, the recent efforts to strengthen both the customs union and common market protocols have yielded success, with a call to extend these efforts to other blocs.
“I believe that removal of barriers to business and also instituting dispute resolution mechanisms are crucial in improving the business environment across the regional blocs,” Musinguzi noted.
Trade barriers
But traders still believe that policy makers miss the issues, mainly the elimination of both non-tariff and technical barriers within the blocs.
“What we would wish to see is the total elimination non-tariff barriers within all corridors in the regional blocs, and this will come when governments are willing implement policies at the same time,” Theodore Murenzi, executive secretary of Rwanda Long Distance Truckers Association said.
Moreover, experts believe that harmonization of these policies, such as rules of origin, tax regimes, and single customs territory, would help attract more investment in the economic blocs.
“It is very encouraging to see the tripartite free trade area negotiations that started in 2011 are finally getting to something,” said Léon Gashumba from Burundi.
There is optimism that the recent meeting of experts from the three regional blocs of East African Community (EAC), Southern African Development Community (SADC), and the Common Market for Eastern and Southern Africa (Comesa) in Mauritius will pave the way for a bigger trade zone.
“For as long as the borders are open and taxes and duties are removed along the borders in these regional blocs, then you expect business to grow faster,” Davis Mukiza, a business consultant, said.
Seizing opportunities
Despite these efforts, there is still the challenge of the regions’ private sectors’ ability to seize the opportunities arising from bigger free trade zone.
“The opportunities are created, but the question is, are we able to put to use with our products originating within the region?” Mukiza asked.
Gerald Mukubu, chief advocacy officer at Private Sector Federation of Rwanda says that private sector will be able to tap into the opportunities because it is profit driven. “As long as there is favorable business environment, the private sector is always ready,” he said.
Moreover, there have been recent efforts by governments within the blocs to attract more investments in manufacturing, services, infrastructure, and tourism to help produce for the expected larger market.
Under these agreements, goods originating from one country going to another within the blocs will have free access to market, a waiver on duties, and will be shielded from competition from goods originating outside the blocs.
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EACJ jurisdiction ‘should cover investment litigation’
Regional lawyers have added their voice to the push to have the jurisdiction of the East African Court of Justice (EACJ) extended in a bid to effectively arbitrate in litigation relating to foreign investments.
A delegation of East African Law Society led by its chairman, James Mwamu on Friday paid a courtesy call on the EALA Speaker, Margaret Nantongo Zziwa to seek out possible initiatives on the matter.
The EALS President noted that it was vital to have the Treaty for the Establishment of the EAC amended to pave way for the court to adjudicate on other issues, outside its strict human rights sphere of competence.
“Litigation is key and we feel the EACJ is currently limited in terms of its scope and operations,” he said.
“In addition to the human rights issues which interests EALS, the EAC has recently discovered quite some resources including oil and gas and naturally litigation is expected at some point as regional integration moves ahead,” he explained.
The EALA Speaker concurred with that view, remarking that the EACJ deserved more mandate as the integration process deepens. In attendance were Stephen Musisi, Vice President of EALS, Ruth Sebatindira, President of the Uganda Law Society and top officials of the EALS and ULS Secretariats.
On matters of human rights and democracy, the EALA Speaker lauded the EALS for their commitment to the ideals of the rule of law.
Speaker Zziwa maintained that the partner states were committed to the integration process, explaining that the bitterness on the Coalition of the Willing that sparked tensions over the past year was a ‘creation of the media.’
The integration process allows for bilateral engagements between partner states and this is normal. “We as an assembly are in support of a unified region,” she declared.
At the moment, the EACJ has initial jurisdiction over the application and interpretation of the Treaty as prescribed under Article 27.
In April 2012, the EALA passed a resolution seeking the council of ministers to implore the International Criminal Court (ICC) to transfer the cases of the Kenyans facing trial in respect of the aftermath of the 2007 General Elections to the Arusha based court.
The Resolution (then) moved by Dan Wandera Ogalo further appealed to the Summit of EAC Heads of State to make amendments to Article 27 of the Treaty and to give retrospective effect to the jurisdiction.
The EALS is an apex regional body of lawyers in the EAC with a membership of over 15,000. EALS is the largest professional organization in East Africa, with a focus on the professional development of its members as well as promotion of constitutionalism, democracy and good governance, the rule of law and the advancement, promotion and protection of human rights in East Africa and beyond.
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EAC states fail to strike trade deal with Europe
The just concluded negotiations on the Economic Partnership Agreements (EPAs) between East Africa Community (EAC) member states and the European Union (EU) markets have once again failed to strike a deal.
In a three-day meeting held in Brussels, Belgium, the two parties failed to agree on contentious issues of duties and taxes on exports and on Most Favoured Nations (MFN).
However the meeting managed to conclude on the issues of the institutional arrangements and dispute settlement.
“Consensus was not reached by both Parties on Article 15 (Duties and Taxes on Exports) and on Article 16 (Most Favoured Nation) of the Framework of Economic Partnership Agreements,” a statement from EAC said.
Another ministerial meeting is now expected to be held within the region by March this year to see the way forward on how solve the outstanding issues and hasten the process.
Kenya is aiming to conclude an agreement that will help her continue favourable trade deals with EU and at the same time with EAC without restrictions.
Kenya stands to lose compared to other EAC member states especially if the issue of taxes and duty on export is not solved by the end of October this year, as it is likely to hit hard on the flower sector.
Unlike the other four EAC sister states (Uganda, Tanzania, Rwanda and Burundi), Kenya is not listed as a Least Developed Country and as such will have its products attract a tax rate of up 16 percent on her exports to the EU.
Currently, Kenya is the leading supplier of fresh cut flowers to the EU with an approximate market share of 38 percent.
It is estimated that nearly one million stems are cut, graded, chilled and delivered from Kenya to key EU destinations every day.
Source: http://www.capitalfm.co.ke/business/2014/01/eac-states-fail-to-strike-trade-deal-with-europe/
Download: Joint Communiqué: Interim ESA-EU EPA Committee, Third meeting, Brussels (28 January 2014)
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Red tape, bribes strangle growth
When John Endres, CEO of Good Governance Africa, presents his views on the state of Africa to international audiences, he illustrates his talk with three maps.
The first covers the initial wave of liberation from colonial rule.
“You can see the green colour spreading out from the north.”
The second wave occurred when people liberated themselves from the liberators. A map of the continent from 1989 shows mostly the red of one-party state rule and the yellow of military rule. “Green? There weren’t that many examples,” he says.
Today, all but two of Africa’s countries are multiparty democracies in name, if not in practice. The two exceptions are Eritrea and Swaziland.
What has since occurred is Africa’s “third liberation”, he says borrowing the title of the book by Jeff Herbst and Greg Mills. “The third wave is liberation from bad governance. There we see the least progress,” he says.
Mr Endres has just released Good Governance Africa’s mammoth 421-page Africa Survey, which contains just about any statistical measurement of society, business and economics on the continent.
Instead of looking for African countries that tick all the boxes – there are precious few – Mr Endres says it is more useful to look at those who are improving their governance scores.
Or not. As in the case of South Africa, which has a deteriorating score. South Africa is viewed as a “young, but pretty much stable democracy”, though Mr Endres says: “I’m not so sure.”
It is being hurt by perceptions of corruption and of decreasing economic freedom, which includes the freedom of citizens to engage in trade, the availability of money, the ability to trade internationally and the enforceability of contracts.
South Africa is starting to fall short on indices that measure “how easy it is to do business”.
South Africa’s herd of state-owned enterprises, the propensity of its ministers to want to meddle in business transactions or labour disputes, the many official compliance requirements from BEE to tax and labour laws, are all starting to take the fizz out of the global perceptions of South Africa.
“The complexity of regulations reduces the flexibility of the labour market,” says Mr Endres.
To illustrate his point, he contrasts two web pages. The first is from the British government’s website. It lists six simple things that must be done to employ someone.
The second is a web page from South Africa’s department of labour.
It lists no fewer than 162 “basic guides” covering everything from employment equity to sectoral rules on annual leave, child labour, closed-shop agreements, employment contacts and minimum wage determinations.
The World Bank also calculated the time needed to obtain a business operating licence.
South Africa’s most recent measurement from 2007 is an astounding 36.2 days. Competitors for investment, such as Nigeria (12.1 days) and Ghana (6.4 days), beat South Africa hands down.
What South Africa appears to lack is “a single-minded focus on economic growth”.
Nigeria has that sense of urgency, as if it has set itself the goal of overtaking South Africa as the continents number one economy, as soon as possible.
South Africa’s stagnation is illustrated by the World Bank’s calculation of GDP per person employed.
In the 23 years from 1990 to 2013, South Africa’s figure declined 8% while Nigeria’s grew 61%.
The South African total is still higher than Nigeria’s, but the gap is closing rapidly.
Nigeria is often stereotyped as corrupt, but no fewer than 17% of firms identify corruption in South Africa as a “major constraint”.
Nigeria is not that much worse at 25%. About 15% of companies say they are “expected to give gifts to public officials to get things done” in South Africa, a percentage more than twice that in Zimbabwe and Rwanda.
Source: http://www.bdlive.co.za/africa/africanbusiness/2014/02/02/red-tape-bribes-strangle-growth
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Global value chains should benefit the people – Schlettwein
Investment in value addition activities that multinational companies make around the world should be extended to benefit developing countries Minister of Trade and Industry Calle Schlettwein, said during panel discussion at the Partnership Summit underway here.
“Services should also improve the lives of people living in these countries,” said Schlettwein weighing in on the topic of global value chains. Schlettwein was speaking at the last plenary session during day two of the annual summit, which took place under the theme, “Services as a Critical Component of the Global Value Chain: Challenges for Developing Countries.” In efforts to enhance business efficiency and optimise profits multinational companies set up what is called ‘global value chains’, which are enterprises for component design, research and development, specific services or component design in various countries across the world, all of which contribute to the final product the company sells to the world. Governments all over the world try to attract such investments with various incentives on offer. The panelists, who included Cesar Fragozo of the Mexican Trade Commission and Pramod Bhasin, vice chairman of private company Genpack, agreed that while traditionally global value chains were limited to manufacturing, the phenomenon has since evolved to include services since the dawn of the information technology revolution.
It is estimated that services currently make up about 60 percent of India’s Gross Domestic Product (GDP), compared to about 25 percent in Namibia, according to Schlettwein. The panelists also agreed that services continue to make up more and more of global value chains, a trend that they said continues to increase. “Global value chains are here to stay and it is a development aspect we as developing countries have to strive towards,” said Schlettwein. “We want to partake in a higher position on both ends of the global value chains. One way to do this is to consider the development of regional value chains, which makes sense especially for smaller economies like Namibia,” Schlettwein said. He added that emerging economies like Namibia should focus on facets such as logistics and transportation to take advantage of global value chains.
Meanwhile, Mexico’s Fragozo said global value chains have become a part of daily life in Mexico, which he says has become a manufacturing hub in Central and North America. “Mexico still needs to work hard to provide services to multinationals operating in our country,” noted Fragozo. As the only panelist representing the private sector and representing a company actively involved in the services sector, Genpact’s Bhasin reminded summit participants that companies will still ultimately purchase services from the places that offer the best value for money. “Developing countries need to learn from each other. The developed world doesn’t have a choice, but to come to the developing world for services along the global value chains,” explained Bhasin. “The world will go wherever they find the talent that they need. Talent is the most valuable commodity in the world,” he said. Responding to questions from the audience during a lively debate, Schlettwein said services and manufacturing in the global value chains should be more closely linked. “Products and services are becoming more cost effective when sold as a package deal,” concluded Schlettwein. Interestingly the concept of global value chains is not new, and has been practiced by large multinational companies for years, but what is new is their recognition.
With the gradual liberalization of world trade and the reduction of trade costs, coupled with technological advancement, emerging economies have learned to utilize GVCs to become the largest trading powers in the world in just over a decade’s time. Experts at the summit, which ended yesterday, have advised that the developing world can emulate China’s example by participating in GVCs and building newer ones and in the process become major contributors to global economic growth.
Source: http://www.newera.com.na/2014/01/30/global-chains-benefit-people-schlettwein/
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South Africa, pharmaceutical industry face off on patent reform
South Africa’s efforts to reform its intellectual property (IP) regime in order to improve access to medicines has sparked a firestorm in recent weeks, with major pharmaceutical companies openly at odds with civil society and developing countries.
The draft IP policy was published last September, with Pretoria now taking steps toward its eventual implementation. The changes would establish a system of substantive patent examination, and would also strengthen the existing criteria for “patentability.” These revisions, proponents say, would make it easier for generic drugs to compete in a market that has long been dominated by the research-based pharmaceutical industry.
“The current system allows pharmaceutical companies to obtain multiple patents on the same drug, even for inventions that do not fall under the country’s definition of innovation,” various civil society organisations have said in advocating for the reform.
The existing regime, they added, thus allows these companies to extend their monopolies and charge inflated prices for medicines, while making it difficult for generic manufacturers to compete.
However, the leak soon thereafter of a memo aimed at helping major drug companies undermine the proposed change has escalated the row, with South African Health Minister Aaron Motsoaledi openly comparing the industry campaign to “genocide.”
Civil society, developing countries weigh in
Several developing countries, along with a coalition of civil society groups, have spoken up in support of South Africa, most recently during last week’s meeting of the World Health Organization’s (WHO) Executive Board.
The industry response is “unacceptable in a country facing one of the world’s most acute HIV and [tuberculosis] epidemics,” Médecins Sans Frontières said at the meeting, noting that medicine prices in South Africa are up to 35 times higher than in countries where generics have a greater market share.
Some civil society organisations have formally called on the WHO Executive Board to adopt a resolution expressing solidarity with the African country.
WHO Director-General Margaret Chan has similarly expressed her concern, saying that “no government should be intimidated by interested parties for doing the right thing in public health.”
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It’s not just money that is needed – Using a bundled approach to increase productivity in the AU’s Year of Agriculture
The majority of people in Africa are engaged in the same profession: farming. Most of these individuals are small-holder farmers with fewer than 5 acres of land and little access to seed, fertilizer, financing, training or markets. Increasing the yields of these small holders has the potential to lift millions out of poverty in the coming decades.
More than any other sector, agriculture has the potential to spur inclusive economic growth in Africa. Growth in agriculture in the developing world has a multiplier effect on expenditures in poor households. Research shows that a 1 percent increase in GDP driven by agriculture leads to a massive 6 percent increase in expenditure growth for the poorest 10 percent. The Chinese growth story corroborates this research. China’s poverty reduction miracle was disproportionately achieved through growth in rural areas, with agriculture having a greater impact than any other sector.
African governments have already begun to prioritize agricultural growth. 2014 is the African Union’s (AU) Year of Agriculture, but agriculture is not a new area of focus for AU countries. Just over 10 years ago, in the 2003 Maputo Declaration, AU countries pledged to devote 10 percent of national expenditure to agriculture. A handful of countries have consistently exceeded this target, but most have fallen short. This year offers an opportunity to recommit to the 10 percent target and to draw attention to the importance of building an enabling environment for increased farm productivity.
Lack of finance is one of the largest barriers to increasing small-holder farmer productivity in sub-Saharan Africa, but many other factors compound the problem, such as weak property rights, lack of market access, insufficient technical knowledge, poor storage capacity, constrained water and energy supplies, and limited infrastructure. “Without access to credit, most small holders are confined to sub-optimal inputs and methods, and therefore to low productivity,” states the Dalberg report Catalyzing Smallholder Agriculture Finance. In farming, maximizing yields at harvest time requires investments in inputs during planting such as hybrid seeds and fertilizer. But most farmers do not have enough cash on hand before planting to purchase these high-quality inputs. Without access to finance, farmers cannot increase their yields and their incomes. In addition to credit, farmers need support throughout the value chain to improve productivity. For example, farmers using new inputs require training to utilize them effectively and good infrastructure to bring the final product to market.
Given the demand for agricultural finance, it seems like banks should be jumping at the opportunity to offer credit to farmers. The Dalberg report estimates the global market demand for small-holder credit at $450 billion and the total supply at $9 billion – just 2 percent of the need. If the market opportunity is so great, what’s holding banks back? In short, risk and fear of lower profit margins. Banks evaluate agriculture as a high-risk sector and are concerned about default caused by weather- or pest-related crop failure. Banks are also concerned about the high cost of operating in rural areas. Most banks and microfinance institutions work in urban and peri-urban areas, and would have to invest in a costly expansion of operations to serve rural customers.
Some microfinance institutions have designed innovative products that mitigate risk and lower the cost of delivering financial services to rural areas. These farm microfinance products provide support to the farmer along the entire agricultural value chain to surmount the barriers to agricultural productivity. BASIX, a microfinance institution in India, offers agriculture extension and training services in combination with credit. The business reached 500,000 clients by 2010 and was modestly profitable. Opportunity International offers farm microfinance to clients in several countries in sub-Saharan Africa, including Kenya, Malawi and Uganda. Their lending model also links their clients to input suppliers, extension providers and crop buyers. Our organization, One Acre Fund, pairs finance with the distribution of seed and fertilizer, agriculture trainings and market facilitation. All three institutions have developed farm microfinance products that “bundle” additional services that reduce the barriers to agricultural productivity that small-holder farmers face.
As we move further into the AU’s Year of Agriculture, what can be done by African governments, donor countries, nongovernmental organizations and the private sector to further increase access to farm microfinance and further reduce the barriers to agricultural productivity?
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Donors and African governments should work together to establish a multi-donor trust fund that provides seed funding for commercial banks and microfinance organizations to develop farm microfinance products. The Initiative for Smallholder Finance offers excellent guidance on the importance of donor funding that addresses supply-side constraints in an October 2013 briefing paper.
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African Union countries should use the occasion of the Year of Agriculture to recommit themselves to allocating 10 percent of expenditure to agriculture, as set out in the 2003 Maputo Declaration. AU countries should recognize the importance of creating an enabling policy and infrastructure environment for farmers to improve yields and bring their products to market. The AU should not ignore the agricultural finance sector, and should pledge to make its development a budgetary priority.
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Commercial banks and microfinance organizations should use innovative design to develop new products that meet the vast demand from small-holder farmers. They should partner with other institutions that are versed in the challenges farmers face to offer services such as farm input delivery, technical training and market facilitation that will help their clients maximize their profit potential.
Combining increased access to farm microfinance with a value chain approach to farmer support has the potential to spur economic growth and reduce poverty in Africa. During the Year of Agriculture, AU countries, donor governments, nongovernmental organizations and the private sector all have the opportunity to take a bundled approach to make Africa’s agriculture potential a reality.
Stephanie Hanson is director of policy and outreach, and Laurence Dare is the East Africa policy manager at One Acre Fund, an agriculture social enterprise that serves over 130,000 small-holder farmers in Kenya, Rwanda, Burundi and Tanzania. This blog reflects the views of the authors only and does not reflect the views of the Africa Growth Initiative.
The Foresight Africa blog series is a collection of blog posts from Africa experts and policymakers on what they think the top priorities for Africa should be in 2014. This blog series is part of the larger Foresight Africa project that aims to help policymakers and Africa watchers stay ahead of the trends and developments impacting the continent.
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Obama presses for “fast track” trade powers, climate action
US President Barack Obama made a public call on Tuesday for Congress to pass “fast track” trade powers, as part of a larger effort to advance ongoing negotiations with the EU and with 11 Asia-Pacific countries. Climate action was another key component of his State of the Union address, which comes after what analysts generally say was the toughest year of Obama’s presidency.
“We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment and open new markets to new goods stamped ‘Made in the USA’,” he told Congress. “Listen, China and Europe aren’t standing on the sidelines; and neither should we.”
“Fast track” powers, known formally as Trade Promotion Authority, allows the US executive branch to negotiate international trade deals and then send them to Congress for a straight up-or-down vote, without amendments. The legislation, which expired in 2007, also outlines Washington’s negotiating objectives in trade agreements.
Trade observers had been watching closely to see if Obama would call for Trade Promotion Authority in his speech, given the criticism from some Republicans that the White House has been too passive in pushing for “fast track” powers.
However, analysts have been quick to note that the president did not endorse outright the draft legislation that is currently being considered in Congress, which already promises to be controversial.
Getting members of Obama’s own Democratic Party to back TPA in any form is likely to be an especially difficult bargain, with many of them concerned both over the transparency of the negotiating process and the potential for some sectors of the US economy to experience negative impacts from lower trade barriers.
The fractious political climate has also raised questions over how many Republicans – who have traditionally shown more support for TPA – will back the measure.
The Senate Finance Committee has already held a hearing on the draft TPA legislation that was submitted earlier this month. However, the timing for next steps is unclear, given the expected departure of committee chair Max Baucus. Incoming chairman Ron Wyden has indicated that he is not ready to back the current TPA draft.
Meanwhile, in the House’s Ways and Means Committee, the timeline for advancing “fast track” renewal is even less certain. While Chairman Dave Camp, a Republican, has introduced the legislation for consideration, his Democratic counterpart in the committee – ranking member Sander Levin – has openly opposed it. Levin says he plans to introduce a rival version in the near future, without specifying a timeframe.
TPP, TTIP timeline
Trade has become an increasingly prominent part of the Obama Administration’s second term agenda, particularly as the 2015 deadline for the president’s pledge of doubling US exports from 2009 levels draws ever nearer. The White House has highlighted its planned deal with the EU, along with the Trans-Pacific Partnership (TPP) talks, as key initiatives for fulfilling that promise.
The US and its 11 Pacific Rim partners in the TPP talks are aiming to finish their negotiations in the coming months, with ministers next slated to meet in Singapore in February to try to clear up some of their outstanding differences. The timeframe for the US-EU Transatlantic Trade and Investment Partnership (TTIP) is less clear, given that the talks are still in their relatively early stages, though officials from both sides say that they want to conclude a deal quickly.
The ability to send completed trade deals – such as the TPP or the US-EU pact – to Capitol Hill for a clean vote is seen as key for the US’ trading partners in order to avoid having these agreements unravelled in Washington.
Obama: shift to clean energy economy requires “tough choices”
The State of the Union address, which is the US president’s most high-profile speech of the year, comes at a difficult time in the Obama presidency, following a year marked by Congressional infighting over subjects ranging from the US budget and debt ceiling to the implementation of healthcare reform. These difficulties, along with Obama’s persistently low approval ratings – which have been in the 40s – have been blamed for stalling efforts at passing major legislation in Washington.
A year ago, Obama made clear that he was ready to take a series of executive actions aimed at tackling climate change, in light of the continued difficulties in advancing climate legislation in the highly-polarised Congress. A few months later, he unveiled various measures that he was preparing to take as part of a broad “climate action plan” – such as imposing federal carbon limits on new and existing power plants – that would not require the approval of US lawmakers.
The decision to bypass Congress in this area had riled some lawmakers. However, Obama defended these moves on Tuesday, noting that western communities in the US are already feeling the impacts of a changing climate.
“The shift to a cleaner energy economy won’t happen overnight, and it will require some tough choices along the way,” he said. “But the debate is settled. Climate change is a fact.”
Along with defending his June climate plan, Obama also outlined a series of other goals for the year, such as reducing red tape for building new factories that can use natural gas; taking executive action to protect federal lands; and pursuing a “smarter tax policy” that would give less money to fossil fuel industry and more to renewable technologies, such as solar. The US President also pledged to set new truck standards to improve fuel efficiency, which would be announced in the coming months.
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Risk perceptions hurting investments in Africa
At the 30th Session of NEPAD Heads of State and Government Orientation Committee meeting ahead of the AU Summit the Executive Secretary of the UN Economic Commission for Africa said that risk perception, including concerns about the political, legal and regulatory environment are critical in the decision to invest. The meeting was held this week on the theme: Unblocking Policy, Legal and Regulatory Obstacles to Stimulate Investment and Enhance Infrastructure Project Bankability.
“Africa must begin to tell its own story, stressed Mr. Lopes, noting that for every publicised bad news about Africa, “be it a violent conflict, human rights infringement, shaky election process or instability, we can find the equivalent in developing Asia.”
Citing ECA’s analysis, he told the esteemed forum that the most challenging stage of project preparation is establishing the enabling environment; as well as tackling legal, regulatory and institutional impediments.
“The Trans-African Highway network was conceived in the early 1970s but today, more than 40 years down the line, missing links and sub-standard sections still constitute about 20% of the network,” he said and added that only 50% of the 708 projects of the Second United Nations Transport and Communications Decade in Africa (UNCTADA II) were completed.
Furthermore, the completion rate of projects in the NEPAD Infrastructure Short Term Action Plan (STAP) was equally low across all sub-sectors – about 15% for energy; 17% for transport; 11% for ICT; and 9% for water and sanitation projects.
“Red tape and bureaucracy are also bottlenecks in project implementation and are rank equally with a lack of finance in this regard,” said the Executive Secretary.
He asked the meeting to consider the need for sustained investment in infrastructure and commitment to devoting an adequate share of infrastructure financing in national budgets.
He also proposed the need to take steps to address negative perceptions about Africa; and the importance of adopting regional standards and policies to overcome the challenge of project implementation across multiple legal jurisdictions.
He further called for stimulating the interest of the private sector in infrastructure development, including through public-private partnerships and other innovative mechanisms.
“As we look at 2063, we will be close to 3 billion or 30% of the world’s total. If we just project our trajectory, our wealth would nevertheless be only 10%,” he said, stressing that getting to an Africa that has its deserved place in the world “requires that we change the trajectory for the better.”
The Executive Secretary also held a number of bilateral meetings with partners, Heads of States and Governments; as well as heads of various international institutions attending the AU Summit.
Source: http://www.uneca.org/media-centre/stories/risk-perceptions-hurting-investments-africa#.UuqZTxCSya8
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Deal signed for Asia Africa Europe cable system
Seventeen telecommunications companies have signed a construction and maintenance agreement for the planned Asia Africa Europe-1 (AAE-1) cable system.
The cable will interconnect Hong Kong, Asia, the Middle East, Africa, and Europe and is expected to be ready for service in 2016.
It will facilitate and provide support for the unprecedented growth of Asia-Africa trade. Providing robust, reliable, low latency connectivity which underpins one of the highest growth and most active global trade routes, AAE-1 will also bring much needed protection and diversity to the existing heavily congested subsea cable systems connecting the various countries along the route, it said.
Participating operators include PCCW Global, China Unicom, Telecom Egypt, Etisalat, Omantel, and Ooredoo. PCCW Global unveiled plans to land the cable at the Cape D’Aguilar Cable Station in Hong Kong, and then extend connectivity to its city data centre.
It will be the first submarine cable linking the Far East to Europe at the possible lowest rate of delay and high transfer capacities ranging up to more than 40 terabits which will contribute significantly to the growth of the business volume in the countries passing through.
The submarine cable will connect Hong Kong, Vietnam, Malaysia, Singapore, Thailand, India, Pakistan, Saudi Arabia, Oman, United Arab Emirates , Qatar, Yemen , Djibouti, Egypt , Greece, Italy and France.
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The AU Summit and 10 years of agriculture
The 22nd African Union Summit began on Tuesday, 21 January 21 in Addis Ababa with the 27th ordinary session of the AU’s Permanent Representative’s Committee, chaired by Ethiopia’s Ambassador Konjit Sinegiorgis. It will conclude on Friday, 31 January with the end of the two-day Assembly of the Heads of State and Government.
The theme of this Summit, “Agriculture and Food Security”, was chosen in order to mark the 10th anniversary of the Comprehensive Africa Agricultural Development Program (CAADP) which was adopted by the Heads of State and Government Summit in July 2003.
Agriculture is the primary economic sector of many African countries, generating more employment opportunities and export earnings than other sectors. It is estimated that more than 65 percent of Africans derive their livelihood from agriculture, both in employment and in food production. It is the single most important sector in the continent’s macro-economic portfolio, with a conservative estimate of close to a 40 percent contribution to GDP and providing more than half of the continent’s export revenue. The vulnerability to seasonal fluctuations in food production and the all-too-frequent incidents of food insecurity, therefore, make a continent-wide policy focus on agricultural development an economic and social imperative.
This much needed policy focus was demonstrated when African leaders endorsed the Comprehensive Africa Agricultural Development Program (CAADP) at the AU’s second ordinary session in Maputo, Mozambique. The Assembly that endorsed CAADP noted that 30 percent of Africans were “chronically and severely undernourished” and that the continent was then “a net importer of food and the largest recipient of food aid”. In order to change that grim reality the Maputo Assembly declared that Africa needed to use “its full potential to increase its food and agriculture production so as to guarantee sustainable food security and ensure economic prosperity for its people”. It agreed to urgently implement the CAADP and adopt effective policies that would encourage the sector’s development domestically across the continent.
As it name signifies, CAADP aims for a rapid and comprehensive development of Africa’s agricultural sector with the stated goal of enabling African countries to attain a “higher path of economic growth through agriculture-led development, which eliminates hunger, reduces poverty and food insecurity, and enables expansion of exports”. In order to achieve these goals, African governments agreed to devote at least 10 percent of their national budgets to agricultural development and the CAADP set 6 percent as a minimum threshold for an annual agricultural productivity growth rate.
The Program focuses on four critical strategic areas that it identified as high impact and structurally valuable. The first of these pillars, as they are referred to, is to extend the area under sustainable land management and reliable water control systems. That will go a long way in terms of efficient utilization of the vast and so far unutilized or underutilized arable land on the continent.
The second pillar of the CAADP is improving rural infrastructure and trade-related capacities for market access. Considering the fact that the most severe impediments to Africa’s competitiveness in primary products are to be found in physical and structural shortcomings, investment in these areas is most essential. Africa’s infrastructure, primarily in transport and logistics, were put in place during the colonial era with the sole aim of shipping raw materials out of the continent. The absence of infrastructure relevant to domestically vibrant economies divorced from a primary feeder role has indeed held Africa’s agriculture back for decades. Improvements in both the physical and systemic infrastructure will certainly boost the continent’s productivity.
The third pillar of engagement for the CAADP revolves around ensuring food security by increasing food supplies, reducing hunger, and improving the response to food emergency crises. The fourth pillar focuses on improving agriculture research, technology dissemination and its adoption. This will provide the much needed scientific support to the sector through innovative solutions that boost productivity.
Taken in tandem with the domestic focus on agriculture by member countries, the AU’s initiative of agricultural development has effectively revitalized the continent’s agricultural sector and attracted huge foreign investment. Some African countries, including notably Ethiopia, have made agriculture development the centerpiece of their development agenda and their agricultural productivity growth rate has been instrumental in sustaining the overall economic growth of the past decade.
Ethiopia’s impressive economic performance over the past eleven years has been well publicized internationally. What has been less emphasized is the fact that the double digit growth rate (averaging 10.6 percent for the past ten years, according to the World Bank) has been made possible through intensive and extensive investment in agriculture. By earmarking an average of 15 percent of the national budget to agriculture and achieving close to 10 percent growth rates in the sector, Ethiopia has been one of the handful of countries that have met the 6 percent productivity growth rate and the 10 percent budget allocation targets set by the AU Summit in Maputo back in 2003. An additional fact is that this has enabled Ethiopia’s economic growth to have a real impact on the most vulnerable members of the society, often farmers.
In a continent where it is the most important economic sector both as a source of people’s livelihood and as the source of the largest contributions to GDP, the historical neglect of policy makers towards agriculture have resulted in devastating humanitarian crises. The meager overall level of investment in the sector from both public expenditure and private finance has proved disastrous for Africa’s economic prospects and its human capital development. A rejuvenated agricultural sector is not only necessary to increase income levels for the majority of people who live off the sector but also ensure food security through increased food supply and lower costs.
To mark the tenth year anniversary of the CAADP, the 22nd Ordinary Session of the Heads of State and Government is expected to declare 2014 the “Year of Agriculture and Food Security”. In addition, the Summit will also hear reports on the implementation of previous decisions, on the activities of the Union’s Peace and Security Council, of NEPAD and of the activities of the High-Level Committee on the Post-2015 Development Agenda, as well as other pertinent reports. The Summit will also appoint ten new members of the Peace and Security Council to serve for the next two years as well as choose the new Chairperson for the African Union for 2014.
This article originally appeared in A Week in The Horn of Africa, a newsletter that focuses on economic developments in the Horn of Africa region.