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Can African skies remain closed?
When thinking about regional integration in Africa, we often think first of trade policy, telecommunications, Information & Communications Technology (ICT) and road infrastructure. But on a continent larger than China,India, the US, and Europe combined, air transport is inevitably going to play a key role in facilitating integration.
For Africans to interact and do business with each other, they need to get there. Moreover, as incomes rise, patience with long and arduous road journeys is bound to diminish. On a personal note, I thought little of taking a 24-hour bus ride in East Africa as a student, but as a working professional I very gladly pay extra to take a one-hour flight instead.
However,Africaaccounts for less than two percent of global airline passenger traffic and about one percent of global airlines’ cargo. The challenges facing the African aviation industry range from strong state protectionism, lack of an enabling environment for new investors, high taxes and charges (above comparative world averages), a poor safety record due to ageing fleet and insufficient regulatory supervision. Likewise, a lot of air transport infrastructure across the continent is in need of upgrade.
How do we get safer, more efficient and cheaper airlines?
One of the key problems is a lack of competition which contributes to high fares. Although in some cases low passenger volumes may create natural monopolies, in many countries competition is artificially restricted by making it difficult for foreign airlines to access certain routes, in order for governments to support their own national carriers. This is despite an agreement more than 13 years ago to “open the skies.”
The Yamoussoukro Decision (1999) was signed by 44 countries, who agreed to liberalise intra-African air transport, including allowing non-national airlines to land and take passengers to a third country – so-called “fifth freedoms” of the air. Implementing this decision could do much to reduce fares and increase air traffic across the continent.
All of this sounds fine in theory, but what about in practice?
A comprehensive 2010 World Bank study looked at a number of specific examples of what happened when routes have been liberalised inAfrica. When the Nairobi-Johannesburg route was fully opened up in 2003, passenger volumes increased 69-fold. When the domestic South African market was liberalised, passenger volumes increased by 80pc.
On average in the Southern African Development Community (SADC), routes that were liberalised saw fares drop by 18pc. The study estimates that full liberalisation in the SADC region would increase passenger volumes by around 20pc.
A more recent study was presented at the Africa Development Bank’s (AfDB)African Economic Conference by Megersa Abate, an Ethiopian transport economist, looking at air transport routes to and fromAddis Ababa. While the researcher did not find any impact of liberalisation on prices, he did find large increases in the number of flights – up to a 40pc increase.
He concludes that in the long run competition is likely to reduce prices. Even without price drops, more flights and more routes are clearly needed.
Despite these potential gains, at present over a quarter of air routes inAfricaare served by only one carrier. In total up to 70pc of air transport is served by a monopoly carrier.
Why are countries slow to “open the skies”?
Too often it comes down to simple protectionism, driven by fear that the national carrier would not be able to compete with the continent’s big players from Kenya, Ethiopia and South Africa as well as other competitors from the Gulf and beyond. Earlier this year, it took the total collapse of AirMalawifor Kenya Airways to be allowed to operate flights betweenMalawiand other countries, despite “fifth freedom” rights already agreed to byMalawithrough the Yamoussoukro Decision. Individual airlines and countries should not need to make adhoc bilateral agreements, when an agreement for open competition continent-wide already exists.
In addition to restricting competition, many countries also provide generous subsidies to their national “flag” carrier. So in addition to limiting the number of flights available, governments then spend scarce resources propping up inefficient airlines.
The President of Zambia recently called for the establishment of a new national airline, while the former Transport Minister noted the challenges that prevented financial viability of the national airline over the years. Achieving success, efficiency and profitability calls for smart partnerships with the private sector and strategic alliances within the sector.
The challenge of financial viability and efficiency is not confined toAfricaalone. Major European and American airlines have folded or receive billions in state aid, capital injections and debt write-offs – demonstrating that the airline industry is fraught with difficulties.
Moreover, developed and emerging markets have witnessed the growth of low-cost carriers which are allowed to compete on the same routes with the major carriers, thereby driving down prices. To be sure, low-cost carriers inAfricaface a host of additional challenges including high costs due to poor safety records and slow courts, but implementing “open skies” would be one less thing for them to worry about.
Lower airfares and more flights could generate a whole host of new economic opportunities. The successful flower industries inKenya,Ethiopiaand elsewhere rely critically on air transportation, as do other similarly perishable agricultural goods. International tourism earnedAfrica43.6 billion dollars in 2012, and directly created eight million jobs. This could grow with increased and cheaper air transport.
Cheaper air fares will also likely have social benefits, facilitating interaction between people of different cultures. Increased intra-African tourism might also contribute to the non-economic aspects of integration goals, preparing the ground for stronger transnational feeling.
Economists like to say that there is no such thing as a “free lunch.” But for the cost of some short-term political pain,Africa could gain some big economic and social benefits.
Crawfurd is a development economist at the Oxford Policy Management, United Kingdom.
Source: http://addisfortune.net/columns/can-african-skies-remain-closed/
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Best to postpone S. Sudan EAC bid
This month an East African Community (EAC) negotiating team was supposed to be in Juba to verify with various senior officials South Sudan’s application to join the economic bloc.
Considering what is happening in South Sudan of late, all that seems unimportant. It is difficult to negotiate with a divided country anyway.
This does not mean, however, that it can never happen. Simply that all involved should shelve the South Sudan application until the country is stable enough to collectively know what it wants.
A couple of months ago, there were suggestions among South Sudan civil society to hold a referendum on EAC membership.
Although there is nothing wrong with the proposal, it is vital that the South Sudanese realise their best economic interests lie squarely with joining the EAC. EAC leaders also have the responsibility to show that the bloc really can deliver prosperity.
They should begin by highlighting the regional track record in terms of improving trade and investment figures especially after the Customs Union took off, and its recently robust figures despite the effects of the 2008 global economic slowdown.
Today the EAC is steadily working at breaking down non-tariff barriers to make the Common Market a truly seamless entity.
According to the Doing Business Report 2012, the EAC was rated as one of the fastest growing and reforming economies in the world. Intra-EAC trade went up by $1 billion in 2012 from the $4.5 billion recorded in 2011. Current total GDP is about $85 billion.
After some pushing by President Barack Obama, there is a new United States-EAC Trade and Investment Partnership that centres on a regional investment treaty that is expected to attract more American investors to the region.
As things now stand, the EAC is the United States 80th largest trading partner according to figures from the US Trade Representative office. The ranking seems lowly until you realise the significance of having even a toenail in the US market.
Why should South Sudan miss out on these exciting prospects?
The EAC is far from perfect. The bickering among member states is far from over. Indeed, there are times when one is brought close to despair when national self-interests supercede the basic reason for signing the EAC Treaty in the first place.
However the idea of taking on the world together rather than alone still carries weight.
A look at South Sudan’s surroundings is food for thought. In terms of diplomatic relations, things are still tense with the north. The Central African Republic is caught up in a cycle of instability with various warlords suddenly bursting onto the scene before being replaced by another. Not much economic growth there. To the east, Ethiopia has already expressed strong willingness to apply for EAC membership. Mind you Ethiopia, along with Angola are considered the fastest growing economies in sub-Saharan Africa so that intention also speaks for itself. The DRC and Somalia have shown interest too.
The final argument is that South Sudan’s trade and cultural links are skewed towards the EAC, specifically Kenya and Uganda. The two countries are also South Sudan’s top business partners.
The idea of all for one and one for all, may sound romantic. But the fact is, economic integration is all about survival. South Sudan cannot survive alone!
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Averting economic cold war
When the first G20 summit was held at the end of 2008 in Washington DC, many believed that the time had finally come for developed and developing countries to work together to reconfigure the international economic architecture. Some even suggested that the US and China formally adopt the G2 mechanism to jointly manage global affairs.
Five years have passed since then. But the US and China have made limited progress in collaboration on international economic policymaking. In fact, new rivalry has developed over building new liberalisation standards. The US and 11 other countries are negotiating the Trans-Pacific Partnership (TPP), without China. And China and 15 other countries are negotiating the Regional Comprehensive Economic Partnership (RCEP), without the US. Competition in liberalisation is not necessarily a bad thing, but mutual exclusion could lead to significant disruption to trade and investment flows.
This unfortunate development was largely a result of misunderstanding and mistrust on both sides. When the US joined the TPP and decided to scale it up into a 21st-century model of globalisation in 2008, many Americans judged that China was too far away from the expected high standards, and that its participation in the negotiations could only spoil the party. Similarly, many Chinese experts advised the Chinese government that the TPP was an American design to deliberately isolate China economically, and that China should go its own way in liberalising trade and investment. Some scholars in both countries interpreted RCEP as part of China’s overall strategy to defeat the TPP.
Such economic cold war mentality could be very damaging to both countries and the world. Economic studies have already confirmed significant income losses from the TPP for China and other countries. This is understandable because China is one of the largest export markets for all the individual TPP member economies, and is also at the centre of the Asia Pacific’s manufacturing supply chain. Therefore, implementation of TPP liberalisation could cause significant trade diversion away from China and disruption of the supply chain. Likewise, RCEP could also cause trade diversion away from the US and other non-member economies.
These scenarios are in sharp contrast with the close China-US economic cooperation of the past. China’s rapid economic growth during the reform period would not have been possible without the global free trade and investment system supported by the US. Chinese and American leaders also worked closely cementing the agreement on China’s entry into the WTO.
In the past, the US was the main architect of the global economic system. It did not see China as a potential competitor. And China passively accepted the existing rules.
But times have changed. Today, although the US is still the world’s largest economy, China is already the second-largest and is set to overtake the US within the next 10 years. It is, therefore, reasonable for China and other developing countries to want to be part of the new rule-making process. But a transition of global superpowers could make all parties very nervous, as in history it often ended in war. This makes China-US cooperation all the more important, not only to avoid major confrontation but also to build a better world.
The new major-power relationship proposed by the Chinese leaders offers a useful framework and appears to be welcomed by American leaders. But as a first step toward this new model, the two countries should work closely to bridge the TPP and RCEP initiatives. There are high hurdles to achieving this goal. But they would not be higher than bringing President Nixon and Chairman Mao together in 1972.
Positive developments have occurred recently too. In Beijing, an increasing number of policy advisors are now urging the government to apply to join the TPP negotiations as early as possible. In particular, they argue that many of the TPP’s sticky issues – such as reform of state-owned enterprises, environmental and labour standards, protection of intellectual property rights and liberalisation of services trade – are also on China’s own reform agenda. In Washington, some government officials also argue that Chinese TPP participation would be positive for the world. And National Security Advisor Susan Rice recently said that the US would welcome China’s participation in TPP negotiations.
But these are not enough. To the Chinese, the American position that China can join after TPP negotiations are concluded represents old 20th-century thinking. China wants to be a part of the rule-making process, not just a passive rule-taker. In reality, it is possible that China could demand for modification to the rules when it joins later anyway, especially if it becomes the world’s largest economy. Therefore, it would be much better for the world if the TPP were to secure China’s commitments from the very beginning.
China also needs to do more to convince TPP participants that it can achieve high-quality liberalisation, especially in the areas of state-owned enterprises, intellectual property rights and cyber security. The reform program approved by the Third Plenum of the 18th Party Congress is a first step demonstrating the Chinese government’s determination in implementing aggressive and comprehensive reforms. But the government needs to take actions more quickly, through steps including experiments in the recently established Shanghai Free Trade Zone.
There is also the difficult question of whether China should be treated as a developing or developed country. It is reasonable for China to claim status as a developing nation given its income level. But the US objection to this is also understandable given China’s economic size and global influences. Perhaps a workable solution is for China to sign up to a high-quality agreement, which allows grace periods for liberalisation in certain areas.
There are practical difficulties for China to join TPP negotiations immediately, mainly because the current round of negotiation is likely at its final stage. Realistically, the earliest time that China could participate would be 2015 or later. But China, the US and other involved parties can start working on this now. For instance, the two governments should establish a TPP-RCEP joint working group, under the framework of the Strategic and Economic Dialogue. The two countries should also share information about both negotiations. The joint working group should also conduct feasibility analyses, identify the key obstacles and make important policy recommendations. Another possibility is to make China an observer at the TPP negotiations.
The TPP is only one area where China and the US can work together closely to develop a new major-power relationship. The two countries are already negotiating a bilateral investment treaty, successful conclusion of which could pave way for China’s TPP accession. The two governments may also want to consider the possibility of establishing a bilateral free trade agreement. China and the US should also collaborate closely on a range of international economic initiatives, such as the G20 summit, the Trade in Services Agreement and the WTO Doha Round.
Yiping Huang is a professor of economics at the National School of Development, Peking University, and an adjunct professor at the Crawford School of Public Policy, ANU.
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2500 leaders to participate in WEF Davos meet
A group of more than 2500 politicians, business leaders and academics are gathering to discuss the state of global economy for five days, beginning tomorrow at the World Economic Forum’s annual gathering in the Swiss ski resort of Davos.
Dilma Rousseff, President of Brazil, will address the meet on Friday.
The 40 heads of state or government expected in Davos include those from the UK, Australia, Japan, Iran, Israel, Brazil, Italy, Mauritius, and the Republic of Korea.
South Africa’s Foreign Ministry told The BRICS Post that the nation will be sending a 7-member cabinet Ministers’ team which includes Finance Minister Pravin Gordhan and Trade Minister Rob Davies.
The South African delegation will “update global business leaders on SA’s plans to raise the level of economic growth under the auspices of the now broadly accepted National Development Plan (NDP)”.
South African President Jacob Zuma had backed the NDP as the socio-economic blueprint for the country while briefing the South African leaders who will be attending the WEF meet.
“Developing countries do need higher levels of inclusive economic growth if they are to meet their developmental challenges. In South Africa’s case, the country needs faster and more inclusive growth to reduce unemployment, poverty and inequality,” said a statement of the South African Finance Ministry.
Meanwhile, India will be represented by a nearly 125-member delegation including senior ministers and top corporate leaders at the WEF’s exclusive club for a small, powerful elite.
Indian Finance Minister P Chidambaram and Commerce Minister Anand Sharma will lead the Indian delegation for the WEF meet from January 22 to 25.
The state of the world economy, the growing divide between the rich and the poor in the fast growing emerging economies will be discussed at the meet.
“Disgruntlement can lead to the dissolution of the fabric of society, especially if young people feel they don’t have a future,” warned Jennifer Blanke, WEF’s chief economist earlier last week while releasing their annual assessment of global dangers.
Other global hotspots like Syria, Iran as well as the future of the Eurozone will be discussed.
Among the many highlights in the program would be a session on economic prospects for major emerging economies including BRICS.
The post-2015 development goals, the future of health and healthcare, the pressing youth unemployment challenge, as well as the future of North Africa and the Middle East are also on the agenda of the meet.
UN Secretary General Ban-Ki Moon and World Trade Organization (WTO) chief Roberto Azevedo will also be attending the meet.
The theme of this year’s meeting is “The Reshaping of the World: Consequences for Society, Politics and Business”.
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Customs Union promises boost to regional trade
The customs union, which is the first pillar of East African economic integration, is set to become operational this year in Rwanda, Uganda and Kenya, a landmark in achieving full EAC integration.
With the introduction of a single customs territory (SCT), joint infrastructure ventures and the plan to remove non-tariff barriers (NTB’s), inter-EAC trade is expected to grow in 2014. Non-tariff barriers such as roadblocks and weighbridges are set to be removed or reduced in a bid to reduce the costs of transportation along the Northern Corridor. All roadblocks along the Mombasa-Kigali route have been removed and between Mombasa and Malaba the number has been reduced from seven to two. Uganda is also set to follow suit by having one weighbridge along its roads.
As a result, the number of days for transaction of goods along the northern corridor is expected to be reduced from 21 to 8 for goods moving from Mombasa to Kigali.
A crucial aspect of the SCT are the one-stop border posts (OSBP) aimed at making customs officials from two neighboring countries share the same office and cargo scanner in order to avoid unnecessary costs and delays. This is expected to improve services provided by standards bodies, revenue authorities and other agencies at the border posts.
The OSBP bill envisages 15 common border posts, among which the Taveta-Holili border and the Naman ga border (Kenya-Tanzania), Busia and Malaba borders (Kenya-Uganda) and the Kanyaru-Akanyaru border (Burundi-Rwanda). Others are Mutukula (Tanzania-Ugan da), Gasenyi-Nemba (Burundi-Rwanda), Lungalunga-Horohoro (Kenya-Tanzania), Gatuna and Katuna (Rwanda-Uganda) and Rusumo OSBP between Rwanda and Tanzania.
So far, the system has been operating on some border points based on bilateral agreements between EAC member states, for instance at Gatuna where a 24-hour one-stop border post and simplified trade regime have been in force since 2010.
Infrastructure agreements
The past year saw the signing of infrastructure agreements (Rwanda, Uganda and Kenya in particular) that are set to boost trade within the region.
In a further bid to improve efficiency of goods in transit a special Car Port was created in Mombasa to specifically handle the import of vehicles destined for Rwanda and Uganda. This was part of the expansion of the Mombasa port berth by 240 meters thus expanding the Mombasa container terminal to 840 meters. This will enable the port to handle 800,000 twenty-foot equivalent units per year from 600,000 containers, thus reducing the time taken for goods clearing.
Rwanda, Uganda and Kenya also agreed to construct a railway line linking Mombasa to Kigali and an oil pipeline connection Eldoret-Kampala- Kigali.
The $13.5 billion project that is expected to be funded by China is aimed at reducing on the number of trucks plying the route as they tend wear out the road infrastructure. The railway is set to be complete by 2018 and will be designed for freight (speed of 50 mph) but will later be open to passenger travel.
The Mombasa-Kigali line project consists of a 736-mile rail from Mombasa through Nairobi to Malaba and branching to Kisumu (Kenya), an 870-mile rail from Malaba to Kampala linking four Ugandan towns before connecting to the main line to Rwanda at Mirama Hills, a 125-mile from Mirama Hills to Kigali and extra 93-mile rail to other towns in Rwanda.
The oil-pipeline for the transportation of refined petroleum products is expected to be complete by 2017.
A single tax system, linking the revenue systems of the three nations, came into effect in October that has seen the clearance of more than 50 fuel trucks from Mombasa destined for Kigali and Kampala. The new system is expected to reduce business costs by almost $45 million annually on top of remote declaration of tax returns, faster clearance, and better tax compliance among the signatory member states.
Add to that the signing of the monetary union agreement in Kampala, the third pillar of regional integration by all five heads of state that will enable east African countries to trade in one currency by 2015, and it seems that finally EAC member states have started to walk the talk.
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Azevêdo hails Basel Committee’s decision on trade finance as “good news” for developing countries
Director-General Roberto Azevêdo, on 17 January 2014, welcomed a recent decision by the Basel Committee on Banking Supervision as “of particular significance for the availability of trade finance in the developing world”.
He said: “I welcome the decision taken by the Basel Committee on Banking Supervision on 12 January, which modifies regulations on bank leverage in a way that will support trade. This decision is of particular significance for the availability of trade finance in the developing world, where letters of credit are a key instrument of payment. This is good news for developing countries, for the expansion of their trade and for the continued growth of South-South trade flows.”
The Basel Committee announced on 12 January 2014, the modification of a key rule for banks – which goes in the direction of facilitating trade transactions in particular in favour of developing countries.
The revised Text (see “Amendments to Basel III’s leverage ratio issued by the Basel Committee”), indicates that the Basel Committee will now follow this new approach for trade: “For short-term self-liquidating trade letters of credit arising from the movement of goods (eg documentary credits collateralised by the underlying shipment), a 20% CCF will be applied to both issuing and confirming banks.”
This revised approach means that the leverage ratio will be five times less expensive for trade instruments than originally envisaged.
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Massive SADC Gateway port
NamPort has recently begun with a massive N$3 billion construction project to build a new container terminal, but plans even more extravagant expansion in the years to come, according to its executive for marketing and strategic business development, Christian Faure. He expanded on the planned multi-billion dollar Southern Africa Development Community (SADC) Gateway Terminal envisioned for the area between Swakopmund and Walvis Bay this week.
“The SADC Gateway terminal is still in the concept phases,” stressed Faure. “This development was considered the long term plan for the Port of Walvis Bay’s expansion, but plans have been brought forward mainly due to the construction of the new fuel tanker berth facility and the Trans-Kalahari railway line initiative for the export of coal from Botswana. This development is not to be confused with the new container terminal currently under construction at the port,” he said.
Already NamPort has completed pre-feasibility studies and is currently busy with geo-technical evaluations to determine the structure of the ground in the area to be dug out, he said. NamPort is also positively engaging the Municipality of Walvis Bay on the land itself, and other role players that may be impacted, he said. “This is a massive development and to put it into perspective, the current port is 105 hectares in size. The SADC Gateway port is 10 times that with a size of 1 330 hectares. The new container terminal will add 40 hectares,” said Faure.
With Namibia’s reach to more than 300 million potential consumers in the SADC region, the port of Walvis Bay is ideally positioned as the preferred route to emerging markets in Botswana, Zambia, Zimbabwe, Angola, Malawi and the Democratic Republic of Congo.
Faure explained that several mega projects have surfaced in the last few years that will not be feasible without the SADC Gateway terminal, including the Trans-Kalahari Railway Line, Botswana coal exports through Namibia, mega logistics parks planned in NDP4, the budding crude oil industry, large scale local mining product exports, as well as magnetite, iron ore and coal exports from Namibia.
The SADC Gateway Port project (also sometimes called the North Port) will extend the existing harbour to the north of Walvis Bay between Bird Island and Kuisebmond. It will cover a total for 1330 hectares of port land with 10 000 meters of quay walls and jetties providing at least 30 large berths. The new port will also feature world class ship and rig repair yards, and oil and gas supply base, more than 100 million tons worth of under cover dry bulk terminal, a car import terminal and a passenger terminal, he explained.
The SADC Gateway Port will also feature a liquid bulk terminal for very large crude carriers, dry ports and backup storage areas, break bulk terminals, small boat marinas and a new high capacity rail, road, pipeline and conveyor link to the area behind Dune 7.
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TTIP puts the EU’s environmental and social policies on the line
The European Commission has repeatedly promised civil society that the TTIP negotiations with the US will not lead to a race to the bottom on environmental protection, health and safety standards and consumer rights. But as negotiations progress, civil society groups on both sides of the Atlantic are increasingly feeling uneasy, ten leading NGOs write.
This opinion was drafted by ten European health, transparency and environment NGOs: CEE Bankwatch Network, Climate Action Network Europe (CAN), Corporate Observatory Europe (CEO), European Public Health Alliance (EPHA), European Environmental Bureau (EEB), Friends of the Earth Europe (FOEE), Health and Environment Alliance (HEAL), Nature Friends International (NFI), Transport & Environment (T&E), World Wide Fund for Nature (WWF).
“All through the ongoing Transatlantic Trade and Investment Partnership (TTIP) the fear has been that Europe would be forced to lower the bar to create a “level playing field” between the US rules and generally more robust EU regulations. Even the EU’s long established ‘precautionary principle’ enshrined in the Treaties and underpinning European chemicals regulations could be at risk.
Despite reassurances from EU Trade Commissioner Karel De Gucht, the official language in the TTIP talks revolves around the ‘mutual recognition’ of standards or so-called reduction of non-tariff barriers through new mechanisms of regulatory cooperation. In fact, there are very few financial barriers left to be removed. Basically, the US and EU are pushing for so-called barriers to trade, including controversial regulations such as those protecting food products, health, chemicals or data privacy, to be removed as well as the prevention of additional ones.
For the EU, that could mean accepting US standards which in many cases are lower than its own. At the same time this agreement could open the gates for multinationals and investors to sue EU Member States if new environmental or health legislation is introduced that adversely affects their business prospects. There are three main areas of concern with the mechanism called the Investor-State Dispute Settlement (ISDS) that risks becoming part of the TTIP.
The first is that Member States will be afraid to introduce new and effective legislation that may have positive social and environmental impacts but which risks upsetting our trade partners. Companies will be quick to seek arbitration if they believe their commercial interests are compromised. As a consequence of this ‘chilling’ effect, Member States will only introduce legislation if they are sure that they will not be sued.
The second concern is the cost for Member States. The arbitration panels over these disputes may have the ability to levy crippling fines in line with “potential” profit loss. One can easily see how smaller Member States would effectively handover sovereignty to multinationals as fines could be equal to a significant proportion of GDP.
The third concern is why the independent dispute mechanisms are needed in the first place. Existing EU commercial and single market laws are overseen by myriad court jurisdictions, including the European Court of Justice set up under the European Treaties. Why the need for something operating outside these conventional arrangements?
This is not scare mongering from NGOs. Experience has shown that similar mechanisms of arbitration involving “investment loss” have sided against the rights of the broader public or environment interests and with the corporates.
In May 2013 Quebec introduced a ban on fracking, an oil and gas extraction method occurring deep inside the earth’s crust which carries significant environmental and health risks. The US company, Lone Pine Resources Inc. had a contract with the Canadian government, and is now asking the government for USD250 million in financial compensation.
In the pending case of tobacco giant Philip Morris Asia vs Australia, the company claims that Australia is treating them unfairly by requiring plain packaging for cigarettes. It has demanded that the Australian government suspend enforcement of the law and pay billions of dollars of losses in sales. These are only two of the 500 cases against 95 governments in recent years.
The combined impacts of this ISDS, together with new mechanisms for regulatory cooperation that are being negotiated under this trade and investment deal in Europe, are predictable. Europe would most likely lose its position as a global frontrunner on public policies such as water, nature protection, food quality, chemicals and climate and energy. European and national policy would suffer a sclerosis as a new category of impact assessments would need to be undertaken to see which multinationals interests are jeopardised.
The ISDS arrangements in the draft EU-Canada Free Trade Deal which was recently agreed by the European Commission, though not yet approved by the European Parliament and Member States, have still not been made public. How can we be reassured by Commissioner De Gucht that similar provisions in TTIP will pose few problems when we still cannot get access to the details of already negotiated agreements? Civil society groups on both sides of the Atlantic are right to feel uneasy; what is masquerading as a trade deal may be a far more sinister attempt to roll-back environmental and public health laws built up over decades in the name of corporate efficiency.”
Source: http://www.euractiv.com/trade/ttip-puts-eus-environmental-soci-analysis-532724
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Informal sector key to growth
Zimbabwe has to face the reality that the informal sector is now the dominant force of the economy, Finance and Economic Development Minister Patrick Chinamasa has said. Giving the keynote address at the Mandel-Gibbs 2014 Economic Symposium yesterday, Minister Chinamasa said there were more economically active people in the informal sector compared to those in the formal sector.
“How can we tap value from the informal sector? They are not contributing value to the fiscus. There are no linkages between the formal and informal sector,” he said.
World Bank country economist Ms Nadia Piffaretti said it was high time Government started paying attention to the massive informal sector which was now at 46 percent compared to South Africa at 17 percent and Malawi at 13 percent.
She noted that SME’s were at 60 percent post dollarisation.
“How well are you treating start ups,” she said. “For example, Apple started in a garage but now it is one of the most valuable companies in the world.
Government should not underestimate start ups.” She said the push for foreign direct investment should not be confined to the Government alone but should be initiated by domestic entrepreneurs who are searching for new technology.
Ms Piffaretti said while the global economy was stabilising with an anticipated 2013 growth rate of 3,6 percent, Zimbabwe would experience some problems as they were in the middle of falling international prices and the weakening of the rand against the US dollar.
“The rand has lost a lot of ground and that situation is not going to reverse anytime soon. And this presents problems because the economy experienced a rebound when the dollar was weak but now when it is going the opposite direction Zimbabwe finds itself in serious problems as it has a weak economy being funded by a strong dollar.”
She added: “That brings in the issue of competitiveness. It’s cheaper to import than to export therefore the import bill will continue rising on a permanent basis. On the other hand investors at the moment get nice returns on dollar assets.”
Since 52 percent of Zimbabwe’s trade – two-thirds of exports and 43 percent of imports – is with South Africa, the currency gap is a problem. Zimbabwe gains from cheaper imports from SA (but two thirds of the exports are more costly in SA.
According to the International Monetary Fund estimates, the value of the US dollar today is 15 percent too strong for Zimbabwe, making the economy highly uncompetitive.
Both Minister Chinamasa and Ms Piffaretti said there was need for creativity and innovation in addressing the country’s economic problems.
“Let us not have the belief that things and events can happen effortlessly, that you can move mountains. Let us all not be in the physical sense be (Pastor Emmanuel) Makandiwa followers,” Minister Chinamasa said.
The minister criticised procrastination especially within the private sector as he called for collectivity in coming up with solutions to rescue the economy.
He said challenges facing the economy such as sanctions that Western countries imposed should not be used as excuses for failure to come up with solutions.
“You read in newspapers people saying, we will not do anything because of elections, the elections happen; we will not move until the Minister of Finance has been appointed; The Minister is appointed, you say he must deliver a budget; he has delivered a budget and now the question is what are you waiting for,” he queried.
Minister Chinamasa chided local banks for slacking in mobilising funding to channel to productive sectors of the economy.
“I have been going through what the banks in this country were doing before and the sad conclusion is I get this feeling that they are imposing sanctions on their own country,” he said.
“Before these problems, some of these banks were borrowing lines of credit to on-lend to their customers, US$800 million annually and now US$40 million, the question is why they are not doing things that they were doing before. Is it because they do not like the Government, they do not like the country, what is the problem?” he asked.
He accused the banks of implementing some exit strategy.
Source: http://www.herald.co.zw/informal-sector-key-to-growth/
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Ethiopia stumbles on WTO accession
Ethiopia will not be ready to open up financial and other essential sectors to gain World Trade Organization (WTO) accession until 2015, according to the Ministry of Trade.
This is in contrast with the 2011 Growth and the Transformation Plan (GTP), which promised the finalization of accession within its four-year term.
Geremew Ayalew, director general of trade relations and negotiations directorate at the Ministry of Trade (MoT), confirmed that the government targeted WTO accession in the GTP. However that is not going to happen, he said, as the government prioritized sectors such as telecom, finance and energy, meaning that opening up is not likely to happen until the end of 2015.
Currently Ethiopia is in phase four of responding to the questions of the negotiating countries. Canada, the US, and some European countries posed questions following the goods offer Ethiopia submitted a year ago. The Republic of South Korea joined the group for the fourth round, where some 168 questions were leveled at Ethiopia.
Geremew argues that negotiations for WTO accession remain wide open, and determining when Ethiopia will secure its position with the organization is difficult to predict. He added that being a member of the WTO is not necessarily an attractive opportunity, and it could pose significant challenges if correct preparations are neglected.
Ethiopia is negotiating on the import and export tariffs of goods and services with the WTO member states. The current tariff measures at 35 percent, but after accession that figure may double depending on the predictability of the market. The goods offer is a document that details the amount of goods and services Ethiopia is willing to trade among the WTO members. It also is a document that states some 5,000 or so products of Ethiopia to which the country is willing to trade, based on market access negotiations.
The service offer is the most debated and challenging to Ethiopia, where some strategic government sectors are included in the accession process. The country is expected to provide the details of the service offer during the current Ethiopian fiscal year.
In related news, a National Enquiry Point (NEP) is to be established as an information center to serve the WTO accession, together with local and international business entities. The NEP is to become the central database of Ethiopia, where essential information on trade and related sector enquires are to be facilitated across the country. The Ethiopian Standards Agency is the focal organization undertaking the upcoming launch of NEP operations.
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The MINTs are very different and might not all see stellar growth
In rapidly developing countries, often the proceeds of economic growth fail to flow adequately to shareholders – particularly foreign ones.
Another acronym has recently sprung up associated with my fellow economist, and Telegraph columnist, Jim O’Neill – the “MINTs”, referring to Mexico, Indonesia, Nigeria and Turkey. In fact, the term was first coined by Fidelity, the Boston-based fund manager, but it has been popularised by O’Neill.
It follows the great success of the term “BRICs”, referring to Brazil, Russia, India and China, which he first coined. Does this new grouping make much sense? And, whether it does or not, do these countries enjoy the prospect of exceptionally strong growth in the years to come?
Although the term BRICs has become embedded in the lexicon, the BRICs themselves have recently suffered a fall from grace. Each of these countries has undergone a major growth slowdown. What’s more, this looks like continuing.
Admittedly, compared to the developed West, China and India will grow well, though at more modest rates than before. But this year Russia and Brazil will probably grow more slowly than the UK. It is this slowdown in the BRICs which has set off the search for the new growth stars.
Given that each of the BRIC countries has slowed, you might readily think that this is for some common reason. But, in fact, they have slowed for different reasons, as befits the fact that each of them is very different.
Together, the BRICs make a good acronym but a bad concept.
Russia and Brazil are commodity producers with relatively poor growth prospects; China is a rapidly urbanising export and manufacturing powerhouse, while India has still not managed to achieve “Chinese” growth rates but continues to possess the potential for rapid growth, given that it is still well down the development ladder.
The MINT acronym is only the latest in a series of attempts to find another Emerging Market grouping after the BRICs.
Others include the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa), the Next-11 (another Jim O’Neill creation – Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey and Vietnam) and the EAGLES (from BBVA Bank, standing for Emerging And Growth Leading Economies – Brazil, China, Egypt, India, Indonesia, South Korea, Mexico, Russia, Taiwan, and Turkey).
In each case, the groupings don’t really hang together and the relevant acronyms haven’t really caught on.
The MINTs, like the BRICs, are in many ways an odd grouping. They represent an attempt to put together an alternative to the BRICs in each of the main emerging market regions: Mexico in Latin America, Indonesia in Asia, Nigeria in Sub-Saharan Africa and Turkey in emerging Europe.
Whereas the BRICs consisted of the largest economies in their respective regions, each of these MINT members is the second or, in the case of Indonesia, the third, largest economy in its region.
But the four economies are very different. Nigeria and Indonesia have large populations – 170m and 250m respectively. By comparison, both Turkey and Mexico have smaller populations – just under 80m and 120m respectively.
More importantly, income levels vary considerably. GDP per head in Mexico is nearly seven times as high as it is in Nigeria. The scope for “catch-up” growth in Nigeria and Indonesia is much higher than it is in Mexico and Turkey.
Indeed, it is reasonably normal for countries at Nigeria’s and Indonesia’s stage of development to grow by 6pc or more a year but it is almost unheard of for countries at Mexico’s and Turkey’s stage of development to do so, at least in a sustainable manner. They can probably grow at more like 3½-4pc a year.
The structure of these economies is different too. Mexico has a substantial manufacturing sector that is becoming integrated into US supply chains and is producing increasingly sophisticated products. Mexico’s prospects are closely tied to America’s. As US growth strengthens, so Mexico’s should pick up, too.
By contrast, manufacturing in Turkey is still focused towards the lower end of the value chain and its prospects are closely tied to Europe’s. Meanwhile, in Indonesia and Nigeria, manufacturing is still relatively underdeveloped. Here oil production is far more important.
More immediately, Turkey and, to a lesser extent, Indonesia have been among those emerging markets that have taken advantage of the loose global monetary conditions of the past few years to increase borrowing and fund spending. Both run large current account deficits. Indonesia’s is running at about 3½pc of GDP, while Turkey’s is more like 7½pc.
In both countries the current level of spending could prove unsustainable as the US Fed tapers its monetary policy stimulus and global policy conditions normalise, resulting in a period of weaker growth. I am especially worried about Turkey, not least because it is currently undergoing a political crisis.
Lack of political stability will make it more difficult to push through much- needed reforms and is likely to make future growth both weaker and more volatile. In contrast to Turkey’s huge current account deficit, Mexico’s is pretty small and Nigeria runs a current account surplus.
Although each of the MINT countries will probably do pretty well over the years ahead, with Indonesia in particular perhaps capable of 7pc growth, these countries do not stand out from others in their respective regions.
Although Mexico could be the growth leader in Latin America, in South-East Asia, the Philippines and Vietnam have exceptional growth prospects, and in Africa, Kenya and possibly even Egypt do – the latter if it could get itself sorted out. Meanwhile, in Europe, Poland has good prospects, although probably not quite as good as Turkey’s.
Talk of growth prospects naturally leads people to dream of spectacular returns in the stockmarket. Last year the Nigerian market put in a stellar performance – up by nearly 50pc over the year – but equity markets in the other three MINTs fell over the year.
It must always be remembered that, for a variety of reasons, the link between economic growth and stock market returns is not always that strong.
The often widely divergent performance of the Chinese economy and stock market is a salutary example.
How a market is valued in the first place is a key consideration. Moreover, in rapidly developing countries, often the proceeds of economic growth fail to flow adequately to shareholders – particularly foreign ones.
Of the four economies, I am fairly optimistic about the immediate economic outlook for Mexico and Nigeria. But beware: that might not translate into large rises in share prices this year – or indeed in the near future. To make a mint you have to coin it.
Roger Bootle is managing director of Capital Economics
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Diluting foreign investors’ protection makes no sense
The Department of Trade and Industry has had a veritable bee in its bonnet about the 46 bilateral investment treaties (BITs) that the Nelson Mandela and Thabo Mbeki administrations signed in the post-1994 decade of South Africa’s economic liberalisation.
This was to witness the opening up of an ossified apartheid-era economy through sweeping trade liberalisation, exemplified by the 1999 European Union (EU)-South Africa Trade, Development and Co-operation Agreement, under which 90% of EU-South Africa trade was freed under an asymmetric tariff phase-down arrangement, the partial privatisation of major state-owned entities (Telkom, South African Airways and the Airports Company South Africa) and, at the end of the Mbeki presidency, an ambitious, but still incomplete, programme to establish a Southern African Development Community (Sadc) common market, modelled on the EU, through the 2006 Sadc Protocol on Finance and Investment that came into force in 2010.
In its 2009 BIT review, the department castigated BITs as “unequal and exploitative investment agreements” that prevented developing countries from “fighting poverty”. Trade and Industry Minister Rob Davies went further in July 2012, describing South Africa’s investment treaties as potentially inimical to the government’s “transformation agenda”, while investor-state dispute settlements allegedly promoted “narrow commercial interests” through “unpredictable international arbitration”. Accordingly, all “first-generation” BITs would be terminated by the government, but possibly renegotiated on the basis of a new-model BIT, which would provide the state with the policy space to pursue “legitimate public policy objectives”.
The department has subsequently made good on its promise: the Belgium-Luxembourg BIT was terminated on its 10th anniversary last March, followed by that with Spain in June and, in October, those with the Netherlands, Germany and Switzerland, all EU members, other than Switzerland.
The terminated and existing BITs are now to be replaced by the Promotion and Protection of Investment Bill, which was published for three months of public comment on November 1. Although the bill’s objectives proclaim that South Africa is committed to an “open and transparent” investment environment and a business environment that “expeditiously facilitates” investment, in practice it substantially diminishes the investment protection afforded to foreign investors under South Africa’s BITs at present.
This is for several reasons. First, the definition of “investment” requires more than shares or contractual rights, which would be typical of a BIT, but a “material economic investment or significant underlying physical presence” in South Africa. More important, unlike the BITs, the bill adopts a parsimonious approach to expropriation by expressly limiting its circumstances. Indirect expropriation now appears exempt from protection, as are measures that protect or enhance state security, or where there is a deprivation of property without any concomitant acquisition of ownership by the state. Likewise, unlike the BITs, which offer full market-value compensation in the event of an expropriation, the bill’s measure of compensation echoes section 25 of the constitution by providing an “equitable balance” between the public interest and the affected party, having regard to a number of factors, including the use of the investment and the purpose of the expropriation.
The bill is emphatic about the state’s right to regulate in the public interest. To this end, it permits the government (or any of its organs) to take measures which, among other things, “redress historical, social and economic inequalities”, as well as (presumably with an eye on the mining industry) “foster economic development, industrialisation and beneficiation”.
While the bill commendably prohibits discriminating against foreign investors by according them national treatment as well as equal security and treatment in relation to domestic investors, the important BIT prohibition on the unfair and inequitable treatment of such investors is completely absent from it. This key rule-of-law protection of procedural fairness requires states not to act arbitrarily or abusively towards foreign investors, through coercion, duress or harassment, or by failing to respect the fundamental principles of due process.
Perhaps most important, recourse to international arbitration, a fundamental feature of investor-state dispute settlement under the BITs, is explicitly removed under the bill. Investors will now have to avail themselves of the department’s mediation facilities, and have recourse to the South African courts or domestic arbitration under South Africa’s antiquated Arbitration Act of 1965. This is a marked deviation from international best practice in relation to investor-state dispute settlement as access to independent and impartial international arbitration is a hallmark of effective investor protection.
Although the department’s BIT review makes much of the “excellence” of the country’s judiciary, this misses the point. The domestication of investor-state dispute settlement is exceptional in international investment law. Although Australia’s previous Labor government insisted on it in the US-Australia free-trade agreement, the present Liberal-National coalition has reinstated investor-state dispute settlement in the recently concluded Australia-South Korea free-trade agreement, thus removing one of the department’s key country exemplars.
There is a good reason for this. Access by investors to international arbitration, rather than the domestic courts, provides them with an independent and neutral forum that will not be influenced by local policy considerations. While the department has described international arbitration as “unpredictable”, South Africa’s continued refusal to sign and ratify the Washington Convention, which established the International Centre for Settlement of Investment Disputes in 1965, means, ironically, that it cannot invoke the centre’s ad hoc review mechanism for setting aside the most egregious arbitral awards.
Bizarrely, while the bill provides investors with no protection for unfair and inequitable treatment, affords them below-market-value compensation for expropriation and denies them access to international arbitration, all of these protections are expressly provided for in the Sadc protocol that South Africa ratified in June 2008. The protocol is based on the creation of a “predictable” investment climate through the enforcement of “open and transparent” investment policies. Importantly, the protocol is not restricted to Sadc investors, but to all investors with a lawful investment in a Sadc member state. The only qualification is that an investor must first exhaust its domestic remedies before having access to international arbitration. In addition, the protocol applies only to investment disputes arising after its entry into force on April 16 2010. South Africa could, of course, withdraw from the protocol on 12 months’ notice to Sadc, but given the importance of the regional integration project, this would be politically difficult.
As all the protections of what the department describes as “old-style BITs” are contained in the protocol, one wonders not only how it came to be ratified in 2008, but how it can be squared with the lesser investment protection now on offer under the bill. Or, to paraphrase George Orwell, is this a case of some BITs being more equal than others?
Leon is head of the mining sector group at Webber Wentzel.
Source: http://www.bdlive.co.za/opinion/2014/01/16/diluting-foreign-investors-protection-makes-no-sense
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EAC issues SQMT regulations to facilitate regional trade
The East African Community has issued regulations to enhance the operationalization of the EAC Standardization, Quality Assurance, Metrology and Testing Act (SQMT) of 2006. The SQMT regulations are geared towards facilitating regional trade.
The Regulations were approved by the Council of Ministers in November 2013 and are issued in line with Article 6 of the Protocol on Establishment of the EAC Common Market, with reference to Free Movement of Goods.
Article 6 of the Protocol stipulates among others laws that the free movement of goods shall be governed by EAC SQMT Act, 2006 and regulations made there under. The regulations include: The EAC SQMT (Product Certification in Partner States) Regulations, 2013; The EAC SQMT (Designation of Testing Laboratories) Regulations, 2013; and The EAC SQMT (Enforcement of Technical Regulations in Partner States) Regulations, 2013.
The EAC SQMT (Product Certification in Partner States) Regulations, 2013; provides for certification bodies in the Partner States on the basis of Product Standards. The regulations will facilitate the issuance of quality marks on products conforming to regional and international standards and provide consumer confidence of the products traded in the region. The regulations also provide for emphasis on recognition of each Quality Marks issued by other Partner States Quality Marks in conformity assessment of goods moving across borders.
The EAC SQMT (Designation of Testing Laboratories) Regulations, 2013; provides for the Ministers responsible for Trade in the Partner States to designate Testing Laboratories to be recognized in the region. The regulation will facilitate an organized recognition of testing laboratories to test goods for conformity assessment of goods in the region.
The EAC SQMT (Enforcement of Technical Regulations in Partner States) Regulations, 2013; provides for Partner States to declare or notify a technical regulation which may create barriers to trade and obliges Partner States upon request to explain the justification for that technical regulation.
The above mentioned regulations are expected to be approximated and/or aligned to the existing National Laws as required by the Treaty establishing the East African Community.
Source: http://www.eac.int/index.php?option=com_content&view=article&id=1458:eac-issues-sqmt-regulations-to-facilitate-regional-trade&catid=146:press-releases&Itemid=194
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BRICS pack a good initiative by emerging nations: Joseph Stiglitz
Nobel laureate Joseph Stiglitz today said the creation of BRICS (Brazil, Russia, India, China and South Africa) was a good initiative by emerging market economies as they have resources to have better economic growth.
“The one good news is the BRICS pack. That is the one initiative that has come from the emerging markets…. The BRICS, their GDP is today better than the advanced world, they have the resources to do it and the also there is a need (for them to grow),” said Stiglitz.
Stiglitz, who is also a professor at the Columbia University, was addressing a seminar on ‘Global Financial Crisis: Implications for Developing Economies’ organised by the United Nations ESCAP (Economic and Social Commission for Asia and the Pacific).
BRICS which is a grouping of five developing or newly industrialised countries are distinguished by their large and fast-growing or emerging market economies.
However, he said that the emerging countries should rely on each other and internal demand for their growth to keep going as the world economy is not growing well.
“Europe and America were the centre of Lehman Brothers collapse five years back. People in Europe are celebrating the fact that next year the growth is likely to be positive.
“In India an average growth of 5-6 per cent shows that these economies are not performing well… The emerging countries cannot rely on the developed countries as a source of economic growth. They have to rely on each other and on internal demand,” he added.
He also said that the creation of euro was a big mistake and there is a need to restructure the euro zone.
“In Europe the fundamental problem is that the euro was a mistake. And the leaders of Europe have not figured out what to do with this big mistake. What is needed is to restructure the euro-zone and that is very difficult.”
Stiglitz also said that the single minded focus by the western countries on the inflation was wrong and there should be more focus on employment creation and generation of growth.
Also, the Deputy Chairman of the Planning Commission Montek Singh Ahluwalia who also addressed the seminar, said India’s fundamentals are strong and it will not be much affected by global factors.
“For India the fundamentals are strong and savings rate are high…so our investment rate should be about 38 per cent. So somewhere between 2-2.5 per cent is the Current Account Deficit (CAD) that needs to be fair…. the percentage of the resources in terms of investment that is going to come from internal sources is very very high.
“So whatever happens on the global front don’t make much difference (for India),” Ahluwalia said.
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Angola’s national director for trade calls for quotas on imports of food and drink
The national director for Foreign Trade of the Angolan Trade Ministry, Adriano Martins, in an interview with Angolan National Radio called for the introduction of quotas on the import of food and drink into the country.
“Angola is a country with natural potential to produce a large amount of the products that it now imports but by September 2013 the country spent over 360 billion kwanzas on food products and almost 40 billion on drinks,” he said adding that it was a lot of money that was leaving the country and some move had to be made to prevent it.
To overcome the situation Martins called for the introduction of quotas on imports of certain goods, which may be “seasonal, quantitative or tariff based,” according to state-run newspaper Jornal de Angola.
The actual application of new customs tariffs on 1 January has brought substantial changes in terms of increasing charges on imported goods with a view to encouraging national production in sectors in which Angola has competitive advantages and production capacity, compared to its foreign competitors.
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Zimbabwe’s massive diamond fields discovery to bring billions
Zimbabwe says it has discovered new diamond fields ‘almost the size of Swaziland’ and expects to realise billions of dollars from mining activities.
The announcement at the weekend came barely a month after companies operating at the Chiadzwa diamond fields, discovered in 2008, said mining operations were becoming unviable as the alluvial diamond resources were running out.
The more than five companies wanted to be allocated new claims, saying underground mining would be too expensive in a country that is struggling to attract direct foreign investment.
Deputy Mines minister Fred Moyo told state media that the diamond fields located between Manicaland and Masvingo province stretch over 10,000 square kilometres.
He said the government has already begun sourcing funds to kick start operations
“It is a very huge area. So, obviously the whole area cannot contain a large concentration of diamonds, but the fact is there is huge potential,” Moyo said.
“What we need to do is mobilise funds to carry out extensive exploration that will determine the areas profitable to mine.
“We are actually going to use part of our national budget allocation to send our experts to carry out exploration activities in the area.
“The Umkondo Basin is a reserved area. It has huge potential of diamond reserves and as government we need to urgently move in to determine the areas that possess a high concentration of diamonds,” he added.
All the companies that were granted mining licenses at the Chiadzwa diamond fields formed joint ventures with the Zimbabwe Mining Development Corporation.
The companies in Marange have been mainly concentrating on alluvial mining, which is easier and less-costly compared to underground mining.
Zimbabwe’s first-ever diamond auction in Belgium got off to a slow start last December with the majority of the 279 723 ct gems being of low quality and not properly cleaned, government said.
The Antwerp auction came three months after the European Union removed sanctions on the southern African country’s state mining company.
The Marange diamond fields, 400 km east of Harare, have been the focus of controversy since 20 000 small-scale miners invaded the area in 2008 before they were forcibly removed by soldiers and police.
Human rights groups say up to 200 people were killed during their removal, charges denied by President Robert Mugabe’s government.
Zimbabwe is believed to hold 25% of the world’s alluvial diamonds.
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Mint condition: countries tipped as the next economic powerhouses
Forget the Brics and the Civets, Mexico, Indonesia, Nigeria and Turkey are the new kids on the bloc according to economists
Meet the Mints: Mexico | Indonesia | Nigeria | Turkey
Jim O’Neill. Photo credit: Bloomberg
The Brics are Brazil, Russia, India and China – four emerging economies lumped together in 2001 by Jim O’Neill, then at Goldman Sachs, to show that western investors needed to take notice of what was happening in the post-cold war global economy.
Robert Ward, of the Economist Intelligence Unit, linked Colombia, Indonesia, Vietnam, Egypt and Turkey but the Civets never really took off. Now O’Neill is championing the Mints, a name first coined by the fund managers Fidelity, for what he thinks will be the second generation of emerging market pace-setters: Mexico, Indonesia, Nigeria and Turkey. (See also: “Who you calling a BRIC?” – Column by Jim O’Neill, Bloomberg, 13 November 2013)
The Mints share some common features. They all have big and growing populations with plentiful supplies of young workers. That should help them grow fast when ageing and shrinking populations will lead inexorably to slower growth rates in many developed countries (and China) over the coming decades.
And they are nicely placed geographically to take advantage of large markets nearby, with Indonesia close to China, Turkey on the edge of the European Union and Mexico on America’s doorstep.
Nigeria’s geographical advantages are less immediately obvious, although it does have the potential to become the hub of Africa’s economy at a time when the continent is enjoying a sustained period of strong expansion.
Strong growth in Asia has pushed up demand for the fuel and raw materials needed for industrialisation and three of the Mints – Mexico, Indonesia and Nigeria – are leading commodity producers. Of the four, only Nigeria is not already a member of the G20 group of developed and developing countries.
Even so, financial markets are wary about treating what is actually a disparate group of countries as a bloc. If the Brics are now a bit old hat, it is in part because their reputations are a little tarnished.
Western investors who piled into Bric stock markets expecting to make a packet have had their fingers burned and in recent years would have done better keeping their money at home. Only China has really lived up to the growth hype and is now the world’s second biggest economy.
But even then stock market performance has been weak and there are now concerns that attempts by Beijing to move to an economic model less dependent on credit will lead to a hard landing in 2014.
At one point India looked likely to rival China as the emerging market powerhouse but it had a wretched 2013, suffering from high inflation, a rising current account deficit and a run on the rupee.
Russia is seen as over-dependent on its oil and gas sector and unfriendly towards foreign investors; Brazil, like many other emerging economies, proved vulnerable to hot money flows.
Tanweer Akram, economist at ING Investment Management, notes that investors pulled back from several emerging markets last year and are likely to be discriminating in the future, reducing exposure to “countries that are vulnerable on the basis of current account deficit, inflation above target and muted growth”.
Turkey and Indonesia are both countries where the bullish investor mood of a couple of years ago has been replaced by a more cautious approach. Of the two, Turkey is the more immediate concern, with the International Monetary Fund calling late last year for interest rates to be raised by 2.5 percentage points to tackle 8% inflation.
Nigeria is seen as more attractive in part because it has shown strong growth despite its long-term structural problems: power shortages, corruption and a poor education system.
The markets like the market-friendly reforms in Mexico and see it, rather than Brazil, as Latin America’s best bet. Even so, Mexico’s fortunes are closely linked to those of its powerful neighbour across the Rio Grande.
In one sense, the very notion of Brics and Mints is helpful. It illustrates the way in which the economic balance of power has shifted from the developed to the developing world over the past 20 years and will continue to do so over the next 20.
In Nigeria’s case, it illustrates the possibility that the next “tiger” economies could well be in Africa.
But it is well to remember that the countries are only grouped together because they make a neat acronym. They are all different; the suggestion that they are not is Colombia, Oman, Burundi, Botswana, Laos, Egypt, Romania, Sudan.
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India-Africa to work towards securing bilateral ties
Entering 2014, the year that will see the hosting here of the Third India-Africa Forum Summit, the focus will be on the key element of maritime security cooperation between the neighbours separated by the Indian Ocean, the key waterway for trade between the West and the East.
Besides India’s growing economic engagement with Africa, maritime security and naval capability are of crucial importance for a globalizing India increasingly dependent on external markets and natural resources, as well as on global employment opportunities.
Pointing to this global context, where India is an emerging power, Prime Minister Manmohan Singh told a conference of Indian Navy commanders that “as we strive to realize our due place in the comity of nations... it goes without saying that the realization of our goal lies in widening, deepening and expanding our interaction with all our economic partners, with all our neighbours, with all major powers.”
The Indian Ocean region is home to more than a quarter of the world’s population, and its waterways carry half of the world’s cargo ships and two-thirds of the world’s oil shipments.
India has, in recent years, sought to expand its sphere of influence in the western Indian Ocean facing the coast of eastern Africa, with the primary driver of the maritime security initiative being the operations to tackle piracy off Somalia. The Indian Navy’s efforts in the region has borne fruit in the maritime cooperation with island nations like Mauritius and Seychelles, besides significant initiatives involving some continental countries.
“On the premise that the Indian Ocean is a natural area for us, the entire African coast facing us is important. In fact, island countries like Mauritius and Seychelles are absolutely vital for us,” Arvind Gupta, director-general of the defence ministry-funded think-tank Institute of Defence Studies and Analysis (IDSA), told IANS.
As an instance of maritime cooperation, he pointed out that India had sent a naval ship to Mozambique to provide security for the 2003 African Union summit in capital, Maputo. This was followed by India’s despatch of two patrol boats for assisting in security during a World Economic Forum, leading to the signing of the 2006 MoU by which the Indian Navy engages in regular patrolling off the Mozambique coast.
IANS had earlier reported on the naval cooperation with Djibouti, in the Horn of Africa, to combat the threat posed by piracy off the coast of Somalia.
By a 2003 accord between India and Mauritius, the Indian Navy has patrolled the island’s exclusive economic zone.
“We have to tell Africans about what our policy is on the Indian Ocean, we need to have a strategic dialogue,” Gupta noted.
The second India Africa Forum Summit (IAFS) in Addis Ababa in May 2011 emphasised the renewed focus of India to strengthen and enhance its partnership with countries in the African continent
Greater economic engagement has also been crucial for boosting ties between Africa and India. India’s trade with Africa amounted to $68 billion in 2011-12. At the third India-Africa Trade Ministers’ meeting last year, the trade target was set at $100 billion for 2015.
The international security communities currently engaged in addressing the issue of maritime insecurity in the region are the Indian Ocean Naval Symposium (IONS) that includes naval representatives from the littoral states, and the Indian Ocean Rim Association for Regional Cooperation (IOR-ARC), the chair of which was handed over by India to Australia at its Perth meeting last October.
Pointing out that India is situated astride one of the busiest sea-lanes of the world, Manmohan Singh has said the country is well positioned to become a net provider of security and stability in the Indian Ocean region and beyond.
“We have also sought to assume our responsibility for stability in the Indian Ocean region. We are well positioned to become a net provider of security in our immediate region and beyond,” he has said.
Since the India-Brazil-South Africa (IBSA) formation, three IBSAMAR joint naval exercises have been conducted off the South African coast till date.
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Is 2014 the Transatlantic trade deal’s ‘make-or-break’ year?
Arguably the most important economic development last year was the announcement of a new push toward a trade deal between the United States and the EU. Almost a year after President Barack Obama presented the initiative in his February 2013 State of the Union speech, negotiations over the Transatlantic Trade and Investment Partnership (TTIP) have made steady progress. But several challenges remain unaddressed while new ones loom on the horizon. As a result, it is uncertain whether a final agreement will be ready in time at the end of this year.
As the world’s largest trading and investment partners, representing three-quarters of global financial markets and almost half of world trade, any trade deal made between the U.S. and the EU would naturally be of enormous proportions. According to some official estimates, TTIP could add as much as $130 billion a year to the U.S. economy and 119 billion euros to the EU economy. The significance of this must not be underestimated. If the EU were to add two percent annual economic growth due to TTIP as some economists predict, this would be equal to adding a market the size of Argentina to the global economy every year.
Indeed, the creation of a single market for trade and services stretching from Hawaii to the Black Sea could stimulate the economies and create hundreds of thousands of new jobs in the U.S. and Europe – something that is desperately needed these days of slow growth and massive unemployment. TTIP could also help pave the way for smoother capital flows over the Atlantic, to the benefit of investors and entrepreneurs alike. Furthermore, TTIP is an opportunity for the U.S. and EU to align regulation that could reduce costs of business and investments while keeping high standards in place. If successfully agreed upon, TTIP may even serve as a model for the rest of the world and set the default global standards in production and trade.
Progress on the current negotiations has been made. In December, U.S. and EU officials completed their third round of TTIP negotiations. The fourth round is scheduled in March following a review session between U.S. and EU trade representatives. However, as negotiations now begin in earnest, more controversial issues will likely begin to surface, including divergent approaches to legislation, standards and regulations. Vested interests and looming protectionism on both sides of the Atlantic remain strong. There is also some fear in Europe that the trade deal would disproportionately favor American business interests at the expense of European ones.
As negotiations enter into the next phase, pressure from environmental groups, labor unions and consumer advocates will also increasingly be felt. Many of these groups have recently stepped up their criticism of TTIP. While this debate is of course essential, it also puts a heavier burden on proponents of the trade deal to explain TTIP’s potential benefits and debunk skeptics’ criticisms.
On top of this, the NSA scandal has already threatened to derail the TTIP negotiation process or at least divert attention away from it. Although EU officials claim that data protection and privacy issues lie outside the realm of the current trade negotiations, European outrage over the Edward Snowden revelations could still spill over into adversely affecting the TTIP negotiations. A final potential obstacle is the upcoming elections in both the EU and the United States this year. Both the election to the European Parliament in May and the midterm elections to the U.S. Congress in November could give populist groups like Europe’s anti-immigration parties and the Tea Party movement more of a say over trade policy.
In sum, 2014 will be a pivotal year for TTIP. Though the end of the year deadline for reaching a final agreement may ultimately prove too ambitious, this alone is not necessarily a reason for despair. On the contrary. Given what is at stake – a trade and investment deal of epic proportions with potential to drive economic growth and job creation on both sides of the Atlantic over the next decade – EU and U.S. leaders must use this year to push forward toward a deal that is as ambitious and as comprehensive as possible. They have no other choice but to do this – TTIP is a once in a lifetime opportunity that is simply too big to fail.
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COMESA: Regional market under siege
It is generally agreed amongst the international community, at least in principle, that liberalisation of trade and allowing the free movement of goods, services and people, among countries that share common geographic boundaries and states situated at different poles of the earth, is a must. In order to make the liberalisation of trade a reality and to ensure the free flow of goods and services, states initiate various types of structures.
The Common Market for Eastern & Southern Africa (COMESA) is Africa’s largest economic community. COMESA was established by a treaty agreed in 1993 by 15 east and southern African states. Before this, some east and southern African states had tried to develop other structures. These include the sub-regional Preferential Trade Area (PTA) in 1978 and later the establishment of a Preferential Trade Area for Eastern & Southern Africa, in 1981. The latter became a stepping stone for the inauguration of COMESA.
This economic community embraces states with very differing economic, political and social experiences and legacies. Countries ranging from those with a large population size, such as Ethiopia, to countries with very small number of people, like Swaziland or Lesotho, are all members of this block.
Moreover, this block encompasses countries colonised by various European powers, such as Great Britain and France. This continues to test the vitality and stamina of African states to establish structures able enough to quench the interest of African minds and hearts. Hence, the difference of interests among member states of the common market makes the forum special.
Of course, the block is vital, in that its success or failure would help to test the capacity of African states to establish alliances ready to accommodate the differing interests of various states.
The inauguration of COMESA spurred on the intra-trade relationship of its member states. Research confirms that Intra-COMESA trade has grown from 834 million dollars in 1985, to 1.7 billion dollars in 1994, 15.2 billion dollars in 2008 and 17.4 billion dollars by the end of 2010.
An almost six-fold increase in intra-COMESA trade has happened since the launch of the Free Trade Area (FTA) in 2000. Even though intra-COMESA trade has boosted the economic power and capacity of member states, it has also proved to be a dining room for various quarrels and animosities among member states and some wayward businesses, if not well regulated.
Hence, regulation of the activities and conducts of market actors – obviously at a regional level – is the only option to mitigate market activities and conducts that might have adverse effects on the economies of member states.
As the treaty establishing the common market eloquently epitomised, member states of the block agreed that any practice which negates the objective of free and liberalised trade shall be prohibited. To this end, the member states agreed to prohibit any undertaking which has as its objective preventing, restricting or distorting competition within the common market.
There are various manifestations in which the actions of market actors in one member states can create an adverse impact on the market situation of other member states. For example, the merger of companies in one member state may have an adverse effect on the economic activities of another member state.
The merger of companies producing goods and exporting the same to the member states of the common market may enhance the market share and power of the merged companies. The merged companies in one member state could, however, also abuse their market power by fixing the price of goods exported to other member countries, which makes intervention or regulation indispensable.
Consequently, the enhancement of the market power of the merged companies in one member state of the common market may rob or descend the market power of companies of the importing states. Hence, mergers that have a regional dimension should be notified to the COMESA competition commission, by the merging actors.
Even though the treaty clearly obliged member states of the block to take various measures to enhance the participation of private businesspeople in the market and prohibit some business activities that have a negative impact on the economic or social life of member states, effective regulation frameworks that enumerate detailed provisions were not proclaimed until 2004.
COMESA’s competition regulation, which is one of the instruments used to regulate business activities and market actors, was enacted with the purpose of promoting and encouraging competition. This was to be achieved by preventing restrictive business practices and other restrictions that deter the efficient operation of markets. It is believed that this would enhance the welfare of the consumers in the common market, and protect consumers against offensive conduct by market actors.
This regulation has established the block’s competition commission. This is one of the executive wings of the common market entrusted to enforce market regulation. The commission is empowered to monitor, investigate, detect, make determinations or take action to prevent, inhibit and penalise uncompetitive undertakings. This effort is supported by the Board of Commissioners – the supreme policy body of the commission – which is entrusted with adjudicating on any matters related to the enforcement of the competition regulation and hear cases of appeal that come from the decision of the commission.
Despite the fact that the establishment of the competition commission was epitomised by the regulation, which is proclaimed in 2004, the commission has incepted its operation in 2013. Hence, it is too early to assess the success or failure of this institution. However, it is tantamount enough that for the realisation of effective and workable competition between market actors in the COMESA member states, a lot has to be done both by member states of the common markets and organs of COMESA.
Member states of COMESA are obliged to take measures, such as domestication of the treaty provisions of the common market that relate with competition matters. Even though member states has signed the establishment treaty, differing procedures of ratification of instruments by member states continue to affect the full and uniform realisation of the competition regulations in the common market.
In some member countries, both the treaty and competition regulations are not binding instruments, for they are not domesticated to the law of their own jurisdictions. Hence, national competition authorities of those countries are not legally obliged to collaborate in different areas with the COMESA competition commission to regulate their markets.
This would, in one way or another, reduce the legitimacy and respectability of the COMESA competition regulations enforcement organs. To make the intra-trade relation between member states of COMESA more effective, robust and sustaining, member states of the common market should domesticate the COMESA treaty and competition regulations as a part of the law of their respective jurisdictions. They should strive for the realisation of the aspiration of the block, which is to see a common economic community.
In addition, all member states should equally own the COMESA institutions and participate through their endeavour, working together as a team. It is easily traceable that all member states of the common market are not equally participating and contributing to the effectiveness of the block.
To realise any effective common market, member states should contribute their level best for the realisation of the consensual objectives. No different is the case with COMESA.
But, for this to happen, COMESA’s competition commission should strengthen its enforcement power to fully carry out its responsibilities. Specifically, it should make a bold advocacy move to domesticate the regional competition regulations in all member states’ jurisdictions.
Tesfaye Niway is a presiding judge at the Adjudicative Tribunal of the Ethiopian Trade Practice and Consumer Protection Authority
Source: http://addisfortune.net/columns/regional-market-under-siege/