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New partners in Africa: How can African countries even the playing field?
Africa has seen a dramatic rise in engagement with emerging market economies. In 2012, China’s value of African trade topped $220 billion. African exports to and from India grew by 32.2 and 26.3 percent per year, respectively, from 2001-2011. Russia supplies many African countries with military aid. Brazil, Turkey, Malaysia and Iran have dramatically increased their investments on the continent. Clearly, Africa is increasingly relying on new partners – especially other emerging markets – for aid, trade and other types of support. These partnerships are attractive for Africa because many of these new partners offer “no strings attached” aid. For example, China recently gave Nigeria a $1 billion dollar no-interest loan for infrastructure development in four major Nigerian cities. The loan has no conditional requirements attached.
However, these partnerships are not always equal, and Brookings Africa Growth Initiative Director Mwangi S. Kimenyi argues that African countries may be getting the raw end of the deal. Many of these new and growing relationships may be more about exploiting Africa’s natural resources than advancing the region’s growth and development. In addition, these partnerships are often entered into with a lack of transparency and accountability. Potential “land grabs” and irresponsible natural resource extraction practices threaten Africa’s already troubling food security situation.
In his Foresight Africa paper, Kimenyi argues that, while these new partnerships offer the region new opportunities for economic growth, African policymakers need to be vigilant, focused and proactive when negotiating these partnerships to ensure that they are inclusive and benefit all those in the region.
As Africa’s position in the world continues to grow and evolve in 2014, the Brookings Africa Growth Initiative continues its tradition of asking its experts and colleagues to identify what they consider to be the key issues for Africa in the coming year. Download Foresight Africa 2014 below to learn more about Africa’s new partnerships as well as other critical issues for the region.
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The next challenge: Implementing a new U.S.-Africa policy
2013 ushered in the most significant change in the United States’ Africa policy since the passing of PEPFAR 10 years ago. The unveiling of investment-focused initiatives – Power Africa and Trade Africa – reflects not just a change in how the Obama administration views the continent, but also how foreign investors have prioritized it. But policy rarely achieves its objectives without equal attention to implementation. A number of implementation barriers – old regulations and new policies working at cross-purposes, and limited on-the-ground capacity – threaten to undermine America’s new approach to the continent in 2014. If 2013 was marked by change in U.S. strategy towards Africa, 2014 will be marked by the recognition that 90 percent of the success of that strategy is implementation.
Powering Power Africa: Power Africa is arguably the most significant new piece of policy from the Obama administration, so there is a lot at stake to get it right. Spanning 10 different government agencies from the Export-Import Bank to the much smaller African Development Foundation, it is a big policy. But there are caveats: The funds are limited, non-appropriated and subject to very specific regulations, and the timeline (5 years) is arguably too short to make a dent in Africa’s long-term power sector. Simply sourcing, vetting, preparing and finding the deal teams able to assess a power project can take up to 24 months – after which the administration may well be in handover mode. As the initiative stands, it limits funding for projects that exceed a specific carbon emission cap (100,000 tons of carbon dioxide equivalent per year), which effectively eliminates natural gas projects on the continent, not to mention coal-fueled power plants. Leaving the carbon cap as it is would cripple any chance of success for Power Africa and demonstrate to Africans America’s obsession with green investment in every country other than its own.
Building Trade Africa: Even although Trade Africa has received less attention, its promise for driving the continent’s growth is arguably greater than powering Africa. The administration has been less clear about its intent here, though. An initial focus on the East Africa Community (EAC) is a good and well-considered entry point. And although Trade Africa will establish the new U.S.-EAC Commercial Dialogue and advance the Department of Commerce’s Doing Business in Africa campaign, these projects will be hard to implement with only a few Commerce Department officials on the continent and, despite exceptional leadership by EAC Rwandan Secretary-General Richard Sezibera, a woefully under-resourced EAC Secretariat in Arusha, Tanzania. The imbalance of resources and priorities pose substantial structural constraints for Trade Africa’s success. A more effective use of U.S. resources might be to help advance existing initiatives that promote the financial architecture of regional trade, such as the East Africa Commodity exchange (EAX).
Encouraging Compliance from the Ground Up: The compliance and due diligence industry is expanding rapidly, and 2014 will see additional regulations increasing the burden for companies and investors. Even as Power Africa promises $7 billion for the continent, one new piece of regulation – Section 1502 of the Dodd Frank Act, “conflict minerals” – is estimated to cost investors $8 billion in compliance costs alone next year. So, what can the U.S. government do to achieve market transparency, but also effective and efficient regulation? The answer might be to help generate more and better data on these markets. New regulations and compliance standards can only be institutionalized and effective with more information and data. For broader regulatory requirements such as Section 1502, the U.S. government should be supporting on-the-ground initiatives, leveraging local knowledge and advancing new methods for extracting more information about local environments so that corporate compliance officers can make well-informed decisions.
Six months after the announcement of Power and Trade Africa, the focus in 2014 will shift to implementation, an altogether different and bigger challenge. U.S.-Africa investors are right to be optimistic about the direction of the relationship, but moving beyond an expression of commitment to getting things done will require a focused approach that more clearly syncs priorities with resources.
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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Will there be an African Economic Community?
Today, before the House Foreign Affairs Committee’s Subcommittee on Africa, Global Health, Global Human Rights, and International Organizations, Africa Growth Initiative (AGI) Senior Fellow Amadou Sy and Nonresident Fellow Witney Schneidman will testify before Congress to answer the question, “Will there be an African Economic Community?” Sy and Schneidman will be joined by Peter Quartey, senior economist at the Institute of Statistical, Social and Economic Research (ISSER) and head of the department of economics from at the University of Ghana. ISSER is one of six think tank partners that with which AGI works throughout Africa. Stephen Lande, president of Manchester Trade, will also testify.
Watch the related testimony, January 9, 2014 at 2 p.m. EST
The Abuja Treaty, signed in 1991 by the African Union, set the path for how the African Economic Community (AEC) should progress via regional economic communities (RECs). Now, African member countries are working on the six stages of the AEC. They have already established eight RECs, which was stage I. Now the challenge is to harmonize tariffs (stage II) and create Free Trade Area (FTA) (III). The FTAs are expected to progress to a continent wide customs union (stage IV) to be followed by an African common market (V) with a single currency. The ultimate goal for the AEC is to merge the eight RECs into one economic and monetary union (stage VI).
The future African Economic Community and the current regional economic communities can create economic, social and security benefits not only for African countries, but also for the United States. As Sy, Schneidman and Quartey will testify, the U.S. should support regional integration efforts of the AEC.
Despite a stellar growth performance in the last decade – and a projection for even faster growth heading toward 2015 – Africa’s growth in intraregional trade is fairly stagnant. Africa trades relatively little with itself (12 percent), especially compared to North America (40 percent), Asia (30 percent) and the European Union (60 percent). Typically, individual African countries are small, fragmented economies connected by sparse infrastructure and expensive transportation routes.
Schneidman, in his testimony, reminds us that the idea of the African Economic Community is not a new one. The African region under the African Union has been interested in regional integration since most countries gained independence in 1960s, and the Abuja Treaty created the roadmap. Both Schneidman and Sy agree that regional integration is happening, albeit at uneven paces across the RECs in terms of the six stages. A prediction of whether every nation in the planned AEC will integrate both economically and monetarily is difficult to determine.
In his testimony, Sy suggests that improvements in intraregional trade could make sub-Saharan Africa a more attractive trading partner. Working with Africa on a regional basis may serve to reduce some transaction costs and increase the volume of trade to which the U.S. has access. For example, Kenya alone ranks as the U.S.’s 105th largest trading partner (2011 USTR figures), but if all of the East African Community (EAC) countries (Burundi, Kenya, Rwanda, Uganda and Tanzania) were a combined trading partner, they would be the U.S.’s 80th largest partner (2012 USTR figures).
Quartey will testify on the specific experience of Ghana and the Economic Community of West African States (ECOWAS). He emphasizes that economic benefits are not the only advantages to regional integration. In particular, Quartey suggests that U.S. support for ECOWAS will assist in the development of strong institutions that can stop the spread of terrorism and insecurity across West Africa.
To support deeper integration, Sy recommends expanding the White House’s Trade Africa initiative to encompass more RECs beyond the U.S.’s current partnership with the EAC. Schneidman highlights the need for further investment in the USAID Regional Trade Hubs in Africa to help promote the Africa Growth and Opportunity Act and increase two-way trade with Africa. The scholars also note that the expansion of current U.S. initiatives in Africa could increase regional integration and open up bigger export markets for U.S. businesses. In short, the progress toward regional integration is beneficial for both the U.S. and African economies – whether or not a completely integrated Africa is realized by the suggested deadline of 2028.
Source: http://www.brookings.edu/blogs/africa-in-focus/posts/2014/01/09-african-economic-community-pugliese
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Global trade talks host injustice
For developing countries, it seems, the more things change, the more they stay the same. Despite all the talk of global power shifts and the rise of emerging economies, global trade talks have once again forced developing countries on to the back foot. This is despite having reason and ethics on their side.
The inability to agree a decisive deal reflects the intransigence of some governments in the face of what seem to be commonsense and fair proposals to rectify large anomalies in the trade rules, and demand a pound of flesh in return for every such “concession”.
The Doha development round of trade talks is all but dead, and only two issues have survived to merit serious consideration. One is “trade facilitation” – the harmonising and standardising of customs rules and procedures that is an agenda of the global north to ease import practices across the world. There are the usual noises being made about how this will dramatically increase both trade and employment worldwide, on the basis of spurious empirical exercises.
The other issue is more central: the focus on agricultural subsidies, which affects the livelihoods and food security of more than half the world’s population. Unfortunately, some wealthy countries have demanded acceptance of the former, while refusing to make even the most obvious adjustments to meet the latter.
Since the World Trade Organisation’s (WTO) Agreement on Agriculture took effect in 1995, world trade patterns have changed and there are forces distorting food trade that are not being adequately addressed. Subsidies that wealthy countries give their farmers and agribusinesses are mostly classified as “non-distorting” measures and remain high.
A few multinational agribusinesses have increased their domination of global trade and food distribution. Speculation in commodity futures markets is creating volatile price movements that do not reflect true changes in demand and supply.
All this is bad for small producers, who do not benefit from price increases and lose out when prices decline with import surges. It is also bad for poor consumers, who face much higher prices for their food. In many developing countries, this has created two linked problems: food insecurity (because of high and volatile food prices) and livelihood insecurity of food producers (because of rising costs and uncertain supply).
In the meantime, developing countries must find some way to ensure their citizens’ food and livelihood security. Many countries try to do so by introducing measures to make food affordable for low-income consumers or by encouraging domestic food production, particularly through supporting small farmers.
The trouble is that such measures sometimes come up against existing WTO rules. This is because of unbalanced and what should be archaic rules that allow higher levels of subsidies and protection for rich countries compared with developing ones.
The WTO recognises three kinds of agriculture subsidies. “Amber box” measures are those that distort trade most severely. Developing countries are allowed to provide such subsidies worth up to only 10pc of the total value of their agricultural production; developed countries are allowed up to five percent.
The second category of subsidies, the “blue box”, are considered slightly less distorting; developing countries are subject to an eight percent ceiling on their blue box support.
And finally, “green box” subsidies are those that are not thought to distort trade at all; these are not subject to any conditions or limitations. Examples of green box subsidies include direct income support to farmers, as well as policies for environmental protection and regional development. Most developed countries have shifted towards green box subsidies for agriculture, so they continue to provide enormous support to their farmers without breaching WTO commitments.
But developing countries trying to ensure food security may need more flexibility than global trade rules allow. To that end, the G33 – a coalition of developing countries at the WTO – has suggested broadening the green box to include policies such as land reform programs, the provision of infrastructure and rural employment initiatives.
It is important to expand the definition of green box support to account for the specific needs of developing countries. For example, some governments may find it necessary to provide crop-specific subsidies to encourage farmers to cultivate more food crops, thus lowering prices for consumers.
Government purchases of crops at fixed, or “administered”, prices can be an essential policy instrument. Under WTO rules, however, if governments pay farmers at rates that are even slightly above market prices when they are stockpiling food, those payments count toward the country’s 10pc amber box ceiling. But grain reserves can be essential to domestic food security, allowing countries to guard against sudden movements in global food prices. Such payments should also be classified in the green box.
Most bizarrely of all, to calculate the level of current subsidies, the WTO uses prices of 25 years ago (the average 1986-88 global prices). This is clearly ridiculous, since food prices have shot up since then. Recent prices should be used as the reference. But developed countries currently refuse to agree to this because “it will open up the agreement”.
Surprisingly, developed countries are contesting all of these points in the WTO negotiations. A “peace clause” that would temporarily suspend WTO actions against countries that exceed their amber box limit is being suggested as a fallback negotiating strategy. But such an outcome should be accepted only as a transitional measure towards full recognition of the legitimacy of such policies to ensure food security.
The WTO rules make a travesty of the first millennium development goal (MDG) – to reduce hunger. If the world community is truly concerned about hunger, then it should not let unfair trade rules reduce developing countries’ ability to do something about it.
Jayati Ghosh is professor of economics at Jawaharlal Nehru University, India, and the Executive Secretary of International Development Economics Associates (Ideas). This commentary is submitted to Fortune by Development Debate.
Source: http://addisfortune.net/columns/global-trade-talks-host-injustice/
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Free Trade Area panacea to Africa’s economic woes
Little economic grounding dictates that markets for products play a critical role in growing any economy, itself a key prerequisite for enhancing the livelihoods of communities. Assuming that the manufacturing base of a nation is sound, with various products being churned to the satisfaction of consumers, the market for such products will have the natural say in the determination of the profitability or otherwise of such business ventures. Markets for products will be essential in determining whether the manufacturing companies will break even or at least eke out profits so as to sustain production.
For industrial productivity to be a reality and if trickle-down effects are to grow the source of raw materials and ultimately generate employment either side of the production circle, a sound market for goods has to be in place or at least be generated through various strategies at the companies’ disposal.
It sounds refreshing as an African for the continent’s political leadership to have finally realised the economic gem in their midst, which is the market, a staggering billion-plus population with the extraordinary potential to change the economic fortunes of individual countries’ domestic economies. About one hundred trade and customs experts from the 26 countries under COMESA, EAC and SADC met in Mauritius to map the way forward on the free trade area (FTA) that brings the three blocs together.
Yes, there is practical optimism in Kenyan President Uhuru Kenyatta’s observation that “Strong partnership and co-operation between African countries will bolster trade and investment, consequently improving the living standards of people.”
Whilst China is an indisputable technological giant, its booming economy is partly attributed to its solid market, a staggering one in excess of a billion people. It is every economically successful nation’s secret arsenal. Ask yourself, is it a mere coincidence that the continent’s economic powerhouses such as South Africa and Nigeria also command huge populations? There is indeed power in huge populations which translate to thriving economies in the event of other fundamentals being correct.
Imagine if the whole of Africa was to become a single economic bloc with prudent trade rules being adhered to by individual countries, the continent will be a living paradise to its inhabitants. Such a huge economic bloc will enable small countries such as our own Zimbabwe, with massive potential to reignite its sleeping industrial base, to tap into the vast market for its products.
Those with a stable memory will recall that at its peak, Zimbabwe’s industrial capacity was a marvel for the whole of Africa. Had it not been for the illegal debilitating sanctions which were engineered by the British and their American kith and kin, with the tacit support of their local surrogates, the two Movement for Democratic Change formations, the country’s manufacturing industry could have been robust and intact.
It is pleasing to note that, the recently elected Zanu-PF Government has prioritised the retooling of the country’s industries in the short term. This is what the country needs for it to extract value from the envisaged Free Trade Area. Where a nation has a comparative advantage, it is bound to harness modest profits hence enhancing its economy for the benefit of its citizenry.
All the nations of Africa will benefit from the economies of scale, a simple economic principle where mass production has an effect of lowering prices for consumers’ benefit. With flexible boarder trade policies that cater for smooth movement of labour, production costs will be substantially low which will ultimately trickle to the people, manifesting itself in low prices. Certainly, the quagmire of poverty, which reflects itself in families failing to have decent meals, will be a thing of the past or it will at least be reduced.
There is no need for sceptics to press the panic button by suggesting that such a noble venture will suffer a stillbirth. As usual, in such a grand project which is earmarked to benefit the ordinary folks, merchants of doom, especially those of our own whose livelihoods are sustained by deriding anything African, will be quick to point out supposed anomalies.
Surely, such retrogressive personality need to be watched out for, for their agenda has always been to perpetuate foreigners’ interests. For once, as Africans we need to harness the abundant potential that we possess in order for the continent to grow economically in leaps and bounds.
Just a glance at the European Union, it is the amalgamation of energies by the various governments for the benefit of their citizens. Of course territorial integrity and sovereign issues are of paramount importance to all governments globally, but it is the crafting of economic policies that take aboard such critical pillars that define nationhood that will enable Africa to emerge strong from its deep slumber.
Whilst other continents and economic blocs are bereft of resources to support their economies, Africa is blessed with numerous raw resources whose judicious exploitation is the panacea to the total eradication of various economic and social quagmires afflicting Africa. Each country has to use its comparative advantage which will enable the rest to tap and gain from its expertise which will ultimately benefit the rest.
In order for Africa to sustain such an enormous economic project, there is need to invest in water-tight security which is a prerequisite for peace and stability. Peace and stability are key elements in the bid to achieve economic prosperity at the national and continental level.
For those who have visited Europe, it is quite clear that the political and economic bloc invest so much in security which has resulted in the relative wealth which has accrued to their citizens and countries. Africa should not be an exception as it aims to realise this crucial goal of economic prosperity. Security should always be available to citizens as they undertake their daily chores.
There is therefore need for the various economic blocs in Africa that peace is made available in some trouble spots such as the Renamo-engineered menace in Mozambique, the need to halt the volatility that now characterises the Great Lakes region, the need to bring normalcy in West Africa where coups have become the norm and the need to ensure that the unrest in North Africa is managed so as to concentrate on economic progression.
A casual look at the unrest bedevilling these various spots in Africa will unravel that the hand of former colonisers is ubiquitous in all these conflicts as they attempt to consolidate their hegemony over Africa’s resources. Ironically, it is for the benefit of their citizens at the expense of Africa.
Therefore, the greatest threat to the establishment of this noble economic initiative are the rapacious former colonisers who view it as a threat to their erstwhile illegal role of distributing Africa’s resources as if they were theirs. Africa, it is time Africans control their destiny by ensuring that the economic levers of their continent rest firmly in their hands.
Muchadura Dube is a farmer and political analyst from Nyanga.
Source: http://www.manicapost.com/index.php?option=com_content&view=article&id=29265:free-trade-area-panacea-to-africas-economic-woes&catid=39:opinion-a-analysis&Itemid=132#.Us-YxfQW2a8
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Despite legal attacks, conflict minerals ban gets stronger
Major manufacturing and business groups on Tuesday urged a court here to roll back a new U.S. regulation that would soon require major manufacturers to ensure that their global supply chains are free of minerals used to fund violence in the Great Lakes region of central Africa.
Yet the previous day, Intel, the major computer hardware manufacturer, announced the world’s first product formally dubbed free of such materials, stating that its microprocessors would no longer use “conflict minerals”. The announcement highlights trends that advocates of greater supply chain accountability say are already well underway, and which they suggest belie parts of the legal case against the rule.
“This provision has already catalysed reforms of the minerals trade in the Great Lakes region and has prompted both [U.S.] and Congolese companies to carry out supply chain due diligence and source minerals more responsibly,” Carly Oboth, an assistant policy advisor with Global Witness, a watchdog group, told IPS.
“According to consulting firm Claigan, in September 2013 2,946 companies were identified as having conflict minerals compliance programmes … Despite the appeal, many companies have already publically demonstrated the feasibility of the rule as they begin implementation to meet the May 31, 2014 reporting deadline.”
The U.S. Chamber of Commerce, the National Association of Manufacturers (NAM) and the Business Roundtable, all major lobby groups, say the new rules impose an undue financial burden on companies and infringe on constitutional guarantees of free speech. The groups say they are supportive of the aims of the regulation, known as Section 1502, but want significant tweaks and the inclusion of certain exemptions.
But supporters counter that the Securities and Exchange Committee (SEC), the country’s lead regulator of publicly listed companies, has already thoroughly weighed these issues.
“Generally we’ve been supportive of the SEC’s position and think they did extensive analysis before adopting the conflict minerals rule,” Julie Murray, an attorney currently acting as counsel for Amnesty International, a rights group that has joined the lawsuit in support of Section 1502, told IPS.
“The SEC received some 13,000 letters urging it to promptly adopt this rule, and we think the commission did an exhaustive job of looking at the issues – taking into account the concerns that were raised by these groups, and trying to make the rule cheaper and easier to comply with.”
The appeal follows a detailed and strongly worded legal decision in July that upheld Section 1502, which was mandated by Congress in 2010 but only finalised last year. As the regulation currently stands, by June large companies will need to certify the sourcing of a handful of minerals sourced from central Africa, while smaller companies will have a longer timetable.
In the appeal, a central issue in the court’s decision-making will be the estimates the SEC used to figure out the financial burden that Section 1502 would place on companies, upwards of four billion dollars in initial compliance costs followed by annual costs of 200-600 million dollars. Yet Murray suggests that companies will be able to bring these costs down as they learn how to comply with the new regulations.
“In general we think that it’s important that companies learn about the source of the materials they’re using – most consumers say they should know whether the materials they’re purchasing are responsible for rape, torture and murder in the DRC,” Murray says. “At the same time, this rule isn’t just about human rights, but also serves an important role in informing investors and consumers.”
On Tuesday, however, two of the three judges hearing the case appeared sceptical of several aspects of Section 1502. They raised concerns about the precedent that the regulation would set, the SEC’s capacity to create such a rule, and even the scope of the underlying law.
Conflict-free microprocessors
In 2009, the U.N. Security Council formally recognised that revenues from minerals extraction were strengthening multiple armed groups operating in eastern DRC. The electronics industry has been one of the most significant users of the minerals that have been singled out for scrutiny, which include tin, gold, tungsten and others.
Supporters of Section 1502 say that many businesses are showing strengthening interest in doing the work necessary to comply with the rule, both for brand and financial reasons. In this, Intel is widely seen as having made a uniquely serious effort to clean up its global supply chain.
“Two years ago, I told several colleagues that we needed a hard goal, a commitment to reasonably conclude that the metals used in our microprocessors are conflict-free,” Intel’s CEO, Brian Krzanich, said Monday. “We felt an obligation to implement changes in our supply chain to ensure that our business and our products were not inadvertently funding human atrocities in the Democratic Republic of the Congo.
(An Intel executive sits on the National Association of Manufacturers’ board and is thus technically a party to the current appeal. While a company spokesperson declined to comment on the case, on its website Intel notes that its “positions do not always align 100% with those of the industry and trade organizations to which we belong.”)
Intel called the achievement a “critical milestone”, while Krzanich said the it was “just a start. We will continue our audits and resolve issues that are found.” He also urged the rest of the electronics industry to follow suit.
Others say industry leadership from other sectors is equally important.
“Now that Intel has released the first conflict-free product, it’s time for other companies to do the same,” Sasha Lezhnev, a senior policy analyst with the Enough Project, an advocacy group here, told IPS. “Particularly for gold – it’s important for jewellers to take action, while aerospace companies also need to step up. This problem won’t be solved by just one company.”
Lezhnev recently returned from the DRC, and notes that Section 1502, despite having yet to come fully into force, has already played a “backbone” role in defunding armed groups in the eastern part of the country. Such groups, he says, are also far less present today in the mining areas.
“Smuggled minerals are now about a third of the price of the [certified] minerals, so the new price this rule helped to spur is offering a strong incentive to build up a conflict-free trade,” he says. “You’re seeing the disarmament of many armed groups … and while that is not only because of the new regulation, this rule is offering a strong incentive for them to not restart again.”
Source: http://www.ipsnews.net/2014/01/despite-legal-attacks-conflict-minerals-ban-gets-stronger/
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Specialisation: An intuitively wrong approach
Some ideas are intuitive. Others sound so obvious after they are expressed that it is hard to deny their truth. They are powerful, because they have many non-obvious implications. They put one in a different frame of mind when looking at the world and deciding how to act on it.
One such idea is the notion that cities, regions and countries should specialise. Because they cannot be good at everything, they must concentrate on what they are best at – that is, on their comparative advantage. They should make a few things very well and exchange them for other goods that are made better elsewhere, thus exploiting the gains from trade.
But, while some ideas are intuitive or obvious, they can also be wrong and dangerous. As is often the case, it is not what one does not know but what one mistakenly thinks they know, that can hurt. And the idea that cities and countries actually do specialise and that, therefore, they should specialise, is one of those very wrong and dangerous ideas.
When an idea is both intuitively true and actually false, it is often because it is true on one level but not on the level at which it is being applied. Yes, people do specialise, and so they should. Everyone benefits from each of us becoming good at different things and exchanging our knowhow with others. It is not efficient for a dentist and a lawyer, for example, to be the same person.
But specialisation at an individual level actually leads to diversification at a higher level. It is precisely because individuals and firms specialise that cities and countries diversify.
Consider a rural medical facility and a major city hospital. The former probably has a single general practitioner who is able to provide a limited suite of services. In the latter, doctors specialise in different areas (oncology, cardiology, neurology and so on), which enables the hospital to offer a more diverse set of interventions. The specialisation of doctors leads to the diversification of hospital services.
The scale, at which the specialisation of individuals leads to diversification, is dependent on the city. Larger cities are more diversified than smaller cities. Among cities with similar populations, more diversified cities are richer than less diversified cities. They tend to grow faster and become even more diversified – not only because they have a larger internal market, but also because they are more diversified in terms of what they can sell to other cities and countries.
What is true at the level of cities is even more applicable at the level of states and countries. One way to understand this is to think of industries as stitching together complementary bits of knowhow, just as words are made by putting together letters.
With a greater diversity of letters, the variety of words that can be made increases, as does their length. Likewise, the more bits of knowhow that are available, the more industries can be supported and the greater their complexity can be.
Cities are the places where people who have specialised in different areas congregate, allowing industries to combine their knowhow. Rich cities are characterised by a more diverse set of skills that support a more diverse and complex set of industries – and thus provide more job opportunities to the different specialists.
In the process of development, cities, states and countries do not specialise; they diversify. They evolve from supporting a few simple industries to sustaining an increasingly diverse set of more complex industries.
Achieving this implies solving important coordination problems, because an industry that is new to a city will not find workers with industry experience or specialised suppliers. But policymakers can do a lot to solve these coordination problems.
This is why the idea that cities, states or countries should specialise in their current areas of comparative advantage is so dangerous. Focusing on the limited activities at which they currently excel would merely reduce the variety of capabilities – or “letters” – that they have. The challenge is not to pick a few winners among the existing industries, but rather to facilitate the emergence of more winners by broadening the business ecosystem and enabling it to nurture new activities.
This is all the more important today, because the globalisation of value chains is delocalising supplier-customer relations. Cities and countries would be ill-advised to focus on a few “clusters” and consolidate the value chains in their location, as is so often recommended. Instead, they should worry about being a node in many different value chains, which requires finding other industries that can use their existing capabilities if they were somehow expanded and adjusted to new needs.
Competition inevitably tends to winnow out the less efficient firms and industries. It is not the policymakers’ role to hasten their death. Their task is to identify productivity-enhancing interventions that can harness economies of agglomeration by adding new activities and productive capabilities, making the whole bigger than the sum of the parts.
Ricardo Hausmann is a professor of economics at Harvard University, United States, where he is also director of the centre for international development.
Source: http://addisfortune.net/columns/specialisation-an-intuitively-wrong-approach/
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Don’t rush into EAC Monetary Union – Lagarde
Visiting International Monetary Fund (IMF) Managing Director Christine Lagarde is now warning Kenya against rushing to implement the East African Community Monetary Union.
Speaking to a section of the private sector on Monday, the IMF boss said the EAC is not yet ready for the move and needed to address key issues before they unite their currencies.
Some of the challenges, she said, include the increasing non-tariff barriers, varying economies and different tax regimes in respective countries.
“As a member of the Monetary Union of Europe, I have to tell you that it is very exciting ambitious project, but one where as Aristotle would put it; hasten slowly. Don’t rush,” Lagarde said.
She said Kenya, being a strong advocate of the regional economic integration should guide the other EAC member states in ensuring that common blunders experienced by other unions are not be repeated.
President Uhuru Kenyatta is the current chairman of the East African Community.
“Make sure you learn from our mistakes and that the East African Monetary Union can even teach the Europeans how to do it right,” Lagarde emphasised.
The Monetary Union Protocol was signed last month by regional heads of states, kicking off plans to have a common currency for the bloc within 10 years.
But the IMF chief says the countries should first come up with proper and clear convergence criteria, drawn from lessons learnt in other unions.
“There are multiple experiences, whether it is European Monetary Union, the Caribbean Unions, the West African Unions and all other unions. There are mistakes, gaps, omissions that can be learnt from,” she said.
The single currency is aimed at enhancing trade in the East African region and also strengthen the integration.
“Regional integration has opened up new markets, supported the emergence of a middle class, and enabled domestic demand to become an engine of growth. The process must now be deepened,” she however acknowledged.
Meanwhile she urged Kenya to come up proper policies that will see smooth implementation of devolution which she said stands a big challenge of Kenya’s economy.
Lagarde came into the country on Sunday 5 on a three day visit to discussing relations between Kenya and the IMF through meetings with various stakeholders.
Businessman Chris Kirubi later described Lagarde’s position on the Monetary Union as timely advice.
“This is very timely advice from the IMF chief. A Monetary Union should be the last thing that Kenya gets into. We should not allow something that could be potentially divisive come in the way of integration,” Kirubi said on phone from Dubai.
Source: http://www.capitalfm.co.ke/business/2014/01/dont-rush-into-eac-monetary-union-lagarde/
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EAC drafts $83.6m blueprint to promote exports
The East African Community has drafted a new blueprint to guide its efforts to market the region as a single source of exports.
The EAC Export Promotion Strategy 2013-2017 is ready for implementation this year and has four pillars.
The blueprint is intended to enhance business synergies among the five partner states to develop EAC as a single source of goods and services.
The focus of the strategy will be promotion of the production of diversified and high value products from the partner states. This is expected to increase access to international markets for increased export growth and reducing cost of doing business in the region.
“This strategy is expected to transform and position the EAC at the global stage as a competitive and dynamic export-led region,” said EAC Secretary General Richard Sezibera.
Implementation of the proposed strategy will involve EAC Secretariat, donors, regional institutions, government departments and public sector and private sector organisations for a period of five years.
It’s estimated that successful implementation of the plan will require at least $83.6 million.
The draft has four crucial pillars, which are production, marketing, business environment and institutional capacity building.
The production pillar focuses on building of regional structures to encourage adoption of technologies and availing affordable finance to facilitate export diversification and development.
The marketing pillar emphasises the need to finalise strategic partner negotiations, enabling exporting firms to meet high value export markets and EAC trade promotion organisation, market penetration and cooperation in strategic sectors and markets.
The third pillar will see infrastructure development to increase competitiveness through reduction in cost of power, elimination of non tariff barriers, harmonising and strengthening of institutional regulatory frameworks to reduce cost of doing business within the EAC.
The fourth pillar will address institutional and capacity, where export promotion agencies in partner states are to be strengthened to effectively execute their mandate.
The review of the region’s exports and imports trends shows that EAC imports more than it exports to the rest of the world.
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Tripartite Free Trade Area to become a reality
Three regional economic communities in Africa are expected to sign an agreement in 2014 to establish an enlarged market covering 26 countries in eastern and southern Africa.
The “Grand” or Tripartite Free Trade Area (FTA) with a combined population of some 600 million people and a Gross Domestic Product of about US$1 trillion covers half of the member states of the African Union and is intended to boost intra-regional trade, increase investment and promote the development of cross-regional infrastructure.
The target was set just five years ago by the Common Market for Eastern and Southern Africa (COMESA), the East Africa Community (EAC) and the Southern African Development Community (SADC), commonly referred to as COMESA-EAC-SADC.
Since the historic Summit of Heads of State and Government in October 2008 in Kampala, Uganda, they have made significant progress towards realising this dream of opening up borders to literally half of the continent, spanning the entire southern and eastern regions of Africa – from Cape to Cairo.
The chairperson of the Tripartite Task Force, Dr Richard Sezibera, has indicated that negotiations are progressing according to the agreed time-frame, and that consultations will be concluded soon.
He said an agreement by the three regional communities will be signed by June 2014, paving the way for the launch of the FTA.
“Considerable progress has been made and negotiations have intensified to ensure that we clinch the Tripartite Free Trade Agreement by June 2014,” Dr Sezibera, who is also the EAC Secretary General, said at a tripartite meeting held in November in Arusha, in the United Republic of Tanzania.
His counterparts, Dr Stergomena of Tax of SADC and Dr Sindiso Ngwenya of COMESA, have pledged to make the tripartite negotiations a success.
The ongoing negotiations involving COMESA-EAC-SADC are being followed keenly by the AU as other regions that want to learn from this experience.
Africa’s long-standing vision since 1963 at the formation of the Organisation of African Unity (OAU), now the African Union, is to have a united and integrated region.
Under the African Economic Community Treaty signed in 1991, Africa aims to establish a continent-wide free trade area and these regional trade arrangements such as the Tripartite FTA are regarded as the building blocks.
Once operational, this tripartite FTA will become a new benchmark for deeper regional and continental integration in Africa.
There is a clear recognition that COMESA-EAC-SADC is founded on a strong and clear agenda, despite the challenges that the three regional communities may face.
According to a roadmap adopted in June 2011, negotiations for a Tripartite FTA are being conducted in three different phases – preparatory phase, phase one and phase two.
To date, the Tripartite Trade Negotiation Forum (TTNF) has completed the preparatory phase which involved the exchange of relevant information, including applied national tariffs and trade data and measures.
It was aimed at ensuring the adoption of the terms of reference and rules of procedure for the establishment of the TTNF. This phase began in December 2011 and lasted about 12 months.
The tripartite negotiations are now concluding phase one which will cover core FTA issues of tariff liberalisation, rules of origin, customs procedures and simplification of customs documentation, transit procedures, non-tariff barriers, trade remedies and other technical barriers to trade and dispute resolution.
Facilitating movement of business persons within the region is being negotiated in parallel with the first phase.
Phase two, the last stage of the negotiations, is expected to start soon and will cover trade in services and trade-related issues such as intellectual property rights, competition policy and trade development and competitiveness.
According to the roadmap, all negotiations should be completed within 36 months. Thereafter, COMESA-EAC-SADC are expected launch a single FTA by 2016, building on the FTAs that are already in place.
It will also resolve the long-standing conundrum of overlapping membership, which has presented barriers for the three communities in their quest towards integration.
Technically, a country cannot belong to more than one customs union, yet the three communities have either already established or are working towards creating their unions.
The ultimate launch of the enlarged FTA will result in the three sub-regions coalescing into a single FTA with the goal of establishing a single Customs Union in the near future.
With the launch of the “grand” FTA now getting closer to becoming a reality, countries in eastern and southern Africa including Zimbabwe should ensure that they fully benefit from such an arrangement.
The creation of an enlarged market would promote the movement of goods and services across borders, as well as allowing member countries to harmonise regional trade policies to promote equal competition.
Removal of trade barriers such as huge export and import fees would enable countries to increase their earnings, penetrate new markets and contribute towards their national development.
However, like any other trade arrangement, the Tripartite FTA will bring its own challenges that need to be addressed. For example, less prepared nations are at risk of being swallowed economically by more powerful nations, as their local industries would suffer from the stiff trade competition from more rival firms in an open market. This competition may subsequently allow the more organised and developed nations to push weaker local firms out of business.
Hence, member states must smartly address such pertinent issues to fully benefit from the trade arrangement.
One way of addressing this could be by boosting the manufacturing sector to ensure it is able to compete and withstand pressure from outside firms.
Another option is value-addition to increase benefit from natural resources such as gold, diamonds and nickel.
Zimbabwe has already identified various measures that aim at accelerating economic development and preparing its industries to withstand stiff competition in an open market.
These measures are contained in the newly crafted Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZimAsset). Zim Asset is a Government blueprint that will guide economic transformation and development in Zimbabwe for the next five years, spanning October 2013 to December 2018.
It should be noted this is the same period in which the Tripartite FTA involving COMESA-EAC-SADC is to be launched, thus ZimAsset is also an important blueprint for the country in this context.
ZimAsset has identified four key priority clusters that will enable Zimbabwe to achieve economic growth and reposition the country as one of the strongest economies in the region and Africa.
These key priority clusters are food security and nutrition, social services and poverty reduction, infrastructure and utilities, and value addition and beneficiation.
Value addition in various sectors, among them mining, agriculture, infrastructure focusing on power generation, transport, tourism, information communication technology and enhanced support for small to medium enterprises, are the key drivers of any economic agenda. sardc.net
SANF is produced by the Southern African Research and Documentation Centre (SARDC), which has monitored regional developments since 1985.
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“Bali is just the start” – Azevêdo
Director-General Roberto Azevêdo, in a speech at a diplomatic seminar in Lisbon on 6 January 2014, said: “The task of strengthening the multilateral system and moving towards delivering on the Doha Development Agenda will be difficult – but it is not impossible. Many didn’t believe we could deliver in Bali, and with good reason. But we did – and we can do more. Bali is just the start.” This is what he said:
I am delighted to be in Lisbon, and to have the chance to address such a distinguished audience here, in a place that is so symbolic of Portuguese democracy.
Of course, being Brazilian makes the pleasure even greater – speaking in Portuguese at an official event is a rare privilege, to say the least.
But the privilege also involves the chance to revisit a land which, aside from its mystique, is also a point of reference for all Brazilians. I can assure you all that, in my personal experience (as a Brazilian whose blood is 7/8 Portuguese), it is impossible to understand the Brazilian soul without visiting the roots and common origins of our people – people in the singular – distributed on both sides of the Atlantic.
Before embarking on the topic of our meeting here today, I feel compelled to share with the Portuguese nation my profound sadness and solidarity following the passing of Eusébio. As I think everyone knows, I’m a football fanatic, and it was very sad to receive the news when I disembarked yesterday in Lisbon. Eusébio – our “Black Panther” – was a sportsman and human being who always aroused feelings of admiration and inspired millions around the world. At least we have the consolation of being able to relive his great moments with images that will doubtless be relayed by television worldwide. He will remain forever in the annals of history as one of football’s giants.
To get back to the route map of our conversation, just over a year ago I announced my candidacy for the post of Director‑General; and I was here in Lisbon at the start of last year, still in the early stages of that selection process. What I saw and heard here encouraged me to pursue the position of Director‑General, and I’m very grateful for the guidance and wise advice that was offered to me. These last 12 months have been truly eventful and testing.
I want to thank the Portuguese Government for the tremendous support you gave me throughout my campaign for this role – and, particularly, for the support that you, along with the EU as a whole, gave to achieving a successful outcome in Bali.
My presence as the head of the WTO and the success of the Bali negotiations were a direct outcome of that support. We now need to build new negotiations and multilateral outcomes on the foundations which we have just jointly signed up to in Bali.
This new endeavour is precisely the topic of my talk this morning, which has the title “Trade multilateralism in the twenty‑first century.”
While today I can speak more optimistically about this topic, just six weeks ago that would not have been the case.
Before the gavel finally came down to confirm the adoption of the Bali Package, the future of trade multilateralism was in doubt.
But the gavel did come down on the deal – we delivered. And it has changed the outlook and the opportunities quite dramatically.
I remember that, just one week from the start of the Ministerial Conference in Bali, we closed the negotiating process in Geneva with texts that were still unfinished. We were a step away from another failure; and, in my opinion, only one factor could reverse that situation and bring us to a positive outcome in Indonesia.
To use a buzzword that is well‑known in diplomatic spheres, what was required was “political will”. In practical terms, what we really needed and the only thing capable of ensuring that that “political will” materialized, was a collective awareness that:
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the agreement being pursued was desirable for everyone and, above all, doable for everyone;
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a positive outcome would not produce winners and losers, nor a north‑south divide (both developed and developing countries would need to work for the agreement);
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the multilateral trading system needs to be reinvigorated to benefit everyone, particularly the smallest countries and those with least capacity to manage the intricacies of large‑scale trade negotiations.
In my opinion, the fact that this set of elements was present in Bali is what enabled dynamic and innovative procedures that led us to finalize the texts, without the traditional closed‑door negotiations with a small number of delegations around a single table. The process was inclusive and transparent to the last.
Clearly, aside from the systemic impact and its symbolic dimension, the Agreement was only possible on the basis of what was on the table. That had to be the starting point and the central underpinning of the “political will” we were looking for. In fact, the Bali Package involved a large number of measures that are very important for all Members. It covered three important areas, and I’ll take each one in turn.
The Bali Package
The first pillar is Agriculture. This is the cornerstone of the Doha Development Agenda which the WTO has been working on since 2001. Agricultural issues are very dear to developing countries, and the Bali Package delivered some important outcomes.
For example, it sets us on track for a reform of export subsidies and measures of similar effect, and it makes practical progress towards better implementation of the tariff quota commitments assumed in the Uruguay Round. There is also a reaffirmation and a deepening of the political commitments assumed in Hong Kong on trade liberalization and the reduction of distorting support to cotton – a very important issue for the African countries that grow that crop.
The Package also provides temporary protection for food security programs in developing countries, which allow for the stockpiling of grain for subsequent distribution to the poor. As we know, some of those countries could be exposed to legal challenges in the WTO for exceeding the limits stipulated in the Agriculture Agreement for certain types of domestic support. So, in addition to the temporary protection against legal challenges, the Bali Agreement states that a permanent solution will be negotiated and concluded before the 11th Ministerial Conference in four years’ time.
The second pillar of the Package is Development.
Here, a monitoring mechanism will provide for the review and strengthening of special and differential treatment provisions for developing countries, which are contained in all WTO multilateral texts. This achievement is vital for the equilibrium and efficacy of the multilateral system.
There are also a number of specific measures to support the Least-Developed Countries.
They include reforms that would enable services providers in LDCs to enjoy new export opportunities in developed country markets.
They also include steps to simplify rules of origin, which again will open up new export opportunities for those countries specifically.
Under this pillar we will also see improvements in trade preference arrangements which extend exemption from tariffs and quotas to LDC exports.
The third and final pillar is Trade Facilitation, which sets out to simplify and modernize customs procedures, and make them more transparent, thereby reducing transaction costs. The Agreement on Trade Facilitation will be able to provide a significant – and today much-needed – boost to the global economy, delivering growth and jobs. This could be worth up to $1 trillion per year to the global economy – generating up to 21 million jobs.
Significantly the Agreement also ensures the provision of technical assistance to support developing economies and the least–developed economies to implement these modernizing reforms, and therefore help them integrate better into global trade flows.
Clearly estimates can vary, but, once the Agreement is implemented, there could be an expansion in developing country exports of up to 10% – compared to a 4.5% expansion in developed countries.
It is true that the deal represents only part of the Doha Development Agenda. But there can be no doubt that this is a significant package that will provide a considerable economic boost and improve the lives of millions of people around the world – particularly among the poorest and in countries whose economies have stalled and are suffering high levels of unemployment.
In the specific case of the European Union and its member States, the conclusion of the Bali Package reflects that grouping’s chief negotiating objectives. With the Agreement on Trade Facilitation, opportunities for expanding trade will clearly increase. The Agreement also offers potential to facilitate the internationalization of small and medium–sized enterprises, which are important drivers of job creation and income distribution in many European countries.
The importance of the Multilateral Trading System
But of course these outcomes do not fully reflect achievement of Bali.
There was a great deal more at stake.
I said at the start of the Bali Conference that the very future of multilateral trading system hung in the balance.
Ministers needed to be warned that the consequences of failure were very real for us all. And they responded positively, demonstrating the flexibility and political will needed to cross the finishing line. And by doing so they also clearly showed the importance that they attach to the system.
In recent months there has been a lot of talk about regional and bilateral agreements.
The Transatlantic Trade and Investment Partnership is one such potential agreement – and I know this is the subject of a panel session during today’s seminar. My view of this is the same as of other potential agreements of this kind: it is a positive initiative to be welcomed – but it can only ever be one part of the wider picture. Agreements such as this cannot be sufficient on their own to ensure globalizable gains. The proliferation of regulations and standards tends to multiply costs rather than reduce them.
As we all know, the multilateral trading system was never the only option for international trade negotiations. It has always co-existed with, and benefitted from, other initiatives – whether regional or bilateral. They are therefore not mutually exclusive alternatives.
The WTO disciplines also need to evolve to reduce the gap that will exist between multilateral regulations and the new generation regulations negotiated outside Geneva. The two processes, multilateral and bilateral, must move forward together to reduce costs effectively and to curb protectionism. Otherwise, we could see results that are exactly the opposite of what we are seeking.
Nor should we forget the systemic effects that will be felt if non–multilateral undertakings become the sole negotiating channel. We would then have a major problem both in terms of asymmetry of the agenda and the issues covered.
In such fora the Least–Developed Countries tend to lag behind or, worse still, get excluded from the negotiating table. Moreover, the agenda is inevitably limited and neglects issues that are critical for the global trade agenda such as agricultural subsidies.
In addition, many of the deals that are currently being discussed ignore the most important and dynamic frontier of international trade: the big emerging players.
The emergence of these new players is one of the central facets of the evolution currently taking place in global trade and global governance mechanisms.
And the multilateral trading system assumes even more critical importance given the fragility of growth in the global economy. Economic conditions have generated protectionist pressures in some areas.
Our most recent trade report for the G-20, published in December, found that trade restrictions are on the rise, with 116 new trade restricting measures being identified over the preceding six months.
Furthermore, the global economy is evolving rapidly and dramatically in other key areas, such as:
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shifts in trade patterns (South-South trade, for example, is growing at unprecedented rates);
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shifts in production and consumer behaviour (private sector standards and concerns with impacts on climate, environment, human health, etc);
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ongoing technological innovation; and
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the further internationalization of supply chains (cross-border aspects tend to intensify as transport and communications become faster).
Both trade and the international economy are evolving – and the multilateral system is the only system that can truly and adequately respond to the challenges that are appearing on several fronts. So we need to consider how it can continue to deliver in the years ahead.
Lessons from Bali
I believe the Bali package provides some useful lessons to this end – not just through the substance and the strong reaffirmation of Ministers’ commitment to the Doha Development Agenda – but also through the procedures we adopted which led us to success in Bali.
First, we needed to be creative. We knew that, in the short run, we were not in a position to conclude the Doha Round in full and by the route we had been pursuing – that much was acknowledged at the 8th Ministerial Conference held in Geneva in 2011. A reality check enabled us to look at areas that were promising and doable; and this enabled us to design the general outline of what would emerge as the “Bali Package”.
Second, an important point is that the process had to be transparent and inclusive at all stages. Instead of small groups of countries negotiating in closed rooms, the entire membership came together to negotiate in open-ended meetings. It was not an exclusive club that was deciding everything.
Where smaller meetings were held, the attendees varied according to the issue. What mattered was not the size of the country but the degree of sensitivity on the issue in question. The results of those smaller-scope conversations were immediately taken to the broader group of Members. Although it was a slow and painstaking process, it was essential to give all Members ownership of the package and the outcomes.
Lastly, we sought a balanced package that everyone could support. The traditional divide between developed and developing countries, between north and south, was not present in this package.
Clearly, perceptions frequently differed on the various issues, but all parties perceived gains when the package was viewed as a whole.
The developing nations fought for the package just as hard as anyone. The few voices that expressed reservations about the general balance of the agreement and suggested it should be rejected found no echo in the developing world. Bali changed the ballgame – we have put the ”World” back into the “World Trade Organization”.
Post-Bali
We now need a ministerial mandate to look anew at core Doha Round issues and to develop a viable new approach. I think these lessons will help us make further progress.
I listened very carefully to Ministers on this topic in Bali; and a number of suggestions were floated there. Although they vary widely in content and emphasis, all need to be considered carefully and discussed among Members.
Nonetheless, certain elements seem to be essential for our future work, whatever path we follow, and I will now make a brief and non-exhaustive list of them.
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We must be ready to be creative and keep an open mind to new ideas. We need to be prepared to recognize the most urgent challenges and priorities of the modern world, without ignoring the negotiating mandates.
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We cannot forget that development has to be preserved as the central pillar of our efforts.
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We need to explore new ways of making headway on the most difficult negotiating topics. We might even conclude that there are no prospects for progress in those areas, and that we need to seek other negotiating paths. But we musn’t be afraid of that discussion or shy away from it.
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We need to be realistic. One of the critical factors for success in Bali was respect for the limits of political viability when defining the negotiating targets.
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Our efforts need to be given a sense of urgency. Rapid changes are taking place in the world, in the business, political and cultural domains. The trade agenda is no longer confined to tariff reduction. Today the regulatory dimension, particularly within national territory, is just as important as what happens strictly on the border, or even more so. The system cannot take two or three decades to respond to those changes; it needs to act much more swiftly.
Conclusion
The task of strengthening the multilateral system and moving towards delivering on the DDA will be difficult – but it is not impossible.
Many didn’t believe we could deliver in Bali, and with good reason. But we did – and we can do more. Bali is just the start.
As I said at the beginning of my remarks, just six weeks ago the fate of the multilateral trading system hung in the balance. Today we can talk with confidence about how we can continue to develop and strengthen the system for the future.
And when we look to the future, I think it’s also useful to look to the past.
We should recall the reasons why the GATT was created, leading to the WTO as we know it today.
The birth of the GATT was intimately associated with post–war ideals. A lasting peace would only be possible with balanced and fair global economic growth, without winners and losers. International political cooperation was imperative, clearly associated with closer and more objective international economic cooperation. The peaceful and cooperative integration of peoples thus depended on greater integration and cooperation among countries in international trade.
Clearly, countries will not sacrifice their national interests for the multilateral system, nor could we ask them to do so. Nonetheless, the WTO cannot lose sight of those fundamental principles. There is plenty of room for convergence between defending national interests and improving the multilateral trading system.
I think I’ve talked for long enough. I know I’ve not identified the road ahead, but I hope I’ve given food for thought. We will need creativity and open minds in Geneva.
Portugal, as a tireless partner of multilateralism, with its efficient and highly reputed diplomatic corps and its aptitude for brokering understanding in international fora, has much to contribute to our joint reflection.
In my Cabinet, I receive close and always very wise counsel from Ambassador Graça Andresen Guimarães, and I’m grateful to the Portuguese Government for providing me with such indispensable support.
To conclude, let me once again thank the Portuguese Government, through the Minister of State and Foreign Affairs, for inviting me to address this distinguished assembly. I hope the work of this two-day seminar will be useful and fruitful.
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Mozambique due to become oil producer in 2014
Mozambique is due this year to become an oil producing country and significant progress is also expected to be made in natural gas and coal production, according to the Economist Intelligence Unit.
A small oil discovery next to the Temane gas field, in Inhambane province (south), will allow South African petrochemical company Sasol to launch oil production this year, said the EIU’s latest report on the Mozambican economy, to which Macauhub had access.
“The oil field is the first to produce oil commercially in Mozambique, where so far there have only been viable natural gas discoveries,” the report said.
The project will produce around 2,000 barrels of oil per day, which is a small amount commercially-speaking, but makes it possible to “diversify Mozambique’s export base,” it noted.
As well as this, Sasol’s representatives have already said that oil reserve estimates may be increased, as exploration activities are already underway in the area.
According to the Oil and Gas Journal, Mozambique has around 4.5 trillion cubic feet of proven natural gas reserves, but until the beginning of last year had no oil reserves at all.
The country has extensive onshore and offshore sedimentary basins containing natural gas, most of which has yet to be explored, as well as significant coal reserves, which are considered to be the biggest in the world.
William Telfer, an oil and gas specialist told DW Africa that the discovery “is very viable” and that 100 similar wells were the equivalent of Angola and Nigeria’s production.
“It’s not small, it’s very good. And we are soon going to hear about new discoveries that will increase the amount of wells,” said the specialist.
“Gross domestic product will increase. We have an excellent Finance minister and excellent deputy minister. A very strong staff. Mozambique is prepared to start exploring large quantities of oil,” he said.
Despite the announcement, the Economist kept its estimates for economic and export growth in the 2014–2018 period unchanged, as they already take into account substantial investments in the extractive industries and greater weight of exports.
Along with this Sasol is increasing production as its gas fields in Pande and Temane which is “welcome news for the nascent Mozambican energy sector,” and a “sign of confidence,” from an important foreign investors at a time that is sensitive in terms of both politics and security.
Sasol is investing in a number of areas, including increasing the capacity of its gas pipeline to South Africa (US$184 million) and a gas-fired power plant at the Ressano Garcia border (US$246 million).
The EIU for this year points to growth of the Mozambican economy of 6.5 percent, rising to 7.3 percent this year and 7.6 percent in 2015.
The industrial sector is expected to make the biggest contribution to economic growth over the next two years: 9 percent growth in 2014 and 14 percent in 2015.
Source: http://www.macauhub.com.mo/en/2014/01/06/mozambique–due–to–become–oil–producer–in–2014/
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Why Africa’s financial integration is difficult
There have been talks of Africa’s financial integration for more than two decades, but there aren’t any concerted, credible and encouraging signs that Africa is nearing its goals and objective of financial integration apart from a few disjointed accounts from various analysts’ opinions on Africa’s regional financial integration achievements.
Analysts have argued that African regional economic communities (REC), recognising the need for pooling of financial resources began establishing sub-regional capital markets in an attempt to solve the problem of their fragmented capital markets.
Realising the fact that there is a strong relationship between developed financial markets and economic growth, African regional economic communities (REC) saw the need to integrate and consolidate financial markets as a vehicle for promoting economic development on the continent.
REC also believed that financial integration would enhance, promote efficiency and productivity and facilitate the flow of information. Indeed, regional financial integration is seen as the only platform for establishing stronger links with financial systems and capital markets in more developed countries and economies.
But, has REC been able to establish this stronger links or has it the capacity to establish this stronger links with financial systems and capital markets in more developed countries? Kuper, S. (2013) argued that since 2000, Africa has been going off in different directions.
President Jacob Zuma, the South African president, in a speech while speaking on issues of toll roads recently lends credence to Kuper’s claim, and it is one of the reasons why Africa’s financial integration has proved difficult.
“We can’t think like Africans generally, we are in Johannesburg. This is Johannesburg. It is not some national road in Malawi”. If indeed, the belief of REC is to enhance, promote efficiency and productivity within regional communities, I do not see how Zuma’s statement meets this objective.
Ironically, South Africa and Malawi are both members of the same African regional economic community called Southern African Development Community (SADC) where South Africa dominates the region economically, accounting for 60% of SADC’s total revenue and about 70% of SADC’s GDP.
Evidently, South Africa has a critical role to play in the regional financial integration of that region. Therefore, such careless utterances of a high political figure like the president of South Africa which ridicules the economic and social development of a member country will not promote the desired cooperation that encourages positive and strong financial integration of that region and Africa as a whole.
Analysts believes that financial integration involves a process whereby a country’s markets become linked or integrated with those of other countries or the rest of the world. Therefore, in a fully integrated market, all forms of barriers are eliminated to enable foreign financial institutions to participate in domestic markets.
This is why it is argued here that careless statements like that of President Zuma should not be tolerated. It hampers development of the SADC region and Africa by extension.
Zuma should understand that whether a country, region or continent “chooses to integrate its financial markets formally or informally, it needs to create an enabling environment that would attract foreign participation” and his statement on Malawi’s development processes doesn’t create an enabling environment for the financial integration of the SADC and Africa as a continent.
It is time our African leaders demonstrate that Africa as a whole is their place and show love and respect for one another. Whether you are from Malawi or Nigeria or Ghana or Somalia or Cameroon or Senegal or Gabon or Kenya, we must look out for the things that promote the interest and common good of one another.
Our leaders must stop playing this superiority and inferiority game that divides the continent and by extension transcends down to the various nationals of the various countries. Africans must learn to leverage one another.
We have seen that why regional economic communities have not been able to harmonise the standards and regulations of governing financial markets and to create a larger central African financial market known as African Economic Community (AEC) that would support Africa’s regional integration agenda is due to such antecedents behaviours like the one exhibited by Jacob Zuma, the South African President.
Indeed, smaller African countries cannot achieve such economic impact by themselves unless they are linked up through the financial markets of the regional economic markets. Malawi should be encouraged to develop further its infrastructure within the SADC region and not ridiculed.
Zuma should focus more on the three benefits of financial integration which are the primary aim of the REC financial integration agenda.
These three benefits are (1) Risk sharing – South Africa should share its risk of expertise and know-how with Malawi that would boost specialisation in production.
(2) Improved capital allocation – South Africa should encourage better allocation of capital and support the smaller and poorer countries within its region to remove impediments to trading of financial assets and flow of capital.
(3) Economic growth – South Africa’s deeper financial integration can encourage and stimulate stronger economic growth for its region by making financial resources available for economic activities for smaller member countries like Malawi.
Germany did this for participating EU member countries like Greece, Spain and Italy during the recent financial crisis that engulfed the EU.
Tony Navah Okonmah, a financial and economic analyst, wrote from London.
Source: http://www.vanguardngr.com/2014/01/africas-financial-integration-difficult-2/
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SACU: Moderately bright economic future expected
A moderately bright future in the economy may be expected this year with the continued fiscal windfall from the Southern African Customs Union (SACU), analysts say.
However, an economist said this would only benefit the country if government maintained consistency in fiscal discipline, which also entailed cutting back on public expenditure.
He said the anticipated SACU receipts, expected to be in the region of E7 billion, would naturally bring about an increase in allowable expenditure, if and only if, closely and cautiously monitored.
“It can be said that the country has regained fiscal prudence, but government still needs to tread carefully in terms of its spending patterns. Priority needs to be given to developmental projects that will bring about economic growth,” he said.
The Economist Intelligence Unit (EIU) has forecast public spending growth to slow in 2013/14, although less sharply than previously expected. The agency further noted that Swaziland’s fiscal balance moved from a deficit of 5.6% of gross domestic product (GDP) in 2011/12 (April-March) to an estimated surplus of 0.3% of GDP in 2012/13, as a 30% rise in public spending was offset by a 145% increase in customs receipts from SACU.
Spending
The EIU said instead of using its latest SACU windfall to build up a fiscal buffer and clear domestic payment arrears in full, government chose to raise public spending sharply, with current outlays rising by an estimated 26%.
“This has reinforced the economy’s vulnerability to fiscal shocks,” the agency said. It further noted that in 2013/14 SACU’s payments to Swaziland were projected to rise more slowly, by 1.4%, adding that little progress was expected in expanding the domestic revenue base, given an absence of any major new tax-gathering measures in the 2013/14 budget.
“As a result, SACU receipts are expected to account for well over half of fiscal revenue,” said the agency. The EIU expects the growth in overall spending to slow to 7% and forecasts a fiscal deficit equivalent to 1.2% of GDP in 2013/14.
“Focal areas for a complete economic turnaround should be public sector expenditure management, investment incentives to improve domestic investment and improving of human capital through skills development, education and training,” the economist advised.
“We cannot continue to rely on the SACU receipts, especially because this revenue is expected to decline in the coming years. It is unfortunate that some of the economic reform policies government formulated during the fiscal crisis have never seen the light of day.”
According to the EIU, in 2014/15 SACU’s payments to Swaziland are forecast to fall by 9%, followed by an additional decline of 8% in 2015/16. The EIU said barring another subsequent upward revision in SACU receipts, government would be obliged to impose a tighter grip on public spending, given its limited financing options.
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Angola delays entry into SADC Free Trade Zone
Angola’s minister for trade, Rosa Pacavira said Saturday in Luanda that Angola may only join the SADC Free Trade Zone only in 2017.
The minister said that joining the Free Trade Zone would only happen when Angola had finished its membership road map, which is currently being drawn up, but noted that Angola’s entry “remains on the government’s agenda as part of its regional integration policy.”
“We are drawing up a road map and we will see if, by 2017, Angola manages to join the Free Trade Zone, but for that we will have to create industry and internal capacity so that Angola can compete with other countries that are already part of the zone,” said Pacavira.
“If we open up the market now we will stop producing a lot of things that we need to produce, because if Angola joins up now we will have the whole of the SADC selling products here and we will not be producing them,” she said.
The SADC Free Trade Area was set up in Johannesburg in August 2007, at the 28th SADC summit, and currently includes South Africa, Botswana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Swaziland, Tanzania, Zambia, Zimbabwe and Madagascar. The SADC countries that did not join are Angola, the democratic Republic of Congo and the Seychelles.
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2013 witnessed fruitful economic and trade cooperation between China and Africa with new bright spots keeping cropping up
In 2013, despite continuous global economic sluggishness, China and Africa continued a sound momentum of growth in their economic and trade relations. The two sides now enjoy a more solid foundation and show a stronger will for cooperation, and new bright spots keep emerging in the process.
In 2013, there were frequent exchanges of high-level visits between China and Africa. The Chinese President Xi Jinping chose African continent as one of the destinations in his maiden foreign trip after assuming the presidency in March. When visiting Tanzania, he promised that China would continue to facilitate Africa’s development, “China will strengthen mutually beneficial cooperation with African countries in the fields such as agriculture and manufacturing, and help African countries to translate their advantages in resources into development advantages so as to achieve internally-driven development and sustainable development.”
Apart from President Xi Jinping, Chairman Zhang Dejiang of the National People’s Congress, Vice-Premier Liu Yandong and Vice-Premier Wang Yang also paid respective visits to Africa. On the African part, Nigerian President Goodluck Jonathan, Kenyan President Uhuru Kenyatta, Zambian President Michael Sata and Ethiopian Prime Minister Hailemariam Desalegn visited China on different occasions. Through the exchange of visits, China and Africa have consolidated their traditional friendship and strengthened political mutual trust, laying the foundation for sustained development of economic and trade cooperation.
Talking about economic and trade cooperation, we have to mention FOCAC, by far the most important multilateral cooperation mechanism between China and Africa. In July, 2012, the fifth Ministerial Conference of FOCAC was held inBeijing, where China proposed three initiatives for its economic and trade cooperation with Africa, including expanding investment and financing cooperation, increasing development assistance to Africa and supporting Africa’s integration efforts. According to Chen Hao, deputy director of the Coordination Division of the Department of West Asian and African Affairs of the Chinese Ministry of Commerce, these three initiatives have been steadily implemented in 2013.
“On expanding of investment and financing cooperation, the implementation of the US$20 billion commitment of the Chinese government has been going on smoothly, with loaning agreements focusing on the areas of infrastructure, agriculture, manufacturing and SME development. On increasing development assistance to Africa, China increased its assistance to Africa in 2013, steadily implementing the programmes such as the construction of agriculture demonstration centers, Brightness Action campaigns and African talent development plan. On supporting Africa in its integration efforts, China and Africa have maintained close cooperation and conducted productive and in-depth discussions on helping Africa’s trans-border and trans-regional infrastructure construction and facilitating regional trade,” Chen said.
Trade is one important part of China-Africa economic cooperation. All the African leaders visiting China in 2013 attached strong importance to bilateral economic and trade cooperation with China. Nigerian President Goodluck Jonathan said in his visit to China in July, “Our two countries have constantly strengthened cooperation in trade and investment, with the two-way trade exceeding US$13 billion, and China is now Nigeria’s largest trading partner.
In August, 2013, Kenyan President Uhuru Kenyatta headed a big delegation of over 100 people to China including nearly ten government ministers such as on foreign affairs and international trade and on finance, leaders of key development departments such as the investment authority, and representatives of leading financial and business companies. He said during the visit, “I come to China to deepen the traditional partnership between our two countries and two peoples. This trip is not only about China-Kenya relations, but also about China-Africa relations. I come here against the backdrop of continuous development of China-Kenya relations and growing bilateral business cooperation. Therefore, I hope that we can work together to seek opportunities for mutually beneficial cooperation. In this way, our countries, governments, businesses and ordinary people can be better involved in the efforts to pursue sustained and fast development.”
At present, China has grown into Kenya’s top source of FDI and second largest trading partner. The two-way trade between the two countries exceeded US$2.8 billion. The increase of trade volume between China and Nigeria as well as Kenya and their growing economic and trade cooperation is only one epitome of the development of China-Africa trade.
Chen Hao said that from January to October, 2013, China-Africa trade reached US$172.83 billion, up by 5.5% than that of the same period of the previous year, and the figure for the whole year of 2013 is expected to exceed US$200 billion, which will mark another record high. At the same time, bilateral trade mix has also been improved, with high value-added mechanical and electrical products as well as high-tech products approaching nearly half of China’s exports to Africa. African complete industrial products such as steel and copper products have also started to enter China’s market. By offering zero-tariff treatment to 95% of the categories of exporting products from least developed African countries such as Ethiopia, Benin and Burundi, China has opened its market wider to African countries, which has given a strong boost to African exports to China.
Apart from trade, investment is also an important part of China-Africa economic cooperation. In recent years, with the acceleration of China’s domestic industrial restructuring and African industrialization and urbanization, more and more Chinese businesses have come to Africa for development, relying on their advantages in capital and technology to develop cooperation with African countries. Chen said that from January to October, 2013, China’s non-financial direct investment to Africa totaled US$2.54 billion, up by 71.6% than that of the same period of the previous year.
“There are now over 2000 Chinese companies having set up investment businesses in Africa, covering the fields such as agriculture, infrastructure, manufacturing and processing, resources development, finance, trade and real estate. The Chinese businesses also seek localized development and have hired over 80,000 local employees. The Chinese government has also introduced a host of measures to encourage Chinese businesses to invest in Africa such as by setting up the China-Africa Development Fund, creating the special loan for SME development in Africa, and establishing China-Africa economic and trade cooperation zones in African countries, all of which play an important role in facilitating Chinese businesses’ investment in Africa.”
While increasing investment in Africa, the Chinese businesses have also been actively involved in infrastructure construction on power, energy, transportation and livelihood in recent years, making impressive achievements. In June, 2013, Ethiopian Prime Minister Hailemariam Desalegn spoke highly of the contribution made by Chinese engineering companies to the development of Africa during his visit to China.
He said, “Many African countries including Ethiopia have taken on a new look with the support of the Chinese capital and help of Chinese engineering companies (in infrastructure). This will undoubtedly promote trade among African countries and bring about a bigger integrated market, both internally and externally.”
As a matter of fact, China-Africa economic and trade cooperation based on mutual benefit has not only helped to improve the livelihood of the African people and promote African countries’ diversified economic development, but also provided strong support to China’s economic and social development. Africa has now become the second largest overseas contracting market for Chinese companies. Chen Hao said that from January to October, 2013, the new contractual volume for projects in Africa by Chinese businesses was US$47.01 billion, up by 22.5% than that of the same period of 2012, with a turnover of US$32.21 billion, up by 11.4%. While consolidating their traditional advantages, the Chinese businesses are extending to the upper and lower reaches of the contractual projects in Africa. They have now also been involved in the feasibility research, planning and designing for the initial stage and operation and management after the projects are completed. With the growth of China-Africa relations, we can expect the further deepening and expanding of China-Africa economic and trade cooperation and exchanges.
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Crossing the SACU bridge
Martin Gobizandla Dlamini, the new Minister of Finance, is aware of the challenges of the country’s economy in case South Africa pulls out of the Southern African Customs Union (SACU).
However, the minister warned against pressing the panic button. He said there were no pellucid pointers that South Africa might pull out of the union.
Asked what measures were in place to sustain the country economically if South Africa pulled out or reviewed the revenue sharing formula to the negative, he said: “Let us cross the bridge when we get there. I am aware that South Africa calls for changes in the revenue sharing formula. This is a matter that has been on the table for quite some time.”
“I can’t comment now on how to survive with or without SACU receipts but I can mention that we are a sovereign state.”
He did not expand on the sovereignty of Swaziland. Dlamini said SACU member states would meet in February 2014 for a strategic session.
These are South Africa, Namibia, Swaziland and Lesotho. “We were to meet in February in the first place, to discuss strategies on how to modernise SACU and make it relevant to our needs. It’s not like we are going there for shocks or breaking news about South Africa’s position on SACU,” said Dlamini, the former Governor of the Central Bank of Swaziland.
The country’s Gross Domestic Product (GDP) stands at E37 billion for 2012 while that of South Africa is E3.8 trillion as at 2012. In the absence of SACU, Swaziland is left with a few companies that add value to the economy in terms of taxes.
They include among others Conco Swaziland which is understood to be contributing 40 per cent to the GDP, which translates to E14.9 billion and the sugar belt companies; Royal Swaziland Sugar Corporation (RSSC) which makes a turnover in excess of E1 billion and Illovo Group’s subsidiary Ubombo Sugar Limited (USL).
Illovo Sugar has a 60 per cent shareholding at Ubombo Sugar while the remaining 40 per cent is held by Tibiyo Taka Ngwane, a royal entity held in trust for the Swazi nation.
To Illovo Group’s profits, Ubombo Sugar contributed E272 million.
Bongani Mtshali, the acting Chief Executive Officer (CEO) of the Federation of Swaziland Employers and Chamber of Commerce (FSE&CC), said the country could be in a very bad economic situation if South Africa were to pull out of SACU.
He said the economic problem could still persist even if the revenue derived from the union was decreased. Mtshali advised Swazis to expand the revenue base and work hand in hand with the Swaziland Revenue Authority (SRA) in its collection of domestic taxes.
The taxes include company tax, pay-as-you-earn, sales tax, casino tax and value added tax. He said people and companies should be encouraged to honour tax obligations. He also called for business innovation. “We will be able to produce and sell if we innovate,” he said.
He said there was a need to have an innovation institution of some sort to produce talent, nurture and release it for productivity.
As it were, he said, it was suicidal to depend entirely on SACU revenue.
It can be said that over 60 per cent of the country’s budget comes from the union. The SRA collects over E3 billion and this money cannot finance the national budget of E11.5 billion.
Ministries that can save Swaziland from an economic crisis are the Ministry of Commerce, Trade and Industry; Ministry of Agriculture, Ministry of Natural Resources and Energy and the Ministry of Economic Planning and Development.
It can be said that Swaziland is an agricultural economy but the closure of the factory at SAPPI Usuthu and destruction of timber at Mondi by veld fires, spelled doom to the economic outlook of the country. It can also be said that the country’s mainstay product is now sugar.
Despite maize being the country’s staple food, government spent E123 million on maize imports from South Africa last year. This year, preliminary figures indicated that government could spend E95 million on maize imports.
The import price has decreased because the country recorded a higher maize harvest of 82 000 metric tonnes compared to 76 000 tonnes recorded the previous year.
Swaziland is still clutching at straws in terms of food security.
The unemployment rate is also high as there had been no massive investments witnessed on the shores.
Jabulile Mashwama, Minister of Natural Resources and Energy, said there were plans to expand the mining sector and reopen closed ones like Dvokolwako Diamond Mine.
There are only two official mines currently operational; Maloma Colliery, which made an export revenue of E126 million in the 2011/2012 financial year and Salgaocar which extracts iron ore from dumps at Ngwenya Iron Ore Mine.
Mashwama, the minister, said she would give details on the programme to revive the mining sector at a later stage. She hinted that the nation could also bank its hopes on her ministry for job creation and revitalisation of the economy.
Gideon Dlamini, the Minister of Commerce, Trade and Industry, has been given a task to industrialise the economy as one of the five-point plan by SACU. The industry minister was reported out of the country and was not reachable through his mobile phone.
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Australia ends dumping probe of South African peach products
The Australian Anti-Dumping Commission has ended its investigation of alleged dumping by South African producers of prepared or preserved peaches, following an application brought by Australian company SPC Ardmona in July last year.
The commission said in its termination report published in The Australian on December 13 that it had found goods exported to Australia by Langeberg & Ashton Foods and Rhodes Food Group had been dumped, but that the dumping margin was less than 2%.
International trade law expert Rian Geldenhuys said because of the negligible dumping margins, it could not hurt the Australian industry. It was insignificantly small and did not indicate any intention of dumping, so the commission had decided to terminate the investigation.
“As such the South African industry will not face anti-dumping duties when its products enter the Australian market,” he told Business Day following the publication of the notice.
Mr Geldenhuys is an international trade and commercial lawyer with Trade Law Chambers, who represents South African producers.
Australia announced last year that it wanted a total ban on all canned-fruit products produced abroad, a move that would have hit South Africa’s fruit industry‚ which supplies 40% of the total processed fruit market in that country.
Anti-dumping measures are introduced when the price of a product produced in one country‚ is sold in another at a price lower than the price at which local producers produce and sell.
The commission said in its termination report it was satisfied that the volumes of goods that had been exported to Australia over a reasonable examination period from South Africa, that had been dumped, was negligible.
Officials from the commission visited South African canners during the course of the investigation last year and recommended the termination of the investigation to the commission.
SPC Ardmona had also applied in July last year for safeguard duties to be introduced against South African canned-fruit producers, and although the Australian Productivity Commission last year found no grounds for implementing provisional safeguard duties on South African producers of canned fruit, its final report has not been published.
SPC Ardmona had asked for a duty of 45%‚ or a quota on imports that would have had a similar effect as the 45% duty. The company claimed the appreciation of the Australian dollar had led to imports becoming cheaper and the market share of domestic producers declining significantly. Further‚ there had been a decrease in fruit bought from domestic growers.
The Productivity Commission found in November last year that the requirements for introducing provisional safeguard measures in terms of World Trade Organisation rules had not been met. Mr Geldenhuys said earlier that the rules for the introduction of safeguard measures required a sharp‚ significant and recent increase in imports that caused material injury to the local market.
Evidence presented by South African producers showed‚ in fact‚ there had been a drop in imports in most instances and where there had been an increase‚ it was not significant.
Mr Geldenhuys said they had been informed that the Productivity Commission had completed its final report and had sent it on for government approval. “We will only know the outcome once it has been released by the Australian government,” he told Business Day.
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Trade Facilitation from an African Perspective
The proposed agreement on trade facilitation is one of the key issues on the negotiators’ table in the run-up to the World Trade Organisation Ministerial Conference, to be held in Bali, Indonesia, from 3 to 6 December 2013. In this context, this paper provides a thorough analysis of key trade facilitation issues from an African perspective, highlighting what is at stake for the continent, thereby contributing to inform the opinions of African negotiators at a critical juncture.
The premise of this analysis is that there is a consensus in the empirical literature, regardless of the methodology utilized, on the positive and significant impact trade facilitation could have for Africa’s trade performance. Against this background, the paper is admittedly not intended to assess the proposed agreement from a tactical negotiating perspective, nor does it address issues related to the “overall balance” of the deliverables that could be achieved in Bali. Taking some distance from the negotiations as such, it rather takes a technical stance and focuses on the four key aspects related to trade facilitation, as outlined below.
First, by analyzing relevant indicators from the World Bank Doing Business database, the paper compares red tapes and transaction costs (for what pertains to international trade) within Africa, as well as with the rest of the world. In light of the disproportionate magnitude of transaction costs by international standards, the analysis confirms how critical trade facilitation is for Africa. In addition, the reviewed evidence highlights the different incidence of transaction costs distinguishing between exports and imports flows, and underscores sub-regional and cross-country variability (with special reference to landlocked countries).
Secondly, the paper investigates the pattern of imports of African countries, focusing in particular on intermediate inputs. This analysis permits grasping the extent to which trade facilitation could boost exports not only by directly cutting transaction costs, but also indirectly through providing cheaper access to production inputs to be transformed domestically and then possibly re-exported.
Though currently this indirect effect appears to play a rather limited role, in view of Africa’s persistent dependence on primary commodities, it is certainly far from negligible. Moreover, such an indirect effect is set to gradually become more relevant, in so far as economic diversification advances and African firms successfully connect to regional and global value chains.
Third, the paper reviews the precise instruments covered by the draft negotiating text tabled at the World Trade Organisation, and compares them with the instruments already agreed within Africa at the level of Regional Economic Communities, as well as with legal provisions at the national level. This enables an assessment of the consistency of the multilateral agenda with Africa’s regional integration agenda and national policies, while also identifying areas of potential synergies and complementarities between the three. The paper also assesses the potential synergies and complementarities between the World Trade Organisation proposal and related multilateral conventions such as the Revised Kyoto Convention on the Simplification and Harmonization of Customs Procedures and the Customs Convention on the International Transport of Goods under Cover of TIR Carnets (TIR Convention).
Finally, the paper sheds some light on the costs underlying trade facilitation activities. Adequately “costing the trade facilitation agenda” is not only crucial in relation to Africa’s need for development finance, but also in view of the fact that the modalities of the proposed trade facilitation agreement introduced a unique feature: the implementation of certain commitments (the so-called category C) is conditioned upon the delivery of technical and financial assistance.
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Warsaw climate talks set 2015 target for plans to curb emissions
Overnight agreement gives countries until first quarter of 2015 to publish plans for cutting greenhouse gases from 2020
Governments around the world have just over a year in which to set out their targets on curbing greenhouse gas emissions from 2020, after marathon overnight climate change talks in Warsaw produced a partial deal.
Under the agreement, settled in the early hours of Sunday morning after more than 36 hours of non-stop negotiations, countries have until the first quarter of 2015 to publish their plans. This process is seen as essential to achieving a new global deal on emissions at a crunch conference in Paris in late 2015, for which the fortnight-long Warsaw conference was supposed to lay the groundwork.
“Warsaw has set a pathway for governments to work on a draft text of a new universal climate agreement, an essential step to reach a final agreement in Paris, in 2015,” said Marcin Korolec, the Polish host of the conference, who was demoted from environment minister to climate envoy during the talks.
The talks were characterised by discord and acrimony, and by the emergence of a new and highly vocal negotiating bloc among developing countries that forced through the watering down of key aspects of the deal.
Christiana Figueres, the UN’s leading climate official, said: “We have seen essential progress. But let us again be clear that we are witnessing ever more frequent, extreme weather events, and the poor and vulnerable are already paying the price. Now governments, and especially developed nations, must go back to do their homework so they can put their plans on the table ahead of the Paris conference.”
The conference began with an impassioned plea by the Philippines representative, Yeb Sano, for a strong agreement after the devastation of typhoon Haiyan. Sano remained fasting throughout the talks, and afterwards expressed frustration that there had not been a “meaningful” outcome.
The emissions goals, to come into force from 2020, will be set at a national level, but after they are published there will be a chance for other countries to scrutinise them and assess whether they are fair and sufficiently ambitious. At the insistence of a small group of developing countries, they will take the form of “contributions” rather than the stronger “commitments” that most other countries wanted.
These were the self-styled “like-minded developing countries”, a group that comprises several oil-rich nations, including Venezuela, Saudi Arabia, Bolivia and Malaysia. Several have large coal deposits and are heavily dependent on fossil fuels, such as China and India, and some countries with strong links to some of the others, including Cuba, Nicaragua, Ecuador and Thailand.
The “like-minded developing countries” group takes the view that the strict separation of nations into “developed” and “developing”, which was set at the first international climate talks in 1992, and enshrined in the 1997 Kyoto protocol – in which developed countries were obliged to cut emissions but developing countries had no obligations – must remain as the bedrock of any future agreement. They argue that the “historical responsibilities” for climate change lie with the first nations to industrialise.
That view is firmly rejected by the US and the EU, both of which have agreed to take a lead in cutting emissions, but have also repeatedly pointed out that the tables have turned on historic responsibilities. Emissions from rapidly emerging economies such as China and India are growing so fast that by 2020, the date when any new agreement will come into force, the cumulative emissions from developing countries will overtake those of rich nations.
Martin Kaiser, the head of the Greenpeace delegation, said: “China is making big strides domestically, but not yet translating it into a willingness to lead at a global level. Historical responsibility “¦ [is] no excuse for anyone to ditch their responsibilities over their current and future emissions.”
Loss and damage was one of the key rows in the early stages of the meeting, as some developing countries demanded “compensation” from rich countries for the damage they suffered from extreme weather. A compromise was reached with a new “Warsaw international mechanism” by which the victims of disaster will receive aid, but it will not be linked to any liability from developed countries.
Another success at the conference was the completion of a new mechanism to keep the world’s remaining forests standing. Called REDD+, for reducing emissions from deforestation and degradation, this has been in the works for most of the last decade.
But all countries admitted that most of the preparation work for Paris still remains to be done. Politically, the battle between the like-minded group – which is separate from, but claims to lie within, the broader G77 group of the majority of developing nations – and the US and the EU will be key. For both sides, gaining support from the rest of the unaligned developing nations – some of which are highly vulnerable to climate change and are desperate for a deal, but others who are courting economic investment from China – will be crucial.
The fragile truce reached after the marathon talks in Warsaw may not even last as long as the delegates’ flights home.