The report, titled African Emergence – The Rise of the Phoenix, discusses key themes around the three mega-trends currently shaping business in Africa, specifically high demand for natural resources, increased consumerism by an emerging African middle class and large-scale investments into infrastructure.

The report finds that while Africa offers significant investment opportunities, the continent has not yet reached its potential. Yunus Suleman, Chairman of KPMG Africa Limited, comments: “FDI is an essential component of Africa’s sustainable, positive future. And, it’s good for investors too – there is undoubtedly money to be made in Africa, recognised today as one of the world’s most attractive High Growth Markets. Understanding FDI, what it means to Africa as much as to the global investor, accessing these funds and securing the desired returns are all very much part of today’s African story.”

The end of the Cold War more than two decades ago brought new freedom to Africa. People started to demand political representation and called on governments to be more transparent. Democratic features were introduced and vibrant civil society emerged fighting for more rights. The pressure to transform was irresistible and with political transformation came economic transformation – state-centred structures and policies were swept aside and, while elements of this legacy linger, private ownership and entrepreneurship have replaced the idea that the state will and can provide.

Increasingly, investors have become aware not only of the risks of investing in Africa, but the risk of not investing in the continent. They have become more focused on where in Africa to invest, as opposed to whether to invest or not. Increased awareness of the potential size of the African consumer market, and a number of significant discoveries of oil and minerals in recent years, which have again highlighted the natural resources potential, have all played their role to attract additional investment to the continent. Concurrently, an increased interest from foreigners and local governments alike to address the continent’s infrastructure challenges has seen increased investment in roads, rails and ports.

While FDI into Africa has increased dramatically over the last decade, from US$110 billion at the end of 1998 to US$554 billion at the end of 2010, the overall FDI amount is still relatively small compared to other emerging market economies. China alone attracted US$578.8 billion at the end of 2010, more than all African countries combined. Brazil had FDI worth US$472.6 billion. “However, improvements in the business, political and macroeconomic environments across the continent have made African economies more attractive than ever before”, Suleman continues.

“Unlike China, India and Brazil, Africa is not a country: it is a continent of 54 very diverse countries each with its own natural and cultural endowment as well as regulatory environment to be navigated through. Whilst regional economic integration is creating greater economies of scale and lesser complexity, doing business in Africa requires to be guided by a deep understanding of the landscape and experience in stewarding successful translation of the immense opportunities into rewarding returns. Without this direction, many international investors Have burnt their fingers and somewhat contributed to the earlier skepticism about the prospects of the continent. Those who have been guided through the complexity of Africa have realised premium returns unseen anywhere else in the world and are part of the emerging story of Africa as a priority investment destination”, says Josphat Mwaura, CEO, KPMG in East Africa.

Africa still exports mainly minerals and hydrocarbons. The top five hydrocarbon exporters namely Algeria, Angola, Egypt, Libya and Nigeria account for 50% of all exports from Africa and have experienced an 89.2% increase between 2001 and 2010, mostly due to an increase of petroleum exports. Of all oil exports from Africa, Europe and the United States account for about a third, with gradually decreasing amounts during recent years. China and India has most of the market share and have maintained robust economic growth rates despite the global financial crisis. Demand for non-oil commodities from Africa, such as gold, platinum, diamonds, iron and copper are equally shifting from Europe and the United States mainly to China. By the end of 2010, 12.9% of Africa’s non-oil exports went to China, almost five times more than 10 years earlier. This dependence on exports of natural resources makes Africa vulnerable to volatility of global commodity prices.

The expanding economies of Asia and Latin America will enhance trade with Africa in the future. Traditionally most FDI in Africa has targeted Northern African countries. With the Arab Spring in 2011, this picture changed in favour of sub-Saharan Africa. This trend is expected to continue over the next decade since sub-Saharan countries have become more attractive destinations for FDI. Inner-African investment remains weak, amounting to about 5% of the volume of all FDI, most of it contributed by South Africa. Nevertheless, Nigeria and Kenya are playing a more important role in West and East Africa respectively.

The idea of a ‘gateway’ into Africa has become a dated concept. Entry into African markets now mainly depends on the nature of the investment. Suleman continues, “Practically, there is no single ‘gateway’ but several ‘gateways’, obviously including South Africa but with Egypt, Kenya, Mauritius and Nigeria (and others) representing no less an opportunity. There is empirical evidence to suggest that, in a few years time, South Africa may no longer be the largest economy on the continent. Nigeria is expected, with several other countries, to close the gap.

All of this drives higher investment from companies and countries seeking a foothold in Africa and looking to take a share of the tremendous wealth and potential that has yet to be unlocked. What we have seen to date is the tip of the proverbial iceberg – the continent has much more to offer and investments will continue to flow.

You can download the publication by clicking here.

Source: http://www.kpmg.com/Africa/en/IssuesAndInsights/Articles-Publications/Pages/African-Emergence-The-Rise-of-the-Phoenix.aspx

In its ‘Connecting to Compete 2012: Trade Logistics in the Global Economy’ report, the World Bank said that South Africa’s logistics performance indicators (LPIs) reached a score of 3.67, which ranked the county at an overall place of 23, up from a ranking of 28 in 2010.

China lagged South Africa with an LPI score of 2.52, placing the country at number 26, while Brazil, with an LPI of 3.13, and India, with 3.08, achieved overall scores of 45 and 46 respectively. Russia was ranked overall at 95, achieving a score of 2.58.

In the upper-middle income country category, the top ten performers included South Africa, at number one, followed by China as the second top performer, and Brazil reaching ninth place.

The survey ranked countries according to their performance in six key indicators, namely customs, infrastructure, international shipments, logistics quality and competence, tracking and tracing, and timeliness.

South Africa scored highest in the tracking and tracing category, obtaining a score of 3.83 and ranking 16 out of the 155 countries surveyed. This was followed by the infrastructure and timeliness categories, with rankings at 19 and 20 respectively. Customs, with a ranking of 26, and logistics quality and competence, at number 24, were found to be the lowest performers for South Africa.

“Infrastructure stands out as the chief driver of progress in top [economic] performers, followed by improvements in logistics services, and customs and border management,” said World Bank international trade department sector manager Mona Haddad.

The survey also found that ‘green’ logistics was increasingly playing a larger role in high-income and emerging countries, with large logistics companies implementing a number of initiatives to reduce their carbon footprint, including the introduction of more efficient vehicles and facilities.

The survey found that all top performers showed strong cooperation between the public and private sectors, good cooperation between policymakers, practitioners, administrators and academics and a comprehensive approach in the development of services, infrastructure and efficient logistics.

“Trade logistics is key to economic competitiveness, growth, and poverty reduction,” said World Bank VP for poverty reduction and economic management Otaviano Canuto.

Trade facilitation is crucial to economic development, the World Bank said, adding that countries with better logistics can grow faster, become more competitive, and increase their investments, further boosting their logistics network.

However, the report pointed to a continued logistics gap between rich and poor countries, and the global recession and European debt crisis shifting attention away for logistics reform.

High-income economies dominated the top logistics rankings, while the least-developed countries, which are also often landlocked, small islands, or post-conflict States, showed the worst performance.

You can download the World Bank report by clicking here.

Source: http://www.engineeringnews.co.za/article/sa-logistics-performance-improves-world-bank-survey-shows-2012-05-16

Despite an unsuccessful bid for the World Bank’s presidency, Nigeria’s charismatic finance minister has much to celebrate. She is a leading light in Africa and her country’s economy has been powering ahead at around 7 percent over the last three years.

In an interview with IMF Survey online, Okonjo-Iweala explains how her country has achieved this impressive economic performance, and what policies African countries should pursue to achieve solid and inclusive growth.

IMF Survey online: Many Africans were very disappointed by the fact that you were not selected as the new president of the World Bank. What are you going to do to try and ensure a greater voice in the selection process the next time around?

Okonjo-Iweala: I know there might be a little tinge of disappointment, but actually many people are elated. Yes, Africans would have loved it, but they also recognize that the continent has achieved a great deal.

I went into this with the support of our leaders. They actually asked me to and they were very steadfast in their decisions. Africa showed unity. All the countries were supporting the same goal for the first time. It was amazing.

If another similar issue ever comes around, we will have shown that we can do it. We have opened a door. The process for selecting the World Bank president can never be the same again. Everybody acknowledges that.

Next time around, it is going to be a different, more open process, and maybe another African can go for it.

IMF Survey online: Africa is not immune from a downturn in the global economy and, especially not, from a renewed crisis in the euro area. What should Africa’s priority be to protect itself from a possible downturn?

Okonjo-Iweala: Firstly, I think African countries will need to cushion their economy. After 2008, most countries depleted their buffers. There are many types of policy buffers such as reducing taxes and so on.

Countries put them in place in order to make food cheaper or cushion people. By phasing out subsidies in good times, the savings generated can be used in a downturn. This is what we did in Nigeria.

The amount of fiscal space left, for many countries, to take those measures is now limited. We now need to look, with the help of the international institutions, at how we can rebuild fiscal space and rebuild buffers.

Secondly, I think that African countries also need to look inward. They need to learn how to better mobilize their own domestic savings, be more robust in their approach to tax, and also stimulate the growth of sectors that can diversify their economies to limit their dependency on commodity booms.

IMF Survey online: What should countries do to achieve growth that is both inclusive and solid?

Okonjo-Iweala: For one, we should look for sectors that create jobs. Very often, natural resource and mining sectors do not create a lot of jobs. They tend to be capital intensive. Many of them do not employ too many people. So, one really needs to look at other options.

Agriculture is something all African countries can do very well. In fact, we really have no business importing any food on the continent. African countries should also trade with each other. These things create jobs.

There is also manufacturing. China is moving up the value chain. Countries need to look at whether we can take up some of the manufacturing China is letting go of at the low end of the value chain. Ethiopia is currently doing so with shoes. Nigeria is looking at it with electronics. Those are the kinds of things that they need to do.

IMF Survey online: The IMF has forecasted a healthy 8 percent growth for Nigeria. Why has the country performed so well?

Okonjo-Iweala: I think that the country has performed well because we have got several sectors of the economy, which are good sources of growth, quite apart from the oil sector, which is doing relatively well.

We also have agriculture, which is doing reasonably well. We have got a solid mineral sector with small-scale mining. The telecom sector is booming. Services, retail trade, housing and construction are also doing well. So we have several sectors that are performing relatively well.

But more fundamentally, we have macroeconomic policies that created a stable environment where growth can occur. Furthermore, we are carrying some structural reforms in the power sector, in the downstream petroleum sector as well as in the ports and transport sector; these reforms are also helping to unleash growth.

I think that once they are completed, Nigeria could see growth at much more than 8 percent.

IMF Survey online: Are you worried about inflation in this scenario?

Okonjo-Iweala: Yes, we are worried. Even though we produce crude oil and export, we do import refined petroleum and we are a big importer of food items. So, we also suffer from imported inflation in oil prices and foods.

Food price volatility has reoccurred this past year of 2011 and food prices have now reached their peak of 2008. All this, also affect our economy. But, we are fighting it. The Central Bank is really focusing on this issue.

At the moment, inflation is down to about 11.9 percent. We are hoping to keep it either in the low double digits or drop to the high single digits over the next year or so.

IMF Survey online: What is Nigeria going to do to reduce its dependence on oil?

Okonjo-Iweala: We are not happy with it. We would like to improve our non-oil revenues. We would like to create jobs. As you know, oil is not a sector that creates jobs.

The big problems faced by Nigeria and many African countries are the issues of job creation and of growth that is not really inclusive. What do I mean by that? You can have growth as we are having, but that growth is not creating as many jobs, especially for youth, and is leaving some people behind.

That’s not really the kind of growth we want. We want the growth that will create enough jobs for youth, and that will include people in the rural areas as well as in the cities. That way the whole country is improving together. We do not want increasing inequality. Youth unemployment, both in Nigeria and on the continent, is a huge problem and we need to tackle it forcefully.

IMF Survey online: What policies are you thinking of implementing to tackle this problem?

Okonjo-Iweala: We need to diversify the economy itself into sectors such as agriculture, where we have a strong comparative advantage. I think Nigeria should not even be importing most of the food it currently imports.

We spend about $10 billion a year on food imports of things that we could grow, like rice, fish, sugar, and wheat for bread. Actually we do not grow wheat very well, but we can substitute cassava flour for wheat flour.

If we pursue the development of these sectors, then we will create jobs and we will diversify.

We are investing, and we are also encouraging active investment in agriculture for both small and larger farmers because Nigeria only uses 44 percent of its arable land. There is also scope to increase our productivity, which is currently about one-third of that in South Asia and East Asia.

We are also doing some targeted programs as well. We have an extremely popular program, which creates jobs by supporting young entrepreneurs. It is a business plan competition and those who win get anything from $10,000 to $100,000 to support their businesses. They also receive mentorship, access to credit, and support.

Finally, we also have a public works program targeted towards parts of the country that are falling behind because of the inclusiveness issue. So, there really is a range of instruments we are deploying now.

Source: http://www.imf.org/external/pubs/ft/survey/so/2012/INT051612A.htm

Paul Kruger, a tralac Researcher, discusses the potential for manufacturing growth in the region.

The 22^nd World Economic Forum (WEF) on Africa which was recently held in Addis Ababa, Ethiopia brought together stakeholders from government, private sector, civil society and academia to discuss ways to shape Africa into a more prominent force in the global economy. Many African countries have seen dramatic transformation of their political and economic landscapes, but the continent as a whole has not yet found the path leading to sustainable growth and increased wealth. There is widespread optimism on the potential of Africa to become influential in a globalised world, but it continues to struggle with well known challenges. One such challenge is the strength of Africa’s manufacturing sector – currently it accounts for a mere 1 percent of global manufacturing and is losing ground in labour intensive manufacturing. One of the sessions at the WEF, entitled ‘Manufacturing Growth’ discussed possible solutions to bolster competiveness and increase productivity with the view to enhance Africa’s share in the manufacturing space.

All panellists emphasised the importance of manufacturing in the overall growth and development strategies of a country or region. A robust manufacturing sector is essential if countries want to build sustainable wealth and develop into richer nations. This is likely why there has been a revival of the strategic use of industrial policy to support development in the region. There are certain issues that strengthen the argument for more robust industrial development, most notably the mineral resource boom which can ensure a steady supply of inputs to support beneficiation and increased demand due to the recent consumption boom. The current economic climate will however be an inhibiting factor as the crisis in the developed world limits the potential of export lead growth strategies for these countries. Rob Davies, South African Minister of Trade and Industry, therefore argues that Africa also needs to strengthen its domestic markets to sustain industrial development plans. Domestic markets are too small to achieve sufficient scale, but opportunities and possibilities increase if the three regions of EAC, COMESA and SADC are combined to create a larger regional market. In this context, the regional industrialisation efforts of the Tripartite FTA can be instrumental in creating conditions for enhanced economic activity and the promotion of value added industries.

COMESA, EAC and SADC have already made the decision to treat manufacturing as a priority activity, but there are certain challenges countries have to address to improve their competitiveness vis-à-vis the rest of the world:

• Infrastructure development. Basic infrastructure in transport and energy have been identified as major challenges. Connections amongst African countries remain poor and infrastructure needs to be strengthened in order to support the scaling of manufactured products across the region. Infrastructure is an important tool to promote industrial development. An environment which would allow companies to quickly and effectively scale across the region will attract more interest from foreign investors, including multinationals. The ability to move goods around with more ease and at lower cost is crucial to the development of the regional market.
• Skills development. The right kinds of skills are necessary to create a strong manufacturing sector. Africa has talented people but does not have enough of them. The heart of any industrial strategy should consist of efforts to develop a more skilled workforce, especially in engineering, technical vocations, management and business. Skills development should include investment in research and development which is necessary to further advance a country’s innovation base.
• Small and medium business development. Not enough is being done to nurture the development of small and medium businesses. These companies still face several hurdles including access to capital, regulatory red tape and a lack of support and mentoring. For these reasons smaller companies find it difficult to scale up and become competitive on a regional or global level. The right kind of support and assistance are needed to turn small and medium businesses into successful regional and international companies.
• Increased engagement between government and the private sector. Links between business and the state have to be deepened to understand the practicalities around industrial development. The right industries have to be identified and the complete value chain has to be considered to determine the appropriate industrial strategies. Initiatives to establish better communication channels have been given priority, but it has been highlighted that the manufacturing industry remain less influential in trade policy making matters than other stakeholders.
• Other challenges mentioned include the regulatory environment, trade facilitation, political stability, and a lack of bankable infrastructure projects.

The panellists remained upbeat on the potential of the manufacturing industry, despite the challenges Africa is facing. According to Minister Rob Davies, there are many opportunities for engineering and construction firms to produce inputs for the infrastructure development programs. Manufacturing activities in the green industries, agro-processing and mineral beneficiation were also highlighted as areas where Africa has potential for industrial development. One of the panellists from the private sector, William V. Hickey CEO of multinational Sealed Air, remarked that despite several plans to grow the manufacturing sector – very little progress has been seen over the last ten years. For him, the most important challenge is to transform Africa into a truly regional market in order to support economies of scale in the manufacturing industry. This session confirmed that better access to the wider region will be the basis for growth and development in Africa, but recognised that serious challenges are impeding the success of a more integrated regional market. Top of the list, particularly for the private sector, is getting the products from the factory door to the market; but at the moment this is an onerous and very costly process. Industrial development is intertwined with transport and trade facilitation – without infrastructure that scale manufacturing needs, the industrial development revolution will not happen in Africa.

The full session on ‘Manufacturing Growth’ can be downloaded here:

http://www.weforum.org/videos/manufacturing-growth-world-economic-forum-africa-2012

Tell us what you think…

“A joint working group has been constituted with COMESA for examining the feasibility of a free trade agreement or preferential trade agreement between India and COMESA,” Scindia said at an event organised by the Confederation of Indian Industry (CII) here.

COMESA is the largest regional grouping in Africa comprising of 19 countries including Egypt, Ethiopia, Kenya, Mauritius, Sudan and Zimbabwe.

“We are exploring possibilities of entering into such agreements with other African regional economic communities like the East Africa Community and Economic Community of West African States (ECOWAS),” Scindia said.

He said India was holding negotiations also with the Southern African Customs Union for a preferential trade agreement covering trade in goods.

Forged in 1910, the five-member Southern African Customs Union (SACU) comprising South Africa, Botswana, Lesotho, Namibia and Swaziland, is the world’s oldest customs union.

Scindia said India was also negotiating a comprehensive economic cooperation and partnership agreement with Mauritius. The deal will cover trade in goods, services and investment.

The minister said India has already signed 10 free trade agreements and seven more such agreements are under consideration. Five limited-scope preferential trade agreements are also in the process.

“When completed, such agreements would cover over a hundred countries spread across five continents.”

Scindia said India was focusing on trade pacts with Africa and Latin America in order to diversify exports markets.

“A market diversification strategy based on the changing dynamics of growth in the world economy is necessary to ensure sustained growth of exports. The demand in traditional markets of the developed western world, North America and Europe is projected to be relatively sluggish due to slowing output expansion in these economies,” he said.

India targets to increase exports to $500 billion by 2014 as compared to $303.7 billion in fiscal 2011-12.

The minister said much of the growth in India’s exports would come from the developing countries from Asia, Africa and Latin America.

Source: http://www.newstrackindia.com/newsdetails/2012/05/15/348–India-mulling-free-trade-pacts-with-African-countries-.html

Launching the Department of Trade & Industry’s R5.8 billion manufacturing competitiveness enhancement programme on Tuesday, Davies said research had shown that those companies that were the first to fail during the recent economic downturn were those that had not modernised.

Davies pointed to a number of factors that impacted the competiveness of SA manufacturers including the overvalued rand/US Dollar exchange rate.

However, Davies said there were opportunities for SA manufacturers including entering various African markets.

“We are convinced that the African continent, including SA, is well placed in the medium term for strong growth,” he said.

Davies went on to say that if SA wanted to be a significant player on the African continent it would have to make significant investments to improve its competitiveness.

Explaining the new programme, Davies said that a major aim was: “… encouraging companies to make competitiveness enhancement improvements now rather than later.”

Davies said the programme was aimed at improving production output and was similar to the strategy used to help the clothing and textile sector.

“It is no secret that the clothing and textile sector was in dire straits, but by focusing on production output that sector has stabilised, and even in some cases increased employment,” he said.

Among the programme’s various grants would be one for production and another for the use of “green” energy.

Source: http://www.businesslive.co.za/southafrica/sa_companies/2012/05/15/r5.8bn-fund-to-improve-manufacturing-competition

In this regard, a meeting is scheduled in a fortnight, where Namibia, along with other smaller member states of the Southern Africa Customs Union, hope to reach consensus with South Africa on outstanding issues that have blocked the signing of the EPA.

Analysts continue to have doubts though on whether the meeting would finally see Namibia sign the EPA negotiations by September this year or April next year.

“I doubt this would be the final decisive meeting,” said Wallie Roux, renowned researcher and international trade policy analyst on the upcoming crucial meeting.

What is certain though is that the European Union – already tightening screws to have the EPA concluded as soon as possible – wants the January 2014 deadline enforced and agreed to by all parties.

Even though much of the issues have been addressed, there are a number of items that SACU member states have to consent to among themselves. These include market access for South Africa, something which Namibia and Botswana are particularly wary about as market access agreed to between South Africa and EU have direct impact on their individual economies.

Another important item is the agricultural safeguard measures that touch on all member states. The members are concerned with the concessions that South Africa has made under the Trade, Development and Cooperation Agreement (TDCA) and possible conflict of interest.

The Namibia Chamber of Commerce and Industry (NCCI) is on record as saying that TDCA consensus, if not well managed, would see European agricultural imports destined for South Africa competing with indigenous agricultural goods in Botswana and Namibia, hence adversely affecting local industries in the two countries.

“How do we know [EU] would compete fairly with our products that have no subsidy?” questioned NCCI.

A full implementation of TDCA means South Africa opening up the market to nearly plus-90 percent of European goods, while the European market would open up to 80-something percent of South African goods.

Whatever the outcome, Namibia and Botswana have to bear in mind that the January 2014 deadline means that they would be erased from the list of countries with market access regulation at the beginning of 2014.

Sadly for Namibia and Botswana, they fall in the developing category. This means they would have to trade with the EU using the Generalised System of Preferences (GSP), a much less favourable access than they currently enjoy, and less comprehensive coverage.

GSP excludes beef and table grapes that are important exports to the EU from Namibia.

The approach on EPA also has to include the view of regional integration, going beyond SACU to include future trade with entire Southern Africa Development Community (SADC).

Source: http://www.newera.com.na/articles/44983/EPA-talks-at-crossroads

COMESA director for Investment Promotion and Private Sector Development, Thierry Mutombo Kalonji, urged Zimbabwe to improve the business environment taking into consideration such factors as the cost of setting up a business, licensing and regulatory issues, among others.

He said Zimbabwe should emulate countries like Rwanda and build on their achievements in the context of similar challenges faced by the private sector.  “In the implementation of this programme, COMESA member states recognised the necessity of putting in place an enabling business environment through related policy and institutional reforms,” Kalonji said.

He was speaking at a workshop organised by COMESA, with the support of the European Union (EU) last week aimed at implementing the COMESA roadmap for the improvement of the business environment in the region.

Kalonji said that, given the importance of the roadmap, the COMESA Council of Ministers decided in 2010 that the secretariat would assist member states in the area of policy reforms to create a conducive business environment.

“Furthermore, the council urged each government from member states to commit and accord its support for the success in the implementation of this programme,” he said.

The roadmap is being implemented in a first series of four countries: Zimbabwe, Swaziland, the Democratic Republic of Congo and Djibouti.

Zimbabwe is currently ranked 171 out of 183 economies at a global scale while at sub-Saharan African level, the country is positioned at 36 in the 2012 World Bank Doing Business report. The bloc has prioritised investment attraction to the extent that it recently launched a programme called the COMESA Common Investment Area (CCIA), whose objective is to attract foreign investments and encourage domestic investments in the region, while allowing free movement of capital goods and investors.

The COMESA integration agenda is based on two pillars namely, trade facilitation programmes and investment promotion.

World Bank Group representative, Cemile Hacibeyoglu, reiterated the importance of business environment reforms as a method of enhancing regional integration adding that the financial institution was ready to provide technical assistance.

Zim still battling to overcome policy obstacles

Although Zimbabwe’s commitment to embark on the programme was reflected through government’s recent request to the COMESA secretariat for technical and financial support to start the programme, a plethora of political and policy problems continue to blight the country’s investment prospects.

The indigenisation law continues to cause consternation among the investment community while ambiguity on the electoral process is only but encouraging a wait-and-see approach.

EU ambassador to Zimbabwe Aldo Dell’Ariccia told delegates that the government of Zimbabwe had the key responsibility of providing clarity on policy issues.

Source: http://www.thestandard.co.zw/business/35359-zim-urged-to-improve-business-environment.html

EU Trade Commissioner Karel De Gucht said: “Today, our first interim Economic Partnership Agreement with an African region is applied.” He expressed the hope that this trade deal will “accompany the development of our partners in Eastern and Southern Africa and open up better and lasting business opportunities.”

The Agreement provides duty and quota free access to the EU market for exports from Mauritius, Madagascar, Seychelles and Zimbabwe. These countries will gradually open their markets to European exports over the course of 15 years, with exceptions for certain products the countries consider sensitive. Furthermore, it covers provisions on rules of origin, development cooperation, fisheries, trade defense instruments and dispute settlement.

It is therefore an improvement for the four countries on the unilateral duty and quota free regime they enjoyed so far because it encourages regional integration and strengthens a partnership approach with the EU. Regional integration brings economic and political benefits that individual countries cannot achieve alone.

At the end of 2007, Comoros, Madagascar, Mauritius, Seychelles, Zambia and Zimbabwe concluded an interim Economic Partnership Agreement (EPA) with the EU. Madagascar, Mauritius, Seychelles and Zimbabwe went ahead and signed it in August 2009. These four countries have now taken and completed steps towards ratification or notified application, so that the Agreement can be applied as of Monday. Once all parties ratify, including all EU Member-States, the Agreement will officially enter into force.

In 2011, total EU imports from the four Eastern and Southern African (ESA) countries amounted to about €2 billion. The main imports were processed tuna, coffee, cane sugar, textiles, tobacco, cut flowers and metals. In the same year, EU exports to the four ESA countries amounted to €1.7 billion and comprised mainly machinery, vehicles, pharmaceutical products and chemicals.

EPA negotiations with other African regions have intensified over the last year. Recently, progress has been made at technical level with the East African Community and West Africa.

Source: http://www.rttnews.com/1885272/eu-trade-development-deal-with-four-african-states-in-effect.aspx?type=gn&utm_source=google&utm_campaign=sitemap

WTO ACCESSION AS A TOOL TO ENHANCE COMPETITIVENESS

Excellencies,
Ladies and Gentlemen,

I am very pleased to be here with you today at this prestigious University of Addis Ababa. What better venue to discuss competitiveness in Africa — the topic of my lecture today — than a university, a place full of competitive and creative spirit of thousands of students. The presentation of the WEF’s African Competitiveness Report a few days ago here in Addis is an ideal platform to reflect further on the linkages between trade, growth and competitiveness, and to discuss how countries can take advantage of the Multilateral Trading System, and especially the WTO accession process, to enhance competitiveness.

Hence, my remarks today will cover:

• first, the benefits of WTO membership in economic policy making;
• second, the perspectives on competitiveness in Africa; and,
• finally, WTO accession as a tool to enhance competitiveness through domestic reforms.

 WTO Membership

The role that trade can play as an engine for growth and development has long been recognized. By creating a competitive business environment, trade opening fosters the efficient allocation of economic resources, enhances output and productivity, and, increases overall welfare gains. The lessons of history are clear:  when severe impediments to trade — both international and domestic — exist, economic growth is hampered.  Thus, it is the more open, export-oriented economies that have generally succeeded in their development efforts, although this is not a formula. Trade policy is not a stand-alone policy and requires complementary policies.

Governments pursue WTO membership for a variety of reasons:

First, at a “macro” level, WTO membership lends added credibility to government policies and sends clear signals to investors about a country’s commitment to an open economy. The implementation of WTO rules is, in this sense, synonymous with the acceptance of a set of internationally-recognized best practices. In turn, this encourages the inflow of foreign investment and technological know-how.

Second, at the “micro” level, domestic businesses stand to benefit a great deal from the establishment of a transparent and predictable trade environment, which results from the conclusion of every WTO accession process. In fact, at its core, the framework of WTO rules is aimed at improving the business environment for foreign and domestic private sector operators. For instance, for Ethiopia and many other African countries, the principal benefits of WTO membership stem, inter alia, from the adoption and application of WTO trade rules. Furthermore, also in the case of Ethiopia, export-oriented operators are likely to benefit directly from guaranteed and enhanced access to the markets of all WTO Members on an MFN basis, without the uncertainty of preferences.

Thus, in many ways, the process of WTO accession can be seen as a gradual process of investing in a country’s future legal security and competitiveness.

Competitiveness in Africa

Africa has weathered the recent global economic crisis better than other parts of the world. Between 2001 and 2010, GDP growth in Africa averaged 5.2 per cent. The key driver of the recent growth in Africa was the increase in commodity prices, which does not necessarily translate into higher productivity. To sustain growth, African countries need to make improvements in competitiveness and productivity, and to take better advantage of international trade through deeper integration regionally and globally.

Presently, amongst Africa’s challenges in trade are:

(i) small national markets;

(ii) landlocked countries with poor infrastructure; and

(iii) historical export composition and trade patterns. Even though growth rates of African countries accelerated in the last decade, their export growth, mostly driven by natural resources, lags behind that of other developing regions.

Intra-African trade currently stands at 12.3 per cent of the region’s exports, up from 9.4 per cent in the year 2000, but this figure remains low by international standards

The picture remains mixed and there is clearly scope for expanded, more competitive regional integration. Better regional supply and logistics facilitate trade expansion, export diversification and the ability to attract FDI which contribute to competitiveness through advancing managerial skills and technological capacities. Global integration further connects a country to international markets and extends demand beyond national borders and beyond the region. The globalized economy, in turn, offers firms access to new technologies, skills and financial resources.

Africa’s competitiveness is advancing through the introduction of more sustainable fiscal policies, debt reduction and low debt levels. Governments are divesting from private sector activity and opening up some previously public dominated sectors. Telecommunications is an example. There are improvements in labour market efficiency. As a specific example, Rwanda’s recent successes can be attributed to such strengths as well-functioning institutions, state-of-the-art IT, low levels of corruption, an improved security environment, efficient labour markets and relatively developed financial markets.

Despite these recent positive trends, there should be no room for complacency and there is scope for improvements. The broader economic structure and environment within which firms operate requires improvement, so as to maximize the advantages of low labour costs and availability of natural resources.  Trade logistics, infrastructure and the business environment also require rapid and constant improvements. Law and policy with regard to land ownership and intellectual property rights protection require urgent improvements. These will assist better absorption of technology and modern managerial skills.

Exports are hindered by bureaucratic red tape, customs and port delays and high inland transit costs. These obstacles need to be tackled to place African economies on the path of enhanced competitiveness and sustainable growth.

The WTO accession process helps put in place a sound legal, policy and administrative framework for trade and a predictable business environment to attract FDI. Hence, the domestic reforms necessary in WTO accession can provide a foundation and a tool to enhance a country’s competitiveness.

WTO Accession and Domestic Reforms

Over more than six decades, the rules-based Multilateral Trading System has positively assisted countries in the modernization of their economies. This has been demonstrated by the enlargement of the WTO family: from the initial 23 to the current 155 Members of the WTO. At a certain juncture in the history of each country, leaders and domestic stakeholders are confronted with the imperative of modernization and opening-up. But revamping an economy is not an easy job. Modernization often entails the opposition from “old school” groups, a reduction of the role of the State in the economy, and, enhancing transparency and ownership in domestic decision-making.

WTO membership has proven to be a catalyst for trade-related domestic reforms. Most of the reforms of the foreign trade regime are carried out through the introduction of new legislation or amendments to existing laws, so as to ensure compliance with WTO rules. These reforms also include binding commitments on market access for goods and services.

Moreover, WTO membership also serves as a vital instrument to lock-in reforms. It opens an avenue of support for countries undertaking domestic reforms. Compliance with WTO rules drives governments towards better governance and international cooperation. Binding commitments provide cover for reformers and act as an insurance policy against the temptation to slip into the “old, uncompetitive ways”.

An open, transparent and predictable foreign trade regime can be pictured as the “intangible infrastructure” that ensures the smooth exchange of goods and services with partners worldwide. This infrastructure of openness, transparency, and predictability in the foreign trade regime establishes the environment required by investors for business decision-making. New investments that flow create jobs, transfer technology and savoir-faire, diversify the economy and exports, and increase welfare overall.

Out of the 54 African countries, 41 are WTO Members and nine¹ are in the process of acceding to the WTO. Of these nine, six are least developed countries. Accession provides acceding governments the opportunity to negotiate the terms of entry to the WTO. Ideally, accession negotiations should go hand-in-hand with domestic poverty-reduction and reform strategies. Each accession responds to the specific needs of each acceding government. There is no “one-size-fits-all”. In accession negotiations, the objective shared by WTO Members and acceding governments is to reach a “win-win” agreement that benefits everyone, reinforces the disciplines of the Multilateral Trading System and promotes faster and sustainable economic growth.

Since 1995, the countries that have joined the WTO under the Article XII of the Marrakesh Agreement have grown faster. Also, they have, generally, been more resilient to external shocks.

2011 was a fruitful year for WTO accessions. Four governments successfully completed their accession processes: Samoa, Montenegro, the Russian Federation and Vanuatu.

It is important to continue building on these positive results. In this regard, I am happy to note that, at the 8th Ministerial Conference in December 2011, WTO Members took a unanimous Decision to explore ways in which to further operationalize and streamline the accession procedures for LDCs.

Let me in closing mention that there is a high level of goodwill from Members towards a rapid conclusion of Ethiopia’s accession. This goodwill needs to be matched by the strong and sustained commitment from Ethiopia to conclude its accession negotiations. There is no shortcut to negotiations; there is substantive work to be done. Ethiopia is not alone and counts on the friendship and support from the international community, not only during its accession process, but beyond.

Finally, as WTO Director-General I wish to pay tribute to Prime Minister Meles Zenawi for his leadership domestically and globally, not least, because of the recent impetus that he has injected into Ethiopia’s accession process. The tide is high now, ride the wave!

Thanks for your attention.

Source: http://www.wto.org/english/news_e/sppl_e/sppl227_e.htm