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EU-US trade and investment talks: Why they matter
Talks to free up more trade and investment between the European Union and the United States got under way early in 2013. A good agreement in 2014 would be a positive thing, and not just for the EU and the US. Here is why.
The gains on offer from the current round of negotiations between the US and the EU under the banner of the Transatlantic Trade and Investment Partnership (TTIP) are substantial. Indeed, if successfully concluded, TTIP would be the most significant bilateral free trade agreement (FTA) to date, covering approximately 50% of global output, almost 30% of world merchandise trade (including intra-EU trade, but excluding services trade) and 20% of global foreign direct investment (FDI).
The US and the EU are each other’s primary investment and trade partner. In 2012, 63% of US foreign direct investment went to the EU, and 44% of FDI inflows to the US originated from the EU. Bilateral investment flows between the US and EU generated a fifth of all international merger and acquisition (M&A) activity. The US accounts for 20% of EU exports and 20% of EU imports (excluding intra-EU trade), while the EU accounts for 28% of US exports and 24% of US imports.
These transatlantic trade flow numbers are even more important measured in value added terms than in gross terms (see chart). The US receives 23% of total EU exports and provides 21% of EU imports on a value added basis, while the EU accounts for 29% of US exports and 27% of US imports. In other words, the US is by far the most important destination of EU value added, and it is also by far the largest supplier of value added in EU imports.
Given that transatlantic trade barriers are already low, most of the benefits from an eventual agreement will come from easing impediments to trade and investment behind borders. For example, substantial benefits would be reaped if public procurement in both the United States and the European Union were opened, at all levels of government.
One OECD study estimates potential welfare gains to the EU and the US of as much as 3-3.5% of GDP; others range from 0.5% to 3.5% of annual GDP. One report even sees gains as high as 13% of GDP for the US and 5% for the EU. With both economies facing a long-term need for fiscal consolidation alongside persistently high unemployment, these gains are considerable, all the more so because no additional spending or borrowing will be needed to achieve them.
None of these estimates captures the potential dynamic effects of trade and investment liberalisation and resulting productivity growth. Many commentators believe that these are, in fact, the most important potential gains, but they have not been captured in any of the studies done so far.
Trade between the US and the EU is to a large extent of an intra-industry and intrafirm nature, suggesting that one effect of TTIP is more likely to be changes within existing value chains, such as where certain marketing services are carried out, rather than relocation of whole industries. This already high degree of market integration argues for an aggressive “problem solving” approach to remove all unnecessary and costly bottlenecks to trade and investment.
The resulting reductions in costs will, of course, benefit businesses and generate growth and employment in the US and the EU. And because more efficient regulatory regimes in the US and EU are, by their very nature, not discriminatory, they could benefit trading partners that are not direct parties to any eventual agreement.
That means wider overall benefits than purely what bilateral actions would suggest.
What about the multilateral trading system?
Still, TTIP is a bilateral process rather than a multilateral one, and such processes are generally thought of as “second best”. On the other hand, as the US and EU are principal export, import and investment destinations and sources for many third countries, an ambitious agreement could therefore benefit third countries as well. In fact, an agreement could conceivably become a “gold standard,” opening the way for deep and comprehensive global trade and investment integration.
By addressing a wider range of sensitive and complex issues that have so far eluded the WTO negotiations, the agreement would be a building block for future multilateral initiatives, in much the same way as today there is interest in “multilateralising” WTO-plus provisions of existing regional trade agreements. But if an agreement offers little new trade and investment liberalisation, at and behind the border, the TTIP would merely add one more deal to the hundreds of bilateral and regional arrangements that already exist.
The announcement of the TTIP negotiations by the United States and the European Union was appropriately ambitious, focusing on the remaining impediments to trade and investment both at and beyond their borders. At the same time, there was explicit recognition of sensitive and long-standing areas of difference. Mutually acceptable solutions may in some areas remain elusive in the short term, but innovative approaches to improving international regulatory collaboration, from mutual recognition agreements to joint consultative bodies, could mitigate differences over time.
Transparency will also be a key element. Given that regulatory matters are expected to be at the heart of any eventual agreement, transparency in the way regulations are made and implemented will allow other countries, not party to the agreement, to consider whether and how to “opt in”. Some regulatory measures, such as improved border procedures and more effective anti-corruption provisions, are nondiscriminatory by nature and offer benefits far beyond the borders of the EU and the US.
An eventual TTIP agreement could also be made open to other participants willing and able to agree to the provisions. In the investment field, the US and the EU are already bound by the most favoured nation (MFN) obligation under the OECD Codes of Liberalisation: any liberalisation measures which result from TTIP should be extended to other adherents to the OECD codes.
Extending mutual recognition of standards to third countries, with which either the US or the EU has already reached a comparable agreement, is another possible way forward.
The recent breakthrough at the multilateral trade talks at Bali in December is a boon for the WTO and for the multilateral trading system, and will generate large benefits, particularly for developing countries. Every effort must be made to ensure that progress continues. But governments will inevitably continue to pursue other avenues also. Fortunately, these second-best options can be supportive of an effective multilateral trading system if they are ambitious, break new ground in sensitive areas, keep participation as open as possible and are amenable to multilateralisation. With progress also being made in Geneva, it will be easier to ensure that regionalism and multilateralism are ultimately reconciled and become mutually reinforcing.
Another dimension to take on board concerns trade in value added (TiVA) and global value chains. The OECD’s work to date on these issues highlights that trade and investment openness are important components of comprehensive structural policy reforms that could contribute to strong, sustainable, balanced and inclusive growth. But much remains to be learned about the full range of policy implications for countries at different stages of development and for industries and firms of various characteristics, structures and sizes. Our goal is to integrate TiVA into the international statistical system; extend country, industry and indicator coverage; and expand our analysis across the full range of relevant policy areas. All of this work is expected to be carried out within an expanded network of partner institutions and governments.
Ken Ash is Director of the OECD Trade and Agriculture Directorate
Source: http://www.oecdobserver.org/news/fullstory.php/aid/4262/EU-US_trade_and_investment_talks:_Why_they_matter.html
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Pooling of strengths vital for integration – Hon Kandie
The Chair of the Council of Ministers, Hon Phyllis C. Kandie, has reiterated the need to collectively pool strengths together if the Community is to remain relevant in the fiercely globalized world. The Chair maintained that such a move may necessitate occasions where Partner States cede part of their sovereignty and place the same on trusted regional institutions.
In her maiden speech to the August House this afternoon, Hon Kandie, the Cabinet Secretary for East African Affairs, Commerce and Tourism in the Republic of Kenya, undertook to address as a priority, existing challenges and sensitivities involved in the implementation of the pillars of integration.
She remarked that as the region enters the Monetary Union and proceeds towards the Political Federation, moments of anxiety may occasionally be realized, leading to slower pace of implementation.
“The success or failure of EAC Integration is therefore going to be our collective responsibility”, Hon Kandie remarked.
The Cabinet Secretary hailed EALA and noted that it continued to be a unique mechanism through which the Community could maximize on the complementarities between the EAC Organs and institutions. She maintained that it was necessary for the Council and Assembly to collaborate further in order to smoothen the legislative process.
‘There is no doubt that one of the greatest challenges to implementation of the directives, decisions, Protocols and EALA Acts is the slow pace at which Partner States are moving towards the review, amendments and harmonization of national laws to conform to those of the Community”, the Cabinet Secretary stated.
“I do appreciate that for the Assembly to effectively engage in the process, we have to continuously review and strengthen the working relations between the Assembly and the Council, not just at the regional level, but also through the co-ordination of EALA activities at the country levels”, she added.
On the Single Customs Territory, the Chair urged the Assembly to support the Framework for the Operationalisation and a Roadmap on the Implementation of the Single Customs Territory whose commencement became effective on January 1st, 2014. At the last Summit of Heads of State, the EAC leaders directed that the Roadmap be fully operationalised by 30th June 2014.
On the Monetary Union, the Cabinet Secretary implored EALA to actively engage relevant national constituencies with a view to ensuring the ratification of the Protocol by 1st July 2014. This level of support Hon Kandie reiterated was vital for the strengthening of the integration process.
“I challenge you to actively engage in the implementation of these directives. In addition, I will be counting on you to support the on-going consultations on the revised model of the EAC Political Federation” the Chair of Council stated.
The Roadmap and Action Plan of the Political Federation is due for consideration when the Summit convenes in April 2014.
Hon Kandie took over as the Chair of the Council of Ministers from Hon Shem Bageine, Minister for EAC, Republic of Uganda on November, 30th, 2013.
Download: Statement by Chairperson of the EAC Council of Ministers – 4th Meeting – 2nd Session – 3rd Assembly
Source: http://www.eac.int/index.php?option=com_content&view=article&id=1464:pooling-of-strengths-vital-for-integration-hon-kandie&catid=146:press-releases&Itemid=194
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Bali Package – Trade Multilateralism in the 21st Century
In this column, Roberto Azevêdo, director-general of the World Trade Organisation (WTO), writes about the Bali Package of agreements reached in early December 2013.
At the Ninth Ministerial Conference of the World Trade Organisation (WTO), held in Bali Dec. 3-7, a series of decisions was adopted aimed at streamlining trade, allowing developing countries more options for providing food security, boosting least developed countries’ trade, and bolstering development in general.
The first pillar of the “Bali Package” 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 (1986-1994).
There is also a reaffirmation and a deepening of the political commitments assumed in Hong Kong in 2005 on trade liberalisation 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 programmes 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 (LDCs). 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 modernise 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 as much as one trillion dollars 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 and least developed economies to implement these modernising 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 percent – compared to a 4.5 percent 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 internationalisation of small and medium sized enterprises, which are important drivers of job creation and income distribution in many European countries.
But of course these outcomes do not fully reflect achievement in 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.
In recent months there has been a lot of talk about regional and bilateral agreements. The Transatlantic Trade and Investment Partnership between the United States and the European Union is one such potential agreement. 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 globalisable gains. The proliferation of regulations and standards tends to multiply rather than reduce costs.
The multilateral trading system was never the only option for international trade negotiations. It has always coexisted with, and benefited 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.
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Africa’s billions that the poor won’t touch
With its two-trillion-dollar economy, recent discoveries of billions of dollars worth of minerals and oil, and the number of investment opportunities it has to offer global players, Africa is slowly shedding its image as a development burden.
“While global direct investment has shown some decline, dropping by 18 percent in 2012, in Africa foreign direct investment rose by five percent,” Ken Ogwang, an economic expert affiliated with the Kenya Private Sector Alliance (KEPSA), which has a membership of over 60 businesses, told IPS.
Since 2012, Kenya has made a series of mineral discoveries, including unearthing 62.4 billion dollars worth of Niobium – a rare earth deposit. The discovery in Kenya’s Kwale County has made the area among the world’s top five rare earth deposits sites, and allows Kenya to enter a market that has long been dominated by China.
In 2012, Kenya discovered 600 million barrels of oil reserves in Turkana county, one of the country’s poorest regions. It was announced on Jan. 15 that two more wells struck oil, increasing estimate reserves to one billion barrels of oil.
But Kenya, East Africa’s economic powerhouse, is not the only African nation that has made fresh mineral discoveries.
“The recent boom in new mining discoveries in countries such as Niger, Sierra Leone and Zambia will attract billions in foreign direct investments. Other countries like Mozambique, Tanzania and Uganda will similarly attract billions due to petroleum discoveries there,” Antony Mokaya of the Kenya Land Alliance, a local umbrella network of NGOs and individuals working on land reforms, told IPS.
Last year, both Uganda and Mozambique discovered oil. In 2006, an estimated two billion barrels of oil reserves were discovered in western Uganda, but last year’s discovery brings Uganda’s total oil deposits to 3.5 billion barrels. Mozambique’s first oil discovery last year is estimated to be 200 million barrels.
Ogwang predicts that these discoveries will soon see African countries dominating the list of the 15 fastest-growing economies in the world.
“More African countries, Kenya being a model example in East Africa, now favour a market-based economy, which is highly competitive and the most liberal economic system.
“In this system, market trends are driven by supply and demand with very few restrictions on who the actors are. [It is] a favourable environment for foreign investors,” he said, referring to the local mobile phone industry, which has been dominated by foreign investors because of its favourable regulatory policies.
“As a result, growth in this sector is phenomenal. In the first 11 months of 2013, Kenya’s mobile phone money transactions were 19.5 billion dollars, which is more than the country’s current 18.4-billion-dollar national budget.”
Ogwang says that even more importantly, African countries are increasingly strengthening their partnerships with the East.
Statistics by the Africa Economic Outlook, which provides comprehensive data on Africa economies, show that China is the largest destination for African exports, accounting for a quarter of all exports.
Trade with Brazil, Russia, India and China – the economic bloc referred to as BRICs – now accounts for 36 percent or 144 billion dollars of Africa’s exports, up from only nine percent in 2002.
In comparison, Africa’s trade with the European Union and the United States combined totals 148 billion dollars.
But Terry Mutsvanga, director of the Coalition Against Corruption, an anti-corruption lobby group in Zimbabwe, cautioned that Africa will first have to rein in its corrupt politicians before its resources can enrich its own people.
According to the World Bank, some of the world’s poorest people live in Africa, with one out of two Africans living in extreme poverty.
“Without Africa dealing with the cancer of political corruption blighting the continent and robbing it of revenue from mineral resources through corrupt politicians receiving bribes from investors … the continent shall [continue to have] the worst poverty levels globally,” Mutsvanga told IPS.
Independent economic analyst Jameson Gatawa from Zimbabwe agreed.
“Underhanded dealings in the mining of diamonds and other rich minerals here have fuelled poverty. The rich are getting richer with the poor becoming poorer,” Gatawa told IPS.
For 54-year-old Sarudzai Mutavara, a widow who lives in the midst of Zimbabwe’s Marange diamond fields, poverty remains a daily reality.
Zimbabwe is one of the world’s top 10 diamond producers. But six out of every 10 households in Zimbabwe, a country of about 13 million people, are living in dire poverty. This is according to a 2013 poverty assessment report by the Zimbabwe National Statistics Agency.
“Here in Marange, the diamond wealth has not [helped] in any way to change our lives for the better, but rather for the worse as we have strayed further into poverty,” Mutavara told IPS.
The Democratic Republic of Congo (DRC) is another African country rich in diamonds, with its mineral wealth estimated in the trillions of dollars. But according to the United Nations, about 75 percent of its people live below the poverty line.
More than half of these have no access to drinking water or to basic healthcare. Three out of every 10 children are poorly nourished, with up to 20 percent of them predicted to die by the age of five.
While Ogwang says Africa’s best economic years are yet to come, it remains to be seen if the billions of dollars Africa has in natural resources will trickle down to people like Mutavara.
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Brics economies not crashing: Economist
The Brics economies are not going to crash but are facing another difficult year, Standard Bank economist Jeremy Stevens said on Wednesday.
“The Brics had a challenging 2013 and will have a challenging 2014,” he said speaking via video link from Beijing, China. “The situation is not dire… (but) there is a lot of work on the table for the leadership.”
Brics is an association of five major emerging economies: Brazil, Russia, India, China and South Africa. The biggest threat for Brics was coming from within because of China’s slow down.
Since 2008 gross domestic product growth had been the key focus for Chinese policy makers. However balance sheet scrutiny had not been done carefully, said Stevens.
Last year there was surging corporate debt in China. “As long as they (companies) are running and operating, they can continue to borrow.”
Cash flow was diminishing and it was unlikely that the debt was still serviceable, he said. “We are looking at a new China.” Growth in China was expected to slip from 7.6% last year to 7.1% this year.
Last year we estimated that Brics-Africa trade amounted to just less than US 350 billion.
Stevens said despite this it would be crazy for anyone to write off Brics, especially China and Brazil. The Brics contribution to global output had increased from 15 percent in 2009 to 20% last year and was well on track to account for 25% by 2019.
“All the changes that we expect in the pipeline over the next three to five years put the Brics on a much firmer footing,” he said.
Political economist Simon Freemantle said that despite this, trade between Brics and Africa continued to grow though at a softer rate than before.
“Last year we estimated that Brics-Africa trade amounted to just less than US 350 billion. This is a significant amount for Africa in relation to its other trading blocs,” he said.
This was up five percent from 2012. The growth was far slower but it was still growing, said Freemantle. Since the 2008 financial crisis the Brics output increased dramatically and now accounted for 20% of global output.
At the same time the Brics-Africa trade had lifted 70 percent in the last five years, which amounted to US140bn dollars. “So there has been US140bn dollars of new trade between Africa and Brics since 2008,” he said.
“China still accounts for the bulk of Brics-Africa trade.”
China’s share of the Brics-Africa trade last year was 61%, India 21%, Brazil eight percent, South Africa seven percent and Russia three percent.
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Private sector too slow at exploiting regional opportunities
The private sector are shying away from the business opportunities in the East African Community (EAC).
The commissioner for economic affairs in the Ministry for East African Community, Rashid Kibowa, said: “There is lack of enthusiasm by the private sector on EAC opportunities. There are trade negotiations that the private sector should get involved in.”
Kibowa was speaking at a consultative meeting on the Common Market for East and Southern Africa (COMESA)-Southern African Development Community (SADC)-EAC tripartite cooperation at Hotel Africana in Kampala recently. The meeting was organised by the Ministry of East African Community Affairs and attended by the private sector and civil society leaders.
The private sector, however, said they lack resources and capacity to take advantage of the emerging opportunities in the region.
They said the opportunities are being snapped up by better resourced Kenyans and Indian entrepreneurs in places such as South Sudan and Somalia where Ugandan soldiers are fighting for peace and stability.
Walusimbi Mpanga, the chairman of the Uganda Services Exporters Association, said Ugandans are contributing to regional peace, but are not gaining economically.
“The few Ugandans in these places are only doing petty business,” he said.
Shem Bageine, the minister for East African Community Affairs, said the political leadership of EAC, COMESA and SADC agreed to establish a Tripartite Free Trade Area in October 2008.
“The purpose of their effort was to support trade, alleviate poverty and improve the quality of life of the African people in line with the African Union goals.”
Bageine said the heads of states agreed during the second tripartite COMESA–EAC-SADC summit in Johannesburg in June 2012, on various key points to underpin the tripartite co-operation framework.
They include enhancing market integration (Free Trade Area), enhancing industrial development, promoting infrastructure development and promoting the movement of business persons.
A free trade area is a trade bloc whose member countries have signed a free-trade agreement to eliminate or reduce tariffs, import quotas and preferences on most goods and services traded between them.
Enabling business environment key to sustainable and inclusive growth
Africa needs to create an enabling environment for domestic and foreign investment to realize its potential and ensure sustainable and inclusive growth for its population, panellists agreed at a session on Africa’s Next Billion, held on the opening day of the 44th World Economic Forum Annual Meeting. However, there are many challenges to overcome, including addressing the pervasive and growing inequality that is fuelling instability.
With the continent’s population expected to rise to 2 billion by 2050, the foundation for sustainable and inclusive growth must be laid now. “We need jobs, jobs, jobs,” said John Dramani Mahama, President of Ghana. “Economic and social inclusion is a top priority. We create space for the private sector and it’s one of government’s responsibilities to distribute the fruits of growth.” To build on the progress Africa has made so far, governments must continue to realize the democratic dividend of good governance, respect for human rights and rule of law, he added.
Goodluck Ebele Jonathan, President of Nigeria, pointed out that there is stability in most African countries today. “But before we could talk about economic growth, we needed political stability,” he said. Another key to unlocking Africa’s huge potential is security, Jonathan added. When addressing the issue of corruption in the extractive industries, in particular oil in Nigeria, the president told participants, “The simple answer to everything is corruption. Not everything is about corruption.”
Aliko Dangote, President and Chief Executive Officer, Dangote Group, Nigeria, and a Co-Chair of the Annual Meeting 2104, pointed out that the majority of foreign investors are too cautious in the lead-up to elections and during what could be the short-lived reign of political parties. “Today there is no government that will be against business, so go ahead and invest,” he urged.
Dangote added: “People always underestimate what Africa can be. By 2050 will have a united Africa with one common market… Can you imagine if we had sufficient power? Our GDP would be US$ 9 trillion by 2050. It can happen.”
Julian Roberts, Group Chief Executive, Old Mutual, United Kingdom, told participants: “Africa is on the move and it is moving forward. But we need to ensure we have an enabling platform for business.” Roberts said the continent will not succeed unless there is a “handshake between government and the private sector”.
Africa’s economic growth may be accelerating, but according to Winnie Byanyima, Executive Director, Oxfam International, United Kingdom: “The concentration of wealth and power is excluding and locking out millions of people, which is driving insecurity and instability.” So far, economic growth has been a race to the bottom, she said. “We need a race to the top so we have policies and regulation to protect human rights, the environment and reduce poverty.”
Doreen E. Noni, Creative Director, Eskado Bird, Tanzania, noted that young people in Africa are not trained from a young age to have entrepreneurial skills. Because of its huge young population, Africa’s workforce is set to burgeon by 2050. “We need to awaken our youth… and direct them to be entrepreneurial. We can only get our continent to have inclusive growth if we are educated and change our mindsets.”
More intra-Africa trade could boost economic growth, but today, it is negligible. “I feel ashamed that trade between our countries is only 11%. That is unacceptable,” said President Mahama. If the continent’s infrastructure bottlenecks can be overcome, particularly intra-African transportation routes, intra-Africa trade could flourish and create prosperity. “Our target should be 80% intra-Africa trade by 2050,” Roberts added.
The Annual Meeting 2014 is taking place from 22 to 25 January under the theme, The Reshaping of the World: Consequences for Society, Politics and Business. Participating this year are over 2,500 leaders from nearly 100 countries, including 300 public figures, 1,500 business leaders and representatives from civil society, academia, the media and arts.
The Co-Chairs of the Annual Meeting 2014 are: Aliko Dangote, President and Chief Executive Officer, Dangote Group, Nigeria; Kris Gopalakrishnan, President, Confederation of Indian Industry (CII); Vice-Chairman, Infosys, India; Jiang Jianqing, Chairman of the Board, Industrial and Commercial Bank of China, People’s Republic of China; Joseph Jimenez, Chief Executive Officer, Novartis, Switzerland; Christophe de Margerie, Chairman and Chief Executive Officer, Total, France; Marissa Mayer, Chief Executive Officer, Yahoo, USA and Judith Rodin, President, Rockefeller Foundation, USA.
For more information about the WEF Annual Meeting 2014, click here.
Related: “WEF: Davos investors are gazing south – Davies” (Sapa, 22 January 2014)
Source: http://www.weforum.org/news/enabling-business-environment-key-sustainable-and-inclusive-growth?news=page
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Supply chain reforms: the right path to increased global trade
Urgent implementation of the Bali trade accords and deeper behind-the-border reform is needed to sustainably meet world food demand, and foster industrial development, according to Enabling Trade: From Valuation to Action, a new report released today [21 January 2014] by the World Economic Forum, in collaboration with Bain & Company.
Government leaders need to step out of traditional ministerial silos to lead value-chain reforms and reap the benefits in domestic investment and global trade.
The report finds that supply chain inefficiency contributes significantly to the 1.3 billion tons of food lost each year. Attacking these barriers would help improve the livelihoods of billions of the world’s poorest people, and cut emissions, energy and water use. Lost or wasted food costs over $750 billion per year. Yet, agriculture and consumer policy remains focused on production and retail improvements, with insufficient action on supply chain and trade connections.
Major manufacturing investments could be unlocked by accelerating cross-border connectivity. Overcoming deep competitive differences, automotive executives align around the trade priority of faster and simpler border crossing. According to the report, roughly US$ 6 billion is spent each year by the automotive industry on inventory-carrying costs at borders. If redirected into product development, this could pay for up to 6 new car launches every year.
“The report highlights an important new opportunity for trade liberalization and economic growth, combining border and behind-the-border reforms to strengthen the competitiveness and job-creating potential of key economic sectors,” said Richard Samans, a Managing Director of the World Economic Forum. “Such a strategy has the potential to help countries and regions translate the recent WTO agreement on trade facilitation into tangible economic gains.”
The report’s call for implementing supply chain reform builds upon earlier Enabling Trade findings, that reducing supply chain barriers could increase global GDP six times more than eliminating all tariffs.
The report highlights bright spots of political will, including the Pacific Alliance in Latin America, where deeper economic integration and supply chain facilitation are being prioritized at the presidential level. Improved border management, a primary focus of recent negotiations at the World Trade Organization’s Ministerial Conference in Bali, is emphasized in the report’s call for accelerated co-development of e-logistics and smart customs systems.
“The WTO agreement announced in December in Bali was a tremendous step toward trade liberalization and efficiency,” said Mark Gottfredson, a Partner at Bain & Company and co-author of the report. “Now is the time for governments and businesses to take action on the detailed and difficult work ahead.”
The Enabling Trade: From Valuation to Action report is based on pilot agricultural programmes in India, Kenya and Nigeria, an automotive CEO dialogue requested by the WTO, and supply chain surveys and case studies conducted with business and customs administrations. It illustrates:
In poorer regions, 94 percent of food loss and waste stems from supply chain inefficiencies. Yet only 5% of agricultural funding goes to postharvest improvements.
Supply chain improvements increase flexibility and early-stage value for food – and cut loss.
Overly strict product standards, poor transportation infrastructure, border delays, and poor business climates are the main supply chain barriers for agriculture.
Border crossing processes are priorities for automotive trade reform. For example, pallets shipped wet from Western Europe need reweighing when dry at the Russian border.
Simplifying parts re-export is another automotive trade priority, notably for pooled equipment.
Consistent safety and environmental standards in the EU/US would save billions – an important goal for the TTIP negotiations.
The Pacific Alliance, representing Chile, Mexico, Colombia and Peru, promises to create a 200 million people, $2 trillion market, if supply chain reforms continue.
Better border management – “smart borders” – can dramatically improve supply chain efficiency. In Thailand and Kenya, process improvements have more than halved export times.
Each year, the World Economic Forum’s Global Enabling Trade Report series focuses on measuring whether economies have in place the necessary attributes for enabling trade and where improvements are most needed.
For more information about the WEF Annual Meeting 2014, click here.
Source: http://www.weforum.org/news/supply-chain-reforms-right-path-increased-global-trade
Download: “Enabling Trade: From Valuation to Action” (88 pages, 4.15 MB)
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SEC must stay with its mission – Protecting US investors
Swimming against the tide of expert and public opinion, the American Petroleum Institute (API) certainly has clever lawyers.
Somehow this lobby group, which represents the US oil and gas industry, managed to persuade a US District Court earlier this year that the public disclosure of payments by extractive companies to governments would put it at a commercial disadvantage.
It’s a slap in the face for millions in resource-rich countries who may miss an excellent opportunity to hold their governments more accountable.
The combined population of sub-Saharan Africa’s top three oil producers – Nigeria, Angola, and Equatorial Guinea – is about 230 million. And as this year’s Africa Progress Report reports – their respective state-owned oil companies all scored a zero on the reporting of anti-corruption measures in a 2011 survey.
The API arguments also contradict such widely-respected players as Statoil, investors representing more than US$ 5.6 trillion, and the impressive, former leader of BP, John Browne who say detailed public disclosure of payments by multinationals is good for citizens and investors too.
“In my experience, it is rare for a company to lose business by being too transparent,” wrote Lord Browne in an April 2012 opinion piece for the Financial Times.
“Payment disclosure regulations, such as Section 1504… play a critical role in encouraging greater stability in resource-rich countries, which benefits both the citizens of those countries and investors,” a group of investors wrote in a public letter to the SEC.
As if to prove the importance of transparency for investors, the share value of Cobalt International Energy lost US$900 million in April 2012, when it emerged that three of the most powerful officials in Angola had held concealed interests in the company.
The US had become a world leader on transparency issues in July 2010 when Congress passed Section 1504 of the Dodd-Frank Act, requiring companies to disclose publicly their payments to governments for access to natural resources.
But even as the US was receiving plaudits from around the world and prompting similar ground-breaking legislation in Europe, the API was doing its best to block the legislation.
In July this year, the API, whose members include Chevron and ExxonMobil, somehow persuaded a US District Court to block implementation of Section 1504, requiring the US Securities and Exchange Commission to review its implementation.
SEC workplans show no signs of urgency to fix this issue (here), but the SEC’s stated mission is to protect investors.
And until the SEC implements Section 1504, US investors face uncertainty, risk, and the possibility of nasty surprises – political risk or even the sudden and unexpected loss of share value.
So the SEC must finish the job to protect US investors and resource-rich communities alike, because justice requires transparency not clever lawyers.
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Can African skies remain closed?
When thinking about regional integration in Africa, we often think first of trade policy, telecommunications, Information & Communications Technology (ICT) and road infrastructure. But on a continent larger than China,India, the US, and Europe combined, air transport is inevitably going to play a key role in facilitating integration.
For Africans to interact and do business with each other, they need to get there. Moreover, as incomes rise, patience with long and arduous road journeys is bound to diminish. On a personal note, I thought little of taking a 24-hour bus ride in East Africa as a student, but as a working professional I very gladly pay extra to take a one-hour flight instead.
However,Africaaccounts for less than two percent of global airline passenger traffic and about one percent of global airlines’ cargo. The challenges facing the African aviation industry range from strong state protectionism, lack of an enabling environment for new investors, high taxes and charges (above comparative world averages), a poor safety record due to ageing fleet and insufficient regulatory supervision. Likewise, a lot of air transport infrastructure across the continent is in need of upgrade.
How do we get safer, more efficient and cheaper airlines?
One of the key problems is a lack of competition which contributes to high fares. Although in some cases low passenger volumes may create natural monopolies, in many countries competition is artificially restricted by making it difficult for foreign airlines to access certain routes, in order for governments to support their own national carriers. This is despite an agreement more than 13 years ago to “open the skies.”
The Yamoussoukro Decision (1999) was signed by 44 countries, who agreed to liberalise intra-African air transport, including allowing non-national airlines to land and take passengers to a third country – so-called “fifth freedoms” of the air. Implementing this decision could do much to reduce fares and increase air traffic across the continent.
All of this sounds fine in theory, but what about in practice?
A comprehensive 2010 World Bank study looked at a number of specific examples of what happened when routes have been liberalised inAfrica. When the Nairobi-Johannesburg route was fully opened up in 2003, passenger volumes increased 69-fold. When the domestic South African market was liberalised, passenger volumes increased by 80pc.
On average in the Southern African Development Community (SADC), routes that were liberalised saw fares drop by 18pc. The study estimates that full liberalisation in the SADC region would increase passenger volumes by around 20pc.
A more recent study was presented at the Africa Development Bank’s (AfDB)African Economic Conference by Megersa Abate, an Ethiopian transport economist, looking at air transport routes to and fromAddis Ababa. While the researcher did not find any impact of liberalisation on prices, he did find large increases in the number of flights – up to a 40pc increase.
He concludes that in the long run competition is likely to reduce prices. Even without price drops, more flights and more routes are clearly needed.
Despite these potential gains, at present over a quarter of air routes inAfricaare served by only one carrier. In total up to 70pc of air transport is served by a monopoly carrier.
Why are countries slow to “open the skies”?
Too often it comes down to simple protectionism, driven by fear that the national carrier would not be able to compete with the continent’s big players from Kenya, Ethiopia and South Africa as well as other competitors from the Gulf and beyond. Earlier this year, it took the total collapse of AirMalawifor Kenya Airways to be allowed to operate flights betweenMalawiand other countries, despite “fifth freedom” rights already agreed to byMalawithrough the Yamoussoukro Decision. Individual airlines and countries should not need to make adhoc bilateral agreements, when an agreement for open competition continent-wide already exists.
In addition to restricting competition, many countries also provide generous subsidies to their national “flag” carrier. So in addition to limiting the number of flights available, governments then spend scarce resources propping up inefficient airlines.
The President of Zambia recently called for the establishment of a new national airline, while the former Transport Minister noted the challenges that prevented financial viability of the national airline over the years. Achieving success, efficiency and profitability calls for smart partnerships with the private sector and strategic alliances within the sector.
The challenge of financial viability and efficiency is not confined toAfricaalone. Major European and American airlines have folded or receive billions in state aid, capital injections and debt write-offs – demonstrating that the airline industry is fraught with difficulties.
Moreover, developed and emerging markets have witnessed the growth of low-cost carriers which are allowed to compete on the same routes with the major carriers, thereby driving down prices. To be sure, low-cost carriers inAfricaface a host of additional challenges including high costs due to poor safety records and slow courts, but implementing “open skies” would be one less thing for them to worry about.
Lower airfares and more flights could generate a whole host of new economic opportunities. The successful flower industries inKenya,Ethiopiaand elsewhere rely critically on air transportation, as do other similarly perishable agricultural goods. International tourism earnedAfrica43.6 billion dollars in 2012, and directly created eight million jobs. This could grow with increased and cheaper air transport.
Cheaper air fares will also likely have social benefits, facilitating interaction between people of different cultures. Increased intra-African tourism might also contribute to the non-economic aspects of integration goals, preparing the ground for stronger transnational feeling.
Economists like to say that there is no such thing as a “free lunch.” But for the cost of some short-term political pain,Africa could gain some big economic and social benefits.
Crawfurd is a development economist at the Oxford Policy Management, United Kingdom.
Source: http://addisfortune.net/columns/can-african-skies-remain-closed/
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Best to postpone S. Sudan EAC bid
This month an East African Community (EAC) negotiating team was supposed to be in Juba to verify with various senior officials South Sudan’s application to join the economic bloc.
Considering what is happening in South Sudan of late, all that seems unimportant. It is difficult to negotiate with a divided country anyway.
This does not mean, however, that it can never happen. Simply that all involved should shelve the South Sudan application until the country is stable enough to collectively know what it wants.
A couple of months ago, there were suggestions among South Sudan civil society to hold a referendum on EAC membership.
Although there is nothing wrong with the proposal, it is vital that the South Sudanese realise their best economic interests lie squarely with joining the EAC. EAC leaders also have the responsibility to show that the bloc really can deliver prosperity.
They should begin by highlighting the regional track record in terms of improving trade and investment figures especially after the Customs Union took off, and its recently robust figures despite the effects of the 2008 global economic slowdown.
Today the EAC is steadily working at breaking down non-tariff barriers to make the Common Market a truly seamless entity.
According to the Doing Business Report 2012, the EAC was rated as one of the fastest growing and reforming economies in the world. Intra-EAC trade went up by $1 billion in 2012 from the $4.5 billion recorded in 2011. Current total GDP is about $85 billion.
After some pushing by President Barack Obama, there is a new United States-EAC Trade and Investment Partnership that centres on a regional investment treaty that is expected to attract more American investors to the region.
As things now stand, the EAC is the United States 80th largest trading partner according to figures from the US Trade Representative office. The ranking seems lowly until you realise the significance of having even a toenail in the US market.
Why should South Sudan miss out on these exciting prospects?
The EAC is far from perfect. The bickering among member states is far from over. Indeed, there are times when one is brought close to despair when national self-interests supercede the basic reason for signing the EAC Treaty in the first place.
However the idea of taking on the world together rather than alone still carries weight.
A look at South Sudan’s surroundings is food for thought. In terms of diplomatic relations, things are still tense with the north. The Central African Republic is caught up in a cycle of instability with various warlords suddenly bursting onto the scene before being replaced by another. Not much economic growth there. To the east, Ethiopia has already expressed strong willingness to apply for EAC membership. Mind you Ethiopia, along with Angola are considered the fastest growing economies in sub-Saharan Africa so that intention also speaks for itself. The DRC and Somalia have shown interest too.
The final argument is that South Sudan’s trade and cultural links are skewed towards the EAC, specifically Kenya and Uganda. The two countries are also South Sudan’s top business partners.
The idea of all for one and one for all, may sound romantic. But the fact is, economic integration is all about survival. South Sudan cannot survive alone!
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Averting economic cold war
When the first G20 summit was held at the end of 2008 in Washington DC, many believed that the time had finally come for developed and developing countries to work together to reconfigure the international economic architecture. Some even suggested that the US and China formally adopt the G2 mechanism to jointly manage global affairs.
Five years have passed since then. But the US and China have made limited progress in collaboration on international economic policymaking. In fact, new rivalry has developed over building new liberalisation standards. The US and 11 other countries are negotiating the Trans-Pacific Partnership (TPP), without China. And China and 15 other countries are negotiating the Regional Comprehensive Economic Partnership (RCEP), without the US. Competition in liberalisation is not necessarily a bad thing, but mutual exclusion could lead to significant disruption to trade and investment flows.
This unfortunate development was largely a result of misunderstanding and mistrust on both sides. When the US joined the TPP and decided to scale it up into a 21st-century model of globalisation in 2008, many Americans judged that China was too far away from the expected high standards, and that its participation in the negotiations could only spoil the party. Similarly, many Chinese experts advised the Chinese government that the TPP was an American design to deliberately isolate China economically, and that China should go its own way in liberalising trade and investment. Some scholars in both countries interpreted RCEP as part of China’s overall strategy to defeat the TPP.
Such economic cold war mentality could be very damaging to both countries and the world. Economic studies have already confirmed significant income losses from the TPP for China and other countries. This is understandable because China is one of the largest export markets for all the individual TPP member economies, and is also at the centre of the Asia Pacific’s manufacturing supply chain. Therefore, implementation of TPP liberalisation could cause significant trade diversion away from China and disruption of the supply chain. Likewise, RCEP could also cause trade diversion away from the US and other non-member economies.
These scenarios are in sharp contrast with the close China-US economic cooperation of the past. China’s rapid economic growth during the reform period would not have been possible without the global free trade and investment system supported by the US. Chinese and American leaders also worked closely cementing the agreement on China’s entry into the WTO.
In the past, the US was the main architect of the global economic system. It did not see China as a potential competitor. And China passively accepted the existing rules.
But times have changed. Today, although the US is still the world’s largest economy, China is already the second-largest and is set to overtake the US within the next 10 years. It is, therefore, reasonable for China and other developing countries to want to be part of the new rule-making process. But a transition of global superpowers could make all parties very nervous, as in history it often ended in war. This makes China-US cooperation all the more important, not only to avoid major confrontation but also to build a better world.
The new major-power relationship proposed by the Chinese leaders offers a useful framework and appears to be welcomed by American leaders. But as a first step toward this new model, the two countries should work closely to bridge the TPP and RCEP initiatives. There are high hurdles to achieving this goal. But they would not be higher than bringing President Nixon and Chairman Mao together in 1972.
Positive developments have occurred recently too. In Beijing, an increasing number of policy advisors are now urging the government to apply to join the TPP negotiations as early as possible. In particular, they argue that many of the TPP’s sticky issues – such as reform of state-owned enterprises, environmental and labour standards, protection of intellectual property rights and liberalisation of services trade – are also on China’s own reform agenda. In Washington, some government officials also argue that Chinese TPP participation would be positive for the world. And National Security Advisor Susan Rice recently said that the US would welcome China’s participation in TPP negotiations.
But these are not enough. To the Chinese, the American position that China can join after TPP negotiations are concluded represents old 20th-century thinking. China wants to be a part of the rule-making process, not just a passive rule-taker. In reality, it is possible that China could demand for modification to the rules when it joins later anyway, especially if it becomes the world’s largest economy. Therefore, it would be much better for the world if the TPP were to secure China’s commitments from the very beginning.
China also needs to do more to convince TPP participants that it can achieve high-quality liberalisation, especially in the areas of state-owned enterprises, intellectual property rights and cyber security. The reform program approved by the Third Plenum of the 18th Party Congress is a first step demonstrating the Chinese government’s determination in implementing aggressive and comprehensive reforms. But the government needs to take actions more quickly, through steps including experiments in the recently established Shanghai Free Trade Zone.
There is also the difficult question of whether China should be treated as a developing or developed country. It is reasonable for China to claim status as a developing nation given its income level. But the US objection to this is also understandable given China’s economic size and global influences. Perhaps a workable solution is for China to sign up to a high-quality agreement, which allows grace periods for liberalisation in certain areas.
There are practical difficulties for China to join TPP negotiations immediately, mainly because the current round of negotiation is likely at its final stage. Realistically, the earliest time that China could participate would be 2015 or later. But China, the US and other involved parties can start working on this now. For instance, the two governments should establish a TPP-RCEP joint working group, under the framework of the Strategic and Economic Dialogue. The two countries should also share information about both negotiations. The joint working group should also conduct feasibility analyses, identify the key obstacles and make important policy recommendations. Another possibility is to make China an observer at the TPP negotiations.
The TPP is only one area where China and the US can work together closely to develop a new major-power relationship. The two countries are already negotiating a bilateral investment treaty, successful conclusion of which could pave way for China’s TPP accession. The two governments may also want to consider the possibility of establishing a bilateral free trade agreement. China and the US should also collaborate closely on a range of international economic initiatives, such as the G20 summit, the Trade in Services Agreement and the WTO Doha Round.
Yiping Huang is a professor of economics at the National School of Development, Peking University, and an adjunct professor at the Crawford School of Public Policy, ANU.
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2500 leaders to participate in WEF Davos meet
A group of more than 2500 politicians, business leaders and academics are gathering to discuss the state of global economy for five days, beginning tomorrow at the World Economic Forum’s annual gathering in the Swiss ski resort of Davos.
Dilma Rousseff, President of Brazil, will address the meet on Friday.
The 40 heads of state or government expected in Davos include those from the UK, Australia, Japan, Iran, Israel, Brazil, Italy, Mauritius, and the Republic of Korea.
South Africa’s Foreign Ministry told The BRICS Post that the nation will be sending a 7-member cabinet Ministers’ team which includes Finance Minister Pravin Gordhan and Trade Minister Rob Davies.
The South African delegation will “update global business leaders on SA’s plans to raise the level of economic growth under the auspices of the now broadly accepted National Development Plan (NDP)”.
South African President Jacob Zuma had backed the NDP as the socio-economic blueprint for the country while briefing the South African leaders who will be attending the WEF meet.
“Developing countries do need higher levels of inclusive economic growth if they are to meet their developmental challenges. In South Africa’s case, the country needs faster and more inclusive growth to reduce unemployment, poverty and inequality,” said a statement of the South African Finance Ministry.
Meanwhile, India will be represented by a nearly 125-member delegation including senior ministers and top corporate leaders at the WEF’s exclusive club for a small, powerful elite.
Indian Finance Minister P Chidambaram and Commerce Minister Anand Sharma will lead the Indian delegation for the WEF meet from January 22 to 25.
The state of the world economy, the growing divide between the rich and the poor in the fast growing emerging economies will be discussed at the meet.
“Disgruntlement can lead to the dissolution of the fabric of society, especially if young people feel they don’t have a future,” warned Jennifer Blanke, WEF’s chief economist earlier last week while releasing their annual assessment of global dangers.
Other global hotspots like Syria, Iran as well as the future of the Eurozone will be discussed.
Among the many highlights in the program would be a session on economic prospects for major emerging economies including BRICS.
The post-2015 development goals, the future of health and healthcare, the pressing youth unemployment challenge, as well as the future of North Africa and the Middle East are also on the agenda of the meet.
UN Secretary General Ban-Ki Moon and World Trade Organization (WTO) chief Roberto Azevedo will also be attending the meet.
The theme of this year’s meeting is “The Reshaping of the World: Consequences for Society, Politics and Business”.
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Customs Union promises boost to regional trade
The customs union, which is the first pillar of East African economic integration, is set to become operational this year in Rwanda, Uganda and Kenya, a landmark in achieving full EAC integration.
With the introduction of a single customs territory (SCT), joint infrastructure ventures and the plan to remove non-tariff barriers (NTB’s), inter-EAC trade is expected to grow in 2014. Non-tariff barriers such as roadblocks and weighbridges are set to be removed or reduced in a bid to reduce the costs of transportation along the Northern Corridor. All roadblocks along the Mombasa-Kigali route have been removed and between Mombasa and Malaba the number has been reduced from seven to two. Uganda is also set to follow suit by having one weighbridge along its roads.
As a result, the number of days for transaction of goods along the northern corridor is expected to be reduced from 21 to 8 for goods moving from Mombasa to Kigali.
A crucial aspect of the SCT are the one-stop border posts (OSBP) aimed at making customs officials from two neighboring countries share the same office and cargo scanner in order to avoid unnecessary costs and delays. This is expected to improve services provided by standards bodies, revenue authorities and other agencies at the border posts.
The OSBP bill envisages 15 common border posts, among which the Taveta-Holili border and the Naman ga border (Kenya-Tanzania), Busia and Malaba borders (Kenya-Uganda) and the Kanyaru-Akanyaru border (Burundi-Rwanda). Others are Mutukula (Tanzania-Ugan da), Gasenyi-Nemba (Burundi-Rwanda), Lungalunga-Horohoro (Kenya-Tanzania), Gatuna and Katuna (Rwanda-Uganda) and Rusumo OSBP between Rwanda and Tanzania.
So far, the system has been operating on some border points based on bilateral agreements between EAC member states, for instance at Gatuna where a 24-hour one-stop border post and simplified trade regime have been in force since 2010.
Infrastructure agreements
The past year saw the signing of infrastructure agreements (Rwanda, Uganda and Kenya in particular) that are set to boost trade within the region.
In a further bid to improve efficiency of goods in transit a special Car Port was created in Mombasa to specifically handle the import of vehicles destined for Rwanda and Uganda. This was part of the expansion of the Mombasa port berth by 240 meters thus expanding the Mombasa container terminal to 840 meters. This will enable the port to handle 800,000 twenty-foot equivalent units per year from 600,000 containers, thus reducing the time taken for goods clearing.
Rwanda, Uganda and Kenya also agreed to construct a railway line linking Mombasa to Kigali and an oil pipeline connection Eldoret-Kampala- Kigali.
The $13.5 billion project that is expected to be funded by China is aimed at reducing on the number of trucks plying the route as they tend wear out the road infrastructure. The railway is set to be complete by 2018 and will be designed for freight (speed of 50 mph) but will later be open to passenger travel.
The Mombasa-Kigali line project consists of a 736-mile rail from Mombasa through Nairobi to Malaba and branching to Kisumu (Kenya), an 870-mile rail from Malaba to Kampala linking four Ugandan towns before connecting to the main line to Rwanda at Mirama Hills, a 125-mile from Mirama Hills to Kigali and extra 93-mile rail to other towns in Rwanda.
The oil-pipeline for the transportation of refined petroleum products is expected to be complete by 2017.
A single tax system, linking the revenue systems of the three nations, came into effect in October that has seen the clearance of more than 50 fuel trucks from Mombasa destined for Kigali and Kampala. The new system is expected to reduce business costs by almost $45 million annually on top of remote declaration of tax returns, faster clearance, and better tax compliance among the signatory member states.
Add to that the signing of the monetary union agreement in Kampala, the third pillar of regional integration by all five heads of state that will enable east African countries to trade in one currency by 2015, and it seems that finally EAC member states have started to walk the talk.
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Azevêdo hails Basel Committee’s decision on trade finance as “good news” for developing countries
Director-General Roberto Azevêdo, on 17 January 2014, welcomed a recent decision by the Basel Committee on Banking Supervision as “of particular significance for the availability of trade finance in the developing world”.
He said: “I welcome the decision taken by the Basel Committee on Banking Supervision on 12 January, which modifies regulations on bank leverage in a way that will support trade. This decision is of particular significance for the availability of trade finance in the developing world, where letters of credit are a key instrument of payment. This is good news for developing countries, for the expansion of their trade and for the continued growth of South-South trade flows.”
The Basel Committee announced on 12 January 2014, the modification of a key rule for banks – which goes in the direction of facilitating trade transactions in particular in favour of developing countries.
The revised Text (see “Amendments to Basel III’s leverage ratio issued by the Basel Committee”), indicates that the Basel Committee will now follow this new approach for trade: “For short-term self-liquidating trade letters of credit arising from the movement of goods (eg documentary credits collateralised by the underlying shipment), a 20% CCF will be applied to both issuing and confirming banks.”
This revised approach means that the leverage ratio will be five times less expensive for trade instruments than originally envisaged.
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Massive SADC Gateway port
NamPort has recently begun with a massive N$3 billion construction project to build a new container terminal, but plans even more extravagant expansion in the years to come, according to its executive for marketing and strategic business development, Christian Faure. He expanded on the planned multi-billion dollar Southern Africa Development Community (SADC) Gateway Terminal envisioned for the area between Swakopmund and Walvis Bay this week.
“The SADC Gateway terminal is still in the concept phases,” stressed Faure. “This development was considered the long term plan for the Port of Walvis Bay’s expansion, but plans have been brought forward mainly due to the construction of the new fuel tanker berth facility and the Trans-Kalahari railway line initiative for the export of coal from Botswana. This development is not to be confused with the new container terminal currently under construction at the port,” he said.
Already NamPort has completed pre-feasibility studies and is currently busy with geo-technical evaluations to determine the structure of the ground in the area to be dug out, he said. NamPort is also positively engaging the Municipality of Walvis Bay on the land itself, and other role players that may be impacted, he said. “This is a massive development and to put it into perspective, the current port is 105 hectares in size. The SADC Gateway port is 10 times that with a size of 1 330 hectares. The new container terminal will add 40 hectares,” said Faure.
With Namibia’s reach to more than 300 million potential consumers in the SADC region, the port of Walvis Bay is ideally positioned as the preferred route to emerging markets in Botswana, Zambia, Zimbabwe, Angola, Malawi and the Democratic Republic of Congo.
Faure explained that several mega projects have surfaced in the last few years that will not be feasible without the SADC Gateway terminal, including the Trans-Kalahari Railway Line, Botswana coal exports through Namibia, mega logistics parks planned in NDP4, the budding crude oil industry, large scale local mining product exports, as well as magnetite, iron ore and coal exports from Namibia.
The SADC Gateway Port project (also sometimes called the North Port) will extend the existing harbour to the north of Walvis Bay between Bird Island and Kuisebmond. It will cover a total for 1330 hectares of port land with 10 000 meters of quay walls and jetties providing at least 30 large berths. The new port will also feature world class ship and rig repair yards, and oil and gas supply base, more than 100 million tons worth of under cover dry bulk terminal, a car import terminal and a passenger terminal, he explained.
The SADC Gateway Port will also feature a liquid bulk terminal for very large crude carriers, dry ports and backup storage areas, break bulk terminals, small boat marinas and a new high capacity rail, road, pipeline and conveyor link to the area behind Dune 7.
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TTIP puts the EU’s environmental and social policies on the line
The European Commission has repeatedly promised civil society that the TTIP negotiations with the US will not lead to a race to the bottom on environmental protection, health and safety standards and consumer rights. But as negotiations progress, civil society groups on both sides of the Atlantic are increasingly feeling uneasy, ten leading NGOs write.
This opinion was drafted by ten European health, transparency and environment NGOs: CEE Bankwatch Network, Climate Action Network Europe (CAN), Corporate Observatory Europe (CEO), European Public Health Alliance (EPHA), European Environmental Bureau (EEB), Friends of the Earth Europe (FOEE), Health and Environment Alliance (HEAL), Nature Friends International (NFI), Transport & Environment (T&E), World Wide Fund for Nature (WWF).
“All through the ongoing Transatlantic Trade and Investment Partnership (TTIP) the fear has been that Europe would be forced to lower the bar to create a “level playing field” between the US rules and generally more robust EU regulations. Even the EU’s long established ‘precautionary principle’ enshrined in the Treaties and underpinning European chemicals regulations could be at risk.
Despite reassurances from EU Trade Commissioner Karel De Gucht, the official language in the TTIP talks revolves around the ‘mutual recognition’ of standards or so-called reduction of non-tariff barriers through new mechanisms of regulatory cooperation. In fact, there are very few financial barriers left to be removed. Basically, the US and EU are pushing for so-called barriers to trade, including controversial regulations such as those protecting food products, health, chemicals or data privacy, to be removed as well as the prevention of additional ones.
For the EU, that could mean accepting US standards which in many cases are lower than its own. At the same time this agreement could open the gates for multinationals and investors to sue EU Member States if new environmental or health legislation is introduced that adversely affects their business prospects. There are three main areas of concern with the mechanism called the Investor-State Dispute Settlement (ISDS) that risks becoming part of the TTIP.
The first is that Member States will be afraid to introduce new and effective legislation that may have positive social and environmental impacts but which risks upsetting our trade partners. Companies will be quick to seek arbitration if they believe their commercial interests are compromised. As a consequence of this ‘chilling’ effect, Member States will only introduce legislation if they are sure that they will not be sued.
The second concern is the cost for Member States. The arbitration panels over these disputes may have the ability to levy crippling fines in line with “potential” profit loss. One can easily see how smaller Member States would effectively handover sovereignty to multinationals as fines could be equal to a significant proportion of GDP.
The third concern is why the independent dispute mechanisms are needed in the first place. Existing EU commercial and single market laws are overseen by myriad court jurisdictions, including the European Court of Justice set up under the European Treaties. Why the need for something operating outside these conventional arrangements?
This is not scare mongering from NGOs. Experience has shown that similar mechanisms of arbitration involving “investment loss” have sided against the rights of the broader public or environment interests and with the corporates.
In May 2013 Quebec introduced a ban on fracking, an oil and gas extraction method occurring deep inside the earth’s crust which carries significant environmental and health risks. The US company, Lone Pine Resources Inc. had a contract with the Canadian government, and is now asking the government for USD250 million in financial compensation.
In the pending case of tobacco giant Philip Morris Asia vs Australia, the company claims that Australia is treating them unfairly by requiring plain packaging for cigarettes. It has demanded that the Australian government suspend enforcement of the law and pay billions of dollars of losses in sales. These are only two of the 500 cases against 95 governments in recent years.
The combined impacts of this ISDS, together with new mechanisms for regulatory cooperation that are being negotiated under this trade and investment deal in Europe, are predictable. Europe would most likely lose its position as a global frontrunner on public policies such as water, nature protection, food quality, chemicals and climate and energy. European and national policy would suffer a sclerosis as a new category of impact assessments would need to be undertaken to see which multinationals interests are jeopardised.
The ISDS arrangements in the draft EU-Canada Free Trade Deal which was recently agreed by the European Commission, though not yet approved by the European Parliament and Member States, have still not been made public. How can we be reassured by Commissioner De Gucht that similar provisions in TTIP will pose few problems when we still cannot get access to the details of already negotiated agreements? Civil society groups on both sides of the Atlantic are right to feel uneasy; what is masquerading as a trade deal may be a far more sinister attempt to roll-back environmental and public health laws built up over decades in the name of corporate efficiency.”
Source: http://www.euractiv.com/trade/ttip-puts-eus-environmental-soci-analysis-532724
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Informal sector key to growth
Zimbabwe has to face the reality that the informal sector is now the dominant force of the economy, Finance and Economic Development Minister Patrick Chinamasa has said. Giving the keynote address at the Mandel-Gibbs 2014 Economic Symposium yesterday, Minister Chinamasa said there were more economically active people in the informal sector compared to those in the formal sector.
“How can we tap value from the informal sector? They are not contributing value to the fiscus. There are no linkages between the formal and informal sector,” he said.
World Bank country economist Ms Nadia Piffaretti said it was high time Government started paying attention to the massive informal sector which was now at 46 percent compared to South Africa at 17 percent and Malawi at 13 percent.
She noted that SME’s were at 60 percent post dollarisation.
“How well are you treating start ups,” she said. “For example, Apple started in a garage but now it is one of the most valuable companies in the world.
Government should not underestimate start ups.” She said the push for foreign direct investment should not be confined to the Government alone but should be initiated by domestic entrepreneurs who are searching for new technology.
Ms Piffaretti said while the global economy was stabilising with an anticipated 2013 growth rate of 3,6 percent, Zimbabwe would experience some problems as they were in the middle of falling international prices and the weakening of the rand against the US dollar.
“The rand has lost a lot of ground and that situation is not going to reverse anytime soon. And this presents problems because the economy experienced a rebound when the dollar was weak but now when it is going the opposite direction Zimbabwe finds itself in serious problems as it has a weak economy being funded by a strong dollar.”
She added: “That brings in the issue of competitiveness. It’s cheaper to import than to export therefore the import bill will continue rising on a permanent basis. On the other hand investors at the moment get nice returns on dollar assets.”
Since 52 percent of Zimbabwe’s trade – two-thirds of exports and 43 percent of imports – is with South Africa, the currency gap is a problem. Zimbabwe gains from cheaper imports from SA (but two thirds of the exports are more costly in SA.
According to the International Monetary Fund estimates, the value of the US dollar today is 15 percent too strong for Zimbabwe, making the economy highly uncompetitive.
Both Minister Chinamasa and Ms Piffaretti said there was need for creativity and innovation in addressing the country’s economic problems.
“Let us not have the belief that things and events can happen effortlessly, that you can move mountains. Let us all not be in the physical sense be (Pastor Emmanuel) Makandiwa followers,” Minister Chinamasa said.
The minister criticised procrastination especially within the private sector as he called for collectivity in coming up with solutions to rescue the economy.
He said challenges facing the economy such as sanctions that Western countries imposed should not be used as excuses for failure to come up with solutions.
“You read in newspapers people saying, we will not do anything because of elections, the elections happen; we will not move until the Minister of Finance has been appointed; The Minister is appointed, you say he must deliver a budget; he has delivered a budget and now the question is what are you waiting for,” he queried.
Minister Chinamasa chided local banks for slacking in mobilising funding to channel to productive sectors of the economy.
“I have been going through what the banks in this country were doing before and the sad conclusion is I get this feeling that they are imposing sanctions on their own country,” he said.
“Before these problems, some of these banks were borrowing lines of credit to on-lend to their customers, US$800 million annually and now US$40 million, the question is why they are not doing things that they were doing before. Is it because they do not like the Government, they do not like the country, what is the problem?” he asked.
He accused the banks of implementing some exit strategy.
Source: http://www.herald.co.zw/informal-sector-key-to-growth/
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Ethiopia stumbles on WTO accession
Ethiopia will not be ready to open up financial and other essential sectors to gain World Trade Organization (WTO) accession until 2015, according to the Ministry of Trade.
This is in contrast with the 2011 Growth and the Transformation Plan (GTP), which promised the finalization of accession within its four-year term.
Geremew Ayalew, director general of trade relations and negotiations directorate at the Ministry of Trade (MoT), confirmed that the government targeted WTO accession in the GTP. However that is not going to happen, he said, as the government prioritized sectors such as telecom, finance and energy, meaning that opening up is not likely to happen until the end of 2015.
Currently Ethiopia is in phase four of responding to the questions of the negotiating countries. Canada, the US, and some European countries posed questions following the goods offer Ethiopia submitted a year ago. The Republic of South Korea joined the group for the fourth round, where some 168 questions were leveled at Ethiopia.
Geremew argues that negotiations for WTO accession remain wide open, and determining when Ethiopia will secure its position with the organization is difficult to predict. He added that being a member of the WTO is not necessarily an attractive opportunity, and it could pose significant challenges if correct preparations are neglected.
Ethiopia is negotiating on the import and export tariffs of goods and services with the WTO member states. The current tariff measures at 35 percent, but after accession that figure may double depending on the predictability of the market. The goods offer is a document that details the amount of goods and services Ethiopia is willing to trade among the WTO members. It also is a document that states some 5,000 or so products of Ethiopia to which the country is willing to trade, based on market access negotiations.
The service offer is the most debated and challenging to Ethiopia, where some strategic government sectors are included in the accession process. The country is expected to provide the details of the service offer during the current Ethiopian fiscal year.
In related news, a National Enquiry Point (NEP) is to be established as an information center to serve the WTO accession, together with local and international business entities. The NEP is to become the central database of Ethiopia, where essential information on trade and related sector enquires are to be facilitated across the country. The Ethiopian Standards Agency is the focal organization undertaking the upcoming launch of NEP operations.
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The MINTs are very different and might not all see stellar growth
In rapidly developing countries, often the proceeds of economic growth fail to flow adequately to shareholders – particularly foreign ones.
Another acronym has recently sprung up associated with my fellow economist, and Telegraph columnist, Jim O’Neill – the “MINTs”, referring to Mexico, Indonesia, Nigeria and Turkey. In fact, the term was first coined by Fidelity, the Boston-based fund manager, but it has been popularised by O’Neill.
It follows the great success of the term “BRICs”, referring to Brazil, Russia, India and China, which he first coined. Does this new grouping make much sense? And, whether it does or not, do these countries enjoy the prospect of exceptionally strong growth in the years to come?
Although the term BRICs has become embedded in the lexicon, the BRICs themselves have recently suffered a fall from grace. Each of these countries has undergone a major growth slowdown. What’s more, this looks like continuing.
Admittedly, compared to the developed West, China and India will grow well, though at more modest rates than before. But this year Russia and Brazil will probably grow more slowly than the UK. It is this slowdown in the BRICs which has set off the search for the new growth stars.
Given that each of the BRIC countries has slowed, you might readily think that this is for some common reason. But, in fact, they have slowed for different reasons, as befits the fact that each of them is very different.
Together, the BRICs make a good acronym but a bad concept.
Russia and Brazil are commodity producers with relatively poor growth prospects; China is a rapidly urbanising export and manufacturing powerhouse, while India has still not managed to achieve “Chinese” growth rates but continues to possess the potential for rapid growth, given that it is still well down the development ladder.
The MINT acronym is only the latest in a series of attempts to find another Emerging Market grouping after the BRICs.
Others include the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa), the Next-11 (another Jim O’Neill creation – Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey and Vietnam) and the EAGLES (from BBVA Bank, standing for Emerging And Growth Leading Economies – Brazil, China, Egypt, India, Indonesia, South Korea, Mexico, Russia, Taiwan, and Turkey).
In each case, the groupings don’t really hang together and the relevant acronyms haven’t really caught on.
The MINTs, like the BRICs, are in many ways an odd grouping. They represent an attempt to put together an alternative to the BRICs in each of the main emerging market regions: Mexico in Latin America, Indonesia in Asia, Nigeria in Sub-Saharan Africa and Turkey in emerging Europe.
Whereas the BRICs consisted of the largest economies in their respective regions, each of these MINT members is the second or, in the case of Indonesia, the third, largest economy in its region.
But the four economies are very different. Nigeria and Indonesia have large populations – 170m and 250m respectively. By comparison, both Turkey and Mexico have smaller populations – just under 80m and 120m respectively.
More importantly, income levels vary considerably. GDP per head in Mexico is nearly seven times as high as it is in Nigeria. The scope for “catch-up” growth in Nigeria and Indonesia is much higher than it is in Mexico and Turkey.
Indeed, it is reasonably normal for countries at Nigeria’s and Indonesia’s stage of development to grow by 6pc or more a year but it is almost unheard of for countries at Mexico’s and Turkey’s stage of development to do so, at least in a sustainable manner. They can probably grow at more like 3½-4pc a year.
The structure of these economies is different too. Mexico has a substantial manufacturing sector that is becoming integrated into US supply chains and is producing increasingly sophisticated products. Mexico’s prospects are closely tied to America’s. As US growth strengthens, so Mexico’s should pick up, too.
By contrast, manufacturing in Turkey is still focused towards the lower end of the value chain and its prospects are closely tied to Europe’s. Meanwhile, in Indonesia and Nigeria, manufacturing is still relatively underdeveloped. Here oil production is far more important.
More immediately, Turkey and, to a lesser extent, Indonesia have been among those emerging markets that have taken advantage of the loose global monetary conditions of the past few years to increase borrowing and fund spending. Both run large current account deficits. Indonesia’s is running at about 3½pc of GDP, while Turkey’s is more like 7½pc.
In both countries the current level of spending could prove unsustainable as the US Fed tapers its monetary policy stimulus and global policy conditions normalise, resulting in a period of weaker growth. I am especially worried about Turkey, not least because it is currently undergoing a political crisis.
Lack of political stability will make it more difficult to push through much- needed reforms and is likely to make future growth both weaker and more volatile. In contrast to Turkey’s huge current account deficit, Mexico’s is pretty small and Nigeria runs a current account surplus.
Although each of the MINT countries will probably do pretty well over the years ahead, with Indonesia in particular perhaps capable of 7pc growth, these countries do not stand out from others in their respective regions.
Although Mexico could be the growth leader in Latin America, in South-East Asia, the Philippines and Vietnam have exceptional growth prospects, and in Africa, Kenya and possibly even Egypt do – the latter if it could get itself sorted out. Meanwhile, in Europe, Poland has good prospects, although probably not quite as good as Turkey’s.
Talk of growth prospects naturally leads people to dream of spectacular returns in the stockmarket. Last year the Nigerian market put in a stellar performance – up by nearly 50pc over the year – but equity markets in the other three MINTs fell over the year.
It must always be remembered that, for a variety of reasons, the link between economic growth and stock market returns is not always that strong.
The often widely divergent performance of the Chinese economy and stock market is a salutary example.
How a market is valued in the first place is a key consideration. Moreover, in rapidly developing countries, often the proceeds of economic growth fail to flow adequately to shareholders – particularly foreign ones.
Of the four economies, I am fairly optimistic about the immediate economic outlook for Mexico and Nigeria. But beware: that might not translate into large rises in share prices this year – or indeed in the near future. To make a mint you have to coin it.
Roger Bootle is managing director of Capital Economics