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Africa must boost commodity-based industrialization to grow economy, end poverty, says ERA 2013
African countries have an opportunity to transform their economies through a commodity-based industrialization strategy that leverages the continent’s abundant resources, current high commodity prices and changing organization of global production process, according to a newly published report.
If grasped, these opportunities will help Africa promote competitiveness, reduce its dependence on primary commodity exports and associated vulnerability to shocks, and emerge as a new global growth pole.
According to the 2013 edition of the Economic Report on Africa, co-authored by the UN Economic Commission for Africa and the African Union Commission, a commodity-based industrialization policy is necessary if the continent is to become a global economic power that can address the challenges of youth unemployment, poverty and gender disparities.
“Maximizing Africa’s commodities for industrialization involves adding value to soft and hard commodities and developing forward and backward linkages to the commodity sector,” says the report whose theme is “Making the Most of Africa’s Commodities: Industrializing for Growth, Jobs, and Economic Transformation.”
Apart from providing employment, income, price and non-price benefits, African countries, by adding value to their raw materials locally, could also bring about diversification of technological capabilities, an expanded skills base, and deepening of individual countries’ industrial structures, the document reveals.
Although Africa boasts about 12 percent of the world’s oil reserves, 40 percent of its gold, 80 to 90 percent of chromium and platinum group metals, 60% of arable land and vast timber resources, value addition is still limited, culminating in the paltry receipts for the export of its primary commodities.
A case in point is the coffee industry where up to 90 per cent of Africa’s total income from the commodity, calculated as the average retail price of a pound of roasted and ground coffee, goes to consuming countries in Europe, North America and Asia. African producers like Ethiopia too can benefit more from this, it says.
While some African countries have made modest progress in forward and backward linkages to their commodity sectors, others still have some ground to cover, according to the report, adding that interventionist state policies and continental initiatives could help improve the situation.
To further boost current levels of linkages, the report calls for urgent moves to reduce the infrastructural constraints and bottlenecks on the continent.
It also recommends improved policy implementation through coordination among relevant ministries in order to reduce incidents of coordination failure that have for long plagued the continent.
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BRICS membership opens opportunities
This week the heads of state of four of the largest economies in the world – collectively representing a fifth of global gross domestic product (GDP) – arrive in Durban for the fifth BRICS summit, each accompanied by delegations representing some of the most dynamic multinational corporations.
These dynamics put an end to any doubts about the relevance of the BRICS grouping of Brazil, Russia, India, China and South Africa as a whole, and indeed South Africa’s place in it. For those alive to the shifts in global geopolitics and commerce, this week presents profound opportunities.
The meeting takes place as the collective power of the developing world rises. Last year, emerging markets’ collective GDP increased by 7.4 percent to $29 trillion (R270 trillion), only marginally lower than total Group of Seven (G7) output of $33 trillion. This narrowing gap is remarkable considering that, just five years ago, G7 output was twice the size of emerging markets’ output.
Part of the emerging world’s resilience is explained by the way developing economies have turned to each other to offset the softness in demand from the advanced world.
In this regard, BRICS has been pioneering. Last year, trade between the five BRICS members totalled $310 billion, up from $28bn in 2002. Today, intra-BRICS trade accounts for almost a fifth of BRICS total trade with emerging markets, up from just 13 percent in 2008. In contrast, BRICS actually traded less with the EU last year than in 2008.
BRICS-Africa trade volumes have also risen profoundly. We estimate that BRICS-Africa trade hit $340bn last year, up more than 10 times over a decade. This means that, last year, BRICS-Africa trade was 10 percent larger than total intra-BRICS trade, a staggering statistic when one considers the collective GDP of the BRICS (of roughly $15 trillion) is almost seven times larger than Africa’s collective GDP.
Since 2007, during a period of relatively slow trade growth globally, BRICS-Africa trade has more than doubled. Looking ahead, we hold firm to our projection that BRICS-Africa trade will eclipse $500bn by 2015.
Investment ties have been broadly commensurate. While the total fixed investment by the BRICS in Africa is difficult to ascertain, Chinese Minister of Commerce Shen Danyang recently confirmed that the country’s total foreign direct investment stock in Africa at the end of last year was $20bn, complementing the roughly $30bn in concessional loans extended by Beijing to African states since the century began.
For Brazil, flagship investments such as that led by Vale in the coal-rich Tete province in Mozambique have captured attention. As with China, large investments in Africa have often been facilitated by credit offered to Brazilian companies by the Brazilian Development Bank (BNDES). In Angola alone, BNDES credit has surpassed $3bn. And for India, private multinationals have been exceptionally successful in building a footprint in east and southern Africa.
South Africa’s benefits from BRICS engagement are large. Last year, South Africa’s exports to emerging markets grew by almost 50 percent.
South Africa’s trade with the BRICS economies rose from a mere 5 percent of our total trade with the world a decade ago to almost 20 percent now.
Last year, South Africa’s exports to fellow BRICS economies rose almost 17 percent, the fastest rate of export growth within the group.
South Africa’s commercial footprint in the rest of Africa is also maturing swiftly. South Africa’s trade with the rest of Africa touched $35bn last year.
Importantly, about half of South Africa’s total exports to Africa comprise value-added capital goods. South Africa’s success in securing market share within key Southern African Development Community (SADC) economies has been powerful. Last year South Africa was the largest import partner for nine out of the 13 SADC states.
South Africa’s investment stock in the rest of Africa has swelled, from R14.7bn in 2001 to R121bn in 2010.
More broadly, the BRICS affiliation gives South Africa a solid scaffold to recalibrate its growth potential. South Africa offers logistical access to the SADC market, as well as legal, financial and management support to firms looking to grow their African presence.
Already, South African firms across a variety of industries enjoy meaningful strategic relationships with BRICS partners. This week, it is likely that a variety of significant deals will be signed on the sidelines of the summit.
BRICS inclusion also gives South Africa an opportunity to build consensus among key African partners around areas of geopolitical and commercial importance. South Africa has Africa’s foremost market economy and is sufficiently capacitated to sketch an African programme. At the same time, South Africa’s leaders are aware of the delicate diplomacy required in casting an inclusive African agenda.
Meanwhile, the concerns raised by President Jacob Zuma and Minister of Trade and Industry Rob Davies around the structural imbalances inherent in South Africa’s trade with China echo across Africa. Building more sustainable ties within the BRICS could help steer broader BRICS-Africa engagements.
The BRICS states’ superior economic and negotiating might bears heavily when constructing bilateral deals with smaller African states. South Africa’s regional approach to BRICS will aid more constructive and lasting links.
Though still a relatively loose political grouping, BRICS as a commercial collective wields significant influence.
The symbolism of this gathering on African soil is vast. The rise of BRICS represents a shift towards a more multi-polar, and representative global economy. The substance for launching another wave of African ambition, in partnership with 21st century leaders, is mammoth. It should not be lost on anyone.
Ballim is Standard Bank’s chief economist. Freemantle is a senior analyst and the head of Standard Bank’s African political economy unit.
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SA in BRICS – Are we making the most of it?
The BRICS bloc wants deeper trade and investment ties to underpin its alliance. Troye Lund assesses whether the five members have moved beyond being a loose political grouping.
Amid much fanfare, SA hosts a summit of the BRICS bloc of countries later this month and though the newest – and smallest – of the group, it is revelling in its inclusion. Eager to belong, SA views the hosting of the summit as an endorsement of its tendency to punch above its weight in global affairs.
Trade & industry minister Rob Davies has enthused: “We are convinced that the BRICS bloc is championing a new paradigm for economic co-operation.”
When the acronym BRIC was coined in 2001 by Jim O’Neill, then Goldman Sachs’s head of global economics research, a formal alliance was not envisaged. O’Neill’s paper on Brazil, Russia, India and China described a shift in global economic power away from the G7 (Group of 7) towards these countries that were enjoying rapid growth.
Since 2009, when it held its first summit in Russia, the BRICS group has become more formalised. But SA’s inclusion since December 2010 has been roundly criticised by O’Neill, who says SA does not belong because its economy is too small and lacks potential.
But the BRICS concept has morphed into something more than a group of fast-growing countries. It has become a political grouping that represents a desire to shift influence away from Western states and institutions. On these grounds SA, which has always been vocal about greater representation of developing countries in global institutions, qualifies.
Yet the combined economic weight of the BRICS cannot be underestimated. They represent about 40% of the global population, close to a fifth of global gross domestic product (GDP), estimated at US$13,7trillion, combined foreign reserves estimated at US$4,4trillion, and 17% of world trade, according to the Africa Strategy Group, a consultancy that is promoting the summit.
When the five heads of state gather later this month, there will be much talk about co-operation and mutual benefit in the alliance. But the relationships are not always smooth and are filled with contradictions.
China’s “dumping” of cheap goods in SA and the rest of the continent has been blamed for contributing to the decline in local manufacturing; SA has been taken to the WTO (World Trade Organisation) in a dispute about chicken imports from Brazil; and business with India can be hampered by regulation. For instance, regulatory hurdles forced MTN to abandon a tie-up with Bharti Airtel while Shoprite canned an Indian venture in 2010 due to that government’s curbs on foreign ownership of retail businesses.
Speaking at the China-Africa Forum in Beijing last year, just after China’s president pledged $20bn in loans to Africa, President Jacob Zuma warned about an unequal partnership with Beijing.
“This trade pattern [where Africa exports commodities and imports manufactured goods] is unsustainable in the long term. Africa’s past economic experience with Europe dictates a need to be cautious when entering into partnerships with other economies.”
But last week Zuma told the Financial Times that Western companies should drop the “colonial” approach to doing business in Africa or lose out to China and other developing countries.
The summit in Durban will paper over the cracks and inevitable tensions as the five heads of state reiterate their commitment to building on the theme of the gathering: partnership for development, integration and industrialisation.
Trade ministers will meet the day before to try to resolve some of the disputes.
The department of trade & industry’s (DTI) deputy director-general in charge of international trade & development, Xavier Carim, says SA prefers to find “win win” solutions to “trade frictions”, especially with BRICS allies.
Though the eurozone remains SA’s largest trading partner, intra-Bric investment is growing. Pretoria is promoting itself as the gateway to the rest of Africa in an effort to make up for the small size of its economy compared with the other BRICS members.
In his budget speech last month finance minister Pravin Gordhan announced several measures aimed at stimulating cross-border trade and investment.
SA trade with BRICS has grown rapidly over the past decade. Between SA and China, trade grew 32% last year; with India it increased 25% and Brazil 20%. SA’s exports to China grew 46% while exports to India rose 20%, to Brazil 14% and to Russia 7%.
SA’s desire to promote investment and trade in sectors other than natural resources appears to be gaining ground. Business forums are held regularly and companies that have shown an interest in SA include those working in electronics, automobiles, ceramics, renewable energy and financial services.
But SA’s unequal relationship with China still grates. Is it prepared to stand up to China to protect its business interests, despite the fact that China is SA’s single-largest trading partner as a country and is involved in 85% of all intra-BRICS trade. The DTI argues that it isn’t about standing up to any BRICS partner, but about negotiating investments that free African economies from exporting raw materials and importing the goods that are manufactured with those resources.
SA’s stance on China has been to point out that China stands to benefit most from any expanded BRICS influence in global affairs and should therefore be magnanimous towards Africa, which offers resources and new markets.
Though O’Neill insists the only reason SA was included in BRICS was, as the gateway to Africa, to secure supply lines for fellow BRICS members, SA Institute for International Affairs senior researcher Memory Dube says there’s more to SA’s “Africa first” approach.
It’s linked to SA’s belief that its economic future is tied to the continent’s success. But SA’s efforts to establish itself as leader on the continent don’t sit well with other African states, especially Nigeria and Kenya, and aren’t limited to its BRICS membership. It’s a recurrent theme that can be traced back to apartheid SA.
“Post-apartheid SA has been emphatic about the African agenda and this has been a prominent characteristic of SA’s foreign policy towards the region,” says Dube.
But the question remains whether SA can leverage its relations with its BRICS allies so that their commercial interests are aligned with SA’s, as well as wider African interests.
A major thrust of SA’s foreign policy is to encourage investment in beneficiation which will allow Africa to add value to its abundant raw materials.
In a bid to convince African leaders that SA’s position in BRICS is delivering gains for the continent, Zuma is expected to make announcements on three projects at the summit. These will be discussed at a BRICS-Africa leaders’ retreat that he’ll host straight after the summit.
The projects are:
An undersea cable to connect the BRICS. Currently BRICS countries are connected via telecommunications hubs in Europe and the US which, SA argues, keep costs high and create the potential for “critical financial and security information to be intercepted”.
Risk reinsurance for the five BRICS countries. The BRICS Trade & Risk Development Pool will combine the financial strength and insurance capacity of state-owned and private-sector users. This, according to SA, will support development as well as domestic and cross-border trade. SA’s financial sector will take the lead in developing this.
The formation of a BRICS Development Bank will be confirmed. Though the bank is likely to take years to be set up, the aim is to finance projects that will accelerate growth in emerging markets and act as a counterweight to institutions like the World Bank.
Research by Standard Bank analysts Simon Freemantle and Jeremy Stevens shows that intra-BRICS trade in 2012 reached $310bn. This was a tenfold increase since 2002.
Today intra-BRICS trade accounts for almost one-fifth of BRICS total trade with emerging markets, up from 13% in 2008. In contrast, the research shows the BRICS traded less with the EU last year than they did in 2008.
They project that BRICS-Africa trade will be about $500bn by 2015, roughly 60% of which will be China-Africa trade.
The leap in importance of trading within BRICS has been the most pronounced for SA. A decade ago trade with the Bric economies accounted for 5% of SA’s total trade with the world. In 2012 this figure stood at 19%. Last year SA exports to its fellow BRICS economies increased to 17%.
EAC states not ready for TRIPS, ask for extension
The East African Community (EAC) partner states should ask the World Trade Organisation to unconditionally accord the Least Developed Group (LDC) an extension of the transition period to put up in place requirements for TRIPS, trade and economic experts have advised.
The World Trade Organisation (WTO), article 66.1 of the Trade Related Aspects of Intellectual Property Rights (TRIPS) accorded LDCs members, Uganda inclusive a renewable ten-year exemption from most obligations under the TRIPS agreement. The grace period that expires in July 2013 is seen as so soon by experts thus the call for further extension.
The exemption was originally due to expire on December 31 2005 but was extended following a TRIPS council meeting held in June 2002.
According to Elizabeth Tamale the Assistant Commissioner in the Ministry of Trade, the LDCs were exempted from implementing the patents and test data obligations with regard to pharmaceutical products as required by the WTO. The deadline to enforce the patents with regard to pharmaceuticals products expires in January 2016.
“We were given 10 years but I must say that it is not easy to implement. Most EAC states still lack the technical base, coupled with lack of awareness regarding Intellectual Property rights. That is why we are seeking for further extension,” said Tamale.
Under TRIPS, governments must apprehend and punish people who breach IP and copyright laws, but Tamale says Ugandan police still lacks the capacity to implement this. TRIPS is an international agreement administered by the WTO that sets nationals of other WTO minimum standards for many forms of Intellectual Property (IP) regulation as applied To nationals of other WTO members.
Tamale who was addressing stakeholders at the Open Society Foundation funded EAC meeting held at Metropole Hotel in Kampala on Tuesday noted that only 10 out of 40 LDCs had implemented the TRIPS.
“We need the laws in place and for the people to understand the laws before we can make any move. But we should also remember that the extension won’t be forever. We need to unite as an EAC block,” said Tamale.
She said without the extension, EAC states will immediately need to enact and or amend their intellectual property laws to become TRIPS complaint and would be under extreme pressure to do so.
Apart from Kenya that is considered as developing country, Uganda, Rwanda, Burundi, and Tanzania still have to put in place Intellectual property right laws so as to compete in WTO. Bernard Mulengani the EALA legislator said failure by the TRIPS council to grant LDCs an extension would be disastrous. “As MPs we need to put in place laws that will be implemented come 2016. We shouldn’t expect another extension after 2016,” he said.
Ambassador Nathan Irumba, the Southern and Eastern Africa Trade and Information Negotiation institute (SEATINI) executive director said the EAC still lacks the capacity to implement TRIPS.
“We need to strictly enforce IPR (Intellectual Property Rights) so as to address counterfeit and it is not until you have acquired enough technology that you can design this,” he said.
Dr. Kamamia Murichu, the Chairman Kenya Pharmaceutical Distributors said TRIPS agreement was signed to boost trade and encourage innovation but described as unfortunate that only Kenya out of the EAC partner states had Patent laws in place.
“Patents are granted by the State, but if you lack the laws and somebody snatches your patent where will you report. We need uniformity regarding Intellectual Property right laws in East Africa,” he said.
Murichu noted that TRIPS contains requirements that nation’s laws must meet for copyright such as rights for performers, broadcasters, producers, new plant varieties, and trademarks. Denis Kibira a medicine advisor with HEPS Uganda however noted that LDCs don’t need any further extension of TRIPS but suspension.
“The TRIPS haven’t really benefited us. What we need are anti-counterfeits laws, strong boarder measures, medicine seizures and media scares,” he said. He pointed that EAC doesn’t need an extension of TRIPS to put IP laws but rather technological transfers to set up pharmaceuticals for medicines.
“The EAC partner states need to increase import duties on generic drugs so as to reduce competition and protect local industries,” he said.
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EU backs new transparency standards for investor-state dispute settlement
The European Union supported new United Nations rules for greater transparency in disputes between investors and host countries.
On Friday 8 February a United Nations Working Group agreed the new rules which will make such dispute settlement procedures much more transparent. The public will have access to the documents submitted, hearings will be open to the public, and interested parties will be able to make submissions to the proceedings.
Under its competence for investment acquired under the Lisbon Treaty in 2009, the EU has played a key role in the UN Working Group for international trade law, where it has pushed for greater transparency in investment disputes. Transparency and accountability are key objectives of the new EU investment policy and are also pursued in the negotiation of EU investment agreements.
Welcoming the development, EU Trade Spokesman John Clancy said: “The protection of investment and the availability of Investor-State Dispute settlement mechanisms play a key role in attracting investors and encouraging economic growth. Having these new transparency rules in place will set a benchmark for all future EU investment treaties. Improving transparency in investor-state dispute settlement is essential. The success of the UN Working Group shows that the EU has a key role to play in the world of international investment policy making.”
International investment agreements permit investors to sue the countries where they have invested in the event that the country is alleged to have breached the agreement's rules. Many such cases take place behind closed doors, with no or limited information being provided to the public. After almost three years of discussions, delegates to the United Nations Working Group finally gave the thumbs up to the new rules on 8 February 2013. The rules will now go for final approval within the UN system
Detail
The Working Group is responsible for the development of the Arbitration Rules of the United Nations Commission for International Trade Law (UNCITRAL). The UNCITRAL Arbitration Rules are the second most frequently used rules for investor-state dispute settlement. The UNCITRAL Arbitration Rules are used for commercial arbitration, and so all documents submitted to the arbitrators have so far been confidential, hearings have been closed to the public and sometimes the public did not even know of the existence of such cases.
Since 2010, the Working Group has been developing rules on transparency for investor-state arbitration. The rules as adopted are the most advanced in ensuring a high degree of openness of proceedings, in terms of making documents available to the public, access to hearings and in allowing interested parties (like environmental NGOs) to make submissions. These rules will set the standard for transparency. The rules now need to be approved by the UNCITRAL Commission in June/July 2013 and then by the UN General Assembly in September 2013. They will apply automatically to all treaties concluded after their adoption, and work will continue in the Working Group on a system to permit the application of these rules on transparency to existing treaties.
The EU is currently negotiating investment agreements including investor-state provisions with Canada, Singapore and India. In these negotiations, the European Union is seeking to address some of the concerns raised by investor-state dispute settlement. The lack of transparency is often cited as an example of such concerns. The newly agreed UNCITRAL rules will form the basis of the transparency provisions in future EU investment treaties.
Background
What is Investor-State Dispute Settlement?
It is a form of dispute settlement included in international treaties by which an investor can sue a country in which it has made an investment. Such cases concern alleged breaches of the agreement by the country hosting the investment. For example, if an investor’s factory was expropriated and compensation paid were felt to be insufficient.
What is the role of the EU?
Since 2009 the EU has exclusive competence for investment matters. This means that it represents the Member States on the international stage. The European Commission has played a key role in representing the views of the Union and co-ordinating the views of the EU's Member States.
What is the EU doing on investment?
Since 2011 the EU has been negotiating provisions on investment protection with Canada, India and Singapore. These provisions concern both the protection of investment and investor-state dispute settlement. They will form part of larger free trade agreements.
The EU's investment policy after the Lisbon Treaty
Foreign direct investment (FDI) is a main contributor to economic growth. Outward FDI offers access to markets, technologies and resources, has a positive effect on the competitiveness of EU firms by reducing costs and creating economies of scale. Inward FDI enhances the EU's competitiveness by bringing in foreign capital, technologies, management expertise, and often boosts exports.
The EU is the world's leading host of foreign direct investment, attracting investments worth €225 billion from the rest of the world in 2011 alone. By 2010 outward stocks of FDI amounted to €4.2 trillion (26.4% of the global FDI stock in FDI) while EU inward stocks accounted for €3 trillion (19.7% of the global total).
Those investments are secured via Bilateral Investment Treaties (BITs), concluded between individual EU Member States and non-EU countries. They establish the terms and conditions for investment by nationals and companies of one country in another and set up a legally binding level of protection in order to encourage investment flows between two countries. Amongst other things BITs grant investors fair, equitable and non-discriminatory treatment, protection from unlawful expropriation and direct recourse to international arbitration. EU countries are the main users of BITs globally, with a total number of about 1,200 bilateral treaties already concluded.
Foreign direct investment became the exclusive competence of the EU under the Lisbon Treaty (Article 207 TFEU).
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State of the EAC: Bureaucratic delays, missed targets hurt integration
The decision by East African presidents on Friday, 30 November 2012 to postpone key issues – mainly the Monetary Union and admission of South Sudan and Somalia to the bloc – has left the region’s journey to full integration looking longer than ever, and exposed the bureaucratic delays that continue to haunt the plan.
The Heads of State, in the summit in Nairobi, directed that the deadline for the establishment of the East African Monetary Union be pushed to November next year – a whole year after the earlier set target.
The final report on the monetary union was not submitted to the EAC Heads of Summit for approval, with the presidents directing that the document be presented during an extraordinary summit in April 2013.
They set a new date – November 2013 – by when the Monetary Union Protocol should be signed.
While the presidents did not give South Sudan the final nod to join the bloc, they approved a verification report on the country’s bid.
Kenya’s President Mwai Kibaki, Uganda’s Yoweri Museveni, Burundi’s Pierre Nkurunziza, Rwanda’s Paul Kagame and Tanzania’s Jakaya Kikwete said the EAC Council of Ministers should start negotiations with South Sudan following the completion of the verification work.
They also directed the Council to look into Somalia’s application to be admitted to the fast-growing regional body.
Government officials and delegates attending the Summit decried delays in implementing the EAC Common Market Protocol signed in July 2010, saying this was slowing economic growth in the region, which is reeling from delays in removal of non-tariff barriers (NTBs) to trade.
While the five EAC partner states have in principle agreed to remove NTBs by December 2012, in the absence of a legally binding framework, action largely depends on the willingness of the different countries.
So far, this push has suffered hiccups as businesses continue to incur huge costs arising from weighbridges, roadblocks, poor infrastructure, unnecessary delays at border posts, and lack of harmonised import and export standards, procedures and documentation.
Frustration is growing among landlocked countries like Rwanda, which are paying a heavy price for the unnecessary and costly delays caused by NTBs like weighbridges and port inefficiencies in Kenya.
Over the past seven years, reforms in the EAC have focused on simplifying regulatory processes, such as trading across borders and starting a business in the region.
Traders and truck drivers in the region complain of the numerous police roadblocks, especially on Kenyan roads, differing transit procedures, longer Customs and administrative procedures and varying trade regulations in the region.
The just-concluded second EAC Heads of State retreat on infrastructure development and financing, in Nairobi, highlighted inadequate regional capacities to co-ordinate and develop a sustained pipeline of infrastructure projects as a major challenge to the integration process.
The creation of the monetary union is the next step in the integration of the EAC after the adoption of a Common Market and a Customs Union.
However, experts have warned against the quick adoption of a monetary union, pointing to the different macroeconomic conditions of member states.
Further, they use the ongoing crisis in the Eurozone as a cautionary tale for the bloc’s ambitions.
The trading bloc also signed a letter of intent for the start of a commercial and trade dialogue with the US.
The presidents backed Burundi’s application to join the Commonwealth and Rwanda’s admission to the UN Security Council, while supporting regional efforts of the International Conference of Great Lakes Region, chaired by President Museveni, to ensure peace in the Democratic Republic of Congo’s North Kivu region.
It is understood that the decision by the Heads of State to defer the admission of South Sudan to the bloc was informed by the need to investigate the country’s governance, democracy, rule of law, respect for human rights and social justice credentials as per Article Three of the EAC Treaty.
Although the verification report carried out by the EAC team early this year, and approved by the EAC Council of Ministers, had indicated that South Sudan had put in place legal and institutional frameworks that would enable it to meet membership requirements as outlined in the EAC Treaty, these institutions were still in their infancy or not yet operational; the Heads of State indicated that more verification was required.
The Council of Ministers was also put under pressure to speed up the expansion of the East African Court of Justice to cover other jurisdictions apart from crimes against humanity.
The Council was also required to come up with a model for the establishment of a political federation.
The Council of Ministers’ Committee is expected to meet from December 10 to 15 to deliberate on the report on the monetary union.
Sources said one of the factors blocking the establishment of the monetary union is Kenya’s fear that its currency would be devalued to the level of its counterparts’ units.
Kenyan EAC Director for Economic Affairs Richard Sindiga said 63 out of the 77 articles of the East African Monetary Union (EAMU) have been dealt with, but members were yet to agree on a few issues in the remaining 14.
These include the creation of necessary institutions for the proper functioning of EAMU.
“The issue yet to be finalised here is which of these institutions should be temporary and permanent, and whether they should be established during the transition period or after,” said Mr Sindiga.
The other issues to be concluded include the macroeconomic convergence criteria, whether certain articles should be shifted, deleted or retained, allocation of roles to the organs and institutions of the community, and envisaged benefits of the EAMU.
Negotiations on the monetary union started last year, spearheaded by the High Level Task Force that was appointed by the Council of Ministers in 2010.
According to analysts, the EAC stands to benefit from a monetary union as it will reduce the cost of transactions by eliminating foreign exchange commissions. It will also end destabilisation of local currencies.
“The only fluctuation that could occur is between the EAC currency and other currencies such as the yen, dollar and euro,” said Mr Sindiga.
Adoption of a single currency will also eliminate the risks related to exchange rates between the member states, leading to a speedy development and integration of the financial markets in the region.
The EAC verification report on the South Sudan application had shown that senior government officials had different views on its joining, with the main issues being when to join and what agreements the country should sign.
The Council was mandated to engage the Sudan government and give a report in November 2013.
Last week, Tanzania, which was previously opposed to South Sudan joining the bloc, accepted the report on the admissibility of the new country to the Community following its request in the last Council of Ministers meeting held in Bujumbura that it needed more time for consultation with all the key stakeholders on the matter.
Among the things that qualify South Sudan to join the community as cited by the EAC Council of Ministers is its established mechanism for ratification and accession to international treaties “the country has already acceded to UN and AU charters, and it has been admitted to several regional and international organisations such as Igad, the Nile Basin Initiative and Unesco.
Somalia’s application to join the Community, which was received early this year, was not considered for approval.
Rwanda and Burundi formally joined the East African Community in 2007, 10 years on from their application, so, according to some experts, although South Sudan could know its fate sooner than that, it is not as easy to approve a new member’s application as it may seem.
The EAC leaders also approved a proposal advocating that the Infrastructure Development and Financing Retreat be institutionalised and held once every two years instead of every year.
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Africa can feed itself, earn billions, and avoid food crises by unblocking regional food trade
A new World Bank report says that Africa’s farmers can potentially grow enough food to feed the continent and avert future food crises if countries remove cross-border restrictions on the food trade within the region. According to the Bank, the continent would also generate an extra US$20 billion in yearly earnings if African leaders can agree to dismantle trade barriers that blunt more regional dynamism. The report was released on the eve of an African Union (AU) ministerial summit in Addis Ababa on agriculture and trade.
With as many as 19 million people living with the threat of hunger and malnutrition in West Africa’s Sahel region, the Bank report urges African leaders to improve trade so that food can move more freely between countries and from fertile areas to those where communities are suffering food shortages. The World Bank expects demand for food in Africa to double by the year 2020 as people increasingly leave the countryside and move to the continent’s cities.
According to the new report – Africa Can Help Feed Africa: Removing barriers to regional trade in food staples – rapid urbanization will challenge the ability of farmers to ship their cereals and other foods to consumers when the nearest trade market is just across a national border. Countries south of the Sahara, for example, could significantly boost their food trade over the next several years to manage the deadly impact of worsening drought, rising food prices, rapid population growth, and volatile weather patterns.
With many African farmers effectively cut off from the high-yield seeds, and the affordable fertilizers and pesticides needed to expand their crop production, the continent has turned to foreign imports to meet its growing needs in staple foods.
“Africa has the ability to grow and deliver good quality food to put on the dinner tables of the continent’s families,” said Makhtar Diop, World Bank Vice President for Africa. “However, this potential is not being realized because farmers face more trade barriers in getting their food to market than anywhere else in the world. Too often borders get in the way of getting food to homes and communities which are struggling with too little to eat.”
The new report suggests that if the continent’s leaders can embrace more dynamic inter-regional trade, Africa’s farmers, the majority of whom are women, could potentially meet the continent’s rising demand and benefit from a major growth opportunity. It would also create more jobs in services such as distribution, while reducing poverty and cutting back on expensive food imports. Africa’s production of staple foods is worth at least US$50 billion a year.
Moreover, the new report notes that only five percent of all cereals imported by African countries come from other African countries while huge tracts of fertile land, around 400 million hectares, remain uncultivated and yields remain a fraction of those obtained by farmers elsewhere in the world.
Poor roads and high transport costs blunt progress
Transport cartels are still common across Africa, and the incentives to invest in modern trucks and logistics are weak. The World Bank report suggests that countries in West Africa in particular could halve their transport costs within 10 years if they adopted policy reforms that spurred more competition within the region.
Unpredictable trade policies a liability
Other obstacles to greater African trade in food staples include export and import bans, variable import tariffs and quotas, restrictive rules of origin, and price controls. Often devised with little public scrutiny, these policies are then poorly communicated to traders and officials. This process in turn promotes confusion at border crossings, limits greater regional trade, creates uncertain market conditions, and contributes to food price volatility.
Establishing a competitive market will enhance food distribution networks
A competitive food market will help poor people most, the report notes. For example, poor people in the slums of Nairobi pay more for their maize, rice, and other staple food than wealthy people pay for the same products in local supermarkets. The report underlines the importance of food distribution networks which in many countries fail to benefit poor farmers and poor consumers.
“The key challenge for the continent is how to create a competitive environment in which governments embrace credible and stable policies that encourage private investors and businesses to boost food production across the region, so that farmers get the capital, the seeds, and the machinery they need to become more efficient, and families get enough good food at the right price,” said Paul Brenton, World Bank’s Lead Economist for Africa and principal author of the report.
World Bank Group support for trade and agriculture in sub-Saharan Africa
The World Bank is recognized as a key source of knowledge on trade policy issues, analysis and investments for trade-related infrastructure at the country level. The institution’s agriculture support for Africa has grown significantly over the past decade. Concessional lending totaled US$1.07 billion in fiscal year 12 (July 11-June 12): a fourfold increase from FY03. The share of trade-related lending in total Bank lending has also grown from an average of two percent in FY03 to five percent in FY12. New trade-related commitments in FY13 are expected to increase to US$3 billion, 70 percent of which will go to Africa.
Since 2008, World Bank Group lending for agriculture and related sectors in sub-Saharan Africa total approximately US$5.4 billion.