News Archive February 2014

BRICS to set up their bank within five years, progress slow – Russia

The BRICS bloc of emerging economies will set up its development bank with a total capital of $100 billion within five years, but member countries still haven’t agreed on their share in the bank’s structure, a senior Russian official said on Tuesday.

The bank is being set up by Brazil, China, India and South Africa to fund infrastructure projects. But it has been slow in coming, with prolonged disagreements over funding and management of the institution.

The start-up capital of $50 billion would eventually be built up to $100 billion. Russia has proposed that each member contributes an equal, 20 percent share. Other BRICS officials say their share should depend on the size of their economies, Russia’s Deputy FinanceMinister Sergei Storchak said.

“Russia’s stance is that this is a new development bank, based on new principles, so we vote for equal participation, 20 percent from each,” Storchak told journalists.

Establishing the bank was first proposed in 2012. It was approved last year at a BRICS summit in South Africa.

Officials from the group met last weekend in Sydney on the sidelines of a meeting of thefinance ministers and central bank governors from the Group of 20 developed and developing nations.

“After numerous attempts, we were able to agree that the process of building up the capital … will be stretched over time,” Storchak said. “We managed to come to an agreement that the period of contributions to the capital’s share can be up to five years.”

The group has struggled to take coordinated action in the past year, after the scaling back of U.S. stimulus prompted an exodus of capital from their markets. That in turn raised fears about the health of the BRICS economies.

The five-year span allows time for the global economy to improve and for growth in emerging markets to revive, which would help in replenishing domestic budgets, Storchak said.

“(Then) we will get more favourable conditions for countries to fully engage in the bank’s operations,” he said.

The location of the bank, another long-debated issue, was not decided in Sydney.

“There are interesting diplomatic negotiations because each country has declared that they will propose their candidates (for the bank’s headquarters),” Storchak said. “We have reached an agreement that it should be decided through … consensus.”

The group’s other project, a $100 billion fund designated to steady currency markets has also been off to a slow start, awaiting a final approval.

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World Bank to help map Africa’s mineral resources

There may be a trillion dollars worth of minerals buried underneath the African continent – but information on those resources remains in many cases unknown, unmapped or otherwise underutilized.

That’s why the World Bank is creating a $1 billion fund to help governments map the continent’s resources and integrate that data into comprehensive platform that is accessible to mining companies, governments and the public. The ambitious effort, which is still in its infancy, aims not only to make investment in Africa more attractive to mining companies, but also to create a level playing field for governments to negotiate with those very companies, according to Paolo de Sa, the manager of the oil, gas, and mining unit at the bank.

The fund, to be officially launched in July, will support the African Union’s strategy to help governments take advantage of and better manage their mineral resources, part of a larger effort to help the extractives industry contribute more to the development of African economies.

Building the billion dollar map will involve data collection and mapping, but also the integration of that data into a universal platform. That process includes gathering and integrating information that already exists in government ministries, conducting gap analyses, and then implementing surveys and mapping projects across the continent to fill in those gaps.

For governments

While outside expertise will be certainly needed, an important part of the effort will be capacity building in government-run geological surveys in a regional integration effort spearheaded by the African Union, De Sa told Devex.

“At the end of the day, the governments are the owners of the information, and they need to be capable of updating and interpreting it and using it for the different policy objective that they have,” he said.

The World Bank, for its part, plans to continue support for African geological surveys at its current level, which will amount to about $200 million of the total amount allocated for the fund. The institution is in the process of creating a multi-donor trust fund for contributions from donor governments, and De Sa said that the United Kingdom, Canada, and Australia had expressed initial interest in supporting the fund, while eventually, he hopes, mining companies themselves might also contribute to the effort.

The mapping and harmonization effort itself is modeled on the way that Canada and Australia integrated their provincial surveys as well as similar efforts underway in the European Union.

Capacity building has already started in Southern and Eastern Africa, where the World Bank already supports several projects with government surveys. De Sa said that in two to three years, data integration will likely expand to Central and Western Africa.

Scientific project, not business investment

The prospect of monetizing the commercially relevant information should be an impetus for governments to ensure the accessibility of their information, but the true value of the maps will be in the way the data informs national discussions and decisions on resource management.

“This is not a money-making investment, this is much more of a scientific, access to data and transparency exercise from our point of view,” De Sa noted about a project he sees as having potential beneficial “side effects” beyond increasing investments and raising revenues for the government.

“It will be a very, very strong tool to inform government on policies related to the management of other natural resources, development of infrastructure, and of course management of the most precious substance on Earth – water,” he said.

While the goal of mapping the entire continent is very long-term, De Sa said that, assuming the initiative goes well, an obvious next step would be to create another fund to come up with an integrated map of South American mineral resources.

See also: Can Natural Resources Pave the Road to Africa’s Industrialization? - Paulo De Sa, World Bank Blogs (28 February 2014)


World Bank to help map Africa’s mineral resources

27 Feb 2014
There may be a trillion dollars worth of minerals buried underneath the African continent – but information on those resources remains in many cases unknown, unmapped or otherwise underutilized. That’s why the World Bank is...
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Tanzania: Talks on Agoa extension going on well – Kigoda

The government has said that talks on its request to have the US government extend the African Growth and Opportunity Act (Agoa) are progressing well.

Speaking in an exclusive interview with The Guardian from Dodoma, Industry and Trade minister Dr Abdallah Kigoda said the talks to extend the Agoa market after expiry next year are in good progress and the US government is also thinking of renewing the programme.

The trade programme is due for expiry in 2015, but there are feelings that it has not been fully utilised by African countries.

“We are still in talks with the American government to ensure that Agoa tenure is extended although most African governments have not fully utilised the opportunity given. Agoa market is very useful in promoting trade between Africa and America,” he said.

Dr Kigoda challenged the Tanzanian business community to export value added products so as to benefit from the opportunity given.

“Since Agoa was signed into law in May 18, 2000 it has been offering incentives for African countries that export a wide range of products to the US. Tanzania has somehow utilised the market compared to its neighbours such as Kenya but we have to improve our products by insisting on value addition so as to earn better prices,” he said.

The minister noted: “We have to insist on quality to our products, one among the challenges that face our traders is quality, I am sure that if we will improve the quality of our products, surely we will win the Agoa market and other markets as well.”

However, statistics issued recently say that in the first half of 2012, US total trade with sub-Saharan Africa (SSA) reached $48bn, a decrease of 24 percent compared to the same period in 2011.

In accordance with 7 percent growth of exports to the world, US exports to SSA (mostly composed of machinery) increased by 4.5 percent, nearly reaching $11bn but representing only 1.4 percent of total US exports to the world.

The top five African destinations for US products have continue to be South Africa, Nigeria, Angola, Ghana and Benin.

While exports to South Africa decreased by 4 percent and those to Nigeria remained constant, sales to Angola increased by 14 percent (largely increase in US exports of electrical machinery).

Exports to Ghana by 10 percent (increase in US exports of machinery), and to Benin by 7 percent (increase in US exports of pharmaceutical products).

The only major increases in US imports from SSA originated from Tanzania (precious stones) and Senegal (oil).

In the first half of 2012, US imports from SSA decreased by 29 percent, falling to $27bn and representing only 2.4 percent of total US imports from the world.

This decrease was mostly due to a 32 percent decrease in US minerals, fuel and oil imports and a 19 percent decrease of precious stones and metals imports from SSA.

US imports from SSA originated, for the most part from Nigeria, Angola, South Africa, Chad and Congo.

US imports (mostly oil) from Nigeria dropped by 44 percent, from Gabon by 76 percent, and from Ghana by 57 percent.

During this timeframe, Agoa imports totaled $18.7bn, 29 percent less than in the same period in 2011, mainly due to a 32 percent decrease in petroleum product imports.


Tanzania: Talks on Agoa extension going on well – Kigoda

27 Feb 2014
The government has said that talks on its request to have the US government extend the African Growth and Opportunity Act (Agoa) are progressing well. Speaking in an exclusive interview with The Guardian from Dodoma, Industry...
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Boosting trade with Africa

New measures aim to encourage trade and promote SA as an African investment hub

We all know the stories of Shoprite, MTN and Game’s growing presence on the African continent. But these companies are not alone – they represent just a few of the increasing numbers of South African companies that are taking advantage of growth opportunities on the African continent.

Improved transport, telecommunications, financial and diplomatic links, as well as robust economic growth on the continent have resulted in increased levels of trade between South Africa and other African countries.

In 2012 the rest of Africa accounted for 12% of our dividend earnings, up from 2% in 2002 and 28.2% of our exports up from 22.6% in 2002. To put it in context EU the accounted for 18% of exports last year.

South Africa’s economic prospects are becoming increasingly intertwined with that of the rest of the continent and the government is committed to supporting this expansion. It will provided tax revenue, profits and dividends in the receiving country, and in South Africa.

As a result government has announced measures to improve South Africa’s attractiveness as a hub for companies – local and international – wanting to expand in Africa.

Extending the HoldCo subsidiary regime

In 2013 Treasury allowed JSE-listed companies to establish a ‘HoldCo’ to hold their African and offshore operations. Government now plans to extend this regime to facilitate investment into Africa, and beyond.

For JSE companies it will increase the size of allowed transfers from R750m to R2bn a year. Applications for transfers of up to 25% of the listed company’s market cap will be considered by the Reserve Bank, provided there is demonstrated benefit to South Africa.

Unlisted companies may operate HOldCo’s under the same restrictions as listed companies, except that the size of transfers to their HoldCo is limited to R1 billion a year.

Government’s plans go further than this.

National Treasury is proposing the introduction of “foreign member funds”, which would not be subject to the macro prudential limit imposed on all institutional funds. These funds could be collective investment schemes and alternative investment funds such as private equity and venture capital funds. They would be able to source funding from non residents, domestic institutional funds and individuals, but they do need to be domiciled, managed and tax compliant in South Africa.

The objective is to support South Africa as a hub for African fund management.

Treasury also wants to support South African firms in their bid to raise capital in order to expand in Africa and other emerging markets. It is proposing that unlisted technology, media, telecommunications, exploration and other R&D companies should be allowed to freely lift offshore to raise capital for their operations, provided they remain based in South Africa and provided they have a secondary listing in South Africa within two years of the offshore listing.

In addition, listed companies will be allowed to freely list secondary listings to facilitate expansion.

To support South Africa’s role as a financial centre for Africa a number of other steps will be taken: New regulations to facilitate the operation of foreign central counter parties will be released shortly. This will facilitate the establishment of foreign market infrastructure of the clearing of derivatives. In addition, Treasury has been working closely with the JSE and local banks to develop an electronic trading platform for South African government bonds. This should enhance price transparency, liquidity and regulation in the secondary government bond market, which in turn will encourage greater global participation in that market.

Government is proposing a number of other initiatives which it believes will reduce the administrative burden and cost of doing business for SA firms, investors and individuals – for instance customers will be allowed to process advance payments for imports of up to R50 000 upon presentation of an invoice only.

See also: SA’s economic prospects increasingly tied to African continent’s - Minister Pravin Gordhan on South Africa’s economic prospects in 2014 Budget Speech (National Treasury, 26 February 2014)


Boosting trade with Africa

27 Feb 2014
New measures aim to encourage trade and promote SA as an African investment hub We all know the stories of Shoprite, MTN and Game’s growing presence on the African continent. But these companies are not alone – they represent...
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