News Archive December 2016
‘Significant discrepancies remain in commodity trading data’ – UNCTAD
On 14 July 2016, recently published a report on primary commodity trade misinvoicing, saying that some countries could lose as much as 67% of commodity exports to misinvoicing. The report prompted significant reaction, broadly divided between those who think misinvoicing is a problem and those who think it is not. On 23 December, UNCTAD published an updated version of the report.
An early version of the UNCTAD report Trade Misinvoicing in Primary Commodities in Developing Countries: The cases of Chile, Côte d’Ivoire, Nigeria, South Africa and Zambia generated substantial interest and contributed to the debate on the broader issues of transparency in international trade statistics and fairness in the distribution of gains from globalization. The reactions to the report also revealed some areas of confusion in the interpretation of the results and inadequate understanding of the key concepts used in the analysis. The revised report provides a more detailed exposition of the methodology and the concepts used while further stressing the main messages from the analysis.
In the revised report, the concept of trade misinvoicing is explained in greater detail, including its origin in the literature and the estimation methodology. Trade misinvoicing consists of either perverse discrepancies or excessive normal discrepancies in partner trade statistics derived from the comparison of the value of exports as reported by the exporter to the value of imports as reported by the importer. Perverse discrepancies refer to situations where the value of imports is significantly less than the value of exports plus the cost of transport, insurance and duties. This reflects either export overinvoicing or import underinvoicing. Excessive normal discrepancies pertain to the situation where the value of imports exceeds that of exports by an amount that is substantially higher than the reasonable value of the costs of transport, insurance and duties. This situation reflects export underinvoicing or import overinvoicing. Trade misinvoicing is due to factors pertaining to the origin or the destination of trade flows or both. It is therefore not possible to assign a priori the respective share of responsibility on the basis of the estimates of trade misinvoicing alone.
Given that the data on the cost of transport, insurance and duties are not readily available for most countries the report follows the tradition of using 10 percent of exports as a proxy for these costs. In the case of South Africa, one of the only two African countries (the other country is Zimbabwe) that publish imports in f.o.b. and c.i.f. values, the average ratio of the two series over the 1980-2014 period, is 11 percent. Obviously this ratio is likely to vary across countries and products. Therefore if the estimates of trade misinvoicing are low, it may be argued that the discrepancies reflect the gap between the proxy and true value of c.i.f. But when the scale of the estimated trade misinvoicing is substantially large as is the case in the sample of countries and products considered in this report, such an explanation is not plausible.
A number of comments on the first version of the report have centered on the issue of quality of bilateral trade statistics. In addition to potential problems relating to measurement of the costs of transport, insurance and duties mentioned above, comments have also been raised about the timing of the recording of imports and exports, classification of goods, and the reporting of the destination of trade. It may be argued that the observed perverse or excessive normal discrepancies could be due to discrepancies between the data in official national statistics and the data in the databases compiled by international institutions such as COMTRADE. Such discrepancies are likely to be minimal given that these international institutions receive the data from national sources.
It has been argued that excessive normal and perverse discrepancies may arise from inconsistent classification of products across partners and over time. The case of gold exports from South Africa has been referred to as an illustration of this phenomenon. In national statistics, gold exports are split between monetary and non-monetary gold. The analysis in the UNCTAD report focused on non-monetary gold which is reported by both South Africa and its trading partners in Comtrade, thus enabling comparison of similar products as reported on both sides. Contrary to some criticisms of the first version of the report, the series of non-monetary gold exports reported in Comtrade are similar to those in national statistics, as expected, at least up to 2010. This is shown in Table 12 of the revised report using data from South Africa’s Department of Trade and Industry (DTI). However, the values reported show large discrepancies between data from South Africa and its trading partners, which may reflect inconsistencies in classification of gold. A comparison of partner data on non-monetary gold exports with the combined values of monetary and non-monetary gold provided by South Africa still exhibits large discrepancies: South African values are higher in most years up to 2010 and the situation is reversed starting from 2011. Curiously, starting from 2011, all gold exports appear under non-monetary gold in DTI statistics. This change in reporting further complicates the comparison of data from South Africa with that of its trading partners.
The interest in the issue of trade misinvoicing is, indeed, driven by the important consequences, both direct and indirect, that such a phenomenon has on national economies, especially those of developing countries. Trade misinvoicing carries direct costs in the form of foreign exchange that is not repatriated and surrendered to exporting countries’ authorities, lost government revenues from the taxes and other levies not paid on the associated exports and imports, or from export tax credit issued on inflated values of exports. An important dimension of the indirect costs of trade misinvoicing is the associated unfair distribution of the gains from trade.
Q&A with Janvier Nkurunziza, Chief of UNCTAD’s Commodity Research and Analysis Section
Q: Why did you feel it was necessary to publish a new version of the report?
A: When the report was published in July 2016, it attracted considerable attention, and many issues were raised and new information surfaced, including from partners and counterparts in South Africa. We felt it was necessary, as far as possible, to consider the issues raised, and therefore publish a new version.
Q: What is different in this report from the last one?
A: Before talking about the differences, I want to say that the key similarity with the first version – not difference – is that after analysis of export and import data on a range of commodities from developing countries, we still find discrepancies worth tens of billions of dollars.
Our paper covered exports of gold, silver, platinum, and iron ore from South Africa, oil from Nigeria, copper from Zambia and Chile, and cocoa from Cote d’Ivoire, over periods of 14 to 20 years.
We reached our conclusions after analyzing statistics from the UN’s COMTRADE data, one of two major sources of global trade data and the only one disaggregated by both partner and commodity. The other data base is the International Monetary Fund’s Direction of Trade Statistics, which is disaggregated by partner only.
One key difference is that in our original draft we identified discrepancies in South Africa’s gold exports of $78.2 billion, equal to 67% of their total gold exports. This result does not change if we use COMTRADE data. However, since July, South Africa has changed both its key export statistics and its methodologies. This means that, if we use the publicly available data published by South Africa’s Department of Trade and Industry (DTI), as some commentators suggest, then we can no longer calculate with certainty the discrepancies in South African gold exports.
A second key difference is that with the first version, we suggested that the core reason for the discrepancies was intent to deceive for tax evasion or other reasons. In the second version, we make it clear that it’s impossible to know with certainty why these discrepancies exist. However, we do maintain that the discrepancies are too large to be caused by simple human error or methodological differences. Finally, this version of the report looks more closely at the role of transit hubs such as Switzerland and the Netherlands.
Q: What are the key findings in this report now?
A: First, as I said, we find significant discrepancies in import-export data, worth tens of billions of dollars. Whatever the reason for these discrepancies, policy makers and civil society alike should see this as a serious problem. The discrepancies mean that billions of dollars cannot be accounted for. At best, the data is not sufficiently transparent. At worst, some of these discrepancies can represent a loss of tax receipts, foreign exchange, and opportunity.
One other finding which caused some surprise is that South Africa’s DTI made two significant revisions to its gold export data in September 2016, after we had published the first version of our report.
First, South Africa’s DTI statistics on total gold exports over the period from 2000 to 2014 changed from about $34 billion to about $62 billion. Second, exports of non-monetary gold for the period 2011 to 2014 were combined with those of monetary gold. This makes it impossible to compute the estimate of trade misinvoicing over those years, which looks only at non-monetary gold.
Q: What can policymakers learn from this report?
A: First, policymakers may wish to recognize that trade misinvoicing is a sizeable issue in commodity-dependent developing countries. These countries and their development partners may wish to establish programmes that detail the magnitude of this phenomenon, how it occurs, and who the actors are.
Second, exporting countries and their trading partners should improve the transparency and quality of trade statistics. The consistent use of information by all trading partners would allow us all to assess whether exporting countries are getting the right amounts for their commodities in terms of foreign exchange and fiscal receipts.
Third, governments and business should work together to ensure that export records match the import records of receiving countries. At present, especially for transit trade, commodities are often recorded as being exported to a country when in reality they are physically exported elsewhere. This creates confusion in bilateral data statistics, hinders efforts towards increasing transparency in international trade statistics, and complicates traceability throughout the supply chain. While we agree that companies are well within their rights to do whatever they like with the commodities that they have bought and that these commodities may be bought and sold several times while still at sea, we think that, technically, it should be straightforward to record clearly the countries which import and export commodities.
UNCTAD sees cause for concern in sluggish trade growth
Unusual trends in international trade statistics, such as the falling value of world trade in goods and services even as the global economy grew in 2015, give cause for concern, said an UNCTAD report released on 22 December.
Last year, 2015, was the first time since 2001 that the value of trade has fallen during a period of economic expansion, according to the report – Key Indicators and Trends in International Trade 2016 – which noted that the volume of trade still grew about 1.5%.
“In other words, while many exporters had to cope with lower prices, they saw no decline in export volumes,” the report said. “Although positive growth is consistent with the overall economic trends, there are still reasons to be concerned.”
To start with, the growth of trade volume has been below the overall growth of the world economy, something that has seldom happened in the last few decades and only during economic downturns as in 2001 and 2009, the report said.
Second, trade volumes have been rather unstable, showing substantial volatility during 2015 across quarters and across countries. Trade volumes have increased for the world as a whole, but for many countries trade volumes have in fact decreased.
“Finally, it is arguable whether the physical growth in international trade can continue in a deflationary economic environment,” the report said. “The concern is that many exporters may not be able to maintain their position in the markets for long when facing reduced financial returns.”
The sharp decline in international trade results from several factors, both nominal and structural.
Falling commodity prices and the appreciating US Dollar contributed most to the nominal fall in world trade, with oil prices going from an average of more than $100 per barrel in 2014 to about $50 per barrel in 2015. The trade weighted US dollar index appreciated by almost 15% between 2014 and 2015.
But deflationary factors can explain only some of the trade collapse in 2015. In fact, falling commodity prices explain only half of the 2015 decline in world trade.
“The sluggish growth of 2012-2014 and the magnitude of the decline in trade of goods and services in 2015 suggest a change in the dynamics behind the international integration process,” the report said.
“Indeed, the most commonly used index to gauge globalization trends – the ratio of the value of world trade over global GDP – indicate a decline in economic interdependence,” it added.
Part of the reason for this is that global value chains are shortening. Many countries, including those in East Asia, are reshoring and consolidating manufacturing production processes.
Better access to G20 markets could boost exports from poorest countries by 15%
The world’s poorest countries are barely engaging in the global economy, but fully liberalising trade for these countries into G20 markets could boost their exports by about 15%.
While least developed countries (LDCs) account for about 12% of the world’s population, their share in global exports stands at about 1%, the Key Indicators and Trends in Trade Policy 2016 report says.
Boosting exports from LDCs could help accelerate economic growth, generate jobs, and provide financial resources for sustainable and inclusive development.
Recognising the importance of trade for LDCs, the sustainable development goals (SDGs) include Target 17.11 to “Increase significantly the exports of developing countries, in particular with a view to doubling the least developing countries’ share of global exports by 2020”.
“We’ve seen some progress in the last decade, but the participation of least developing countries in the global economy remains marginal,” said Guillermo Valles, Director of UNCTAD’s Division on International Trade in goods and services and Commodities.
“To double the LDC share of global exports – and achieve the SDG target – the trick will be not just to fix the issue of tariffs but to do the non-tariff measures too,” he said.
The report finds that LDCs generally trade much less than the size of their economies would suggest. The export-to-GDP ratios of the 48 LDCs are on average about 25%, substantially less than the average for other developing countries of about 35%.
“This indicator has been on a clear downward trend since 2011 and it shows the LDC struggle to integrate into the global economy,” Mr. Valles said.
Generally speaking, G20 countries support LDCs through a range of mechanisms to facilitate trade, such as duty-free and quota-free access. But removing all tariffs could boost LDC exports to G20 countries by about $10 billion per year.
Similarly, reducing the distortionary effects of non-tariff measures (NTMs) could boost LDC exports by about $23 billion per year. But this requires a more complex approach. NTMs such as quality standards serve public policy objectives and cannot be removed without disrupting these objectives.
Therefore, the report says, reducing the distortionary effects of NTMs comes not from removing them, but from helping LDCs to comply.
“Taken together, fully liberalising market access for LDCs and eliminating the negative trade effect of NTMs on LDCs would increase their exports by about 15%,” the report says.
The textile and apparel sectors – as well as some agricultural categories – would benefit most, it says.
From surviving to thriving: How AfDB is helping transform agriculture in Africa – new report
By 2025, Africa aims to feed its fast growing population with its own production. What is more, the world will need Africa’s help to feed an extra two billion people in the coming generation. So making the right investments right now is crucial to unleash the huge potential of Africa’s farms and agribusinesses.
The African Development Bank (AfDB), as one of the leading investors in agriculture in the continent, has been firmly on track on how it has deployed US$5.5 billion in investments in the agriculture sector over five years to 2015, the new Development Effectiveness Review on Agriculture released on 21 December shows.
Here is a brief report card of the AfDB’s topline results: the Bank trained three million people on better farming practices, put 20,000 food marketing and storage into use, constructed four thousand kilometers of feeder roads, offered 150,000 microcredit loans, irrigated and built other water systems on 181,000 hectares of farmland.
“The Development Effectiveness Review is mission accomplished, as the AfDB sets out an even more ambitious agenda in its Feed Africa strategy to end hunger and extreme poverty by 2025,” said Simon Mizrahi, Director of Quality Assurance and Results Department that authored the Development Effectiveness Review on Agriculture.
Making no little plans
The Review details the progress and the pitfalls to date in transforming Africa’s agriculture sector, and lays out what steps must be taken to catapult Africa into becoming a global agricultural powerhouse in the next decade. In recent years, agriculture has zoomed to the top of Africa’s policy agenda, with African countries pledging to eradicate hunger and halve post-harvest losses in under a decade.
It has become increasingly clear that “investing in agriculture is the best way to end hunger, malnutrition, and extreme poverty in Africa,” the development report states. Given that seven out of 10 Africans earn a living from the land, agriculture can create economic growth spread more evenly across society, and extending deeper into rural areas, and helping more women, who make up 70 percent of farmers. The report also pointed out that agriculture can create jobs for the 10 million young Africans entering the labor force every year.
Africa has tremendous scope to grow and develop its farming sector and make it an engine of economic growth, the report highlighted: Africa imports twice the food it exports, and agriculture yields in Africa are only one-quarter those of China. African agriculture makes up a mere five percent of global trade.
At the same time, improving the lot of farmers and farming is crucial to the sustainable growth and development of Africa: eighty percent of the typical household budget is spent on food, while forty percent of food produced spoils after the harvest, due to bad or nonexistent roads or lack of storage.
A more robust agriculture system is also key to ending hunger, the Development report says, since one out of four people lacks regular access to food. What is more, agricultural development must be reoriented to factor in climate change: 65 percent of Africa’s arable land is now degraded, and moisture and fertility losses in African soils are worsening.
Over the last five years, the report detailed how AfDB steered its investments into promoting the continent’s transition to commercial agriculture: building up regional transport corridors to link rural farmers to city centers and ports, providing irrigation and building canals to reduce vulnerability to drought, planting over 64 million trees to boost the land’s hardiness in the face of climate change, and bringing agriculture experts together to collaborate, such as the Alliance for a Green Revolution in Africa, which helps family farms across 18 African countries.
Some of the Bank’s most noteworthy operations cited in the report during the period include the Africa Food Crisis Response Programme, which fast-tracked relief that raised US$1.0 billion and led to better harvests; New Rice for Africa, which boosted the hardiness, nutrition and yields of rice and improved the livelihoods of almost a quarter of a million subsistence farmers, with a large share of the development for women’s groups; and the Congo Basin Forest Partnership, which reduced deforestation and degradation by producing millions of trees and agroforest saplings, involving almost 50,000 people in producing and processing non-timber forest products and creating 46,60 hectares of community forest plantations.
One of the largest contributions of the AfDB in shaping the agriculture agenda was its leading role during the Feeding Africa conference in Dakar in October 2015, helping craft a plan for Africa to transform Africa’s agriculture sector. The plan is designed to ramp up nutrition programs, boost agriculture productivity through research, develop farming corridors and agribusiness industrial zones to get infrastructure support, set up a risk-sharing facility, start raising US$3 billion to finance women farmers, and develop diaspora agriculture bonds based on remittances flows.
Progress report card
The sum total of these efforts showed the AfDB has made good progress on several fronts: 97 percent of the Bank’s agriculture projects were rated satisfactory. In the meantime, project approval times shrank to six months from nine months. Largely as a result of the Bank’s Integrated Safeguards on social and environmental impact and its enhanced focus on gender equality, 89% of projects had a climate-informed design, and 87% factored in gender differences, major improvements on both aspects. The number of projects managed by field offices grew to 70%, a leap from 40%, to meet the demand of member countries to working more closely with the Bank.
Now the AfDB is gearing up to deliver more under its new strategy through 2025 by investing US$24 billion, and boosting overall investment through equity, debt, risk and other financial means.
AfDB’s new Feed Africa strategy is one of its High Five priorities, which aims to end poverty, hunger, and malnutrition by 2025 and make the continent a net food exporter. The Bank will achieve this by focusing on certain foods and growing zones, from wheat in North Africa to fish farming everywhere, and making Africa’s food value chains world-class by building markets, setting up commodity exchanges and linking farmers and buyers, among other means. Feed Africa will support agribusiness and innovation, climate-smart agriculture and build roads, energy, and water infrastructure.
2016 Development Effectiveness Review on Agriculture
Agriculture is at the heart of Africa’s development: 7 in every 10 Africans rely on agriculture for their livelihoods. While Africa has enjoyed impressive growth rates for over a decade, this growth has barely touched the millions living on the land. Africa has yet to experience the agricultural miracle that has transformed other developing regions.
Yet Africa has vast agricultural potential, and most of the technologies required to boost yields are already at hand. With the right policies and investments, African agriculture could readily become an engine for inclusive growth across the continent.
The African Development Bank’s (AfDB) work in agriculture has delivered a wide range of benefits to farmers: better seeds, irrigation and sustainable technologies, and greater access to finance and to markets. Bank projects have increased yields, production levels and incomes for farmers, resulting in more dynamic local economies. We recognise, however, that much more needs to be done.
Total investment in African agriculture is still well short of the levels required to deliver fundamental change and prosperity. Africa’s rapid rates of population growth and urbanization are creating vast unmet demands for food and agricultural products. The continent needs a major injection of both public and private finance into all stages of the agricultural value chain, using finance in smarter ways to create dynamic enterprises throughout the sector and markets. This must include both small- and large-scale agribusinesses, to ensure that agricultural development generates inclusive growth.
This is the right time for a big and sustained push on agriculture. That’s why the Bank has made the transformation of this sector, one of its five top priorities (the “High5s”), along with light up and power Africa, industrialize Africa, integrate Africa and improve the quality of life of the people of Africa.
For our part, working with African governments, other development partners and the private sector, the Bank has refocused its assistance on transforming agriculture and agribusiness by 2025. We are working to create better returns to farmers and agribusinesses, including more opportunities for women and young people, while promoting improved food security and nutrition across the continent.
Sustainable energy financing key to bright future for Africa’s poorest countries
Access to finance is vital for Africa’s poorest countries to develop sustainable energy initiatives and build renewable power capacity, which would contribute to ending poverty, empowering women and building resilience. At a two-day meeting of sustainable energy experts, which opened in Dar es Salaam, Tanzania on 5 December 2016, participants highlighted the need to scale up and speed up support to sustainable energy in Africa’s least developed countries.
Reliable and affordable access to energy has the potential to transform the daily lives of those living in the world’s poorest countries and is essential for education and health, private sector development, productive capacity building and expansion of trade.
“Two thirds of those living in Africa’s least developed countries do not have access to electricity yet the majority of African least developed countries are endowed with vast reserves of renewable energy resources. These opportunities, together with new technologies, offer many solutions for gaining energy access,” said Gyan Chandra Acharya, Under-Secretary-General and High-Representative for Least Developed Countries, Landlocked Developing Countries and Small Island Developing States. “I hope that this event will inspire new ideas on accelerating reliable access to energy and mobilizing finance bringing swift benefits to Africa’s poorest communities.”
Over the next two days government representatives from African least developed countries, development partners, the United Nations, private sector and civil society focused on practical, workable solutions in areas including access to finance for energy initiatives, energy investment and business plans, benefitting from global energy initiatives, project preparation skills to attract investment and partnerships for sustainable energy. Discussions from the event will feed into the global follow-up process following international commitments made in 2015, including those of the 2030 Agenda and the Addis Ababa Action Agenda and the Paris Agreement on Climate Change.
The event, co-organised by UN-OHRLLS and the Government of Tanzania, with support from UNDP Tanzania, considered many of the main constraints to accessing finance for expanding modern energy. These include lack of scale, lack of substantial local investment, institutional capacity constraints, poor or non-existent credit ratings, as well as low project preparation capacities and skills to deploy financing models that encourage blended finance to attract more funds, private and public, domestic and international. National Energy investment plans were also highlighted as playing a critical role in paving the way forward. Grid, mini-grid and off-grid solutions will also be reflected in the discussions as each country’s transition to a sustainable energy involves a unique mix of resource opportunities and challenges.
“Sustainable energy is central to economic growth, social progress, and environmental sustainability, as recognized in the new 2030 Agenda for Sustainable Development, which includes a standalone goal on energy (SDG7) to ‘ensure access to affordable, reliable, and sustainable modern energy for all’,” says Mr. Alvaro Rodriguez, UN Resident Coordinator and UNDP Representative.
“Over the past two decades, UNDP has mobilized around a total of US$ 2 billion in grant financing and for sustainable energy projects in more than 110 countries and territories worldwide. Unleashing climate finance for sustainable energy is critical to achievement of the Paris Agreement and the SDGs. UNDP supports developing countries and its partners through a market transformation approach.”
There are 48 least developed countries, 32 of which are in Africa. Least Developed Countries are at the bottom of the development ladder, with very low human development, low income and economic growth and high degree of vulnerability. As such they remain at the centre of global development challenges. Reliable access to sustainable energy stands to strengthen multiple elements outlined in the Sustainable Development Goals in areas including climate action, health, education, water and food security and women’s empowerment.