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A single African air transport market critical to agenda 2063
The Chairperson of the AU Commission, H.E. Dr. Nkosazana Dlamini Zuma met a delegation of the African Airlines Association (AFRAA) to discuss the importance of the aviation sector in the socioeconomic transformation of the continent.
During the meeting, Dr. Dlamini Zuma said: “Connecting Africa through aviation and other transport infrastructure is critical to integration, intra-Africa trade, as well as to tourism, economic growth and development more generally. The sector is also an important creator of jobs and critical skills on the continent. The aviation sector is strategic for the implementation of Agenda 2063.”
In the engagement with the Chief Executives, they noted that discussions on African open skies have been on-going for the last two decades, culminating in the adoption of the Yamassoukro Decision by African Heads of State and Government in 2000.
Over the last decade, with sustained economic growth on the continent, a growing middle class and more tourists and businesses coming to Africa, the delays have been at Africa’s peril, with loss of market share by African airlines, from 60% in the early 90s to under 20% at present.
The meeting considered what needs to be done to remove the blockages towards the full implementation of the Yamoussoukro Decision on the Liberalisation of Air Transport Markets in Africa and to move towards the creation of a single African aviation market.
AFRAA Secretary General, Dr. Elija Chingosho highlighted the importance of the liberalisation of the continent’s air market to be accessible by all citizens. He said, “air transport should be affordable for everyone, not just be monopolized for the rich and the wealthy. As a continent we are subsidizing the industry for international carriers.”
Dr. Chingosho appreciated the timeliness and pertinence of convening the meeting at a time when African aviation occupies 20% of market share in Africa.
As an immediate follow up, the AU Commission’s Department of Infrastructure and Energy will convene a meeting of African aviation experts to be held at the end of October 2014 in Nairobi, Kenya. They will iron out the technical issues that will facilitate the full implementation of the Yamoussoukro Decision, to move towards the single African aviation market, and come up with recommendations for Member states.
The AU Commission will continue to engage with all stakeholders in the aviation sector to accelerate the full implementation of the Yamoussoukro Decision.
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South Africa ducks Agoa exclusion, for now
As concerns mount of South Africa’s dominance with the trade pact.
South Africa can breathe a sigh of relief for now, as indications are clear that the African Growth and Opportunity Act (Agoa) might be renewed.
But South Africa’s inclusion into the trade pact is raising questions about the country’s dominance in relation to other African counters.
Introduced in 2000 by US Congress, Agoa provides South Africa and other African countries with duty-free access through exports to the US market. And South Africa’s agreement with the US expires in 2015.
Patrick Gaspard, US Ambassador to South Africa, said at the Nedbank and NEPAD business foundation on Tuesday that the world’s number one economy is behind Africa’s growth potential and Agoa’s renewal.
“When President [Barack] Obama was here last year [2013] he made it clear that he and the secretary state support the renewal of Agoa, as quickly as we can possibly get it under board and certainly for South Africa as well as companies here [in South Africa] to [bring] a level of playing field,” Gaspard said.
It has been reported that law makers in the US want South Africa removed from Agoa due to the country’s economic clout in the continent and benefitting most from the trade agreement.
“There isn’t any country which has taken better advantage of Agoa than South Africa has. In last year alone over $2 billion (R22.3 billion) of duty free goods moved to US markets through Agoa,” Gaspard explained.
Scott Eisner, Vice president of African Affairs and International Operations for the US Chamber of Commerce in Washington D.C, said US exports under Agoa have risen from $6 billion (R67 billion) to $24 billion (R268 billion) over the past 14 years.
“The chamber is an ardent supporter of Agoa, the relationship is important as a trade vehicle for two-way trade [and] we hope to see it quickly authorised soon.”
South Africa’s automotive industry has benefited through Agoa, specifically the manufacturing and automotive industries in Port Elizabeth, Gaspard noted. “Sixty thousand luxury auto mobiles have been exported to the US through Agoa in 2013,” he added.
“The reason why companies such as Mercedes Benz are in South Africa is because of Agoa. Many industries beyond manufacturing and automotive have told us that Agoa is critical to their ability to remain here [South Africa] to create a vibrant economy,” he said.
Gaspard said Obama has made it clear that he wants to expand trade on the continent.
“Africa is a continent that is poised for sustainable growth well into the century. Our [US] motivation is not philanthropic, we are motivated here because we see the benefits for emerging corporations.”
Agoa discussions follow the visit by President Jacob Zuma and Minister of Trade and Industry Rob Davies to the US in August for the US-Africa Leaders’ Summit, where trade relations were discussed.
At the summit Zuma lobbied for the Obama administration to renew South Africa’s inclusion into Agoa, but media reports have also suggested that the US might lean towards a general renewal in future and leave South Africa out in the cold.
Still the gateway to Africa
South Africa is still the gateway to the continent for US-based investors. Gaspard said South Africa continues to offer the best mix of development, financial stability and openness to investments in the sub-Saharan region.
Eisner said the business community are recognising that there are more opportunities outside of the country. “We see it [South Africa] as an important economic destination, but not the only economic destination. Companies are looking at Morocco and Kenya where the manufacturing industry will compete with South Africa,” he said.
Issues such as nationalisation of mines and visa regulations, which have been described to be hostile towards foreigners, as well as corruption are impeding factors to foreign direct investment, which added to investor uncertainty, Eisner noted.
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Moves to reindustrialise SA’s economy
It’s been named among South Africa’s top 10 investment opportunities. The Dube TradePort in Durban is now officially an Industrial Development Zone (IDZ), joining three other similar economic zones spread out across the country.
President Jacob Zuma on Tuesday handed over an IDZ operator licence to the Dube TradePort Corporation signalling a new beginning for the precinct which has already attracted investments worth nearly R1billion since it was opened in 2012.
“Our presence here today is another step forward in our work towards creating more jobs that would alleviate poverty amongst our people,” President Zuma said at the ceremony held at King Shaka International Airport.
The Dube TradePort IDZ is the latest in the nationwide rollout of special economic zones aimed at growing the country’s economy to meet the target of five percent growth by 2019.
As the first IDZ for Durban, the Dube TradePort IDZ joins a list of other similar projects which have attracted a combined Investment of over R5 billion in Port Elizabeth, East London and Richards Bay. According to Trade and Industry Director General Lionel October more special economic zones will be rolled out across the country as government intensifies its approach to industrialise South Africa’s economy as demanded by the National Development Plan (NDP).
Special economic zones
October says government has identified IDZs as the most effective way to grow the South African economy. The special economic zones are also crucial in the job creating drive which remains high on government’s agenda.
“We are suffering with slow growth and we are going to reindustrialise this country. We need to fast-track economic development and the special economic zones are the way of fast racking development but also to decentralise development,” he told SAnews.
“Naturally investors want to relocate towards the big centres of the economy like Johannesburg because it’s closer to the market. Through these IDZs we want to attract investors to the new areas like the Dube TradePort, Coega, Richards Bay and the East London IDZ,” said October.
This is a sentiment shared by Trade and Industry Minister Rob Davies who said the concept of special economic zones has been shown in South Africa and in many other parts of the world to have been useful tools to promote industrial development and diversification of the economy.
“These are the industries that are largely supporting our export markets and are located in ports and around airports. In the life of the last administration we looked critically in what we can achieve from the special economic zones programme. I can say today that the three active IDZs (Coega, East London and Richards Bay) have now attracted investment worth five billion in total so the strategy is working,” Minister Davies said.
He said government was in the process of setting up a Special Economic Zones Board which will advise the minister on the implementation and proclamation of special economic zones.
Tax incentives
Minister Davies said what makes the IDZs unique is that they offer a variety of incentives for investors, including a 15 percent corporate tax rate, employment tax as well as duty free on imported equipment.
Situated at the heart of King Shaka International Airport, the Dube TradePort IDZ is set to transform Kwazulu-Natal into both a key business gateway and a noteworthy player in the global supply chain of goods. Two investment areas will be crucial in the success of the IDZ and they are the Dube TradeZone, and the Dube AgriZone.
The main sectors that have been identified include electronics manufacturing and assembly, aerospace and aviation-linked manufacturing, agriculture and agro processing, medical and pharmaceutical production as well as clothing and textiles.
President Zuma said the Dube TradePort is expected to create more than 150 000 jobs by 2060 the same year the development is envisaged to contribute R5.6 billion to the country’s GDP.
“The Dube TradePort is yet another good story to tell. We are determined to create an environment that is investor friendly. We will continue to improve support measures both through the special economic zones and other development tool,” President Zuma said.
He said the people of KwaZulu-Natal will judge the success of the new development by the manner in which it changes their lives through job creation.
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More growth, more jobs are main objectives of meetings – Lagarde
The IMF-World Bank Annual Meetings starting this week in Washington will discuss how to break through prolonged low growth and generate more growth and more jobs, IMF Managing Director Christine Lagarde said.
Addressing a news conference October 9 at the start of the Meetings, Lagarde noted that the IMF’s World Economic Outlook had trimmed its growth forecasts for the global economy.
“In the face of what we have called the risk of a new mediocre, where growth is low and uneven, we believe that there has to be a new momentum and that is what we will be discussing with the membership in the coming days.
“This new momentum – with, hopefully more growth, more jobs, better growth, better jobs – is certainly something we would call on the membership to produce,” Lagarde declared.
She said the IMF has noted growing country specificity in its analysis, where within each group of economies some countries are progressing and others are lagging behind. She said the IMF recommends action in three particular areas.
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Monetary policy where, particularly in the euro zone and Japan, more accommodative monetary policy is needed going forward to support the economy. At the same time the U.S. Federal Reserve is probably going to normalize its monetary policy and the IMF would urge emerging market and low-income and developing countries to prepare for heightened volatility.
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Fiscal policy, where more growth-friendly measures can be put in place as outlined in the IMF’s latest Fiscal Monitor that called attention to fiscal policies adjusted to support job market reforms. In addition, financial policies should be aimed at reducing excesses to make the financial system sounder, and strengthen its ability to help the recovery – as set out in the IMF’s latest Global Financial Stability Report.
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Increased investment in infrastructure can effectively support growth in the short term, by putting people to work through major construction projects or maintenance jobs. Infrastructure investment can also impact the supply side in the medium term by facilitating and accelerating the creation of value.
Responses to Ebola
Lagarde said the IMF was in a position to respond to challenges the world is facing, noting that she had met earlier with country representatives and officials coordinating responses to the Ebola outbreak in West Africa.
“It’s absolutely fine if those countries increase their fiscal deficit,” she stated, adding this was an indication of how the IMF mobilizes resources and revisits traditional standards. Last month the IMF provided a total of $130 million of emergency financial assistance to Guinea, Liberia, and Sierra Leone, the three West African countries at the center of the Ebola epidemic.
Lagarde noted that many low-income and developing countries are posting impressive growth rates. Such thriving economies make the Ebola epidemic even more threatening, she observed, because its effects might jeopardize economic recovery and waste hard-won gains.
Global Policy Agenda
Lagarde highlighted the IMF’s Global Policy Agenda, which will be discussed (see box) with the IMF’s policy-setting body, the International Monetary and Financial Committee during the Annual Meetings. She said the Agenda outlined the strategic direction of the IMF’s work over the next 12 months.
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Aim higher, try harder
Aiming higher and trying harder to lift growth and build resilience is the collective goal targeted by the Global Policy Agenda that will be presented to senior officials by IMF Chief Christine Lagarde at the 2014 Annual Meetings.
The Global Policy Agenda, which will be discussed with the IMF’s policy-setting body – the International Monetary and Financial Committee – at its meeting on October 11, outlines policy priorities for the IMF’s 188 members and what the Fund can do to assist. It also offers a progress report on goals discussed by the membership and the Fund at the 2014 Spring Meetings in Washington.
The report says the IMF’s latest snapshot of the global economy looks uneasily familiar: a brittle, uneven recovery, with slower-than-expected growth and increasing downside risks. Bold and resolutely executed policies are needed to lift growth, build resilience, and achieve coherence.
Download the Global Policy Agenda below.
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Responding to questions, Lagarde noted that measures have been taken by the European Central Bank to address the risks inherent in persistent low inflation, and added the IMF hopes more will be done in this area. The IMF has also pointed to the potential risk of recession in the euro area, “but if the right policies are decided and if both surplus and deficit countries do what has to be done, it is avoidable.”
Pointing to significant IMF engagement with Arab countries, Lagarde noted that much had been achieved in areas such as reducing subsidies and raising the efficiency of public finance in health and education and in providing safety nets for the poor. The IMF would continue to be involved, but the region needs the attention and the financial support of the international community, Lagarde stressed.
Lagarde said approval of the IMF’s 2010 quota and governance reforms “is an absolute must. It has to be implemented, and everybody knows that it is currently stuck before the U.S. Congress.” She said she hoped that the U.S. authorities would understand the importance of having an IMF that is representative of the global economy.
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Ninth African Development Forum: Innovative Financing for Africa’s Transformation
The Ninth African Development Forum will be held in Marrakech, Morocco, from 12 to 16 October 2014 on the theme “Innovative financing for Africa’s transformation”. The Forum will offer a platform for prominent African stakeholders to share key information and participate in more focused and in-depth discussions on issues relating to innovative financing mechanisms in the following four thematic areas:
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Domestic resource mobilization
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Illicit financial flows
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Private equity
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New forms of partnership
The Forum seeks to enhance Africa’s capacity to explore innovative financing mechanisms as real alternatives for financing transformative development in Africa. It will aim to forge linkages between, on the one hand, the importance of mainstreaming resource mobilization and the reduction of trade barriers into economic, institutional and policy frameworks, and on the other, advancing the post-2015 development goals.
The Forum will build on best practices, innovative policies and strategies, and institutional and governance frameworks. It will also aim to be guided by evidence-based knowledge and information on the range of options and their scope for leveraging opportunities for financing Africa’s sustainable development.
The Forum is a flagship biennial event of the Economic Commission for Africa, and offers a multi-stakeholder platform for debating, discussing and initiating concrete strategies for Africa’s development. The Forum is convened in collaboration with the African Union Commission, the African Development Bank and other key partners with a view to establishing an African-driven development agenda that reflects consensus and leads to specific programmes for implementation.
The Forum is expected to attract some 700 participants from all walks of life: eminent persons, heads of State and Government, African member States, regional economic communities, the private sector, academia, the science and technology community, civil society organizations, the African diaspora, United Nations partners, bilateral organizations and partners, international and regional financial institutions, and South-South cooperation organizations.
Click here to download the Concept Note.
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Namibian Retail Charter to be implemented by 2015
An agency of the Ministry of Trade and Industry, the Namibia Trade Forum (NTF), that aims to chart out the formation of Task Teams, their terms of references, as well as the guidelines for the development of the Namibian Retail Charter (NRC), says it aims to implement the Charter by the third quarter of 2015. This is as efforts are intensifying in what is widely regarded as an essential step to transform Namibia’s retail sector.
“We are currently in the development phase of the project. Preliminary consultations with relevant stakeholders in the retail sector (and affiliated sectors) commenced in July 2013 and have now been concluded. We are set to enter the negotiation phase as from October 20, 2014, and implement the Namibian Retail Charter (NRC) by the 3rd quarter of 2015”, said Lapitomhinda Hashingola, Communications and Liaison Officer of the NTF. According to Hashingola, the preceding consultative meetings aimed to ensure broad sector participation and input and to reach consensus on the development of the NRC.
During a consultative meeting during June 2014, stakeholders endorsed the formation of three Task Teams (working groups) based on the goods classifications of Fast Moving Consumer Goods (Non-durables), Clothing and Apparels (Semi-durables) and Building material/Hardware (Durables). These Task Teams commenced their work on September 24, 2014, by holding their opening meetings during which Chairpersons were elected and the Terms of References refined and adopted.
Hashingola explained that the NRC is in line with the Ministry of Trade and Industry’s “Growth at Home Strategy”, which strives to transform the national economy. This strategy is guided by Namibia’s 4th National Development Plan (NDP4) as well as Vision 2030. “Once negotiated and adopted, the Namibian Retail Charter will be a transformation charter with binding targets. It lays out the principles upon which the transformation will be implemented in the Namibian retail sector. The Namibian Retail Charter thus entails aspects such as sourcing from Namibian manufacturers, increased awareness and demand for local goods, training and mentoring of previously disadvantaged Namibians, support programmes for local SMEs, opportunities for local ownership and control, no worse treatment of Namibian suppliers with regards to procurement procedures, terms of credits, and payment/rebate provisions. The Charter also looks at aspects such as consumer protection standards as well as social, economic and environmental responsibility”, remarked Hashingola.
He added that the NRC will stimulate local manufacturing, facilitate meaningful job creation, reduce unemployment, and will lead to changes in people’s cultured tastes, needs and their consumption patterns.
“What it really says is it that we need to advance our industrialisation agenda and aim for greater economic self-sufficiency. Evidently, we need the active participation of the relevant retailers. We can’t do it alone. We say: ‘retailers who support our developmental objectives are fine; and of these we have plenty of good examples. Those who don’t, are expected to come on board and cooperate’”, warned Hashingola.
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Suspension of EEG stifling non-oil export growth
Nigeria’s quest for economic diversification may be imperilled by the continuing suspension of the Export Expansion Grant (EEG), with current backlog of Negotiable Duty Customs Certificate (NDCC) put at over N117 billion, stakeholders say.
The implication is that currently, the certificates which serve as means of payment have not been claimed by non-oil exporters, thus frustrating many of them who took loans from banks to do export, with the hope of getting the grants, according to the Manufacturers Association of Nigeria Export Group (MANEG).
“The uncertainty in the scheme is really affecting the performance of non-oil exports in the country. With the ongoing non-acceptance of the NDCC, manufacturing exporters are incurring high cost on duties payment that the NDCC is meant to cover for their raw materials. And to a large extent, this is impacting on non-oil exports negatively,” said Tunde Oyelola, chairman, MANEG.
“The potential of the EEG’s contribution to export growth is very huge and government must exercise caution with the ongoing suspension of the scheme and the outcome of the policy reversal may ultimately become a disincentive for current and potential exporters, as well as discourage those already in the scheme,” he said.
The EEG was established in 2005 to promote the growth of Nigeria’s non-oil exports and diversify the economy away from oil. The scheme operated by the use of the NDCCs, which served as cheques for non-oil exporters who wished to benefit from the grant.
The essence of the grant was to reduce production, distribution and logistics costs for non-oil exporters so as to enable them compete effectively in the international market. The understanding of the initiators of the scheme was that allowing non-oil exporters to bear the brunt of the costs would make their products uncompetitive in the international market, as goods from other countries, where governments provide different grants, would sell cheaper than those exported from Nigeria.
Incidentally, between 2005 and 2013, the scheme, which was managed by the Nigeria Customs Service (NCS), was suspended eight times. The final lap of the suspension was done in August 2013, when the NCS stopped honouring NDCCs from non-oil exporters. Research has shown that after the introduction of the EEG scheme, Nigerian non-oil exports grew from $600 million to $2 billion between 2006 and 2012. There was also remarkable increase in value chain expansion in terms of processing/manufacturing capacities, leading to new investments and job creation.
Checks have also shown that there has been a huge leap in production levels of commodities like sesame seed, cocoa and rubber, on the back of increased demand from exporters whose competitiveness was boosted by this scheme.
Nigeria’s non-oil exports reached $2.97 billion by the end of 2013, from $2.56 billion recorded in 2012, representing a 16 percent increase.
But stakeholders are worried by the fact that leaving the entire cost to non-oil exporters could jeopardise the steady progress recorded in this area, while also putting the country’s quest to diversify the economy in peril.
Joseph Idiong, director-general/chief executive officer, Association of Nigerian Exporters, said the EEG implemented in various countries had export subsidies designed to promote and grow the country’s exports and not to discourage the inflow of direct investment and exporters.
Ngozi Okonjo-Iweala, co-ordinating minister for the economy, had announced that the scheme was under review, as the previous regime was unsustainable. But many exporters’ funds are trapped as they borrowed funds from financial institutions for export before the EEG was suspended. This makes it difficult for many of them to repay their loans.
“This is why we need convertible government certificates or short tenure certificates. Does it mean this cannot be put in the constitution? If you say 30 percent is not sustainable, why not pay 15 percent, rather than suspend it every six months?” said a manufacturing exporter, who pleaded anonymity.
Alfred Uwheraka of Frijay Consult, an export firm, said the long and short of it was that exporters needed grants to lessen the difficulty in carrying out non-oil exports, as many of them would meet competitors in other markets whose products were cheaper, better packaged and consequently more competitive.
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World Bank Group launches new Global Infrastructure Facility
Move paves way for institutional investors to help fill infrastructure gaps in developing world: US$1 trillion a year in extra investment needed through 2020.
The heads of some of the world’s largest asset management and private equity firms, pension and insurance funds, and commercial banks are today joining multilateral development institutions and donor nations to work as partners in a new Global Infrastructure Facility (GIF) that has the potential to unlock billions of dollars for infrastructure in the developing world.
World Bank Group President Jim Yong Kim said the presence of a broad range of institutional investors at the signing to launch the GIF sent a powerful message, with the most recent data showing that private infrastructure investment in emerging markets and developing economies dropped from US$186 billion in 2012 to $150 billion last year.
“We have several trillions of dollars in assets represented today looking for long-term, sustainable and stable investments,” said Kim. “In leveraging those resources, our partnership offers great promise for tackling the massive infrastructure deficit in developing economies and emerging markets, which is one of the fundamental bottlenecks to reducing poverty and boosting shared prosperity.”
“The real challenge is not a matter of money but a lack of bankable projects – a sufficient supply of commercially viable and sustainable infrastructure investments.”
Developing countries now spend about US$1 trillion a year on infrastructure, but maintaining current growth rates and meeting future demands would require investment of at least an estimated additional US$1 trillion a year through to 2020.
Kim said the GIF was being designed to tap into expertise from within and outside of the Bank Group to deliver complex public-private infrastructure projects that no single institution could address on its own.
“The GIF is also being created to complement existing project preparation facilities in partner institutions across the globe. The multilateral development banks here represent that commitment to work together on behalf of our shared client countries, to bring together our resources, experience and our financing instruments.”
Australian Treasurer and Chair of the G20 Finance Track Joe Hockey welcomed the launch of the GIF saying it complemented the work the G20 is doing to boost infrastructure investment.
"We all recognise that investment in emerging markets and developing economies will expand access to basic services and raise living standards. It also helps to underpin economic growth. The G20 looks forward to working closely with the World Bank Group and other multilateral development banks on such vital initiatives,” he said.
The President of the European Investment Bank, Werner Hoyer, commented: "We welcome the proposed collaboration of the Multilateral Development Banks and the private sector and capital market institutions on GIF as it will increase the resources available to prepare major infrastructure projects. It will also strengthen market investment in key infrastructure sectors and countries where such resources are lacking. What we need are viable, bankable and innovative projects which provide added value for investment and modernising the economy.”
“We know that simply increasing the amount invested in infrastructure may not deliver on the potential to foster strong, sustainable and balanced growth. A focus on the quality of infrastructure is vital,” said World Bank Group Managing Director and CFO, Bertrand Badre.
He said the GIF would begin operations later this year in a pilot phase to “road test” new models to deliver complex public-private infrastructure in low and middle income countries. The key focus would be on climate friendly investments as well as ventures to bolster trade.
Work has already started on a pipeline selection process and the GIF is talking to partners and beneficiary countries about several projects with the potential to transform developing economies, boost job creation, and improve the lives of poor people.
President Kim, along with Australian Treasurer, Joe Hockey and President of the EIB, Werner Hoyer, will be signing up to the GIF at a ceremony later on Thursday. Below are other partners, as well as prospective partners, signing up to the GIF at the ceremony:
Aldwych Holdings Limited
Amundi Asset Management
Asian Development Bank (ADB)
Government of Australia
AXA SA
BLACKROCK Financial Management Inc
Caisse de Depot et Placement du Quebec (la Caisse)
Government of Canada
Citibank, N.A.
DBS Bank Ltd.
Endeavor Energy Holdings LLC
European Bank for Reconstruction and Development (EBRD)
European Investment Bank (EIB)
HSBC Bank Plc.
Institute of International Finance (IIF)
Islamic Development Bank (ISDB)
Government of Japan
Japan Bank for International Cooperation (JBIC)
Macquarie Group, Ltd
Nigeria Sovereign Investment Authority (NSIA)
Government of Singapore
Standard Bank
Standard Chartered Bank
Swiss Re Ltd
World Pension Council
World Bank Group
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Integrated Paper on Recent Economic Developments in SADC
Prepared for the Committee of Central Bank Governors in SADC
by
Central Bank of Lesotho
August 2014
The Southern African Development Community (SADC) has sequenced a number of activities in order to move toward economic integration in the sub-region. SADC launched a Free Trade Area (FTA) in August 2008. According to the SADC Regional Indicative Strategic Development Plan (RISDP), once the FTA is attained, Customs Union will follow in 2010, thereafter in 2015 a Common Market will be formed. In 2016 a monetary union will be formed and a single currency will be introduced in 2018. In order to prepare for the various degrees of economic integration set out in the RISDP, the SADC has set itself primary and secondary macroeconomic convergence benchmarks/targets. These benchmarks are used to assess macroeconomic convergence at SADC level.
This is the eleventh edition of the Integrated Paper on Recent Economic Developments in the SADC. The paper provides background information on recent economic developments within SADC and globally. Furthermore, it evaluates the region´s performance towards attainment of the macroeconomic convergence targets, as provided for in the RISDP during 2012.
The paper reviews the recent economic developments in the SADC in 2013 and assesses the region’s progress towards the attainment of macroeconomic convergence targets. During the period under review, global economic growth still remains weak, although there are indications of slow recovery. Growth in world output weakened from 3.2 per cent registered in 2012 to 3.0 per cent in 2013, due to among other factors, tightening capacity constraints, falling commodity prices and slowing credit after a period of financial deepening. Inflationary pressures have remained subdued in 2013. Declines in the prices of commodities, especially fuels and food, have been a common force behind decreases in headline inflation across the globe.
In response to subdued global economic developments, economic growth in the SADC region expanded by 4.7 per cent in 2013 compared to 5.0 per cent recorded in 2012. Most of the SADC countries are export-led, implying that reduction in global demand and trade, had adverse impact on economic performance in the region. Most SADC countries registered real economic growth rates of below convergence target of 7 per cent.
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Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development: Communiqué
1. We, the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development, held our ninety-second meeting in Washington, D.C. on October 9, 2014 with Naglaa El-Ehwany, Minister of International Cooperation of Egypt in the Chair; Alain Bifani, Director General of the Ministry of Finance of Lebanon as First Vice-Chair; and Mauricio Cárdenas, Minister of Finance of Colombia as Second Vice-Chair.
Global Economy and Implications for Developing Countries
2. Although the global economic recovery continues to be tepid and uneven, emerging market and developing country (EMDC) fundamentals are generally strong and EMDCs are expected to continue to account for the bulk of global growth in the medium term. Growth in low-income countries (LICs) has also been robust, supported by better macroeconomic policies and structural reforms. Notwithstanding these generally strong fundamentals, global economic headwinds arising from the slower than expected growth in the euro area and Japan, and in some EMDCs, have affected global growth. Global growth forecasts have been revised downward for the remainder of 2014 and for 2015, and important downside risks have risen with potentially large spillovers on EMDCs. These include risks from disruptive capital flows and exchange rate volatility associated with the exit from unconventional monetary policy in major advanced economies (AEs), rising geopolitical tensions, and risks from a sharp correction in financial markets.
3. Against this backdrop, we urge policymakers in AEs, especially those that issue reserve currencies, to give due attention to the risks and impact of spillovers on EMDCs and to undertake effective coordination and communication of their policies. We also stress the need to ensure that EMDCs have adequate access to flexible financial backstops, including from the international financial institutions (IFIs). We welcome the establishment of the BRICS’ Contingent Reserve Arrangement, which adds to existing safety nets, such as the Chiang Mai Initiative Multilateralization and the Latin American Reserve Fund. We welcome the continued role that the Fund is playing in multilateral surveillance and global policy coordination.
4. Despite a prolonged period of very low interest rates in AEs, robust recovery has not materialized, which emphasizes the importance of deeper structural reforms and more supportive fiscal policy, including through infrastructure investment. In order to ensure that our own countries are on a robust long-term growth path, we will continue to pursue measures to increase investment in infrastructure and raise productivity, create jobs and accelerate structural transformation, recognizing that this will involve policy challenges that will vary across countries.
5. We underscore the importance of reducing inequality and social exclusion in both AEs and EMDCs, and welcome the increased focus by the World Bank Group (WBG) and the incorporation of these issues in the work of the IMF. We are committed to a broad range of actions to support more inclusive growth and create more and better quality jobs, including investing in skills, education and health, facilitating labor mobility and improving social safety nets. We also support further work by the WBG on mainstreaming policies to address climate change and gender equality.
6. We are deeply concerned about the Ebola outbreak in West Africa and its impact on the affected countries. We welcome the work underway by the U.N., WBG, IMF and African Development Bank, among others, and call for swift, intensified international action and timely delivery of assistance to eradicate the epidemic and mitigate its human and economic costs.
7. We note the enhanced efforts by the IMF and the WBG in providing financial, technical and analytical support to Arab countries in transition as they deal with political and socio-economic challenges, and continue to call for increased resources and flexibility from international financial institutions (IFIs). The IMF and the WBG should also support countries' efforts to leverage additional resources outside the region, such as Tunisia’s recent global conference and Egypt's upcoming 2015 Economic Summit that will be geared toward attracting investments globally. We reiterate our call for increased support and resources to countries facing a disproportionate impact from the influx of Syrian refugees, particularly Lebanon.
8. We are concerned by the challenges facing small developing states, particularly those that are vulnerable. We also remain concerned about the continued difficulties faced by countries in fragile and conflict-affected situations and those facing health crises. We urge the WBG and IMF to continue to provide effective support to these countries. We look forward to the completion of the new guidelines for IMF engagement with countries in fragile situations and welcome the creation of a working group of IMF Executive Directors to promote joint action on policy and country items affecting these countries.
9. Recent developments have highlighted the importance of more effective mechanisms for resolving sovereign debt crises. We are concerned about the systemic impact of the decision in the NML Capital, Ltd. vs. Argentina case in the U.S. courts, specifically on incentives for holdout behavior that undermine the basic architecture for sovereign lending and debt resolution. We note the initiation of discussions with the recent United Nations General Assembly resolution to establish an effective multilateral framework for sovereign debt restructuring, and look forward to further dialogue and work. We also note the IMF Executive Board’s endorsement on measures to reform pari passu clauses and reinforce collective action clauses in sovereign bonds, given the challenges litigation poses to the predictable and orderly resolution of sovereign debt restructuring processes.
Financing for Development
10. We stress the critical importance of sustaining efforts to achieve the Millennium Development Goals (MDGs) as the 2015 deadline approaches. We emphasize the importance of delivering on commitments to Official Development Assistance (ODA) and seek to increase their leverage. We call on the WBG and other multilateral financial institutions to intensify their efforts to support countries in achieving the MDGs.
11. We look forward to continued engagement in shaping the post-2015 development agenda. The Report of the U.N. Intergovernmental Committee of Experts for Sustainable Development Financing and research work of the G-24 have underscored the large financing gap that has to be met to implement the post-2015 development agenda and enhance the growth prospects of developing countries. We agree with the Report’s call for a principles-based, multi-pronged approach to optimize the use of various domestic and external financing sources, led by national efforts, and boosted by a supportive international environment. Financing the enormous development needs of the future will require international attention and strong cooperation to mobilize aid, including ODA, domestic resources and private finance. We look forward to the Addis Ababa Financing for Development Summit in July 2015.
12. We recognize the importance of strengthening domestic revenue mobilization in ways tailored to our countries’ circumstances, and will continue to undertake tax, expenditure and subsidy reform efforts, supported by peer learning. We note the importance of effective international tax cooperation to support growth-enhancing fiscal strategies, including on Base Erosion and Profit Shifting (BEPS). We call for structured dialogue in the OECD with developing countries while developing the action plan on BEPS, as well as for the provision of technical assistance by the IMF to support the institutional capacity of EMDCs on fiscal management. We also take note of the new global standard on automatic exchange of tax information to tackle cross-border tax evasion and non-compliance.
13. We stress the critical importance of infrastructure investments for supporting demand and enhancing potential growth in our economies and globally. We recognize the important role of the public sector in creating a supportive environment for quality investments in infrastructure, including through sound sector policies and institutional and regulatory arrangements, and adequate project identification and preparation. We welcome the increased attention to augmenting financing and capacity-building mechanisms to support quality investments in infrastructure, including the BRICS’ New Development Bank, the Asian Infrastructure Investment Bank, the Africa50 Fund, the Global Infrastructure Facility, and the recent G-20 Global Infrastructure Initiative. We call for broad participation in these initiatives and firm commitment given the scale of infrastructure investment needs.
14. We ask for due flexibility in the IMF’s debt limits policy and the International Development Association’s (IDA) non-concessional borrowing policy for LICs, taking into account the large financing needs of LICs and changing landscape of global financing. Debt sustainability assessments should be based on realistic, objective risk assumptions, in order to avoid unduly constraining investment and growth. We look forward to the Fund completing the review of the IMF’s debt limits policy in consultation with stakeholders, consistent with its objectives of having in place a structured and unified debt framework for all countries. We emphasize that access to external financing along with sound debt management and effective use of borrowed funds should enable the financing of productive investments that support inclusive growth, increased resilience and job creation. We urge the Fund to extend for two years the waiver on interest rates applicable to the Poverty Reduction and Growth Trust.
Role and Reform of International Financial Institutions
15. We welcome the IMF’s continued efforts to ensure that its surveillance adapts effectively to emerging challenges. Greater integration and deepening of risk and spillover analysis that enable better understanding of transmission of risks and their impact on recipient countries will support the timely adoption of national policies to improve resilience and mitigate the impact of external shocks. We encourage greater consultation between the IMF and EMDCs on ensuring more effective, evenhanded policy dialogue and communication that will strengthen the effect of the Fund’s policy advice.
16. We remain deeply disappointed that the IMF quota and governance reforms agreed to in 2010 have not yet come into effect, and urge the U.S. to complete ratification. This remains a significant impediment to the credibility and effectiveness of the IMF and unjustifiably delays forward-looking commitments, namely a new quota formula and the 15th General Review of Quotas. We call on the Fund to develop options for next steps should ratification of the 2010 reforms be delayed beyond year-end. We call for reaching agreement on a reformed quota formula that meaningfully enhances the voice and representation of EMDCs, including poor, fragile, and small low- and middle-income countries, by addressing the long-standing bias against EMDCs. We urge the IMF to begin work towards the 15th General Review of Quotas. The realignment of quotas must ensure that the rapidly growing weight of EMDCs in the global economy is reflected in the Fund’s governance structure, and this must not come at the expense of other EMDCs. We reiterate our longstanding call for a third chair for Sub-Saharan Africa in the IMF Executive Board to improve the representation of the region, provided it does not come at the expense of other EMDC chairs.
17. We look forward to the continued implementation of the institutional reforms underway at the WBG. We stress the importance of reinforcing country ownership in the new country engagement model. We reiterate the importance of WBG engagement with and support for all its members on the basis of its development mandate and without political considerations. We look forward to more effective delivery of financing, technical, and advisory support tailored to different country circumstances. We take note of the Bank’s ongoing expenditure review and efforts to improve its financial capacity. We express concern, however, about the impact of the phasing out of the Grant-Making Facility on the funding of global public goods, especially on the Consultative Group for International Agriculture Research (CGIAR) and on the State and Peace Building Fund. We encourage management to ensure the identification of alternative sources of funding. We also look forward to the effective implementation of IDA17, in order to meet the immense needs of the poor and vulnerable.
18. We reiterate our call for the timely implementation of the 2010 WBG voice and capital reforms and remain committed to the conclusion of the next shareholding review by no later than October 2015, as previously agreed.
Other Matters
19. We call for concrete efforts to strengthen the recruitment, career progression, and promotion of nationals from underrepresented regions and countries to achieve balanced representation in the IFIs. To that end, we reiterate the importance of staff diversity and gender balance at all levels, including diversity of educational institutions.
20. We thank Amar Bhattacharya, outgoing Director of the G-24 Secretariat, for his excellent work for the Group over the past years. We wish him the very best in his future endeavors. We welcome the incoming Director, Marilou Uy, and assure her of our support.
21. We thank Egypt for its Chairmanship of the Group and welcome Lebanon as the incoming Chair. We also welcome Ethiopia as the Second Vice-Chair. The next meeting of the G-24 Ministers is expected to take place on April 16, 2015 in Washington, D.C.
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Major conference on biodiversity warns against ‘business as usual’ behaviour, consumption
The parties to the Convention on Biological Diversity began meeting on 6 October 2014 as a new United Nations report on the status of biodiversity warned that much more efficient use of land, water, energy and materials are needed to meet globally-agreed targets by 2020.
“Bold and innovative action is urgently required if governments are to meet the globally-agreed Strategic Plan for Biodiversity and its Aichi Targets by 2020,” the Montreal-based Secretariat of the Convention on Biological Diversity (CBD) said referring to the 20 biodiversity goals agreed upon in 2010 in the Japanese city of Nagoya in Aichi prefecture.
“The challenge of achievement of many of these targets stem from the reality that based on current trends, pressures on biodiversity will continue to increase at least until 2020 and that the status of biodiversity will continue to decline,” according to this latest progress report by the CBD.
The report, Global Diversity Outlook 4 was released at the start of the 12th meeting of the Conference of the Parties to the Convention on Biological Diversity, known as COP-12, in Pyeongchang, Republic of Korea.
The report tracked progress made to date on the 20 targets and drew attention to the implications on broader sustainable development this century.
It also cautioned “that continuing with 'business as usual' in our present patterns of behaviour, consumption, production and economic incentives will not allow us to realize the vision of a world with ecosystems capable of meeting human needs into the future.”
Creating a strategy to substantially increase the resources available for biodiversity conservation and sustainable use is one of the key outcomes expected from the COP, expected to be part of a collection of decisions referred to as the “Pyeongchang Road Map”.
At the COP-12 opening, UNEP Executive Director Achim Steiner called for increased financial investment and policy action to protect biodiversity.
“Studies show that it will be difficult to reach the full set of the Aichi targets if we remain within the current trajectory, due to accumulated and increased pressures on the natural world,” he noted.
This meeting “provides a critical opportunity to inject renewed impetus into our commitment to the Aichi Targets - which remain within reach - and to shape the Sustainable Development Goals by revisiting national strategies and plans,” Mr. Steiner said in a UN interview on the sidelines of the meeting.
“We need to do more – and do it fast – to protect the very fabric of the natural world,” he added.
Mr. Steiner is one of about 20,000 representatives from 194 countries attending the conference, which through 17 October, will focus on “Biodiversity for sustainable development.” The participants will address agenda items that include a midterm evaluation of the 2011-2020 strategic plan for biodiversity and the application of the biodiversity goals to the post-2015 sustainable development agenda.
Meeting the Aichi Biodiversity Targets contributes significantly to broader global priorities addressed by the post-2015 development agenda, the report has said, namely, reducing hunger and poverty, improving human heath, and ensuring a sustainably supply of energy, good and clean water.
In the report’s forward, UN Secretary-General Ban Ki-moon underlined the link between biodiversity and sustainable development, urging Members States and stakeholders everywhere to take the report's conclusions into account in their planning and “redouble efforts” to achieve the targets.
The Executive Secretary of the Convention on Biological Diversity, Braulio Ferreira de Souza Dias, said: “Our efforts can and must be strengthened by combining actions that address multiple drivers of biodiversity loss and multiple targets.”
“Measures required to achieve the Aichi Biodiversity Targets also support the goals of greater food security, healthier populations and improved access to clean waters,” he added.
While the report shows “significant progress” towards meeting some components of the Aichi targets, the report notes that “reaching these joint objectives requires changes in society, including much more efficient use of land, water, energy and materials, rethinking our consumption habits and, in particular, major transformations of food production systems.”
According to the report, progress is reported in targets 11 (protected areas), 16 (Access and Benefit sharing of Genetic Resources) and 17 (Biodiversity Strategies and Action Plan).
“Where more effort is required” were identified to reach targets 5 (Halving the Rate of Loss of All Natural Habitats including Forests), 8 (Reduction of Pollution), 10 (Reduction of Multiple Pressures on Ecosystems Vulnerable to Climate Change, Ocean Acidification such as Coral Reefs), 12 (Seeking to Prevent Extinction of Known Threatened Species) and 15 (Ecosytem Restoration and Development Resilience).
The report concluded that “with progress achieved to date, plausible pathways exist for realizing an end to biodiversity loss, along with achieving global goals relating to addressing climate change, land degradation and sustainable development.”
UNCTAD Secretary-General Kituyi hails the entry into force of the Nagoya Protocol to the Convention on Biological Diversity
The Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits arising from their Utilization to the Convention on Biological Diversity (CBD), enters into force, having secured the required number of ratifications by Parties to the CBD, on 12 October 2014.
“I congratulate the Parties and the Executive Secretary of the CBD on this historic achievement in the annals of multilateral environmental agreements,” Mukhisa Kituyi said.
“It will have major, and I believe, positive implications for genetic resource flows, trade in biodiversity-based products and related R&D activities. These strengthen the conservation of biodiversity, its sustainable use and ensure more equitable access to and sharing of benefits between communities and companies.
The Nagoya Protocol in particular provides a clear, transparent, practical and legal framework for the sharing of benefits from commercial activities derived from accessing biological resources and related traditional knowledge between users and providers of such resources. By doing so, the Protocol is a key instrument in the broader package of legislative and policy tools to foster sustainable development and eradicate poverty.
The operationalization of the Protocol also has ramifications beyond the realm of biological diversity. At present, with multilateralism facing challenges on different fronts, the entry into force of the Nagoya Protocol is a landmark. It demonstrates the enduring value of multilateralism to countries in overcoming their differences in advancing common goals.
UNCTAD thus welcomes the Protocol’s operationalization and looks forward to continuing collaboration with the Parties and the CDB secretariat in its implementation, including through our BioTrade Initiative and intellectual property-related work.”
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African Development Bank: Partner of choice for the Eastern Africa we want
In a newly released report prepared in 2014 by the African Development Bank’s (AfDB) East Africa Regional Resource Center in Nairobi, Kenya, on the occasion of the Bank’s 50th anniversary, the AfDB describes how it is fulfilling its mandate in Eastern Africa as Africa’s own development bank. The report takes stock of the socio-economic situation today; highlights the Bank’s successes; describes new strategies and instruments; and identifies key challenges the region is likely to face in the next decades.
The report explores each of these themes from both a country and regional perspective, providing a picture of each of the region’s countries (Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Rwanda, Seychelles, Somalia, South Sudan, Sudan, Tanzania and Uganda), setting out their strengths and challenges to be met, and the trends for their future prospects.
Key findings
Structural transformation is at the core of the challenges which need to be addressed. Most African countries are now “factor-driven” and they must seek to become “efficiency-driven” to better compete in the world economy. Ultimately, countries should aim to become “innovation-driven” if they wish to become among the most competitive in the world. Seychelles is leading by example on this front.
Since natural resources are the region’s primary source of comparative advantage, the region should base its structural transformation on that foundation, establishing strong and diversified and transparently-governed resource-based economies. Government systems that ensure effective and transparent management of resources will be key to inclusive development.
Most Eastern and Southern African countries have a vision of an integrated region, driven by the Tripartite Agreement between the Common Market for Eastern and Southern Africa (COMESA), Southern African Development Community (SADC) and the East African Community (EAC). A large number of cross-border infrastructure projects (profiled in the report) will be realized in the coming decades, radically altering the face of Eastern Africa and introducing a step-change improvement in the business climate. At the same time, there is a need to streamline and rationalize the region’s many existing trade agreements, and overcome non-tariff barriers which continue to hamper regional trade and growth.
Addressing inequality is becoming a more urgent policy issue. The emerging challenge of climate change is another challenge the region must address. A third issue underlying growth prospects is the increasing role the private sector needs to play in supporting growth. While government programs and policies remain crucial to growth, the substantial investment needs of Eastern Africa will require larger and more competitive private sectors. Finally, there is a clear link between stability and rapid economic growth. More effective efforts at managing risks arising from fragile situations has become a real priority in Eastern Africa.
Action to be taken by the Bank
Africa’s premier financial institution, the AfDB plays a central role in the socio-economic development and regional integration of Eastern Africa. The long-term vision of a sub-region where goods, capital and people can move freely across borders to create a larger market is crucial and the AfDB’s continued focus on this priority will be essential to secure the economies of scale necessary to make Eastern Africa a more efficient participant in world markets.
The African Development Bank will continue to support regional integration, and will sustain its role as a leading financier of infrastructure. The Bank will maintain a focus on education and training, in order to make growth in Eastern Africa more inclusive. The rapid expansion of programmes to address climate change will be an urgent priority. The Bank expects to expand substantially its work with the private sector. The AfDB will leverage its long and close relations at the country level to promote stability.
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Private sector and international leaders gather to kick-start investment in sustainable development
The heads of dozens of transnational corporations and other private sector stakeholders will meet with Heads of State and government authorities to launch major new initiatives in the area of investment for development at UNCTAD’s World Investment Forum 2014 in the Palais des Nations, Geneva, from 13-16 October.
“Faced with common global economic, social and environmental challenges, the international community is defining a set of sustainable development goals to replace the Millennium Development Goals when they expire next year,” UNCTAD Secretary-General Mukhisa Kituyi said. “A key part of the new goals will be a robust funding framework.”
“There is a clear role for the private sector to galvanize efforts to deliver on the new goals, which cannot be met with public money alone,” Dr. Kituyi added. “The core purpose of this year's World Investment Forum is to bring together public and corporate leaders to amplify the discussion about private sector involvement in the sustainable development goals. UNCTAD’s World Investment Forum fulfils an important gap in global economic governance in the absence of any other international platform to discuss these issues.”
A unique gathering of more than 2,000 private and public sector representatives from the developing and developed world, the forum will consider policy frameworks and conditions for investment at national and global levels to address sustainable development challenges.
There will be nearly 40 events, including private sector-led sessions, ministerial round tables and the World Leaders Investment Summits. High-level participants include Uhuru Kenyatta, the President of Kenya; Portia Simpson-Miller, the Prime Minister of Jamaica; Roger Kolo, the Prime Minister of Madagascar; James Michel, the President of Seychelles; Didier Burkhalter, the President of Switzerland; Mehdi Jomaa, interim Prime Minister of Tunisia; and dozens of foreign affairs, investment and trade ministers from around the world.
The Forum will be addressed by United Nations Secretary-General Ban Ki-moon and hosted by Dr. Kituyi.
Findings from UNCTAD’s World Investment Report 2014 indicated that the total investment need in developing countries to deliver on the sustainable development goals will be $3.9 trillion per year. Current levels of investment leave an investment gap of some $2.5 trillion.
Transnational corporations in developed countries alone have more than $5 trillion lying “idle” on their balance sheets – money that could be invested in building productive capacity, particularly in sustainable development sectors.
A number of deliverables for investing in sustainable development will be announced at the event.
As the Forum is taking place in Geneva for the first time, attendance will also include a large number of leaders from the Swiss private sector.
The topicality of the theme of the Forum for the international investment and development communities is reflected in the great number of organizations that have partnered with UNCTAD for the event such as the Food and Agriculture Organization of the United Nations, the International Labour Organization, Joint United Nations Programme on HIV/AIDS, the United Nations Environment Programme, the World Trade Organization and the World Bank.
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Improved logistics chain as key to unlocking trade growth
The total value of global trade today exceeds US$ 20 trillion, partly as a result of innovations in logistics and changes in policies in countries around the world thus leading to a reduction in the costs of shipping goods and services across borders. Given the concerns expressed by investors on the ease of doing business in the country, many are adopting the distribution model in penetrating Nigeria’s retail markets. The World Economic Forum notes that the future of Global Value Chain in manufacturing is dependent on effective logistics service. Can Nigeria afford to miss its share in the global trade due to various red tapes encountered by stakeholders in the logistics sector? Femi Adekoya writes.
For many foreign investors, Nigeria has a significant future-success-story. As the largest consumer market, the country has a population of oiver 170 million people. This number is set to double by 2050.
Indeed, there are eight “anchor” cities in Nigeria with populations above one million each. This development shows the huge potential for future investment and consumption activity. Though there is huge potential, there are risks and weaknesses, which have to be taken into consideration.
For these investors, Nigeria’s ranking on World Bank’s ease of doing business index raises a red flag as a result of various issues like electricity, contracts, permits and tax, even though the indices are improving.
The most important aspect while thinking about doing business in Nigeria is the level of informal trade. Research has shown that 87 per cent of the trading in Nigeria happens in informal markets, despite Shoprite, Spar and other supermarket chains entering the country.
With many investors adopting the distribution model to make in-roads into Nigeria, managing logistics for efficiency remains key.
Why logistics remains critical to manufacturing
According to the World Economic Forum (WEF), logistics is a key part of the “plumbing” of the global trading system. The efficiency of logistics-related industries has a major influence on investment decisions of companies large and small, and thus affects the extent and location of job creation around the world.
“If serious efforts were made to facilitate trade – by removing policies that create supply chain barriers, delays and associated uncertainty – real incomes, investment and economic activity would experience a big positive effect. At a time of recession, austerity measures and fiscal constraints, a global trade facilitation initiative that substantially reduces supply chain barriers offers a low-cost source of economic stimulus.
“Lowering of trade costs by improving border management, bolstering transport infrastructure and removing competition- reducing policies in the areas of transport and communication services could have an impact many times more powerful than that of other possible initiatives for lowering the tax burden on trade”, the WEF added.
LCCI unveils findings
Based on this position, the Lagos Chamber of Commerce and Industry (LCCI) expressed the need for state and federal governments to address the lingering challenges of doing business in the country, especially in implementing strategies to address logistics challenges experienced by the real sector.
According to the chamber, the challenges associated with the delivery of goods and services from one point to the other within Lagos State have emerged as one of the factors stifling businesses.
Specifically, the LCCI noted that beyond the perennial and hectic traffic situation in Lagos State, the inhibitive activities of government agencies including Federal and State governments on the nation’s roads has made distribution of goods and services by the private sector unbearable.
The LCCI emphasized the imperative of addressing these challenges noting that an efficient logistics and distribution of goods and services is crucial to the real sector and the economy, adding that industrial activities will grow by not less than eight per cent yearly given a more service oriented and accommodative logistics and transportation of goods and services on the roads.
Director, Research and Advocacy, LCCI, Vincent Nwani, while unveiling the results of a survey carried out on the burden of government agencies on transportation of goods within Lagos State, stated that the activities of several agencies of the state, including Lagos State Traffic Management Authority (LASTMA), Nigeria Police, Local government agents, Transport Unions have become most burdensome to businesses, logistics and delivery of goods within the state.
Specifically, the Lagos State Traffic Management Authority has been identified as the worst government agency that disrupts the smooth running of transportation and logistics in the metropolis.
In a list of challenges that inhibit logistics in Lagos, LASTMA came top at 26 per cent as the worst government agency; the Vehicle Inspection Office came second at 21 per cent; while the Federal Road Safety Commission was third at 16 per cent.
The Nigeria Police Force came fourth at 15 per cent; street urchins popularly called area boys were fifth at 15 per cent; the Lagos State Signage and Advertisement Agency was sixth at four per cent; and the NURTW came last at three per cent.
The survey also listed the most recurring issues that came up between the drivers, haulage trucks and the government agencies whenever they were stopped. Wrong parking, identified as a favourite theme of LASTMA, topped the list of key issues that often come up in such situations.
Demand for gratification was the second most frequent issue with LASTMA, the VIO and the NPF whenever the personnel had encounters with drivers and the haulage truck operators. The use of seatbelt came third on the list of key issues with the LATSMA, VIO and FRSC.
A list of the most hostile routes in Lagos was also identified in the survey. These routes were said to be those where some of the government agencies had the most presence.
The chamber said: “There are issues of compelling delivery trucks to purchase numerous stickers, emblems and permit from both state and local government. Demand for bribe, multiplicity of levies from state and local government agents, demand of frivolous documents, gross overlap of duties among LASTMA, FRSC and VIO officials, arbitrary one way designation of certain roads and restriction of delivery trucks from plying Lagos route during the day.
“All of these impediments result to deliberate harassment, extortions, intimidation, delays/waste of time, illegal charges and fines by officials of the agencies. The effect of increasing logistics challenges on our roads can be seen in the disruption of truck trips, drastic drop in sales affecting turnover of businesses, and outright loss of business when they are no longer able to meet up with client’s demand”, he explained.
Stakeholders seek increased engagement
Lagos State Commissioner for Transport, Kayode Opeifa explained that there is a need for increased stakeholder engagement especially in the areas of education, enlightenment and enforcement of laws in a bid to address lawlessness on Lagos roads.
Opeifa, who was represented by the Director of Transport Engineering in the state’s ministry, Fredrick Olofin explained that the challenges identified are attributable to the high road density in the state, forcing the state government to implement policies to address these challenges.
Lagos State Sector Commander, Federal Road Safety Corps (FRSC), Hyginus Omeje, who was represented by the Assistant Corps Commander, Gloria Danfulani advocated a good coordination of the production and supply value-chain in a bid to ensure the growth of the nation’s industrial capacity.
A report prepared by the World Economic Forum, Bain & Company and the World Bank, Enabling Trade: Valuing Growth Opportunities, concludes that improving logistics is many times more effective for trade facilitation than the abolition of all remaining import tariffs would be.
According to the WEF, the latter, in any case, is a highly improbable scenario as the subject of import tariffs has been holding up the Doha Development Round of trade negotiations at the World Trade Organization (WTO) for years.
It noted that rather than persisting with trade agreements that revolve around deals to lower tariffs, governments should prioritize action that aims at lowering supply chain costs for operators, adding that such move will have much bigger positive effects for consumers and households.
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Recent expansion of Africa’s agricultural trade bodes well for food security, resilience
Africa’s share of world agricultural trade has increased in recent years after decades of decline, and trade among African countries has been on the rise. Both trends have boosted Africans’ ability to access food and distribute it to the neediest during hard times, according to a report released on 8 October 2014 at the annual Regional Strategic Analysis and Knowledge Support System (ReSAKSS) conference in Addis Ababa, Ethiopia.
The conference, which focuses on this finding and others from the 2013 Africa-wide Annual Trends and Outlook Report (ATOR), is organized by the African Union Commission (AUC), in partnership with the International Food Policy Research Institute (IFPRI).
Conference delegates will discuss the importance of improved agricultural trade performance and competitiveness to enhancing the resilience of the poor and vulnerable. They will review the latest evidence tracking Africa’s agricultural progress against key Comprehensive Africa Agriculture Development Programme (CAADP) indicators. They will also discuss countries’ progress toward evidence-based policy planning and implementation through the establishment and operation of Strategic Analysis and Knowledge Support Systems (SAKSS) platforms and the strengthening of mutual accountability through regular and comprehensive agriculture joint sector reviews.
The report found that Africa’s agricultural exports accounted for 3.3 percent of world agricultural trade in 2009-2013, up from 1.2 percent in 1996-2000. While still small, the jump represents a threefold increase. Moreover, Africa’s agricultural exports have quadrupled in value terms and doubled in caloric terms. And the share of intra-African trade has doubled: nearly 34 percent of agricultural exports originating from African countries now go to other African countries.
The findings are significant because agricultural trade in general, and intra-African trade, in particular, can be a critical element to ensuring that the poor and vulnerable are able to remain resilient in the face of economic shocks and severe weather events.
“While the situation is far different from that of the 1960s, when African countries dominated global markets, the recent performance indicates that Africa can become a major player again,” said Ousmane Badiane, Director for Africa at IFPRI. ”Now countries need to sustain the policies and institutional reforms and scale up the investments that made this change possible.”
The report attributed Africa’s growing share of world agricultural exports to improvements in trade infrastructure, such as telecommunications, success in integrating global and regional markets through preferential trade agreements, improved economic growth, and an increase in world prices of some raw materials.
It also found that diversity of crops had helped boost trade. At the end of the 1990s, the top 10 agricultural exports made up 51 percent of Africa’s total agricultural exports. Since then, African agricultural exports have become more diversified and more competitive, so that by 2010, the top 10 agricultural exports accounted for 40 percent of total exports.
Fueled by both economic growth and population growth, agricultural imports have risen considerably faster than exports. As a result, the agricultural trade deficit rose from less than US$1 billion to nearly $40 billion. This highlights the tremendous challenge facing African countries and the need to deepen the reforms and scale up the efforts that have accelerated exports over the last 10 years.
“The renewed commitment in Malabo by African heads of state and government to redouble efforts to boost competitiveness and trade, in global as well as intra-African markets, could not have come at a better time,” said Abebe H. Gabriel, director of the Rural Economy and Agriculture Department at the AUC. “It is a step in the right direction.”
The report’s findings show that African countries have become more competitive in regional markets and that faster growth of demand in these markets has also contributed positively to trade performance by African countries. The findings also show that decreasing barriers to regional trade would further boost the recent growth of intra-African trade and allow countries to take advantage of the stabilizing effects that often accompany expanded regional trade. Domestic food markets can be stabilized by expanding regional trade to buffer shocks to individual countries. Regional trade can help mitigate the effects of weather shocks in any one country. The report shows that about 40 percent of the time over the last 30 years (four out of every ten years), the impact of losses in maize production due to drought might have been mitigated by trade.
Trade policies should be aimed at reducing transport and other transaction costs and increasing agricultural productivity to improve the livelihoods of the poor and vulnerable and enhance their resilience to shocks. For instance, the report notes that, in the case of the Economic Community of West African States (ECOWAS) and the Common Market for Eastern and Southern Africa (COMESA) countries, reducing overall trading costs by 10 percent would raise regional cereals exports by about 20 percent on average over the next 15 years. The impact would be at least 2.5 times that much in the case of major staples such as roots and tubers. Raising yields by the same magnitude would have an even bigger impact on regional exports, with increases of at least 30-40 percent across nearly all commodities. Specifically, the report recommends that governments should:
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Expand markets with better transport infrastructure to make it easier to move crops from surplus to deficit zones;
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Invest in science and technology to raise agricultural productivity and enhance the capacity of domestic agricultural sectors to supply local markets and adjust to shocks;
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Eliminate nontariff cross-border barriers to foster market integration at the domestic, regional, and international levels; and
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Invest in social safety net programs and adopt more conducive policies to mitigate the potential destabilizing effects of trade while maximizing its positive short- and long-term benefits for growth and food security.
» Promoting Agricultural Trade to Enhance Resilience in Africa: 2013 ReSAKSS Annual Trends and Outlook Report (PDF, 5.19 MB)
The International Food Policy Research Institute (IFPRI) seeks sustainable solutions for ending hunger and poverty. IFPRI was established in 1975 to identify and analyze alternative national and international strategies and policies for meeting the food needs of the developing world, with particular emphasis on low-income countries and on the poorer groups in those countries.
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Kenyan exports to Europe now face tariffs
The EAC has been negotiating a free trade agreement with the EU for more than 10 years, but it has so far failed to seal a deal on an Economic Partnership Agreement (EPA). Kenya is now paying the price for it.
This comes during an ironic coincidence, Kenya has just been reclassified as a middle-income country following new statistics showing that its economy is 25 percent bigger than previously assessed.
Following an unsatisfactory deal reached at the end of 2007, the whole of the EAC, as well as 32 other African, Caribbean and Pacific (ACP) countries, were granted duty-free, quota-free access to the EU market after concluding an interim EPA.
This was under the condition that they sign and ratify “within a reasonable period of time” the agreement concluded. But EAC countries did not. Instead, they continued negotiating with the EU on how to improve their EPA.
This all makes good sense. Why endorse a bad agreement if it can be improved?
Under pressure to address sticking points
All trade negotiations are about power games. The EAC stood its ground and took its time to negotiate. So did other African regions.
In 2013, the EU lost its patience and decided to flex its muscles: all the countries that had not fully endorsed by October 1 the interim deals concluded in 2007 would be excluded from the EPA-related free access to the EU.
This prompted Cameroon to ratify and Fiji to implement their interim EPA in July 2014. Others opted, at the same time, to conclude new regional EPAs: West Africa and Southern Africa concluded the negotiations in July this year. But EAC and EU negotiations failed to make sufficient progress to reach an agreement.
EAC-EU negotiations made some good progress until this spring, but some key sticking points remain. These include: export taxes, relations with the Cotonou agreement (the non-execution clause, related to human and political rights), EU domestic support in agriculture, good governance on tax matters, and the “Turkey clause” (related to the extension of tariff concessions granted to the EU to Turkey and Andorra).
These issues have been there for years. And there have been plenty of opportunities and time to address them, should the political will and flexibility on both sides have prevailed, as as happened in other regions.
The hectic, and often confusing, situation of the last few days has shown that some trade negotiators were ill prepared. However, the EAC countries are well advised to resist time pressure and refuse to conclude a deal with the EU until they are satisfied with the terms of the agreement.
What’s the impact for Kenya?
Kenya has lost its free market access to the EU, and is not exporting under the less preferential EU General System of Preferences (GSP). This will have some serious impact.
Most recent statistics show that over 20 percent of Kenya exports, worth some €1 billion in 2013, go to the EU, three quarters of which are vegetable products, and another 10 percent of which are foodstuffs, beverages and tobacco.
According to the Kenya Association of Manufacturers, two-third of Kenyan's exports to the EU are facing new duties under the EU GSP, ranging from four percent to 24 percent, amounting to about €5.7 million (Sh637 million) per month in customs duties.
The most affected products are cut flowers (8.5% duties), processed vegetable and fruits (over 15 percent), fish (6 percent) and pineapple and other fruit juices (11.7 percent).
This will disrupt traditional supply chains and threatens to costs thousands of jobs, mainly in the horticulture sector, in Kenya.
What next?
The EAC is continuing negotiations with the EU. The EAC has reached an internal common position on how they would like to reach an agreement with the EU, but has yet to meet with the European Commission negotiators. So no deal is reached yet. Depending on the respective positions, an agreement could be found soon.
If an EU-EAC EPA deal is concluded, then the European Commission will again grant free market access to all exports from Kenya. However, the internal legal procedural process in the EU requires about eight weeks to bring Kenya (and the other EAC countries) back under EPA duty-free quota-free preferences. That is, until December if all goes well.
In the meantime, not only are many Kenyan exports are facing higher import duties to the EU, but also the prolonged uncertainty over the future trade regime further undermines business prospects. As for other EAC countries such as Burundi, Rwanda, Tanzania and Uganda, they can benefit from the free market access to the EU under the “Everything-But-Arms initiative” initiative available to all least-developed countries.
Following the conclusion of an EPA deal, all parties will then have to sign the agreement, and then start the ratification process. The EAC-EU EPA will become effective only once the agreement is ratified, or provisionally applied (in the EU, a free trade agreement can be provisionally applied before it is fully ratified).
Only once the EPA begins to be implemented will the EAC countries have to start gradually to dismantle their tariffs on 80 percent of the products they import from the EU (based on the EAC common external tariff).
Kenya and its EAC partners should think twice before concluding, or rejecting a deal on EPA. In doing so, they must keep their focus on their longer term strategic objectives. But they need to think fast!
San Bilal is from the European Centre for Development Policy Management.
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Policymakers should encourage economic risk taking, keep financial excess under control
Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but growing excesses in financial risk-taking, which pose challenges to financial stability, according to the International Monetary Fund’s latest Global Financial Stability Report.
Six years after the start of the financial crisis, the global recovery continues to rely heavily on accommodative monetary policies in advanced economies. This has helped economic risk-taking in the form of higher investment and employment by firms, and higher consumption by households. But the impact has been too limited and uneven. Things look better in the United States and Japan, but less so in Europe and in emerging markets.
At the same time, a prolonged period of low interest rates and other central bank policies has encouraged the buildup of excesses in financial risk-taking. This has resulted in elevated prices across a range of financial assets, credit spreads too narrow to compensate for default risks in some segments, and, until recently, record-low volatility, suggesting that investors are complacent. What is unprecedented is that these developments have occurred across a broad range of asset classes and across many countries at the same time.
“The best way to address the new global imbalance between economic and financial risk-taking is to adopt policies that transmit the benefits of monetary policy to the real economy, and to address financial excesses through well-designed micro- and macroprudential measures,” said José Viñals, Financial Counsellor and head of the IMF’s Monetary and Capital Markets Department.
Banks need a new fitness regime
Banks hold significantly more capital than before the crisis, but many institutions do not have a sustainable business model that can support the recovery.
The report analyzed 300 large banks in advanced economies – which comprise the bulk of their banking system – and found that banks representing almost 40 percent of total assets are not strong enough to supply adequate credit in support of the recovery. In the euro area, this proportion rises to about 70 percent.
These banks will need a more fundamental overhaul of their business models, including a combination of repricing existing business lines, reallocating capital across activities, consolidation, or retrenchment. In Europe, the comprehensive review of bank balance sheets by the European Central Bank provides a strong starting point for these much-needed changes in bank business models.
Risks are moving to the shadows
Financial stability risks are shifting from the banking system to less-regulated shadow banks. For example, credit-focused mutual funds and exchange traded funds have seen massive asset inflows, and have collectively become among the largest owners of U.S. corporate and foreign bonds.
“The problem is that these fund inflows have created an illusion of liquidity in fixed income markets,” said Viñals. “The liquidity promised to investors in good times is likely to exceed the available liquidity provided by markets in times of stress.”
This mismatch is driven by the growing share of relatively illiquid assets held by credit mutual funds. It is a potentially powerful amplifier that could exacerbate pressures on credit funds in times of stress.
Spillovers could be global
Emerging markets have grown in importance as a destination for portfolio investors from advanced economies. These investors now allocate more than $4 trillion, or about 13 percent of their total investments, to emerging market equities and bonds – this share has doubled over the past decade. Because of these closer financial links, shocks emanating from advanced economies will propagate more quickly to emerging markets.
The increasing global synchronization of asset prices and volatilities, combined with rising market and liquidity risks in the shadow banking sector, could amplify the impact of shocks on asset prices. This may result in sharper price falls and more market stress.
Such an adverse scenario would hurt the global economy and, at the limit, could even compromise global financial stability. This chain reaction could be triggered by a wide variety of shocks, including geopolitical flare-ups, or a “bumpy” normalization of U.S. monetary policy.
Financial policies are key
Financial policies can help address the new global imbalance between economic and financial risk-taking.
First, to help economic risk-taking further, banks need to fundamentally adjust their business models to help improve the flow of credit to the economy. Safe sources of credit, outside the banking sector, should also be promoted, though this needs to be accompanied by effective regulation to avoid the build-up of future risks.
Second, policymakers need to design and implement a range of micro- and macroprudential policies to address financial excesses that can threaten stability. For example, greater oversight is needed of asset managers to ensure that redemption terms are better aligned with underlying liquidity conditions. More comprehensive monitoring and reporting of leverage in nonbank sectors and in emerging market companies would also help identify potential vulnerabilities.
Finally, policymakers must have the data necessary to monitor the build-up of financial stability risks. They must prepare to ensure they have the statutory authority and analytical capacity to use their macroprudential tools. Policymakers must also have an explicit mandate to act when needed and, equally important, the courage to act even if measures are highly unpopular.
Other IMF publications:
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Global Growth Disappoints, Pace of Recovery Uneven and Country-Specific: World Economic Outlook, October 2014: Legacies, Clouds, Uncertainties
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World Economy Needs Smart Fiscal Policies: Fiscal Monitor, October 2014: Back To Work: How Fiscal Policy Can Help
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Review Helps IMF Keep Finger on Pulse of Post-Crisis World: 2014 Triennial Surveillance Review
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Kenya negotiates new double taxation deals to pull investors
Kenya is negotiating new double taxation agreements (DTA) with several countries as the country moves to expand investment space.
Draft DTAs have already been prepared for negotiation with Seychelles, Nigeria, United Arab Emirates, Spain, South Africa, Iran, Finland and Russia.
Under the DTAs, a firm or its subsidiary which has paid taxes to a host government cannot be asked to pay levies of similar nature on proceeds repatriated back home.
If approved, the new agreements will significantly change the investment profile of Kenya, which currently has only 10 enforceable DTAs with India, France, Germany, UK, Canada, Sweden, Norway, Zambia, Denmark and Mauritius.
Of these Mauritius is sometimes regarded as a tax haven because income tax is at a maximum of 15 per cent while Kenya’s is 30 per cent.
While Kenya is pursuing more treaties, it is also trying to ensure the ones in force are not abused by taxpayers as has happened with some of the existing DTAs, said Patrick Chege, Kenya Revenue Authority (KRA) manager for transfer pricing audits.
“We are seeking to have more DTAs with improved terms in order to seal the loopholes we have identified,” said Mr Chege.
He said some taxpayers have been evading the levies by taking advantage of provisions in the existing DTAs, making KRA seek improved terms.
Due to the exploitation of the current transfer pricing regime (transaction between related firms located in different States), Kenya has been losing billions of shilling.
Mr Chege said this had forced KRA to carry out impromptu audits of some 40 suspected multinational firms.
The revenue authority estimates that as much as Sh30 billion is currently recoverable from the multinationals that have evaded tax through transfer pricing.
But the KRA manager said, apart from the figure on audited companies, it was impossible to tell how much could have gone unpaid through transfer pricing.
Mr Chege said some companies that had been caught with transfer tax-related evasion had already paid up, though he declined to reveal the amount.
Global Financial Integrity, a US-based watchdog on transfer pricing, said Kenya could have lost well over Sh115 billion in the decade between 2000 and 2010.
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European businesses plead for urgent improvement in business licensing, taxation
“We are here to listen to you and make swift improvements,” says Ahmed Shide, MoFED
The European Union Business Forum Ethiopia (EUBFE) pleaded for an urgent improvement of the business climate in Ethiopia on Thursday during an event held at Addis Ababa Hilton.
“We are here to listen to you and to act accordingly.” Ahmed Shide, State Minster, Finance and Economic Development (MoFED) assured that the government would undertake swift improvements on the implementation of policies.
The occasion that drew a number of EU ambassadors, members of the business community, international business consultants, and experts showed a direct structural dialogue with the Government of Ethiopia. “Despite the ongoing construction and infrastructure boom in the country, we the EU business community need to get a comprehensive business climate that is easy, efficient and flexible,” an EU investor said.
Barbara Plinkert, Charged Affair of the EU Delegation in Ethiopia said that EUBFE has been in continuing direct dialogue with the government of Ethiopia to realize a favorable business environment.
The Ethiopian Revenues and Customs Authority (ERCA) and the Ministry of Industry (MoI) repeatedly reacted on the wider range of showcases obtained from an independent legal expert. Impediments identified in the survey conducted in the ERCA and MoI revealed the obstacles and failures that have halted investment with the EU members and other foreign companies. “The survey could show us some of loopholes, but I think we are seeing encouraging progress,” Nuredin Mohamed, Trade Inspection and Regulatory, director and advisor to the state minister of MoI said.
Nebyou Samuel, deputy director of ERCA on his part said that implementing the laws and best practices enshrined in the Authority’s mandate significantly solves all the indicated obstacles. “We have to accept part of the shortcomings, but implementing the laws will relive our customers’ burden,” he said. According to Semaw Nigatu, a legal expert, some of the problems he enumerated were a shortage of foreign currency, inconsistency with the institutions, rigidity of rules, lengthy registration, and renewal of licenses. “We absolutely consider the EU a very important partner for trade and investment so we will work hard on our weaknesses,” Ahmed said. The state minister wrapped up the government’s response for the criticism his government received from the conference.
With a membership of 13 different countries, a steering committee of 12 members – supported by a permanent executive secretary – EUBFE’s inception was realized in May 2012 to foster the trade and investment between the two sides. “We are encouraged by the feedback from government officials who really took the points very seriously,” Chris De Muynck, Chairman of the EUBFE said.
Prime Minister Hailemariam Desalegn confirmed that his government greatly seeks more trade and investment links with the EU during his meeting with Jose Emanuel Barosso, EU commissioner as he hailed the 300 companies of EU members sates have already engaged in agro-processing and horticulture investments in Ethiopia. According to government officials, EU companies’ investments are estimated at 80 billion birr. International consultants and representatives of the regional economic block also indicated some of the principal factors missing in Ethiopia’s business environment. “We would like to see Ethiopia moving forward in its economic growth with the help of attractive business climate since it covers 25 percent of the Common Market for East and Southern Africa (COMESA),” Theirry Mutombo, director, investment promotion and private sector for COMESA, said.
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Africa’s Pulse: Decades of sustained growth is transforming Africa’s economies
Growth may exceed five percent in 2015-16, but Ebola, terrorism and other risks pose concern
Despite a weaker than expected global economy, with a number of major countries showing mixed performances, growth prospects for Africa remain positive and the region’s GDP growth is projected to rise to 5.2% in 2015-16 and 5.3% in 2017.
These latest figures are outlined in the World Bank’s new Africa’s Pulse, the twice-yearly analysis of economic trends and the latest data on the continent.
According to Africa’s Pulse, growth in the region is supported by strong public investment in infrastructure, increased agricultural production, and a buoyant services sector. Overall, Sub-Saharan Africa is forecast to remain one of the fastest growing regions.
Across the region, there has been substantial investment in infrastructure, including in ports, electricity capacity, and transportation. Several countries have also seen a strong recovery in the agriculture sector in 2014 and expect it to continue in 2015. The expansion of the services sector led by transport, telecommunications, financial services and tourism is also spearheading overall economic growth in a number of countries.
Although the region continues to grow faster than many economies around the world, Sub-Saharan Africa still lags behind the rest of the world in making progress toward the Millennium Development Goals (MDGs). For example, while the target of halving the proportion of people whose income falls below $1.25 a day has been met globally, the region has reached only 35% of that goal.
Africa’s Pulse also notes that West Africa’s Ebola outbreak will severely disrupt activity in key economic sectors in Guinea, Liberia, and Sierra Leone and slow growth in these countries in 2014. Economic spillovers could also affect neighboring countries.
In a special study of economic transformation and poverty reduction in Africa, the report finds that the region’s economies are transforming but not in ways that were expected. The region is largely bypassing industrialization as a major driver of growth and jobs, and the extent of reallocation of labor to high-productivity, nontraditional activities has been limited. This pattern of growth and transformation has implications for poverty reduction. In Africa, growth in agriculture and services has been more poverty reducing than growth in industry. In the rest of the world, by contrast, industry and services have a larger impact on reducing poverty.
Looking Ahead
Investments and policies to promote growth in rural economies emerge as critical for accelerating poverty reduction in Africa. Movement from rural areas to Africa’s growing cities is generating substantial domestic demand and has the potential to help spread the benefits of growth to more people.
But, designing policies that raise incomes for the poor is a key challenge and boosting agricultural productivity alone will not suffice. Investments in rural public goods (e.g. education, health, rural roads, electricity and ICT) and services (including in small towns) will be important to boost rural economies and facilitate transformational growth.
Finally, while manufacturing may not provide a solution, the report calls for Sub-Saharan Africa to expand its manufacturing base, especially by boosting the business climate, lowering transport cost, providing cheaper and more reliable power, and building a more educated labor force.
The Report’s Key Messages:
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Global growth has been weak, with divergent trends in high-income countries, and below long-run growth levels in developing countries.
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Sub-Saharan Africa is growing at a moderate pace, reflecting in part a slowdown in some of the region’s large economies. Public infrastructure investment, a rebound in agriculture, and a buoyant services sector are key drivers of growth in the region.
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Prospects for the region remain favorable, despite headwinds. External risks of higher global financial market volatility and lower growth in emerging market economies weigh on the downside. In several Sub-Saharan African countries, large budgetary imbalances are a source of vulnerability to exogenous shocks and underscore the need for rebuilding fiscal buffers in these countries.
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A key risk on the domestic side is a contagion of the Ebola outbreak. Without a scale-up of effective interventions, growth would slow markedly not only in the core countries (Guinea, Liberia, and Sierra Leone), but also in the sub-region as transportation, cross-border trade, and supply chains are severely disrupted.
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Sub-Saharan Africa is lagging sharply in achieving the Millennium Development Goals (MDGs); for example, the region has achieved only a third of the poverty target of halving the proportion of people living under $1.25 a day, while globally this target has already been met. In addition, there is considerable variation across countries in how much progress is being made on the MDGs.
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The region’s pattern of growth and economic transformation has implications for poverty reduction. In Sub-Saharan Africa, growth in agriculture and services has been more effective at reducing poverty than growth in industry.
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Structural transformation has a role to play in accelerating poverty reduction in Sub-Saharan Africa. Increasing agricultural productivity will be critical to fostering structural transformation. Boosting rural income diversification can facilitate this transformation, as well. Investments in rural public goods and services (for example, education, health, rural roads, electricity and ICT), including in small towns, will be conducive to lifting productivity in the rural economy.
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Although Sub-Saharan Africa’s pattern of growth has largely bypassed manufacturing, growing the region’s manufacturing base, especially by improving its fundamentals – lower transport cost, cheaper and more reliable power, and a more educated labor force – will benefit all sectors.