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Sudan agrees to undertake tough reforms to improve trade sector and boost economy
Sudan policy makers met to discuss and finalize key policy actions to help tackle critical trade challenges holding the country’s economy back, including increasing trade capacity and diversification of exports. The policy actions were drawn from the World Bank’s latest draft Diagnostic Trade Integration Study (DTIS) Update.
Despite implementing several critical and difficult reforms to help restore macroeconomic balances and improve the business enabling environment during the last two years, Sudan is still experiencing a large deficit that is being met by short term borrowing. Apart from addressing the economic imbalances, the country also needs to ensure proper alignment of its exchange rate in order to pave the way for building competitiveness and increasing investments. This includes implementing a package of reforms aimed at lowering the barriers to trade through reduced trade taxes, streamlined border and regulatory policies, and improved transport and logistics.
The current onerous regulatory polices hinder competition and increase trade costs, while policies which protect the domestic agriculture market undermines production for regional and export markets.
Over 100 representatives from the government, private sector, and donor community attended the two-day workshop to discuss the proposed actions and recommendations from the draft DTIS Update. The workshop is part of the Integrated Framework initiative, which is sponsored by the World Bank Group, the IMF, UNDP, WTO, UNCTAD, and the ITC, and was facilitated by the World Bank.
“The role of this report is to raise the profile of the key reforms – facilitating trade in agriculture, reducing non-tariff barriers, modernizing customs and logistics, and raising the profile of services. These reforms are critical to Sudan’s efforts to diversify its economy, an objective where the World Bank stands ready to provide technical advice and assistance,” said Xavier Furtado, the World Bank Group’s Country Representative in Sudan.
The key message of the report is that lowering trade costs is essential for Sudan to diversify the economy through more varied agriculture exports and through higher value activities, such as processed agricultural foods and light manufacturing.
“The workshop discussed and prioritized the Action Matrix that will be implemented by the EIF (Enhanced Integrated Framework) in collaboration with donors,” said Mrs. Margam Elemam Mohi Eldin Eleman, Undersecretary in the Ministry of Trade and EIF Focal Point for Sudan. “The interest of workshop participants’ in the implementation of the streamlined Action Matrix will be crucial for successful implementation,” she added. She also noted that participants agreed that comments raised by government and stakeholders will be addressed in the final report.
According to Michael Geiger, World Bank Senior Economist and task leader of the report, the DTIS Update will take into account the input from the workshop and be finalized in October 2014.
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Inequality clouds growing economy
Angola needs to diversify its oil economy
Angola has one of the world’s fastest growing economies. Its economy grew by 5.1% in 2013. As major public infrastructure investments in energy and transport kick in, its growth is projected to reach 7.9% in 2014 and 8.8% in 2015. Yet, the United Nations Development Programme (UNDP) reports that around 36% of Angolans live below the poverty line and one in every four persons is unemployed.
According to the International Monetary Fund (IMF), Angola is a “post-conflict country that produces a lot of oil and faces the challenges of both.” Despite being the fifth largest economy in Africa, ordinary Angolans have seen little change in their standard of living. Only 37.8% of country’s 21 million people have access to electricity. While about half of the population has access to safe drinking water, this number falls to 34% in rural areas, says the World Bank. There are few jobs for the unemployed, mostly under 25 years, who make up 60% of the population. What should Angola do to change the current situation? Experts say the solution is for Angola to diversify its economy, save and invest for the future – especially in skills and infrastructure development – and improve governance.
A need for diversification
Angola is Africa’s second biggest oil producer after Nigeria. Its oil comes almost entirely from offshore fields, off the coast of Cabinda and from deep-water fields in the Lower Congo basin, in addition to small-scale production from onshore fields. Last year, according to the US Energy Information Administration, an agency that provides statistics and analyses on energy, Angola produced 1.85 million barrels of petroleum per day, and oil revenues could top $60 billion this year, notes the African Economic Outlook, a report produced jointly by the African Development Bank, the Organization for Economic Co-operation and Development, UNDP and the UN Economic Commission for Africa. But as with other oil-producing countries in Africa, oil has not proved to be a benefit to Angolans. If anything, say analysts, it has produced few jobs and increased inequality and allegations of corruption.
Angola’s mineral product exports as a share of total exports are more than 95%, according to data from the World Bank and the Organization of the Petroleum Exporting Countries (OPEC). Oil production and its supporting activities contribute about 45% to the nation’s gross domestic product (GDP) and 80% to government revenues. With little diversification, the Angolan economy has limited investment and job opportunities, and generates growth only for a small group of elites, economists say. In fact, in terms of the composition of its exports, Angola is the world’s second most concentrated economy after Iraq, says UNDP.
The World Bank has identified three problems facing the Angolan economy: high dependence on oil revenue, making the country vulnerable to oil price volatility; an economic system that is prone to corruption; and the absence of a diversified job market. The British magazine, The Economist, reported last April that Angola was “still much too oily,” because oil provides few jobs, especially good jobs, and according to the government’s own admission, there has been a “failure to develop the non-oil economy.” In fact, the oil industry employs just 1% of Angolan workers, which is a factor in the 26% unemployment rate.
The Center for Scientific Studies and Research (CEIC) at the Catholic University of Angola, by contrast, sees the oil-dominated economy expanding substantially since independence, particularly since the end of the civil war in 2002. While conceding that diversification was largely absent from government policy until 2011, the CEIC says that other sectors are now contributing to the GDP, though not substantially.
All that glitters
In addition to oil, Angola exports diamonds. It is Africa’s second largest source of rough diamonds after Botswana and the fourth in the world. The main reserves are concentrated in the north-eastern region. Diamond production generates over $650 million annually, although exact numbers are uncertain due to illegal diamond mining and smuggling.
But the diamond industry is often alleged to be involved in human rights abuses, such as forced overtime without adequate compensation and creating environmental degradation through mining activities. Rafael Marques de Morais, an Angolan journalist, human rights activist and anti-corruption campaigner, recently filed a criminal complaint against two diamond mining companies and their directors, including top military officers. In response, authorities labelled him an “official suspect” and officials from some mining companies have accused him of defamation. Isabel dos Santos, the billionaire daughter of the Angolan president, is said to be one of the main beneficiaries of the diamond trade in Angola, according to an article this year in Forbes business magazine.
Agriculture is a lifeline
Besides oil, other contributors to GDP include non-oil energy, agriculture, fisheries, manufacturing and construction sectors. Angola has high quality soil and good water supplies, which potentially could make commercial farming a valuable industry, according to the African Development Bank (AfDB). Currently, agriculture accounts for only 11% of GDP but 70% of total employment.
In 2013, farm output grew by 8.6%, mostly through strong growth in cereal production, notes the African Economic Outlook. The National Cereals Institute of Angola says that the country requires 4.5 million tonnes of grain a year but only grows about 55% of the corn, 20% of the rice and just 5% of the wheat needed for local consumption. Higher government spending on agriculture could change that and make Angola self-sufficient, suggests the Food and Agriculture Organization, the UN body that mobilizes efforts to eradicate hunger and poverty. However, overall, Angola’s agricultural sector is growing impressively. The Comprehensive African Agriculture Development Programme (CAADP), an initiative of the African Union, reported in 2011 that the sector grew at more than 25%, surpassing the 6% target set for African countries. That growth rate made Angola’s agriculture the fastest growing on the continent, followed by Namibia’s at 15% growth rate.
More expatriate workers
Angola has also become a magnet to economic refugees from China and Portugal. “Definitely more Portuguese people are coming here in recent years, not only because of the bad financial situation in Europe but because Angola is one of the fastest-growing economies in the world,” observes Luis Ribeiro, a Portuguese national who runs a pizzeria in Luanda.
They are joining an influx that includes Chinese, Brazilian and, to a lesser extent, British investors. “We’ve always been one of the biggest communities, but we’re slowly being surpassed by the Chinese,” Mr. Ribeiro, told The Guardian, a British daily. “The Chinese are very resilient people and are prepared to do the donkey work that Portuguese and Angolans are not.”
Portuguese engineers, for example, may make €900 per month in Portugal, but they make four times more in Angola, reported the British Broadcasting Corporation (BBC). As a consequence of this reverse population flow, Luanda, Angola’s capital, “has overtaken Tokyo as the world’s most expensive city to live in for expatriates,” according to the American news channel, CNN.
Chinese investors are heavily involved in Angola’s large-scale public works such as roads, rails and other infrastructure. But critics say these investors do not create sufficient jobs because they bring most of their workers from China. In 2008 alone, the Angolan consulate in China issued more than 40,000 visas to Chinese workers, reports the bimonthly global affairs journal, World Affairs. For example, the China International Trust and Investment Corporation employed 12,000 Chinese workers and only a handful of Angolans during the peak of the Kilamba Kiaxo social housing development project in Luanda. In addition, the journal states that while the majority of Chinese in Angola work in the construction sector, thousands later branch out into real estate, retail, street hawking, etc.
Future prospects
In 2013 the Angolan economy weakened because of lower-than-expected oil spending and mismanagement of the public debt. But the AEO report predicts that with increasing diversification, the non-oil sector could expand by 9.7% and the oil sector by 4.5% in 2014.
Worried about the uneasiness among its population over growing inequality amid rapidly rising economic growth, the government is now taking steps to improve the lives of its citizens. There are ongoing investments in electricity, water and transport. As part of the infrastructure-for-oil trade agreement between China and Angola, rail infrastructure is expanding. To create more jobs, the government has introduced a new foreign exchange currency law for the oil industry and reformed the regulations governing the mining sector. Introduced in November 2012, the law also cuts business taxes from 35% to 25%, which in return has led to significant investments by companies including diamond producers De Beers and Sumitomo Corp. Both companies are currently developing an ammonia and urea plant. This year, Angola’s central bank plans to de-dollarize the foreign exchange market to limit the use of foreign currency in local transactions. In the past, most oil receipts were conducted offshore; the new laws require transactions to be handled onshore.
But Angola needs more sound policies to attract investors to all sectors, not just diamonds and oil, experts say. Currently, the World Bank’s “Ease of Doing Business” report ranks Angola 179 out of 189 countries. This low ranking has to change for the economy to live up to the expectations of its 21 million people.
This article appears in the August 2014 edition of Africa Renewal, published by the United Nations.
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IMF and EAC team up to develop finance data
The East African Community (EAC) and the International Monetary Fund (IMF) have come together to help regional states in compiling finance statistics for their different governments.
Once done, the initiative will assist the EAC partner states meet the fiscal data requirements associated with the East Africa Monetary Union (EAMU) Protocol.
Speaking about the initiative, the EAC deputy secretary in charge of planning and infrastructure, Dr Enos Bukuku, said: “The intervention is timely in facilitating production of robust statistical data required for the establishment of the regional monetary Union and transition to EAC single currency by 2024”.
Mr Bukuku noted that GFS will be compiled in accordance with internationally agreed methodological standards, would not only provide the region with an important framework for comparing, analysing and evaluating fiscal policy, but also an opportunity to improve government and public sector performance.
Experience
Mr Barredo Capelot, the director of the Government Finance Statistics and Quality Directorate in Eurostat, while sharing lessons from the European experience that may be relevant for East Africa, said: “Solid and comprehensive fiscal statistics are essential for regional integration and preserving macroeconomic stability.”
EA monetary union
The leaders of five East African countries signed a protocol last November laying the groundwork for a monetary union within 10 years that they expect will expand regional trade.
Heads of state of Uganda, Kenya, Tanzania, Rwanda and Burundi, which have already signed a Common Market and a Single Customs Union, say the protocol will allow them to progressively converge their currencies and increase commerce.
In the run-up to achieving a common currency, the EAC nations aim to harmonise monetary and fiscal policies and establish a common central bank. Kenya, Uganda, Tanzania and Rwanda already present their budgets simultaneously every June.
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Nigeria aims to boost competitiveness and regional non-oil exports
“Some objectives of our trade agenda include: to achieve non-oil exports to ECOWAS from the present nine per cent to 20 per cent by 2015, with the ultimate goal of increasing the value of Nigeria’s recorded export to ECOWAS from $276 million in 2011 to $706 million in 2015,” declared Olusegun Aganga, Minister of Industry, Trade and Investment, while speaking at the seventh National Council on Industry, Trade and Investment held in Markudi, Nigeria end of August.
Aganga explains that this target was part of a larger strategic plan elaborated by the Nigerian Government aimed at increasing Nigeria’s non-oil as a proportion of total export from current five per cent in 2011 to 20 per cent by 2015, and 40 per cent in 2020.
“In the area of trade, I am glad to inform that we have just completed a new National Trade Policy and Strategy, which will soon be presented to the Federal Executive Council for approval,” he announced.
According to the Minister, this is the first time after 10 years that the country’s trade policy has been reviewed.
“For the first time in Nigeria’s history, we will have a trade policy that integrates with the industrial and investment priorities of the Nigerian people. Nigeria’s priorities for trade will facilitate job creation in Nigeria, and boost exports on non-oil products to new markets,” he said.
Efforts to shape a competitive industrial sector underway
Last week, President Goodluck Jonathan unveiled plans to pass laws that will support industrial competitiveness across various economic sectors.
Some sources indicate that the move is intended to tackle certain challenges being faced by the industrial sector with regard to policy inconsistencies.
“The task of industrialising our nation is a collective responsibility which will be pursued with vigour by all stakeholders. Necessary support structures and enablers are being put in place to make the industrial sector globally competitive,” said President Goodluck Jonathan, who was represented by Vice-President Namadi Sambo, at the yearly general meeting of the Manufacturers Association of Nigeria (MAN) in Lagos on 28 August.
“Prior to now, our country’s export consisted largely of raw material in their primary forms. The time has come to reverse this trend. We must boost our industrial capacity; create more jobs and wealth in the economy,” he added.
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Top 10 most competitive economies in sub-Saharan Africa
The sub-Saharan African region has provided something of a silver lining in an otherwise broadly felt global economic downturn in recent years, according to the latest edition of the World Economic Forum’s Global Competitiveness Report, which assesses 144 economies. Sub-Saharan economies continued to register impressive growth rates of close to 5% in 2013 – with rising projections for the next two years – below only emerging and developing Asia.
Yet significant risks remain. More than half of the 20 lowest-ranked countries in the report are sub-Saharan, and many markets have insufficient infrastructure and poor levels of health and basic education. More than a decade of consistent high growth has not yet trickled down to all segments of the population and most economic activity takes place in the informal sector, which employs more than 80% of the population.
The region’s challenge is to turn high growth into inclusive growth and make the transition from agriculture-based economies to higher value-added activities.
The report ranks markets on 12 key measures that influence competitiveness, including infrastructure, education and innovation. The following are the top 10 performers in the region.
1. Mauritius consolidates its leading position in the region this year, benefiting from relatively strong and transparent public institutions, clear property rights, strong judicial independence and efficient government. The country’s transport and communications infrastructure is well developed by regional standards and it is making improvements to the efficiency of its markets. As income per capita rises and Mauritius moves up the value chain, more effort will be needed to develop its human capital by improving higher education and training, and mobilizing talent more efficiently, including increasing the share of women in the labour force.
2. South Africa ranks highly for certain aspects of quality of its institutions, including intellectual property protection, property rights, the efficiency of its legal framework and the accountability of private institutions. It also has an efficient market for goods and services. But the country’s strong ties to advanced economies have affected key macroeconomic indicators, and there remains a lack of public trust in politicians and government. Security is a significant concern, health indicators are poor, and higher education and training remains insufficient. Raising education standards and making the labour market more efficient will thus be critical if high unemployment rates are to be addressed.
3. Rwanda has a low GDP per capita by regional standards, but is recognized for its relatively strong institutions and reasonably efficient goods and labour markets. Limited access to finance is seen as the greatest obstacle to doing business in Rwanda, followed by the inadequate education of the work force, the lack of capacity to innovate and poor infrastructure.
4. Botswana’s greatest strengths are its relatively reliable and transparent institutions, efficient government spending, its labour market and low levels of corruption in regional comparison and a sound macroeconomic environment. Heavy reliance on diamond mining renders the country vulnerable to fluctuations in demand, and the quality of education is mediocre. Yet the biggest challenge facing Botswana is health: the country has one of the highest rates of HIV infection and one of the lowest life expectancies in the world.
5. Namibia continues to benefit from a relatively well-functioning institutional environment, with well-protected property rights, an independent judiciary and a fairly efficient government. The country’s transport infrastructure is also good by regional standards and financial markets are reasonably developed. However, infant mortality remains high and life expectancy is low, largely due to high rates of communicable diseases. School enrollment rates are low compared to other sub-Saharan economies. Namibia needs to improve its human resource base to diversify its economy and harness new technologies to improve productivity.
6. Kenya continues its upward trend from last year and is making improvements on almost all pillars of the index, most notably in the areas of market efficiency. Its economy is supported by financial markets that are well developed, and since the adoption of a new constitution in 2010, the government has become more efficient and levels of corruption are gradually decreasing. Education is generally good, though tertiary enrollment rates are low considering Kenya’s shift towards middle-income status. The country’s telephony and electricity infrastructure does not meet the needs of an economy that is the largest in East Africa. Health and security continue to be concerns.
7. Seychelles is one of only a handful of sub-Saharan economies to have noteworthy health and education systems. It has good infrastructure by regional standards, and significantly higher-than-average GDP per capita. Access to finance is the number one barrier to doing business in the country, along with a poor work ethic among the work force.
8. Zambia, like many of its neighbours, suffers from poor infrastructure and its health and primary education provisions are lacking. The country’s business sector is also troubled by a lack of access to finance and by corruption; there is also a lack of technological readiness. Zambia does, however, have better higher education and training provisions – although still low in international comparison – than some nearby economies, and a more efficient goods market.
9. Gabon’s macroeconomic situation is more positive than many other countries in the region, although on most other measures of competitiveness it ranks just as poorly. It also lacks good health and education services and suffers from high levels of corruption. Access to finance is the biggest hurdle to growth for businesses in Gabon, followed by the lack of good infrastructure and poor levels of education among the work force.
10. Lesotho has positive macroeconomic conditions have helped the country climb up the global rankings, though the provision of health and education is lacking, as is the case in many countries in this region. Access to finance and concerns about corruption are the biggest business challenges in Lesotho, along with the poor provision of infrastructure and an inadequately educated work force.
Read the Press Release here.
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Jobs recovery to remain weak in 2015, says OECD
Unemployment will remain well above its pre-crisis levels next year in most OECD countries, despite modest declines over the rest of 2014 and in 2015, according to a new OECD report.
The Employment Outlook 2014 says that average jobless rates will decrease slightly over the next 18 months in the OECD area, from 7.4% in mid-2014 to 7.1% at the end of 2015. Almost 45 million people are out of work in OECD countries, 12.1 million more than just before the crisis. Globally, an estimated 202 million people are unemployed, with many more in low-paid and precarious jobs.
The Outlook also analyses the impact of the crisis on wages. It finds that real wage growth has come to a virtual standstill since 2009 and wages actually fell in a number of countries by between 2% and 5% a year on average, including in Greece, Portugal, Ireland and Spain.
This slowdown has been fairly evenly spread across the earnings distribution. However, slower real wage growth, and cuts in wages in some cases, result in real hardship for low-paid workers, the report warns.
“While wage cuts have helped contain job losses and restore competitiveness to countries with large deficits before the crisis, further reductions may be counterproductive and neither create jobs nor boost demand,” OECD Secretary-General Angel Gurría said while launching the report in Paris. “Governments around the world, including the major emerging economies, must focus on strengthening economic growth and the most effective way is through structural reforms to enhance competition in product and services markets. This will boost investment, productivity, jobs, earnings and well-being.”
Policy makers must ensure in particular that any further wage adjustments are not concentrated among low-earners. This is also relevant in countries where unemployment has fallen sharply since the crisis, such as Germany and the United States where the proportion of low-earners exceeds the OECD average and concerns one-fifth and one-quarter of workers respectively.
Mandatory minimum wages, which now exist, or are being implemented, in 26 OECD countries and a number of emerging economies, as well as in-work benefits, can help underpin the wages of low-paid workers.
Long-term unemployment has likely peaked but remains a major concern, says the report. Just over 16 million people – over one in three of the unemployed – had been out of work for 12 months or more in the first quarter of 2014, almost double the number at the start of the crisis.
In countries hardest hit, notably in Southern Europe, this has led to a rise in structural unemployment which will not be automatically reversed by a pick-up in economic growth, warns the OECD. Policy makers should prioritise efforts on helping the long-term unemployed back to work through more personalised job-search assistance and training programmes.
The Outlook also includes a new framework for assessing job quality, looking in particular at earning levels and distribution, job security and the quality of the work environment. It reveals wide differences between countries and between socio-economic groups, with youth and low-skilled having lower quality jobs. But it finds no evidence of a trade-off between job quantity and quality.
The Outlook highlights that an important dimension of job quality is the stability of the employment contract. In particular, efforts are needed to address the gap in employment protection between permanent and temporary workers. Temporary jobs are often not an automatic stepping-stone to a permanent job. In Europe, for example, less than half of temporary workers in a given year had full-time permanent contracts three years later.
It is encouraging that some countries have embarked on reforms in this area, says the report. These will take time to deliver results and it is essential that countries stay the course. Others should follow their lead. In emerging economies, informal employment looms large and major efforts are needed to promote job creation in the formal sector with adequate employment protection, while broadening the scope and coverage of social protection.
The jobless outlook for 2015 diverges widely among countries, with unemployment falling but still remaining very high in Spain (around 24%) and Greece (around 27%). The euro area will see joblessness decline to 11.2% at the end of 2015, from 11.6% in mid-2014, and above 10% in Italy, Portugal, the Slovak Republic and Slovenia. Unemployment is forecast to fall below 5% by the end of 2015 in Austria, Germany, Iceland, Japan, Korea, Mexico, Norway and Switzerland.
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Corruption concerns taint burgeoning China-Africa trade
Africa’s mineral, timber and oil wealth has been highly sought – and fought over – for years, mainly by Western nations.
Today, though, Africa has become a strong trading partner for China, which surpassed the United States in 2009 and whose bilateral trade reached $210 billion in 2013.
In February, China’s President Xi Jinping hosted Senegal’s President Macky Sall and told him this fast-growing trade relationship with Africa “stands witness to the endlessly renewed vitality of Sino-African friendship, to the scale of the potential for co-operation” and “Sino-African strategic partnership.”
Chinese Premier Li Keqiang has announced plans to double bilateral trade with Africa to $400 billion a year by 2020.
But there are concerns some of that trade may be illicit.
China aggressively pursues and locks in economic opportunities using, according to analysts, suitcases full of cash when it is needed to close the deal. Another tactic used by Beijing is the “gift” of building and donating public works projects to African states that have raw materials and other things that China wants access to.
Summit addressed corruption
At a summit on Africa hosted by the Obama administration in August in Washington, corruption was high on the agenda. And, there were complaints that Beijing is not adhering to international anti-corruption conventions as it secures African business.
Meanwhile, U.S. corporations are bound by the U.S. Foreign Corrupt Practices Act and also the United Nations Convention Against Corruption (UNCAC). It is a crime for a U.S. entity to bribe or otherwise improperly gain business overseas. Because of that, the U.S.-Chinese economic competition in Africa can be described as an uneven playing field, analysts say.
“China is observing the United States and increasingly, many other wealthy western nations in the OECD [Organization for Economic Cooperation and Development] such as Germany enforce their anti-bribery laws,” said anti-corruption specialist Andrew Spalding at the University of Richmond. “China knows that this gives its own companies a competitive advantage. Accordingly, the more the west enforces anti-bribery laws, the greater the incentive for China not to enforce.”
Spalding said that “China has passed a foreign bribery prohibition to satisfy its requirements under the UNCAC, but UNCAC does not require enforcement. It would seem [that] neither cultural or economic factors, nor its membership in UNCAC, will pressure China to address foreign corruption.”
Corruption abounds in Africa
But China has a fertile corruption field in Africa. The continent has long suffered from rampant corruption.
When nearly 50 African leaders came to Washington in August, U.S. Vice President Joseph Biden was blunt in his remarks about corruption’s endemic prevalence on the continent.
“It’s a cancer in Africa,” Biden said. “It not only undermines but prevents the establishment of genuine democratic systems. It stifles economic growth and scares away investment. It siphons off resources that should be used to lift people out of poverty.”
Sub-Saharan Africa’s record suffers
Sub-Saharan Africa’s anti-corruption record is, overall, dismal.
The good governance group Transparency International’s latest global Corruption Perceptions Index, released in December 2013, reported that of the 20 most corrupt nations, half are in sub-Saharan Africa. Somalia came in at the very bottom, with Sudan, Chad and Eritrea ranking very low on the index.
Some in business circles have proposed that the United States scale back on its anti-corruption measures so as to enable American companies to more aggressively compete for African business.
Spalding stands steadfast against that idea.
“We cannot, and will not, repeal or scale back anti-bribery laws,” he said. “Foreign bribery prohibitions are here to stay.”
Spalding proposes “encouraging and assisting African governments in enforcing their own domestic bribery laws through joint enforcement and other forms of institution building.”
Joseph Siegle, with the Africa Center for Research Studies at the National Defense University in Washington, said illicit activity causes Africa to ultimately wind up with less .
“In a competition involving corruption,” he said, “there will always be actors willing to take the process one rung lower. This process would simply accelerate a race to the bottom. … With these actors, however, there is a risk premium on the part of African governments and business partners. There is often a poorer standard of performance, lower reliability and fewer avenues of recourse if there are disagreements over a contract.
“Business transactions with international partners upholding the rule of law, in contrast, are more apt to be sustainable and bring African businesses into other corporate networks, creating more opportunity over the short and long term,” he said.
William Fanjoy, with the U.S. Commerce Department’s U.S. Export Assistance Center, said American business attributes ultimately trump shady deals with others.
“U.S. companies can never ‘sweeten’ a deal in Africa, but they do offer African partners quality, responsiveness, financing, training and a long-term business relationship,” Fanjoy said. “After years of getting to know Chinese poor quality, we find that African companies are seeking out known American quality and reliability.”
African countries split on convention
While the United States and China, along with other nations, compete for Africa’s wealth and business, the continent has taken steps to address illicit economic activity.
The African Union in 2003 forged its Convention on Preventing and Combatting Corruption, which so far has been ratified by only 35 of the AU’s 54 members. Transparency International notes, however, that many of those signatory states “have not taken action to implement the necessary legal frameworks” supporting the AU’s Convention.
In 2012, a high-level anti-corruption working group was launched by the United Nations and the African Union. The goal is to find ways to curb illicit financial flows from sub-Saharan Africa, which the good governance group Global Financial Integrity says took 5.7 percent of the region’s collective GDP. This U.N.-AU group is expected to issue a report on its strategies for fighting illicit activity later in 2014.
Transparency International puts the responsibility for combatting corruption not only on those African states but also on the G20 – the world’s top 20 nations measured by their economies.
The group is calling for adopting mandatory reporting standards for the natural resource sector for all G20 countries, and country-by-country reporting by multi-national companies.
This would show where the money for oil, gas, logging and precious minerals goes. T-I says “only if leaders and civil society work together to enforce tough laws, and share information on illicit financial flows, will these latest commitments stop the pillaging of Africa.”
Africa attracts China
As for China, Africa is a continuing lure.
Former New York Times reporter Howard French, who wrote a book on the burgeoning China-Africa ties, reported that “China’s Export-Import Bank extended $62.7 billion in loans to African countries between 2001-2010, or $12.5 billion more than the World Bank.”
U.S. President Barack Obama said this summer that China can be good business for Africa, as long as trade is above board.
“My view is the more the merrier,” he said. When I was in Africa, the question of China often came up, and my attitude was every country that sees investment opportunities and is willing to partner with African countries should be welcomed.
“The caution is to make sure that African governments negotiate a good deal with whoever they’re partnering with,” Obama said. “And that is true whether it’s the United States; that’s true whether it’s China.”
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Nigeria, Angola, South Africa lead in non-oil export to U.S.
Nigeria, Angola and South Africa were the three leading exporters to the United States in 2013 within the provisions of the African Growth and Opportunity Act (AGOA), according to data from the Nigerian Export Promotion Council (NEPC).
The data showed that Nigeria’s non-oil exports amounted to $3.0 billion (N486 billion) in 2013, representing a 15.9 per cent increase from the preceding year.
Also, non-oil exports from Nigeria to member countries of the Economic Community of West African States (ECOWAS) stood at $375 million (N60.7) in 2013, an increase of 20 per cent y/y.
According to the NEPC, cocoa emerged again as the leading non-oil export commodity, earning a total of $759 million during the period. Nigeria is ranked the fourth largest exporter of cocoa and its by-products globally.
The NEPC identified 14 key non-traditional products, which offer comparative advantage as cassava, shea products and potatoes.
Meanwhile, analysts at FBN Capital argued that for Nigeria to tap effectively into this segment, it is imperative that export commodities meet high standards in order to compete in the global market.
The FBN Capital stated: “There are multiple challenges for non-oil exporters. These include infrastructure deficiencies, high costs of production and weak logistics. A disturbing obstacle is the bad reputation associated with the products, which has led manufacturers in some segments to brand their goods other than ‘made in Nigeria’.”
It added: “Nigerian cuisine and the film industry (Nollywood) are areas the FGN intends to promote internationally. Taking a cue from China which has a strong presence globally in the export of its cuisine, the FGN will initially focus on cities such as London, Houston, Toronto and Johannesburg which have high diaspora populations.”
However, the FBN Capital predicted that a sustained growth ahead in export diversification due to developments in agribusiness, the cement segment and mining. It said: ”While substantial oil production losses may have raised the profile of non-oil exports, we should remember that Nigeria’s economic model is based on import substitution rather than export diversification.”
The FGN said its focus is the creation of employment through import substitution, preferably in the taxpaying formal economy, and the resulting foreign exchange savings from domestic production, for example, food crops, vehicles and petroleum products.”
The Federal Government recently unfolded plans to increase the country’s non-oil exports to the Economic Community of West African States from $276.5 million (N45.62 billion) in 2011 to $706.1million (N116.5 billion) by 2015.
Minister of Industry, Trade and Investment, Mr. Olusegun Aganga disclosed this during the 7th National Council on Industry, Trade and Investment in Markurdi, Benue State.
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The AfDB releases its North Africa 2014 Report
The AfDB North Africa 2014 report focuses on inclusive growth, providing an overview of the AfDB’s activities in the region, along with a summary of the socio-economic situation in each of the five countries covered.
The African Development Bank (AfDB) has released its North Africa 2014 annual report, entitled Looking for inclusion (click here to download). This year’s report focuses on the pressing need for inclusive growth and development, as demonstrated by the uprisings experienced in several countries in the region in early 2011.
The report includes a brand new indicator, which measures the extent to which growth may be considered inclusive. The data reveal an important observation: in 2008-2010 (i.e. immediately before the “Arab Spring”), the five countries in the North Africa region (Morocco, Algeria, Tunisia, Libya and Egypt) posted below-average performance figures.
Tunisia was the highest-ranked country in the region, followed by Egypt, Libya, Morocco and Algeria respectively.
Despite improvements in the North African economies, both in real terms and in comparison with other developing nations, the report reveals deepening inequalities between social groups in two key areas: the labour market and regional variations. Furthermore, these very same inequalities are recognised as the main obstacles to inclusive growth. Genuinely inclusive growth would help to deliver fairer distribution of wealth between age groups, social classes and regions in these countries.
The report also reveals the existence of a two-tier labour market in the region, with a marked rift between the formal and informal sectors. Less than 50% of the working-age population is employed in the formal labour market, and the unemployment rate across the region stands at around 10% – considerably higher than the global average. Furthermore, people in the 15-24 age bracket are three times more likely to be unemployed than adults aged 25 and over. The unemployment rate is especially high among young, educated people and women. Indeed, women are twice as likely to be unemployed as men. The situation among young women (aged 15 to 24) is even worse, with people in this category three times more vulnerable to unemployment than women aged over 24.
In many cases, long-term unemployment leads to permanent withdrawal from the labour market. This, in turn, results in chronic poverty, marginalisation and, as demonstrated by the Arab Spring, social unrest.
A high proportion of North African workers are in unstable employment in the so-called “informal” sector, with no contract or social protection. Only 30% of workers in Morocco, 46% of workers in Tunisia and 50% of workers in Egypt have a contract of employment. Generally speaking, informal-sector workers experience substandard working conditions (compared with the formal sector) and receive extremely low wages, and in some cases no pay whatsoever.
However, the picture is not the same across North Africa. Income levels and other well-being indicators vary markedly by geographical location, including within individual countries. These differences are also reflected in the quality of public services and social welfare provision, as well as in private-sector employment opportunities and public-sector development assistance for the private sector.
The key message of the 2014 report is that the North African countries now have a historic opportunity, as the working-age population is set to continue growing until 2020. Provided that the region is able to sustain an effective labour market and attract sufficient investment, this population growth should help to deliver strong growth.
The AfDB remains one of the region’s key partners in its efforts to overcome these challenges. The Bank is currently supporting more than 100 projects in the region, funded by loans and grants totalling US $7 billion.
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Improving regional integration in Africa
The resolution of outstanding issues under the Economic Partnership Agreements, among others, will no doubt facilitate regional trade in Africa, writes Eromosele Abiodun
In the years before the global financial crisis in 2008, global trade increased exponentially. While African countries benefited from this increase, their share in world trade has remained low. Africa’s export trade amounts to only about three per cent of world exports. This poor trade performance partly relates to trade protection outside Africa against African products, but it also stems from constraints that inhibit trade within Africa. With the expectation of a generally moderate recovery of the global economy and of world trade, it is even more important than before to foster African countries’ trade with economies both outside and inside Africa.
Experts have said rapid conclusion and resolution of the outstanding issues in the Economic Partnership Agreements (EPAs) negotiations are crucial to Africa’s medium-term prospects in both regional and international trade. Indeed, among the different measures that several advanced countries adopted in 2009 to curb the effect of the financial crisis, trade protectionism has been on the rise. Protectionism increased despite repeated assurances in the context of the G20 meetings in London, as well as in the context of World Trade Organisation (WTO) talks.
Often stimulus packages were geared to favour domestic sectors, such as through export support, or to favour buying, lending, hiring or investing in local goods and services. Such measures clearly discriminate against developing countries, including those in Africa, on several levels. Unfortunately, African governments lack the resources to curb the domestic impact of the crisis with the same type of measures. Also, African companies face unfavourable treatment precisely in markets where additional spending is being promoted. Hence, with these new measures African products easily face discriminatory treatment in relation to similar domestic products and services in developed countries, despite the general agreements about preferential treatment they may enjoy.
FG’s Task Force
To check the situation in the West African Sub-regional, the Federal Government of Nigeria recently set up a task force on trade facilitation in Nigeria with a mandate to remove all bottlenecks to trade between Nigeria and its neighbouring countries.
The Task force member comprises representatives of Ministries of Commerce Trade and Investment, Ministry of Finance and Ministry Transport. Others are: the Nigeria Customs Service (NCS), Nigeria Shippers Council (NSC), the Nigerian Port Authority (NPA), National Agency for Food, Drug Administration and Control (NAFDAC), the Standards Organisation of Nigeria (SON), Nigeria Quarantine Services (NQS), the Nigerian Police, the Central Bank of Nigeria (CBN) and Nigeria Road Safety Corps.
While on a visit to the Managing Director of Nigerian Export Import Bank (NEXIM), Mr. Roberts Orya recently, Chairman of the taskforce, Mr. David Adejuwon, said the body had taken proactive steps to identify what constitutes technical and physical barriers to movement of goods in the sub region.
He confirmed that there are about 35 check points during the day and about 50 checkpoints at night from Lagos to Seme border, hindering trade between both countries. This, he said, was against protocol that ECOWAS member countries signed to reduce it to three checkpoints.
According to him, all these have been impacting negatively on the country’s image and its competitiveness in the effort to attract foreign direct investment (FDI) into the country.
He pointed out that once the taskforce was able to remove those barriers in the border posts, it will go a long way to facilitate trade between Nigeria and other African States. He called for support and collaboration from NEXIM Bank to facilitate trade between Nigeria and other West African States.
Adejuwon on behalf of the taskforce sought for the support of NEXIM Bank in the provision of surveillance vehicles, trade facilitation workshop, sensitisation and public awareness as well as disseminating and publicising information on the operation of the Committee.
Orya had pointed out that Nigeria has the biggest market in Africa and there was need to reduce the multiple checkpoints, which have militated against free movement of goods in the sub-region.
He added that Nigeria, being a strategic nation in both economic and political institution owned by ECOWAS, needed to explore the sub region market, saying that NEXIM Bank has started deepening payment system by supporting Nigerian exporters. Despite his promises at the time, nothing much has been done to show seriousness on the part of government.
NANTS Tasks ECOWAS
However, despite Nigeria’s efforts, some African countries especially those in West Africa are not taking adequate steps to ensure hindrances in achieving regional integration are removed.
Recently, the National Association of Nigerian Traders (NANTS) charged Economic Community of West African States (ECOWAS) leaders to address the poor implementation of the ECOWAS Treaty and Protocols, especially the protocol on free movement by member states as a major hindrance in achieving regional integration objectives.
Also, the association, in a message and agenda to the speaker of the ECOWAS parliament, pointed out that there is poor adherence to the provisions of the protocol on Rights of Residence and Establishment.
It added that the problem is further complicated by the lack of access to the ECOWAS Court of Justice by community citizens on violations of their socio-economic rights under the Protocols and the ECOWAS Treaty itself.
“NANTS has been canvassing for the compliance of member states with these laws, but has also noted that the role of the ECOWAS Parliament in cases like this is unfortunately limited to merely advisory as it lacks law making powers necessary for the review of sub-optimal provisions in a Protocol,” the association said.
NANTS added that, “It is therefore our expectation that your administration as the Speaker of the Parliament would strengthen the extant weak powers of the ECOWAS Parliament, empower the ECOWAS Commission to be more efficient where necessary, enhance the laws of the Community by possibly infusing strict sanction mechanisms thereunto and effectively capacitate even the National Parliaments and other relevant institutions as fundamental organs in the enforcement of laws and or dispensation of justice and integration in West Africa.”
It urged the Speaker to take immediate action and review the laws establishing the ECOWAS Court of Justice, with a view to broadening its mandate and jurisdiction in line with other regional Courts such as the European Court.
NANTS said it expected that the ECOWAS Parliament would be instrumental to driving the achievement of the ECOWAS Vision 2020 objectives, particularly of transforming ECOWAS from ‘an ECOWAS of States to an ECOWAS of people.’
“In this regard, we envisage that the Community Development Programme (CDP) would be institutionalised as a veritable instrument for realising the objectives of the Vision 2020, which is endorsed by the Authority of Heads of States and Governments of ECOWAS. This is essential given that the CDP seeks to anchor regional policies, programmes and plans shaped by the citizens themselves rather than erstwhile practice of approval of wholly-Consultant-drawn-policies and programmes,” NANTS said.
“Basically, the CDP seeks to rather institute a ‘bottom-up’ approach to policy making in the region as opposed to a ‘top-bottom’ approach. As representative of the community citizens, NANTS believes that the ECOWAS Parliament should play a more visible role in the entire transformation process.
“We would therefore cherish an opportunity to not just brief you in details on the CDP process but also explore options for the immediate involvement of the Parliament in the CDP process. Indeed, we wish to emphasise that NANTS believes that the ECOWAS Parliament is indispensable and crucial for the actualisation of the ECOWAS vision 2020,” NANTS stressed.
Trade Performance in Africa
Meanwhile, the Organisation for Economic Cooperation and Development (OECD), in a recent report on trade performance in Africa, noted that one critical reason for Africa’s relatively poor trade performance is the weak diversification of African trade both in terms of trade structure and destination.
Most African economies, OECD said, depend on very few primary agricultural and mining commodities for their exports and mainly import manufactured goods from advanced countries.
“As the traditional markets in advanced countries are expected to grow less than markets in emerging Asian and Middle East countries as well as markets within Africa, enhancing trade relations with these more dynamic markets is key. Several inefficiencies also constrain trade within Africa. These inefficiencies include poor transport infrastructure such as maintenance and connectivity, political instability and lack of security within and among several regions, and intra-African trade barriers.
“Despite progress, intra-African trade is still low, representing on average around 10 per cent of total exports. Many factors contribute to the low trade performance, including the economic structure of African countries, which constrains the supply of diversified products; poor institutional policies; weak infrastructure; weak financial and capital markets; and failure to put trade protocols in place, “OECD said.
OECD in the report pointed out that Africa’s trade performance is extremely low compared with other trading blocs outside the continent.
It said: “For example, trade within the Association of South East Asian Nations (ASEAN) accounts for about 60 per cent of their total exports. The same is true for the countries belonging to the North American Free Trade Agreement (NAFTA) area, whose intra-regional trade accounted for 56 per cent of total exports. It is no wonder that the economies of ASEAN and NAFTA are doing remarkably well.
“Barriers to external and internal trade in Africa are numerous, despite Africa’s determination to dismantle trade restrictions in order to create a common market within the framework of regional and sub-regional agreements. These barriers are mostly the consequences of the above-mentioned factors. In addition, 15 of the countries in Africa are landlocked,” it said.
These countries, the report stressed, continue to face serious challenges in having direct access to the sea adding that lack of territorial access to the sea, remoteness and isolation from world markets, and high transit costs continue to impose serious constraints on the overall socio-economic progress of landlocked developing countries.
The situation, it said, has pushed many landlocked developing countries to higher poverty levels.
“Currently, the African Union Commission is focusing on its Minimum Integration Programme (MIP), consistent with previous AU Conferences of African Ministers in Charge of Integration (COMAI). This focus underscores the need for rationalising resources and harmonising the activities and programmes of Regional Economic Communities (RECs). The MIP is in line with a broader undertaking, namely the realisation of the African Economic Community (AEC), as envisaged in the Abuja Treaty and the Constitutive Act of the African Union, “the report said.
UNECA, AFDB’ Efforts
It added that, “Furthermore, the African Union Commission, together with the United Nations Economic Commission for Africa (UNECA), the African Development Bank (AfDB) and the RECs, has also made notable progress in establishing three-pan-African financial institutions: the African Central Bank, the African Monetary Fund and the African Investment Bank.
“The AfDB is also supporting the institutional setup for improving macroeconomic and financial convergence on the continent. It has also focused on the preparation of a continental Programme on Infrastructure Development in Africa (PIDA), as well as on the development of an EPA template to be used as a guide in the negotiations for EPAs. This last aspect will be particularly conducive to greater coherence between the different EPAs being negotiated and other regional agreements, which are already in place.”
Ebola Changes the Equation
Efforts to get African countries working together to enhance economic integration may have suffered a huge blow following the recent outbreak of the Ebola Virus Disease. Following embargo on movements to curb the spread of the epidemic economies around West Africa are already suffering. For instance, it is estimated that Nigeria may lose $3.5 billion to the Ebola epidemic by December this year, if nothing is done to contain the spread of the deadly disease.
In a recent report released, the Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane said the fear of the disease had affected economic activities significantly.
According to him, the sectors of the economy mostly affected by the fear of the disease are aviation, tourism and hospitality, trade, medical and agriculture.
He added, “Analysing these sectors’ contribution to the Gross Domestic Product shows that Nigeria may lose about $2 billion in the first quarter of the outbreak. The chance of the outbreak going into a second quarter is very slim; which could extend the loss to $3.5 billion.”
The Boko Haram insurgency had been the headline news in Nigeria until July 25 when it was confirmed that Ebola was imported into the country.
Since then, fear, panic, disbelief and frustration have set in as economic, particularly in Lagos, have gradually slowed down. Global rating agency, Moody’s, has announced that the outbreak of Ebola in Nigeria can lead to serious disruptions in some sectors of the economy with negative financial consequences.
The World Health Organisation has also reported that the Ebola crisis is vastly underestimated as the reported cases and deaths do not reflect the scale of the crisis.
About 1,069 persons have died in the affected countries, out of which three are Nigerians and 198 other persons are currently under quarantine in the country.
Impact on West Africa
Teneo Intelligence estimates that economic growth in Liberia, Sierra Leone and Guinea may reduce by two percentage points.
In other words, Sierra Leone’s growth rate in 2014 may not exceed 12 per cent instead of the initial forecast of 14 per cent. Liberia, Sierra Leone and Guinea have a combined Gross Domestic Products (GDP) of approximately $13 billion, equivalent to 2.5 per cent of Nigeria’s GDP.
Rewane further stressed that a small part of the Nigerian economy was already benefiting from the Ebola scare. These include shop owners selling sanitizers.
He, however, said a larger part was experiencing losses.
He said, “Air transport was 0.09 per cent of Nigeria’s GDP in the first quarter and the second most used this means of transportation after road. Since the outbreak of Ebola in West Africa, several airlines including Arik Air, Asky, British Airways and Emirates have suspended flight operations to and from any of the Ebola affected countries.
“Saudi Arabia also suspended giving out visas to Muslim pilgrims from West African countries. Serious screening for Ebola has also begun at several international airports before passengers are allowed to board an airplane. We expect revenues in the aviation sector to plunge downwards, which would affect both the airlines and the support industry (handling companies, oil marketers, catering, duty free shops, etc.)”
He further said, “Hospitality and tourism preliminary information shows that many hotel and airline bookings in Lagos have been cancelled by in- bound travellers due to Ebola scare. This is not surprising since India and Greece have openly advised their citizens to avoid non-essential travel to Nigeria and other Ebola-affected countries. It is estimated that restaurant visits in Lagos have already declined by 50 per cent.”
“Trade in the first quarter contributed 17.35 per cent to Nigeria’s GDP. Trade and investment flows are critical to the external sector of this vibrant country and the West African region. The region enjoys almost a custom union with common external tariff and movement of visitors without visas. Since movement of people is restricted in and out of the affected regions, fewer goods will be equally transported. Air transportation is very critical to trade.
“Hence, a reduction in the number of international flights literally means a reduction in international trade flows. Domestic trade is also likely to be negatively affected significantly if the disease spreads,” he stated.
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Africa needs to diversify its economy
Investor enthusiasm for Africa is gaining traction. As the home to two economic powerhouses, the continent offers growth and the opportunity of lucrative return on investment.
In the past, Africa’s economic growth was primarily driven through extractive enterprises. But in the past decade success from manufacturing, agriculture and natural resources has shown that with the right partnerships in place, Africa is poised to outgrow its reputation as a market driven only by consumption and commodities.
To take this next step and to reach Africa’s consumers we need a common market and economies of scale. It is evident that there is a need for further regional integration and intra-African trade for the diversification of the continent’s economy. This in turn will spur on wealth creation across all existing sectors, in all countries.
This point was reinforced by former public enterprises minister Malusi Gigaba (the current home affairs minister) in his keynote address at this year’s American Chamber of Commerce South Africa annual general meeting, held in Johannesburg in March. Gigaba expanded on the importance of regional integration for Africa – especially in an environment where developed markets are experiencing an extended downturn.
A highlight in his speech was that Africa’s growth prospects remained positive and that there was significant optimism about the development of the continent. He pointed out that Africa needed to incorporate partnerships with other leading emerging markets around the globe in order to strengthen inter-regional ties in trade, investment and business, and also achieve success through increased economies of scale.
Early last month the US government hosted its US-Africa Summit in Washington, DC. The event was widely hailed as a success. The summit was geared towards strengthening ties between Africa and the world’s most powerful nation. In attendance were 40 out 47 African heads of state (including President Jacob Zuma and Nigerian President Goodluck Jonathan) as well as senior representatives from major US companies.
Along with US President Barack Obama’s support of the renewal of the African Growth and Opportunities Act (Agoa) $33 billion (R352bn) worth of deals was made through the “Doing Business in Africa” programme.
Agoa was signed into law by former US president Bill Clinton in 2000 and expires in 2015 (it was originally set to expire in 2008 but was extended). The trade agreement allows duty-free export access of thousands of products from eligible sub-Saharan African countries into the US. A renewal of another 15 years is anticipated.
This conference has been regarded as an important platform to strengthen trade and investment ties between the US and Africa, to enhance co-operation on peace, safety and security, and to discuss ways to foster progress towards inclusive and sustainable development in Africa.
One of the biggest priorities on the African agenda remains achieving peace and stability on the continent, and South Africa has proved that there is an abundance of economic benefits that come with a strengthened democracy that is complemented by strong institutional and regulatory frameworks.
The 2013/14 Global Competitiveness Report of the World Economic Forum (WEF) found that countries that were highly innovative and had strong institutions topped international competitiveness rankings. The report also showed that of the Brics (Brazil, Russia, India, China and South Africa) nations, South Africa was second in its competitiveness after China.
Another finding in the report was that in sub-Saharan Africa, Mauritius was the region’s most competitive economy, with South Africa in second place. Among low-income economies, the report showed that Kenya had made the biggest improvement – moving up 10 places to 96th position.
Imagine if these economies collaborated for partnered growth and development.
The WEF report shows us that there is a need for more insightful efforts to improve Africa’s competitiveness. A good starting point is through the diversification and opening up of its markets.
The fact is the numbers don’t lie. They point to an optimistic future ahead. A key enabler will be regional integration, and in particular the role of trade agreements as the key building blocks of that integration. There are a number of trade agreements or trade arrangements in Africa – the Common Market for Eastern and Southern Africa (Comesa), the Southern African Development Community (SADC), the Southern Africa Customs Union, the Economic Community of West African States, the East African Community (EAC) – but most remain on paper and in so doing are unable to unleash the true potential of Africa’s vast human capital and resources.
African leaders should now embrace the opportunity and renewed political will to build on these trade agreements and demonstrate their benefits by implementing them in practice.
The challenges faced by businesses operating in Africa are well documented: limited energy security, irregular banking frameworks, protecting intellectual property, and achieving a balance between aid and trade. However, these challenges are not unique to emerging markets and they are not without solutions.
Similar to other emerging markets, such as south-east Asia and Latin America, Africa can present boundless prospects for its investors. Business needs to approach Africa differently because the continent is a study in diversity. Yes, there is common opportunity like growing consumerism, rapidly developing technology, globalisation and access to information. But different countries present different opportunities and the most sustainable way to tap into these is through strengthened free trade agreements and regional integration.
South Africa, for example, where democracy is 20 years old – boasts one of the world’s most sophisticated financial systems and has the capability to use its data and institutions to grow its economy.
On the other hand Kenya, the largest economy in east Africa, is classified as a low-income market but it continues to strengthen its democracy, open its market to international investors, encourages entrepreneurship and is exploring new ways to improve its socio-economic prospects.
A recent media report (Financial Mail, February 7) indicates that Kenya exports goods valued at approximately 3 billion Kenyan shillings (R355 million) to South Africa and South Africa exports goods worth about 70 billion Kenyan shillings to Kenya.
Based on this, preferential trade agreements could come by way of a proposed tripartite agreement between Comesa, the EAC and the SADC, to establish a free trade area by 2015.
In anticipation of the promise of these agreements, and due to improved relations between the countries, a number of South African entities have established business interests in Kenya. These include Tiger Brands, Old Mutual, FirstRand and Distell.
Africa has many of these one-off case studies, but global investor consensus is that Africa has the potential and opportunities that can redefine it as a market that grows organically in all its sectors, instead of primarily depending on consumption to drive development.
The 2013 African Economic Outlook shows that sustainable development in Africa rests on diversification and investment in human capital. The report also shows that African countries must provide the right conditions to allow untapped resources such as minerals and natural wealth to optimise job creation opportunities.
The perceived “deterrents” to investing in Africa can be managed only when confronted by all stakeholders on the continent. It requires the understanding of each country’s specific dynamics, its policies and frameworks, and what each country can do to implement and help achieve intra-regional trade.
Markets will be accessible, jobs created, infrastructure development accelerated and the continent’s economy will be beneficial to more people and companies – not just for multinationals like Ford but for companies of all sizes that wish to contribute towards development and diversification.
Jeff Nemeth is president and chief executive of Ford Motor Company of Southern Africa and president of the American Chamber of Commerce in South Africa.
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Global growth at risk from slow reform progress
The health of the global economy is at risk, despite years of bold monetary policy, as countries struggle to implement structural reforms necessary to help economies grow, according to the Global Competitiveness Report 2014-2015 released today by the World Economic Forum.
In its annual assessment of the factors driving countries’ productivity and prosperity, the report identifies uneven implementation of structural reforms across different regions and levels of development as the biggest challenge to sustaining global growth. It also highlights talent and innovation as two areas where leaders in the public and private sectors need to collaborate more effectively in order to achieve sustainable and inclusive economic development.
According to the report’s Global Competitiveness Index (GCI), the United States improves its competitiveness position for the second consecutive year, climbing two places to third on the back of gains to its institutional framework and innovation scores. Elsewhere in the top five, Switzerland tops the ranking for the sixth consecutive year, Singapore remains second and Finland (4th) and Germany (5th) both drop one place. They are followed by Japan (6th), which climbs three places and Hong Kong SAR (7th), which remains stable. Europe’s open, service-based economies follow, with the Netherlands (8th) also stable and the United Kingdom (9th) going up one place. Sweden (10th) rounds up the top-10 of the most competitive economies in the world.
The leading economies in the index all possess a track record in developing, accessing and utilising available talent, as well as in making investments that boost innovation. These smart and targeted investments have been possible thanks to a coordinated approach based on strong collaboration between the public and private sectors.
In Europe, several countries that were severely hit by the economic crisis, such as Spain (35th), Portugal (36th) and Greece (81st), have made significant strides to improve the functioning of their markets and the allocation of productive resources. At the same time, some countries that continue to face major competitiveness challenges, such as France (23rd) and Italy (49th), appear not to have fully engaged in this process. While the divide between a highly competitive North and a lagging South and East persists, a new outlook on the European competitiveness divide between countries implementing reforms and those that are not can now also be observed.
Some of the world’s largest emerging market economies continue to face difficulties in improving competitiveness. Saudi Arabia (24th), Turkey (45th), South Africa (56th), Brazil (57th), Mexico (61st), India (71st) and Nigeria (127th) all fall in the rankings. China (28th), on the contrary, goes up one position and remains the highest ranked BRICS economy.
In Asia, the competitiveness landscape remains starkly contrasted. The competitiveness dynamics in South-East Asia are remarkable. Behind Singapore (2nd), the region’s five largest countries (ASEAN-5) – Malaysia (20th), Thailand (31st), Indonesia (34th), the Philippines (52th) and Vietnam (68th) – all progress in the rankings. Indeed, the Philippines is the most improved country overall since 2010. By comparison, South Asian nations lag behind, with only India featuring in the top half of the rankings.
To boost its economic resilience and keep the economic momentum of past years, Latin America finds its major economies still in need of implementing reforms and engaging in productive investments to improve infrastructure, skills and innovation. Chile (33rd) continues to lead the regional rankings ahead of Panama (48th) and Costa Rica (51st).
Affected by geopolitical instability, the Middle East and North Africa depicts a mixed picture. The United Arab Emirates (12th) takes the lead and moves up seven places, ahead of Qatar (16th). Their strong performances contrast starkly with countries in North Africa, where the highest placed country is Morocco (72nd). Ensuring structural reforms, improving the business environment, and strengthening the innovative capacity so as to enable the private sector to grow and create jobs are of key importance to the region.
Sub-Saharan Africa continues to register impressive growth rates close to 5%. Maintaining the momentum will require the region to move towards more productive activities and address the persistent competitiveness challenges. Only three sub-Saharan economies, including Mauritius (39th), South Africa (56th) and Rwanda (62nd) score in the top half of the rankings. Overall, the biggest challenges facing the region is in addressing human and physical infrastructure issues that continue to hamper capacity and affect its ability to enter higher value added markets.
“The strained global geopolitical situation, the rise of income inequality, and the potential tightening of the financial conditions could put the still tentative recovery at risk and call for structural reforms to ensure more sustainable and inclusive growth,” said Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.
Xavier Sala-i-Martin, Professor of Economics at Columbia University in the US, added: “Recently we have seen an end to the decoupling between emerging economies and developed countries that characterized the years following the global downturn. Now we see a new kind of decoupling, between high and low growth economies within both emerging and developed worlds. Here, the distinguishing feature for economies that are able to grow rapidly is their ability to attain competitiveness through structural reform.”
Background
The Global Competitiveness Report’s competitiveness ranking is based on the Global Competitiveness Index (GCI), which was introduced by the World Economic Forum in 2004. Defining competitiveness as the set of institutions, policies and factors that determine the level of productivity of a country, GCI scores are calculated by drawing together country-level data covering 12 categories – the pillars of competitiveness – that collectively make up a comprehensive picture of a country’s competitiveness. The 12 pillars are: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation.
Read The Global Competitiveness Report 2014-2015 here.
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Impact of trade policy on poverty examined in new UNCTAD book
A novel collaborative approach between academics and policymakers examines the impact of trade policy on poor people in eight developing and transition countries in a new book published by the UNCTAD Virtual Institute (Vi).
“Trade Policies, Household Welfare and Poverty Alleviation: Case Studies from the Virtual Institute Academic Network” is the outcome of a three-year capacity-building project for researchers in developing and transition countries.
The findings of the project will be presented by the authors and their policymaker partners to government representatives in Geneva 8–10 September, during the Virtual Institute’s Seminar on Trade and Poverty, with the book launched on the afternoon of 8 September.
The book takes the form of eight case studies from the Philippines, the Former Yugoslav Republic of Macedonia, Argentina, China, Costa Rica, Peru, Nigeria and Viet Nam.
The studies address the relationship between globalization and poverty in the context of two broad themes. One set of studies examines the welfare consequences of the recent increases in global food prices. The other set of studies examines the welfare effects of trade policy and exchange rate changes.
The researchers used a methodology based on household-level surveys to assess short-term effects of global price changes or trade policies on household consumption, production and labour income, and subsequently, on household welfare and poverty. The country studies are based on actual situations faced by developing countries, such as recent increases of global food prices, a change in import tariffs or exchange rate appreciation. An overview of the analysis and conclusions of individual studies are available in Table 1.
“The research yielded several insights about the relationship between changes in commodity prices or trade policies, and poverty,” the book’s editor Nina Pavcnik, a professor of economics at Dartmouth College, said.
“For example, while the rural poor tend to be harmed by increases in the price of rice in the Philippines, they benefit from an increased price of maize in the former Yugoslav Republic of Macedonia. This difference stems from the fact that the rural poor in the Philippines tend to be net consumers of rice, while the rural poor in the former Yugoslav Republic of Macedonia are net producers of the commodity that experienced a large price increase. Such assessments can provide a useful tool to help policymakers enhance the potential positive impact of trade on poverty.”
The trade and poverty project from which the book emerged began with a 12-week online course developed specifically for researchers and university lecturers from developing and transition countries. The objective of the course was to provide participants with the empirical tools needed to assess the impact of trade and trade-related policies on poverty and income distribution so that they may assist policymakers in the design of pro-poor trade policies.
The UNCTAD Virtual Institute is a capacity-building and networking programme for academic institutions. Its aim is to help them strengthen their teaching and research capacity in the area of trade, investment and development, and increase the policy orientation and relevance of their work.
The Virtual Institute trade and poverty project was co-funded by the United Nations Department of Economic and Social Affairs and the government of Finland.
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African maritime managers to meet in Kenya over blue economy
African ports and maritime managers will meet in Kenya in November to seek ways of addressing challenges facing the two industries, organizers said on Thursday.
The Nov. 16 to 19 conference organized by the Pan African Association for Port Co-operation (PAPC) aims to enhance Africa Union’s drive in achieving African Integrated Maritime Strategy (AIMS) 2050 objectives of fully exploiting the continent’s blue economy.
“It is a step towards attaining an in-depth awareness of the strategy and how PAPC can learn and synergize with their European peers from the International Association of Ports and Habours platform through the Africa-Europe Regional Group,” PAPC said in a statement issued in Nairobi.
The event comes as piracy which had affected the African maritime industry, along the Indian Ocean has sharply reduced, lowering the costs of shipping as insurance companies and private ship security companies lower their premiums.
The drop in piracy incidents is however a relief to shipping companies using the Indian Ocean that have been target of pirates often paying heavy ransom to secure release of their vehicles and the crew.
Shipping companies had been forced to hire private security companies to enhance the security of their vehicles, a fact that however has increased the cost of doing business.
The conference is a response to the continent’s unimpressive share of global investments in the maritime industry despite its significant contribution to global maritime cargo and the renewed desire for strategic take-off in the maritime sector.
The three-day event which will be hosted by the Kenya Ports Authority is being organized by the PAPC Secretariat in conjunction with the three Port Management Associations – West and Central Africa, East and Southern Africa and North Africa.
“Themes for these conferences are focused on a contemporary agenda and will leverage and deliver roadmaps, or solutions to challenges the ports face. It is by ports and for ports,” the statement said.
The event will attract speakers have been invited from all over the Africa and Europe Region, globally sought for consultants in maritime and port development, as well as international organizations such as UNCTAD, UN Economic Commission of Africa, International Maritime Organisation and sister ports.
The PAPC is the Port industry association for the African continent, established by the three sub-regional Port Management Associations of Africa, namely North African Port Management Association; Port Management Association of West and Central Africa and Port Management Association of Eastern and Southern Africa.
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Will South Africa slide down the Global Competitiveness Index?
The World Economic Forum’s Global Competitiveness Report will be out on September 3.
This much-cited report ranks countries according to their competitiveness. The World Economic Forum defines competitiveness as the “institutions, policies, and factors that determine the level of productivity of a country”.
Countries are assessed according to twelve pillars of competitiveness: Institutions, infrastructure, macro-economic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication and innovation.
In last year’s ranking South Africa was ranked at number 53 out of 148 countries.
Mauritius was ranked as the most competitive economy on the continent, overtaking South Africa to the lead position, coming in at 45.
The continent’s main weaknesses were identified as weak infrastructure, underperformance in providing basic health and education and a low rate of technological adoption.
South Africa fares well on its institutions and financial sector development. It came in first in the world for the strength of its auditing and reporting standards, the efficacy of corporate boards and for the protection of minority shareholders’ interests.
The country also fares well on competition regulation and property rights.
The country is ranked badly when it comes to measures of governance and human capital development. The ranking for the macro-economic dropped sharply last year (from 69th to 95th).
There was also a general lack of trust in politicians and high perceptions of wastefulness of government spending.
South Africa scored near or at the bottom of the 148 country list for indicators dealing with health and education.
The picture is also dire when it comes to the labour market. The country came last on labour-employer relations and second last for rigid hiring and firing practices.
South Africa’s social sustainability is undermined by high income inequality and youth unemployment, according to the World Economic Forum.
Against the backdrop of weak economic growth, downgraded sovereign ratings and continued labour relations strife, the country will struggle to hold on to its ranking in Wednesday’s report.
» Read more about the Global Competitiveness Report 2014 - 2015.
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West Africa: Ebola outbreak puts harvests at risk, sends food prices shooting up
Agriculture in affected countries under significant strain, says new FAO special alert
Disruptions in food trade and marketing in the three West African countries most affected by Ebola have made food increasingly expensive and hard to come by, while labor shortages are putting the upcoming harvest season at serious risk, FAO warned today.
In Guinea, Liberia, and Sierra Leone, quarantine zones and restrictions on people’s movement aimed at combating the spread of the virus, although necessary, have seriously curtailed the movement and marketing of food. This has lead to panic buying, food shortages and significant food price hikes on some commodities, especially in urban centers, according to a special alert issued today by FAO’s Global Information and Early Warning System (GIEWS).
At the same time, the main harvest season for two key crops – rice and maize – is just weeks away. Labor shortages on farms due to movement restrictions and migration to other areas will seriously impact farm production, jeopardizing the food security of large numbers of people, the alert says.
Generally adequate rains during the 2014 cropping season had previously pointed to likely favorable harvests in the main Ebola-affected countries. But now food production – the areas most affected by the outbreak are among the most productive in Sierra Leone and Liberia – stands to be seriously scaled back.
Likewise, production of cash crops like palm oil, cocoa and rubber – on which the livelihoods and food purchasing power of many families depend – is expected to be seriously affected.
“Access to food has become a pressing concern for many people in the three affected countries and their neighbors,” said Bukar Tijani, FAO Regional Representative for Africa. “With the main harvest now at risk and trade and movements of goods severely restricted, food insecurity is poised to intensify in the weeks and months to come. The situation will have long-lasting impacts on farmers’ livelihoods and rural economies,” he added.
Major spikes in food prices
Guinea, Liberia and Sierra Leone are all net cereal importers, with Liberia being the most reliant on external supplies. The closure of some border crossings and the isolation of border areas where the three countries intersect – as well as reduced trade from seaports, the main conduit for large-scale commercial imports – are resulting in tighter supplies and sharply increasing food prices.
In Monrovia, Liberia, a recently conducted rapid market assessment indicates that prices of some food items have increased rapidly – for example, in Monrovia’s Redlight Market the price of cassava went up 150 percent within the first weeks of August.
“Even prior to the Ebola outbreak, households in some of the affected areas were spending up to 80 percent of their incomes on food,” said Vincent Martin, Head of FAO’s Dakar-based Resilience Hub, which is coordinating the agency’s response. “Now these latest price spikes are effectively putting food completely out of their reach. This situation may have social repercussions that could lead to subsequent impact on the disease containment.”
The depreciation of national currencies in Sierra Leone and Liberia in recent months is expected to exert further upward price pressure on imported food commodities.
Response efforts
To meet short-term food relief needs, the UN World Food Programme (WFP) has launched a regional emergency operation targeting some 65,000 tonnes of food to 1.3 million people.
At the same time, FAO’s special alert says that “rapid assessments are required to identify the type of measures that are feasible to mitigate the impact of labour shortages during the harvesting period and for related post-harvest activities.”
And measures to revive internal trade are essential to ease supply constraints and mitigate further food price increases, it notes.
Preventing further loss of human life and stopping the spread of the virus remain the top priorities at this time. FAO has joined the coordinated UN effort to support affected countries, is in daily communication with WHO and other key actors, and has personnel in West Africa aiding technical and logistical efforts.
It is critical that rural communities understand which practices pose the highest risks of human-to-human transmission as well as the potential spill-over from wildlife. Toward that end, FAO has activated its networks of local animal health clubs, community animal health workers, producer organizations, forestry contacts and agriculture extension and rural radio services to help UNICEF and WHO communicate risk to affected populations.
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Meeting of African Union Subcommittee of Directors General of Customs/AUC-RECs and Customs Cooperation, Brazzaville, Congo
6th Ordinary Meeting of the AU Sub-Committee of Directors General of Customs
Brazzaville. Republic of Congo
22-26 September 2014
Introduction
1. The Commission of the African Union is organizing the 6th AU Sub-Committee of Directors General of Customs meeting from 22 to 26 September 2014 in Brazzaville, Republic of Congo. The objectives of this 6th Session will be to carry out an examination of the work done so far by the various Customs Technical Working Groups in addressing the issues in the Trade Facilitation Cluster of the Action Plan on Boosting Intra-African Trade, exchange views and reflect on the way forward on the theme of the meeting, “Interconnectivity For Improved Trade Facilitation.” The conclusions of this 6th Meeting will thereafter be presented to the African Union Conference of Ministers of Trade, and to other Policy organs of the Union for further consideration and endorsement.
Background
2. Africa’s continental integration program is laid down in the Treaty establishing the African Economic Community (AEC), and later confirmed by the Constitutive Act of the African Union . The Treaty provides for the establishment of the African Economic Community through incremental processes in which the RECs, the building blocks of the AEC would form Free Trade Areas (FTAs) and then upgrade to Customs Unions (CUs), which would then merge to form a Continental Customs Union. The objective of the initiative was to enhance trade between African countries by creating a larger market, streamlining of border processes and enhance policies conducive to free movement of people and goods.
3. Following the endorsement of the Action Plan on boosting intra African trade by the African Heads of State and Government, the Department of Trade and Industry has already started work on the Trade Facilitation Cluster, one of the seven clusters of the action plan of BIAT Programme. Building on the progress made in the Tripartite Negotiations, negotiations for the CFTA are expected to commence in 2015.
4. Despite the continent being endowed with vast deposits of natural resources with 12 % of the world’s oil reserves, 42 % of its gold, 80 % of chromium and platinum group of metals, Africa remains poor and intra African trade is stubbornly low. The cost of doing business in Africa characterized by lengthy port handling and poor inland transport, cumbersome border procedures, numerous road blocks and so many non-tariff barriers, is extremely high compared to other regions of the world. In 2009, intra African trade accounted for only 11 % of the continent’s total trade, increasing by only 1% and from 9.7 % realized in 2000.
5. It is widely believed that Trade Facilitation has the potential to yield more economic gains than tariff liberalization. It is estimated that output gains from average tariff decreases under the Uruguay Round negotiations amounted to 2 % of total trade value, whereas gains deriving from trade facilitation could rise as high as 3 %.
Interconnectivity and Trade Facilitation
6. As early as the 1970’s, customs administrations of many developed countries began to recognise the significant advantages of using technology-based solutions to improve their operational efficiency. Such systems have been tailored to meet national needs but over time, have also been enhanced, simplified and also standardised in line with international best practices. Many customs administrations in Africa now boast of computer systems that reflect modern customs management practices such as self assessment, deferred payment of revenue, transit modules, targeted risk management approach and post-clearance audit regimes amongst other issues. It is no doubt that when properly implemented, a computerized customs system results in reduced cargo clearance time, uniform application of customs and other border related legislation, increased transparency and predictability for the business sector, as well as more efficient revenue collection and accounting and accurate and timely trade statistics.
7. Benefits from a computerized customs environment are more realized where there is an electronically connected trade community wherein all stakeholders are members, and more so, where customs administrations of different countries are interconnected. Interconnectivity is an initiative of customs administrations to interface their systems with the purpose of facilitating trade. Interconnected customs systems provide electronic data exchange that will streamline the clearance of goods by providing advance notification and thus avoid the duplication of data capturing at the border offices. Transit fraud is also likely to be reduced to a minimum under such circumstances.
The Challenges
8. There is no doubt that the use of ICT has substantially contributed to safeguarding the revenue collection function of customs and to speeding up the clearance processes. The challenges in interconnecting customs administrations of different countries lie in the use of different software by the customs and that some countries are not yet computerised. Furthermore, it is estimated that around 92,000 km of optical fibre link, including 25,000 km of international submarine cable routes, are required to bridge regional and international broadband gaps. This would require an investment of US$ 1 billion and more than US$1.6 billion for an international submarine fibre network and for regional links respectively.
9. Currently 85 % of Africa’s international bandwidth traffic is directed via Europe to its final destinations. According to a study by NEPAD e-Africa Commission in 2004, Africa will require an additional 52,040 km of infrastructure for total connectivity: 15,950 km in Central Africa, 2,200 km in Northern Africa, 19, 330 km in Western Africa and 14,560 km in Eastern and Southern Africa.
10. Be that as it may, efforts are indeed underway in two of Africa’s Regional Economic Communities (RECs) to interconnect the customs IT Systems of countries in respective regions, i.e. East African Community (EAC) and Economic Community of West African States (ECCOWAS). The two RECs have been inspired by the desire to reduce barriers to integration and ensuring modern customs services to their respective communities in the implementation of respective projects. The successes and / or failures of these projects would largely depend on the vision and political commitment that goes beyond customs.
Objective of the Meeting
11. The objective of the 6th AUSCDGs of Customs meeting will therefore be to take stock of the work that has been carried out so far, endorse the recommendations of the experts and reflect further on the issue of Interconnectivity for improved Trade Facilitation in order to Boost Intra-African Trade.
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Ethiopia rising
In one of my blog posts, I wrote about Ethiopia’s infrastructure development. As usual Kenyans were in denial but the fact remains that Ethiopia is advancing faster than any other African country.
The World Bank report says “Over the past decade, Ethiopia has achieved high economic growth, averaging 10.7 per cent per year. In 2012, Ethiopia was the 12th fastest growing economy in the world. If the country can continue its historically impressive growth performance, it could potentially reach middle income status by 2025.”
We can choose to continue bragging as the largest and diversified economy in eastern Africa or get our house in order and begin to compete with the rest of the world. It is bad enough to be in a leadership position in a region with countries at the tail end of per capita income.
Free market magic
We should at the minimum worry that a neighbouring country is growing twice as much as we are growing. At most we should be trying to catch up with our former peers like South Korea and Singapore.
Our continued foot-dragging culture will translate into a situation where Kenyans will be trying to cross into Ethiopia in search of jobs.
Our false belief that a free market economy will do magic as our leaders crisscross the country in search of a perfect political system will not do it. There is no perfect political system, especially when the players are devoid of any ideology.
It is like trying to shoot at a moving target. And so we think our random approach to economic development is sufficient to deal with chronic unemployment and runaway crime.
The Ethiopian diaspora that has lived in the capitalist West is back home. It is not that these people now embrace communism, but rather that they can predict what the government will do or will not do, going by its Marxist past.
Economist Eleni Gabre-Madhin left her comfortable job at the World Bank to found the first commodities market in Ethiopia. This ambitious vision is working, and soon consumerist Kenya will start buying commodities from Ethiopia. She says her plan would create wealth, minimize risk for farmers and turn the world's largest recipient of food aid into a regional food basket.
Costly delays
Gabre-Madhin’s vision will propel the country to greater heights since agriculture that we shun today is back in a big way. McKinsey reports that in the next ten years the world will add 2.2 billion people into the middle class. Africa controls more than 60 per cent of the global arable land, meaning that it is Africa’s turn to feed the world.
Ethiopia understands the opportunities presented, such as the African Growth and Opportunity Act (AGOA) in which Africa has preferential trade arrangements with the United States of America. Ethiopia is today the largest exporter of boots to the US.
Foreign direct investment from China has helped the country develop capacity in shoe production for the export market. Some of Kenya’s hides and skins are exported to Ethiopia raw to satisfy the insatiable demand for materials with which to manufacture for America.
Ethiopia today produces more than 25 per cent of all feature phones sold in Africa. Local favourite Tecno is putting up its third plant in Ethiopia. At least three manufacturers of mobile handsets wanted to set up in Kenya but delays in processing work permits, the bureaucracy of processing other registrations and lack of flexibility to counter incentives given by competing nations denied us the opportunity.
Our plans work elsewhere
I recall one incident in Malaysia when one of the officials narrated about their visit to Nairobi. They were amazed by the city planning, with provision for low-income housing in Jericho, Makongeni, Shauri Moyo and some upcoming middle-income housing in Ngei, Buru Buru and Nairobi South.
There were no shanties at the time and Kenya Bus was always on time. Bus schedules were posted at bus stops. The Malaysians took the plans we had and implemented them. They are forever thankful to Kenyans for providing a benchmarking platform.
I have got this feeling that Ethiopians are implementing our vision. Under the economic pillar, Vision 2030 sought to bring change and improve the prosperity of all regions of the country and all Kenyans by achieving a 10 per cent Gross Domestic Product (GDP) growth per year for the next 20 years.
The first medium-term plan targeted six priority sectors, including tourism, agriculture, wholesale and retail trade, manufacturing, information technology and financial services.
The Ethiopians have surpassed the 10 per cent mark and are likely to record 12 per cent this year. Their agriculture, as I stated above, is doing better by eliminating inefficiencies through the commodities exchange.
In ICT, they are successful in manufacturing light electronic products that were part of the ICT implementation.
Addis Ababa’s skyline
In tourism they are excelling, with a first-class wildlife conservation program. While their elephant population is growing, Kenya’s elephant population is declining due to excessive poaching. One of Ethiopia’s greatest problems was hotels, but incentives to the diaspora has seen this change and fully sorted out the problem.
Addis Ababa’s skyline is changing, with many new hotel brands coming up. With its world-class airline, we have a lot of homework to do in order to sustain growth in our tourism sector, which prominently features in our Vision’s economic pillar.
I think I have demonstrated enough that somehow we fail to implement most of our plans that others find easy to implement. In the process of implementation, we fail to see the big picture and often, we are preoccupied with minor errors that we magnify and destroy the vision.
In our attempt to succeed especially with Vision 2030 projects, we shall fail in many ways, but it is not failure that we should focus on but rather the ability to learn from those failures. It is perhaps what Confucius meant with his famous quote “our greatest glory is not in never falling, but in rising every time we fall.” We still have a great opportunity, especially in ICTs, to create massive employment and wealth.
Wealth at the bottom
What major outsourcing companies wanted in order to relocate to Kenya was the relocation cost. The majority wanted a year’s rent paid to bring in six to ten thousand back-office jobs. Our effort to rent the Sameer Park in exchange for jobs drew such serious resistance that we gave up the idea.
It would have cost Sh360 million a year but the government would have received in excess of Sh1.2 billion in Pay As You Earn tax revenue and some 10,000 Kenyans working. While individuals come and go, we must develop the culture of perpetuating ideas that are beneficial to Kenyans.
In agriculture, we have the opportunity to feed the world as earlier stated. We should, as a matter of urgency, build temporary water reservoirs throughout the arid and semi-arid lands (ASAL) in Kenya. The impending el Niño will fill them up. We could then start serious irrigation programs, especially with horticultural products that already have a market.
For this to succeed, someone must rise up and take the risk to implement what may look like a waste of resources but in effect will create wealth at the bottom of the pyramid.
A healthy competition among developing countries is what we need to compare our successes and failures. Ethiopia is showing the way, and it is time for us to wake up and compete.
Dr Ndemo is a senior lecturer at the University of Nairobi's Business School, Lower Kabete campus. He is a former permanent secretary in the Ministry of Information and Communication.
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Mauritius, Seychelles welcome impressive FDI inflow
The remoteness and size of Small Islands Developing States (SIDS) limit FDI options, but despite the limiting factors, FDI to SIDS as a group is very high compared to the size of their economies, a new report by the United Nations Conference on Trade and Development (UNCTAD) shows.
The report, which considered 29 SIDS, including Seychelles and Mauritius located on the Indian Ocean off the coast of Africa, however conceded that the constraints identified are reduced when “low competitive pressures result in relatively high market shares for market-seeking FDI, mitigating the impact of the small size of the market and making some SIDS – in particular those with relatively high purchasing power – attractive niche destinations for specific services such as retailing, telecommunications, and energy.”
UNCTAD noted that for efficiency-seeking FDI, the development of information and communication technologies (ICT) has opened up opportunities in new areas that are not sensitive to transport costs, provided a skilled labour force and access to telecommunication and information networks are available.
Structural Characteristics Limiting FDI Options
For Seychelles and Mauritius, like other SIDS, their small market size, remote location, narrow resource base, and high vulnerability to natural disasters limit the nature and the scope of economic activities that can be developed in these countries.
The smallness and remoteness of SIDS puts them at a disadvantage when it comes to production for local consumption as well as for exports. The situation gets worse when local production is more dependent on imported goods, as transport costs are high; especially with air and sea transport being the only options for the movement of goods and people. This makes SIDS less attractive to market-seeking FDI and to FDI aiming at the export of goods, with the exception of raw materials.
SIDS’ GDP Dwarfs world avearge
These limitations, according to the report has presented opportunities for some foreign investments, as the ratio of inflows to current GDP over 2004-2013 was almost three times the world average and more than twice the average of developing and transition economies. The ratio of stocks to current GDP also reached 72 percent, more than twice the world average at 30 percent. FDI flows and stocks per capita are also higher than the world and developing and transition economies average, but lower than developed economies.
Fiscal advantages invite investments to Seychelles and Mauritius
According to UNCTAD, Seychelles and Mauritius are two of the most attractive SIDS for FDI due to their fiscal advantages to foreign capital. Those rich in mineral resources and those with relatively bigger market size are also attractive for FDI. SIDS that combine small size to remoteness, small population, low income, and lack of natural resources will however discourage FDI.
Investments soar in Mauritius’ service sector
For lack of sectoral data, which is available for very few SIDS, investment into different sectors could not be evaluated for Seychelles. In Mauritius, FDI flows are directed almost totally to the services sector, with activities such as finance, hotels and restaurants, construction and business experiencing soaring investments in the period 2007-2012.
Using information on greenfield FDI projects announced by foreign investors in the SIDS between 2003 and 2013, UNCTAD however found out that Seychelles was one of the favourite destinations of investors interested in Hotels and restaurants, the other being Maldives in Asia. Hotels and restaurants gulped 12 percent of total greenfield FDI projects announced by foreign investors.
US important investor in SIDs; China following closely
Although only three SIDS – Cabo Verde, Papua New Guinea and Trinidad and Tobago – provide official information on the origin of the FDI they receive, with investors from developed economies identified as the main source of FDI, according to the report. US is however believed to be the largest source of FDI for Seychelles, while Mauritius’ relations with India and China has been said to be for historical and commercial reasons.
Multinational oil companies have explored the waters around the Seychelles islands, but no oil or gas has been found. The country however signed a deal with US firm Petroquest in 2005, that gave it exploration rights to about 30,000 km2around Constant, Topaz, Farquhar and Coëtivy islands until 2014.
Information on greenfield FDI projects announced by foreign investors in the SIDS between 2003 and 2013 confirms however, that developed countries are the source of almost two thirds of the announced value of greenfield FDI projects.
The UNCTAD report noted that Transnational Corporations (TNCs) from developing and transition economies have focused their interest mainly on Mauritius and three other SIDS – Papua New Guinea, Maldives and Jamaica, which together accounted for 89 percent of developing and transition economy TNCs’ planned capital expenditure in SIDS.
UNCTAD noted that China is becoming a large investor, coming third place after the United States and Australia as a source of announced greenfield FDI projects. Chinese TNCs have pledged $5 billion in capital expenditures in the SIDS in the period 2003-2013, mainly targeting Papua New Guinea and Jamaica. The Asian giants have been enhancing economic links with SIDS since the mid-2000s; this is expected to continue.
Opportunities for sustainable development in Mauritius and Seychelles
Although their structural characteristics significantly limit investment prospects, SIDS have still attracted relatively high amounts of FDI, especially in natural resources. The report noted that foreign investors have also increasingly been targeting a number of other industries, including financial services, tourism and offshore business services that are sometimes linked to the locational advantages of SIDS.
Seychelles has attracted significant FDIs in its tourism sector; this is expected to continue. The sector also holds promise for other SIDS.
High value-added financial services activities have prospered in Mauritius, Seychelles, as well as several other SIDS, that have become hosts of offshore financial centres (OFCs), driven by incentives such as favourable tax regimes, efficient business registration, secrecy rules and lax regulatory frameworks.
FDI flows to the SIDS have been shown to target precisely the activities that contribute most to SIDS’ growth. While these countries exploit the environment to grow the economy; as their small size means that development and the environment are closely interrelated; it is important to ensure the competition for land and water resources among tourism, agriculture and exploration for natural resources is balanced as ‘overdevelopment’ of one sector may be detrimental to another and on the long run affect the economy, UNCTAD advises.
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The WTO and achieving the MDGs: Lessons for the post-2015 development agenda
How can trade be harnessed as a development policy instrument in the post-2015 development agenda? What role can the WTO play to this end?
Continued and sustained economic growth has been one of the main forces in reducing poverty in the world’s developing and least-developed countries since the launch of the MDGs. Several large emerging economies as well as many low-income countries have harnessed the economic growth they have achieved through increased trade and more foreign investment, to address the problems faced by the poorest segments of their populations. They have also used financial resources generated by economic growth to invest in other critical social concerns, such as those related to health, sanitation and drinking water, rural livelihoods, education and governance.
MDG-8 (develop a global partnership for development) is an important element in the overall gamut of the MDGs. MDG-8 recognises that the ability of developing countries to reach sustainable levels of growth often depends on the international environment in which they operate. This is equally true for the multilateral trading system and WTO’s contribution in building a more predictable, inclusive and transparent multilateral trading system can be crucial in building a more favourable global environment for developing countries.
A lot of the gains of global trade, and their contribution to economic growth and consequently to the MDGs would have been nullified if trade between countries had been affected by the global economic crisis of the last decade. Since 2000 until 2008, world trade grew year-on-year at an average rate of 6 percent. While a sharp decline was evidenced in 2008 right after the crisis, by 2011 world trade values were already higher than those recorded before the crisis. Most of this increase in world trade was due to the fact that the trading system was kept open and that protectionist measures were kept in check. Nevertheless, it must be acknowledged that the stock of current trade restrictions and distortions continues to accumulate, and should be tackled.
Additionally, new forms of protectionism through a proliferation of non-tariff barriers – including subsidies – also cause great prejudice to trade from developing countries, particularly in agricultural trade. This is worrying since the small vulnerable economies, the LDCs, and even the emerging economies have a concentration of poverty in their rural areas. Addressing these latest threats to the multilateral trading system will necessitate, first and foremost, delivering on the promise made in Doha.
Completion of the Doha round for a global development partnership
The Doha Development Agenda and more generally the rule-making function of the WTO are issues that are intimately tied to achieving the global partnership for development contemplated by MDG-8. Failure to conclude the Doha Development Agenda is partly responsible for the lack of achievement of certain targets in MDG-8. The blockages in the DDA are perceived by the outside world as an example that the trading system cannot respond to the structural changes in the world economy. The system has difficulty negotiating new rules because it is not malleable enough to adapt quickly to the geopolitical shifts and systemic challenges posed by the emergence of some developing countries.
The impasse in the Doha Round has led many countries to advance their own trade liberalisation programmes through plurilateral and regional agreements. These agreements, however, cannot be as inclusive or as encompassing as those which are done multilaterally and which include all countries in the system. Regional initiatives are positive and are to be welcomed but they can only be one part of the wider picture. The multilateral trading system has always co-existed with, and benefitted from, other trade opening initiatives. They are not mutually exclusive alternatives. It is important to think how the two processes – global and regional – can move forward together to reduce costs effectively and to curb protectionism.
A conclusion of the Doha Round would represent a step forward for the global partnership on development, enhancing coherence among trade, financial and environmental issues and strengthening the effectiveness of an open, rules-based Multilateral Trading System in addressing specific development challenges.
Initiatives to achieve specific targets of MDG-8
The targets identified under MDG 8 show that the international community recognises trade as an important engine for development. For trade to deliver real economic growth effectively, it needs to be “open, rule-based, predictable and non-discriminatory”, as recognised in Target A. This corresponds to the WTO’s core business of regulating international trade, reducing market barriers and ensuring a level playing field for all its members. In this regards in addition to the wider efforts to complete the DDA some specific results were achieved at the WTOs Bali Ministerial Conference in December 2013. Initially the Bali package had the effect of restoring the credibility of multilateral institutions, unfortunately the recent failure to adopt a protocol amending the WTO agreements, initiating the process of ratification and implementation of the Trade Facilitation Agreement has again cast doubt on multilateralism, eroding government’s trust in their commitment to the WTO. Renewed faith and trust among countries will be very much needed to complete multilateral processes necessary in the strengthening of the global partnership for development, setting the course for a sustainable and inclusive post-2015 development agenda.
In terms of concrete outcomes, Bali provided deliverables in three key areas: trade facilitation, agriculture and development, it also set in motion a process whereby members will decide by the end of the year on a clear road map for concluding the Doha Development Agenda. One major result from Bali is the Trade Facilitation Agreement, the first multilateral agreement concluded in the WTO since its creation in 1995. This agreement which will cut trade transaction costs and if properly implemented can increase trade competitiveness in developing countries.
Decisions in the area of agriculture responded to demands by the developing countries on issues of food security, tariff rate quota administration and export competition. On development, members agreed to put in place a monitoring mechanism for special and differential treatment provisions.
With regards to Target B – addressing the special needs of the least developed countries – several initiatives saw significant advance at the Bali Ministerial Conference. Three decisions specific to LDCs Duty-Free and Quota-Free (DFQF) market access, preferential rules of origin and operationalisation of the services waiver) were taken, with a fourth decision on cotton also of particular importance to LDCs. These decisions call for: full implementation of DFQF market access for LDCs; the simplification of preferential rules of origin benefitting LDCs; the operationalisation of the services waiver for LDCs and a reaffirmation of the Doha mandate on cotton (with respect to both its trade and development components).
With regards to Target C – addressing the special needs of landlocked developing countries and small island developing states – the Bali Ministerial Conference resulted in specific achievements for these groups of countries. Concerning the LLDCs the conclusion of a Trade Facilitation Agreement has the potential to address many of the fundamental transit policy issues that affect LLDC exports. LLDCs depend on their neighbours to have efficient procedures for clearing transit goods. The Trade Facilitation Agreement will create a common platform which all WTO members are expected to implement, for respecting the principles of transparency, consistency and predictability which will help traders in LLDCs and are the necessary ingredients for making trade flow in and out these countries. One of the decisions in Bali also reaffirmed the importance of the WTO’s Work Programme on Small Economies which covers all of the countries that are included in the SIDS category of the UN. This Work Programme calls for framing responses to the trade-related issues identified in improving the Small Economies participation in the multilateral trading system.
In line with Target E – providing access to affordable medicines in developing countries – WTO members have agreed an amendment to WTO rules that gives developing countries greater access to essential drugs, thus contributing to wider national and international action to address public health problems.
Target F – making available the benefits of new technologies – is also partially addressed by WTO’s work in its Working Group on Trade and transfer of Technology. By identifying technology and innovation as critical drivers of economic growth, the work in the WTO has shown that that technology innovation and its transfer can be critical in facilitating the achievement of the MDGs. Work on transfer of technology and eCommerce were also reaffirmed in decisions taken at the Bali Ministerial Conference.
What role for Aid for Trade?
One area that is seen as a successful example of the global partnership for development at work, especially for tackling supply-side constraints, is the Aid for Trade initiative led by WTO. In order to continue to provide benefits to developing countries, this initiative and the Enhanced Integrated Framework for LDCs must be strengthened and improved. Some of the ways in which this can be achieved came to fore at the Fourth Global Review which had the theme of “Connecting to Value Chains”. As part of the findings that emerged from this global review, the main factors identified as hindering suppliers from developing countries from entering or moving up value chains were: administrative hurdles related to customs paperwork or delays, bottlenecks in the area of transportation and shipping and various transport-related issues such as costs and delays, informal or corrupt practices and the lack of regulatory transparency. These issues are prime targets for a Trade Facilitation solution, which highlights the importance of having achieved a Trade Facilitation Agreement in Bali. This is also the reason why the theme for the 2014-2015 Aid for Trade Work Programme is “reducing trade costs for inclusive sustainable growth”, linking with the two main streams of work in the trade and development communities, trade facilitation and the sustainable development goals.
The Aid for Trade initiative has been a success but is not the only element driving investment in productive capacities and infrastructure. Donors and South-South partners have cited foreign direct investment as the key source of financing to meet the trade-related capacity building needs. Aid for Trade is increasingly being used to leverage private sector funds. Foreign direct investment was higher than Aid for Trade flows for over 20 LDCs in 2011. The role of the private sector as a catalyst for Aid for Trade is likely to grow in the future and it is of key importance to ensuring future growth in developing countries.
Lessons learned and way forward in the post 2015 development agenda
The initiatives that have been deployed in the efforts to achieve the MDGs have provided valuable lessons that must be carried forward as attention turns to work on the Post-2015 Development Agenda and the Sustainable Development Goals. In a statement made at the General Council on 24 July 2014 the Director General of WTO highlighted the following:
“First, the role of trade in the post-2015 agenda process should not be reduced simply to trade liberalisation. Rather, trade should be recognised more broadly as a development policy instrument;
Second, the WTO and its rules governing global trade have proven their worth in the context of the MDGs, both as a building block for economic growth and as a buttress to trade protectionism, especially at the height of the crisis. In this regard, the WTO and its rules should be seen as a way of providing a similar enabling environment and necessary buffer for the post-2015 development agenda through to 2030;
Third, the Bali Package and the DDA work programme can support the delivery of the SDGs. For example in the area of financing work with donors on Trade Facilitation and in support of the Enhanced Integrated Framework for LDCs and Aid for Trade will feed into other areas of work on the post-2015 agenda – and, in turn, work on the post-2015 agenda will support these activities;
And fourth, the SDGs should promote policy coherence at the global level. Failure to place more emphasis on the role of trade as an enabler for achieving these broader goals would be a real set-back for global policy coherence.”
Raúl A. Torres is a Counsellor in the Development Division of the WTO.
This article is published in Bridges Africa, Volume 3 - Number 7, by the ICTSD.