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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.
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Tanzania becomes Kenya’s largest East Africa market
Tanzania has edged past Uganda as Kenya’s largest export market in East Africa as a result of the ongoing elimination of non-tariff barriers and increasing local production in Uganda of goods that were previously imported.
Uganda has traditionally been Kenya’s top trading partner in the region, but latest data from the Kenya National Bureau of Statistics (KNBS) ranked the country third, with Tanzania coming second.
Uganda was overtaken by the US in June as the leading export destination for Kenyan goods.
The report showed that the US imported goods from Kenya worth Ksh3.7 billion ($41.8 million) in June, followed by Tanzania at Ksh2.8 billion ($31.6 million) and Uganda at Ksh2.5 billion ($28.3 million).
“The EAC integration means that Tanzania has to apply tariffs to products from the Southern Africa Development Community, while Kenyan goods are basically entering a domestic market,” said Sam Watasa, lead advisor on non-tariff barriers at Uganda’s Ministry of Trade.
Although it is difficult to project future trends based on a month’s data, Kenyan exports to Uganda have declined by almost half since November last year, at Ksh4.5 billion ($51 million), a trend analysts attributed to the growth of the manufacturing sector in Uganda.
Over the same period, Kenya’s exports to Tanzania were between Ksh3.2 billion ($36.2 million) and Ksh2.7 billion ($30.5 million).
“Uganda has drastically reduced its imports from Kenya. Tanzanian imports have remained fairly stable. However, June is not a good month for imports because it is usually the end of the budget year,” East African Business Council trade economist Adrian Njau said.
Uganda imported more from Kenya than Tanzania in June last year.
Kenyan officials attributed the change in trade volumes to increased monitoring of non-tariff barriers after the EAC became a Single Customs Territory. Officials from the bloc now meet quarterly to address obstacles to trade.
“There are some non-tariff barriers that we’ve been looking at in the EAC, and resolving them has led to an increased flow of goods between the two countries,” said the director of international trade at Kenya’s Ministry of Foreign Affairs and International Trade Nelson Ndirangu.
According to Kenya Investment Authority managing director Moses Ikiara, Uganda has over the past two decades attracted substantial foreign direct investment in key sectors like manufacturing and services, reducing its reliance on imports.
“Some of the products that Kenya was selling can now be manufactured in Uganda. The elimination of some forms of non-tariff barriers has also seen the flow of goods from Kenya to Tanzania increase,” Mr Ikiara said, adding that the quality of some Kenyan products is now rivalling that of items Tanzania previously imported from South Africa.
Savanna Cement, which exports a third of its products to the region, said the trend, if maintained, presented Kenyan manufacturers with a bigger and more diversified market.
“Kenyan’s exports to Uganda may be slowing down but Tanzania is picking up. Tanzania is a much bigger market for commodities and their population is bigger. The Tanzanian market is opening up and for us it is a win-win situation,” Savannah managing director Ronald Ndegwa said.
Mr Watasa said products like soap, cosmetics, detergents and spices were now being manufactured in Uganda.
Ugandan manufacturers also appear to be responsible for the decline in exports from Kenya to Rwanda, which fell from Ksh1.1 billion ($12.4 million) in November last year to Ksh712 million ($8 million) in June.
Gideon Badagawa, the executive director of the Private Sector Foundation Uganda, however, said the data needed to be examined over a longer term to avoid jumping to conclusions.
“I don’t think it’s possible that after the aggregation of all Kenyan businesses in the insurance, retail and banking sectors and workers in the hotel industry, Tanzania would be ranked as a bigger trade partner,” Mr Badagawa said.
He said Kenya should nurture relations with Uganda for strategic reasons, including access to the landlocked countries of Burundi, Rwanda, DRC and South Sudan. “This makes Uganda Kenya’s shortest route to the hinterland,” Mr Badagawa said.
Mr Ndirangu said Kenya has been diversifying its products to the international market to widen its export revenues and minimise over-reliance on agricultural produce.
“Our exports to the US are mainly textiles under the Agoa framework. We have been branching out to products like cut flowers and horticultural produce,” he said.
Tea tops the list of Kenya’s exports, followed by horticulture and coffee. A return to political stability in Egypt has seen exports, mainly of tea, rise for the third month running.
The 2014 Economic Survey released in February by KNBS showed that Kenya’s exports to Uganda declined for the second year in a row to Ksh65.36 billion ($739.6 million) last year, from Kshs67.45 billion ($763.2 million) in 2012.
Kenya traditionally exports lime, cement, fabricated construction materials and consumer goods to Uganda. Tanzania was last year Kenya’s second largest export destination with products like soap, foodstuffs, cleansing and polishing preparations as the major exports, according to KNBS.
“With the harmonisation of border procedures and single documentation procedures coming into effect, the ease of doing business in the region has improved,” Mr Ndegwa said.
In the year to June 2014, the value of exports of goods and services to Tanzania was $13.99 billion, equivalent to an increase of 8.5 per cent over the previous period.
Importation of building and constructions materials went up by 25.7 per cent to $1 billion, partly associated with the ongoing increase in construction activities in the economy.
The July edition of Bank of Tanzania’s Monthly Economic Review states, “A significant increase was recorded in the category of all other consumer goods, particularly pharmaceutical products, paper products and plastic items.”
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Unlocking African potential faster
The potential of new technologies to transform financial services in Africa has long been heralded by the likes of Kenya’s M-Pesa and others.
But services for corporates have remained relatively underserved – until now. From the sands of the Sahara in the north to the Limpopo river which marks the border with South Africa to the south, economic, political and technological changes are emerging that favour new opportunities for banks.
Excluding South Africa and the Arab-Berber countries of North Africa, the continent is home to 880 million inhabitants. Most senior financial services executives that have dealt with the region are familiar with the low penetration of bank accounts across much of the continent. They are also aware of the widespread adoption of mobile phones in virtually every country.
For example, 57% of the population in Uganda had a mobile phone subscription in June 2014, while in Zimbabwe the figure is 97%, and in Ghana in West Africa it is 110%, according to figures provided by the World Cellular Information Service.
However, what is less known is the increasing impact of the technology on the corporate side – affecting not just individual consumers, but companies, institutions and even governments.
Giant US corporation Cargill is a good example of the new wave of African corporate investors. The company is active across Africa purchasing and distributing grain and other agricultural products, trading in energy, steel and transport, and raising livestock and producing feed, producing food ingredients, for processed foods and industrial use. It also has a large financial services arm which manages financial risks in the commodity markets. Cargill is currently working with Barclays to disburse payments such as salaries and grants to its employees, clients and customers through mobile networks in several African countries, including Cameroon, Côte d’Ivoire, Ghana, Kenya, Malawi, Nigeria, Tanzania, Zimbabwe and Zambia.
“Regulators have helped by having clear guidelines in place, and it is an open environment, meaning that authorities are often open to new players that may not be the traditional banks,” said John Owens, senior policy advisor, digital financial services and financial inclusion policies at the Alliance for Financial Inclusion.
“At the same time, public and private uptake of mobile is increasing and there’s an opportunity to leapfrog the traditional brick and mortar services by mobile. How do you connect with people spread out remotely? There are no ATMs and branches, and the cost to put in that kind of infrastructure is quite challenging. Mobile gets around that. Electronic money is an important channel and opportunity for basic transfers and payments. It brings more people into the fold than anything else.”
Barclays is also working with the United Nations in Uganda to disburse salary payments via mobile, which the bank says is a necessary and helpful tool to ensure payments reach more remote areas effectively. The development of mobile wallets in sub-Saharan Africa has a real potential to affect consumer’s lives according to both the bank and its customers. For example, Cargill says it has invested in businesses including cocoa, grain and oilseeds, cotton, food ingredients and animal nutrition that “support African farmers and local agriculture and enable us to provide products and services to customers across the continent and around the world.”
In addition, the US corporation says it has partnered with international and local organisations to help improve the education, health and livelihoods of African communities through better access to schools, basic healthcare, clean water and nutrition.
In the recent past, concerns have been raised among the banking industry that the rise of quicker, nimbler firms such as PayPal and micro-lending companies together with the proliferation of mobile devices might conspire to disintermediate traditional banks. The fears were originally stoked by the rise of examples such as M-Pesa, which was owned by telecoms operators Safaricom and Vodafone. However, today banks are just as likely to benefit. For example, Commercial Bank of Africa partnered with Safaricom’s M-Shwari business, which offers a savings account to customers of M-Pesa. The service initially had just 35,000 customers. Within less than a year, the service opened seven million new accounts and became the biggest provider in Kenya.
“They couldn’t have done it without the bank partnering in the background,” said Owens. “Banks are not being disintermediated. Each player has a role. Financial services are being unbundled. Those services are often sold by one firm together with branding, but actually when you look closer you find there is a bank behind it.”
The sense that banks have a role to play is shared by Barclays, which operates in Ghana, Kenya, Uganda, Tanzania, Zambia, Mozambique, Zimbabwe, Botswana and the islands Mauritius and Seychelles. Part of the appeal of investing in Africa is the higher returns available compared to the developed world. For example, Chris Kotze, head of corporate transactional services at Barclays Africa estimates that GDP growth can be up to four times higher – around 7-14% in some countries – compared to around 3% at best in the developed markets. He added that intra-Africa trade is picking up. Previously, much of the region’s imports and exports were traded with Europe and India or China. But now African countries are starting to trade a lot more with each other, which creates opportunities to grow the market.
In markets such as Kenya, there is a well-developed banking system with perhaps 20 competitive banks and 100 in total, but smaller countries such as Botswana typically feature less competition and many processes are cash-centric and paper based. Retailers have a strong need for physical cash collection and disbursement at the store level, and a lot of trading still happens in cash.
Kotze notes that Kenya is starting to see more card transactions, but card penetration remains low in most places, including countries such as Uganda and Tanzania.
“At this stage a lot of clients are still using electronic banking more to view important balances and a lot of payments happen by cash and cheque still,” he said. “When a corporate is interacting with a bank, a lot of the payments still happen very manually, either through a fax being sent to a bank to process a payment on their behalf, or physical cheques being used to make those payments. Even where we have electronic banking in countries like Tanzania, STP rates are low so you get a file being submitted via electronic banking capabilities and when it reaches some of those banks they physically print it out and then manually process the transactions. It’s a physical environment, both on the client side and the bank side.”
Part of the challenge for much of Africa is the relative lack of infrastructure such as roads, railways, communications and power supplies in many of these countries, which make it difficult and expensive to establish a viable traditional banking network. In addition, Barclays notes that some countries in Africa are very heavily involved in import and export business, while others are much more protected and don’t have advanced trading capabilities.
Fortunately, there are signs of positive change. The Alliance for Financial Inclusion is currently working with regulators and policymakers in an effort to promote access to financial services in Africa. To that end, it has a project called the African Mobile Phone Policy Initiative. According to Owens, the standard of regulation has changed dramatically in the last five years, as several countries introduced policies that support the development of mobile financial services. While he acknowledges that in some countries, “If you want to send money you give it to a bus driver and hope it gets through,” Owens also notes that Tanzania is now surpassing Kenya in terms of mobile money by monthly volume. “Africa is leading this mobile push, and Tanzania, Kenya and Uganda are the top three countries in the region,” he said.
According to telecoms body the GSMA there are nine African countries where there are now more e-money accounts than traditional bank accounts: these are Cameroon, the DRC, Gabon, Kenya, Madagascar, Tanzania, Uganda, Zambia and Zimbabwe. That compares to just four in 2012.
Optimism about the political and regulatory environment is also shared by some of the major banks as African countries abandon the economic policies of the past. “From a risk perspective a lot of these countries have stabilised their economies, they’ve got much better control of their macroeconomic and fiscal policies and are more in line with what you would expect from an IMF perspective,” Kotze said. He said, “They are driving a much more capital-positive approach. We’ve also seen a massive improvement in the stability of the political environment in a lot of those countries. It’s much better than it was five years ago.”
Problems still remain – for example, tackling and eliminating fraud remains a priority, and sophistication on cost accounting and methodologies in some countries is not yet at the level Barclays would like it to be. In some markets, banks charge more for electronic banking versus paper-based processes, which could hinder adoption. In addition, the political environment is not immune from problems. The African Union’s recent endorsement of immunity for serving heads of state and other senior government officials has been severely criticised by legal body the International Bar Association, on the grounds that it “generates perverse incentives for abusive leaders to remain in power so that they are shielded from prosecution”, while ignoring the danger that those responsible for crimes would receive the greatest protection from prosecution.
However, despite the challenges it seems clear that the nature of financial services provision in Africa is changing for the better.
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Africa’s development: The fallacy of self-sufficiency
Dr Kingsley Chiedu Moghalu, Deputy Governor of the Central Bank of Nigeria (CBN), recently delivered a public lecture on Africa’s development at the London School of Economics (LSE). The lecture, entitled “Beyond Africa Rising”, drew on his recent book, “Emerging Africa: How the Global Economy’s ‘Last Frontier’ Can Prosper and Matter.”
Dr Moghalu was on a mission to challenge the current orthodoxy about Africa’s development and to articulate a new vision for the continent. Africa, he began, may be emerging, but it is far from rising. He argued that recent macroeconomic stability, including low inflation, high GDP growth, and high returns on investment, has led to the growth of the “Africa rising industry,” and to an “opportunistic” focus on Africa as the ‘last frontier’ of profit. Yet, Africa has not emerged, let alone risen as a co-creator of global prosperity: its share of world trade is just 3%; it attracts less than 4% of total world FDI; and its total GDP, at $1.6 trillion, is just about the GDP of Brazil.
So, why has Africa failed to rise? Dr Moghalu advanced two reasons. Africa is underdeveloped, he said, because it lacks a worldview in its economies and in its governance, noting that worldview is the secret of the rise of West and the East. Secondly, globalisation has hurt the continent more than it has helped it. Africa, he said, is not ready for globalisation. From these two “fundamental understandings,” as he put it, came his big ideas, his ‘new’ paradigm for Africa’s development. He urged African countries to adopt an inward looking, self-sufficient industrialisation policy. To this end, he recommended that African countries should combine state capitalism and crony capitalism, adding that cronyism is “particularly suited to African countries; it’s a reality of our lives.”
Dr Moghalu may not be a Marxist or even a neo-Marxist, but he is certainly of the radical and structuralist school of international relations. He believes that globalisation has condemned Africa to the periphery of the global economy, and favours a more muscular state hand on the levers of capitalism. His thesis is that Africa needs to be self-sufficient so that it can “short-circuit” globalisation and “liberate itself from the oppressive dominance of globalisation.”
These are profound ideas that can have paradigmatic effects, and define the terrain of policy discourse. The fact that the proponent of these ideas has significant institutional access to critical policy making arenas as deputy governor of CBN also gives the ideas a lot of potency as they can feed into and shape policy making.
It is for these reasons that we need to examine the worldview that Dr Moghalu has constructed to correct for any error. After all, as a scholar once said, “(e)ven the genius in drafting a worldview sometimes fails to avoid contradictions”, and the philosophical systems constructed by great thinkers are not always without fissures and flaws. It is in this context that I review in this piece Dr Moghalu’s LSE lecture.
Globalisation is Dr Moghalu’s biggest bugbear. He presents it as a dangerous phenomenon that African countries should cut loose from through a self-reliant economic policy. These anti-globalisation and self-sufficiency worldviews, however, pose enormous challenges. For instance, the idea that, in a world of complex interdependence and linkages, a nation-state can ignore global economic realities and do what it wants at home is nothing but a false prospectus. As a central banker, Dr Moghalu will be familiar with the standard Mundell-Fleming theory, which is the starting point for analysing the effects of global finance on national macroeconomic policy. Global interconnectedness has changed the world, and the glory of independence is nothing but a mirage.
But globalisation is not just about the constraints it places on policy autonomy; it’s also about the huge opportunities it creates. Since the 1990s, globalisation has helped to liberate economies and spread prosperity across the world, including in Africa. Recently, Nigeria rebased its economy, due to new economic activities in the telecommunication and entertainment sectors, and suddenly became the largest in Africa. These new sectors owe their emergence and growth to globalisation. For example, Nigerian musicians and actors are able to perform in London, New York and other world capitals because of the performing, recording, and broadcast rights that countries are obliged to protect under the rules of the World Trade Organisation (WTO) and the World Intellectual Property Organisation (WIPO). The use of mobile phones and the internet has transformed lives and business in Africa, with Nigeria having 56 million internet users, and Egypt 35 million. The global interconnection and interoperability of telecommunications traffic across national borders are facilitated by global telecommunications rules under the International Telecommunication Union (ITU). So, when Dr Moghalu criticised the “uncritical embrace of globalisation and its institutions and agents in the mistaken belief that African countries are obliged to do so as members of some presumed international community or global village”, one would assume he is not suggesting that African countries should withdraw from global economic institutions, such as the WTO, WIPO or the ITU, or ignore their rules.
There is another contradiction in Dr Moghalu’s view of globalisation. The secret for Africa’s development, he said, is innovation. Nothing can be truer; after all, the key mechanism for convergence at the international level is the diffusion of knowledge. Poor countries can catch up with rich ones to the extent that they achieve the same level of technological know-how, skill and education. So, Dr Moghalu is right to privilege innovation as one of the key drivers of progress. However, his view on innovation cannot square with his argument that Africa is not ready for globalisation. You need openness and, by extension, globalisation to achieve technological convergence. As Thomas Piketty powerfully puts in his recent book, Capital in the Twenty-First Century, “The diffusion of knowledge is not like manna from heaven: it is often hastened by international openness and trade”, adding that “autarky does not encourage technological transfer.” Dr Moghalu will, of course, protest that he is not advocating autarky, but it’s difficult to read anything different from his prescription of an inward-looking economic policy and self-sufficiency.
Of state and crony capitalism
Now, that takes me to state and crony capitalism. Dr Moghalu argued that cronyism is a reality of our lives, and that Africa can invent an economic model based on crony capitalism and actually transform its economy. He credited the Chaebol-centred industrialisation strategy in South Korea for that country’s economic success, and suggested that Nigeria, for example, could create 10 to 15 Aliko Dangotes in strategic sectors of the economy on the basis that this would have a trickle-down effect. Leaving aside the contradiction inherent in Dr Moghalu’s view on crony capitalism and his proposition that Africa needs good governance, rule of law and strong institutions to prosper, it would seem that he has not thought through the consequences of crony capitalism. For instance, he failed to acknowledge, despite all the informed criticisms of the South Korean model, that crony capitalism creates deep corruption, inefficiencies and inequalities.
South Korea is Dr Moghalu’s exemplar for the benefits of crony capitalism. However, he did not tell us that crony capitalism produced massive corruption in South Korea or that the Asian financial crisis of 1997 was widely blamed on cronyism and the inefficiencies of the chaebol economy. In his book, Crony Capitalism: Corruption and Development in South Korea, David Kang noted that “even in South Korea, corruption was far greater than the conventional wisdom allows.” It is therefore surprising that Dr Moghalu would recommend this tainted model to Africa and make such a heroic assumption that African politicians and bureaucrats would suddenly become angels and use crony capitalism to serve the national interest.
Of course, crony capitalism cannot serve the national interest, whatever strategic thinking is behind it. When used with state capitalism, cronyism tends to favour conglomerates that often become too powerful and uncontrollable because of their embedded self-interested relationships with politicians and bureaucrats. They use their monopoly positions to accumulate capital infinitely, create barriers to entry, and crowd out small- and medium- sized enterprises (SMEs) that are the real drivers of growth. A recent study shows that corruption and inequalities were deeper and more widespread in South Korea than in Taiwan – two of the top Asian Tigers – because of the differences in their approach to state capitalism. While South Korea promoted conglomerates or chaebols, Taiwan pursued growth and equity and favoured SME-friendly policies. As a result, SMEs became the main force of Taiwanese economy. Subsequent South Korean governments tried to break up the conglomerates, even introducing the Monopoly Regulation and Fair Trade Law in 1981, but with little success, because big business often knows how to play the political game.
A more sustainable, equitable and, ultimately, efficient growth model is one built on entrepreneurial capitalism. To be fair, Dr Moghalu recognised this strand of capitalism, but he played down its role in favour of state and crony capitalism. Entrepreneurial capitalism entails the creation of an enabling environment for SMEs to operate, compete and grow in every sector of the economy without being victims of the state picking winners, playing favourites or supporting the so-called “national champions.” As the Economist magazine noted in a recent edition, “(t) he world’s greatest centres of innovation are usually networks of small start-ups.” SMEs are the engine of economic growth. For example, according to a 2009 Eurostat figure, SMEs accounted for 53% of the UK’s goods exports. So, any policy that favours or prioritises conglomerates over SMEs is misguided and cannot serve the national interest.
Of course, every government must develop a collaborative but challenging strategic partnership with industry, but this must be driven by a commitment to open and competitive markets as a means to stimulate innovation and growth. Western governments use industrial strategy to help their business compete and grow. They use horizontal and sector level interventions, such as investments in soft and hard infrastructures, support for science and innovation as well as research and development, and reduction of regulatory burdens, to create the enabling environment for business to innovate, expand and export. So, no government ever abandons its business, and industrial strategy can be a benign form of state capitalism. However, where state capitalism descends into cronyism or crowds out the entrepreneurs that are the real drivers of growth, it has to be said that its dangers outweigh its advantages.
For Africa, state capitalism is even more problematic because the continent does not have the competent state or the strong bureaucratic culture that is required to make it work. I spent some time in South Africa in 2003 and was exposed to the limitations of its public sector, which were a constant source of friction between the government and white-controlled private sector. Nigeria does not fare better. Furthermore, state capitalism, especially the pervasive type practised by China and other dirigiste economies, will provoke retaliation from Western countries. For instance, because of its state capitalism, China does not have a market economy status (MES) in the WTO, which exposes its exporters to trade defence measures, such as anti-dumping penalties, in major trading countries. China’s campaign to gain recognition as a market economy has so far proved unsuccessful, rebuffed by its major trading partners. Africa cannot go down that route, to be sure.
So, Dr Moghalu is right to remind us that Africa has not emerged, let alone risen in the world economy. But he is wrong to recommend an inward-looking economic policy, coupled with state and crony capitalism, as the way forward. If globalisation is evil, self-sufficiency is a greater evil; and if market-based capitalism is bad, state capitalism and crony capitalism are even worse. And, as the saying goes, of two evils choose the less. So, Africa should embrace the competition and opportunities that globalisation and particularly openness to trade bring. To this end, Africa needs to embark on supply-side reforms to improve the productive capacities of its industries and enable them to produce goods and develop services that can compete in international markets. The aim of every African business should be to produce goods that it can sell to overseas customers, and the role of every African government should be to create the enabling environment for businesses to produce and export goods.
To be sure, there are still distortions in international trade that disadvantage Africa, but the continent’s response to this should not be to turn inwards. Africa must engage actively at the WTO to set trade agendas, build necessary coalitions, so as to change the rules of international trade where they are unfavourable to African exports.
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South Africa reiterates focus on Nigeria, Africa
Following the public outcries that greeted the newly introduced immigration policy, South Africa has cleared the air on the various misgivings expressed by the travelling public, insisting that Nigeria and Africa remain its focus, adding that the new regulations were aimed at enhancing her security by addressing areas of weakness, risk and abuse.
The explanation was given at the Nigeria-South Africa Chamber of Commerce (NSACC) breakfast meeting, held in Lagos last week, in conjunction with Brand South Africa. According to South African authorities, the new measures were introduced to ridicule fellow Africans.
If there is any area the South African government is passionate about it would be the free movement of people, goods and services within the continent. This, according to Brand South Africa, would enable economic growth of countries within Africa.
But things must be regulated as informed by the country’s department of Home Affairs: “We must manage immigration securely and effectively in a way which benefits our economy and society, heeds our international obligations and manages risks to national security.”
Also, Brand South Africa insisted that individual countries must ensure that immigration is conducted in terms of domestic law and national priorities. “We have not introduced these regulations to disadvantage fellow Africans.
South Africa cannot be separated from Africa and we can neither shut ourselves off Africa nor shut our eyes to the enormous risks that the new world possesses in abundance. ‘‘Our commitment to African unity and development is resolute, and our track record in this regard speaks for itself.
We value the contribution of fellow Africans from across the continent living in South Africa and that is why we have continued to support the AU and SADC initiatives to free human movement; but this cannot happen haphazardly, unilaterally or to the exclusion of security concerns; and neither can it happen without standardizing population registration and immigration legislation and addressing development challenges everywhere”. The South African government believes that risks to any country on the continent have a direct impact on her country. The government has not unilaterally removed existing visa waivers agreements with fellow African countries and is keen to enter into more.
“Foreign nationals processing critical skills can now apply for and be granted a critical skills visa, even without a job, allowing them to enter the country and seek work for a period of up to 12 months.
For some time now, business stakeholders have been asking for families of workers to be considered a unit, an international best practice which the new regulations now include,” Brand South Africa noted.
The Executive Officer, Brand South Africa, Chief Miller Matola, also stressed the need for the South African nation brand viz-a-viz the promotion of the African brand in view of developing the continent as a whole and competing with international standards.
“Brand South Africa pursues its Africa programme with an emphasis on promoting the South Africa nation brand as part of the continent brand, ‘Brand Africa.’ Hence Africa’s reputation and competitiveness is central to that agenda,” Matola stated. To achieve this and more, he identifies Nigeria along-with Angola, Democratic Republic of the Congo, Ghana, Kenya and Senegal as key markets.
This is informed by South Africa’s foreign policy, both political and economic diplomacy as well as trade and investment imperatives. He challenged African business and corporate brands to invest in changing the perception of Africa from negativity to positivity.
The CEO said: “There is no doubt about the power of commercial brands to convey the overall brand of their country of origin – be it innovation, excellence or quality, which will result in investment in changing the narrative about how Africa as a continent is perceived.”
Matola also stressed the importance of the African nations having in-depth working and friendly relationships, drawing conclusions from the 2013/14 Project Thrive Study on the familiarity of Nigerians with South Africa. He disclosed that the study indicated that the average familiarity rate about South Africa amongst Nigerians stands at 46% and only 18% of the sample has a high knowledge base of South Africa.
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COMESA secures €33m: Invites Member States to submit requests
COMESA has received 33 million Euros from the European Union to support regional integration and has invited its Member States to apply for the funds before 28 September 2014.
The resources are provided through the 10th European Development Fund (10th EDF) under the COMESA Adjustment Facility (CAF) Regional Integration Support Mechanism (RISM).
Thirteen countries are so far benefiting from the first tranche of the funds amounting €78 million which was provided under the 9th EDF for the period 2008 – 2014. They include Burundi, Djibouti, D R Congo, Comoros, Kenya, Malawi, Mauritius, Rwanda, Seychelles, Swaziland, Uganda, Zambia and Zimbabwe.
Four additional countries are expected to join in the 10th EDF for 2014 - 2016 period bringing the total number of eligible States to 17. Allocations and disbursement of RISM funds are given against the formulation and implementation of well-defined and ambitious regional integration indicators of individual Member States.
To help the countries prepare their proposals COMESA is hosting a one week regional workshop for the technical officials from the qualified States from 25 – 29 August 2014. They are drawn from Ministries of Finance and those that coordinate COMESA affairs.
“With these resources, the focus is now on designing programmes and utilizing the resources in a manner that achieves the maximum impact”, COMESA Secretary General Sindiso Ngwenya told the officials attending the workshop in Lusaka.
It has been noted however, that Member States have been experiencing difficulties in accessing and utilizing the funds owing to delays in submission of projects and provision of sources of verification.
“When the COMESA Adjustment Facility was initiated and later funded by the EU, the greatest concern was on the capacity to implement regional integration programmes at the national level,” Ngwenya told the officials.
He said such concerns have not only been in the absence in capacities to ensure that decisions are domesticated but that programmes are designed and implemented.
Similar sentiments were echoed by the EU representative Mr. Daniel Dominguez. He observed that since the program was new, there were too many levels of decision making thus slowing down access and utilization of funds.
“We have learned from all those issues and are now confident that they are things of the past,” Mr. Dominguez said.
New challenges are however emerging including the absorption capacity, efficient and effective utilization of resources and achievement of impact. Mr. Ngwenya attributed such challenges to preoccupation with processes rather than results by officials responsible for implementation.
“The regional integration process is not for the benefit of governments but the consumer, who is not bothered with policies, strategies or instruments in place”, Mr. Ngwenya explained. “What the consumer wants is a wide choice of goods and services, at the right time, with the right quality.”
He asked officials to design programmes that influence production capacities, the quantity and quality of manufacturing and the improvement in services that have the potential to drive the regional economy. These he said should involve the private sector to enable them become players in the COMESA market and with the wider global economy.
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Urging sustainable action, UN officials link small islands to global issues at conference opening
Calling small island developing nations a magnifying glass for vulnerabilities around the world, United Nations Secretary-General Ban Ki-moon on Monday urged the international community to support sustainable development in these countries through multi-stakeholder partnerships.
“By addressing the issues facing SIDS we are developing the tools we need to promote sustainable development across the entire world,” Mr. Ban said at the opening session of the Third International Conference on Small Island Developing States in the Samoan capital, Apia.
The conference is being held in the Pacific to demonstrate first-hand the challenges and opportunities facing countries in the “small island developing states” group. These include high costs for energy and transportation, susceptibility to natural disasters, and vulnerability to external shocks. The island nations are also prime destinations for tourism, naturally endowed with ‘green energy’ resources like sun and wind, and driving so-called ‘blue growth’ economy linked to marine and maritime sectors.
“We must assess progress and identify new challenges as well as opportunities,” he told more than 3,000 representatives of government and civil society, and business leaders.
The overall goal, particularly since the four-day conference’s final document has already been hammered out, is to form genuine and durable partnerships among the various participants, with the aim of strengthening island initiatives that can help address global issues.
“Lasting progress can ultimately only be achieved within a propitious international environment that supports national efforts,” John Ashe, President of the General Assembly said in his opening remarks.
At the time of the opening, at least 287 partnerships were already registered on the official website.
“When one looks at partnerships in terms of the numbers, I would say this conference is a huge success,” Mr. Ashe said in an interview after the opening session. “Based on what we’ve seen so far, there is considerable interest in partnerships with SIDS.”
A common theme throughout the pre-conference events and today’s opening is climate change, and efforts to stem its impacts.
In his opening address, Prime Minister Tuilaepa Aiono Sailele Malielegaoi urged organizers to take concrete steps to stem rising sea levels. He noted that critical problems do not recognise borders and hold no respect for sovereignty.
“The big problems of our small islands will sooner rather than later impact every country irrespective of level of development of prosperity,” said the Prime Minister.
Turning to participants of the conference, he urged them to act: “There are always great opportunities to deliver moralistic statements and declarations of intent. But grandstanding won’t achieve our cause.”
This week’s conference comes ahead of Mr. Ban’s Climate Summit which will be held on 23 September at UN Headquarters in New York. The summit is meant to catalyze action and build momentum for a climate agreement to be discussed next year in Paris.
“SIDS will have an important role to play,” Mr. Ban said. “You can tell the largest emitters what action you expect from them. And you can show how you are working to build resilience and create the green economies of the future.”
“You can set an example for the world,” he added, noting that this year is also the International Year of Small Island Developing States.
In addition to the plenary session, six so-called ‘partnership dialogues’ have been organized on the themes of sustainable economic development; climate change and disaster risk management; social development in SIDS, health and non-communicable diseases, youth and women; sustainable energy; oceans, seas and biodiversity; water and sanitation, food security and waste management.
The topics are related to the Millennium Development Goals (MDGs) which the international community is working to reach by next year’s deadline, as well as the sustainable development goals that will follow post-2015.
According to the Rio+20 Conference on Sustainable Development, small islands had made less progress on the MDGs than other countries, with some even regressing.
One in four Pacific islanders live below the poverty line, according to a UN Development Programme’s (UNDP) ‘State of Human Development in the Pacific’ released Saturday.
Promotion of adequate health services and basic education, as well as prioritizing social protections in national budgets are some of its recommendations.
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Effective economic policies: Africa’s challenge
The SADC region recorded an average real GDP growth of 4.9 per cent in 2013, which was 0.1 percentage point above the 2012 average of 4.8 per cent. The inflation rate in 2013 stood at an average of 7.1 per cent.
The Region also recorded national savings of 17.7 per cent of GDP in 2013, implying that foreign savings finance significant proportion of the Investment in the region. With regard to investment, the region recorded 27.7 per cent of GDP in 2013 which was a 0.4 percent improvement over 2012 level. Global competitiveness Index 2013-14 indicate that SADC region is making progress in improving the business environment and competitiveness in general.
It is worrisome to note that the impressive growth story of Africa in the last decade has not translated into economic diversification, commensurate jobs or faster social development. Our economies continue to be characterized by high dependence on agricultural, mineral and other natural resource-based commodity production and exports, with too little value addition and limited forward and backward linkages to other sectors of the economy.
The key challenge for SADC countries is how to design and implement effective policies to promote industrialization and economic transformation. The objective of enhancing productive and industrial competitiveness is to achieve the development of a competitive and diversified regional industrial base that optimally utilizes local resources through comprehensive value addition. The challenge of industrialization of the SADC region is to transform from a small undiversified and low technology manufacturing sector to a more diversified and medium to high technology levels of manufacturing for domestic consumption, consumption in the region through intra-SADC trade and export to global markets.
In the context of SADC, this can be achieved through collective focus on building the industrial capacity necessary to produce higher value goods for trade internally, within the SADC region and globally.
Despite some gains in manufacturing over the last decade, the continent is yet to reverse the de-industrialization that has defined its structural change in recent decades. In 1980–2010, its share of manufacturing in aggregate output declined from more than 12 per cent to around 11 per cent, in stark contract with the experience of East Asia where it remained at more than 31 per cent with labour intensive industries inducing high and sustained growth that helped lift hundreds of millions of citizens out of poverty.
The results of statistical analysis show that although during the period 1995–2005 African countries caught up with East Asian countries in terms of economic growth rate, the gap between Africa and East Asia has been widening.
The regional value chain approach to industrialization was adopted in the SADC Industrial Development Policy Framework and work programme in 2012. Key intervention areas for the policy include: development of sector specific strategies for regional value chain development; promoting industrial upgrading through innovation, technology transfer and research and development; improving standards, technical regulations and quality infrastructure; developing and upgrading skills for industrialization; developing a mechanism for industrial financing; improving provision of infrastructure for industrial development and promotion of local cross border and foreign direct investment.
The identified key priorities in the revised Regional Indicative Strategic Development Plan (RISDP), therefore present an opportunity for unlocking our potentials to the fullest, and more so the Theme for this year, namely “SADC Strategy for Economic Transformation: Leveraging the Region’s Diverse Resources for Sustainable Economic and Social Development through Beneficiation and Value Addition”, presents us with an opportunity to utilize our diverse resources for the prosperity of our region and our citizens.
An old age African proverb says: “A leader takes people where they want to go. A great leader takes people where they do not necessarily want to go, but ought to go.” Being our great leaders, this is possible, and this is what will make SADC a giant among giants.
Dr Stergomena Lawrence Tax is the SADC Executive Secretary. She made this presentation at the 34th SADC summit held recently in Zimbabwe.
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Africa and Singapore require strong financial links
“The challenge that we face is strong financial links with banks in Africa. Without financial services, I don’t think our entrepreneurs or investors, and small and medium-sized enterprises can actually tap into the huge potential in Africa,” Hassanbhai, chairman of the Africa Business Group (AFBG), told CNBCafrica.com.
“Most critical is finding competitive premiums for risk management – this is equally important. In every transaction, risk management, risk evaluation, risk insurance needs to be catered for, and this is something that is missing. This links back to the financial links we have with Africa.”
The AFBG was formed under the auspices of the Singapore Business Federation (SBF), which recently established a Centre for African Studies to help Asian firms expand into the continent.
“There is a wealth of institutional knowledge on Africa in Singapore. The centre was created to form a one-stop platform,” Hassanbhai said.
“Hopefully we develop content that will serve not only the Singapore business community but also the surrounding South East Asian, or now what is commonly known as the ASEAN, community.”
The centre aims to provide thought leadership on Africa, build capacity for governments and executives, build human capital on Africa and foster an integrated Africa-Singapore network.
“When we talk about providing thought leadership on Africa, we want to bring people who are practitioners of business in Africa to this part of the world,” Hassanbhai explained.
“Singapore executives and African executives need to connect, and also need to understand the different types of business cultures that exist in different areas of geography. We want to offer executives programmes so that the learning curves of the business cultures can be shortened.”
Hassanbhai stated that there are some commonalities between Africa and Singapore but that economically, the relationship needs to be reinforced.
“This is where we want to strengthen our relationship with Africa. Economically we have been very small players. We’ve been very insignificant players,” he said.
“Politically, it is not new, it’s an old relationship. But we need to revitalise that particular relationship. The relationship that we want to extend and strengthen is basically in the economic area.”
He added that while Singapore has ramped up its economic activity with Africa in the last seven years, it is still a very small percentage.
Hassanbhai also drew comparisons between the two regions’ large consumer markets but emphasised the need for technical knowledge in Africa.
“Africans are well educated on a tertiary level but when we hear the narrative about how the large unemployment population varies in Africa, we find that technical know-how is very minimal. Singapore’s success story – one of the pillars has been to provide technical education,” he stated.
“We need to make ASEAN, and especially Singapore businessmen, aware of what Africa is. Africa has been a distant kind of place and we want to find ways of using technology to foster an integrated network between Africa and Asia.”
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Zim dollar return suicidal: Mangudya
Government should not reintroduce the Zimbabwe dollar as this amounts to economic suicide, central bank boss John Mangudya warned.
In his maiden mid-term monetary policy statement presentation on Monday, Mangudya said government should demonetise the Zimbabwe dollar currency to restore confidence in the financial markets.
Mangudya said the multiple currency system adopted in 2009 would remain in force until such a time the country’s economy was stable enough to permit a rebirth of the local currency.
“Government’s consistent and official position is that the country is using the multiple currency system. This position has been well articulated by the Minister of Finance and Economic Development, Honourable Patrick Chinamasa, and is the bedrock under ZimAsset,” he said.
“The local currency would only be resuscitated when the country’s foreign exchange reserves and domestic production levels are significant enough to sustain its rebirth.”
But government is yet to heed such calls after the Bankers Association of Zimbabwe made similar recommendations some years back.
Although the banking sector is generally safe and sound, the general slowdown in the performance of the domestic economy continues to pose challenges to the banking sector, he said.
Mangudya said the banking sector remained generally profitable as at June 30 2014, with an aggregate net profit of US$13,84 million for the half year ended June 30 2014, up from US$4,90 million during the corresponding period in 2013.
“A total of 12 banks recorded profits for the period ended June 30 2014.
“The losses recorded by the few banking institutions are attributed to high levels of non-performing loans, lack of critical mass in terms of revenue to cover high operating expenses and deliberate strategy by some banks to clean up bad loan books through provisioning,” Mangudya said.
Total banking sector deposits increased by 4,86% from US$4,73 billion as at 31 December 2013 to US$4,96 billion as at June 30 2014, while loans and advances marginally increased from US$3,7 billion to US$3,81 billion, during the same period dominated by the industrial sector, household and transport.
The level of non-performing loans has risen to 18,5% as at June 30 2014 from 15,9% as at December 31 2013 due to challenging economic conditions and increasing cost of doing business that resulted in the debt repayment capacity of the borrowers remaining under stress.
The RBZ said credit risk remains a key component in the risk profile of the banking sector as the surge in delinquencies and loan losses has dampened banks’ risk appetite.
“Resultantly, banks have increasingly adopted a risk averse approach to lending,” Mangudya said.
A total of 14 out of 19 operating banking institutions, excluding POSB, were in compliance with the prescribed minimum capital requirements as at June 30 2014.
Mangudya said the efforts by banks to increase their capital positions have been constrained by a number of challenges including the macroeconomic environment and subdued foreign direct investment.
Mangudya said while only four banks – Metbank, Allied Bank, AfrAsia and Tetrad Investment Bank (Tetrad) – are hamstrung by liquidity and solvency challenges due to macro and institution specific factors, the banking sector remained safe.
The four banks command low market shares – 8,8% of total banking sector loans, 6,7% of deposits and 7,2% of assets as at June 30 2014 in a sector with 19 operating banks excluding state owned People’s Own Savings Bank (POSB).
“In this regard, shareholders and boards of the distressed banks have been directed to finalise implementation of their turn around plans, failure of which the Reserve Bank will be left with no option but to intervene and institute appropriate supervisory action in terms of the Banking Act,” Mangudya said in the statement, adding institutions should seriously consider consolidations or mergers and voluntary surrender of licences when deemed necessary.
“The Reserve Bank has been engaging these institutions to come up with credible plans to turnaround their waning financial condition.”
The central bank chief said although Metbank’s capital was compliant with the minimum capital threshold of US$25 million, the institution has been facing liquidity challenges.
He said Metbank has embarked on capital raising initiatives and other turnaround strategies to address its current challenges.
Mangudya said Tetrad has failed to meet some outstanding payments due to liquidity challenges. Tetrad has recently entered into a scheme of arrangement with its creditors to put a stay on litigations.
The scheme of arrangement is for three months up to 31 October 2014 and is envisaged to protect the institution’s assets for the benefit of all depositors and creditors.
“In an endeavour to address its solvency status, the bank is in discussion with a potential investor for the injection of capital. The scheme of arrangement is also expected to provide ample time for the potential investor to finalise the recapitalisation initiatives.”
Afrasia is also facing liquidity challenges and seeking liquidity support from the major shareholder and concomitantly pursuing a private placement transaction, whose successful consummation will bolster the bank’s capital level, the RBZ said.
“The Reserve Bank is satisfied with the current efforts by the major shareholder to strengthen the bank’s financial condition as evidenced by an injection of US$10 million which improved the bank’s capital to US$19,2 million as at 30 June 2014.”
Obert Mpofu’s Allied Bank faces both solvency and liquidity challenges and consequently has been failing to pay maturing obligations.
Mangudya said the Allied Bank board and senior management are working on various capital raising initiatives including engaging the major shareholder to raise funds to bolster the institution’s capital and liquidity position.
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Namibia to become a logistics hub
The role of transport and logistics has become increasingly important for Namibia’s economy. With the rapid growth in cargo volumes along the Walvis Bay corridors and the benefits that the trade routes have to offer, Walvis Bay has been identified to become the logistics hub for Southern Africa.
The Port of Walvis Bay, with its deep water depth and stable weather conditions, is strategically located to accelerate the growth of the SADC region as a whole by providing a gateway to Southern Africa. Costs and time savings are achieved along the Walvis Bay corridors by offering the shortest possible regional route on the west coast.
Strategic plan
In terms of Namibia’s strategic plan, the National Development Plan 4 (NDP4) has made provision for the development of a logistics hub. Hence, the NDP4 has prioritised the creation of a logistics hub in Namibia with the aim to make the Walvis Bay corridors through the Port of Walvis Bay the preferred trade route in Southern Africa.
With the transport corridors fully established, it is now ready to be developed into economic development corridors that are ultimately a network of supply and distribution depots. Economic development in Southern African countries has accelerated.
Accelerate growth
Ultimately, the development of the port of Walvis Bay and the Walvis Bay corridors is clearly an advantage to accelerate growth for Namibia and the SADC region by offering Southern Africa an alternative gateway.
The Logistics Hub concept forms part of the greater efforts of the Walvis Bay Corridor Group to develop the Walvis Bay corridors as the preferred trade route for Southern Africa.
Competitive strength
The Walvis Bay Corridor Group was created in 2000 as a service and facilitation centre to promote imports and exports via the Port of Walvis Bay. The group’s main competitive strength is its public-private partnership setup of transport and logistics stakeholders, allowing for the pooling of resources, expertise and authorities from both the regulators and operators.
The Walvis Bay corridors are a network of transport routes comprising the Trans-Kalahari Corridor, Walvis Bay-Ndola-Lubumbashi Development Corridor (also known as the Trans-Caprivi Corridor), the Trans-Cunene Corridor and the Port of Walvis Bay.
The deep-sea port of Walvis Bay allows for direct access to principal shipping routes. The port offers shippers a time saving of up to five days between the SADC region and Europe and the Americas. Walvis Bay is a congestion-free port with competitive turnaround times, complemented by first-class infrastructure and equipment, ensuring, safe and reliable cargo handling with zero pilferage. Fast, efficient and safe road and rail transport along the Walvis Bay Corridors further reduces transport costs and makes the regional economy more attractive to global players, as envisaged under the NEPAD initiatives.
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US traders arrive to lobby govt
A delegation of businessmen from the US is here to lobby the government, through the ministry of Livestock Development and Fisheries, to let them import cheap chicken bred in Brazil, The Citizen has learnt.
Reliable sources in the ministry, who declined to be named, said the businessmen arrived on Tuesday on a mission to convince the government to lift a ban on cheap imported chicken from the South American country.
“As of Thursday, the US businessmen were scheduled to meet the minister to try and convince him to lift the ban,” our source said on the phone. “These people are serious and they want to take the local market at all costs.”
Early this year, The Citizen reported that repacked cartons of frozen chicken and turkey thigh cubes and wings imported from Brazil and the US had flooded the local market and posed a serious threat to local poultry farmers.
The cartons weighing between 800gm and 1,000gm each did not indicate the date of manufacture or expiry.
Should the chicken imports be allowed, small-scale poultry farming might collapse. Hundreds of thousands of poultry farmers in Dar es Salaam and those from upcountry, who rear mostly exotic breeds, are at risk of being pushed out of business.
The central regions of Singida and Dodoma are a primary source of native chicken that feeds big cities such as Dar es Salaam, Arusha and Mwanza.
The minister for Livestock Development and Fisheries and his deputy were unavailable for comment. But the minister for Agriculture, Food Security and Cooperatives, Mr Christopher Chiza, told The Citizen his ministry had no information on the matter which, he added, falls under the Livestock Development and Fisheries docket held by Dr Titus Kamani.
Tanzania has imposed a ban on imported chicken in order to protect local poultry industry but importers have been using Zanzibar as a conduit to penetrate the Mainland market.
Our source at the ministry further said: “These are very powerful people who are also backed by some prominent local politicians…it’s sad that we allow the importation of frozen chicken from Brazil and America at the expense of local chicken farmers.”
The imports come at great cost to local farmers, who risk losing their income and may also have to lay off workers. Some experts also worry that such poultry products could expose the country to diseases that would be hard to handle.
Poultry farmers in urban areas are most affected because they rear exotic chicken, which puts them in direct competition with producers in North and South America. Earlier this year, Zanzibar farmers closed shop in the wake of massive and cheap chicken imports. Poultry farmers in the Isles said they could not compete with chicken imports, especially from the US and Brazil, given their incredibly low prices. The chairman of the Tanzania Commercial Poultry Association, Dr Herman Moshi, has repeatedly appealed to the government to enforce its ban on imported chicken.
He argues that a recent survey revealed that the imported chicken were killing the local poultry industry.
Dr Moshi told The Citizen that the association was also worried about the quality of imported chicken and also expressed fears that the imported chicken could well bring bird flu into the country.
In December last year, the then minister for Livestock and Fisheries Development, Dr Mathayo David, said the ban on imported chicken was still in force to protect the country from bird flu – which was perceived as a significant emerging pandemic threat.
He said the government was conducting inspections to pin down traders who import chicken. Prohibiting chicken imports is also meant to protect the domestic market due to the fact that local poultry farmers do not get subsidies like their counterparts in developed countries.
The minister said some of the chicken products found their way into the Mainland market from Zanzibar, which allows such imports. There have been claims too that some crooked officials in the ministry are part of a conspiracy to issue forged permits for such deals.
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Rebasing: Nigerian economy now worth N81tn
The National Bureau of Statistics (NBS) has revised the size of Nigerian economy to about N81.009 trillion following it latest final rebasing of the country’s Gross Domestic Product (GDP), using the Expenditure Approach between 2010-2013.
This represented a marginal increase from the projected N80 trillion in 2013 when the output method was used the compute the rebased GDP in May.
According to the GDP Report (Expenditure Approach) 2010-2013 released by the statistical agency, the final consumption of Household Items Expenditure accounted for the largest chunk of the rebased GDP figures at about N58.13 trillion in 2013, up from the N42.115 trillion of the preceding year.
The report also indicated that expenditure on export goods and Services accounted for about N14.61 trillion compared to about N22.82 trillion in 2012.
Also expenditure on Gross Fixed Capital Formation in 2013 stood at about N11.72 trillion, up from the about N10.61 trillion expended in 2012.
The NBS further stated that overall Gross Final Consumption Expenditure of General Government as increased to about N6.54 trillion, rising marginally from the N5.953 trillion expended in the preceding year, while final Consumption Expenditure of Non-Profit Institutions Serving Household amounted to about N302.24 billion in 2013 compared to about N248.57 billion recorded in 2012.
It also indicated a marginal drop in Changes in Inventories Expenditure from about N204.24 billion in 2012 to about N201.44 billion in 2013.
Although total GDP by Expenditure Size stood at about N91.23 trillion, expenditure on Imports of Goods and Services which amounted to about N10.51 trillion reduced the net figure to about N81.009 trillion.
Also, rebased GDP figures on the GDP and Expenditure at Current Purchasers’ Value basis showed that the size of the economy at Basic Prices stood at about N80.09 trillion including compensation of employees expenditure of about N22.33 trillion; Operating Surplus of about N53.51 trillion; Consumption of Fixed Capital N3.71 trillion; and Other Taxes on Production (Net) value of about N536.44 billion.
The reported noted that a total of about N917.40 billion accrued as Net Taxes on Products during the year under review, thereby pushing the overall GDP figures at Market Prices to about N81.009 trillion.
Among other things, expenditure based on National Disposable Income and its Appropriation Current Purchasers Value indicated that whereas Domestic Factor Income and National Income and Market Prices stood at about N75.84 trillion and N72.74 trillion respectively, the Appropriation of Domestic Income rose from about N68.32 trillion in 2012 to about N76.21 trillion in 2013.
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‘Building Food Safety Systems for Export’ – South Africa and New Zealand join forces to address critical SADC issues
The Governments of South Africa and New Zealand will join forces when the two countries host a workshop on: “Food Safety Systems for Export” on 2 and 3 September 2014. The workshop will address this critical issue within the Southern Africa Development Community (SADC), through the participation of experts from South Africa, New Zealand, SADC member states, as well as Kenya and Uganda.The South African Minister of Agriculture, Forestry and Fisheries, the Honourable Mr Senzeni Zokwana and New Zealand High Commissioner to South Africa, His Excellency Mr Richard Mann, will open the event at the Department of International Relations and Cooperation’s (DIRCO’s) OR Tambo Building.
The workshop aims to share experience and expertise with southern African countries in export sectors in which both New Zealand and South Africa have a track record of successful performance (i.e. agriculture/fisheries), and is of relevance and interest to countries in the region. Most African countries are focused on increasing the quantity and quality of their agricultural exports and seek to better address market access and compliance issues they often have with new and existing export markets.
Workshop content will focus on offering practical solutions for key industry players and government officials dealing with food safety issues. This will also be an opportunity to showcase New Zealand and South African producers’ robust and world-leading “farm to fork” and “grass to glass” food safety standards and legislation. Kenya, Botswana and the Seychelles will present case studies on challenges and successes they have had in their horticulture, red meat and seafood export sectors. Key regional multilateral organisations, such as the Food and Agriculture Organisation (FAO), SADC, New Partnership for Africa’s Development (NEPAD), the African Development Bank and the Global Food Safety Initiative will also participate.
This trilateral initiative came as a result of a meeting in 2013 between the Foreign Minister of New Zealand, Minister Murray McCully, and the Minister of International Relations and Cooperation of South Africa, Minister Maite Nkoana-Mashabane, where they agreed that the two countries should cooperate in the field of agriculture, focusing on issues affecting the SADC region. Both South Africa and New Zealand express the hope that the workshop will assist the region to increase agricultural exports as part of overall efforts to enhance Africa’s economic growth and social development.
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BRICS and the coming crash
In the event of major capital outflows from India, a BRICS Bank and reserves-sharing agreement would be a big help
On 15 July 2014, the five BRICS countries – Brazil, Russia, India, China and South Africa – agreed at their sixth summit meeting in Fortaleza, Brazil, to set up a New Development Bank (NDB) and a Contingency Reserve Arrangement (CRA). The NDB is expected to fund development projects as does the World Bank and the CRA is to address balance of payments difficulties on the lines of the International Monetary Fund. Although the summit’s decisions cover political and other issues, this article limits itself to discussing the viability and significance of the proposed NDB and CRA.
International print media has dwelt on the perceived incompatible nature of the BRICS grouping. The sceptical tone of the reporting reflects discomfort with India, Brazil and South Africa teaming up with Russia and China to set up multilateral financial institutions (MFIs). Separately, developed countries have persistently delayed reducing their equity-quotas in existing MFIs to reflect the growing economic weight of larger developing economies. Now that the volumes of capital flows to developing countries from private sources have overwhelmed those from MFIs, it could be argued that MFIs have lost their earlier significance. On balance, MFIs retain their importance because they provide much longer maturity and lower cost loans.
A number of preparatory steps will be needed to set up the NDB and the CRA. For instance, the Articles of Agreement and the conditions and pricing of loans have to be agreed upon. The NDB and the CRA should begin by limiting their lending activities to BRICS members backed by central-government guarantees as is the case with World Bank loans. However, unlike the World Bank, the NDB could fund its loans by borrowing from member governments. The five BRICS countries have invested significant proportions of their foreign-exchange (forex) reserves in debt securities of G7 governments. Ironically, never in recorded history have so many of the world’s poor lent so much to the rich.
The BRICS members could lend to each other rather than to the richest countries. A fraction of just the short-term investments of BRICS countries in the United States Treasury bills (T-bills) could fund loans to BRICS members. Effectively, the NDB’s opportunity cost of borrowing would be the rate of return that BRICS countries receive on their United States T-bill investments.
The six-month United States T-bill spread against six-month London Inter-Bank Offered Rate (theLIBOR indicates the cost of borrowing for double-A rated banks) is currently 0.28 per cent. Six-month dollar LIBOR is at 0.33 per cent and the yield on six-month United States T-bills is 0.05 per cent. Even as United States T-bill and LIBOR interest rates keep changing, the spread between the two remains relatively stable as it reflects the difference in borrowing cost for a triple-A credit versus a double-A credit.
The International Bank for Reconstruction and Development (IBRD)’s current average cost of borrowing is a little below the LIBOR and its lending rates are about LIBOR plus one per cent. The NDB could lend at lower interest rates than the IBRD at, say, LIBOR plus 0.5 per cent. As the NDB’s cost of borrowing would be LIBOR minus 0.28 per cent, the spread of 0.78 per cent between its lending rate and cost of borrowing could be shared between lending countries and the NDB. Consequently, the BRICS members that lend to the NDB would receive a higher rate of return on their investments than on United States T-bills and interest rates charged from borrowers would be lower than what is charged by the World Bank. If lending is confined to the BRICS countries, the NDB is a superbly viable financial proposition.
The NDB’s subscribed equity capital would be $50 billion, of which $10 billion could be paid in equal amounts of $2 billion by each BRICS member. That is, the BRICS countries would not need to contribute large amounts to set up the NDB. The currency-swap mechanism that would fund the CRA would be supported by $41 billion from China, $18 billion each from India, Russia and Brazil, and $5 billion from South Africa. Member countries would need to contribute to the CRA only if there is any disbursement out of this fund.
After the financial-economic meltdown of 2008, the central banks of the United States, Japan and the United Kingdom and the European Central Bank have resorted to unprecedented levels of expansionary monetary policies leading to extremely low and even negative nominal interest rates in their currencies (the table provides nominal government debt interest rates from one- to 10-year maturities as of August 19, 2014).
However, despite the low interest rates, longer-term lending for greenfield ventures has not increased in developed economies, as banks are still repairing their balance sheets. Instead, fund managers seeking higher returns have invested in lower credits, including junk bonds. Bloomberg’s global non-investment grade bond index is at present yielding 5.9 per cent. It follows that the probability of a global crash in asset markets has grown. This is another compelling reason to make the NDB and the CRA functional urgently.
Even as we wait for the NDB and the CRA to be in a position to lend, it would be prudent for India to increase its stock of forex reserves. Clearly, holding higher forex reserves is costly, as returns are negligible to negative even in nominal terms, as shown in the table. However, forex reserves do provide a measure of insurance cover. Of course, raising forex reserves cannot be the only strategy that the Reserve Bank of India (RBI) and the government follow to protect against future forex outflows caused by one or more of the following: pricking of asset bubbles; rise in G7 interest rates; a West Asian conflagration leading to higher oil prices; and reduction in remittances from the Gulf. Obviously, India needs to rein in its fiscal imbalances, as also its trade deficits. This will take sustained effort and time, as will bringing down inflation. Hence, increasing forex reserves has to be part of the risk-management policies that the RBI and the government follow.
In the event that a global crash is triggered by bursting of asset bubbles, there would be substantial private capital outflows from India. In such a scenario, it would be helpful if the NDB and the CRA were already up and running for us to have additional sources of emergency funding. To sum up, it would be prudent for India to work post-haste with its BRICS partners to set up these two institutions.
The writer, a finance professional and former Indian High Commissioner to the United Kingdom, is currently RBI Chair professor at ICRIER.
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Unlocking full potentials of the Blue Economy: Are African SIDS ready to embrace the opportunities?
African SIDS Context
Small Island Developing States (SIDS) are small-island or coastal countries located in the tropical and subtropical regions (partly) surrounded by oceans. SIDS are considered a separate group by the UN based on their specific characteristics such as small size, insularity and remoteness. They are regarded as highly vulnerable due to their social, economic and geographical characteristics.
Despite SIDS common characteristics, they are by no means homogenous, varying by geography, physical, climatic, social, political, cultural, and ethnic character as well as level of economic development (Nurse et al. 2001). African SIDS (Cape Verde, Comoros, Guinea-Bissau, Mauritius, São Tomé and Principe, and Seychelles) represent 6 SIDS of nine under the header Atlantic, Indian, Mediterranean and South China Sea (AIMS). African SIDS are few in number and therefore tend to be overlooked in the predominant literature on SIDS in relation to economic vulnerability, climate change vulnerability and recently in the Blue Economy literature. This reports aims to fill this gap in knowledge by addressing the potentials and constraints of the Blue Economy in African SIDS. Blue Economy could be used to help develop African SIDS and counter challenges they face.
Vulnerabilities
SIDS are considered economically vulnerable due to heavy reliance on a limited number of natural resources, high dependency on imports and global markets; and geopolitical weakness. African SIDS are in addition particularly vulnerable to sea-level rise (SLR) in comparison to other country groups. Economically, African SIDS public debt (as percentage of GDP) is quite high in comparison to Pacific SIDS and other coastal nations, while their remittances as % of GDP is very low. Official aid as percentage of GDP is also much lower than Pacific SIDS, though higher than Caribbean SIDS. GDP per capita is low, and so is the absolute FDI.
The Blue Economy (BE)
The Blue economy is a result of a push by coastal nations during the Rio +20 process for a flavour of the Green Economy that better applies to them. The Blue Economy advocates the same desired outcome as the Green Economy namely: “improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities” (UNEP 2013). At the core of the Blue Economy is the de-coupling of socioeconomic development from environmental degradation.
Key Sectors in African SIDS Blue Economy
Fisheries - The long-term sustainability of fisheries in these SIDS has been threatened by IUU fishing, overexploitation of living marine resources, land-based pollution, destructive harvesting methods, overexploitation, invasive alien species, oceanic acidification, natural disasters and climate change. The effects of climate change are also anticipated to indirectly affect fisheries, as changing water temperature impact negatively on coral reefs and mangroves that function as nurseries, habitats and foraging grounds for fish.
Aquaculture – Fish farming can help lessen fish imports and increase employment as well as help food security. Sustainable coastal aquaculture can reduce pressure on aquatic resources including the depletion of wild fish stocks, destruction of fish habitats and declining biodiversity. Aquaculture is still underdeveloped in African SIDS thus it’s a sector that presents great potential.
Shipping and transport - Except for Seychelles port, all ports in the African SIDS either require better infrastructure or are currently under port improvement projects. This sector is considered essential and improved ports are crucial to sustain each country’s economy. These types of projects are however costly and thus require international funding. Climate change is expected to impact the shipping sector and adaptation needs to be considered when building new, or improving old ports.
Tourism - Tourism is an important sector for the African SID except perhaps for Comoros and Guinea Bissau where the tourist sector is much less developed. Tourism has contributed much to the development of most of the African SIDS, with % contribution to GDP being highest in Seychelles and Cape Verde. Besides promoting regular dive tourism, maritime archeology is a niche that could be developed in several SIDS. It can boost education and diving tourism. Cape Verde has over 100 shipwrecks. Shipwrecks were also found in the Seychelles. In this regard, heritage tourism can be developed.
Energy - Near-shore and shallow water reserves of oil and gas are generally plateauing and declining, and offshore hydrocarbon development in deeper waters has thus become more significant. African SIDS currently do not produce any natural gas or oil but are exploring. African SIDS are highly dependent on imported oil and gas for transport and electricity generation, which is a major source of economic vulnerability. Renewable energy options with the largest potential for African SIDS include offshore wind energy; tidal energy; and energy derived from marine microbial fuel cells.
Multiple opportunities exist in the sectors outlined above. A ‘blue economy’ fishery sector is one that is ecologically sustainable, provides a higher level of economic services at lower environmental costs. Fisheries are however bound to be affected by climate change. The tourism sector is responsible for a large part of the GDP in four out of six African SIDS. Tourism should be further enhanced by attracting cruise-ship tourism and developing maritime archeological tourism. Tourist development plans however need to consider increased pollution, energy use and coastal pressure.
Conclusion
In conclusion, the report on Blue Economy in African SIDS contends that the sea and the coasts are drivers of economies in African SIDS and offer a lot of developmental potential. African SIDS have largely been neglected within the SIDS group as they only form a small number of countries. The report shows the pathways for development of the different Blue Economy sectors in African SIDS. The potential for development per sector differs per African SIDS due to ecological, geographical, political circumstances as well as technological and human expertise. Institutional arrangements should be made to facilitate the sharing of experiences, pursuing of mutual goals and sharing resources across the six African SIDS on the different Blue Economy sectors. Technologies must be made accessible, affordable and adaptable to the needs and particular circumstances of African SIDS by the international community, including mainland Africa.
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SA to regulate, monitor shale gas exploration
The government is working on a set of regulations that will ensure that shale gas exploration does not threaten South Africa’s environment or compromise research projects linked to the Square Kilometre Array, says Mineral Resources director-general Thibedi Ramontja.
Ramontja was briefing Parliament’s portfolio committee on mineral resources in Cape Town on Wednesday on his department’s progress on finalising the technical regulations on petroleum exploration and exploitation by means of hydraulic fracturing, or fracking.
The department halted new applications for exploration rights in 2011 in order to investigate the impact that shale gas exploration would have on the environment, and an interdepartmental task team was set up to head this process. This led to the publication of the draft regulations in October.
Speaking at the time, then Mineral Resources Minister Susan Shabangu said the potential of shale gas exploration and exploitation provided an opportunity for South Africa to begin exploring the production of its own fuel, and could provide huge impetus for the industrialisation of the economy.
Ramontja said the regulations would be effective in dealing with the risks that shale gas exploration might pose to the environment.
Among other things, the draft regulations provide mechanisms for the assessment of the potential environmental impact of any proposed activities, for the protection of fresh water resources, and for the co-existence of shale gas exploitation and the Square Kilometre Array (SKA) project.
“The draft regulations, once finalised, will result in a regulatory framework that ensures safe extraction of gas, which will contribute to the diversification of South Africa’s energy mix, significantly boost South Africa’s economy and have positive effects on the country’s gross domestic product (GDP).”
Ramontja said the government would consult interested and affected stakeholders next month before finalising the regulations in order to allow exploration to begin.
While it was too soon to estimate the size of the country’s shale gas reserves, or the amount that shale gas exploration would contribute to the economy, he said that companies – both local and international – would not have shown such interest if they did not anticipate making profits.
Shale gas exploration would not only create a new industry, he said, but would also open up new research opportunities for South Africa’s universities.
Delivering his State of the Nation address to Parliament in February, President Jacob Zuma said the development of shale gas exploration would be “a game changer for the Karoo region and the South African economy... Having evaluated the risks and opportunities, the final regulations will be released soon and will be followed by the processing and granting of licences.”
And in his follow-up State of the Nation address in June, Zuma said the government was preparing the way for a “radical transformation” of South Africa’s energy sector as it moved to address one of the major constraints to faster economic growth in the country.
Hydraulic fracturing involves the extraction of gas trapped underground by using pressurised liquid to fracture rock. Opponents of the process argue that the economic benefits of accessing previously unavailable energy sources are outweighed by the potential environmental impacts, including contamination of ground water.
According to petroleum industry estimates, 2.5-million hydraulic fracturing jobs had been performed on oil and gas wells worldwide by 2012, more than one-million of them in the United States.
South Africa, according to recent estimates by the US Department of Energy, has the eighth-largest shale gas reserves in the world at 390-trillion cubic feet.
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Protectionism motivated by self-interest can backfire
Trade deals are based on the concept of give and take – a reality that protectionists try to ignore. No countries play fair when it comes to trade, pleading the need to protect the interests of their own industries.
The interests of their own consumers are usually not on the agenda, perhaps because consumers are less organised and therefore less powerful than big business lobbies. However, earlier this month, South Africa’s trade officials, lobbying for the extension of a favourable trade arrangement with the US, accepted there could be no take without some give.
After the US-Africa Leaders Summit in Washington, they agreed to review tariffs on US chicken imports – as part of a campaign to get that country to extend the African Growth and Opportunity Act (Agoa) when it expires next year.
Nearly a year ago Trade and Industry Minister Rob Davies hiked import tariffs on five categories of imported chicken, to protect local producers. The move damaged businesses relying on poultry imports – businesses that are major employers – and increased the cost of a high-protein food for consumers.
Moreover, the raised tariffs put US products at a disadvantage in the local market, just two years before Agoa was due to expire. The raising of the barriers to imports prompted protests from US food producers, who said they would oppose the extension of Agoa if protectionism increased in African countries.
Tom Donohue, the president and chief executive of the US Chamber of Commerce, argued recently that, among other things, South Africa would have to repeal anti-dumping measures if it wanted to persuade US businesses to support the attempts to extend Agoa benefits to South Africa beyond 2015.
Last week another trade issue was on the agenda: protectionism in other African countries is creating problems for locally based automotive manufacturers.
The National Association of Automobile Manufacturers of SA (Naamsa) reported a 20 percent fall in exports to Africa between the first half of last year and the first half of this year. Engineering News attributed the fall partly to “sudden and sharp increases in import duties, levied by countries such as Nigeria and Algeria, working to protect and develop their own vehicle assembly industries”.
Naamsa director Nico Vermeulen confirmed that exports to Nigeria had been hit by the introduction of duties on new car imports. And he said Zimbabwe had plans to impose higher tariffs on vehicle imports.
Every country has its own developmental plans – a policy that boils down to tit-for-tat. In a 2011 paper, economist Andreas Freytach argued that “empirical evidence demonstrates that protectionism, being selective and economically distortive, is to the disadvantage of the very country behaving in a protectionist fashion. Although the protected industries can gain from trade protection measures, other industries may suffer severely”.
Freytach noted that trade protection was “a politically attractive policy tool” because “most voters appreciate the immediate gains for the protected industries and underestimate the costs for the economy in the long run”.
He said South Africa’s industrial and trade policy initiatives relied on “old interventionist tools” and only addressed the major problems in the economy.
The major problems he identified were “poor regulation of network industries [such as energy and telecommunications] and administrative burdens”.
Consulting economist Cees Bruggemans also identified underlying problems, particularly relating to the government’s aim to increase the proportion of beneficiated goods in total exports.
Bruggemans said that the shortage of “cost-effective electricity in our heavy manufacturing industry [alone] should place question marks behind any new energy-intensive beneficiation projects, especially of metals”.
Another challenge for entrepreneurs, he said, was that factories and machinery were being “burned down, plundered or otherwise vandalised in union-related labour unrest”.
From a political point of view, it is far easier and more politically acceptable to talk about the merits of a “developmental state” than to tackle controversial problems like the failure to generate adequate electricity and dysfunctional labour relations. But protectionist chicken tariffs always come home to roost.
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Unleashing the potential of the mining sector as a contributor to national development
The World Bank Group’s latest economic analysis for Rwanda forecasts a growth rate of 5.7% in 2014 and says the economy has the potential to achieve a higher growth rate of 6.6% in 2015.
In the latest Rwanda Economic Update, Unearthing the Subsoil: Mining and its Contribution to National Development, the World Bank Group (WBG) indicates that the higher growth rate expected for the next two years will depend on increased mineral production volumes, international commodity prices of minerals, proactive macroeconomic management and private sector-led growth. A shortfall in foreign aid and resulting delays in budget expenditures in the second half of 2012 resulted in lower credit growth to the private sector, and contributed to a deceleration in growth during 2013.
“Foreign aid and effective use of it have played a critical role in growth and macroeconomic stability in Rwanda,” says Toru Nishiuchi, WBG economist and one of the lead authors of the report. But the economy grew from 4.7% in 2013 to 7.4% in early 2014 due to the expansion in the services sector and is expected to continue this positive trend.
Unleashing the potential of the mining sector
The government expects the mining sector to contribute to this positive growth trend and Rwanda has high hopes. The government’s poverty reduction target of 30% by 2017 will require expansion of “off-farm” jobs through income diversification and mining provides one such opportunity.
“The production capacity of Rwanda’s mining sector has progressively increased and export earnings in the past few years have reached $225 million,” said Rachel Perks, WBG mining specialist and one of the lead authors of the report. “However this increase in export earnings is largely due to favorable international commodity prices, and not a progressive expansion of the sector’s productive base.”
The government concurs and states that its mining sector is performing at 20% of full potential. With increased operations and proper management, the sector has the ability to increase production five times.
Beyond export earnings however the sector shows promise for non-farm job creation, an important pillar of the government’s poverty reduction strategy. By mid-2014, mining in the rural areas employed more than 33,000 persons directly. Importantly, mining jobs pay better when compared against other wage workers in the rural areas. For instance, the annual income for miners was almost RWF 200,000 compared with RWF 69,000 for farm wage workers.
Due to new fiscal policies, the government is witnessing an incremental rise in domestic revenues from mining. Coupled with a projected $110 million worth of new mining investment committed by foreign investors, primarily to new geological works, the sector may well realize higher domestic revenue streams in the coming five-10 years through greater mineral production.
Recommendations
To maximize the potential development benefits of mining, the report recommends Rwanda build on its ongoing efforts to transform its predominantly small-scale mining sector by developing a renewed strategic focus on broader development outcomes that goes beyond increasing export earnings. To that end, the update outlines five areas of policy focus that could help unleash Rwanda’s mining potential:
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Secure the enabling legal and regulatory environment for investment:Consistent application of clear and stable laws for licenses will further enhance investor confidence.
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Build the geological knowledge base for investment: Detailed and publicly available geological knowledge will play a key role in attracting future mining exploration investment.
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Increase fiscal receipts and ensure revenue management: Establishing clear rules, guidelines and procedures will enhance Rwanda’s capacity to administer taxation policies and collect revenues.
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Improve recovery and domestic processing: Rwanda has significant tailings dumps at its oldest mining concessions that could be cleaned up, treated, and processed for further economic gain. It could make available a revolving credit facility to provide an incentive to small-scale miners to invest in small recovery and processing equipment.
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Improve labor conditions: Performing an audit of existing labor practices used by subcontractors operating at larger concessions could help improve occupational health and safety for miners.