A rebalancing act for China and Africa: the effects of China’s rebalancing on Sub-Saharan Africa’s trade and growth (IMF)

How does China’s new growth model affect sub-Saharan Africa? To address this question, this paper is structured as follows: It first looks at the growing ties between China and Africa; it then attempts to estimate more precisely the impact on growth through the trade channel, since trade dominates the economic ties between China and Africa. Finally, it draws some policy implications and the discussion reflects on whether this means an end of the Africa Rising narrative or merely the beginning of a new chapter. South Africa (Box 1): In South Africa, rising trade links and a reliance on commodities has increased spillovers from China. China absorbs 10% of South African exports, the most absorbed by any individual country. It also plays a key role in determining global demand for South Africa’s commodity exports. IMF staff analysis suggests China’s growth now matters more for South Africa than does growth in the United States and the European Union. The impact of lower commodity prices is amplified by links between sectors (Figure 1.1). An analysis of input-output tables in South Africa suggests that links between the commodity sector and the rest of the economy are significant. Uganda (Box 2): China’s rebalancing does not directly affect Uganda through trade, but other countries that rely on China as a major importer do, in turn, affect Uganda. Ugandan exports to China are small at only 2.5% of total exports. However, more than 40% of Ugandan exports (including informal exports) go to commodity-exporting countries, particularly South Sudan, an economy largely dependent on oil. Slow growth in commodity-exporting countries in 2015 significantly dampened growth in Uganda’s main trading partners, and the weak performance is estimated to have continued in 2016 (Figure 2.1). [The analysts: Wenjie Chen, Roger Nord]

Structural transformation in employment and productivity: what can Africa hope for? (IMF)

Could sub-Saharan Africa develop a growth pattern that transforms the economy more rapidly? This is possible if the movement from agriculture into services can generate large improvements in value addition. Benchmarking the projected structural employment shift in sub-Saharan Africa against what east Asia achieved historically shows that sub-Saharan Africa falls short in terms of the development of manufacturing employment. But it remains an open question whether structural transformation can be speeded up with a continuation of the movement of labor from agriculture to services with a small role being played by the manufacturing sector. [The analysts: Alun H. Thomas, Cleary Haines, Louise Fox], [TICAD VI follow-up event: Achieving the SDGs in Africa through structural transformation]

Regional integration and the Continental Free Trade Area: policy brief (ATPC/UNECA)

This policy brief was prepared to highlight the fact that the CFTA that is currently under negotiations will be more than a traditional free trade area and will contain several elements of a single market. [The analyst: Lily Sommer]

Fostering regional value chains and policy coordination in Southern Africa (UNCTAD)

UNCTAD and SA’s Department for Trade and Industry jointly organized a regional workshop (27-28 March) on regional value chains and policy coordination in Southern Africa. This represents the first activity of a four-year UNCTAD development project in the region. The workshop benefitted from the participation of delegations from Mauritius, Mozambique, Tanzania, Zambia and Zimbabwe. Nigel Gwynne-Evans, Director of the African Industrial Development Department of the DTI, stressed the importance of the regional dimension and the need for the economies of the region to come together and coordinate their industrial policies in order to exploit the potential production complementarities. The OECD Development Centre took also part to the initiative reinforcing the existing cooperation with UNCTAD on the structural transformation agenda. A second regional workshop aiming at identifying (and agreeing upon) specific policy measures in support of agro-processing and capital equipment value chains will take place in Tanzania at the end of 2017.

African food manufacturers to improve packaging, better compete in markets (ITC)

The ‘Improving Food Packaging for Small and Medium Agro-Enterprises in sub-Saharan Africa‘ project will be implemented in Cameroon, Côte d’Ivoire, Ghana, Kenya, Nigeria, Senegal, Tanzania and Zambia. The project is jointly implemented by the FAO and ITC and is funded by Industria Macchine Automatiche, an Italian manufacturer of automatic packaging machines. The objective this year is to make the business case to set up packaging centres by conducting needs assessments. Another priority is to conduct feasibility studies, to find the specific business model for each country. The next stage is to secure funds to finance the implementation of the national food packaging centres. At the same time, there will also be train-the-trainer sessions in East and West Africa.

Country trade and development postings:

Botswana: Eleventh National Development Plan (Ministry of Finance and Economic Development): Taking into account the development challenges facing the country, and the need to align the focus of the Plan with global, continental and regional initiatives such as; the UN’s Sustainable Development Goals, AU Agenda 2063, and the Revised SADC Regional Indicative Strategic Development Plan, NDP 11’s theme is “Inclusive Growth for the Realisation of Sustainable Employment Creation and Poverty Eradication”. This theme will be realised through the implementation of six national priorities, namely:

Lesotho’s textiles, apparel and footwear manufacturing industry (Ministry of Trade and Industry): The combined, textile, apparel and footwear manufacturing industry remains Lesotho’s largest formal private sector employer – employing around 46 500 workers. Its current employment is below its early-2003 peak of about 54 000 workers. The industry suffered large declines in employment in the period after the phase-out of the Multi-Fibre Arrangement; and, in the aftermath the 2008 global financial crisis. As with other garment industries about 82% of all industry jobs are occupied by women. The contribution of the industry to Lesotho’s economy goes beyond the sector itself – there are important employment and economic multipliers. A range of formal/informal sector activities occur that feed into/off the industry, e.g. a small packaging industry, road freight transporters, courier services, clearing agents, security, passenger transport, traders that sell food to workers, residential accommodation, water, electrical and telecommunication utilities, etc. [OTEXA data: Lesotho’s textile exports to the USA (January/February), Sub-Saharan Africa data]

Trade opportunities between Mauritius and Zambia (COMESA): Mauritius is increasingly pivoting its commercial diplomacy into Africa and vigorously seeking business opportunities, as the Honourable Mr Vishnu Lutchmeenaraidoo, the Mauritius Minister of Foreign Affairs and International Trade passionately informed the business community on 17 March 2017 in Port Louis. Zambia has for some time now prioritised diversification of the economy and of export markets away from copper exports. There is, then, room for mutually supportive economic engagements between the two member states of COMESA, which, with increasing trade and investment, will assist in jobs and wealth creation, and therefore peace and prosperity. In making the best of all available opportunities, the two member states can fully utilise the COMESA rule-based Free Trade Area, trade facilitation programs, industrial and infrastructure programs, as well as the financial institutions. [The analyst: Dr Francis Mangeni, COMESA Director of Trade and Customs]

Zimbabwe awaits SADC on import duties (The Herald): Industry and Commerce Minister Dr Mike Bimha said in an interview that Zimbabwe had written to the regional body and officially made the request for assistance to be able to apply for derogation. “In our last discussions at SADC, in Swaziland, we made a commitment that Zimbabwe would want to be able to come up with the list of products that we want to apply for derogation. There is a particular way of putting the data together and we said we wanted to enhance our capacity to do so, and made a request to get the SADC secretariat to assist with that capacity. They (SADC) promised to do that, we have written officially to the SADC Secretariat to avail us that resource and we are still waiting.”

West African intra-regional trade hampered due to lack of single window systems in many countries (Graphic): The lack of a single window for trade facilitation in many West and Central African countries has become an impediment to intra-regional trade, the Secretary General of the Port Management Association of the West and Central Africa (PMAWCA), Mr Michael Luguje, has said. According to him, out of the 20 countries within the PMAWCA zone, only Ghana, Togo and Benin have national single window systems that cover everything about port clearance procedures, as well as all other public agencies involved in the certification of products and payment of fees within a trade hub.

Nigeria: 2017 Article IV Consultation (IMF): Nigeria is vulnerable to global inward spillovers, but can itself generate significant regional outward spillovers. The key inward spillover is via oil prices, which has both a direct impact on FX availability and budget financing and an indirect impact through capital inflows. Outward spillovers arise through trade and financial channels (Annex II): (i) With Nigeria accounting for an estimated 70% of ECOWAS exports and 17% of imports in Sub-Saharan Africa, the trade and remittance channels are particularly strong to neighbouring countries, some of which have raised concerns about Nigeria’s recession and the effect of the naira devaluation and FX restrictions on their exports. However, staff analysis indicates that overall activity in Nigeria’s neighbours has held up well recently, with the oil price shock representing a positive terms-of-trade dividend for all neighbouring countries except Chad. (ii) About a dozen Nigerian banks have significant operations in Sub-Saharan African countries, with Nigerian subsidiaries holding more than 20-30% of deposits in Benin, Gambia, and Sierra Leone (Figure 2). However, risks to operations of subsidiaries arising from a slowdown in Nigeria are limited, since activities of subsidiaries are in part ring-fenced from their parent banks and direct cross-border positions are not typically large relative to their host economies, and subsidiaries are mostly locally funded (Annex II). [Selected Issues report: Explaining the impact of the oil price decline on Nigeria], [Nigeria’s Economic Recovery and Growth Plan 2017-2020]

Djibouti: 2016 Article IV consultation (IMF): The remarkable investments in ports and railways - started in 2015 and mostly debt-financed by financial institutions from China - presents opportunities as well as risks. With public debt rising from 50 to 85% of GDP in just two years, the authorities need to advance rapidly with critical reforms. Such reforms would aim at translating the investment boom into strong, inclusive, and job-creating growth to reduce poverty and return to a sustainable debt trajectory given the current high risk of debt distress. While there is strong ownership of such reforms under the authorities’ Vision Djibouti 2035, close government coordination will be needed to ensure their effective implementation.

Can Cameroon become an upper-middle income country by 2035? (World Bank): The Cameroonian economy’s limited competitiveness at the domestic, regional, and global level points to the distortive role of a heavy-handed state. Widespread state involvement in the productive sector limits domestic competition. Cameroon ranks 109 out of 144 countries in terms of local competitive intensity, 65 in terms of the extent of market dominance, and 78 in terms of the effectiveness of competition policy. Only a few large firms operate in most sectors and subsectors of the economy: 31% of manufacturing firms operate in oligopoly, duopoly, or monopoly markets, whereas in Kenya and Ghana, only 25% and 22%, respectively, operate in such markets. In subsectors that are key inputs for other activities—telecommunications, transport, and electricity—only one firm is in operation. The Cameroon Economic Memorandum proposes a series of concrete actions and measures to promote growth, foster competitiveness and refocus the State on its core functions to ensure that Vision 2035 is within reach. Some of them are:

REC updates:

Lack of support to regional communities may stifle Africa’s transformation – ACBF/AfDB study: Africa’s regional economic communities have key coordinating roles to play in support of the continent’s industrialization and transformation agenda but they are faced with acute capacity challenges to do this, warns a new report by the ACBF (pdf). The report, launched at the 4th African Think Tank Summit, establishes that while notable progress have been recorded in certain areas, capacity interventions over the past years have been largely fragmented and reactive, and have therefore not been as effective as desirable in addressing RECs’ capacity needs. Training approaches for example, are often ad-hoc in nature, without a clear comprehensive understanding of the actual expected impact. In terms of internal management of RECs, the study notes the lack of coordination with divisions and units tending to operate in silos.

SADC and Free movement of persons and implementation of the African Passport: SADC Member States convened a First Consultative Meeting of Experts on free movement of persons in the SADC Region and in Africa in Botswana (28-29 March). The meeting came at an opportune time to reflect on how SADC can enhance facilitation of movement of persons in the region, pursuant to the SADC Protocol on Free Movement of Persons, and also to support implementation of the African Union Agenda 2063, in relation to free movement of persons in Africa and the African Passport.

EAC to start issuing EA e-passport in January 2018: The 35th EAC Council of Minister’s meeting has directed Partner States to commence issuance the New EA e-Passport by 31st January 2018, after the consideration of the different status of preparedness by the Partner States during their recent meeting in Arusha. According to the 35th EAC Council of Minister’s report, Republic of Burundi reported that through Public Private Partnership (PPP) arrangement had completed the process of procuring the EA e-Passport booklets and is ready to commence issuance by 3 April 2017. Kenya, Uganda and Rwanda reported to commence issuance of the New International EA e-passport not later than April 2017 while the United Republic of Tanzania will be ready to commence the issuance of EA e–Passport by 1st January 2018. [Regional training on Malabo Declaration begins in Arusha]

COMESA Bank Governors push for regional payment and settlement system: In their 22nd Meeting that took place in Bujumbura (29-30 March), the Governors appreciated the progress that has been achieved in the implementation of the system with nine countries now live on the Regional Payment and Settlement System (REPSS). During the forum, the Governors discussed the activities that were undertaken by CMI and the COMESA Clearing House (CCH), the progress made and challenges encountered in the implementation of the COMESA Monetary Integration Programme.

Today’s Quick Links:

IMF concludes consultation with West African Economic and Monetary Union

Mauritius: Inter-regional workshop focuses on capacity building of developing countries to diversify fish exports

In advance of the 2017 Spring Meetings (21-23 April): World Economic Outlook advance chapters - Growth in emerging market and developing economies in a complicated external environment), Understanding the downward trend in labour income shares

Making trade an engine of growth for all: the case for trade and for policies to facilitate adjustment (IMF/World Bank)

From data blur to slow-mo clarity: big data in trade and competitiveness

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