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tralac’s Daily News Selection

tralac’s Daily News Selection
Photo credit: AFP

10 May 2017

Underway, in Kigali: the third Transform Africa Summit. Further details: conference website

Starting tomorrow, in Maputo: the 5th Annual African Mobile Phone Services Policy Initiative

Tomorrow, in Berlin: Africa’s economic transformation within the context of the G20 Partnership with Africa. Download: the programme (pdf). Related: ONE Campaign’s Africa director, Nachilala Nkombo: But German companies and their counterparts across the G20 are not going to invest through this initiative in countries with small markets. These initiatives should focus on Africa’s regions. We need a compact with ECOWAS, with EAC etc.

Regional Economic Outlook: Sub-Saharan Africa (IMF)

Firm ownership in Sub-Saharan Africa and intra-regional spillovers (Box 1.2): Firms in sub-Saharan Africa are increasingly connected with one another through cross-border firm ownership. Figure 1.2.1, constructed based on firm-level relationships across countries (Orbis), illustrates the extent of cross-border firm activity in all of sub-Saharan Africa. While firms headquartered in South Africa own the most subsidiaries in other sub-Saharan African countries (over 2,400 subsidiaries), other regional hubs have also emerged. Kenyan firms play a key role in investing in neighboring countries in East Africa, and Nigerian firms are the major investor in firms in the neighboring region of West Africa. In contrast, cross-border ownership activity is relatively sparse in Central Africa. These intra-regional linkages via cross-border firm ownership bring both benefits and increased potential for spillovers in the event of shocks. On the one hand, the strengthening of regional ties fosters more trade integration, sharing of technology and production practices, diversification, and the leveraging of a country’s comparative advantages and exploitation of economies of scale and scope. But the increased interconnectedness also implies exposure to shocks emanating from the host country or the headquarter-firm country. Overall, sub-Saharan African subsidiaries in other African countries have performed relatively well compared to domestically owned subsidiaries (Figure 1.2.2). They have exhibited higher profit margins and higher profitability during some of the period following the global financial crisis, even compared to subsidiaries not owned by sub-Saharan African firms. However, since 2014 there have been some declines in the profitability of subsidiaries owned by both domestic and non sub-Saharan African firms if measured by return on equity.

In resource-exporting countries, the performance of domestic subsidiaries and subsidiaries owned by other sub-Saharan African firms has deteriorated compared to subsidiaries owned by foreign firms outside of the region (Figure 1.2.3). As governments have reacted with different sets of policies to the decline in commodity prices, the impact on the operation of these cross-border firms has varied as well. Angola and Nigeria have imposed exchange rate restrictions due to external pressures on the currency, hurting businesses that are operating locally because the controlled allocation of foreign exchange disrupts production. Although subsidiaries owned by firms headquartered outside of Nigeria are likely to have easier access to foreign currency compared to their Nigerian-owned counterparts, the deteriorating condition and decreased demand of the host country has a negative effect on the performance of the local subsidiary and thus poses an increased risk for the parent company. On the other hand, for Nigerian firms that own subsidiaries in other sub-Saharan African countries that are still experiencing robust growth—such as many of the nonresource-intensive countries in the East African Community (Kenya, Tanzania, and Rwanda)—these cross-border investments, helped by strong internal demand, could act as buffers to offset some of the profit losses at home. [Downloads: Restoring the conditions for strong and sustainable growth, Restarting Sub-Saharan Africa’s growth engine, The informal economy in Sub-Saharan Africa]

Romola Adeola: Why the African Union must press ahead with a business and human rights policy (The Conversation)

The AU is developing a policy designed to hold companies to account by setting down guidelines on how they should conduct business on the continent. The aim of the policy is to implement a set of guiding principles drawn up by the United Nations. It will provide a roadmap for states, regional economic communities and regional institutions to regulate the impact of business activities on people. The policy also seeks to advance guidance for firms conducting activities in Africa. The policy has been in the making since 2016 and still has to be adopted by an AU technical committee. Because it’s not a treaty it won’t be subject to ratification by all AU member states. This “soft law” approach raises questions about whether the policy will ever be implemented. But the fact that the AU has developed one is a major step forward and could help African countries deal with some major rights issues including: land grabs and environmental pollution. [The author is attached to the Centre for Human Rights and Legal Pluralism, McGill University]

Carlos Lopes: Africa poised for greatness — but governments must act fast (Business Day)

However, all these opportunities — a demographic boom, technological innovation and renewables — will remain just that if governments do not recognise them, change policies and regulate accordingly. Governments need to put policies in place that recognise that their economic vibrancy is shifting to internal consumption and manufacturing and services, away from commodities alone. And they must tax accordingly. Ironically, it is smaller African countries that are leading the way with innovative growth strategies. The continent’s annual growth in 2016 was 4.4% if you removed the “big three” of SA, Egypt and Nigeria from the equation. With them included, it dropped to 1.6%.

Why businesses are not taking political risk cover as Kenya, Rwanda vote (The EastAfrican)

Pan-African insurer African Trade Insurance Agency says that only a few investors are considering taking up political risk and political violence covers, compared with 2013 when Kenyans last voted. The result of the elections in Kenya is important, as it is the gateway to the landlocked East African states. “Compared with 2013, we are not getting many inquiries on political cover, because investors feel that the elections will be peaceful,” said George Otieno, ATI chief executive officer. Although ATI is recording subdued interest, Kenyan insurance companies offering political violence, terrorism and sabotage covers are recording increase in uptake. UAP Insurance, Jubilee Insurance and CIC Insurance have all reported significant interest in the cover.

Council of Ministers says no to increase in 2017/18 EAC budget (Tanzania Daily News)

During the recent meeting of the Council of Ministers in Arusha, Tanzania, the bloc’s Secretary General, Ambassador Libérat Mfumukeko, submitted a budget proposal for financial year 2017/18 amounting to $113.8m compared to the current budget of $101.4m. “Owing to the current economic situation, all partner states are experiencing rationalisation of their national budgets and, therefore, it would be difficult to increase contributions to the EAC Budget,” reads a report of the central decision-making organ of the Community. “The meeting, therefore, agreed to a zero per cent increase in partner states contributions to the 2017/18 Budget.” The Council observed that although there is no increase in the individual partner states’ contribution, countries’ total contribution will increase after including contribution from the Community’s new member, South Sudan. Support from development partners for financial year 2017/18 is set at $52.8m against the current year’s $46.7m, an increase of 13%. [Related: EAC Secretariat should improvise with the available funding (editorial comment, New Times)]

South Africa trade and development policy postings:

Import tariffs aren’t just set up to unfairly protect commercial farmers (Huffington Post). A response to Neva Makgetla: There is a clear lack of appreciation of the tariff formulation process itself. Government does not wake up and decide to implement a particular tariff level. There is an intensive, evidence-based, and transparent public consultation process that is conducted by the International Trade and Administration Commission - which ensures that all views of the role players in the food value chain are captured in the tariff decision. Such process and decisions can take months, or even years, to complete, and all decisions are carefully crafted to ensure a balanced outcome of consumer and producer welfare. Moreover, decisions related to trade instruments such as tariffs are subject to compliance with WTO rules, and anyone who is familiar with the process will know that ITAC does not just give favourable decisions to commercial farmers. There are many reviews in the past in which tariff applications have either led to lower-than-requested tariffs, or even rejected outright. [The authors: Tinashe Kapuya, Wandile Sihlobo]

Retailers opt for local poultry (Business Day). Large food retailers have told Parliament they prefer locally sourced poultry products to imports. Representatives of Woolworths, Pick n Pay, Shoprite Checkers, Spar and Nando’s were called by Parliament’s trade and industry portfolio committee to account for their chicken-purchasing policies on Tuesday as part of the committee’s hearings into the poultry industry crisis. The government, poultry producers, meat importers, animal feed producers, agricultural economists and others have also made submissions.

‘You can’t bite the hand that feeds you’: Contracts between SME suppliers and the large supermarkets (Econ 3x3). This article reports on a recent study which investigates the relationships between SME suppliers of high-value foodstuffs and the four main supermarkets – Pick n Pay, Shoprite Checkers, Woolworths and Spar. It shows that factors such as bargaining power, branding, procurement and contracting practices, automation, and quality and hygiene standards can have a decisive effect on the competitiveness, viability and job-creation potential of small suppliers. These findings have important policy implications. [The author, Marlese von Broembsen, is attached to the Centre for Law and Society, University of Cape Town]

Andrew Donaldson: Elements of an inclusive growth strategy for South Africa (GTAC). A competitive exchange rate: Export-oriented manufacturing, tourism and trade in services are important growth drivers, but they cannot thrive if the exchange rate is highly volatile and overvalued. The present policy stance on the exchange rate is confused – it appears to assume that because a weak rand cannot be defended in the presence of adverse sentiment, it is also impossible to counter unwanted rand strength. It is of course impossible to “stabilise” the rand in real terms, but it doesn’t follow that its value should be left entirely to the vicissitudes of the market. For a time, there was agreement between the Treasury and the SARB to “lean against the wind” through foreign exchange purchases when market trends and global currency movements led to an unwarranted strengthening of the rand; this contributed to a substantial rise in official reserves until about 2010. But there is no longer a shared understanding of the associated security holdings and sterilisation costs, and so the required forex market interventions have fallen away. There is also an unwillingness to contemplate the strategic accommodation of reserve holdings by the private banking and corporate sectors. In the absence of more active exchange rate policy, industrial development and trade rely too heavily on protectionist measures. And in the absence of better coordinated trade and investment policies, the current account of the balance of payments remains both a drag on growth and a continuing drain on national wealth.

South Africa-Tanzania Bi-National Commission: official launch

Trade figures between the two countries in 2016 indicated that South African exports to Tanzania were valued at R6, 5bn, whereas imports from Tanzania amounted to R3.5bn. There are currently over 150 South African companies operating in Tanzania in areas such as the financial services sector, hospitality and leisure as well as ICT and electronics. During the visit President Zuma and his host, President Pemba Magufuli will also address the South Africa-Tanzania Business Forum which will be held on the sidelines of the State Visit to strengthen economic relations between the two countries.

Tanzania: 100 Chinese firms to come for trade forum (Tanzania Daily News)

More than 100 Chinese firms are expected to participate in the Investment and Trade Opportunities Forum in Tanzania this year. Zanzibar’s Minister of Trade, Industries and Marketing, Ambassador Amina Salum Ali said here yesterday already 20 companies have pledged to visit Tanzania next month to identify strategic investment locations in the country. Ambassador Amina made the remarks following an invitation from Guangzhou province to give detailed explanations on key investment opportunities in Tanzania and encourage seizing them. The meeting was attended by investors and representatives of more than 100 companies. She said the group of 20 investors are eying the textile industry, crafts, agriculture, construction and other sectors. [Joburg Chamber signs MOU with Chinese Trade Council]

Nigeria Customs Service: statement on moves to reform import and export processes

Our commitments at the NCS are focused on “Trade across Borders,” where a target was set to reduce import and export time by up to 50%, and ensure that import procedures adhere to international standards. A major first step was taken to achieve the target when the Department of Home Finance of the Federal Ministry of Finance revised Nigeria’s Import and Export Guidelines following a directive from the Honourable Minister of Finance, Mrs Kemi Adeosun, to streamline current procedures. The Guidelines addresses some of the issues causing inefficiency and delays at the ports. I will attempt to explain the stipulations and implications of the revised Guidelines in this piece as it pertains to the NCS.

Nigeria’s Refining Revolution (PwC)

This paper provides a studious analysis of the current state of the refining sector and the refining revolution we predict will take place over the next 3-5 years. It draws attention to the existing gaps in the supply of refined petroleum products in Nigeria and the West African region and it highlights the sizeable potential for domestic refining of petroleum products. Importantly, it identifies key drivers that will spur the growth of the refining sector in Nigeria.

Swaziland gets E1.7bn injection from SACU (pdf, Central Bank of Swaziland)

Gross Official Reserves expanded by 11.8% to E8.2 billion at the end of April 2017, due to the quarterly inflow of the SACU receipts. The Reserves were equivalent to an import cover of 3.8 months. Annually the Reserves declined by 10.5%. [Swaziland Economic Conference 2017: call for papers]

Today’s Quick Links:

AU’s Commissioner for Infrastructure and Energy welcomes EU External Investment Plan

Kenya seeks to increase export to Benin

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