Building capacity to help Africa trade better

tralac’s Daily News Selection


tralac’s Daily News Selection

tralac’s Daily News Selection
Photo credit: Simon Dawson | Bloomberg

Launched today in Abuja: Nigerian Tax Research Network

Profiled presentations from UNCTAD’s Trade and Development Board meeting: Evolution of the international trading system and its trends from the perspective of Africa: presentation by ATPC’s Jamie MacLeod (pdf); Evolution of the international trading system and its trends from a development perspective: speech by ITC’s Arancha González (pdf); International Trading System and its Trends from a Development Perspective: presentation by UNCTAD’s Ms Shamika Sirimanne

Nairobi Outcome: Fostering synergies and coherence between regional integration and the multilateral trading system through WTO accessions (WTO)

Participants acknowledged that regional integration has emerged as one of the major objectives of African policy-makers and a driving force for economic development of the African continent, as well as for job creation. A large and growing youth population and their needs and aspirations had to be taken into account in policy-making, including in the WTO accession negotiations. At the same time, participants also noted that despite an increasing trend of intra-regional trade, there is still considerable room for improvement in the areas of interconnectivity and the movement of goods, services, capital and people. These improvements are essential for fully realizing economic potential of the on-going regional integration efforts. Moreover, supply side capacity constraints would also need to be addressed if one were to improve competitiveness in regional markets.

Discussions also revolved around the sequencing of WTO accession and deepening regional integration i.e. liberalization at the multilateral and regional levels. It was suggested that the opening efforts at the regional level, especially on market access, could serve as a benchmark or ceiling for the multilateral commitments by an acceding government, although each case had to be assessed in its own merit, especially on rules. Consultations between the acceding government and partners within regional arrangements were strongly encouraged during the accession negotiations, so as to ensure the integrity of these preferential arrangements.

Medium-term budget frameworks in Sub-Saharan African countries (IMF)

More than 15 years ago, many countries in sub-Saharan Africa embarked on a program of budgetary reform, an important element of which was a medium-term budget framework. This working paper focuses on the performance of these frameworks in six countries - Kenya, Namibia, South Africa, Tanzania, Uganda, Zambia. It assesses the effectiveness of MTBFs in achieving improved fiscal discipline, resource allocation, and certainty of funding, as well as wider economic and social criteria such as poverty reduction and more efficient public investment. In most countries, early successes were not sustained, and budgetary outcomes did not improve, partly for technical reasons, such as poor data and inadequate forecasting methodologies, but also because the reforms were largely supply driven. [The authors: Richard Allen, Taz Chaponda, Lesley Fisher, Rohini Ray]

Swaziland: 2017 Article IV Consultation documentation (IMF)

The outlook is fragile. In absence of policy actions, the FY17/18 fiscal deficit is projected to be large and domestic arrears to accumulate, weighing heavily on the outlook. Real GDP is expected to grow by 0.6% in 2017 and turn negative thereafter as domestic arrears rise. Inflation is foreseen to return below 6% by 2018 as food prices normalize. With no increase in SACU revenue over the medium-term and limited budget financing, government’s liquidity problems would deepen and eventually trigger some form of adjustment. Even if government’s budget financing were available, with no policy actions, the medium-term outlook would be unsustainable. Public debt would increase to 58% of GDP by FY19/20 and rise further over the projection period. High public expenditure would fuel domestic demand and contribute to a current account deficit and, absent additional external financing, quickly deplete international reserves, putting at risk the currency peg. Annex IV. Containing the wage bill in Swaziland:

(i) Swaziland has high and increasing public wage expenses. In FY16/17, public wage costs for central government employees peaked to 13.8% of GDP (11.3 percent in FY12/13) and amounted to 99% of domestic revenue (45% of domestic primary spending). Except for Lesotho, Swaziland (with Namibia) has the largest public wage bill (in terms of GDP) among SACU countries and small middle income economies in the region. While already on a rising path, in FY16/17, the wage bill sharply increased as a review of public sector salaries reformed, among others, the pay structure and resulted in about 2% of GDP in additional wage expenses. Looking forward, Swaziland’s public wage-to-GDP ratio is expected, under current policies, to increase further and exceed 17–18% of GDP (about 49% of domestic primary spending) by FY21/22, largely above domestic revenue collection.

(ii) The increase in the public wage bill has predominately reflected rising salaries. Over the last four years, the wage bill has increased by 2½% of GDP. Over this period, compensations per employee grew on average by about 11% per year in nominal terms, well above inflation dynamics and were the main driver of the rising wage bill, contributing about 85% of the overall nominal increase. During the same period, public employment increased on average by about 3.6% per year, outpacing population growth and contributing to the remaining part of the nominal wage bill increase. Higher public employment mainly reflected strong occupational dynamics in education, defense and security (about 60% of central government employment). [IMF concludes 2017 Article IV Consultation: statement]

Swaziland: Selected Issues (IMF)

Government’s balance sheet vulnerabilities have been rapidly rising, becoming a potential source of macro-financial risks for the economy. Banks and nonbank financial institutions, businesses and households have large exposures to the government and, in some cases, their own vulnerabilities. In this context, a fiscal shock can rapidly propagate into the economy through the financial sector. The financial sector is also likely to amplify the impact of shocks on the economy, possibly opening the way to deep recession. In the case of an extreme shock with difficulties in servicing debt, the banking system capitalization would be significantly hit. Staff analysis highlights the need for fiscal consolidation and for strengthening the CBS’s role in monitoring and managing macro-financial risks.

South Africa: Clothing, Textile, Footwear and Leather sectors convene conference to find responses to SA’s downgrade to junk status (Fin24)

Labour and business in the clothing, textile, footwear and leather sectors are deeply concerned about the impact of the downgrades of South Africa’s debt on our industry and the broader economy, the CTFL Stakeholder Initiative said on 29 August. “The downgrades by various rating agencies during – and possible future downgrades – will raise the cost of borrowing for the workers, businesses, government and consumers. This will have a negative impact on government spending on CTFL support measures and incentives, on investments by businesses and on spending by consumers on the products made in CTFL factories. We are concerned that it could lead to increased factory closures and retrenchments in the CTFL sectors, placing an even greater strain on South Africa and its poor. This is not good news, given our already high levels of unemployment.” To understand the impact of the downgrades – including of possible future downgrades – and to develop measures to mitigate its impact, CTFL trade unions (SACTWU and NULAW) and employer associations convened a conference, 6-7 September in Durban. [Download: presentation by IDC’s Jorge Maia]

Zambia: Monetary Policy Statement July-December 2017 (pdf, Bank of Zambia)

International trade: The trade deficit narrowed to $37.2m in the first half of 2017 from $504.6m in the second half of 2016 due to the higher growth in exports relative to the growth in imports over the same period (Tables 10 and 11 - Appendix). Merchandize export earnings rose by 16.5% to $3.9bn due to higher earnings from copper, which increased by 28.8% to $2.9bn. Higher volumes and realised prices accounted for the increase in copper earnings (Table 12 – Appendix). However, cobalt, gold and non-traditional export earnings declined. [Download: Presentation, pdf]

Zimbabwe: A roadmap for economic transformation and economic outlook (SET)

The paper argues that the most viable is a ‘single sector, single agent’ approach – whereby transformation is focused on a single sector with high potential and led by a single reformist agent within government – and this could ‘kick-start’ change. First, Zimbabwe has inherent competitive advantages. These include rich natural endowments in agriculture and extractives, including gold, platinum and diamonds; proximity to key regional markets in South Africa, Zambia and other neighbouring countries; and good levels of education and business skills. These provide Zimbabwe with the potential to develop value-added, export-led manufacturing and processing of its products, with resultant and much-needed formal, higher-wage employment and fiscal revenues. [The authors: Godfrey Kanyenze, Prosper Chitambara, Judith Tyson]

Nigeria: 2017 Manufacturing Sector Survey insights (NOI Polls)

The 2017 Manufacturing Sector Survey conducted by NOIPolls and CSEA has identified: Unfavourable foreign exchange rates (55%), Bad roads (55%), Unavailability of petrol and diesel (47%), Limited access to credit (45%), Policy inconsistency (44%), Lack of Infrastructure (39%), Unstable power supply (31%), and Weak demand (29%), as the top challenges facing the manufacturing sector in Nigeria. The survey report released to the public today also found the following: 74% of manufacturing companies found the business environment unsupportive in 2017; and this finding represents a 14-point increase from the 2016 result (60%), indicating a worsening of the business environment. Similarly, lack of infrastructure, red-tapism and corruption were identified as some of the structural bottlenecks stifling the business environment.

Roads to trade: Connecting mines versus cities in West Africa (IGC)

A recent project aims to decipher what kind of transport infrastructure West African countries need most to generate economic growth. The relative gains of prioritising internal market potential (cities) versus the export of natural resources (mines to ports) are calculated through a counterfactual comparative analysis with actual road and track building that took place between 1965 and 2012. Building on this first exploration of the data, we aim to achieve three goals in the rest of this project:

Cross-border trade, insecurity and the role of customs: some lessons from six field studies in (post-)conflict regions (pdf, WCO)

Africa, and especially the Sahel, has experienced frequent recurrences of armed conflicts and terrorist acts in the last decade. This paper is based on six field studies, in Chad, Mali, Sudan, Tunisia, Libya and the Central African Republic. It reflects on the governance of trade in border regions during a (post-)conflict situation, exploring the practices and strategies of customs officials operating at insecure borders. It demonstrates the unintended consequences of security policies – especially on trade, and consequently on revenue generation. It further shows how customs administrations de facto leave it to customs officers on the ground and importers to agree on an acceptable tax burden to prevent smuggling and a new upsurge in violence to a certain extent. Idiosyncratic and pragmatic approaches by customs seem to play a major role at the local level. [The authors: Thomas Cantens, Gaël Raballand]

Preferential trade agreements and global value chains: theory, evidence, and open questions (World Bank)

Preferential trade agreements today are more numerous and deeper than they were a quarter century ago. Do deep agreements promote countries’ integration into global value chains? What are the economic mechanisms? How do countries choose their trade agreement partners? Would the undoing of deep agreements disrupt global value chains? What is the outlook for trade agreements and global value chains going forward? This paper reviews the small but growing literature on the role of deep agreements as the institutional underpinnings of global value chains.

India’s export slump and the troublesome Rupee (The Wire)

Does the rising Indian rupee hurt exports? The usual refrain of India’s exporters is their exports are affected by the increasing value of the rupee, which makes their exports unattractive to foreigners. Rajan’s policies of stabilisation of Indian currency pursued during his tenure and his reiteration of the need for continuous attention to stabilising the value of rupee have been misconstrued by various interest groups. While exporters think stabilisation means keeping nominal exchange rate low for export promotion purposes, policy makers feel that stabilisation means keeping a high exchange rate, which reflects the strength of the nation. Neither is true.

Today’s Quick Links:

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Why Dangote wants to buy PPC

Why Africa is set to backstop Britain’s post-Brexit health care

Updated: UN handbook on selected issues in protecting the tax base of developing countries

MDBs increase 2016 financing to tackle climate challenge

Convergences World Forum: Development efforts are frustrated by tax evasion


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