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

20 Apr 2018

CHOGM 2018 updates

Commonwealth Heads of Government Meeting Communiqué: “Towards a Common Future”

On Intra-Commonwealth Trade and Investment: “With the goal of expanding investment and boosting intra-Commonwealth trade to US$2 Trillion by 2030, Heads adopted a Declaration on the Commonwealth Connectivity Agenda for Trade and Investment and mandated the Secretariat to develop an accompanying action plan that considers capacity building and hard and soft connectivity. They further agreed to share best practices and experiences, and undertake voluntary mutual support to enable member countries to realise their full economic potential and deliver prosperity for all their people. Recognising the importance of a long-term vision on trade and investment, member countries agreed to work together towards an appropriate framework and to facilitate business-to-business contacts.” [Commonwealth leaders discuss success and challenges ahead]

Commonwealth adopts forward-looking Connectivity Agenda for Trade and Investment

In response to the risks to growth presented by rising protectionism, leaders at the CHOGM on Friday expressed their strong support for the multilateral trading system and adopted a six-point connectivity agenda to boost trade and investment links across the Commonwealth. Extract from the Declaration on the Commonwealth Connectivity Agenda for Trade and Investment (pdf):

“This Agenda will be guided by the principles that: co-operation should be pragmatic and practical, leading to credible results; take into account regional integration initiatives; take into account the needs of small and vulnerable economies and least developed countries; avoid duplication with initiatives where other organisations are already working; add value in areas of engagement; and adopt a progressive approach towards a long term vision for closer trade and investment ties. In pursuing the Agenda, member countries will structure dialogue around the following clusters:

  1. Physical Connectivity, engaging on trade facilitation, identifying and facilitating implementation issues, infrastructure development including multisectoral connectivity and the sharing of trade information, in order to reduce the physical barriers to trade;

  2. Digital Connectivity, assisting member countries in expanding ICT capabilities, identifying areas for developing their national digital economies, improving their regulatory framework and building digital infrastructure;

  3. Regulatory Connectivity, improving understanding of various regulatory regimes, increasing the ease of doing business, promoting good regulatory practice including regulatory cooperation among member countries to reduce non-tariff barriers;

  4. Business-to-Business Connectivity, supporting dialogue between the public and private sectors and between businesses, assisting member countries to attract investment through capacity building, facilitating the needs of the micro, small and medium enterprises to access finance;

  5. Supply Side Connectivity, fostering global value chains (GVC) linkages and sharing knowledge among members and harnessing them for economic growth, as well as the creation of export diversification opportunities for MSMEs, and exploring possibilities to collaborate on national trade portals, and

  6. In engaging in these areas, member countries will mainstream inclusive and sustainable trade as a cross-cutting issue. We affirm our commitment to making trade and investment truly inclusive by encouraging the participation of women and youth in business activities, by taking a gender responsive approach to the development of trade policy.”

Review process underway for book on AfCFTA

A workshop to review draft chapters of a book that will document the evolution of the AfCFTA was held this week in Addis Ababa. The book is expected to be published later this year. The workshop was organized by the African Trade Policy Centre, in collaboration with the Centre for Trade Policy and Law (Carleton University).

Towards an East African pharmaceutical industry: resolutions from the East African Vaccine Symposium

Recognizing the aspiration expressed by EAC Partner States to develop their pharmaceutical industry including vaccine manufacturing, as part of the regions’, social, economic and political integration agenda; Motivated by the growing pharmaceutical spending in Africa at a compound annual growth rate of 10.6%, in particular, the growth in the East African Community (EAC which has the highest pharmaceutical sales growth in Africa estimated at 12.4% in the next five years, and further spurred by a convergence of demographic changes, increasing wealth and healthcare investment, and challenges around increasing cases of chronic diseases. Resolve as follows (extracts):

EAC to promote the establishment of a regional bio-technology and vaccine manufacturing hub, to facilitate technology transfer, promote local production and improving access to vaccines with the intent of enabling the technological or manufacturing capacity of the region in a mutually beneficial manner, while promoting public health objectives. EAC to consider establishing a regional vaccine manufacturing facility either through public-private partnership or purely public agency to meet the regional demand for vaccine supplies within the framework of regional industries. EAC to put in place fiscal and non fiscal incentive frameworks that will promote local production of vaccines and drive investments in the pharmaceutical sector local production in general. In addition the EAC Partner States to put in place a conducive investment climate that will lower the cost of doing business and promote foreign direct investment that is market driven.

ERERA, WAPP to create framework for electricity trading in West Africa: ECOBANK analysis (pdf)

The market framework seeks to replace the existing fragmented bilateral agreements and establish a long-term mechanism on which development of cross border power projects can be built. The project is expected to commence in June, however, electricity trading among member states will be limited in the interim largely due to low domestic capacity among members, insufficient interconnecting transmission networks and variation in transmission voltage among some members. The OMVG power project being jointly developed by Gambia and its neighbours is an example of cross border projects that WAPP and ERERA hope to facilitate in the long run.

Electricity shortages and unemployment in Africa (World Bank)

This paper presents evidence on how the provision of unreliable electricity constrains expansion in the productive sectors of the economy, consequently leading to a reduction in the number of employment opportunities in Africa. Using geodata on electricity transmission networks on the continent, the paper computes an index that explores spatial and time variations in technical losses in the electricity network as an instrument for electricity shortages. The instrument is combined with geo-referenced data from the Afrobarometer and Enterprise Surveys from more than 20 African countries to estimate the causal impact of electricity shortages on employment, and the mechanisms driving the impact.

Country reports:

(i)  Zambia: Systematic Country Diagnostic. Three factors are argued by this diagnostic to have conditioned progress with poverty reduction and the wider development process in Zambia. First is extractives-based growth, characterized by a large copper mining sector. Second is uneven territorial development, illustrated by a large rural-urban divide and very high spatial and sectoral inequalities between Lusaka and Copperbelt and the rest of the country. Third is stability but weak governance, characterized by periodic elections, but with a competitive and personalized settlement, along with weak institutions and limited accountability. This results in policies and public resource allocations that often entrench rather than alleviate distortions to address poverty and promote diversification. Each of these defining characteristics has deep historical roots.

Until recently, the government received little fiscal revenue from mining, but it has grown rapidly since 2010 and reached 28% of total revenue in 2015 (figures 5 and 6). World Bank highlights, using data from the Extractives Industries Transparency Initiative, that the mining sector (which includes quarrying and cement production) contributed ZMW 8.8 billion in 2014, equivalent to 28% of total domestic revenue, up from ZMW 7.7 billion in 2013 and ZMW 7.6 billion in 2012.1 Despite the increase in revenues, from much lower levels in the 2000s, concerns about transfer pricing or illicit transfers and lost revenues from the sector persist, although there is disagreement about their magnitude. The volatility of copper prices has posed a serious challenge for fiscal and macroeconomic management. A lack of instruments for policy efforts to smooth the economic cycle leads to swings in the real exchange rate and volatile flows of public and private investment. Further, the lack of a stabilization fund or adequate fiscal buffers makes fiscal management very challenging. Not only did Zambia not build fiscal buffers, but the government has amplified the impact of the resource boom by running up sizeable budget deficits and borrowing from international debt markets at the top of the cycle. Rather than help calm the volatility, it frequently exacerbates it, because the government finds it easier to borrow and scale up public expenditure when global commodity markets are performing well (discussed further in chapter 7).

Regional integration has been slow. Zambia is landlocked but has an open economy; sharing a border with eight countries, which serve as an expanded market for its traded goods, and as routes for international and regional trade. However, trade with SADC and COMESA and bilateral trade with Angola and the DRC, have been limited, despite being identified by the government as key in transforming Zambia into a regional trade hub. Barriers to trade reduce the competitiveness of Zambian exports in the region, including for small-scale trade. At the same time, Zambia’s domestic producers are often not able to compete with imports. While some relative higher costs may be inevitable due to Zambia’s landlocked nature, there is consensus among public and private stakeholders that more efficient logistics can help reduce costs and maximize the impact of public investment in infrastructure and of government regulations and policy on logistics, thereby allowing better access to domestic and possibly import markets.

(ii) Sierra Leone: Systematic Country Diagnostic. The SCD argues that, without taking into account the two main foundational constraints - governance and fiscal space - it is unlikely that the proposed technical solutions will make a substantial impact on the twin goals. Many of the technical solutions that are proposed in this document have been tried in multiple variations over the last 60 years by government, donor partners, and other stakeholders, but the results have been meagre. Despite favourable geography and abundant resources, and after hundreds of millions of dollars in soft loans and grants, smart consultants, sound technical approaches, Sierra Leone continues to have development outcomes that rate among the worst in the world. This SCD argues that unless governance constraints are understood and mitigated this situation is unlikely to change very much.

(iii) South Africa: Performance of the primary and secondary sectors of the South African economy (pdf, IDC)

Agriculture: The recovery in maize production is clearly evident in the overall trade performance of the broad agricultural sector in 2017. Cereal imports declined by R7.5bn, taking overall agricultural imports downward by 29% for the year. Cereals exports, in turn, increased by R1.5bn, while those of fruits and nuts rose by R2.7bn in 2017. Agricultural exports totalled R66.2bn, of which R45bn were fruit exports.

Mining: The trade surplus recorded by the mining sector widened to just under R317bn in 2017. Exports increased by 23.5%, driven mainly by higher export earnings from non-ferrous metal ores, gold, petroleum products, coal and iron ore. South Africa’s mining exports, which totalled R427bn in 2017, were dominated by platinum group metals, non-ferrous metal ores (chrome, manganese and titanium ore), coal, gold and iron ore. Imports of mining products amounted to R110bn in 2017, representing a 5% decline compared to 2016. These consisted mainly of crude oil, which accounted for 80% of the import basket, diamonds, coal, gold and natural gas. The drop in overall imports was mainly due to the large decline in the value of imported crude oil, reflecting subdued levels of economic activity in South Africa.

Manufacturing: The export-oriented motor vehicles, parts and accessories sub-sector recorded only a marginal 0.4% increase in production in 2017. During the year, General Motors divested from South Africa and VW retooled its plant for the production of the new Polo model. External demand remained weak, as indicated by the fact that the overall value of this sub-sector’s exports declined by 4.2% in nominal value terms, despite a weakening exchange rate of the rand over a major part of the year. Nevertheless, the motor vehicles, parts and accessories sub-sector remains the largest contributor to South Africa’s manufactured exports, accounting for R130bn out of the R676bn in foreign earnings generated by manufactured exports in 2017. It has in fact been the top-ranked manufacturing export sector since 2012. Its share of the of the overall manufactured export basket stood at 17.5% in 2017, compared to the 12.3% share claimed by basic iron and steel, which claimed second spot. Overall manufacturing exports increased by a mere 0.3% in nominal value terms to R676.2 billion in 2017. At the individual country level, Germany and the United states are the principal destinations for South Africa’s manufactured exports. In the African continent, the leading markets in 2017 were Namibia, Botswana and Zambia. The increase in the value of manufactured imports to R970bn widened South Africa’s trade deficit in manufactured goods to R294bn in 2017. Substantially higher imports were recorded for refined petroleum products, which increased by R22.7bn (or by 51%), to R67.3bn in 2017. Weak private sector investment in new productive capacity was reflected in lower imports of electrical and non-electrical machinery and equipment. [Note: Selected trade trends (trade balance, major traded products, composition of trade, regional trade); Trade trends with major regions or regional blocs (pages 10, 11)]; Related IDC analysis (pdf): Key trends in the South African economy. Trade performance per sector - change in export and import values, 2017 vs 2016 (p18)]

(iv) Congo: IMF concludes programme negotiation mission. The authorities will need to take bold and immediate governance reforms to put into effect the government’s proclaimed intention to mark a break with past policies and practices. In that regard, the mission welcomes the government’s plan to publish a governance study that will guide future reforms, in the area of governance, transparency and public finances management. The mission commended the authorities for their plan to establish an independent anti-corruption body with full investigation powers and an asset declaration system for high-level officials, and reinforce oversight over large investment projects and state-owned enterprises, notably the public oil company. The team welcomes the authorities’ decisions to report fully to Parliament and the population on the management of natural resources and large infrastructure investment projects over the recent past. A strong participation of civil society will be critical for the success of the governance reforms.

IMF’s April 2018 Fiscal Monitor

The April 2018 edition of the Fiscal Monitor is focused on two broad themes: the burden of high global debt and the opportunities and challenges of digital government. Global debt hit a new record high of $164 trillion in 2016, the equivalent of 225% of global GDP. Both private and public debt have surged over the past decade. Of the $164 trillion, 63% is non-financial private sector debt, and 37% is public sector debt. Advanced economies are responsible for most global debt. Nevertheless, in the last ten years, emerging market economies have been responsible for most of the increase. China alone contributed 43% to the increase in global debt since 2007. In contrast, the contribution from low income developing countries is barely noticeable.

Global Findex Database 2017: Measuring financial inclusion and the Fintech Revolution (World Bank)

This third edition of the database was compiled in 2017 using nationally representative surveys in more than 140 developing and high-income countries. The database includes updated indicators on access to and use of formal and informal financial services. It features additional data on Fintech and digital financial services, including the use of mobile phones and internet technology to conduct financial transactions. [The Little Data Book on Financial Inclusion 2018 (pdf)]

Today’s Quick Links:

Concluding today: EAC scoping mission to South Sudan

In Washington: G-20 finance meeting focuses on free trade amid protectionism fears

UNCTAD: Egypt offers example of how developing countries can plan for e-commerce

Commission on the Global Consequences of Renewable Energy Transformation: “This Commission represents a truly formidable body of global leaders who will bring rigour, critical thinking, and a broad range of perspectives to the table as we analyse the potential effects of a renewables-based energy system on national and global politics.”

ICTSD: UN shipping agency endorses first-ever target for slashing emissions