Report of the G20 Eminent Persons Group on Global Financial Governance: Making the global financial system work for all

Africa and illicit financial flows: three updates

1. “Fighting corruption and illicit financial flows in Nigeria is non-negotiable”: this was the statement by Muhammadu Buhari, President of Nigeria, to Thabo Mbeki, former President of South Africa and Chair of the AU/ECA High-Level Panel on Illicit Financial Flows from Africa. The Chair visited the President, who is also the current Champion of AU Anti-Corruption Campaign, to follow up on the efforts of AU Member States to implement the recommendations of the High-Level Panel Report (endorsed by the AU in 2015) and ultimately tackle IFFs nationally. The visit also saw the Chair call upon the President in his capacity as the AU Anti-Corruption Champion to lead the efforts to engage action from other AU Member States towards tackling IFFs at the national, regional and continental level. The two-day event culminated with a technical workshop with Thabo Mbeki. Part of the objectives of the workshop was to discuss the ECA’s proposed Development Assistance Project which aims to support Nigeria and other member states in the fight against IFFs. Following this visit, the Secretariat is expected to further engage the government of Nigeria and foster collaboration to build its capacity to stem IFFs from the country.

2. Kenya: Potential revenue losses associated with trade misinvoicing. Analysis of trade misinvoicing in Kenya in 2013 shows that the potential loss of revenue to the government was $907m for the year, according to a study by Global Financial Integrity. To put this figure in context, this amount represents 8% of total annual government revenue as reported to the International Monetary Fund. Put still another way, the estimated value gap of all imports and exports represents approximately 23% of the country’s total trade. The report analyzes Kenya’s bilateral trade statistics for 2013 (the most recent year for which sufficient data are available) which are published by the United Nations (Comtrade). [Download: pdf Kenya: Potential Revenue Losses Associated with Trade Misinvoicing (1.54 MB) ]

3. A scoping study of illicit financial flows impacting Uganda. Insufficient levels of financial transparency – globally and domestically – and government accountability in Uganda, coupled with a regulatory system that can incentivize financial crimes, are helping to drive high levels of illicit financial inflow and outflows in the country, which are undermining development efforts, says a new Global Financial Integrity report. Of the three sources of IFFs – commercial, criminal, and corrupt – the study found that potentially over-and under-invoiced commercial imports and exports is the largest measurable component, at roughly US$6.7 billion during the 10-year period from 2006-2015. The propensity for misinvoicing merits serious attention. [Download:  pdf A Scoping Study of Illicit Financial Flows Impacting Uganda (1.06 MB) ]

Global Investment Trends Monitor (UNCTAD)

Foreign direct investment has dropped 40% year-on-year so far, UNCTAD said on Monday, but the $470m decline is happening mainly in wealthy, industrialized nations, especially in North America and Western Europe. Overall, the global financial picture is “gloomy”, said UNCTAD’s James Zhan, Director, Division on Investment and Enterprise. According to UNCTAD, the development is mainly owing to recent tax reforms in the US which have encouraged big firms there to bring home earnings from abroad – principally from Western European countries. He said that the agency had warned in early January that there was “about $2 trillion of stock in the form of cash or in the form of reinvested earnings of retained earnings outside the US”, which may be repatriated in some form, following wholesale tax reform. In contrast to the overall decline in foreign investment, the UNCTAD report highlights a 42% increase in so-called “greenfield” projects, to $454bn. Extract:

In Africa, the slowdown in FDI continued from 2017 into the first half of 2018 (3% reduction, remaining close to an estimated $18bn for the region). Among sub-regions, only Southern Africa saw a significant increase in FDI (up 40%). The substantial increase was driven to a large extent by South Africa ($3.4bn in the first half of 2018 compared to $1.1bn in the first half of 2017), which is seeing a return to earlier levels of investment after a steep slowdown in the preceding years. A relatively significant decline was registered in resource-dominant Western Africa, with a 17% reduction in FDI in the first half of this year (S$5.2bn to an estimated $4.3bn). Egypt remained the largest FDI recipient on the continent with an estimated increase of 24% compared to the first half of 2017. The volatile global economic environment and mixed commodity price trends are important factors behind weakened FDI to Africa. Also, the expected growth in FDI inflows to Africa due to advances in regional integration has yet to materialize, the African Continental Free Trade Agreement, once in operation, may trigger new investor interest in the continent. [Download:  pdf UNCTAD Investment Trends Monitor, October 2018 (1.38 MB) ]

FDI and the skill premium: evidence from emerging economies (World Bank)

This paper combines project-level data on greenfield foreign direct investment with household surveys to estimate the effects of foreign direct investment on the wage skill premium across sectors and regions in seven emerging economies (Brazil, Colombia, Ethiopia, Mexico, the Philippines, South Africa, and Vietnam). The results suggest that foreign direct investment is associated with a higher probability of employment and higher wages for unskilled workers, relative to skilled workers, in six of the seven countries analyzed in this paper. Moreover, the effects of foreign direct investment on wages are relatively larger for unskilled women.

Towards a multilateral investment facilitation framework: elements in international investment agreements (ICTSD)

Investment facilitation is an expansive notion, not always clearly defined and sometimes confused with the concepts of investment promotion or investment retention. There are some slight differences in approaches to the content of investment facilitation across institutions, such as the OECD, UNCTAD, the World Bank, and the G20. From an analytical review of these different approaches, we can conclude that there are at least two different takes on investment facilitation, identified as the normative and functional approaches. [The author, Rodrigo Polanco Lazo, is attached to the World Trade Institute, University of Bern]

Investment conferences to diarise:

World Investment Forum (22-26 October, Geneva)

South African Investment Conference 2018 (25-27 October, Sandton); A preview of the SA Investment Conference: City Press interview with Ms Trudi Makhaya

Africa Chamber Leaders forum: African business leaders set to meet in Kenya to spur intra-Africa trade (Xinhua)

Kenya’s trade lobby will next week host a meeting which will bring together business leaders from across Africa to seek ways of boosting intra-Africa trade. The Kenya National Chamber of Commerce and Industry says the 23-24 October meeting will focus on fast-tracking the realization of the AfCFTA as well as the preparedness of the business community on the continent. Kenya National Chamber of Commerce & Industry national chairman, Kiprono Kittony, who doubles as one of the vice presidents representing Africa at the World Chambers Federation, termed the forum as timely and relevant to tackle existing hurdles in promoting intra-Africa trade. Other topics to be addressed during the event include: cross cutting challenges encountered by African chambers, how to build sustainable chambers in Africa, the role of the Pan African Chamber of Commerce and Industry in promoting intra Africa Trade and the AfCFTA potential, as well as the Rio 2019 World Chambers Congress.

Mauritius: National Innovation Framework 2018-2030 launched (GoM)

The National Innovation Framework 2018-2030, which aims at creating an ecosystem for innovation to facilitate the transition of Mauritius from a middle-income economy to a high-income innovation driven economy, was launched yesterday. The framework document was prepared by the Ministry of Technology, Communication and Innovation jointly with the Mauritius Research Council, in consultation with various stakeholders. NIF 2018-2030 is the culmination of a highly consultative process involving both public and private sectors. Some of the salient points addressed in the document include infrastructure, capacity-building, incentives and governance. [Mauritius, Ghana determined to implement projects by the Ghana Smart City Ltd]

Southern Africa: A promising region for US agricultural exports (USDA)

US agricultural exports to Southern Africa have fluctuated over the past 10 years between $372m and $766m. This fluctuation is caused primarily by drought-related variations in local corn production and competition from other wheat suppliers. South Africa and Angola are the largest importers of US agricultural products in the region, accounting for 90% of US-origin imports in 2017. South Africa serves as a gateway for distribution throughout the region and US products may be transshipped to neighbouring countries. US agricultural exports to Southern Africa totaled $627m in 2017, accounting for only 4% of the region’s $14bn in total imports.

US exports, market share, and the policy landscape. For the last five years, poultry meat and products (excluding eggs) have topped the list of US agricultural exports to Southern Africa, with sales primarily to South Africa and Angola. Exports of chicken legs to South Africa have fared well despite a quota of 65,000 tons (at the most-favored-nation tariff rate of 37%) and prohibitively high anti-dumping tariff rates above the quota. In May 2018, Namibia opened its market to US poultry and FAS projects that Namibian broiler meat imports could increase by about 3.5% this year, reaching approximately 30,500 tons in 2018, driven by local demand that cannot adequately be met by local supply. Broiler meat is relatively affordable and is becoming an increasingly important protein source in the diet of many Namibians. Another new opportunity in the region is the opening of South Africa to imports of US table and hatching eggs. While South Africa was previously self-sufficient in egg production, the local egg industry is now recovering from highly pathogenic avian influenza (H5N8) outbreaks in 2017. FAS projects that South African table egg imports could reach 75 tons in 2018. There are also opportunities for hatching eggs as a result of the H5N8 outbreaks. However, South African government officials have informed FAS that the opening of the hatching egg market will likely be a temporary concession.

The State of Food and Agriculture 2018: migration, agriculture and rural development (FAO)

Rural migration assumes various forms and presents different challenges and opportunities for migrants and societies. This is seen across countries with different levels of development, governance, agricultural resource availability, and rural demographic structures. This report uses a broad categorization of countries in terms of rural migration, which reflect different migration challenges and drivers. Although some countries may have characteristics pertaining to two or more categories, the following five broad profiles are identified: [Download:  pdf The State of Food and Agriculture 2018 (4.24 MB) ]

Mozambique Energy Strategy Update: AfDB posts an EOI (pdf, AfDB)

The overall objectives of the assignment is to draw up a National Energy Strategy that clearly sets out the main goals to be pursued in the upcoming ten years (2019-2029), describing the basic decisions to be taken, establishing the priorities of actions to enable Mozambique to act in a free market and reassure resumption of a sustainable growth.