tralac’s Daily News Selection
(i) @AdanMohamedCS: President Kenyatta has commissioned the Cabinet Subcommittee for EAC issues, comprising of myself and colleagues from Treasury, Foreign Affairs, Security, Trade, and the AG’s office. This allows Kenya to seek a common approach & speak with one voice around regional issues. I am pleased to announce that textile and steel products from Kenya can now access the regional market for Tanzania and Burundi respectively. This has been achieved as result of continuous engagements with member states and the EAC secretariat.
(iii) @alvinmosioma: We must recognize that @ATAFtax has outgrown its original mandate of tax admin. It’s time to consider upgrading ATAF’s role to become Africa’s supreme body on tax policy. A role that it’s already playing. #ATAF5GA
Raila Odinga’s Duke University lecture: Africa – a time for sustained optimism?
I am aware that the Asian miracle was driven by exports of manufactured goods to open and growing markets in Europe, US and Japan. Such a favorable environment does not exist today. Manufacturing in Africa has actually been declining by 2% annually. Some say that as China upgrades its economic structure, a huge room will be left open for basic light manufacturing for Africa. But even if it does, I doubt that low value products can be a basis for closing the huge gap between Africa and the developed and emerging economies. Therefore, we will not create an African miracle by emulating the East Asian model. I envision that our own African growth model will drive an African miracle. Sustained high economic growth in the continent will be driven by African unity and political and economic integration. I am not advocating an inward-looking protectionist policy here. I am aware that such policy failed in Latin America decades ago. African markets will remain open to every country in the world. Indeed, we will promote free and fair trade. But, the main driver will be the growth of African markets. Let me give you an example:
I said earlier that intra-continental trade will be a major driver of economic growth in Africa. I am aware that people cannot trade unless huge infrastructure deficits in the continents are addressed. It is estimated that the cost of transport in Africa is on average 50-175% higher than other parts of the world. Let me repeat. The insufficient infrastructure networks across the continent have limited cross-border flows of trade, capital, information, and people. It has drastically affected Africa’s growth and broader development performance and regional integration. Improving land transportation is an imperative to development. That is why last week; I accepted the appointment by the Africa Union Commission as High Representative for Infrastructure Development Championing to spearhead the modernization and upgrading of selected Trans African Highway Corridors and their missing links. [Delivered at Duke University, 23 October]
Members of the Pan-African Parliament have backed President Paul Kagame’s call for the August House to throw their weight behind the speedy ratification of the AfCFTA. PAP members who spoke to The New Times in an exclusive interviews welcomed Kagame’s call.
MP Julius Malema (South Africa): “We agree with him entirely. The more we fast-track the process of free trade and the movement of persons in the continent, the better because ours should be to strive for one Africa and one trading arrangement. We support entirely what the Chairperson said; we know that many countries have not signed and many of them are not showing a lot of interest in speeding up the process towards free trade and free movement of persons in the continent but we are confident that, gradually, we’ll get there.” MP Barbara Rwodzi (Zimbabwe): “I think it is a great move for the Chairman of the African Union to come and ask for the fast-tracking of free trade in Africa. Why? I feel that though Africa is one family and we should open up to each other in terms of trade, the economy of Africa has to be driven by Africans”.
Transitional Stabilisation Programme: October 2018 – December 2020 The 2019 national budget represents the first steps in the implementation of the Transitional Stabilisation Programme, focusing on stabilising the macro-economy and the financial sector, while at the same time removing investment bottlenecks. Further, the Budget will identify quick-wins for stimulating exports and growth, setting the necessary foundation for longer term developmental thrust under future National Development Strategies: 202-2025 and 2026-2030. [Download: pdf Transitional Stabilisation Programme Reforms Agenda, October 2018 – December 2020 (5.18 MB) ]
Budget balance. The 2019 Budget Strategy Paper proposes drastic reduction of the budget deficit to 5.2% of GDP in 2019, and subsequently to 3.5% in 2020 and 3.1% of GDP by 2021, making us comply with the SADC threshold of below 3% of GDP.
Domestic economy. Under the New Dispensation, there is gradual restoration of business confidence, with many investment enquiries from all continents. During the first half of 2018, the Zimbabwe Investment Authority received 165 applications worth $15.8bn, over and above other investment enquiries with various line ministries and other individual companies. Government is pursuing the various investment inquiries with the objective of increasing the share of external investment from $1.8bn anticipated in 2018 to over $2bn in 2019.
External sector. During the first half of 2018, merchandise exports stood at $2.2bn, a 15.1%, increase from $1.9bn realised over the corresponding period in 2017. Merchandise imports for the period January to June 2018 amounted to $3.4bn, a 28.3% increase from $2.7bn realised over the comparative period in 2017, as shown in figure below. Resultantly, the first half of 2018 experienced trade deficit of $1.4 billion, reflecting a worsening position compared to the first half of 2017 deficit of $789m.
Zimbabwe: Govt to float $500m bond for Beitbridge-Chirundu road (Zimbabwe Independent)
Government will float a $500m bond to raise capital for rehabilitation of the Beitbridge-Harare-Chirundu highway, while renegotiating a $2,7bn road-dualisation deal with Chinese contractor Anhui Foreign Economic Construction Group Limited (Afecc) as the project takes yet another twist, the Zimbabwe Independent can reveal. [Zimbabwe, Zambia sign four agreements: towards a OSBP at Victoria Falls]
Kenya and the IMF: updates
pdf 2018 Article IV Consultation report (1.21 MB) An extract from Box 3 – Strengthening international corporate taxation. The overall parameters of Kenya’s current international tax regime are quite sound, but several important steps could be taken to improve the regime going forward. This will be necessary to avoid the likely increase in leakage from the tax base that can be expected as a result of increasing cross-border inbound investment, and from constraints on cross border taxation arising from a widening tax treaty network. A transparent treaty policy that uses cost-benefit analysis to assess the need for a treaty is essential to preserve the integrity of Kenya’s treaty network. To restrict revenue leakage through payment of inter-group technical, management and professional service fees, future treaties should include a separate technical services article (following the Seychelles Treaty Article 13 model). To limit incentives for treaty shopping, a limitation of benefits (LOB) provision restricting use of a DTT to entities that have a sufficient economic nexus to justify the source country tax concessions given up by Kenya should be included. If Kenya were to adopt the Multilateral Legal Instrument an LOB provision would be added to existing treaties. Finally, many of Kenya’s treaties do not include the necessary provisions to make effective the relatively recent additions to the ITA designed to permit taxation of indirect offshore transfers of interest in Kenyan immovable assets.
South Africa’s new finance minister, Tito Mboweni, delivered the 2018 Medium Term Budget Policy Statement this afternoon. Access the extensive documentation here.
Huawei’s PEACE cable enters manufacturing stage (Total Telecom)
2018 World Investment Forum: updates
(i) Governments, businesses ‘walk the talk’ for investment in sustainable development. The opening day of the Forum also saw agencies from Bahrain, India, Lesotho and South Africa win top laurels at the UN Investment Promotion Awards for excellence in advancing investments in critical socio-economic sectors. According to an UNCTAD news release, the Bahrain Economic Development Board, Invest India, Lesotho National Development Corporation, and InvestSA from South Africa won awards for boosting technology education, promoting renewable energy, employment, and waste-to-nutrient recycling, respectively.
(ii) Globalization backlash is clear but leaders say cooperation is key. UNCTAD Secretary-General Mukhisa Kituyi said the political divide between the winners and losers of globalization could imperil not only global economic growth but efforts to manage climate change, migration and security. “The stakes are high,” he said, explaining that, while investment flows had been stagnant for a decade, flows were acutely needed in sectors that boost development. Dr. Kituyi said policy responses were needed to unlock money that was trapped in the system but not channelled toward investments that brought the most benefit to the most people.
Abdul Hamid, President of the People’s Republic of Bangladesh, said globalization was not a recent phenomenon, but its “discontents” were. Technological change had boosted industrial and economic activity, but the dividends had not been spread equitably, he said. Investment tended to sail into safe harbours but not necessarily to where it was most needed: policies needed to be adjusted to ameliorate this, and new ideas injected into the design of the global investment architecture, including for Least Developed Countries like Bangladesh.
(iii) UN Sustainable Stock Exchanges initiative report. The sustainability issues identified by the SDGs can create financially material risks and opportunities for investors and may pose threats to the resilience of the entire financial system, so the report provides an extensive overview of sustainable finance around the world with 35 examples from 19 markets. The report examines how, within security regulator’s existing mandates, action is being taken on sustainability-related risks and opportunities. An advisory group of nearly 70 capital market experts from around the world – regulators, exchanges, investors – contributed to the report.