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tralac’s Daily News Selection

tralac’s Daily News Selection
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03 May 2019

Diarise: The G-20 Niigata Agricultural Summit (11-12 May) on the theme Toward Sustainable Agro-Food Sector – emerging issues and good practices

Japan’s trade insurance to cover full African investment (Nikkei)

The Japanese government will create trade insurance that will fully cover infrastructure-related exports and loans to Africa, hoping to encourage companies here to make further inroads into a region considered the last frontier of the global economy. Coverage will be provided through a partnership between the government-owned Nippon Export and Investment Insurance; the Kenya-based African Trade Insurance Agency; and the Saudi Arabia-based Islamic Development Bank. Hiroshige Seko, minister of economy, trade and industry, will make an official announcement as early as 9 May. The three agencies are preparing to sign a MOU on the new insurance at the Tokyo International Conference on African Development slated for August, with a goal of launching the framework by year-end.


Lesotho and the IMF:

  1. IMF Executive Board concludes 2019 Article IV Consultation. Directors welcomed the progress made in restoring peace and stability. Directors, however, noted that Lesotho continues to face significant challenges, stemming mainly from the declining SACU revenues and high government expenditures. Against this background, Directors underscored the need for both short- and medium-term measures to preserve fiscal and external sustainability, as well as generate strong and inclusive growth. Directors emphasized that the fiscal adjustment needs to be reoriented to favor growth and efficiency. Reducing the high public wage bill over time will provide space for the authorities’ strategic priorities. Directors also stressed the need for greater efficiency in health and education spending to ensure better outcomes.

  2. pdf 2019 Article IV Consultation report (1.65 MB) . The current account deficit increased to 8.4% of GDP in 2018/19 reflecting a fall in SACU revenues. SACU revenues increased to 17.7% of GDP in FY 2017/18 from 13.3% in FY 2016/17, still significantly below the recent peak of 24.1% in FY2014/15. SACU revenues have declined again in FY 2018/19 and are expected to remain subdued owing to sluggish growth in South Africa. Rapid import growth, even in a depressed economic context with fiscal cash rationing, and weaker export of services offset stronger diamond exports and led to a worsening of the trade balance. For the medium term, imports are expected to grow rapidly as construction of the Lesotho Highlands Water Project Phase II begins leading to a worsening of the current account. However, the project will be financed with capital grants from South Africa.

    Over the next three years, growth is expected to be driven by construction related to the second phase of the Lesotho Highlands Water Project. In addition to the project (see Box 1), production of diamonds and textiles have positive prospects. Inflation is expected to pick up somewhat as the VAT rate hike is passed-through and economic conditions improve mildly. External risks largely center on spillovers from South Africa. The FAO has identified Lesotho as being at high risk of drought that could increase malnourishment among vulnerable populations and lead to higher expenditures on food subsidies and crisis management. The cost of the response to the 2016 drought was estimated at 2% of GDP by the UN.


New UNU-WIDER publications on Southern African trade and development issues:

  1. The contribution of services to trade and development in Southern Africa. The authors examine evidence on international services trade for the Southern African Development Community between 1995 and 2012, and supplement this with a review of Foreign Direct Investment from South Africa. Tradable services appear to have made a limited contribution to total trade for most countries, and there is little evidence of significant regional integration or specialization in higher value-added activities. Extract from the conclusion (pdf):

    Regional trade agreements should seek to develop regional specializations, whereby clusters of related firms benefit from a shared pool of proficient labour, technology spill-overs, and specialized infrastructure. For instance, the AfCFTA should aim to go well beyond the obvious reduction in tariff barriers and begin to address deeper limitations, such as restrictions on foreign equity in establishing a foreign commercial base, differences in standards and rules for licensing and professional accreditation, favouritism in state-related contracts, and restrictions on the immigration of skilled professionals.

    Governments should start by listening to private industry and understanding its needs and priorities. It matters a great deal whether the growth of tradable services is mainly constrained by trade barriers, state regulations, and bureaucratic procedures, or by the restricted mindsets, strategies, and internal capabilities of the firms themselves. More research is needed on how to develop domestic firms’ capabilities, whether by boosting the supply of relevant skillsets, fostering business networks, and mutual learning, or by encouraging foreign suppliers to transfer expertise by forming joint ventures with local companies. The right approach may vary in different sectors and could benefit from a series of industry-specific studies. Distinguishing between the performance of multinational enterprises and domestic firms could be important to an understanding of how and why companies grow and develop. Analysing the strength of their embeddedness and linkages to manufacturing, construction, and other branches of the economy is an important part of this assessment. [The authors: Justin Visagie, Ivan Turok; UNCTAD: Services key to revving up economic growth and development]

  2. Motorcycle parts and aftermarket industry regional value chain in Southern Africa. In the SADC region, all motorcycles and their parts are imported from offshore markets. All imported motorcycles are categorized as ‘new’ motorcycle imports and are shipped in predominantly as completely built units. This research considers the possibility of SADC countries assembling motorcycles and establishing a regional value chain; South Africa has manufacturing capabilities and capacity in the assembly of motor vehicles and the production of parts for motor vehicles. There is also potential to grow demand for motorcycles among low-income households as a more affordable and time-efficient mode of transport. The paper argues that to develop a competitive motorcycle industry would require a concerted effort by the governments in the region to attract global players and, in partnership with them, to shift demand patterns and build supply capabilities. Extract from the conclusion (pdf): Several Original Equipment Manufacturers already have a presence in the region in automotive production and in motorcycle distribution, retail, and servicing; any strategy would need to engage with them and persuade them to consider establishing an SADC motorcycle industry as part of their long-term strategy. The rapidly growing Chinese motorcycle manufacturers, which are looking at globalizing their operations, also present an opportunity, since foreign motorcycle manufacturers can expand globally by setting up assembly plants and/or parts manufacturing operations in developing countries (as illustrated by the Kenyan experience) through the provision of incentives and tax breaks. Foreign direct investment will be attracted and job opportunities in the region increased in high value-added production activities. [The authors: Sithembiso Mtanga, Richard McCamel]

  3. Evaluating the impact of global oil prices on SADC and the potential for increased trade in biofuels and natural gas within the region. This paper investigates whether Southern African Development Community countries that are vulnerable to changes in oil prices could instead substitute oil and petroleum products with biofuels and gas from within the region. A pooled mean group estimator was used to determine the impact of oil prices on the gross domestic product of 15 SADC countries. Results indicate that Mauritius, Mozambique, Tanzania, and Zambia would be negatively affected by oil price changes. Next, two gravity models capturing bilateral trade between South Africa and Zambia and those countries identified as being vulnerable were estimated using pseudo-Poisson maximum likelihood. The main finding, based on the gross domestic products of the exporter and importer countries, is that potential for trade is higher with South Africa than Zambia. This implies that these countries are more likely to import gas and biofuels from there. Transport costs are the main impediments to importing from Zambia. [The author: Alfred Moyo]

South Africa: Value of vehicle and components exports set a record in 2018 (Business Day)

The SA motor industry’s trade deficit narrowed by more than 7% in 2018 as vehicle and components exports set new records. The latest Automotive Export Manual, published today, shows that the deficit - the value difference between imports and exports - shrank from R43.5bn in 2017 to R40.3bn in 2018. The manual, published by the Automotive Industry Export Council (AIEC), shows that the value of SA vehicle and component exports hit a record R178.8bn in 2018. Most of this, R127.5bn, came from the export of 351,139 cars and commercial vehicle - another record. The value of components exports grew by 2% to R51.3bn. The total value of all automotive imports in 2018 was R219.1bn. Without after-market spare parts, the figure would have been R162bn. The number of export destinations - 155 countries and territories - was another record.

Wandile Sihlobo: What agribusiness can do for SA’s economy (Fin24)

From a destination point of view, the African continent and Europe continued to be the largest markets for South Africa’s agricultural exports, collectively absorbing 66% of total exports in 2018, measured in value terms. In more detail, Africa remained South Africa’s largest market, accounting for 39% of agricultural exports. The leading products to these markets were beverages, fruit, vegetables, wool, sugar and grains. Asia is also an important market for South Africa’s agricultural exports, demanding a 25% export share in 2018. Wool, fruit, grains, beverages, vegetables and meat were the leading products exported to this particular region. The Americas and the rest of the world accounted for 5% and 4% shares.

Kenya: Duty-free maize imports window to open in July (Business Daily)

Kenya is set to open duty free maize imports from July to plug the grain shortage that has seen the price of flour rise 30% in one month. Agriculture Cabinet Secretary Mwangi Kiunjuri told millers in a closed-door meeting that strategies are in place, including waving of a 50% duty imposed on imported grain from outside the EAC region, to avoid last minute rush. Mr Kiunjuri, who met with both millers and animal feed manufacturers, said the importation of both yellow and white maize will be opened once the current stocks are exhausted. [Kenya: Alcohol exports drop to five-year low on illicit trade]

Agricultural trade in a time of uncertainty: WTO DDG Alan Wolff says trading system must evolve to keep up with change in agricultural markets

Speaking at a recent event organized by the Farm Foundation in Arlington, Virginia, Alan Wolff encouraged agriculture negotiators to turn technical discussions and information sharing at the WTO into real negotiation. Taking stock of the challenges that farmers are facing on various fronts, DDG Wolff highlighted the vital importance of the multilateral trading system to the global agri-food system and urged members to redouble efforts to update WTO agriculture rules. Extract from his speech:

The transmission belt is E-commerce, which must include freedom of movement of goods, services and data across borders. Today an NGO in London helps farmers in Kenya know when to apply lime to their land. China is experimenting with artificial intelligence to identify sick pigs to cull them in order to stop the spread of swine flu. Increased dairy production in China increases the demand for feed from other sources. E-commerce is an enormous enabler of advances in agriculture. All of this is under threat today. There is talk of the moratorium on customs duties on electronic transmissions which expires in December of this year not being renewed. If this is the case, there is more than some mischief that could befall the world’s economies and their agricultural sectors. If the expiration meant that countries could now decide what tariffs to apply to the content of electronic transmissions, world commerce could be strangled. [Download: Farm Foundation conference programme (pdf)]

Today’s Quick Links:

A preview of Africa Trade Week (23-25 June, Johannesburg): Africa gains traction as trade destination

Mauritius: World Bank Group executive directors discuss transformation to a high-income economy

Jaindi Kisero: Take these steps to revamp Kenya’s railways

MTN appoints Jonas chairperson designate, establishes international advisory board

Mauritius: Launching SME Certification Scheme to strengthen competitiveness of enterprises

World Bank scales up support for Mozambique, Malawi, and Zimbabwe in the wake of Cyclone Idai

Peter Chacha Wankuru: For the first time, the relative economic size of Kenya’s counties is clear

China’s African swine fever outbreak and US trade war combine to create perfect storm for Chinese economy

Pig `Ebola’ virus sends shock waves through global food chain

USDA expects smaller ASF impact on China

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