Paul Brenton, Ian Gillson, Pierre Sauvé:  Economic diversification - why trade matters (Trade for Development News)

Services trade policies can spur diversification through the expansion of services exports. They can also promote the diversification of goods exports through improved access to a wider range of more efficiently produced services inputs. High costs for energy, telecoms, logistics and finance erode the competitiveness of firms and deter them from diversifying production and exports. As countries develop, service sector liberalisation can help firms to meet supply requirements, diversify and integrate into regional and global value chains in goods and services alike. Efficient services are also crucial for taking advantage of modern distribution channels. Producers are increasingly using e-commerce to sell directly to consumers through web-based outlets. However, diversification toward services exports can be hampered by regulatory diversity. To address this challenge, service sector reforms need to go beyond trade openness and focus on the simplification, harmonisation and/or mutual recognition of domestic regulations.[Note: This article draws on a chapter entitled Economic Diversification: Lessons from Practice, contributed by the authors to Aid for Trade at a Glance 2019, a forthcoming joint publication of the OECD and the WTO]

International trade in services 2018: extract on Africa (pdf, UNCTAD)

From 2010 to 2016, Africa's already low share in world services trade has been on the decline. Over the last two years, the trend has been reversed and the continent's participation in international services trade has slightly increased.   Travel accounts for the highest share in African services exports. Only in Western Africa do various businesses have a more prominent role. [See: Figure 6 - Share of Africa in the world services trade (exports, imports); Figure 7 - Services exports in Africa by region and service category, 2018]

Aubrey Hruby:  A new kind of company is revolutionising Africa's gig economy (WEF)

By 2035, Africa will contribute more people to the workforce each year than the rest of the world combined. By 2050, the continent will be home to 1.25 billion people of working age. In order to absorb these new entrants, Africa needs to create more than 18 million new jobs each year. Given the urgent need to provide jobs and livelihoods to Africans, it is time to examine the conventional wisdom that informal markets must transition into formal markets. Development finance institutions and private investors in African markets can play a critical role in both advancing Africa’s gig economy and changing the narrative that growth in informal markets is incompatible with sustainable development.

Across African markets, companies are pioneering business models that bridge the formal and informal sectors; in these models, each company is a formal entity but can mobilise large numbers of informal actors in their supply chains or service delivery. While this has been done in dairies in Kenya and at coffee and cocoa outgrowers across the continent and in other sectors for nearly a century, the penetration of mobile phones has enabled a new breed of African companies to monetise their ability to organize and inject trust into fragmented informal markets. However, unlike Uber or Airbnb, which disrupted largely formal sectors, many of Africa’s new ‘gig economy’ firms are writing the rules for whole new industries in local markets. Perhaps the most high-profile example is Safaricom’s M-PESA.

Noah Smith:  Africa could become the new China if it plays to its industrial strengths (Bloomberg, The Print)

Stiglitz and the Brookings researchers both suggest that African countries look elsewhere for growth. Their suggestions include tourism, agriculture, natural resource exports, and information technology services — basically, everything but manufacturing. Yet most of these suggestions offer little reason for enthusiasm. Agriculture tends to automate even faster than industry. Natural resource exports are linked to political dysfunction and trap a country at the low end of the value chain. Tourism is fine, but doesn’t lead to the kind of learning-driven productivity enhancements that manufacturing is known for. One shouldn’t dismiss manufacturing so quickly. The longer-term decline in African manufacturing probably has more to do with the failure of mid-20th-century industrial policies and central planning than with automation: It happened in the 1970s, 80s, and 90s — when industrial robots were still not widespread, and when China and other Asian countries were rapidly gaining manufacturing jobs. Now that countries like Ethiopia, Tanzania, Vietnam and Bangladesh are industrializing more naturally, through integration into global supply chains rather than government-driven efforts at import substitution, a repeat of 20th century deindustrialization seems unlikely.

ECOWAS single currency: Heads of State to make final decision in June (Vanguard)

This will come after the submission of the report on the currency by the Task Force on ECOWAS single currency to the heads of state during its mid-term summit later this month. The Head of ECOWAS National Unit in the Nigerian Ministry of Foreign Affairs, Musa Nuhu, who disclosed this in Abuja yesterday, said there was also a committee of Governors of Central Banks in West Africa working on the single currency for the region. He said: “Hopefully, we will be able to hear the latest, because all the committees of Central Bank are working and then the Presidential Task Force to is working, so they will present a report to the authority of Heads of State during next mid-term summit coming up by the end of June.” Nuhu explained that after the summit, it would be confirmed if the region could achieve 2020 set target for a single currency. The Presidential Task Force on ECOWAS Single Currency is headed by the President of Niger, Mahamadou Issoufou.

DG Azevêdo pledges support for Africa’s continued economic integration (WTO)

Addressing the African Group of WTO members in Geneva on 3 June, Director-General Roberto Azevêdo stressed his commitment to supporting Africa’s continued economic integration, through the AfCFTA and through the WTO, in order to further fuel the continent’s growth and development. “Clearly there is a lot of work ahead of us. I hope that the Africa Group will remain at the forefront of these debates. I am ready to assist in whatever way I can. We are in contact with the AU and Commissioner Muchanga and are exploring ways in which we may be able to work more closely together, and specific areas where we can provide greater technical support. This is in connection with our work here at the WTO, and in connection with the African Continental Free Trade Area. I want to congratulate you on the entry into force of the AfCFTA. The rapid progress that you have made here is hugely welcome. It shows how much you value trade and greater integration.”  [Anabel González: The African Continental Free Trade Area is coming into force. Is it really?; AfDB-hosted seminar: Business leaders share views on AfCFTA]

ECA's Vera Songwe and EU’s Economic and Social Committee President discuss AfCFTA benefits. According to Ms. Songwe: “One of the most important impacts of AfCFTA is that it opens the door for funding Africa’s infrastructural needs, whether its railways, highways or telecommunications, or energy. In turn emergence of adequate infrastructure will create value chains that can strengthen old markets and lead to new markets and more jobs.” The two parties agreed to work together on concrete ways to amplify the role of non-state actors as implementation of the AfCFTA begins.

Songwe and Odinga discuss benefits of fast-tracking transboundary infrastructure.  They discussed ways to accelerate regional integration and agreed Africa needed to fast-track transboundary energy and transport infrastructure, including key road corridors, if that is to become a reality soon. “One of the things we are busy working on here at the ECA is the nexus between trade and infrastructure and how we can use it, particularly in the Horn of Africa where we are trying to see how we can use the regional integration and trade conversation to build and capitalize on the peace momentum,” said Ms Songwe. [Related:  Songwe discusses implementation of Belt and Road Initiative with Chinese delegation]

South Africa and the IMF:

(i)  IMF staff end-of-mission statement.  “A focus on policy actions to remove long-standing structural constraints to growth and accelerate job creation is a must. The government has a renewed opportunity to press ahead with policies to further strengthen governance, encourage competition, increase labor market flexibility, and, more generally, reduce the cost of doing business. Public enterprise efficiency needs to be improved with measures that strengthen their finances and harden the budget constraints they face. In particular, Eskom will require bold action to redefine its business model so that it becomes self-sustained and ensures affordable and reliable electricity supply. Without fundamental reforms in Eskom’s finances and operations, continued budget transfers or assumption of its debt by the government will not resolve the company’s issues. Postponing the needed adjustment of the entity will only force greater difficulties down the road.

(ii)  Response by National Treasury (pdf). The National Treasury notes the content of the IMF staff press release following the visit as well as the key risks identified and proposed policy recommendations. The South African government is cognisant of these and work is underway to address them.  Government re-emphasizes its commitment to reduce the deficit and stabilize debt as highlighted in the 2019 Budget. On the revenue side, measures have been introduced to improve the capabilities of the South African Revenue Service.  A new SARS Commissioner has been appointed and the SARS Large Business Centre has been reestablished to make tax compliance easier. The President’s state of the Nation Address on 20 June 2019 will provide further details of government’s plans on supporting inclusive economic growth.

(iii)  Economy nosedives in Q1, hurting rand. South Africa‘s economy nosedived 3.2% in the first quarter from the previous one as its manufacturing sector suffered, according to data that significantly lagged the 1.7% decline economists had expected and sent the rand sharply lower. Year-on-year growth in Africa‘s most industrialised economy was zero compared with forecasts of growth of 0.7%. “This was the largest economic contraction in almost a decade. It was largely driven by manufacturing, then mining,” Statistician General Risenga Maluleke told a news conference.

(iv)  The National Association of Automobile Manufacturers of South Africa says new vehicle sales continued to disappoint into May 2019, while export sales were also down, by 8.8%, for the first time this year.

Indian Ocean Connectivity Forum: update  (GoM)

As regards tourism development in Mauritius, Mr Gayan pointed out that tourism is a key pillar of the economy accounting for 8.6% of GDP, 10% of total employment and around 5% of total investment in 2018. He highlighted that tourist arrivals increased from 74,597 in 1975 to reach 1,399,408 in 2018. Tourism earning attained an all-time record figure of Rs 64 billion last year compared to 35 million in 1975. Hotel stock increased to 113 hotels, representing 13,600 rooms, he said. The Minister also acknowledged the growing popularity of the cruise tourism which is one of the fastest growing segments in the world tourism market and is a ‘must-have’ product for tour operators and travel agencies. Cruise tourism, he said, is very popular in the Caribbean Sea, Asia Pacific and South East Asia and is gaining increasing interest in the Indian Ocean region. Last year, Mauritius welcomed 42 cruise ships compared to 30 cruise ships in 2017 which carried some 67,515 cruise passengers. Cruise tourism among islands of the region has witnessed a major boost in its activities following the Vanilla Islands initiative.  [China, Namibia to boost cooperation on tourism]

Cargo pile-up in Nairobi as agencies clamp down on tax evasion, fake goods (The East African)

When the government, through the Kenya Revenue Authority and Kenya Bureau of Standards sought to  clamp down on both tax evasion and counterfeit goods, little did it foresee the mess that would unravel at the Nairobi inland container depot. At the centre of this crisis is consolidated cargo brought in by small-scale traders. Authorities insist this cargo must be inspected, even when it had been subjected to the process in the country of origin by Kenya Bureau of Standards-appointed agencies. Consolidated cargo is the term for when importers pool parcels to form one consignment, which is often declared as belonging to one importer at the port of destination or de-consolidated into the original individual consignments for delivery to the respective owners. About 1,000 containers belonging to small traders are being held at the ICD on suspicion of tax evasion and bringing counterfeit goods into the country.

Today's Quick Links:

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Tanzania, Zambia agree $1.5bn oil pipeline deal

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South Africa: Attacks on trucks are an attack on the economy

Lake Chad Basin: June 2019 update

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UNCTAD Secretary-General, Mukhisa Kituyi: Digital investment starts at home

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