tralac’s Daily News Selection
The highlight of the opening day of the AfDB’s Annual Meetings, yesterday in Malabo, was the release of one of its flagship reports, the African Economic Outlook. An easy guide to some of its core messages:
African Economic Outlook 2019. New research for this Outlook shows that five trade policy actions could bring Africa’s total gains to 4.5% of its GDP, or $134bn a year. First is eliminating all of today’s applied bilateral tariffs in Africa. Second is keeping rules of origin simple, flexible, and transparent. Third is removing all nontariff barriers on goods and services trade on a most-favored-nation basis. Fourth is implementing the World Trade Organization’s Trade Facilitation Agreement to reduce the time it takes to cross borders and the transaction costs tied to nontariff measures. Fifth is negotiating with other developing countries to reduce by half their tariffs and nontariff barriers on a most-favored-nation basis. The 2019 Outlook also looks at the gains possible from regional public goods, such as synchronizing financial governance frameworks, pooling power, opening skies to competition, and opening borders to free movements of people, goods, and services.
Chapter 1: Africa’s macroeconomic performance and prospects (pdf). Extract from Box 1.2: Potential impacts of escalating trade tensions - modest contraction but opportunities for deeper intraregional integration in Africa. In the short term (within one year), the impact of the trade tensions on Africa’s GDP is about ±0.07% of GDP. In the medium term (within three years), the negative impact of the contraction in global trade volumes grows larger. It is strongest for other resource-intensive exporters, at –2.5%, followed by oil exporters, at –1.9%, and weakest for non-resource-exporting economies, at –1.1%). There are several possible explanations for this pattern. African countries’ size, openness to, and trade intensity with the US and China are significant - more than 60% of Africa’s exports go to the US, China, and Europe, and more than 70% of Africa’s imports originate from these countries. So a decline in demand for Africa’s exports due to a slowdown in the global economy prompted by tariffs is an important channel that could affect Africa. But despite the modest negative effects, Africa could - with the right policy responses - turn the increasing trade tensions into an opportunity to improve competitiveness and deepen intraregional integration. One way is to take advantage of the dislocation and trade diversion caused by the tensions to become the new supplier of goods previously supplied, for example, by China to the United States. Capturing even a small portion of the dislocation from increasing trade protectionism could benefit Africa.
Chapter 2: Jobs, growth, and firm dynamism (pdf). The return to firm size is even higher in Africa than in other developing regions, with a 0.15% increase in labor productivity for a 1% increase in size. The size effect is even stronger for manufacturing firms in Africa, with 1% increase in size associated with a 0.20% increase in labor productivity - well above the 0.12% increase for firms in the services sector. Wages are also much higher in medium and large enterprises than in small firms and in manufacturing than in services. Wages are twice as high in large manufacturing firms as in large service firms and 37% higher in small manufacturing firms than in small service firms. The African enterprise landscape is dominated by small firms, with too few medium and large firms (the “missing middle” and “missing large”). More than 40% of African firms have fewer than 10 employees, and more than 60% have fewer than 20. Overall, it seems much easier for African firms to shrink than to expand. Currently 55% of firms are small, 30% are medium, and 15% are large. Simulations show that on existing trends, in the long run, 49% of firms will be small, 31% will be medium, and 20% will be large in the long run. This is much closer to the distribution in developing countries, where 21% are small, 33% are medium, and 46% are large. The question is what are the most important factors that drive firm growth?
Chapter 3: pdf Integration for Africa’s economic prosperity (1.45 MB) . Extract from Box 3.12: Estimating efficiency and revenue gains in five scenarios. The results reported here concentrate on the longer run effects under full implementation of the CFTA using a version of the GTAP model adapted for capturing the expected long-run effects of the CFTA and full implementation of the TFA (see table A3.1 in the online annex for country and sector aggregations). The model is disaggregated into the following regions: Africa, China, the US, Western Europe, rest of East Asia, and rest of the world. Results are reported for North Africa (4 countries) and Sub-Saharan Africa (28). Five scenarios were simulated. Scenarios 1–3 apply only to the 32 African countries and regions in the model; scenarios 4 and 5 include other countries. The scenarios are mostly cumulative:
- Central Africa could be the continent’s rising star, thanks to the AfCFTA. Central Africa stands to benefit the most from the AfCFTA, data from the African Development Bank shows. Hanan Morsy, Director of Research at the Bank, said Central Africa’s real income could increase by as much as 7% in one of the scenarios that researchers describe in the 2019 African Economic Outlook. By the same calculations, East Africa, currently the star performer on the continent, would experience an increase of around 4.2%, followed closely by North Africa. The scenarios measure the potential outcomes of the AfCFTA, ranging from one (least impact) to four (greatest impact): “While there are differences in gains, all African countries are better off with regional integration than without.” Morsy said current levels of growth were not adequate to generate jobs for millions of unemployed Africans, but regional integration could stimulate the growth needed to make a dent in unemployment. Morsy said Africa needed to grow between 4% and 6% in order to turn the tide. The Outlook predicts that Africa can add 4.5% to its GDP, provided that governments do away with bilateral tariffs and non-tariff barriers and keep rules of origin simple.
Next week’s US-Africa Business Summit in Maputo: an interview with CCA’s Florie Liser
We’re pleased that the summit (18-21 June) is serving as the launch for ‘Prosper Africa’ - the Trump administration’s signature initiative with the goal to double US-Africa trade and investment. Several major deals involving American firms will be featured as part of the policy roll-out. On the first day, President Nyusi and Anadarko CEO Al Walker will formally announce agreement on a $20bn liquefied natural gas project. We have an ICT ministerial roundtable and panels on sovereign wealth funds, cybersecurity, housing, digitalization of African economies, industrialization in the consumer goods sector. We have another looking at the entertainment industry – Nollywood and more – and another on housing – the housing shortage in Africa is a huge opportunity for American businesses. And there are more.
The AfCFTA does not incorporate a separate chapter on gender and trade. The preamble of the agreement, however, contains explicit reference to the importance of gender equality for the development of international trade and economic co-operation, and article 3(e) emphasises the promotion of gender equality as one of the general objectives of the AfCFTA. Empowering women’s participation in trade under the AfCFTA requires the implementation of interventions that go beyond protecting traditionally female industries, to include measures that support the building of trade-related and physical infrastructure that impact on the care-burden of women and consequent labour supply, as well as ICT and other capacity-building, technical and vocational skills training programmes. These interventions and other themes of importance will be the focus of discussion at the Women’s Business Roundtable. The Roundtable is part of the upcoming Southern Africa Regional Africa Trade Forum on the AfCFTA, to be convened by ECA and the government, with the AU Commission and EU as collaborating partners. [The author, Nadira Bayat, is a gender and trade consultant at the African Trade Policy Centre]
SADC Business Council, Industrialisation Week: update
Mr Peter Varndell, NEPAD Business Foundation CEO, updated SADC’s Executive Secretary, Dr Stergomena Lawrence Tax, on progress made in the formulation of the SADC Business Council, in response to the decision of the SADC Council of Ministers of August 2017, which directed the Secretariat to establish a private sector engagement mechanism to enable the involvement of the private sector in the implementation of the SADC regional integration agenda and the Industrialisation Strategy and Roadmap (2015-2063). The two parties also discussed the status of preparations for the SADC Industrialisation Week, scheduled to take place 5-8 August 2019, in Dar es Salaam. Dr Tax called upon the NBF to finalize the constitution for the SADC Business Council, a key document that will facilitate the legal and administrative processes leading to the signing of the MoU between the SADC Business Council and the SADC Secretariat.
The objective of the project is to support sustainable financing of regional infrastructure and industrial projects in the SADC Region. The specific objectives include (pdf): (i) establishment of financing mechanism for regional projects including financial instruments, (ii) prioritising and developing of regional infrastructure projects, (iii) development of regional value chains in the mining subsectors of copper and cobalt, and (iv) capacity building in development of infrastructure and industrial project. While other donors have been supporting SADC in preparation of regional infrastructure projects and development of regional value chains in agro-processing and pharmaceutical, these donors are however not supporting SADC in prioritising the projects as well as developing RVCs in mining sector. The SADC Secretariat will be the executing agency for the project. Implementation of the project will be done through the Project Implementation Unit.
Opening the consultation yesterday in Nairobi, the Head of Humanitarian, Refugees and Displaced Persons Division, Ambassador Olabisi Dare, said it was organized to enable the two parliaments compare notes with each other in the area of free movement of persons in their respective regions, and to open their borders to each other by ratifying the Protocol on Free Movement of Persons in Africa by ratifying the Protocol. “Considering that the Protocol only needs 15 ratifications to come into force and that Six Member States of the EAC and the 15 member States of the ECOWAs have already made significant progress in this area of Free Movement of Persons within their regions, the AU Commission has already embarked on its ratification campaign’’, he said.
The meeting is expected to develop a comprehensive ratification roadmap in support of the Protocol from EAC and ECOWAS regions, to provide recommendations for the harmonization of the regional norms and policies on free movement of persons and border security management with the African Union Protocol by the end of 2020, and to develop a plan to popularize the adopted African Passport as framed in the guidelines for the design, production and issuance and its minimum technical specification and security features.
The meeting (held on Monday) discussed the findings of a study commissioned to address key issues confronting the process leading to the establishment of a momentary union in the ECOWAS Region namely: the exchange rate regime, momentary policy framework and the model of the future ECOWAS Central Bank. Welcoming the Central Bank Governors, Jean-Claude Kassi Brou, the President of the ECOWAS Commission, reminded them of their commitment to seek consensus on the outcome of the studies. President Brou added that expectations are high within the Community and as such the need to double their efforts to put in place all the key pillars that are required for the establishment of the monetary union. [ECOWAS Annual Review meeting on strategy to curb trafficking in persons]
Dubai recorded a non-oil foreign trade of AED 339 billion in the first quarter of 2019, an increase of 7% on last year’s AED 316 billion. Exports registered the most growth, rising 30% to reach AED 42 billion while re-exports grew 7% to AED 106 billion. Imports rose by 4% to reach AED 190 billion. Data released by Dubai Customs on Wednesday showed that Dubai’s first quarter of 2019 non-oil trade volumes increased by 32% to 28 million tons, up from 21 million in the same quarter last year. Exports rose by 94% to 6 million tons while re-exports surged 41% to 4 million tons and imports rose 16% to 17 million tons. [Regional highlights: Trade with Asia, the largest trading region for Dubai, increased by 7% to AED 208 billion. Trade with Europe, the second largest partner, touched AED 58 billion. Africa witnessed the biggest growth, rising 36% to reach AED 42 billion. Americas and Oceania also contributed with high single digit growth, up 7% (AED 27 billion) and 9% (AED 3.5 billion) respectively.]
Today’s Quick Links:
Madagascar: IMF staff completes program review mission
Kenya shuts Somalia border as secessionist group raises eyebrows
SME Mauritius Ltd to focus on digital platform
Mauritius to host 2nd Edition of the Ministerial Conference on Maritime Security
World Bank: Mali Growth and Diversification