Today is Budget Day across East Africa.

Selected country previews: Rwanda, Kenya, Uganda, Tanzania

African trade policy events to diarise:

25th African Organisation for Standardisation General Assembly 2019 (17-21 June, Nairobi)

Zimbabwe’s National Consultative Forum on the AfCFTA (19-20 June, Harare)

UNCTAD’s World Investment Report 2019 was released yesterday: selected highlights

1. Global fFDI slides for third consecutive year. Global FDI flows slid by 13% in 2018, to US$1.3 trillion from $1.5 trillion the previous year – the third consecutive annual decline, according to the World Investment Report 2019 (pdf). The contraction was largely precipitated by United States multinational enterprises repatriating earnings from abroad, making use of tax reforms introduced by the country in 2017, designed for that purpose. Hardest hit by the earnings repatriation were developed countries, where flows fell by a quarter to $557bn - levels last seen in 2004. The tax-driven fall in FDI, which occurred in the first two quarters, was cushioned by increased transaction activity in the second half of 2018. The value of cross-border merger and acquisitions rose by 18%, fueled by United States MNEs using liquidity in their foreign affiliates. Despite the FDI decline, the United States remained the largest recipient of FDI, followed by China, Hong Kong (China) and Singapore. In terms of outward investors, Japan became the largest followed by China and France. The United States was out of the top 20 list, due to its MNEs massive repatriation of investment earnings.

2. Foreign direct investment to Africa defies global slump, rises 11%. FDI flows to Sub-Saharan Africa climbed by 13%, to $32bn, recovering ground after successive contractions in the two prior years. North Africa’s FDI flows to climbed by 7%, to $14bn. Southern Africa saw the biggest turnaround, with flows recovering to $4.2bn after net divestment of $925m the previous year. East Africa’s FDI held steady at $9bn. West Africa’s FDI declined by 15%, to $9.6bn. Selected country highlights: FDI in South Africa more than doubled to $5.3bn, although this was largely attributable to intra-company transfers by established investors. Angola remained negative (-$5.7bn), mainly as a result of oil and gas firms transferring funds to parent companies through intra-company loans. Ethiopia topped the region, even as flows to the country declined by 18%, to $3.3bn. Flows to Kenya swelled by 27%, to $1.6bn, due to investment in diverse sectors, including manufacturing, hospitality, chemicals and oil and gas. Nigeria’s flows plunged by 43%, to $2bn while flows to Ghana also dipped, albeit by a more moderate 8%, to $3bn. [ pdf Africa Country Fact Sheet (160 KB) ]

3. Global competition for investment prompts a surge in special economic zones. A new wave of industrial policies and increasing competition for international investment has sparked a boom in the establishment of SEZs, according to UNCTAD’s World Investment Report 2019. The global tally of zones has increased to nearly 5,400, up from 4,000 five years ago, and more than 500 new SEZs are in the pipeline. The report observes that only a few countries regularly assess the performance and economic impact of their SEZs, and therefore proposes an SEZ sustainable development profit and loss statement to guide policymakers in the design of a comprehensive monitoring and evaluation system. The report flags new challenges for SEZs:

4. Downloads on regional and country data: Country Fact Sheets, Regional Fact Sheets, Regional FDI at a glance, FDI to Latin America and the Caribbean slides by 6%, Developing countries in Asia receive more than $500bn in investments

---

Selected highlights of the ongoing AfDB Annual Meetings in Malabo

1. Opening speech by AfDB President Dr Akinwumi A. Adesina. “We are doing a lot to interconnect Africa and drive investments to the continent. The African Development Bank is right at the heart of making the AfCFTA a success. Trade finance will be crucial for that success. The Bank has already invested over $1bn to support trade finance, which in turn has also helped support 111 transactions in 43 countries and leveraged $7bn worth of intra-regional trade. We’ve invested another $bn in the AfriExim Bank, including $650m for trade finance lines of credit and $350m for trade insurance. We’ve also invested $630m in the First Rand Bank and AbSA in South Africa to support the expansion of access to trade finance for 20 countries. To accelerate investments and mobilize greater resources for Africa, the AfDB with its partners, launched the Africa Investment Forum held for the first time last year in Johannesburg. The event attracted over 2000 participants and investors from 53 countries around the world, including pension and sovereign wealth funds. The results were amazing: investment commitments worth $38.7bn were mobilized in less than 72 hours! And we are only just getting started! The 2019 Africa Investment Forum will hold in Johannesburg from 11-13 November, so please mark your calendars!”

2. Launch of the Africa Digital Financial Inclusion Facility. The facility is supported by the Bill & Melinda Gates Foundation, the AFD and the Government of Luxembourg, as initial contributors. The goal is to ensure that at least 320 million more Africans, of which nearly 60% are women, have access to digital financial services. The fund will deploy $100m in grants and $300m in the form of debt from the Bank’s ordinary capital resources by 2030, to scale up electronic financial services for low-income communities. ADFI’s opening project, which serves as a pilot for the facility, is a $11.3m grant from the Bill & Melinda Gates Foundation to the Bank and the Central Bank of West African States. The grant will create an interoperable digital payment system that will allow consumers to send and receive money between mobile wallets, and from these wallets to other digital and bank accounts.

3. Launch of the African Agri-Business Engine. The platform will identify investment and finance opportunities in agriculture and agribusiness, and focus its activities in Mozambique, Zambia, Ethiopia, Rwanda, and Kenya. The project will be implemented by Grow Africa and hosted in the AUDA-NEPAD. One of the proposed outcomes of the African Agri-Business Engine is the submission of business-ready deals with leading continental partners at the African Investment Forum in Johannesburg at the end of this year. Its specific objectives:

4. The AfDB’s Annual Report 2018, Financial Report 2018

---

Kenya: Matiang’i orders the deportation of Chinese traders (Business Daily)

Interior Secretary Fred Matiang’i has ordered the Immigration Department to deport foreigners engaged in small-scale trading, two days after an exclusive Business Daily story revealed the presence of Chinese merchants in Kenya’s biggest second-hand clothes market. “We do not have a classification of foreign investors coming into the country to conduct trade or to hawk. I have already directed that those in Gikomba be escorted to the airport tomorrow to ensure they take supper in their homes,” Dr Matiangí said yesterday in Nakuru. Kenya’s lax immigration laws, including the relatively low Sh10 million threshold set for foreigners coming into the country, offers easy access to investment certificates that non-nationals use to set up businesses locally. In an interview Wednesday, Kenya Investment Authority chief executive Moses Ikiara said a review of the minimum amount that foreign investors must have to get an investment certificate is already under way.

Sachen Gudka: Why we should all combat illicit trade head-on (Business Daily)

Counterfeit is the most prevalent form of the illicit trade in Kenya. Just last week, President Uhuru Kenyatta, during his inspection of the Inland Container Depot in Embakasi, remarked that indeed the multi-agency task force had uncovered illicit trade schemes that have been plaguing the local markets by circulating uncustomed goods. Illicit trade undermines national and regional security, destabilises economies, increases the cost of public health, sabotages tourism, stunts innovation, and offers a haven to organised crime and trafficking. Organised crime has a close correlation to illicit trade. As a matter of fact, transnational organized crime is essentially anchored on illicit trade. This economic sabotage is felt at every level of society from start-ups to multinationals. It is important to note that no single entity can effectively enforce anti-counterfeiting measures within and across national boundaries. It was therefore quite encouraging when the Multi-Agency force was set up in 2018 and since then, notable progress in this endeavour has been made. As the umbrella organisation for manufacturers in Kenya, we are even more encouraged with recent amendments to the Anti-Counterfeit Act, 2008, the legislation being the bedrock on which law enforcement can launch their offensive, and aid in increasing the success rate of action taken by law enforcement authorities. [The writer is chairman, Kenya Association of Manufacturers and vice chair, Comesa Business Council.]

Zimbabwe: Local content threshold set at 80% (Bulawayo24)

Government’s much awaited local content strategy, approved by cabinet on Tuesday, has set an 80% minimum threshold for all products. “The Local Content Strategy is a strategy to encourage local value addition through utilisation of domestic resources and localisation of supply chains. The strategy will create economic linkages and business opportunities for local entrepreneurs. The LCS will be implemented through specific evidence-based local content thresholds in prioritised sectors. Objectives of the LCS are to increase average local content levels in prioritised sectors from current levels of approximately 25% to around 80% by 2023,” the Ministry of Industry and Commerce policy document reveals.

Nigeria, Benin Customs adopt single goods declaration procedure (The Guardian)

Under the new system, declarations made for imports transiting from either of the countries to the other would be electronically shared to deal with corrupt tendencies and increase security. Assistant Comptroller-General of Customs, Zone ‘A’, Benjamin Aber: “Deployment of non-intrusive equipment such as scanners will deal with the challenges of trans-border crimes including insurgencies. The electronic platform will integrate the two countries Single Windows trade platforms and also improve the compliance to trade regulatory and fiscal policy measures of both countries. The platform will create effective, predictable and transparent risk management system and reduction in smuggling activities in both countries and ECOWAS”.

Improving the trade facilitation environment in Eastern Africa through knowledge generation, capacity building: AfDB EOI

Services to be provided under the assignment include: Comprehensive studies that assess the current state of logistics and trade facilitation along one of the trade corridors in Eastern Africa; Identification of the major impediments in the business environment policy and regulatory frameworks affecting trade and investment along the corridor. The services are provided to the Pan African Chamber of Commerce and Industry and IGAD. [AfDB EOI: Study of investment climate reforms in selected value chains]

The Age of Digital Interdependence: UN launches new tech report

The report describes a world more deeply interconnected than ever before as a result of digital technology, yet struggling to manage the economic, social, cultural and political impacts of the digital transformation. The report makes a strong call for reinvigorating multilateral cooperation, arguing that it needs to be complemented by a multi-stakeholder approach — involving a far more diverse spectrum of stakeholders, such as civil society, academics, technologists, and the private sector. Giving the example of his own digital company, Alibaba, Mr. Ma said that of the 10 million small businesses selling products via his online platforms, 50 per cent of the most effective “power sellers”, are women. Melinda Gates insisted that women must have a “seat at the table, as the creators of society”, pointing out that women entrepreneurs currently receive just 6% of venture capital funding for digital start-ups. The Panel’s report makes 5 sets of recommendations: [An update on SA’s Presidential Commission on the Fourth Industrial Revolution]

Diagonal cumulation and sourcing decisions (World Bank)

This paper uses the introduction of the Pan-European Cumulation System in 1997 to explore the effects of rules of cumulation on trade in intermediate goods. The system provided the EU Free Trade Area’s peripheral partners (‘‘spokes’’) the possibility of cumulating stages of production from more countries to qualify for preferential access to the European Union market. Therefore, the system might have altered the organization of production in European Union centric value chains. The evidence presented in this paper (pdf) suggests that diagonal cumulation may have led to a reassessment of sourcing decisions established during the pre-PECS bilateral RoCs. Indeed, diagonal cumulation allows preferential access for exports of final goods that are produced with intermediates imported by a larger set of countries. Since ROOs do not typically require whole obtained originating status, the increase in sourcing choices may have led countries to import more intermediate goods also from RoW. Therefore, our results also support the idea that diagonal cumulation can lead to a multilateralization of regionalism.

Today’s Quick Links: AU hopeful of Nigeria’s signing of AfCFTA Here are the top 10 items Nigeria imported and exported in Q1 2019 SA Canegrowers looks to new government for rescue plan The skills balancing act in Sub-Saharan Africa: investing in skills for productivity, inclusivity, adaptability Trade tensions, global value chains, and spillovers: insights for Europe Christine Lagarde: Prosperity and resilience of CESEE economies in a changing trade landscape