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tralac’s Daily News Selection

tralac’s Daily News Selection
Photo Credit: Kevin Sutherland,Bloomberg

31 Oct 2019

David Luke, Gerald Masila: A trip to Seme-Krake - mending the cracks in the Benin-Nigeria trade relationship (UNECA)

A single trip to the Seme-Krake border and surounding trade routes is enough to veryify that smuggling is a very real problem, that requires targeted treatment. The blanket closure of the border to all trade is, however, not the right medicine. This is because, since the establishment of ECOWAS in 1975, the region has made significant strides in regional integration. The fifteen ECOWAS member countries have become one interdependent system. The Seme-Krake border closure thus has significant knock-on effects.

If a blanket closure of the Seme-Krake border is not the correct medicine to mend the cracks in the Benin-Nigeria trade relationship, what is the appropriate remedy? Smuggling along unofficial trade routes has significantly reduced, but as highlighted in this article, this has not been at a small cost. Instead, the main complaint of smuggling must be tackled through specific and targeted measures. The Nigerian government are urging Benin to sign an agreement that commits the country not to import goods that are onwardly smuggled. However, effective enforcement of such an agreement would require the deployment of security forces from both countries along the entire length of the porous border. This would be a worthwhile exercise, but not a cheap one. A more cost-effective treatment, and one in the spirit of furthering regional integration, would be to fully-implement the ECOWAS Common External Tariff that officially entered into force in 2015. This would mean that all externally imported goods would face the same tariff in Benin and Nigeria. This would go a long way to eliminating the unfair price differentials which currently incentivise smuggling. At the same time, governments must continue to invest heavily in transforming agriculture with a view to boosting local production and competitiveness. This will remove the need to resort to trade policy measures to remain competitive.

Finally, the cracks at the Seme-Krake border have surfaced due to much deeper cracks in the implementation of ECOWAS trade policy. For effective functioning of the ETLS, the Nigerian and Beninois customs authorities must cooperate to enforce the ETLS, including through joint operations at the border. If start of trading under the AfCFTA, from 1st July 2020 is to work, strong political commitment and reliable institutional arrangements to keep the continent’s 107 land borders open will be critical. [Note:  David Luke is the Coordinator of the African Trade Policy Centre; Gerald Masila is the Executive Director of the Eastern Africa Grain Council]

AU STC on Communication and Information Technologies:  ministerial report

The Rapporteur of the outgoing bureau (Ghana) presented the Report of the Experts’ Session highlighting progress attained on various ICT and Communication projects and programs as well as the outcome of the discussions on the draft Africa Digital Transformation Strategy and the implementation of the African Union communication and advocacy strategy.  Following very constructive discussions on the Digital Transformation Strategy, member states commended AUC for the initiative and requested more time to provide inputs to the DTS.  It has been agreed to open the DTS for online contributions until 8 November 2019. The AU Commission is requested to duly consider the received inputs and finalize the document by 15 November 2019 and submit for consideration and adoption by the AU Summit in January 2020.

Competition provisions in trade agreements: inputs for the OECD's Global Forum on Competition (5-6 December)

(i)   Contribution from the European Union (pdf): The EU approach on competition provisions in trade agreements is not a “one-size fits all approach”. The approach chosen depends on elements such as the overall aim of the agreement, taking into account the economic interconnectedness between the EU and the other Party. Against this background, this EU contribution provides an overview of the objectives and practice of competition provisions in EU trade agreements (overview provided in the table in the annex), focussing on provisions relating to anticompetitive conduct and merger control, subsidies and state aid, as well as public enterprises and private enterprises entrusted with special or exclusive rights. Cooperation agreements dedicated to competition matters do not fall in the scope of this paper. However, the paper touches upon competition related cooperation provisions to the extent that they are figuring in EU trade agreements.

(ii)  The United States is a party to eight trade agreements with competition chapters (about one third of its total number of free trade agreements):

(iii)  Contribution from Canada (pdf).  This submission sets out Canada’s governance model and the Competition Bureau’s role in negotiating competition provisions in Canada’s free trade agreements (FTAs). It also provides examples of how FTAs can impact Canada’s competition law and policy framework, particularly in the area of information sharing and other cooperation activities. Lastly, the submission highlights the importance of monitoring cross-cutting issues in other chapters of Canada’s FTAs, such as provisions that address disclosure of information.

 (iv)  Contributions from the Philippines (pdf),  Ukraine (pdf),  World Bank (pdf)  

Kenya Economic Update (World Bank)

The contribution of net exports to growth remains negative (pdf), although its drag is much weaker than in previous periods. In static analysis, net exports constitute a drag to growth for non-resource rich economies, although in a dynamic setting, access to imports contributes to productivity gains through technology spillovers and learning by doing. Nonetheless, from short term static analysis, imports have more than offset Kenya’s exports (tea, coffee, horticultural, and tourism receipts) constituting a drag to growth (Figure 14). However, over the last two years trends in the value of imports have been falling (as food and SGR imports have decreased), which has reduced the downward impact of net exports on growth. While Kenya’s agricultural exports destined for advanced economies have remained stable, manufactured exports to Africa (which accounted for about 35.3% of Kenya’s merchandise exports in 2018) have contracted for the third consecutive year from Ksh.242.2 billion in 2015 to Ksh.216.2 billion in 2018 (or an average of 3.6% decline per year). The contraction is in part due to intensified competition in these markets with data showing shipments to countries such as Democratic Republic of Congo, South Sudan, Ethiopia, and Somalia decreasing. Further, rising policy uncertainty on international trade (the US-China tariff war, and the exit of the UK from the EU) as well as ongoing global slowdown are likely to adversely affect Kenya’s exports, tourism receipts and remittances, although such effects tend to materialize with a lag (Box 1).

The external sector position is expected to remain favorable and supportive of macroeconomic stability. Exports are projected to improve marginally over the medium term, growing on average by about 4.5% - assuming steady demand from Kenya’s trading partners for its tea, coffee, and horticultural exports. Exports to Uganda (manufacturers) and Pakistan (tea) are expected to increase in line with projected expansion of these economies. Receipts from tourism are expected to continue uninterrupted in 2019 (due to forward planned tours) but to marginally decrease with weaker growth prospects in advanced economies. Imports are projected to expand in line with Kenya’s projected real GDP growth, barring any unanticipated shocks in food or oil import prices. Although the current account deficit is projected to widen from 5.3% in 2019 to about 5.7% of GDP in 2021, it is adequately funded by continued access to international financial markets (both official and nonofficial debt) and portfolio inflows.

Mozambique: Mid-term review of the national financial inclusion strategy for 2016-2022 (World Bank)

In Mozambique, despite considerable efforts to promote financial inclusion, less than half the population in 2016 had access to a bank account, mobile money account. In response, the government of Mozambique launched an ambitious national financial inclusion strategy in July 2016. The NFIS implementation period is from 2016 to 2022, with an initial phase to 2018. By 2018, the percent of population with access to a bank account had declined slightly but was compensated by growth in mobile money accounts. A mid-term review (MTR) of the NFIS was undertaken to assess progress at the end of the first phase, recommend requisite course corrections, and establish priorities for the second phase.  Extract (pdf):  Mozambique has made considerable progress in financial inclusion during the first half of the implementation period for the NFIS (2016-2018). Notable accomplishments include the opening of over 4 million new accounts, the growth in mobile money transactions, the expansion of financial access points, strengthening of the financial infrastructure for credit and secured transactions, and improvements in the legal and regulatory framework. The main driver of this financial inclusion has been the growth in mobile wallets, while deposit accounts with banks have remained flat (see Figure 1). The number of registered mobile money accounts surpassed bank accounts in 2016 and the gap continues to widen. Since 2015, bank account ownership has grown by 8% a year on average, while mobile wallet ownership has grown at nearly 3 times that rate (23% a year). The trend towards mobile has also been pronounced in the value of transactions, which went from an average of 1% of GDP in 2014-16 to 19% in 2017.  Women are significantly under-represented in terms of account ownership, with Mozambique having the third largest gender gap in sub-Saharan Africa.

Review of Maritime Transport 2019 (UNCTAD) 

World maritime trade lost momentum in 2018 as heightened uncertainty, escalating tariff tensions between the US and China and mounting concerns over other trade policy and political crosscurrents, notably a no-deal Brexit, sent waves through global markets, according to UNCTAD’s Review of Maritime Transport 2019. Volumes in the sector grew by only 2.7% last year, below the historical averages of 3% and 4.1% recorded in 2017, according to the report. UNCTAD expects international maritime trade to expand at an average annual growth rate of 3.4% over the 2019–2024 period, driven in particular by growth in containerized, dry bulk and gas cargoes. However, uncertainty remains an overriding theme in the current maritime transport environment, with risks tilted to the downside.

Reflecting slower maritime trade, growth in global port traffic also edged down, with container port traffic increasing by only 4.7% in 2018, from a 6.7% growth rate in 2017. Similarly, container trade growth weakened. In 2018 volumes only increased by 2.6%, compared with 6% in 2017. This was matched with a sustained delivery of mega container ships, with container fleet supply capacity in 2018 increasing by 6% as compared to 4% in 2017. In an already overly supplied market, these developments further compressed freight rates in 2018. Despite the setbacks, a milestone was reached, with total seaborne trade volumes amounting to 11 billion tons. [Downloads: Full report, by chapter]

Too small to succeed: reforming the AfDB’s financial governance (CGD)

Why isn’t the African Development Bank Group bigger? Africa’s low country per capita incomes and high poverty rates offer the strongest case for development finance of any continent, but the AfDB Group is the smallest of the major development banks. In recent years, the African Development Fund  - the AfDB’s concessional lending window - has actually shrunk. Annual commitments from IDA, the arm of the World Bank that lends to the lowest-income countries, to sub-Saharan Africa now stand at around $15bn a year, while the AfDF has barely surpassed an annual $2bn this replenishment cycle.

So what is limiting AfDB growth? Ironically, it may be too much regional ownership. Regional countries currently account for 60% of the AfDB shareholding but only four regional member countries are currently AfDF contributors. The countries of the region like their dominant role in AfDB shareholding. But as Nancy Birdsall explains in the The Dilemma of the Africa Development Bank, the AfDB’s governance arrangements are not conducive to raising money. They do not incentivize higher-income countries from outside the region to take on the responsibility and cost of becoming champions of the institution. Moreover, non-regional shareholders are generally skeptical of the institution’s operational effectiveness, making the World Bank a consistently more appealing choice for donors. Negotiations for a replenishment and a general capital increase are currently underway, but this tug of war is likely to continue to constrain the African Development Bank‘s size.  Even if the current GCI negotiations result in a doubling of AfDB's capital, annual financing from the AfDB group as a whole would grow to only about 1-3 percent of Africa's annual SDG financing gaps.  Stay tuned for a forthcoming policy paper that will flesh out the elements of this proposal. [The authors: Clemence Landers, Nancy Lee]

UNSC debate on the AU-UN partnership: meeting summary 

Hanna Serwaa Tetteh, Special Representative of the Secretary-General to the African Union and Head of the United Nations Office to the African Union, speaking via videoconference from Djibouti, introduced the report of the Secretary-General on strengthening the partnership between the two organizations (document S/2019/759).  “The partnership between the African Union and the United Nations continues to grow from strength to strength,” becoming more systematic and predictable, she noted.  With the complexity of peace and security in Africa, such collaboration is absolutely necessary, she said, pointing to successful joint work in the Central African Republic, Sudan and other situations. However, challenges to lasting peace and security persist on the continent due to a range of root causes, exacerbated by climate change, violent extremism and the absence of effective national authority in large areas, she continued.  Financing of African Union peace operations remains an important challenge, she acknowledged.  In that regard, she commended contributors to the African Union Peace Fund, noting that operationalization of the Fund is a significant factor.  She also said she looked forward to further strengthening of the partnership between the two organization in a major meeting scheduled for February 2020.  [Security Council: Situation in Burundi]

Today's Quick Links:

African Business Magazine: What’s next for Botswana?

US Deputy Secretary of Agriculture: We are ready to offer assistance for AfCFTA 

CUTS Geneva: The AfCFTA - opportunities and challenges

Damali Ssali: Tariffs and intra-Africa trade

Virusha Subban:  Africa needs to seize the gaps created by US-China trade war

Impact of fiscal policy on poverty and inequality in Uganda: fiscal incidence analysis using the NHS 2016/17