tralac's Daily News Selection

tralac's Daily News Selection

19 Nov 2019

Diarise: Regional workshop for the drafting of specific lists of commitments for liberalization of trade in services by Central African member states in the five priority sectors under the AfCFTA (3-5 December, Douala)

Selected #SheTrades updates:

(i)  @AranchaGlezLaya:  My message at the opening of the SheTrades Global at the African Union headquarters in Addis. “We need an African Continental Free Trade Agreement that works 4 women entrepreneurs. Women get organized!

(ii)  @MJansenEcon:  Women-led firms face more financial obstacles than their peers.  See figures for Kenya below. Find out more about women in business by attending SheTrades in Africa today at #WEDF2019 in Addis Ababa and by reading: Promoting SME competitiveness in Kenya

(iii)  @EIF4LDCs:  "It will take 136 years for Sub-Saharan Africa to achieve gender parity": - @AranchaGlezLaya now at the opening of SheTrades Global 2019. Efforts to empower women will have to start from the poorest countries. Here's why.

(iv) @EIF4LDCs:  "Policies have to catch up. The public sector needs to listen and bring up time-bound responses.  Let us create an eco-system that works for women!": @SMannette1 told SheTrades Global 2019, calling to enable women to trade. Here's EIF's commitment:

 (v)  @LPI_voices:  #SheTrades informally and across borders! IGAD is strengthening livelihoods of women traders through the IGAD Policy Framework on Informal Cross-Border Trade

Selected #AIW2019 updates:

(i)  @AUTradeIndustry:  The inaugural meeting of the Pan-African Manufacturers Association (PAMA) kicked off at the African Union. It will join other Pan-African Private Sector Associations that the Commission work with, including @officialPACCI and contribute to an effective AfCFTA market.

(ii)  Ambassador Muchanga: The inaugural meeting of PAMA is a dream come true. Manufacturers will contribute to helping Africa actively participate in the 4th Industrial Revolution, bearing in mind that the future will be digital.

Sean Woolfrey, Bruce Byiers: The African Continental Free Trade Area and the politics of industrialisation  (ECDPM)

November 20 is Africa industrialisation day. To mark the occasion, the AU has planned a series of activities on the theme ‘positioning African industry to supply the African Continental Free Trade Area (AfCFTA) market’. This choice of theme is apt given momentum around the AfCFTA and its potential to catalyse industrialisation. To position African industries to ‘supply the AfCFTA market’, African governments must address three closely related challenges: (1) actually implementing the AfCFTA; (2) promoting industrialisation at home; and (3) navigating domestic political dynamics that may or may not be conducive to AfCFTA implementation and national industrialisation.

The interplay between regional (or continental) integration and national industrial policies is not always harmonious. Many African countries already have industrial policies, and the policy tools they use often conflict with the goals of regional trade integration. For example, many African governments use tariffs and non-tariff barriers to promote and protect domestic industries, including from competition from other African countries. This runs counter to the logic of the AfCFTA, which seeks to promote industrialisation by creating an integrated and more competitive African market. Perhaps unsurprisingly, when national (industrial) policy objectives conflict with regional integration goals, African countries tend to prioritise their national objectives.

 Nigeria’s recent closure of its border with neighbouring Benin provides a good example. Nigeria may be justified in seeking to address smuggling, which undermines its industrialisation efforts. But the step it has taken contravenes its regional commitments under ECOWAS. These tensions come to the surface in countries where local industries (and some public officials) benefit from trade protection and have incentives to lobby the government to maintain this protection. In such countries, the interests of political and business elites generate little pressure for leaders to implement regional trade commitments. Such tensions are not inevitable however. In countries like Kenya, local industries have a strong interest in exporting to regional and African markets, and, as a result, domestic industrial policy objectives go hand in hand with a strong commitment to regional trade integration.

Global Trade Review interview: Africa’s free trade area – where are we now?

But tangible benefits with a wider reach across the continent will likely only be realised from 2030 onwards due to a number of obstacles, says new research from Baker McKenzie and Oxford Economics. Titled AfCFTA’s $3 trillion opportunity: Weighing existing barriers against potential economic gains, the report looks at the gains and benefits for the continent as a whole, and examines the barriers to the deal’s effective implementation. GTR speaks to Mattias Hedwall, partner and head of Baker McKenzie’s global international commercial and trade group, about the progress of the deal thus far, who the winners and losers are likely to be, and how this relates to the report’s key findings.  Extract:  

The Report compares Africa’s 20 largest economies in terms of the share of exports destined for other economies on the continent. Some economies, such as Uganda and Zimbabwe, buck the overall trend, trading more with their neighbors than other African nations do. Yet, their economies are small in contrast to those of Egypt, Nigeria and South Africa, which together represent more than half of the continent’s GDP. Egypt and Nigeria, for instance, have very limited trade relationships with their African peers. As major fuel exporters, they are focused on exports outside the continent.

“Over three quarters of African exports to the rest of the world are heavily focused on natural resources, primarily raw materials. In contrast, a look at African imports from outside the continent reveals that manufacturing products, industrial machinery and transport equipment constitute over 50% of Africa's combined needs. Currently, Africa's external imports account for more than half of the total volume of imports, with the most important suppliers being Europe (35%), China (16%) and the rest of Asia including India (14%). By contrast imports from other parts of Africa account for only 16% of total merchandise imports. Manufacturing GDP represents on average only 10% of GDP in Africa. This means that limited production capabilities within Africa are currently being compensated for through foreign imports. Yet, this manufacturing deficit could be eventually satisfied within the continent and enabled by AfCFTA. Manufactured products currently exported to African countries by their peers, primarily industrial machinery and motor vehicles, represent a third of the total trade flow in Africa. But a significant share of these intraregional exports of manufactured goods are re-exports of imported manufactured products from the rest of the world,” says Virusha Subban, Partner specialising in Customs and Trade at Baker McKenzie in Johannesburg.

AfDB signs $250m risk participation agreement with ABSA (AfDB)

The African Development Bank has signed an unfunded $250m Risk Participation Agreement facility with ABSA - a pan-Africa financial institution with a solid presence in 12 African countries. Under this 3-year RPA facility, the Bank and ABSA will share default risk on a portfolio of eligible trade transactions originated by African Issuing Banks (IBs) and confirmed by ABSA. Leveraging the Bank's AAA rating, ABSA will underwrite trade transactions issued by African issuing banks across key sectors like agriculture, energy, and light-manufacturing with a special focus on SME's in fragile and low-income African countries. The Bank's commitment under the RPA is to assume up to 50% (and 75% in special cases) of every underlying transaction issued by the IBs, while ABSA will confirm such a transaction and bear not less than 50% of its underlying risk.

Working with strategic partners like ABSA, the Bank's trade finance operations aim to facilitate inter and intra Africa trade by reducing the trade financing gap on the continent. Since 2013, the Bank's RPA program has supported over 16 issuing banks with about $650m limits in Southern Africa alone, with special focus on SMEs and local corporates in manufacturing, agribusiness, import/export and energy sectors. In the same period, the program supported over $4bn in trade volumes across Africa, with $938m of that being intra-Africa trade.

Infrastructure Financing Trends in Africa 2018 (ICA)

In addition to the main report, IFT 2018 includes two separate documents: the first report analyzes the role of the private sector both in terms of additional financing and in terms of specific expertise and skills. The second report addresses the theme of Sustainability and Quality of Infrastructure, with a particular focus on climate resilience of infrastructure, an essential component of sustainability. Climate resilience is now routinely included in feasibility analyses for projects supported by MDBs, and MDBs are committed to monitoring and reporting their investments in climate resilience.

One of the key findings of the report (pdf) is that the financing of infrastructure in Africa has never been as high as in 2018. It reached $100.8bn, thus passing the $100bn mark for the first time, significantly higher than in previous years. The large increase results from concerted efforts from all sources. ICA members continued to play a major role in financing as well as in supporting institutional and policy reform in Africa. African governments markedly increased their commitments, as did China. There has been continued, sustained financing by the Arab Coordination Group, EBRD, non-ICA European bilateral organizations, and India. In addition to self-standing private sector financing, this report captures for the first time commitments from Africa50, AIIB, and IFAD.

One of the most important issues addressed in this year’s report is the persistence of the financing gap. Africa’s infrastructure deficit varies considerably by sector. In mobile banking, Africa is ahead of most other regions with comparable per capita income. In water supply, in spite of improvements, the financing gap remains very high, three to four times the current total level of commitments to the sector. Approximately 340 million Africans do not have access to safe drinking water and one million lives are lost each year because of water-borne diseases. One of the main challenges is to make the sector attractive to the private sector, by improving financing sustainability. In the transport and electric power sectors, financing gaps are much smaller, but still significant. The very small gap in ICT is attributable to the fact that the sector is almost completely privatized.

All sectors were the recipients of increased commitments, some more markedly than others:

  • Transport sector 2018 commitments of $32.5bn were 5% higher than the 3-year (2015-2017) average of almost $31bn. Water and sanitation sector commitments, at $13.3bn, were 21% above the previous 3-year average of $11bn.
  • Energy sector commitments in 2018 amounted to $43.8bn, 67% higher than the 2015-2017 average. This is the largest level of commitments ever recorded in the sector.
  • ICT also saw record commitments in 2018, $7.1bn.

Dubai's non-oil trade with Africa to touch Dh1 trillion over nine years (The National)

Dubai’s aggregate non-oil trade with African nations between 2011 and the end of this year will reach Dh1 trillion, as the emirate continues to build its economic ties with the continent to further diversify its economy. Cumulative non-oil trade with Africa has already reached Dh926 billion for the 2011-2018 period, Majid Saif Al Ghurair, chairman of Dubai Chamber of Commerce and Industry told delegates at the fifth Global Business Forum Africa conference in Dubai on Monday. “Africa is a market of strategic importance to Dubai and Dubai Chamber,” Mr Al Ghurair said. “We have adopted an ambitious expansion strategy focusing on the continent, which is being implemented through our four representative offices in Ethiopia, Ghana, Mozambique and Kenya.” The chamber, a business sector body that supports the growth of businesses in the emirate, is “closely monitoring developments and the business climate in Africa to identify growth opportunities available for our members”, he said. Developments such as the launch of the African Continental Free Trade Area (AfCFTA) earlier this year - a broadened African free trade agreement between 54 countries - offer huge potential to boost UAE-Africa trade and investment flows, Mr Al Ghurair noted.

Somalia: First review under the staff-monitored programme (IMF)

Somalia continues to make progress towards the requirements for debt relief under the Heavily Indebted Poor Country Initiative. Following the successful completion of the third Staff-Monitored program, a fourth successive SMP was approved by management on June 26, 2019, which Executive Directors agreed meets upper credit tranche conditionality standards. This endorsement has opened the way for the authorities to establish the necessary policy track record for a new IMF financial arrangement and the HIPC Decision Point, one of the key HIPC benchmarks. In addition, work on developing the 9th National Development Plan (NDP9), which will be the foundation for the required poverty reduction strategy is near completion.   Implementation of the new SMP IV is satisfactory and the economic outlook is in line with expectations. The underlying growth momentum continues, supported by ongoing reforms; however, lower than expected rains in late 2018 and the first half of 2019 threatens Somalia’s already fragile food security and the UN has indicated that up to 2.1 million people face severe hunger through December 2019. The authorities are progressing on the HIPC Decision Point benchmarks, and these efforts must be sustained.

Somalia’s external position remains stable, while technical work to reconcile Somalia’s external debt is advancing. Trade via the Port of Mogadishu has continued to grow, largely thanks to continued inflows of grants and remittances. In July, a joint IMF-WB staff mission was undertaken to conduct the technical work on reconciling Somalia’s external debt data, and the authorities are following-up on a handful of outstanding issues with creditors.