Building capacity to help Africa trade better

tralac’s Daily News Selection


tralac’s Daily News Selection

tralac’s Daily News Selection

EAC Trade and Investment Report 2018: Accelerating market-driven integration

This report is structured in three parts, covering four chapters. Part One includes the background chapter which highlights the introduction to the EAC, analyses the macroeconomic trends and outlines key initiatives that have the potential to affect trade and investment in the Region. Part Two deals with the trade and investment outlook in the Region. Chapter 2 reviews trade among the partner states as well as with the rest of the world. The chapter also reviews the impact of different trade promotion policies on customs revenue in the partner states and concludes with an analysis of the challenges to trade development in the region. Chapter 3 analyses foreign direct investment inflows as well as intra-regional investment flows. The chapter concludes with an analysis of the challenges of attracting investment to the region. Part Three is the wrap-up section while Chapter 4 draws conclusions.

Chapter 1: Background. As in other free trade agreements, the negotiations on Rules of Origin for the AfCFTA are likely to be dominated by strong industry lobbying. During the negotiations so far, West and Central Africa have preferred general Rules of Origin, which would probably resemble those in the East Asia and the Pacific region. On the other side, Egypt, Kenya, and South Africa have pushed for product-specific Rules of Origin, and South Africa has lobbied for adoption of the SADC Rules of Origin on a sector- or product-specific basis. If South Africa’s position prevails, the result would be costly Rules of Origin that would likely deny preferences to the low-income partners (such as Ethiopia, Mozambique, Tanzania, and Zambia). When the more developed partner has a comparative advantage in the upstream capital-intensive sector, such as weaving in textiles and apparel or engine building in the automobile sector, Rules of Origin create a captive market in the low-income partner, which has no choice but to source (at a higher cost) from the more developed partner. Potential benefits from the AfCFTA include elimination of tariff and non-tariff barriers in goods and services, customs improvements leading to reduction in cost of trading across borders.

Chapter 2: EAC merchandise trade. EAC merchandise trade grew by 11.7% to $52.4bn in 2018 from $46.9bn in 2017. The growth in merchandise trade resulted from the increase in the import bill for the region while export volumes fell during the year. Total EAC exports decreased by 4.7% to $14.0bn in 2018 from $14.7bn in 2017. The decline in exports was attributed to low international prices of mainly agricultural commodities on account of higher production as a result of improved weather conditions coupled with a drop in the export of primary minerals as a result of a fall in international demand especially due to decline in economic growth in China and the Far East. Earnings from coffee, tea and minerals fell by more than 24% during the year.

Outside the African continent, the EU was EAC’s major trading partner with exports to the EU increasing by 6.5% to $2.5bn in 2018, from $2.3bn in 2017, and constituted about 17.5% of total EAC exports. Exports to the USA and the rest of the world fell by 20.6% and 12.7%, respectively during the year.

Overall, the region continued to register a trade deficit with the rest of the world in 2018 partly due to an increase in imports into the region. The deficit for the EAC increased by 39.4% to $24.3bn in 2018 from $17.4bn registered in 2017. The increase in the deficit was attributed to increase in imports mainly due to a spike in global crude oil prices that peaked at $73 per barrel and increased the import bill for petroleum products. Other imports included machinery, motors, textile, wheat and rice. The EAC imports fossil fuels, textile, leather, crude palm oil, motors and machinery which account for a large proportion of import bill. On the other hand, the Region mainly exports agricultural commodities which in most cases, are unprocessed and fetch very little on the global market.

Chapter 3: Investment trends in the EAC. Foreign direct investment into East Africa decreased by 15.9%, to $5.7bn in 2018, from $6.8bn in 2017. Inflows to Tanzania increased by 2.3% to $3.1bn.  Inflows to Burundi and Rwanda decreased by 76.8% and 11.5% to $15.1m, from $65.1m in 2017 and to $1015.3m in 2018 from $1147.7m in 2017, respectively. FDI into Kenya, South Sudan and Uganda fell by 32.4%, 11.7% and 51.8% to $485.5m, $408.6m and $630.6m, respectively in 2018. Overall, FDI inflows to the EAC were concentrated in manufacturing, construction and services sectors. FDI into manufacturing and construction amounted to $2.1bn and $1bn, respectively in 2018. China and India continued to be the major sources of FDI to EAC with inflows amounting to $1.1bn and $281.02m, respectively.

Chapter 4: Conclusions and prospects. To ensure sustained growth in trade and investment in the Region, the partner states have to support initiatives that reduce the import bill on fossil fuels, motors, crude palm oil, textiles and capital items. Initiatives such as fast tracking the production of EAC oil and gas reserves, assembly of motors in the region and support to improved agricultural production including irrigation, post-harvest handling and value addition should be explored. Further reforms will include establishment of a credible central data unit to capture and disseminate all trade statistics in the EAC for use by the Secretariat and Partner States in planning, management and monitoring of the Single Customs Territory.

EU to consider concession for Kenya on stalled EAC export deal (The Star)

Kenya could be allowed to secure its own preferential market access for exports to the European Union if the regional Economic Partnership Agreement fails to take shape, EU has signaled. This comes amid continued delays by the EAC member states to ratify the EPA deal as a bloc, which would secure duty-free quota-free market access with the 28-member union. EU ambassador to Kenya Simon Mordue  yesterday said Kenya could be allowed to go ahead solo under the "variable geometry" provision, which allows certain members states to implement trade agreements faster than others or before others which are not ready. “Kenya is obviously very keen together with Rwanda to move forward and start this trading arrangement with European Union as quickly as possible because they full understand the benefits of this agreement,” EU ambassador to Kenya Simon Mordue said in Nairobi yesterday.

Freight forwarders move to establish self-regulatory body (New Times)

Regional clearing and freight forwarding firms are seeking to improve the professionalism of their operations through a model bill on clearing and freight forwarders industry in the East African Community region. The bill was developed through an initiative by the Federation of East African Freight Forwarders Associations (FEAFFA), in partnership with the revenue authorities and JICA. Under the lead of FEAFA, a model bill on self-regulation was initiated and developed in collaboration with various stakeholders to overcome challenges that are hindering the industry. According to Fred Seka, president of FEAFFA, even though the industry has been championing professionalism through a number of activities such as training, code of conduct, regional accreditation framework, among others, there is need to self-regulate the industry. The Rwandan government has already drafted the national bill and it is ready to be submitted to the concerned authorities, and more than 7000 thousand operators have benefited from the capacity development for international trade facilitation in the region.

Kenyan trade lobby to promote WeChat Pay to boost China-Kenya trade (Xinhua)

Kenya National Chamber of Commerce and Industry,  a business lobby, plans to promote the use of Chinese mobile payment service WeChat Pay in order to boost China-Kenya trade, an official said on Wednesday. George Kiondo, deputy CEO of the KNCCI, told Xinhua in Nairobi that adoption of the mobile payment service will be an advantage given that China is a key trading partner. "We are telling our members to use WeChat Pay because it is an affordable and convenient way to pay for imports of goods," Kiondo said on the sidelines of a forum for the preparation of the third edition of China-Kenya Industrial Capacity Cooperation Exposition that will take place 26-29 November. The event will bring about 83 Chinese enterprises which will showcase their latest industrial innovations.

UAE-Kenya Trade and Investment Forum: updates

(i)  Kenya National Chamber of Commerce and Industry in partnership with Sharjah chamber of Commerce and Industry has signed a MOU to open a satellite trade office in the United Arab Emirates. The agreement signed on Monday will enable and provide strategic bilateral cooperation between the business communities in Kenya and UAE with an objective to foster cooperation in trade, investment, joint activities, information and trade policy support programmes.

(ii)  Sharjah Chamber of Commerce and Industry Chairman Abdulla Sultan Al Owais: “We, at the Sharjah Chamber, are keen to enhance investment and business prospects with Kenya as a regional hub for finance and commerce in East Africa and a business gateway to the region. Likewise, the Emirate of Sharjah is a regional hub and a gateway to Gulf and Middle East Markets. I would like to seize this opportunity to invite the Kenyan business community to invest in Sharjah as an attractive destination for investors from all over the world, thanks to its outstanding strategic location, infrastructure and logistics, motivational investment environment, economic diversity, and pioneering projects in new sectors.”

(iii) Uganda is the second destination of the trade mission, where the first day will feature the UAE – Uganda Forum. The second day will feature bilateral meetings between Emirati businessmen and their Ugandan counterparts.

Kenya: Central governors in bid to revitalise agriculture (The Standard)

Meeting under the umbrella of the Central Kenya Economic Bloc in Nairobi on Monday, the leaders agreed on a raft of measures aimed at speeding up projects and sector-specific interventions in their counties. Under the chairmanship of Nyandarua Governor Francis Kimemia, the regional county chiefs also agreed on the way forward around several issues affecting the bloc, and whose resolutions will be implemented jointly and individually through the regional economic body. Some of the issues discussed include; value chain improvement on milk and agricultural produce from the region, coffee reforms sector report and its implementation, and fast-tracking the establishment of a regional development authority as a special vehicle for regional development programmes.

Mombasa port performance hits new record (Business Daily)

The Port of Mombasa has registered a new performance record of more than 6.24 million metric tonnes throughput in the month of October with containerised cargo taking the largest share of the total cargo handled in the month of September and October this year. Last month, the port recorded 6,245,960 metric tonnes with goods handled in the week of 17-23 October recording 3,269,508 metric tonnes of total cargo. In the same week, the port received 35 vessels that discharged and loaded containerised cargo, while 24 bulk cargo and 21 general cargo vessels were received during the same time. The Kenya Ports Authority weekly report for the month between September and early November indicates that for the last three weeks of October, the port registered the highest number of throughput of more than 1 million tonnes weekly.

Selected updates from the Global Gender Summit in Kigali:  

(i) Rwandan firms win big at inaugural women entrepreneurship challenge. Two Rwandan entrepreneurs have been named best in their respective categories during the inaugural women entrepreneurship competition, 2X Invest2Impact, that brought together several entrepreneurs from five African countries. The duo is among the 100 women entrepreneurs selected from the five countries as winners in four categories and will form the first cohort of the 2Xconnect, an online community dedicated to African women entrepreneurs. The announcement was made in Kigali on the sidelines of the Global Gender Summit 2019 that ended Tuesday. The challenge brought together women entrepreneurs from Rwanda, Uganda, Kenya, Tanzania and Ethiopia.

(ii) AfDB, partners officially launch AFAWA Risk Sharing Facility. The African Development Bank’s Affirmative Finance Action for Women in Africa (AFAWA) programme gained momentum with significant support from commercial banks and a $1m commitment from the government of Rwanda. AFAWA is expected to unlock $3bn in private sector financing to empower female entrepreneurs through capacity-building development, access to finance as well as policy, legal and regulatory reforms to support enterprises led by women. In August, G7 leaders approved a package totaling $251m in support of AFAWA during the summit in Biarritz. Olukayode Pitan, president of Nigerian Bank of Industry said with the signings they could lend more to women.  [New Times: Will AfDB’s initiative bridge the $42bn funding shortfall for African women entrepreneurs?]

(iii) Using innovative financing mechanisms to accelerate finance for women in business. Wendy Teleki, Head of the We-Fi (Women Entrepreneurs Finance Initiative) Secretariat and the panel moderator, led the six panelists in exploring how financial institutions and multilateral development banks are innovating to expand women’s access to finance. Aside from risk-sharing interventions like credit guarantees to lenders, panelists said increasing women’s financial literacy was also key to closing the gender gap. “It’s not about corporate social responsibility or charity,” said panelist Barbara Rambousek, Director for Gender and Economic Inclusion at the European Bank for Reconstruction and Development. “It is about developing that business case and developing a proper set of financial and non-financial services.”

(iv) McKinsey Global Institute: The power of parity - advancing women’s equality in Africa. If Africa steps up its efforts now to close gender gaps, it can secure a substantial growth dividend in the process. Accelerating progress toward parity could boost African economies by the equivalent of 10% of their collective GDP by 2025, new research from the MGI finds. Advancing women’s equality can deliver a significant growth dividend. In a realistic “best-in-region” scenario in which the progress of each country in Africa matches the country in the region that has shown most progress toward gender parity, the continent could add $316bn or 10% to GDP in the period to 2025 (see Exhibit 1). Another increasingly important gateway to economic opportunity is access to digital technologies. Africa’s progress toward parity on digital inclusion is not far below the global average (0.81 female-to-male digital inclusion ratio vs. 0.86 globally), but that progress has stagnated. The continent still has the second largest gender gap in mobile ownership at 15% and only one woman out of three has access to the mobile internet in Sub-Saharan Africa compared with one man in two. [Acha Leke, Lohini Moodley: The economic potential of gender parity for Africa]


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