News

tralac’s Daily News Selection

tralac’s Daily News Selection

06 Feb 2020

Financial Times editorial comment: West Africa needs to be prudent after CFA franc

JETRO’s 2019 survey on business conditions of Japanese-affiliated firms in Africa

Following TICAD7, which concluded in August 2019, the momentum for Japanese companies to expand into the African market was expected to increase. JETRO conducted a survey of 423 Japanese affiliated companies in Africa in September and October 2019, and more than 60% of the respondents answered that the importance of Africa in their global strategy would increase. As a reason for entering the market, 80% of companies answered “future market potential.” There was also significant interest in new trends such as the transition to a digital economy. Kenya considered promising country for fifth consecutive year. Profiled findings:

Regarding the operation forecast for 2019, the percentage of companies reporting a surplus slightly increased from the previous year (49.8%→50.3%). Looked at by country, about 70% of companies in South Africa showed strong performance. This is due to the anti-corruption measures and financial soundness expected of the new Ramaphosa administration, launched in the general election in May 2019, and business expansion due to the stabilization of the political situation. Nigeria has also shown a steady increase; over half of companies reported a surplus, surpassing the previous year (47.6%→50.0%). There was no major disorder brought by the presidential election in February 2019, and the re-election of President Buhari had only a limited effect on business. Meanwhile, only 20% of the companies in Cote d’ lvoire were profitable. This might be due to concerns about political instability associated with the presidential election scheduled for October 2020, as some companies have pointed out.

The percentage of companies that reported they will expand their business in the next 1-2 years reached the majority for the past six consecutive years, and the business expansion trend has continued. Looked at by country, 80% of companies in Cote d’Ivoire reported business expansion. Multiple respondents reported that, despite concerns about political instability ahead of the presidential election, they are aiming to expand business to neighboring countries. In Mozambique, where rapid growth is expected due to natural gas development, the figure came to just under 70%, and in Morocco, which focuses on attracting companies through free zone development, it came to about 60%. A willingness to conduct new expansion in next-generation business development was also seen in Kenya (59.5%), Egypt (58.6%) and Nigeria (54.5%).

While business momentum in Africa is growing, concerns about risks remain. In terms of management issues, “preparation/implementation of legal regulations” was the biggest risk. Approximately 80% of firms viewed this as a problem, indicating strong concerns about governance. However, its percentage dropped from 87.3% to 77.8% compared to the previous year. This was due mainly to reduced corruption following the transition to a new administration in South Africa (83.2%→66.7%) and simplification of the online tax payment system in Morocco (79.2%→64.7%).

Competitors in the market have changed compared to the previous year. European companies were ranked at the top of the list as the biggest competitors, surpassing Chinese companies, which were the top competitors in the previous year. In the competition with China, the overwhelming majority of companies cited price competition as a factor, while in the competition with European companies, the existence of substantial local networks and support from their governments - including finance and tax incentives under trade agreements -were pointed out.

At the same time, there are expectations for business expansion through collaboration with third-country companies. Approximately 70% of respondents cited “partner network utilization” as an advantage of third-country cooperation. Regarding cooperation with third-country companies, South Africa, France, India and China appear promising. As a regional base, South Africa was considered attractive because of the know-how and market networks accumulated by local companies that now have a head start in regional development. Regarding France, expectations were heard regarding the potential for cooperation in French-speaking African countries. It was suggested that India’s appeal lay not only in its excellent strategy in the African market, where there is much affinity for the country, but also in the fact that Japanese companies could launch operations in Africa utilizing their Indian bases. Regarding China, the possibility of collaboration as a supplier of goods and materials is indicated.

In terms of countries worthy of notice in the future, Kenya ranked top for the fifth consecutive year. Also for the fifth year in a row, Nigeria ranked second and South Africa ranked third. Although Kenya is the seventh largest economy in the region, the robust payment system infrastructure found in the high rate of mobile money usage (66% of the population in 2018, according to the Communications Authority of Kenya) is fueling the rise of startups. By country, Kenya ranked the top startup funder in 2018. Nigeria continues to be the continent’s most populous country and biggest economic power, while South Africa continues to receive high marks for its economic infrastructure. Ethiopia ranked fourth on the back of hopes for the growth of the manufacturing industry through the development of industrial parks and having the lowest wages in the region, as well as reforms expected by Prime Minister Abiy Ahmed Ali (inaugurated April 2018), who won the Nobel Peace Prize 2019.

The rise of services trade restrictions (OECD)

There are two reasons to worry. First, new restrictions impact sectors that enable trade in digital technologies. Barriers include impediments to online payments and the imposition of local presence requirements on cross-border operations. Second, many countries have introduced measures affecting foreign investment and the temporary movement of professionals. The cumulative effect can trap competitiveness and productivity in a tractor beam and propel the cost of doing business into hyperspace. Fortunately, a band of policy-makers have been resisting the dark side. In 2019, Brazil implemented comprehensive reforms to air transport services. The European Economic Area further liberalised cargo-handling, commercial banking and insurance services. Thailand, France and Greece recorded the highest net decreases in the 2019 STRI indicators. Australia is leading the way with a government-wide services export action plan. Trade ministers and sectoral regulators must unlearn what they have learned. Impediments to services trade remain pervasive. Regulatory policies are made with limited regard for economy-wide impacts. Countries should adopt whole-of-government services strategies and bind reforms in trade agreements. [The full text of the OECD Services Trade Restrictiveness Index: Policy Trends up to 2020]

Transforming paradigms: Global AI in financial services survey (WEF)

A new survey released by the World Economic Forum and the Cambridge Centre for Alternative Finance finds nearly two-thirds of financial services leaders expect to be mass adopters of AI in just two years compared to just 16% doing so today. The Global AI in Financial Services Survey, which was produced in collaboration with EY and Invesco, looks into many areas of AI adoption in financial services. The report’s other major findings include: 77% anticipate AI to have high or very high strategic importance within two years; Nearly half of all respondents see a major competitive threat in “Big Tech” firms leveraging AI capabilities to enter financial services; Selling AI-based solutions as a service is becoming a distinct business model, currently adopted by 45% of fintechs and 21% of incumbents, which allows firms to capitalize on larger and more diverse datasets through digital platforms. [Related: How to accelerate digital literacy in the enterprise world]

US trade ‘realignment’: The impact of GSP withdrawal on India’s top exports to the United States (ORF)

The benefits that India enjoyed for many years under the Generalized System of Preferences (GSP) programme of the United States was withdrawn, effective 5 June 2018. India was the largest beneficiary of the programme, of which it has been part since its inception in 1974. This paper evaluates the impact of the withdrawal on specific sectors of Indian exports. For comparison, the paper uses the Harmonized System Code (HS Code) Commodity Classification at the two-digit level for international trade data, as well as data from the National Industrial Classification for domestic industry. Conclusion:

The analysis presented in this paper clearly suggests that there will be sizeable negative impact on Indian exports to the US due to the GSP withdrawal. It further elucidates the impact on output, exports and employment in related sectors in domestic economy. There is a definite reason to worry about the GSP withdrawal. Given the US administration’s recent combative attitude in trade, the US is unlikely to reconsider its decision withdrawing India’s GSP benefits. As the GSP has always been a privilege and not a right, India has to try its best to convince the US to not go for a total withdrawal of this benefit. Per-capita income figures of India, along with many other human development indicators, indeed suggest that India is still in the bracket of “developing country” and it has a long way to go before achieving the status of a “developed country”. The foremost GSP aim of lifting the countries with relatively lower per capita income to a higher level is still very much applicable in the case of the Indian economy. Meanwhile, the Indian government should craft an elaborate plan to cushion the negative effect of the GSP withdrawal on domestic sectors. Such a plan has to consider the realistic possibility of an unrelenting United States. Finding new export markets for the worst-affected domestic sectors will be pivotal to that future plan. In an uncertain global trade scenario, finding new export markets is going to be an extremely difficult job. However, pushing the economy to the next level of growth has never been an easy task for any country.

European Union: Report on the implementation of article 66.2 of the TRIPS agreement (pdf, WTO)

This document is circulated in accordance with the Decision of the Council for TRIPS of 19 February 2003, according to which developed country Members shall submit annually reports on actions taken or planned in pursuance of their commitments under TRIPS Article 66.2 (incentives provided to their enterprises or institutions for the purpose of promoting and encouraging technology transfer to least developed country Members). As agreed in the Council for TRIPS, this document is a detailed report on technology transfer incentives put in place by the EU and its Members between July 2018 and August 2019.

Informal working group on MSMEs: Draft ministerial recommendation on promoting MSME inclusion in regulatory development in the area of trade (pdf, WTO)

The following communication, dated 4 February 2020, is being circulated at the request of the delegations of the Russian Federation and Uruguay. Recalling the Declaration on the Establishment of the WTO Informal Work Programme for MSMEs:

Recognizing that regulatory changes may be particularly burdensome for MSMEs and that WTO Members could minimize potential challenges by assessing the impact of new rules on MSMEs and by providing adequate opportunity for MSMEs to comment on and adapt to new regulatory requirements;

Noting the discussions by the MSME Informal Working Group of horizontal and non-discriminatory solutions in the area of regulatory practices, which are likely to yield benefits for the participation of MSMEs in international trade;

Noting that principles of MSME inclusion in regulatory development have been established in a number of Members’ domestic jurisdictions and included in a number of regional trade agreements;

Noting that WTO agreements include rules on consultations with stakeholders in the process of regulatory development but do not explicitly refer to MSMEs;

Building on the implementation of Articles 1 and 2 of the Agreement on Trade Facilitation and Article X of the General Agreement on Tariffs and Trade. We recommend that WTO Members:


Quick Links:

Successful conclusions to Irish trade mission to North Africa

Ocean Conference (2-6 June, Lisbon) has potential to be a ‘global game-changer’

Comoros, Kenya, Madagascar, Mauritius, Seychelles: FAO-Japan Blue Economy project update

UNCTAD: Digitalizing the port call process

Subscribe

Sign up to receive email notifications when the Daily News selection is posted online

Sign up to receive email notifications when the Daily News selection is posted online.

tralac’s Daily News archive

View previous editions of the tralac Daily News selection.

Archive

This post has been sourced on behalf of tralac and disseminated to enhance trade policy knowledge and debate. It is distributed to recipients across Africa and internationally, serving in the AU, RECs, national government trade departments and research and development agencies.

Your feedback is appreciated. Send us your comments HERE.