@AUTradeIndustry: update on the AfCFTA negotiations

The 8th meeting of the AfCFTA Technical Working Group on Trade in Services began today in Addis. It is an opportunity for AU member states too exchange initial offers on services, whereby they indicate areas and modalities to open up service sectors prioritized for liberalization by the AU Assembly back in 2017.

2019 African Regional Integration Report: Voices of the RECs (African Union Commission)

AUC Chairperson, Moussa Faki Mahamat: ”This first edition of the African Regional Integration Report is a landmark publication representing the will of African leaders to achieve closer regional integration as a crucial driver for the realization of Africa’s development agenda. One of the recurring concerns of African integration is challenge associated with effective monitoring and evaluating the implementation of an agenda that includes the Abuja Treaty, Agenda 2063 and other flagship projects and initiatives. This is reflected in the inability to accurately measure progress to capitalise on opportunities and help the various segments of the African integration process meet the challenges. The report provides a comprehensive and structured review of the status of integration and sets out innovative policies for accelerating the ongoing regional integration process. It is an initiative by African heads of state and governments to refocus the discourse on integration and related emerging issues, and to make recommendations to achieve an “integrated, prosperous and peaceful Africa, representing a dynamic force in the concert of nations”.

Regional achievements and challenges. The status of integration is described for each of the RECs. Key challenges and specific recommendations are identified. The key message is that, while the achievements of RECs are laudable, their successes remain mixed. On the whole, all eight RECs recognised by the AU face teething challenges of funding and human capacity constraints, overlapping memberships, weak implementation of key regional integration programmes and projects, and a lack of focus and institutional alignments. Persistent conflicts, insecurity and infrastructure bottlenecks remain pervasive obstacles to deeper integration. The need to devise innovative mechanisms for funding cannot be over-emphasised.

Going forward, SADC should:

• Resolve multiple and overlapping membership to avoid confusion, competition and duplication, to lessen the financial burden on taxpayers.

• Ensure that member states commit more to the regional integration agenda and to ratify and tailor protocols, align their national strategies, policies and priorities with the regions, and harmonise their policies and legal systems.

• Immediately agree to a regional parliament, court of justice and central bank, to oversee the integration agenda.

• Engage national stakeholders and the citizenry to increase awareness and ownership of the integration agenda and process. SADC member states need to move the integration agenda to the next level, enhancing the free movement of persons and sensitising national stakeholders to what regional integration can bring to the citizenry.

Profiled recommendations: The African Union Commission should

• Continue to coordinate the implementation of the African Integration Agenda while conducting, in collaboration with RECs, annual evaluations based on the newly developed and adopted African multidimensional regional integration index.

• Devise a minimum integration programme that can be implemented over one or two years in order to increase accurate implementation with specific objectives and timeframe.

• Set up an awareness mechanism to sensitise African citizens to integration issues through an annual integration forum that would include professionals, academics, women, the private sector, the diaspora and other African stakeholders.

• Accelerate the implementation of the Kigali decision on the 0.2% for AUC funding to create financial autonomy for the RECs, AUC and other continental and regional institutions.

• Intensify advocacy efforts aimed at AU member states, for them to ratify, tailor and implement AU legal instruments such as treaties, protocols related to financial institutions, the AfCFTA, and the pan-African institutions for statistics - as well as the AU passport.

• Strengthen collaboration between the AU and members states by nominating a specific focal point (ministry, department or other structure).

• Propose a champion REC in the area of integration - the REC that has made significant progress for emulation by other RECs.

• Align policies according to priorities, financing capacities and the emerging issues.

pdf 2019 African Regional Integration Report: Voices of the RECs (3.12 MB)

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South Africa: Trade statistics for January 2020 (SARS)

The South African Revenue Service has released the trade statistics for January 2020, which records a trade deficit of R1.87bn. These statistics include trade data with Botswana, Eswatini, Lesotho and Namibia. The deficit is attributable to exports of R101.41bn and imports of R103.28bn. Exports decreased from December 2019 to January 2020 by R1.45bn (1.4%) while imports increased from December 2019 to January 2020 by R14.31bn (16.1%). The Top 5 countries for exports: China (11.7%), US (8.2%), Germany (6.6%), India (5.8%), Japan (5.8%). Top 5 countries for imports: China (19.8%), Germany (10.1%), Nigeria (6.4%), US (5.8%), India (5.1%).

South Africa: SARS continues to fight against illicit trade (Moneyweb)

The South African Revenue Service seems to be losing the fight against smuggling, counterfeit goods and tax evasion in the country. In 2019 it lost approximately R2.1bn in revenue as a result of illicit trade. Beyers Theron, SARS customs and excise chief, said yesterday during a Tax Justice SA press briefing that despite coming up with innovative ways to crack down on illicit trade within the country, importers and exporters continue to find ways to avoid paying the duties and value-added tax that apply to the goods. “When you address one thing on [one] side, then it pops up on the other side in a different form,” Theron said. He added that the challenge SARS is facing now is seeing new criminals in illicit trade emerging in the furniture sector as well as the sugar industry: “We introduce the sugar tax, and now the sugar tax is also a victim of illicit trade.”

In October last year, SARS formed part of an inter-agency working group with the Department of Trade and Industry and National Treasury, focusing on, among others, the clothing, textile, leather and footwear industry. It says it started to see an increase in the number of stops and inspections that were put in place. “In December we realised that there was value [declaration] increase of 25% to 700%. We started seeing that there is a change in value behaviour; in what they declare legally. Do we believe the values are correct? No, but it is starting to adjust upwards and that means we are starting to see that the revenue becomes a little bit more.” SARS has also started to see a decrease in the declared value of goods being imported, of between 44% and 75%. [Tax Justice SA: Mboweni’s budget a picnic for tax dodgers]

How ‘misinvoicing’ gets R300bn out of SA annually (Moneyweb)

South Africa’s trade misinvoicing gap averaged $19.9bn (R309bn) per year from 2008 to 2017, according to a report by Global Financial Integrity. The report – pdf Trade-related illicit financial flows in 135 developing countries 2008-2017 (13.39 MB)  – focuses on trade-related misinvoicing, one of the largest components of illicit financial flows between the 135 developing countries and 36 advanced economies. The average size of the value gap between sub-Saharan Africa and the 36 advanced economies is $27.2bn. [GFI identifies $8.8 trillion gap in global reported trade]

Illicit financial flows in Africa: Drivers, destinations, and policy options (Brookings)

Since 1980, an estimated $1.3 trillion has left sub-Saharan Africa in the form of illicit financial flows (per Global Financial Integrity methodology), posing a central challenge to development financing. In this paper, we provide an up-to-date examination of illicit financial flows from Africa from 1980 to 2018, assess the drivers and destinations of illicit outflows, and examine policy options to reduce them. Using trade misinvoicing and balance-of-payments discrepancies to estimate illicit financial flows, we find higher real GDP is associated with higher illicit financial flows (pdf) due to the increased opportunities to channel illicit resources abroad generated by higher economic activity, suggesting a need for increased diligence as countries grow. We also find that higher taxes and higher inflation lead to higher illicit financial outflows, suggesting that firms seek out relatively more stable or favorable fiscal environments for their funds. We further find that, over the past decade, there has been an increase in illicit outflows of capital toward emerging and developing economies (e.g., China) as trade between Africa and these countries has increased. We conclude with policy recommendations to address illicit financial flows in order to shift the discussion toward effective policies applicable to all countries. [The authors: Landry Signé, Mariama Sow, Payce Madden]

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Madagascar and the IMF:

1. pdf 2019 Article IV Consultation report (3.88 MB) . Despite a slowdown in the first half of the year, growth is expected to improve to 4.8% in 2019, and inflation to remain contained. Growth accelerated in 2018 to 4.6% - the highest rate in 10 years. After losing some momentum in early-2019 due to weakening external demand and a wait-and-see attitude during the election period, growth has rebounded and is expected to improve to 4.8% for the year following a pickup in public investment execution, positive developments in mining, textile, transportation and services, rising business confidence indicators, and increased demand for private credit. Inflation has continued to steadily decelerate since its peak in late 2017 and is expected to be contained to 6% by end-2019. Box 1. Sustaining Madagascar’s Growth Spell: Growth in Madagascar since 1960 is generally characterized by high volatility and frequent shifts between periods of expansion and contraction. This pattern seems to have changed recently, following several years of robust economic growth and the recent peaceful transition of power. Could this be the beginning of a period of sustained growth?

2. pdf Selected Issues report (1.55 MB) : Tax revenue mobilization potential in Madagascar and lessons from successful episodes in SSA. Tax revenue mobilization improved in recent years in Madagascar but remains low compared to its peers and considering its large development needs. Under the Plan Emergence Madagascar, the authorities envision a sharp increase in tax revenue over the next five years — what are the possibilities? This paper takes stock of recent developments in revenue mobilization in Madagascar, estimates the country’s tax potential based on its structural characteristics and other factors, and draws some lessons from successful revenue mobilization episodes in other sub-Saharan African countries. The analysis shows that there is a significant tax potential including through a possible broadening of the tax base, notably for consumption taxation (VAT and excises); and underscores the importance of a comprehensive revenue strategy, including by combining reforms in tax policy and in tax and customs administrations.

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Statement by Ambassador Shea at WTO Heads of Delegation meeting

I would like to use today’s meeting to highlight the importance of meaningful WTO reform to the United States given the publication this past weekend of the US President’s Trade Policy Agenda. This important report provides direct guidance to me and the rest of the Executive Branch in the U.S. Government on trade policy priorities. The WTO and WTO reform feature prominently in the Agenda. This is a significant development and demonstrates the attention paid to this institution at the highest levels of our Government.

The Trade Agenda highlights current shortcomings of the WTO, including its inability to keep pace with changing global realities over the past 25 years and to negotiate new rules in response. These changing realities include the rise of large emerging economies, the growth of non-market practices and policies, and technological advances fostered by the evolution of the Internet. Equally important, the Agenda also sets out some of the reforms the United States believes would bring about a WTO that can deliver on its initial promises. These reforms include reaffirming our original mandate to promote trade liberalization based on free and fair competition through the adoption of market-based policies across the WTO’s membership. [USTR Fact Sheet: The President’s 2020 Trade Agenda and Annual Report]

Another unilateral decision by Trump, another blow to the multilateral trading system (WPR)

The status of developing countries under international trade rules has long been a divisive issue. The WTO does not explicitly define what “developing” means, leaving members to determine for themselves where they fall. Even countries that have become relatively rich or are major export powers have been loath to give up the preferential access to foreign markets—or “special and differential treatment”—that developing country status entails. After decades of negotiation, the practical impact of special and differential treatment is less than it once was. But it is nevertheless a major irritant for developed country members of the WTO. And the United States under President Donald Trump seems determined to do something about it—even at the expense of the system as a whole.

Under pressure from the Trump administration, Brazil, Singapore and South Korea have announced they will forgo developing country status in future negotiations. Because the WTO operates by consensus, however, any single country can block broad changes to the rules, such as setting explicit criteria for defining developing countries. So while the White House’s frustration on this issue is understandable, acting unilaterally and flaunting the rules—as it has already done with China as well as with tariffs on steel and aluminum—is moving the system closer to collapse than to reform. Trump may not care about that, but developing countries should. [Note: The author, Kimberly Ann Elliott, is a visiting scholar at the George Washington University Institute for International Economic Policy]

UNWTO Global Investment Forum in Africa (20-22 February, Abidjan)

The inaugural forum offered a platform to discuss the key challenges and opportunities relating to the development of African tourism through investments. These include building a more attractive business environment and potential reforms to obtaining credit, registering property and trading across national borders. UNWTO Secretary-General Zurab Pololikashvili said: “The UNWTO Agenda for Africa is an ambitious roadmap aimed at guiding African tourism towards sustainable growth between now and 2030. At the heart of this plan is unlocking growth through the promotion of investments and through the power of public-private partnerships. This Forum shows the high level of interest among our African Member States, and I am confident this will be the first of many high-level events aimed at driving investment in a sector whose potential to develop communities and transform lives is almost limitless.” The Forum issued a set of recommendations which will be submitted to the 63rd UNWTO Commission for Africa which will take place in the Republic of Seychelles from March 25-27, 2020.