Building capacity to help Africa trade better

tralac’s Daily News selection


tralac’s Daily News selection

tralac’s Daily News selection

The IMF, World Bank Spring Meetings begin tomorrow:

AU Chair appoints Special Envoys to mobilise international economic support for continental fight against COVID-19

The Chairperson of the African Union, President of the Republic of South Africa Cyril Ramaphosa has appointed Dr Ngozi Okonjo-Iweala, Dr Donald Kaberuka, Mr Tidjane Thiam and Mr Trevor Manuel as Special Envoys of the AU to mobilise international support for Africa’s efforts to address the economic challenges African countries will face as a result of the COVID-19 pandemic. President Ramaphosa: “In the light of the devastating socio-economic and political impact of the pandemic on African countries these institutions need to support African economies that are facing serious economic challenges with a comprehensive stimulus package for Africa, including deferred debt and interest payments. The impact of the coronavirus pandemic has been global in both scale and reach, and this necessitates coordinated international action to capacitate all countries to respond effectively, but most particularly developing countries that continue to shoulder a historical burden of poverty, inequality and underdevelopment.”

Ngozi Okonjo-Iweala, Brahima Coulibaly: Africa needs debt relief to fight COVID-19 (Project Syndicate)

But the key challenge is the availability of resources. Africa needs an initial $100bn in financial support, because sharp declines in commodity prices, trade, and tourism – a direct result of the pandemic – are causing government revenues to dry up fast. Meanwhile, investor pullback from risky assets has pushed up the cost of borrowing in financial markets, limiting viable options for resource mobilization. Unsurprisingly, therefore, the average fiscal-support package announced by African governments so far amounts to a meager 0.8% of GDP, one-tenth the level in advanced economies. And, beyond the near term, the continent’s additional financing needs could rise to $200bn.

World Bank’s latest Africa Pulse: COVID-19 drives Sub-Saharan Africa toward first recession in 25 years

The analysis shows that COVID-19 will cost the region between $37bn and $79bn in output losses for 2020 due to a combination of effects. They include trade and value chain disruption, which impacts commodity exporters and countries with strong value chain participation; reduced foreign financing flows from remittances, tourism, foreign direct investment, foreign aid, combined with capital flight; and through direct impacts on health systems, and disruptions caused by containment measures and the public response. While most countries in the region have been affected to different degrees by the pandemic, real gross domestic product growth is projected to fall sharply particularly in the region’s three largest economies – Nigeria, Angola, and South Africa – as a result of persistently weak growth and investment. In general, oil exporting-countries will also be hard-hit; while growth is also expected to weaken substantially in the two fastest growing areas – the West African Economic and Monetary Union and the East African Community – due to weak external demand, disruptions to supply chains and domestic production. The region’s tourism sector is expected to contract sharply due to severe disruption to travel.

The Sub-Saharan Africa region paid $35.8bn in total debt service in 2018, 2.1% of regional GDP, of which $9.4bn was paid to official bilateral creditors (about 0.7% of the regional GDP). Given that the region may need an emergency economic stimulus of $100bn – including an estimated $44bn waiver for interest payments in 2020 – the report (pdf) notes a debt moratorium would immediately inject liquidity and enlarge the fiscal space of African governments. [South Asia Economic Focus, Spring 2020: The cursed blessing of public banks; Moving up the ladder: an analysis of IDA graduation policy]

2020 Financing for Sustainable Development Report (UN)

Beyond the immediate crisis response, the COVID-19 pandemic should be the impetus to sustain the gains and accelerate implementation of long-overdue measures to set the world on a more sustainable development path and make the global economy more resilient to future shocks. The 2020 Financing for Sustainable Development Report (pdf) contains key actions needed for this purpose:

  • accelerate long-term investment in resilient infrastructure for sustainable development, through public investment and incentives for the private sector;
  • increase investment in risk management and preparedness;
  • strengthen social protection;
  • enhance regulatory frameworks, e.g. to discourage excessive private borrowing when debt is not intended for productive investments (vs. increasing shareholder returns);
  • strengthen the international financial safety net and framework for debt sustainability.

The report also provides policy options to harness the potential of digital technologies. These technologies have come to the forefront amid the COVID-19 outbreak, with lockdowns and physical distancing becoming the norm. Digital communication tools have also helped sustain interaction and continuity in vital economic and educational activities. However, access to digital technologies remains highly unequal within and between countries. Almost half the global population (46.4 per cent of people) does not have access to the Internet.

pdf The potential impact of COVID-19 on GDP and trade: a preliminary assessment (1.28 MB) (World Bank)

A baseline global pandemic scenario sees GDP fall by 2 percent below the benchmark for the world, 2.5 percent for developing countries, and 1.8 percent for industrial countries. The declines are nearly 4 percent below the benchmark for the world, in an amplified pandemic scenario in which containment is assumed to take longer and which now seems more likely. The biggest negative shock is recorded in the output of domestic services affected by the pandemic, as well as in traded tourist services. Since the model does not capture fully the social isolation induced independent contraction in demand and the decline in investor confidence, the eventual economic impact may be different. This exercise is illustrative, because it is still too early to make an informed assessment of the full impact of the pandemic. But it does convey the likely extent of impending global economic pain, especially for developing countries and their potential need for assistance.

Kenya: Two month trade deficit narrows (Business Daily)

Kenya’s trade deficit for the first two months of year narrowed by Sh17.16 billion to Sh175 billion from Sh192 billion reported over the similar period last year, data from the CBK shows. The 9% reduction in the deficit was a result of a growth in export receipts followed by a slowed down import bill. Total export receipts over the period grew by 10 percent to a new high of Sh114.2 billion from Sh104 billion in the first two months of 2019. [Fitch Ratings: Kenya coronavirus measures lead to faster increase in debt]

Angola: COVID-19 affirms urgency of trade facilitation reforms (UNCTAD)

UNCTAD is supporting, through a project funded by the European Union, the government’s efforts to diversify the economy. The Train For Trade II programme for Angola helps authorities identify promising non-oil sectors, train entrepreneurs and business owners, weigh investment promotion policies and improve trade infrastructure. Tying all the work together is the project’s trade facilitation component. “Diversifying Angola’s economic structure away from its heavy dependence on oil is key to boosting competitiveness and will help the country reduce its vulnerability to external shocks,” said Paul Akiwumi, director of UNCTAD’s division for Africa and least developed countries. Angola is ranked 177 out 190 countries in the 2020 edition of the World Bank’s Doing Business report, according to which export procedures in the country cost $240 and take 98 hours, compared to an average of $173 and 72 hours for sub-Saharan Africa. Many of the reforms necessary to improve conditions for Angolan businesses, such as automating customs procedures or creating a single window, are addressed by the WTO’s Trade Facilitation Agreement, which Angola ratified in April 2019.

Lesotho: AfDB’s Country Strategy Paper, 2020-2024

Lesotho’s private sector accounts for only 20% of GDP and is mostly inward-oriented with 71% of the firms involved in commerce (wholesale and retail). The private sector is hamstrung by weak capacity, low productivity, high levels of fragmentation, inadequate access to credit, lack of product standardization, and inadequate infrastructure and resources to develop products to the required global standards, among others. Micro and small firms account for 97% of all local enterprises; yet over half of private sector employment is generated by relatively large (mostly South African) firms. Domestic private sector activity is concentrated in a few firms in sectors such as agriculture and mining as well as textiles and construction with very low value addition along the value chains. The apparel industry accounts for a significant amount of exports (especially to the USA under the AGOA). In order to revitalize the sector, several initiatives are underway. These include the establishment of a PPP unit, formulation of a PPP Policy and framework in support of the PPP financing modality. In addition, the legal and regulatory framework for SEZs will be developed. Value chain development by the private sector in the agro-processing industry to take advantage of the regional market opportunities remains a daunting challenge on account of declining productivity in the agriculture sector compounded by prolonged droughts. Horticulture presents notable opportunities for the country to scale up participation in regional value chain and agro-processing. However, this has not been developed on a large scale owing to reasons cited in paragraph 19 above.


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