Building capacity to help Africa trade better

tralac’s Daily News selection


tralac’s Daily News selection

tralac’s Daily News selection

AU-FAO ministerial meeting on the impacts of COVID-19 on food security in Africa

Co-convened, yesterday, by the FAO Director-General and the Chair of the AU STC on Agriculture, Rural Development, Water and Environment, moderated by the AU Commissioner for Rural Economy and Agriculture, the meeting discussed food security and nutrition implications of the COVID-19 pandemic in Africa. Extract from the pdf Declaration on food security and nutrition during the COVID-19 pandemic (377 KB) : we hereby commit ourselves to

  • Working with local leaders to ensure that downstream and upstream food and agriculture markets and the informal food sector, remain open and operate properly, while complying with health and safety guidelines

  • Working with food and agriculture system traders and transporters, and officials in other sectors and local governments, to resolve any bottlenecks affecting the safe movement, transport and marketing of essential people, goods and services in the system

  • Keeping national borders open for food and agriculture commodity trade so as not to disrupt regional and interregional trade in food and agriculture products and inputs

  • Ensuring adequate emergency strategic food reserves and storage facilities, including through public-private partnerships, where appropriate and feasible, and directly linked to the social protection programs.

Background briefs:

Andrew Mold, Anthony Mveyange: Prioritizing regional over global value chains to accelerate economic development in East Africa (Brookings)

Recent global trends like the COVID-19 pandemic, the climate change crisis, and heightened trade disputes among the world’s leading trade partners have highlighted the vulnerability of global value chains (GVCs). At present, the scale of the disruption in East Africa is quite dire—imports from China (a common source of intermediate goods) through the Mombasa Port declined by a drastic 20% shortly after the onset of the pandemic, between January and February 2020. In light of these trends, governments and industries in East Africa should consider rapidly shifting from focusing on global value chains (GVCs) to regional ones (RVCs). Given the region’s past difficulties with entering global value chains and consolidating the gains from regional integration processes, heightened emphasis on regional value chains could reap compounding benefits. The time is ripe: As documented in our recent report, the recently signed and ratified AfCFTA can be the great enabler of that shift.

In summary, we believe developmental and policy discourse has been skewed excessively towards equating “export success” with the ability to integrate into GVCs and sell products in high-income country markets. Policymakers in East Africa have, for a long time, embraced such policy strategies. In turn, the region has become more exposed and prone to GVC-related shocks, as seen with the onset of the current COVID-19 crisis. A more rapid expansion of regional trade, by contrast, is arguably the surest and safest way to diversify trade and reduce vulnerability, with the added plus that it is kinder on the environment.

COVID-19 in Africa: Protecting lives and economies (ECA)

We estimate that between 5 million and 29 million people (pdf) will be pushed below the extreme poverty line of $1.90 per day owing to the impact of COVID-19, compared to the baseline 2020 African growth scenario. Vulnerable households affected by COVID-19 face an increased probability of moving into transient poverty by 17.1%, a 4.2% increased probability of staying in poverty for a decade or longer, and a fall in the probability of moving out of poverty by 5.9%. Increased poverty levels will also exacerbate existing income inequalities. For low-income households, which already spend an average of 36% of their income on health care-related expenses, access to health care will become increasingly unaffordable in the wake of COVID-19, leading to an increase in the number of households falling below the poverty line.

Annual formal job creation (currently 3.7 million) is forecast to drop by 1.4 to 5.8%, compared with the baseline 2020 African growth scenario. An increase in informal and vulnerable employment is expected (more than 60% of men, and nearly 75% of women are informally employed in Africa) and an increase in out-of pocket expenditure by poor and vulnerable households. The 2008 financial crisis increased vulnerable employment by 10%. The more systemic shock of COVID-19 is expected to increase vulnerable employment considerably more than this, with the ILO anticipating 19 million job losses in Africa as workers face full or partial workplace closures.

Offline spending on apparel in the European Union is estimated by McKinsey to have fallen 30–40% and as much as 80% in highly infected regions. This puts at peril not just the continent’s $15bn in annual textile and apparel exports, but a crucial source of employment. In Kenya, the sector counts for more than 38,000 formal workers, more than 200 large and medium-size companies, and over 75,000 micro and small companies, including fashion designers and tailoring units. In Ethiopia, the number of textile and garment factories operating in the country was estimated at 122 in 2019.14 Ethiopia counts about 37,000 formal workers while about 450,000 people are informally engaged in activities across the sector. Both countries (Ethiopia and Kenya) export more than 65% of their textile products to the United State and the European Union. Further down the supply chain, falling demand has translated into a 26% fall in cotton prices since December 2019, with knock-on effects for cotton farmers in Benin, Burkina Faso, Mali and Zimbabwe.

African governments should urgently suspend tariffs on essential COVID-19 imports. A list of such products can be informed by the WCO HS classification reference for COVID-19 medical supplies as well as other essential goods beyond medical supplies to prevent shortages and skyrocketing prices. China and at least 12 further countries have already reduced import barriers on COVID-19 medical supplies. Beyond imports, Africa must look to boost its own productive capacity for medical supplies. Many of these products are in considerable demand globally and domestic production will be essential to fill the supply gap. Pooled production and cross-border assistance can help to improve Africa’s response.

Nigeria and the implementation of the AfCFTA: key issues and policy options (Premium Times)

In terms of proposed immediate action that would unlock the AfCFTA’s immense potential in Africa’s largest economy, a labyrinth of regulatory hurdles need to be addressed and a number of enabling intertwined actions require to be considered by all stakeholders. Most importantly, from a trade policy perspective, the National Action Committee and the National Office of Trade Negotiations must take a number of strategic steps, especially against the backdrop of the global COVID-19 pandemic.

  • First, they must keep continental integration in focus through stakeholder engagement and communication.

  • Second, as Africa’s largest economy, Nigeria must provide leadership in the area of establishing a fair mechanism that would engender a level playing field among countries in the continent, as the AfCFTA has the most profound level of income disparity in any continental trade agreement.

  • Third, the Committee must collaborate with development finance institutions (DFIs) to attract investments in power and infrastructure development, as one of the most pressing issues facing the country is the lack of critical trade facilitation infrastructure.

  • Fourth, there must be concerted efforts to strengthen the role of the private sector in mainstreaming the objectives of the AfCFTA.

  • Fifth, there must be a cohesive strategy for crowding-in the informal sector and shadow economy, given that the informal sector represents more than 66 per cent of total employment in sub-Saharan Africa.

  • Six, there must be sufficient flexibility for Rules-of-Origin (RoO) provisions, with a view to enabling SMEs within Nigeria to take advantage of AfCFTA preferential tariffs.

  • Seventh, they must figure out a creative and sustainable means of financing the provision of technical assistance that would facilitate seamless implementation of the Agreement and the outstanding Phase II negotiations.

  • Eighth, they must clarify the numerous ambiguities currently present in the AfCFTA Agreement. [The author: Dr Ese Owie]

Eritrea: AfDB posts an update for its Interim Country Strategy Paper

This I-CSP update is being conducted after the signing of a landmark peace and friendship agreement between Eritrea and Ethiopia that has restored diplomatic relations. It is also noteworthy that the timing of this I-CSP update coincides with the expression of interest by Eritrea and Djibouti to advance peace and economic integration in the Horn of Africa (HoA). The Bank’s I-CSP missions to Eritrea in April, July 2019 and December 2020 established that there was limited progress on the preparation of the NDP, a clear indication that its preparation will not be completed before December 2020. This delay is mainly attributed to lengthy and high-level stakeholder consultations between the authorities and DPs. The recent agreements and reconciliations between Eritrea and other HoA countries also delayed the NDP. Eritrea will particularly need ample time to articulate its strategic directions to harness the peace dividend while mitigating any possible risks from neighboring countries. Eritrea will also need sufficient time to harmonize and agree with DPs and neighboring countries on key priorities in the context of the HoA regional integration agenda. An inclusive consultation process is necessary to ensure durable peace as a prerequisite for unlocking sustainable and inclusive growth for the country and integration with HoA countries. These consultations have been very slow and given the long period of conflict, time is needed to agree on the minimum platform for regional priorities.

Regional integration and trade. The strategic importance of the State of Eritrea to the region cannot be underestimated as its location next to the Red Sea connects Africa, Asia and Europe and offers tremendous potential for regional integration. Prospects for regional integration have been further bolstered by the peace and friendship agreement with Ethiopia and the growing interest from DPs to support GoSE to tap the benefits of integration and increase its role in the HoA region. This is particularly important given Eritrea’s strategic location on the Red Sea as a hub of transit trade through its ports of Massawa and Assab. Following the restoration of relations with Ethiopia, the GoSE’s goal of making Massawa and Assab active and vibrant ports appears achievable. To this end, Eritrea would need to improve its infrastructure connectivity, in particular, those of a regional nature. According to the 2019 CPIA conducted by the Bank Group, Eritrea’s score on infrastructure and regional integration is only 2.0 out of 5 which is below the average score of 3.2 for Africa. Other countries including Djibouti have demonstrated that investments in port and related logistical services can be a major source of fiscal revenues and export earnings. Eritrea could also ease its power deficits through regional power trade. In this regard, Eritrea has expressed interest in becoming a member of the Eastern Africa Power Pool.

Communiqué of the 41st meeting of the IMFC (chaired by SARB Governor, Mr Lesetja Kganyago) (IMF)

We welcome the coordinated approach agreed by the G20 and the Paris Club, supported by the IMF and World Bank, toward a time-bound suspension by bilateral official creditors of debt service payments for the poorest countries that request forbearance. We call on private creditors to participate in the initiative on comparable terms. We welcome the IMF’s focus on crisis-related work, including on debt and financial stability risks, supporting a sustainable recovery in a way consistent with long- standing issues on our agenda.

We reaffirm our commitment to a strong, quota-based, and adequately resourced IMF at the center of the global financial safety net. We will keep demands on the IMF’s resources under close review. The IMF’s lending capacity of US$1 trillion is critical to maintain confidence that the IMF can fulfill its mandate by helping its members overcome the crisis. The recent Executive Board decisions on the doubling of the New Arrangements to Borrow and on a new round of Bilateral Borrowing Agreements are important steps in this regard. We look forward to swift action by members in implementing these decisions. [Transcript: Sub-Saharan Africa Regional Economic Outlook press briefing, April 2020]


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