Building capacity to help Africa trade better

tralac’s Daily News selection


tralac’s Daily News selection

tralac’s Daily News selection

Rosa Whitaker, Stephen Lande: US trade is key to driving Africa’s post-coronavirus recovery (US News)

AGOA expires in 2025. Ideally it would be superseded by a US-Africa free trade agreement, but that is too ambitious an undertaking for the time available. A consensus African negotiating position is too much to ask at this stage. African trade negotiators already have their hands full completing the AfCFTA. Nonetheless, a bilateral agreement with Kenya does not have to be seen as second prize if it is of sufficiently high quality and the parties are resolved to serve the objectives of the AfCFTA.

At minimum, they should respect the AfCFTA requirement that Kenya not treat the US or any other third country more favorably than AfCFTA members. They should ensure that any duty preferences Kenya grants the US are coordinated with Kenya’s EAC partners and incorporated into the community’s common external tariff. And they should work closely with the African Union and AfCFTA secretariat, as well as like-minded African countries, in crafting non-tariff disciplines on matters such as investment, intellectual property, competition, government procurement and e-commerce that could serve as models for the continental agreement.

If the US-Kenya free trade agreement is to be a model, negotiators will have to keep its broader applicability to Africa at top of mind. The administration is right to seek a comprehensive agreement but if its terms are too stringent, it will cease to be a model and it will not contribute to the completion of the AfCFTA, let alone an AfCFTA that accommodates U.S. wishes and concerns. The US has much more to gain from a well-crafted and successful AfCFTA than it does from obtaining every concession it might seek from Kenya. The latter is a market of 60 million. AfCFTA encompasses over a billion. Moreover, an integrated Africa will be much better placed to resist pressures from China, the European Union and elsewhere to adopt policies that put US firms at a disadvantage.

Tanzania: Over 100 lorry drivers stranded at Namanga over Covid-19 tests (The Citizen)

Over 100 Tanzanian lorry drivers heading to Kenya are stranded at Namanga border following a dispute over their Covid-19 test results they submitted to the Kenyan authorities. Over a week ago, the ministers of transport of Kenya and Tanzania agreed that lorry drivers wanting to cross the border between the two countries must carry out Covid-19 tests in their respective countries and present test certificates to health authorities at the border posts. The aim was to curb cross border transmission of the novel coronavirus. The resolution, which was arrived at between Kenya’s transport minister James Macharia and his Tanzanian counterpart, Mr Isaack Kamwelwe, on 22 May was expected to ease tensions over the diplomatic row caused by the Covid-19 crisis.

But yesterday the conflict resurfaced, with Kenyan authorities refusing to recognise certificates of Tanzanian truck drivers who reported to have tested negative for Covid-19 at local laboratories in Arusha, as they sought to cross the border into Kenya. Longido District Commissioner, Frank Mwaisumbe, said that an arrangement is being made to establish a dry port at the Namanga border where Kenyans will now be picking the commodities transported by Tanzanian trucker divers who will be dropping the cargo at the borders.

Kenya: Port, railway revamp spell hope for EAC trade (Daily Nation)

The revamping of the Sh800 million Kisumu port, coupled with the rehabilitation of the old railway lines in the larger western region, now spells hope for regional trade between Kenya and other EAC States. Lack of supporting infrastructure had posed the biggest threat to the success of the port, but with the government’s commitment to repair the old railway system to the lakeside city, there is hope that the viability of the project would be guaranteed. President Kenyatta said that with the refurbished Kisumu port, Kenya can serve the region from Mwanza and Bukoba in Tanzania, to Jinja and Entebbe in Uganda; and Muhoma Bay in Rwanda at affordable costs and decent timing. “Beyond serving the region, the port is poised to promote the ship-building and repair industry in Kenya,” he said. It will also catalyse the development of other small ports, the President added.

How to export within the AfCFTA. Afreximbank is teaming up with ITC to train small business owners and young entrepreneurs in Africa to trade with other African countries as part of the new AfCFTA. The training programme, How to Export within the AfCFTA, is being launched as the new free-trade area comes on stream and amid the economic strain of climate change and the coronavirus pandemic. The training programme, run via ITC’s popular, multilingual SME Trade Academy platform, under the auspices of the Afreximbank Academy (AFRACAD), will be piloted in Nigeria, Rwanda, and Cote d’Ivoire and be launched in close collaboration with trade promotion organizations of the three selected pilot countries. The training will give business owners the knowledge and skills they need to engage effectively in cross-border trade under terms of the emerging free-trade area for Africa. Intra-African trade is structurally low at 15% (compared to Europe at nearly 70%, for example), and the AfCFTA will open a market of 1.2 billion people.

The WTO Secretariat has published an information note looking at how micro, small and medium-sized enterprises are being affected by the COVID-19 pandemic. It notes the impact of supply chain disruptions on MSMEs and the extent to which smaller businesses are represented in the economic sectors hardest hit by the crisis. The report notes that supply chain disruptions can have a particularly severe impact on MSMEs because sourcing from new suppliers or absorbing price increases is more challenging for a smaller firm with limited supply options and capital. The report looks into a wide range of measures taken by governments to support MSMEs. These include measures to address cash flow issues, to expand trade opportunities for MSMEs and to make them more resilient. Extract:

The pandemic-related challenges add to the existing, well-known trade obstacles encountered by MSMEs. The participation of MSMEs in international trade continues to be limited. Firms with fewer than 250 employees account for only 34% of exports in developed countries, according to the WTO. In developing countries, MSMEs’ exports amount to only 7.6% of total sales in the manufacturing sector. Reasons commonly invoked to explain the low participation of MSMEs in international trade include lack of relevant skills, lack of knowledge about international markets, and cumbersome regulations and border procedures, as well as limited access to trade finance. The MSME trade finance gap, which is estimated at about $1.5 trillion per year by the Asian Development Bank, is likely to increase given the negative effects of COVID-19 on financial market confidence. This offers especially negative prospects for firms in developing countries where a lack of trade finance can severely hinder trade opportunities.

pdf Helping MSMEs navigate the COVID-19 crisis: WTO Information Note (254 KB)

Antoinette Sayeh, Ralph Chami: Lifelines in danger (IPS)

Remittances are income flows that sync the business cycle of many recipient countries with those of sending countries. During good times, this relationship is a win-win, furnishing much-needed labor to fuel the economies of host countries and providing much-needed income to families in the migrants’ home countries. However, this close business cycle linkage between host and recipient countries has a downside risk. Shocks to the economies of migrant-host countries—just the sorts of shocks being caused by the coronavirus pandemic—can be transmitted to those of the remittance-recipient countries. For example, for a recipient country that receives remittances representing at least 10% of its annual GDP, a 1% decrease in the host country’s output gap (the difference between actual and potential growth) will tend to decrease the recipient country’s output gap by almost 1%. Remittances represent much more than 10% of GDP for many countries, led by Tajikistan and Bermuda, at more than 30% (see Chart 2).

Banks in migrant-source countries rely on remittance inflows as a cheap source of deposit funding since these flows are altruistically motivated. Unfortunately, these banks are now likely to see their cost of operations increase, and their ability to extend credit—whether to the private sector or to finance government deficits—will be greatly reduced (Barajas and others 2018). Furthermore, the typically credit-constrained private sector—mostly comprising self-employed people and small and medium-sized enterprises—is likely to lose remittance funding, in addition to dealing with even tighter credit conditions from banks. All this will come on top of lower demand for their services and products as a result of the crisis.

Connecting digital economies: policy recommendations for cross-border payments (WEF)

This report is part of the World Economic Forum’s broader work on digital payments, which supports inclusive growth in the digital economy. The work explores ways to encourage financial inclusion, digital payment acceptance and global interoperability, covering existing and emerging technologies, including digital currencies. Through this effort, the Forum recognizes the importance of bringing the public and private sectors together to accelerate the benefits of the digital economy. This report was produced by the Platform for Shaping the Future of Trade and Global Economic Interdependence. Explore creating regional payment councils to bring the public and private sectors together (pdf): Moving beyond domestic payment councils, recent public- and private-sector collaboration in ASEAN could be a good model for regional cooperation on payments. ASEAN is a dynamic and techsavvy region, but its members have differential and sometimes conflicting rules and regulations for payments. Like most other regions, there is no cross-border payment system in ASEAN. However, ASEAN has made the integration of the region’s digital market a top economic priority and has recognized the importance of improving cross-border payments. To assist the ASEAN Secretariat in these efforts, the World Economic Forum launched a public-private initiative called the ASEAN e-Payments Coalition, which is working with the ASEAN Working Committee on Payment and Settlement Systems (made up of central bank representatives) to develop a regional payment framework that improves user payment experiences, promotes regional integration, increases trust and security, and improves the livelihoods of the underbanked. This model could also be adopted internationally, especially for intergovernmental organizations focused on financial services, such as the Bank for International Settlements.

Table of contents:

  • Barriers to supplying payment services

  • Standards and interoperability

  • Security and trust

  • Innovation enabling oversight

Ahead of the launch of the International Chamber of Commerce’s Global Survey on Trade Finance later this month, BNY Mellon’s Global Head of Trade Finance Product and Portfolio Management, Joon Kim, explains how banks are showcasing their resilience throughout the COVID-19 pandemic: “Compared to many industries, trade is often slow when it comes to introducing new innovations and capabilities. But with paper proving a barrier to trade, there has been a tremendous focus across the industry to find ways to migrate to digital formats. Banks have had to examine every aspect of their paper trails and are working intensely to create and deliver solutions that allow the paper element to be reduced. Considerable progress has been made in a number of areas and new methods are being adopted. For example, in the case of trade finance distribution, transactions are now being approved through e-signatures rather than wet ink signatures on printed documents. Elsewhere – with respect to export collections – clients are now providing digitised cover letters, eradicating the need for manual pickups. As the industry adapts, it is important that banks have regular dialogue with their clients and continue to increase the digital submission of documents.”

South Korea’s Shinhan, Hana team up to participate in Africa syndicated loan. Shinhan Bank and Hana Bank said Thursday that they had signed a contract with the African Export-Import Bank (Afreximbank) to participate in a $1 billion (1.2 trillion won) syndicated loan arranged by Afreximbank. The joint move by the two major Korean lenders came after Shinhan Financial Group and Hana Financial Group agreed to form an alliance for global expansion, May 25. “This will be a great opportunity for both of us seeking to bolster overseas expansion,” a Shinhan official said. “Africa, a region expected to grow quickly in the coming years, will be where our knowledge and experience of financing and development will be appreciated.”

African airlines’ traffic sank 98.7% in April, nearly twice as bad as the 49.8% demand drop in March, IATA reported yesterday. Capacity contracted 87.7%, and load factor dived 65.3 percentage points to just 7.7% of seats filled, lowest among regions.

IATA’s Alexandre de Juniac: media briefing on COVID-19. Things cannot get much worse than a 95% fall in traffic. A 30% increase in flights may sound impressive. But on that level of decline it still means that we have a gap of well over 90% to cover. The optimistic part of me sees this as green shoots. The realistic part of me knows that we will likely have a long and very difficult challenge to return this industry to normal. People have not lost the desire to travel. They still want to see their family and friends. They still desire to explore the world. They will need to meet in person to do business globally. There will be at least two kinds of headwinds.

  • The first is economic. Governments have provided stimulus money to get the economy moving again. And we are seeing business confidence improving. Individuals and companies that have survived without travel expenses for several months may re-assess their travel priorities. Against that we will surely see many promotions and incentives to encourage travel. We can be reasonably confident in overcoming this hurdle.

  • The second is confidence. And this will be the bigger challenge. Governments will need the confidence to re-open borders without imposing onerous quarantine measures. If governments impose quarantine measures, it is equal to keeping their borders closed and industry grounded. And individual travelers will need the confidence that travel itself poses no great risks than other activities; and that they won’t face quarantine or disruption on arrival.

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