tralac’s Daily News selection
Diarise, Thursday (11 June): Rwanda, Kenya, Tanzania, and Uganda are expected to table their respective 2020/2021 national budgets. Industrialists are lobbying, through the EABC, for the retention of low inputs taxes after the bloc failed to finalise a review of its common external tariff structure ahead of Thursday’s Budget Day. They want Kenya, Tanzania, Uganda and Rwanda to extend duty remission on key inputs from outside the bloc, while imposing higher taxes on finished products that raise competition with local goods.
AfCFTA: COVID-19 is a hiccup in delay says Afreximbank’s president (The Africa Report)
I am pleased that those preparatory activities are now set to resume virtually. So, the pandemic amounted to a brief distraction. Work is getting back on track. For instance, we expect the Pan-African Payment and Settlement System (PAPSS) which Afreximbank is supporting to start piloting by September 2020, that is just three months delay as the initial date was June 2020.
While no new date has been officially announced it is anticipated that the start of trading under the AfCFTA will not be unduly delayed. Obviously, the biggest obstacle to implementation as a result of COVID-19 is the delay in concluding the negotiations, especially on outstanding phase one such as schedules on tariff concessions, rules of origin, and liberalization of services.
COVID-19 halted the negotiations for a while but they are set to resume virtually. We expect that these issues would be settled before year end. We are hoping that the delay could provide an opportunity for more countries to ratify the agreement, such that when trading under the AfCFTA effectively starts, the integrated African market extends beyond the 29 countries that have ratified the agreement to date.
Economic activity in the SSA region is on course to contract by 2.8% in 2020, the deepest on record. Per capita GDP is anticipated to fall even more sharply, likely pushing millions in the region back into extreme poverty. Growth could resume to 3.1% in 2021 assuming the pandemic fades in the second half of the year, that domestic outbreaks of the virus follow a similar path, and that growth in major trading partners rebounds. Sub-Saharan Africa faces daunting hurdles to contain COVID-19, given weak health care capacity, lack of access to basic sanitation, and the prevalence of informal economic activity across much of the region. The economy of Nigeria is expected to shrink by 3.2% this year, given the collapse in oil prices, which represent 80% of the country’s exports, about a third of banking sector credit, and half of government revenues. South Africa’s output is forecast to contract 7.1% this year, the deepest contraction in a century, as stringent but necessary containment measures curtail economic activity.
Under the [global] baseline forecast - which assumes that the pandemic recedes sufficiently to allow the lifting of domestic mitigation measures by mid-year in advanced economies and a bit later in EMDEs, that adverse global spillovers ease during the second half of the year, and that dislocations in financial markets are not long-lasting - global growth is forecast to rebound to 4.2% in 2021, as advanced economies grow 3.9% and EMDEs bounce back by 4.6%. However, the outlook is highly uncertain and downside risks are predominant, including the possibility of a more protracted pandemic, financial upheaval, and retreat from global trade and supply linkages. A downside scenario could lead the global economy to shrink by as much as 8% this year, followed by a sluggish recovery in 2021 of just over 1%, with output in EMDEs contracting by almost 5% this year.
Monitoring COVID-19 impacts on firms in Ethiopia: Results from a high-frequency phone survey of firms (World Bank)
This note summarizes the results of round 2 (R2) of the HFPS-F1, implemented between 6 May and 27 May, 2020 in Addis Ababa. While the original sample in Addis Ababa consisted of 645 firms, only 550 of those firms responded to the R2 survey. The information presented here is based on the sample of 550 firms that responded to both round 1 (R1) and round 2 (R2) surveys. Key highlights (pdf):
Since the last survey round, firms in Addis Ababa have progressively resumed operations. The share of firms that completely ceased operations decreased from 41% in R1 to 29% in R2. This re-opening has not translated in a rebound in firm earnings, with the share of firms reporting zero earnings in the last completed month (April 2020 for the R2 interviews) increasing from 36% in R1 to 40% in R2. The COVID-19 pandemic has affected firms in Addis Ababa mainly through a substantial drop in demand for their products or services. Compared to R1, a higher share of firms in R2 also reports higher prices for materials and intermediate goods as a significant problem.
The financial stress on firms has increased between R1 and R2, with an increasing share of firms reporting difficulties in paying staff wages and invoices. According to firms, the most relevant policy measure that could help them weather the storm is to waive tax payments. One-fifth of larger firms are in favor of wage-subsidies. A fairly small share of firms – 8% - laid off workers between R1 and R2, mainly affecting temporary workers. [Note: Data collection continues in the coming months by following the same firms every three weeks. Round 3 of data collection started on 28 May, 2020 and includes the follow-up of the existing sample of firms in Addis Ababa as well as a sample of firms in Adama, Bahir Dar, Hawassa, and Mekelle.]
Berbera Corridor set to boost trade between Somaliland and Ethiopia (EA Business Week)
Somaliland President Muse Bihi opened the first completed 12-kilometre phase of the project, the second major infrastructural project the country is building after the expansion of the Port of Berbera by Dubai Ports World (DP World). The 72 kilometre-road is an ambitious and strategic road project that will also enable Somaliland to benefit greatly from the winds of change blowing across the Horn of Africa. The project is worth $400m and, once complete, will link Ethiopia’s border town of Togochale to Berbera Port in Somaliland, which is strategic to landlocked Ethiopia. It is estimated Somaliland imports to Ethiopia are worth over $800m annually and the Berbera-Togochale corridor will be instrumental in facilitating import-export trade for Ethiopia’s economy. The road project is funded by the Abu Dhabi Fund for Development. DP World has signed a 30-year concession agreement to administer the Berbera port, located on the southern coast of the Gulf of Aden. The expansion will lead to the capacity of the port increasing by 50%.
Aubrey Hruby, Aubrey Rugo: Investing in African logistics (Project Syndicate, Financial Express)
The expansion of both asset-heavy and asset-light local logistics companies is also essential. Before the pandemic, demand for logistics companies in Africa was already rising, and a growing amount of venture capital was being channelled toward local logistics start-ups. Even as the COVID-19 crisis results in trade disruptions, trucking remains critical for supplying food, medicine, and other essentials to individuals and health-care facilities. One promising asset-light firm - the Nigerian start-up Kobo360 - connects truckers and companies to delivery services. Since launching in Lagos in 2017, it has expanded its operations to four countries. Kobo360 already has more than 10,000 drivers and trucks on its app, and provides services to major companies like DHL, Honeywell, and Unilever.
But a mature logistics market will also require investment in asset-heavy tech-enabled trucking operations. When DHL - the world’s biggest logistics company by revenue - expands to a new country, it often follows the asset-light model of leasing vehicles. But a lack of control over the quality of the hired trucks often meant that goods arrive damaged or late. This was a particularly serious problem in India, where logistics spending was at least 4-5% higher than in Europe. So, in 2018, DHL launched a transportation subsidiary in the country, and aims to invest in a fleet of 10,000 trucks over the next decade. African markets will require similar mixed investments.
Nigeria: Foreign Trade Statistics Q1 2020 (NBS)
The value of Nigeria’s total trade stood at N8,304.8 billion in Q1,2020.This was 17.94% lower than the value recorded in Q4, 2019 but 0.80% higher than the value recorded in Q1,2019. The import component of this trade was valued at N4,221.9 billion (50.8%) while the export component totaled N4,082.9 billion, indicating 49.2% of the total trade. A trade deficit of N138.98 billion was recorded during the quarter, marking two consecutive quarters of negative balance of trade, as the value of imports surpassed exports. It is worth noting that the consecutive quarters of negative trade balances (and lower imports and exports) occurred against the backdrop of a global slowdown in economic activity as a result of the COVID-19 pandemic. The global health crisis resulted in several countries implementing varying degrees of restrictions with respect to international trade, travel and tourism. When compared with the preceding quarter, the deficit in Q1 2020 represented an improvement by 76%. On a year –on-year basis however, the deficit was lower by 116.71%.
Crude oil, Nigeria’s dominant export, accounted for N2,944.6 billion, representing 72.12% of total exports in Q1,2020. The value of crude oil export was 18.86% less than the value recorded in Q4, 2019 and 12.80% lower than the value recorded in the corresponding quarter of 2019. Non crude oil exports were valued at N1,138.3 billion, representing 27.9% of total exports during the period under review.
During the quarter, Nigeria imported goods mainly from Asia, which was valued at N1,966.5 billion (or 46.58%). Other major imports originated from Europe, valued at N1,534.7 billion, or 36.35%, while imports from America and Africa amounted to N580.2 billion (13.74%) and N118.95 billion (2.82%) respectively. Import from Oceania stood at N21.6 billion (0.51%) while goods valued at N28.3 billion originated from ECOWAS.
Major export trading partners and percentage share in Q1, 2020 export trade: India (15.61%), Spain (9.87%), Netherlands (9.72%), South Africa (7.82%), Cameroon (7.39%).
Major import trading partners and percentage share in Q1, 2020 import trade: China (26.28%), Netherlands (11.14%), USA (10.45%), India (7.92%), Belgium (6.11%)
Rwanda Meat Value Chain Trade Competitiveness Project: AfDB appraisal report
The objective of the project (September 2020 - August 2022) is to improve meat production, expand the value chain, improve market and cross-border trade in the sector and increase the contribution of the meat value chain in Rwanda’s economy. The specific objectives of the project are to: enhance the competitiveness of the meat value chain in Rwanda through the strengthening of the institutional and regulatory framework in the meat sector; enhance the capacity of private sector actors in the value chain; and increase Cross-border Trade and exports through market linkage activities. The project will target directly over 650 producers, processors and traders across the country, with 74% being women in informal cross border trade. Extract:
The meat value chain has a great potential for value addition to Rwanda’s economy, estimated at about $107m worth of exports to DRC alone, excluding the domestic market. The GoR has indicated through its national strategic documents, sector priorities and discussions, a need for a more structured and targeted intervention in the meat value chain. At present, the livestock quality in the country is low, the meat demand from DRC (which receives over 70% of the country’s livestock export) is for live animals. This is because DRC traders offer more competitive prices to farmers for live animals than the Rwandan abattoirs and meat processors and prefer fresh meat (as opposed to frozen). However, a consequence of this is that there is not much value addition, and Rwanda also loses potential value from by-products of livestock (leather and leather products, meat products etc.). This project will be a huge step in the direction towards resolving this unfavourable market model. The project will also target two of Rwanda’s busiest border crossings for cross-border trade, Poids Lourds, connecting Gisenyi to Goma in Rubavu, and Rusizi I, connecting to Kamembe to Bukavu in Rusizi. Over 50% of Rwanda’s informal cross-border exports pass through these two borders. Both borders have also seen recent growth in informal cross border trade indicating increasing demand for Rwandan exports. The two cities of Goma and Bukavu alone represent a potential market for food of approximately $387m per annum.
Today’s Quick Links:
Tenbite Ermias (Head of Africa, CDC Group]: DFIs are key to Africa’s economic recovery
Note by South Africa: Conglomerate effects of mergers
The consequences of a more resource efficient and circular economy for international trade patterns: a modelling assessment (pdf)