tralac’s Daily News selection

tralac’s Daily News selection

23 Jun 2020

Launched today by the ECA, in collaboration with the MTN Group: The Africa Communication and Information Platform. The Platform will furnish national and regional COVID task forces with user generated survey data and actionable health and economic insights.

  • The rollout of Phase One starting June 23 2020, will cover mobile users across more than 23 countries, representing more than 80% of Africa’s total mobile subscribers. Users will be able to access locally relevant health advisories and medical advice including a symptom checker. Anonymized user inputs- including survey responses- will be fed to an Artificial Intelligence driven system. This integrator will build data dashboards and actionable insights for national and regional level policy makers.

  • Under Phase Two in a few months’ time, the service will encompass an additional 20% of African mobile users- and expand to include economic and humanitarian focused communication. National authorities will be able to conduct community level messaging for social welfare, e.g. facilitate cash distribution (including e-payments); send targeted information on local food distribution or clean water provision.

Financing the Union: Towards the financial autonomy of the African Union. Since the adoption of the Kigali Decision in July 2016, there has been unprecedented momentum gathered around its implementation. As of 16 June 2020, there were 17 countries, representing about 31% of AU membership that were at various stages of domesticating the Kigali Decision on Financing the Union.

  • Collectively, these countries are assessed $73,761,008 for regular budget and $15,307,159 as contribution to Peace Fund, representing 30%, respectively, of the total amount assessed to Member States to the Regular budget and Peace Fund. These countries owed the Union $41,735,749 ($30,761,020 for regular budget and $10,974,729 for Peace Fund) for prior budgets and as much as $33,359,115 ($22,095,806 for regular budget and S$11,263,308 peace fund) for the 2019 budget.

  • As of June 16, 2020, an amount of $7,419,039 was received from these Member States (S$6,417,102, $1,001,938 as contribution to regular budget and Peace Fund, respectively). This represents 9% and 7% of amount expected. Another $16,181,591 and $7,039,343 was collection in arrears for Regular budget and Peace Fund, respectively.

  • All the 17 countries have remitted to AU either partially or in full for 2020 budget.

  • As at the date of report an amount of $25,135,107 ($12,767,675 and $8,833,571 for regular budget and Peace Fund, respectively) was in arrears. All of it is attributable to Sudan who due to the economic embargo imposed on them and other considerations made it impossible to remit the funds to AU on time.

Conclusion: While this report paints a picture of considerable progress on matters of budget oversight and Member States compliance with regards to their financial obligations of the Union, challenges still remain. Whereas contributions are due as from 1 January of the financial year, the actual flow of funds from Member States has not been consistent with cash flow requirements of the Union. A great deal of funds is received during the second half of the year. The schedule for payment as to when funds should be transmitted to AU is yet to be agreed upon.

pdf Financing the Union: Towards the financial autonomy of the African Union – Status Report (367 KB)

Trade falls steeply in first half of 2020 (WTO)

The volume of merchandise trade shrank by 3% year‑on‑year in the first quarter according to WTO statistics. Initial estimates for the second quarter, when the virus and associated lockdown measures affected a large share of the global population, indicate a year‑on‑year drop of around 18.5% (Chart 1). These declines are historically large, but could have been much worse. The WTO’s 20 April annual trade forecast, in light of the large degree of uncertainty around the pandemic’s severity and economic impact, set out two plausible paths: a relatively optimistic scenario in which the volume of world merchandise trade in 2020 would contract by 13%, and a pessimistic scenario in which trade would fall by 32%. As things currently stand, trade would only need to grow by 2.5% per quarter for the remainder of the year to meet the optimistic projection. However, looking ahead to 2021, adverse developments, including a second wave of COVID‑19 outbreaks, weaker than expected economic growth, or widespread recourse to trade restrictions, could see trade expansion fall short of earlier projections.

Looking ahead to next year, a slower-than-expected pace of economic recovery would weigh on trade growth. This possibility is illustrated by the dotted green line in Chart 1, which would see trade growth for 2021 come in at closer to 5%, which would leave it well below the pre-pandemic trajectory. On the other hand, a quick return to its pre-pandemic trajectory would imply trade growth in 2021 of around 20%, in line with the April forecast’s optimistic scenario. Monetary, fiscal and trade policy choices will play a significant role in determining the pace of recovery.

There are several reasons why trade might respond less to changes in GDP than it did during the financial crisis. First, fiscal and monetary policies have arguably been rolled out more quickly and on a larger scale in the current crisis than they were in 2008‑09. The WTO forecast scenarios did not include an attempt to model either set of policy responses, since, at the time, these policies were just being introduced. Second, income support to households and expectations that the pandemic would eventually ease may have encouraged consumers to maintain consumption levels at a higher level than expected. Finally, much of the decline in output has been concentrated in non‑tradeable services such as hospitality, personal services and entertainment, which tend to be less import‑intensive than manufacturing.

Mukhisa Kituyi: The intricacies, impact and opportunities of e-commerce for trade and development (UNCTAD)

The impact of digitalization on trade is seen in trade statistics. Information and communications technology goods play a crucial role in enabling the digitalization of our economies. In 2017, ICT goods exports amounted to almost $2 trillion. This trade is highly concentrated. In fact the top 10 exporters – mainly from East Asia and some developed economies – account for more than 99% of all exports. Exports of ICT services, which comprise both telecommunications, information and computer services, have grown faster than services’ trade in general and amounted to $568bn in 2017. Meanwhile, digitalization has made more services tradable by enabling their delivery over ICT networks. The value of the exports of services that are digitally deliverable amounted to some $2.9 trillion in 2018, or about half of all services exports. Such exports increased substantially across all regions during the period 2005–2018, with the highest growth rate in developing countries, especially in Asia. In Africa and other developing regions, exports of such services have been growing as well but from a lower level.

While all parts of the world are affected by the shift towards online commerce, many developing countries are still held back by limited digital readiness. While the majority of the populations of developed countries now shop online, that is not yet the case in most developing countries. In sub-Saharan Africa, for example, Kenya, Mauritius, Namibia and South Africa are the only countries where this share exceeds 8%. And in most other sub-Saharan African countries it is below 5%. As shown by the eTrade Readiness Assessments conducted by UNCTAD in 27 least developed countries, gaps and barriers are found in several policy areas, ranging from ICT infrastructure and payment solutions to skills and legal framework.

The inclusion of e-commerce on the agenda of the AfCFTA should pave the way for African countries to set rules that can facilitate more regional, cross-border e-commerce. As of today, most e-commerce in Africa is either domestic in nature or involves trade with non-African countries. AfCFTA offers an opportunity for consolidating e-commerce rules and regulations across the continent and openly discussing disagreements. This is an opportunity for Africa to become a global player in trade and have the voice of the continent heard.

Related UNCTAD reports:

Building and utilizing productive capacities in Africa and the LDCs: A holistic and practical guide (UNCTAD)

African countries and LDCs are facing micro- and meso-level production and technical challenges. The recognition and investment in different and complementary types of productive capacities – including production, technological, organizational and innovation capabilities – is a fundamental step in advancing their industrial competitiveness. Building an industry without industrialization is, however, not sufficient to develop and transform the economy and society in Africa and the LDCs. Since the 1980s, African countries and LDCs have been increasingly involved in international production networks; however, this has not gone hand in hand with a deep process of industrialization at the level of their local production systems. These economies will industrialize only when linkages in their domestic industrial systems develop, leading to productive and inclusive transformations (pdf).

Finding technical solutions to these challenges calls for a joined-up industrial policy approach which emphasizes the introduction, coordination and governance of multiple policy instruments beyond policy silos. The development of various institutions providing technical, financial and organizational support to productive firms in Africa and LDCs is also critical in the implementation and enforcement of these instruments. The allocation of resources and rents through industrial policy is a political economy process that requires technical coordination and effective enforcement solutions. In Africa and LDCs, the limited number of productive organizations and their institutional weaknesses reflect a specific type of political economy settlement, where transformative investments are challenged and discouraged by the distribution of power and incentive structure. This condition must be reverted to make industrial transformation possible.

The AfDB has posted a set of Economic Briefs:

  1. pdf COVID-19 pandemic: Potential risks for trade and trade finance in Africa (2.13 MB) . Small and medium-sized enterprises could be particularly exposed to higher rejection rates. When liquidity is low, banks tend to favor larger clients to the detriment of Small and medium-sized enterprises. Default rates on SME trade finance transactions have decreased over the past six years, from 14% to 8.5% in 2019 and have edged closer to the overall default rate on all trade finance assets (Figure 6). However, rejection rate for trade finance applications by SMEs is over two times higher than that on overall trade finance applications. Currently, less than a third of bank-intermediated trade finance in Africa is dedicated to SMEs, although such enterprises play a significant role in the private sector - contributing around 80% of all jobs created in the continent. In normal times, some banks cite the inability by SMEs to provide appropriate documentation to meet regulatory standards (Know your customer (KYC) compliance and anti-money laundering (AML) requirements as one of the reasons for higher rejection rates of trade finance applications. As inperson interactions are reduced and business are forced to shut-down, the crisis could further worsen SMEs’ ability to timely furnish appropriate documentation. [The authors: Eugene Bempong Nyantakyi, Lamin M. Drammeh]

  2. pdf Opportunities amid COVID-19: Advancing intra-African food integration (1.79 MB) . Although AfCFTA will not probably be able to start functioning on its scheduled start date of 1 July, 2020, because of COVID-19 and the related containment measures and restrictions on trade and movement of people, there is a renewed urgency to implement the agreement. Important negotiations to complete some pending technical elements—such as the rules of origin for some sensitive sectors including the agricultural sector, and the exchange of tariff concessions on trade in goods —which were suspended due to the pandemic, should resume as soon as possible to ensure that AfCFTA is not unnecessarily delayed. This is crucial for the future of the agricultural sector and its structural transformation. This also means that, in the short term, African policymakers should avoid anti COVID-19 policy responses that could undermine the AfCFTA agreements. For instance, although import- and export- restricting measures are understandable to contain the spread of the coronavirus, it is also important to establish safe trade and travel corridors that minimize disruptions to agricultural supply chains as much as possible and maintain the provision of essential food items.

    Furthermore, as African countries start to reopen their economies and ease confinement measures, it is also equally important to think of structural agricultural reforms that could facilitate the success of the AfCFTA agreements and maximize their impact. Such reforms could include, for instance, agricultural infrastructure development to ensure productivity growth and boost food production; increased uptake of improved technologies and modern inputs to enhance competitiveness of the agricultural sector; removal of labor, land, and financial market failures that impede technology adoption and efficient resource allocation; and better connection of farmers to agricultural markets to increase their revenues. These reforms are particularly essential in the context of rapidly growing populations and increased levels of urbanization in most African countries, which necessitate substantial growth in food production.

    The on-going COVID-19 pandemic is a wake-up call for African countries and presents unique opportunities to speed up Africa’s integration agenda and implementation of AfCFTA agreements. This is important to reduce the impact of COVID-19 and any future pandemics, enhance food security, and foster economic growth on the continent. [The authors: Hanan Morsy, Adeleke Salami, Adamon Mukasa]

  3. COVID-19 and gold mining in Africa: Turning challenges into opportunities. It is important that countries enforce compliance of mining agreements in their operations with relevant countries’ mining codes. Clear fidelity to the mining codes would require mining companies to put in place Disaster Risk and Business Continuity Plans, which would mitigate the adverse effects of the kind of shocks the sector is experiencing in a crisis such as COVID-19.

    Gold-producing countries should update their mining codes, as several countries have done recently, to automatically adjust for price volatility in times of windfalls. The updates should specifically include a windfall-profit tax, which would go into effect when gold prices reach a particular threshold. Mali’s new mining code, enacted in 2019, introduced a windfall tax. Burkina Faso in 2011, Mauritania in 2012, and Ivory Coast in 2014 indexed their royalty rates to gold prices, which enable the countries to increase their shares of resource rents when prices increase.

    The current stability clauses, which tie the hands of governments in making policy changes that affect mining operations, need to be shortened. While some predictability in contracts is essential, stability clauses that extend for more than five years are disadvantageous to countries. While recommendations for formalizing the ASM sector have been discussed for a while, the COVID-19 pandemic underscores its importance. This sector, if well managed, has the potential to generate significant employment for Africa’s youth, given that the sector is responsible for significant levels of gold production in key gold-producing African countries, e.g., Sudan, Ghana, South Africa, Tanzania and Burkina Faso.

    It is important that African countries put in place measures that encourage the establishment of gold refineries in the country, as a way of locally adding value to the product. It would not only enable the countries to capture more value out of the commodity, but it is also likely to reduce the market risk for ASM miners. [The authors: Ousman Gajigo, Jerry Ahadjie]

Companion AfDB Economic Briefs:

AfDB report: Macro-Economic Policy Responses for Building Resilient Economies in Post COVID-19 Africa

The COVID-19 pandemic has brought unexpected exogenous shocks that have resulted in global, regional, and national policy responses. To contain the spread of the virus and mitigate its impacts, different countries have adopted unprecedented policy measures based on their capacities. These measures are largely two-pronged. The first set – short term – focuses on immediate response strategies to flatten the disease curve through non-pharmaceutical prevention and containment measures – notably personal hygiene, social distancing, border closures, and lock-down of economic activity to various degrees. The second set takes the form of eased monetary and fiscal policies to help citizens, businesses, and public institutions to cope with the crisis. Indeed, most of the policy interventions have focused on the short term.