Building capacity to help Africa trade better

tralac’s Daily News Selection


tralac’s Daily News Selection

tralac’s Daily News Selection
Photo credit: Bloomberg

The Seychelles cabinet this week approved the AfCFTA draft initial offer for Seychelles under the Protocol for Trade in Services

African Medicines Agency update: Burkina Faso became the third AU member state to ratify the Treaty (on 14 April 2020) and deposited the instrument of accession to the Chairperson of the Commission of the African Union on 9 July 2020 in Addis Ababa.

SACU-India PTA update: Discussions between SACU [South Africa, Namibia, Botswana, Lesotho, Eswatini] and India to achieve a Preferential Trade Agreement have been revived with the two sides holding a virtual meeting (15 July) to discuss various aspects of the PTA. The Indian side was led by Mr. Srikar Reddy (Department of Commerce, Government of India) while SACU was led by Amb. Steve Katjiuanjo (Ministry of Industrialization, Trade and SME Development, Namibia). Both sides reviewed the progress made and discussed steps to quickly move forward on the PTA. Mr Reddy said in 2019-20, trade between India and Africa as a whole stood at $66.7bn, of which the India-SACU trade was $10.9bn with an immense potential to expand further. Amb Katjiuanjo called India as a strategic partner for SACU.

TICAD8: The 8th Tokyo International Conference on African Development will be held in Tunisia in 2022. Tunisia is the 2nd African country to host this event after Kenya in 2016, Japan’s embassy to Tunisia announced on Thursday. But no dates were provided.

Africa and the WTO election: two updates

  1. Will Amina be second time lucky in WTO race? When Kenya’s Amina Mohamed faced the interviewing panel yesterday (Thursday) for the top-seat of the WTO, she certainly felt a sense of déjà vu. Just several years back in 2013, she sat through a similar interview, but was unsuccessful in her quest to become director-general of the global organisation. She lost to Brazil’s Roberto Azevedo, who will step down a year early at the end of August. The second phase of the process in which the candidates “make themselves known to members” will end on 7 September, paving the way for a third phase in which the WTO General Council chair, David Walker, together with the chair of the Dispute Settlement Body, Dacio Castillo of Honduras and the chair of the Trade Policy Review Body, Harald Aspelund of Iceland, will start to consult with all WTO members to assess their preferences and seek to determine which candidate is best placed to attract consensus support. This phase may involve more than one stage of consultations as members seek to narrow the field of candidates. The third phase will last no more than two months.

  2. The Nigerian Federal Government has inaugurated a Campaign Strategy Team for Dr Ngozi Okonjo-Iweala, who is vying for the post of the Director-General of the WTO. The Minister of State, Amb. Mariam Yalwaji Katagum, who is the Team Leader of the Campaign Strategy team, pledged the full commitment of members of the team to deliver on its mandate. The Campaign Strategy team comprises officials of the ministry, Ministry of Foreign Affairs; representatives of the Office of the Chief of Staff to the President and Office of the Secretary to the Government of the Federation. The team also include officials from the Ministry of Finance, Nigerian Ambassador to ECOWAS and African Union as well as Geneva–based officials.

Elsie Kanza: The pandemic has created an ethos of urgent collective action in Africa. This model can achieve lasting change (Business Day)

Within the context of the eventual operationalization of the AfCFTA agreement, and with the COVID-19 crisis enduring, here are five pathways to drive economic recovery and build resilience, with tangible initiatives already underway.

  1. New financing models for rapid recovery

  2. Unlocking manufacturing to mitigate global supply chain risks

  3. Leveraging integration and regional value chains

  4. Revitalizing infrastructure and connectivity

  5. Scaling up digital transformation and inclusive innovation.

China-Africa trade takes big hit from coronavirus in first half (SCMP)

Two-way trade between China and Africa fell 19.3% in the first half of the year to $82.37bn as coronavirus ravaged economies and cut demand for commodities. China, one of the biggest importers of raw materials from Africa, including copper, cobalt and oil, cut its imports from the continent by 31% while its exports to Africa fell by 8.3% as restrictions to curb the spread of the pandemic hurt both exports and imports, according to figures from China’s General Administration of Customs. The world’s second-biggest economy sold $48.42bn of goods in the six-month period and imported $33.95bn in goods and raw materials from Africa. South Africa, one of China’s key markets for goods and also a source for raw materials, saw trade between the two countries fall by 27.6%. China cut imports from South Africa by nearly a third, or 32.2%, to $8.68bn, while exports to the country slumped by about a fifth to $6.20bn, according to the customs data.

Southern Africa Economic Outlook 2020: Coping with the COVID-19 pandemic (AfDB)

However, though sluggish, the export growth outlook for 2020 will likely be negatively affected by the COVID-19 outbreak despite individual national initiatives. For instance, Botswana’s export growth had been forecasted to increase to 6.5% in 2020 and to 7.9% in 2021 against the backdrop of implementation of the 11th National Development Plan, which emphasizes the need to diversify both production and exports away from mining into other growth-enhancing and job-creating sectors. In Malawi, the government has proposed to strengthen value-addition through the Special Economic Zone Bill to regulate exports through a national export strategy. The bill proposes multi-product SEZs for oilseeds, sugar cane, beverage manufacturing, and agro-processing, while also prioritizing exports of tea, legumes, oilseeds, and minerals over tobacco. In Eswatini, the revival of the African Growth and Opportunity Act and European Free Trade Association markets were projected to open new markets for exports, which should also benefit from the Southern African Customs Union on the back of South Africa maintaining its growth momentum.

Export revenue has been fluctuating for the region between 2011 and 2018, mainly driven by volatile commodity prices and low production in agriculture as a result of climatic shocks (Table 6). The highest export growth was realized in 2011 at 20.8%. Thereafter, export revenue has been on the decline, with the worst year being 2015. Export growth bounced back in 2017 with a 14.2% increase before decelerating to 10.1% in 2018. Given that the SADC-EPA Group is the largest of EU’s trading patterns in Africa, it will have the highest adverse impact on its trade balance, given that the EU is the epicenter of COVID-19 after China.

Before the COVID-19 pandemic, economic growth in Southern Africa had been projected to recover in 2020. However, following the outbreak of COVID-19, economic growth is projected to slow down through the transmission mechanisms of depressed global demand, decline in commodity prices, low export performance and low foreign direct investment. The pandemic is projected to adversely affect the economic sectors driving the regional economies namely services (tourism and hospitality, transport, distribution and logistics, retail and entertainment), agriculture and mining sectors, among others. As a result, macroeconomic stability will be undermined in a context where some of the regional economies were already fragile, further weakening sustainable development. Clearly, both domestic and external related risks induced by the COVID-19 pandemic means that macroeconomic convergence remains elusive, especially given the fragile economic outlook. Given this, the following policy recommendations are proposed:

Kenya: First quarter 2020 balance of payments (KNBS)

Total export earnings improved by 14.0% from KSh 157.7bn in the first quarter of 2019 to KSh 179.8 billion in the first quarter of 2020. Total exports to Asia rose from KSh 40.9 billion in the first quarter of 2019 to KSh 43.8 billion in the quarter under review representing a 7.1% increase, as presented in Annex 5. There were marked increases in total exports to the United Arab Emirates (24.0 %) and China (23.9%). The major contributors to this rise were increases in the domestic exports of tea to the United Arab Emirates and titanium ores and concentrates to China, as well as increased re-exports of kerosene type jet fuel to these two destinations. Conversely, there was a decline in exports of articles of copper and sodium carbonate to India resulting in reduced earnings from this destination in the review period.

The African continent remained the leading export destination registering an increase of 22.3% in the total value of exports to KSh 66.4 billion during the first quarter of 2020 from KSh 54.3 billion in the same quarter of 2019 and accounted for 36.5% of the total exports. Exports earnings from Rwanda, Uganda, Sudan and South Sudan jointly increased by KSh 11.5 billion from the corresponding quarter of 2019 representing a 45.9% increase. These countries jointly accounted for 55.0% of the total exports to Africa during the period under review. Uganda remained the leading export destination contributing 28.4% of the total export earnings from Africa. However, total exports to Burundi and Somalia fell by 35.5% and 18.2%, respectively. [See Table 3: International Merchandise Trade, 2018– 2020]

pdf 36th Extraordinary Assembly of IGAD Heads of State and Government: communiqué (885 KB) . The 36th Extraordinary Assembly of IGAD Heads of State and Government was held on 14 July 2020, via videoconference, chaired by H.E. Dr. Abdalla Hamdok (Prime Minister of the Republic of the Sudan). On the IGAD Response to the COVID-19 Pandemic:

  • Commended the Secretariat under the leadership of H.E Dr. Workneh Gebeyehu for fast-tracking the formulation and implementation of the comprehensive, 5-pillar IGAD Regional Response Strategy to COVID-19 as directed by the 35th Extraordinary Assembly on 30th March 2020 and took note the progress made thus far

  • Directed the IGAD Secretariat produce a Monthly Regional Status Update Report on COVID-19 and corresponding responses in the region

  • Called for the adoption of Regional Guidelines on Harmonization and Facilitation of Cross Border Transport Operations across the Region in preparation for gradual and sequenced deconfinement and reopening of the air space between Member States.

IGAD launches consultations with member states on the harmonization of production and utilization of migration data

The 27th Ordinary Meeting of the ECOWAS Administration and Finance Committee concludes today

Moratorium on electronic transmissions: fiscal implications and way forward (UNCTAD)

In March, India and South Africa outlined the adverse implications of the moratorium for developing countries. These include the loss of policy space together with potential tariff revenues and the possible impact of digital technologies like 3D printing on manufacturing. A decision on continuing with the moratorium or not will be taken at the 12th WTO Ministerial Conference in 2021. COVID-19 and the subsequent prolonged lockdowns have led to an exponential rise in imports of digitalized luxury items like movies, music, video games and printed matter. While the crisis is expected to push millions of people in developing countries to extreme poverty, precious domestic financial resources are being spent on imports of these luxury items. Estimating the potential revenue dent (pdf):

The WTO identified digitizable products under five categories: sound recordings, audiovisual works, video games, computer software and literary works. It identified 30 digitizable products with their Harmonized System (HS) codes and associated tariffs, estimating that the physical trade of these products has been falling at an annual rate of -2.7% since 2000. It concluded that the falling physical imports are associated with reducing tariff revenues, therefore the estimated tariff revenue loss due to the moratorium is not significant.

However, UNCTAD highlighted that the moratorium applies to the online imports, not the physical ones. It was the first study to estimate online imports of digitizable products for 91 countries. The study found that the actual global physical imports of the identified 49 digitizable products in 2017 were worth $116bn, while the estimated physical imports were valued at $255bn. The global imports of these digitizable products via electronic transmissions were therefore estimated at $139bn. The study further estimated that due to the WTO moratorium, the potential tariff revenue loss to developing countries was $10bn in 2017.

The potential tariff revenue loss to least developed countries was estimated at $1.5bn while sub-Saharan African countries lost about $2.6bn. High-income countries experienced a tariff revenue loss of only $289m, as their average bound duties are pegged at 0.2%. Developing countries can therefore generate forty times more tariff revenue every year compared with developed countries by imposing customs duties on electronic transmissions. The authors, Richard Kozul-Wright, Rashmi Banga]

pdf The role of trade finance in promoting trade: the implications of COVID-19 on trade finance in Africa (392 KB) (COMESA)

To mitigate the potential impact of Covid-19 on African trade and keep market access channels open, uninterrupted supply of trade finance by banks is vital. But there are reasons to believe that the measures adopted by governments to combat the pandemic may also impact firms’ ability to obtain trade finance at a time when they need it the most. The following are some of the key policy recommendation which could help overcome the challenges (noted above):

  1. Enable a rapid transition to paperless trading by: (a) immediately avoiding all existing legal requirements for trade documents to be in hard-copy paper format; and (b) facilitating fast-track adoption of the UNCITRAL Model Law on Electronic Transferable Records to provide a sound legal basis for the use of e-documents in the processing of trade finance transactions.

  2. Implementation of regulatory reforms, aimed at promoting trade facilitation to ensure that Regional FTA’s are well functioning and facilitate access to trade finance for the benefit of intra-Africa trade.

  3. Know your customer (KYC) and regulatory compliance requirements by international banks with respect to their African correspondent banks need to be addressed to avert any withdrawal of these institutions from Africa or any meltdown of correspondent banking relationships.

  4. Avoiding the unintended consequences of Basel III in trade finance particularly for developing countries.

  5. As development finance institutions and governments set up financial facilities to support businesses and critical sectors, part of the solution should entail setting up rapid emergency facilities such as trade finance lines and risk-mitigation instruments earmarked to support banks, SMEs and other local corporates.

  6. The scale of the pandemic shows that rapid support may be needed for banks and enterprises in vulnerable and fragile states in Africa, as well as those that may be severely affected by commodity price shocks.

  7. Ensure all export credit agencies are equipped to provide adequate support for short-term trade transactions with appropriate coverage limits and geographical scope. [Note: The author, Ibrahim A. Zeidy, is the director of the COMESA Monetary Institute]

FAO launches the new COVID-19 Response and Recovery Programme outlining seven key priority areas. The agency is calling for $1.2 in initial investment to support the needs of the new COVID-19 Response and Recovery Programme. “We cannot employ a ‘business as usual’ approach anymore,” highlighted FAO Director-General QU Dongyu in his opening remarks. The FAO called for immediate action in seven key priority areas:

  1. Reinforce a global humanitarian response plan for COVID-19

  2. Improve data for decision-making

  3. Ensure economic inclusion and social protection to reduce poverty

  4. Bolster trade and food safety standards

  5. Boost smallholder resilience for recovery

  6. Prevent the next zoonotic pandemic through a strengthened One Health Approach

  7. Trigger food systems transformation.

The COVID-19 pandemic struck the global economy after a decade that featured a broad-based slowdown in productivity growth. Global Productivity: Trends, Drivers, and Policies presents the first comprehensive analysis of the evolution and drivers of productivity growth, examines the effects of COVID-19 on productivity, and discusses a wide-range of policies needed to rekindle productivity growth. The book also provides a far-reaching dataset of multiple measures of productivity for up to 164 advanced economies and emerging market and developing economies and introduces a new sectoral database of productivity.

Mark Lowcock, the UN’s top humanitarian official, today called on the world’s leading industrial nations, the G20, to step up support, as he released an updated $10.3bn appeal to fight coronavirus spread in 63 low-income countries.

Today’s Quick Links:

What rest of the region must do to join Tanzania, Kenya in middle-income league

Kenya: SGR cargo revenue declines by Sh154m in five months

COVID-19: SADC MPs brace for long haul

Uganda: WBG provides $15.2m in support of coronavirus response

IMF: Five charts that illustrate COVID-19’s impact on the Middle East, Central Asia


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