tralac’s Daily News Selection
Diarise: 27 July. Leading the way: How Africa is establishing a 21st century trade agenda
This event will introduce the new World Bank Group report: The African Continental Free Trade Area: economic and distributional effects. The report is designed to help countries implement policies that can maximize the agreement’s potential gains while minimizing risks. Through a discussion moderated by Albert Zeufack, World Bank Chief Economist for Africa, a series of speakers (including tralac’s Trudi Hartzenberg) will discuss the economics behind the trade agreement and how policymakers can use the AfCFTA to increase competition and prepare their workforces to take advantage of new opportunities.
tralac Blog, by Dirk de Vos, Trudi Hartzenberg: The looming Brexit cliff – what it means for South Africa and for SACU
Even after the UK leaves, the EU as a block remains South Africa’s most important trade relationship. The UK, on its own, is South Africa’s second biggest export destination after China. Our exporters will need to immediately develop plans to minimise the almost certain disruptions to existing logistical arrangements. For all this, there are potential upsides. South Africa should press the UK to reduce technical barriers to trade for South African exporters. If the UK is no longer a participant in the EU’s common agricultural policies that protect EU farmers, why retain the cumbersome VI-1 form for South African wines?
While the UK carved out the zero and low tariff quotas in its trade deal with SACU+M, South African exporters could exploit market opportunities in the rest of the EU since the quotas for South African exports in the free trade agreement with the EU remain in place. How about something more entrepreneurial? The South African freight forwarding sector has lots of experience getting goods into and out of the EU. Freight forwarding is a relentless enterprise, and the industry in South Africa is experiencing a serious COVID-19 downturn. But it has exactly the skills and experience that the UK freight forwarding sector will be needing. Much of the preparatory work in this value chain can be done remotely and South Africa has the advantage of being in the same time zone. This could be an excellent business process outsourcing opportunity.
Medical industries in Africa: a regional response to supply shortages (ITC)
Africa can position itself strategically and develop a regional response to avoid healthcare product shortages similar to those triggered by the COVID-19 crisis. That’s the main message of Medical Industries in Africa: A Regional Response to Supply Shortages, a new International Trade Centre report. Today, Africa sources only 8% of its health-related products from African suppliers. The continent can become competitive in some of these items while combating the crisis and building its own resilience to future pandemics, the ITC report finds. The report urges policymakers to consider regional suppliers with export growth potential. Diversifying would reduce the impact of export restrictions on essential goods and make the continent less dependent on just a handful of foreign suppliers. Egypt, Ghana and South Africa are viable alternatives for products such as disinfectants and adhesive bandages. Governments also should help build up Africa’s capacity to produce key medical supplies by developing regional value chains, the report says. Extract (pdf): The African Continental Free Trade Agreement has a role to play.
Differences between the average tariffs charged to African and to non-African suppliers of medical products are often small (Figure 3). The average tariff rate for disinfectants from African suppliers is 7.1%, while imports from outside Africa face an average tariff level of 8.8%. The average tariff on highly concentrated ethanol – the main ingredient in disinfectants – is 14.2% for intra-African trade and 16.7% for extra-African imports. Likewise, the average tariff applied to imports of surgical gloves from African suppliers is 5%, marginally lower than the 5.2% tariff charged to non-African suppliers. For filtered masks, African suppliers enjoy just a slightly more attractive average tariff (2.9% versus 3.3% for non-African suppliers).
Evidence from ITC business surveys on non-tariff measures suggests that trade-related regulations disproportionately affect intra-African trade. While African countries export just 32% of their medical products to African markets, they are responsible for 72% of the burdensome non-tariff measures faced by African exporters. Most challenges when exporting to Africa stem from rules of origin that make it difficult for companies to benefit even from the small tariff advantages they enjoy today on African markets. The African Continental Free Trade Agreement therefore has a vital role to play. Tariff cuts and trade facilitation measures to support the free flow of health products and their ingredients regionally will be an important step in supporting regional value chains in selected medical products. Such measures will help build the continent’s resilience to global health crises and diversify the global supply. It remains important for AfCFTA negotiations and implementation to prioritize these aspects. In the interim, the regional integration organizations must consolidate efforts and serve as building blocks for the AfCFTA.
Recovering better: Economic and social challenges and opportunities (UNDESA)
With multilateral cooperation under strain, senior UN officials, Nobel laureates and eminent academic experts, gathered virtually on Wednesday for the launch of a new report recommending “an adjusted approach” to economic development, and a policy dialogue exploring how countries can recover from COVID-19, in ways that lead to real structural transformation. “Parallel threats linked to health, economic and social crises have crippled countries and left us at a standstill”, said Liu Zhenmin, Under Secretary-General for Economic and Social Affairs, as he presented a new report by the High-level Advisory Board on Economic and Social Affairs. Broadly speaking, Nobel economist Joseph Stiglitz said that at a moment when more global cooperation is badly needed, strong forces are fraying the global economy. While the “Trump-kind of protectionism” will go by the wayside, he argued, the deeper problem is that supply chains have not been resilient and instead made countries more vulnerable. He described the disappearance of optimism prevailing after the US-Soviet Cold War era, that countries were converging around liberal democratic models and free-market economies. Under the turmoil of COVID-19, authoritarianism is now flourishing in some parts of the world, which has led to a split among nations. “Post-COVID-19, the world is going to have a very different architecture, no matter who is in the White House, no matter what is going on around the world”, he explained.
Extracts from Chapter IV (written by Ms Christina Duarte): Sustainable financing for (an owned) sustainable development: time for Africa to give the driver’s seat to domestic resource mobilization (pdf)
The question therefore is: “What should African policymakers do in order to substantially increase domestic development financing over a sustained period of time?”
First, African policymakers should be conscious of the following: Sustainable financing is not the ability to issue Eurobonds every two to four years and get them oversubscribed by international financial markets due to positive outlooks by Standard and Poor’s. Development finance is not a technical problem; it is not a question of creating or adopting innovative financing mechanisms proposed by investment banks. Development finance is essentially a political and strategic challenge. Independent of technical solutions, policymakers must have a consistent political commitment and take a long-term strategic approach.
Second, African policymakers must understand that development cannot be outsourced and proceed accordingly. African leadership must lead effectively and, in order to lead, must exercise ownership to build the necessary and indispensable institutions for domestic resource mobilization—a challenge that requires vision, strong institutions, accountability and transparency.
Third, Africa’s development environment has the key elements or fundamentals to support a robust drive to mobilize domestic resources. The Addis Ababa Action Agenda accurately states that domestic resource mobilization is first and foremost generated by economic growth. But, in the case of Africa, such a statement cannot be adopted as a starting point for DRM policies; it might push for a “let’s grow first and mobilize internal resources later” approach. With high informal economies and huge illicit financial outflows, this approach might take policymaking in the wrong direction.
Figure IV.2: Achieving sustainable finance for sustainable development in Africa also demands an intangible dimension: developmental institutions.
The world is increasingly going digital but much still need to be done on the continent to increase internet penetration. According to the International Telecommunication Union, in 2019 only 28 per cent of Africans used the internet and online shoppers are relatively still few. Experts say that in the wake of COVID-19, there is an urgent need for African enterprises to digitalize and tap into enormous opportunities offered by e-commerce. For example, Kenya, Mauritius, Namibia and South Africa are the only countries where the share of online shoppers exceeds 8 per cent. In most other countries, it is below 5 per cent. Ms Mama Keita, Director of UN Economic Commission for Africa in Eastern Africa says that the COVID-19 pandemic changed the way we do business, and this should be an accelerator for digital transformation. Sectors like education, health, trade, food delivery, events and conferencing experienced unprecedented demand for technology. Ms Keita was speaking in a virtual dialogue on how women digital entrepreneurs are contributing to the region’s digital transformation. She stressed how COVID-19 crisis and containment measures have upended almost every aspect of life, affecting big and small enterprises, disrupting supply chains, causing the decline of export revenues and interrupting the tourism, transport and logistic sectors significantly.
Adding fuel to the fire: Cheap oil during the COVID-19 pandemic (World Bank)
Oil prices have plummeted, recording their largest one-month fall on record in March 2020. By one measure, the European Brent spot price, the oil price fell by 85% between January 22, when the first human-to-human transmission of COVID-19 was announced, and its trough on April 21—more than at the height of the global financial crisis (70% from end-August to late December 2008) and more than the plunge during the whole period of end-June 2014 to midJanuary 2016 (77%). The West Texas Intermediate oil price fell into negative territory on April 20. 2 Since then, Brent oil prices have regained some ground but, at around $30 per barrel on average in the first three weeks of May, remain less than half their January average and around the January 2016 trough of the oil price slide of 2014-16. Against this background, this paper examines the likely implications of the 2020 oil price plunge by putting it in a historical context and drawing lessons from the experience of emerging market and developing economy energy exporters and importers during the 2014-16 plunge (refer to Appendix 1 for country classification). Specifically, the paper addresses the following questions: First, what has been the source of the 2020 oil price collapse? Second, how does it compare with earlier episodes? Third, how will low oil prices likely affect the eventual recovery of EMDE energy exporters and importers?
Mukhisa Kituyi, Dona Bertarelli: Why a sustainable blue recovery is needed (UNCTAD)
The world’s seventh largest economy based on GDP doesn’t belong to a single country, and isn’t even on land, yet it’s valued at around $3 trillion annually, and supports the livelihoods of more than 3 billion people. It’s the ocean. Worryingly, the ocean and the blue economy it supports are not only in severe decline, the current mode of operating is no longer sustainable. The UN Decade of Ocean Science, which starts next year, will be an opportunity to maximise the benefits of effective science-based management of our ocean space and resources.
Decarbonizing shipping. International shipping and coastal transport can reduce their carbon dioxide emissions by investing in low-carbon technologies and operations, reducing pollution and promoting greater digitalization for better monitoring, energy efficiency and lower emissions. New technologies and satellite data can combine data sources that are enabling unprecedented insights into the ocean, in terms of mapping, surveillance and enforcement. Such transparency is uncovering more than illegal, unreported and unregulated (IUU) fishing. We now have insights into the economics of fishing on the high seas, the relationship between IUU fishing and bonded labour and where to best establish marine reserves, and the capacity to provide data for enforcement.
Deploying blue finance and marine-based research. Innovative financial instruments such as blue bonds and blended financing are needed to fund the shift towards more sustainable ocean sectors. For instance, in 2019, Morgan Stanley, working with the World Bank, sold $10 million worth of blue bonds with of the aim solving the challenge of plastic waste pollution in oceans. Investment in applied marine-based research, development and knowledge sharing should also be increased. To this end, UNCTAD has established regional centres of excellence with partner institutions in Vietnam and Mauritius, enabling the sharing of experiences, technical knowledge and fisheries’ inputs. SIDS and coastal communities are vital to preserving the ocean and will need global support to conserve and develop a blue economy that benefits not only local populations but humanity as a whole. Longer-term, countries around the world need to expand ocean and sustainable blue economy literacy, especially among vulnerable populations, and increase understanding of gender considerations. We need more individual and collective action if we are to build a sustainable blue economy that leads to prosperity for all.
Global consumers are warming up to electric cars, whose sales are expected to jump from 3 million vehicles in 2017 to 23 million in 2030, according to the International Energy Agency. Similar growth is expected for rechargeable batteries, with the market for cathode – the positive electrode of the lithium-ion battery – forecast to reach $58 billion in 2024, up from an estimated $7 billion in 2018. While this is great news for efforts to cut greenhouse gas emissions, an UNCTAD report says the expected boom in mining for the raw materials used to make rechargeable batteries raises environmental and social concerns that must be urgently addressed. “Most consumers are only aware of the ‘clean’ aspects of electric vehicles,” says Pamela Coke-Hamilton, UNCTAD’s director of international trade. “The dirty aspects of the production process are out of sight.” This is because while most of the consumers live in industrialized nations, the lion’s share of the raw materials is concentrated in a few developing countries. Nearly 50% of world cobalt reserves are in the Democratic Republic of the Congo, which accounts for over two-thirds of global production of the mineral. About 20% of cobalt sourced from the central African nation comes from artisanal mines, where some 40,000 children work in extremely dangerous conditions, according to UNICEF, the UN’s children’s agency. Commodities at a glance: Special issue on strategic battery raw materials (pdf).
The report is divided into six chapters. The first chapter discusses the different types of rechargeable batteries, their performance and chemistries. The second chapter presents an overview of the selected battery raw materials considered in this report. The third chapter discusses the upstream and downstream value chains of the LIB. The fourth chapter discusses supply, demand with respect to production and consumption, and price evolution of the selected raw materials used in LIBs. The fifth chapter discusses the social and environment effects related to exploitation of the selected battery raw materials discussed in this report. The final chapter draws some policy implications from the report.
Evolving to work better together: public-private partnerships for digital payments (IMF)
Public-private partnerships look good on paper. But if we’re serious about them, we — the central bankers and regulators of the world — have to shift our focus to market design and contestability, firm entry and exit, anti-trust, and business model viability. Perhaps we must learn to be a little more agile, a little more open to change. And you — the innovators — have to learn about safety, resilience, stability, and policy objectives. These might constrain your products, and might require longer development times — but for good reason. I will focus on public-private partnerships to provide central bank digital currency — CBDC. The goal of these partnerships is to preserve comparative advantages: for the private sector to interface with customers and innovate, and for the public sector to regulate, supervise, and ultimately provide trust.
In so doing, I cannot emphasize too strongly the importance of regulatory clarity and consistency — domestically and internationally — to encourage innovation. Note that public-private partnerships are not new, even for the provision of money. Cash is designed by central banks but distributed by commercial banks. And most of the money we use — in the form of commercial bank deposits — is created by the private sector; is a private liability; and is settled in great part through private clearinghouses, all under the strict supervision of the central bank. So what would a public-private partnership look like for the provision of CBDC? Two models stand out. [A speech by Tobias Adrian (director of the IMF’s Monetary and Capital Markets Department) delivered at the “Building CBDC: A Race To Reality” conference]