David Luke: Why trade matters for African development (LSE Africa)

The central role of trade in development requires that trade policies, trade agreements and concessional arrangements are monitored, assessed and analysed in relation to positive and negative externalities. Key issues for analysis range from structural changes to the economy, regional imbalances, and poverty to employment, decent work and gender equality, and from technological change including digitalisation to public health and climate change. There is a good case for independent work that:

1. systematically monitors trade negotiations in which African countries are engaged

2. assesses the impact of trade agreements and policies in Africa, and

3. identifies practical policy measures and other changes to improve the developmental impact of trade.

An emerging question that also deserves attention is, how will the UK’s new trade policy affect Africa and other developing countries? The LSE Firoz Lalji Africa for Centre is well placed to become a repository of real time information on current trade negotiations through which African countries are engaged via an Africa Trade Negotiations Monitor. It will allow not only trade experts and policy makers but the whole community of scholars to keep track of the trade rules that shape development outcomes. This can be complemented with analytical work on trade policy impacts with a view toward the publication of an annual Africa Trade Year Book. [Note: David Luke is coordinator at the African Trade Policy Centre, UNECA]

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Ebrahim Patel: Building African economic resilience is key for continental prosperity (DTIC)

South Africa’s Minister of Trade, Industry and Competition, Mr Ebrahim Patel, participating in the African Union meeting of Ministers of Agriculture, Trade and Finance yesterday, called for greater efforts to build economic resilience across the African continent. “African countries are learning the hard lesson that we cannot simply remain exporters of raw materials and importers of medical supplies and food products. We must confront uncomfortable facts and deal with Africa’s position in the global economy. Africa has 17% of the world’s population, yet only 3% of the world’s GDP. Our continent imported $66bn agricultural products in 2019 from outside the continent and Africa runs an agricultural trade deficit with the rest of the world of some $22bn. The level of imports is bigger than the individual GDPs of more than 40 African countries.”

Greater attention must be given to building up Africa’s production in agriculture – both in basic staple food as well as higher value added agro-processed food, Minister Patel said. This would require logistics, transport and agro-infrastructure, irrigation, veterinary support, financing systems, the ease of moving across borders and the political will required to enable African-grown food to go from the farm to the table. “Trade policy must support the efforts at building local and continental capacities, building regional markets in energy, digital and financial inclusion, and enable the start of trading under the AfCFTA; and we must be determined that the legacy of covid-19 must be a stronger, economically more prosperous Africa, producing a wider range of value-added products and with a large and dynamic internal African market. This must be the time for the Made in Africa, the Proudly Produced in Africa initiative to be at the heart of our efforts in economic reconstruction,” Minister Patel said

• Chris Onyango (Director of Trade and Customs, COMESA): What can be done to improve intra-Comesa trade and attract more investments into the region?

• Landry Signé, Mary Treacy: Covid-19 is accelerating multilateralism in Africa

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The African Continental Free Trade Area: economic and distributional effects (World Bank)

This report is designed to guide policy makers as they continue the process of negotiating and implementing the agreement. Creating a continent-wide market will require a determined effort to reduce all trade costs. This will require legislation to enable goods, capital, and information to flow freely and easily across the African borders. Competitive business environments will boost productivity and investment. Increased foreign competition will put pressure on domestic firms to increase productivity or risk losing market share. For most African firms, the best way to raise productivity and increase market share will be to invest in technological capabilities that enable them to develop domestic and regional value chains while taking advantage of the opportunities offered by global value chains.

In the few sectors where AfCFTA’s implementation results in job losses, governments will need to be ready to support workers with adequate safety nets and policies to retrain them. Policy makers will also have to prepare for AfCFTA’s distributional impacts—across sectors and countries, on skilled and unskilled workers, and on female and male workers. Doing so will enable them to design policies to increase the readiness of their workforce to take advantage of new opportunities.

AfCFTA is a major opportunity for Africa, but implementation will be a significant challenge. Lowering tariffs is only the first step. Reforming non-tariff and trade facilitation measures will require substantial policy reforms at the national level. These reforms may require politically difficult decisions in some cases. However, the agreement’s opportunities can be used to help policy makers overcome these challenges and implement the substantive reforms that are needed to make Africa as competitive as any other region in the world. [Note: Extract from the foreword by Caroline Freund (Global Director, Trade, Competition and Investment), Albert Zeufack (Chief Economist, Africa Region)]

The African Continental Free Trade Agreement represents a major opportunity for countries to boost growth, reduce poverty, and broaden economic inclusion. Implementing AfCFTA would:

• 30 million Africans out of extreme poverty and boost the incomes of nearly 68 million others who live on less than $5.50 a day

• Boost Africa’s income by $450bn by 2035 (a gain of 7%) while adding $76bn to the income of the rest of the world

• Increase Africa’s exports by $560bn, mostly in manufacturing

• Spur larger wage gains for women (10.5%) than for men (9.9%)

• Boost wages for both skilled and unskilled workers - 10.3% for unskilled workers, and 9.8% for skilled workers.

Of the $450 billion in income gains from AfCFTA, $292bn would come from stronger trade facilitation—measures to reduce red tape and simplify customs procedures.

• Tariff liberalization is important, but by itself it would boost the continent’s income by just 0.2%

• Adding trade facilitation to the mix—including measures to reduce red tape, simplify customs procedures, and make it easier for African businesses to integrate into global supply chains—would boost the income gains by $292bn

• These gains will require major efforts by countries to reduce the burden on businesses and traders to cross borders, quickly, safely, and with minimal interference by officials.

pdf The African Continental Free Trade Area: Economic and Distributional Effects (World Bank, July 2020) (7.90 MB)

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South Africa and the IMF: Request for purchase under the Rapid Financing Instrument

South Africa has the highest number of COVID-19 cases in sub-Saharan Africa. To mitigate the health impact, the government introduced a lockdown with a severe bearing on domestic demand. Existing structural constraints are being exacerbated by disruptions in the global supply chain. Moreover, deteriorating global financing conditions triggered portfolio outflows, particularly at the start of the pandemic, impairing a major source of external financing. As a result, a deep recession is unfolding in an economy already experiencing protracted subdued growth and deteriorating social conditions, with high unemployment, poverty, and inequality. Extracts from Appendix I - Letter of Intent:

• Prolonged weakness in the South African economy would have negative spillovers to the sub-Saharan African region, in particular in the southern part of the continent. South Africa remains a key contributor to the region’s GDP. Trade in goods and services and remittances from regional workers employed in South Africa would also be at risk. At the same time, a drag in South Africa’s investments in neighbouring economies would jeopardize regional integration.

• We do not intend to introduce or intensify exchange and trade restrictions and other measures or policies that would compound South Africa’s balance of payments difficulties.

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How conversations with private sector partners are helping shape IFC’s COVID response strategy. It is an extraordinary time. The COVID-19 crisis threatens to reverse much of Africa’s recent progress, with the World Bank forecasting that the region will slide into recession in 2020 for the first time in more than 25 years. Since March, IFC has deployed $517m in COVID-19 related support to partners in Africa and the Middle East, including a combined $200m to Nigeria’s Access Bank, FCMB and Zenith Bank for on-lending to SMEs across several sectors facing working-capital or trade-finance challenges. The facility will support hundreds of businesses in Nigeria’s health, pharmaceuticals, food, and trading sectors, allowing them to strengthen operations, maintain employment, and access critical imports of goods, commodities, and raw materials during these challenging economic times. We will soon be announcing our next wave of engagement, which will focus more closely on specific regional and industry needs. This will include World Bank Group collaboration to help rebuild economies and to create projects that will attract investment back into developing countries. We must keep listening, and we must provide support where it’s needed most. We hear our partners and will continue to respond quickly to their needs.

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Mobile money and investment by women businesses in Sub-Saharan Africa (World Bank)

This study connects two important findings in Sub-Saharan Africa. First, digital technologies such as mobile money have become widespread and have increased investment by businesses, especially in East Africa. Second, women-owned business in the region significantly lag their male counterparts in capital investments. Using data for 16 Sub-Saharan African economies, the study connects the two findings by exploring whether mobile money use by women-owned firms increases their investment. Extract (pdf):

Persistent gender disparities are observed also for women entrepreneurs. Female-owned businesses in Africa tend to have fewer employees, lower value-added, and lower productivity than their male counterparts. Part of the observed productivity gaps can be attributed to outward orientation (export status and foreign ownership), the ability to protect themselves from crime, and also the use of digital technology. Another significant disparity between female-owned and male-owned businesses is the degree of capital investment. Data from 14 impact evaluations show that the average capital investment by female owned firms is more than six times lower than the average for male-owned firm in Africa. A key question to answer is, therefore, whether highly inclusive digital technology, like mobile money, can benefit women enterprises by increasing their investments.

A recent study across four East Africa economies uncovered a positive relationship between mobile money use and investment by firms. This study revisits this relationship by exploring whether this relationship varies by gender of the business owner, and also extending the sample of study from 4 economies in East Africa to 16 economies across Sub-Saharan Africa. The analysis is based on a unique firm-level data set with a mobile money module that is implemented using a consistent methodology and the same survey instrument for about 4,700 formal firms across 16 countries in Sub-Saharan Africa. The findings are striking. The positive relationship between mobile money use and investment is confirmed; more importantly, the relationship is largely driven by female-owned firms and is statistically insignificant for male-owned firms. [The authors: Asif Islam, Silvia Muzi]