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The dark side of globalization: Fighting illicit trade to safeguard integrity across economies, markets, and supply chains
Illicit Trade: fighting money laundering in international trade
Remarks by David M. Luna, Senior Director for National Security and Diplomacy Anti-Crime Programs, Bureau of International Narcotics and Law Enforcement Affairs, at a Working Session at the WTO Public Forum 2015 in Geneva
Good morning.
It is an honor to participate at this year’s Public Forum (“Trade Works”) under the auspices and leadership of the World Trade Organization (WTO). I would also like to thank the Government of Colombia for hosting our panel discussion this morning on how illicit trafficking globally harms international trade.
But first, I would like to congratulate the WTO for celebrating its 20th anniversary in 2015 and for its commitment over the years in helping to build and strengthen the rules-based global trading system. I very much agree that global trade has helped to boost growth markets, lift people out of poverty, increase access to goods and medicines, and in many ways, helped to promote “cultures of integrity” across economies, markets, and supply chains.
In that regard, I also want to congratulate the WTO and its members for the historic accomplishment of concluding the Trade Facilitation Agreement. And, like others have already done, I would urge all WTO Members to ratify the TFA as soon as possible. One of the reasons the TFA is so important is its recognition of the critical importance of risk management, of prioritizing and facilitating the flow of legitimate trade – the vast majority of trade. This has the critical effect of helping to focus scarce customs resources on detecting and stopping illicit trade. In a globalized world, where criminals are well-networked and organized, we should be too. Ensuring that we have the tools to counter such activities is more important than ever.
As Moises Naim underscored in his well-known book Illicit, “Global criminal activities are transforming the international system, upending the rules, creating new players, and reconfiguring power in international politics and economics.”
In too many places around the world, including in developing countries, criminals have built great empires on dirty money and laundered funds to infiltrate and corrupt government institutions. In this shadowy, illegal economy traffickers and narcotics kingpins act as CEOs and venture capitalists while they build their empires of destruction, jeopardizing public health, emaciating communities’ human capital, eroding our collective security, and destabilizing fragile governments.
Just to give you a snapshot of the breadth and scale of these illicit markets, various international organizations estimate the illegal economy accounts for 8 to 15 percent of world GDP, and in many developing countries, it may account for higher percentages in their economies. The WTO estimates that the value of counterfeit and pirated goods alone is equivalent to some 7% of the world’s merchandise.
This darker side of global trade is thriving with hundreds of billions of dollars in illicit commerce that includes trafficking in narcotics, persons, endangered wildlife, illegally-logged timber, counterfeit consumer goods and medications, hazardous and toxic waste, stolen antiquities and art, illicitly-traded cigarettes, and other illicitly-traded goods and commodities.
Simply put, illicit trade is an obstacle to shared prosperity, by breeding corruption and siphoning capital and human resources away from productive economic activity.
As societies grapple with insecurity and instability, illicit trafficking and corruption further decay any remaining sustainable pillars for development when governments cannot afford to provide vital public security and law enforcement because revenue streams from legitimate commerce are being siphoned away by corrupt officials, smugglers, and criminals.
Countries are also losing their human capital and economic potential when young men, women, and children are kidnapped, trafficked, exploited, or even murdered by a web of criminality and corruption.
Thus, the societal harms and impacts posed by illicit trafficking are very real.
Corruption helps to fuel this and enriches not only those bad actors and illicit networks behind today’s illegal economy but also enables corrupt police, customs, judicial, and other security officials who protect criminals and allow them to carry out their illicit trade.
I would also note that corruption contributes to slower growth, reduced foreign investment, and lower profits.
The OECD Task Force on Charting Illicit Trade, which I chair, is working on advancing international public-private partnerships and regional dialogues that help inform communities on the harms and impact of illicit trade. In joining this week’s Public Forum discussion in Geneva, I firmly believe that when the OECD, WTO, APEC, ASEAN, the United Nations, Interpol, leadings NGOs, and many other partners join forces, we can make a significant difference through collective action. Together, we can help impacted communities to combat the dark side of global trade and related corruption and money laundering.
We must continue to strengthen cross-border cooperation to tackle illicit trade and increasingly inter-connected global challenges, and help communities to fully seize the benefits of open trade to achieve great sustainable development and security. Of course, such cooperation should not impede the rules of the global trading system, but rather be consistent with them.
Pursuant to the questions posed to this panel, and in terms of pragmatic ideas and ways that we can devise strategies to confront these menaces. Coordinating international expertise in the quantification and mapping of illicit markets is a first step. This will enable a fuller understanding of the connections between different forms of trafficking. Concurrently, we need to support the experts in their analyses public policies that successfully increase economic and societal resilience to this threat. Then, we need to isolate elements of successful polices that can be disseminated to share with and emulated by other communities.
Moreover, to mitigate this global risk, public and private sector decision makers need a firmer grasp on the magnitude and nature of its impacts on economic activities, and a clearer understanding of the conditions that enable it. This can help to inform effective policy strategies and operational partnerships between the public and private sectors. The OECD TF-CIT will soon release a state-of-play report on the some of the global scale and impacts of illicit trade.
Additionally, in 2015-2016, the activity of the TF-CIT will continue to focus on:
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Mapping the economic activities of transnational criminal networks, by gathering data on volume and flow of illegal trades and agreeing to common methodological approaches;
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Examining the conditions and policies that encourage or inhibit different sectors of illegal trade, whether at the level of production, transit, or consumption;
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Developing visualization tools to help public and private sector decision makers better target prevention and mitigation efforts in strategic markets; and embarking on campaigns to educate communities not to “buy into organized crime,” taking the profits away from criminals and protecting the public’s health and safety; and
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Partner across borders through our regional dialogues including those that have taken place in Mexico, Thailand, and the Philippines, and meetings that we are keen to have in the Middle East, Europe, and Southeast Asia. We are partnering with INTERPOL, World Customs Organization (WCO), UNODC, International Chamber of Commerce (ICC), APEC, ASEAN, European Union, and many others.
Truly, the illegal economy poses an existential threat when it begins to create criminalized markets and captured states, which launches a downward, entropic spiral towards greater insecurity and instability.
The United States will continue to enhance international cooperation with key partners to combat the lethal nexus of organized crime, illicit trade, corruption, and money-laundering, and to protect communities from the violence, harm, and exploitation wrought by transnational threat networks. We will do this by enhancing our efforts to: break their corruptive power; attack their financial underpinnings; follow the money and strip them of their illicit wealth; and severe their access to the financial system.
At a time when global risks are growing and converging, the international community must come together and build our own “network of networks” to better understand the current and future turbulences of our world, and to coordinate responses and action.
Global trade, foreign investment, and economic development do create wealth and prosperity and finance economic freedoms around the world.
We must be vigilant, however, to secure these gains of globalization. Efforts to combat illicit activity should not create new barriers to legitimate trade. We must continue to shut down the illegal economy and criminalized markets, put criminal entrepreneurs and illicit networks out of business, and facilitate legitimate trade and enhance integrity across economies, markets, and supply chains.
That is why the WTO Trade Facilitation Agreement is so important. The TFA contains provisions for expediting the movement, release and clearance of goods, including goods in transit. It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. It further contains provisions for technical assistance and capacity building in this area.
Beyond ratifying and implementing the TFA, countries should look to adopt international standards, best practices, and norms on criminalization, including those contained in the Financial Action Task Force (FATF) recommendations to combat money laundering and terrorist financing, and the UN Conventions against Transnational Organized Crime (UNTOC) and against Corruption (UNCAC) to reduce barriers to trade. As noted earlier, because criminals re-invest their illicit profits into other forms of organized crime and in the real economy, combating money laundering, and tracking and confiscating illicit funds are critical.
In closing, illicit trade harms the global trading system that the WTO and its members have worked so tirelessly to build.
If we do not work together, we will collectively destroy our chances of achieving a sustainable future for our children and grandchildren, lifting even more people out of poverty, and helping communities create a better world.
If we do, we can advance trade security as a powerful instrument to more smartly achieve these noble goals.
Thank you.
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Reforms of International Investment Agreements should promote sustainable development goals
Speakers at the UNCTAD 62nd Trade and Development Board said that international investment agreements must preserve States’ abilities to adopt policies that support the SDGs. A better balance between the rights and obligations of investors and host States are needed, as are improved arbitration mechanisms.
Consensus among policymakers is that the international investment regime needs reform, asserted UNCTAD Secretary-General Mukhisa Kituyi during a roundtable discussion on 16 September 2015. The questions that remain, he explained, concern the extent of the reform and how best to implement it.
The discussion brought together representatives of governments, international organizations, academia and civil society. All agreed with Dr. Kituyi on the urgent need for reform, especially in light of the new global development agenda. Concerning the “what” and the “how” of reform, while different approaches have been adopted, the speakers concurred on the need to strike a better balance between the rights and responsibilities of foreign investors and host countries and to seek improved procedures, including alternative mechanisms to settle investment-related disputes.
Achieving the Sustainable Development Goals (SDGs) will require a surge in international investment, including private investment. This is because, according to UNCTAD estimates, an annual investment gap of US$ 2.5 trillion exists in key sectors in developing countries. But for private investment to support the SDGs, the discussion pointed out, international investment agreements (IIAs) must not limit governments’ right to regulate in areas related to the goals, such as environmental protection and public health. International Investment Agreements must go beyond simply promoting investment, they must foster sustainable development.
James Zhan, Director of UNCTAD’s Division on Investment and Enterprise, explained that in addressing the challenges as highlighted by Secretary-General Dr. Kituyi, UNCTAD has formulated the Investment Policy Framework for Sustainable Development to guide a new generation of investment policy making, and an Action Menu for reforming the existing investment treaty regime, which consists of nearly 3,300 international investment agreements (IIAs). These policy tool kits are now used by policy makers and treaty negotiators worldwide.
The extensive scope of the provisions is accompanied by an arbitration system that lacks transparency and legitimacy, according to several speakers.
Nathalie Bernasconi-Osterwalder, from the International Institute for Sustainable Development, called for the creation of an institutional mechanism at the regional or multilateral levels that would be detached from any one specific investment treaty. More importantly, she explained, it should allow for the participation of a wider array of affected or interested stakeholders and deal with issues raised by affected persons or communities.
The speakers commended UNCTAD for the 2015 World Investment Report, which, they said, offers an action menu for implementing investment reform, providing tools and options for countries to use to find their own way and approach for reform. They concluded by saying that they expect UNCTAD to continue to play a leadership role in this ongoing debate.
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20 years on, negotiators reflect on breakthrough talks on intellectual property and trade
WTO Director-General Roberto Azevêdo launched a new publication entitled “The Making of the TRIPS Agreement: Personal Insights from the Uruguay Round Negotiations” on Day 2 of the Public Forum on 1 October 2015.
He highlighted that the WTO’s TRIPS (trade-related aspects of intellectual property rights) Agreement introduced substantive and comprehensive disciplines on IP rights into the multilateral trading system and that it has impacted deeply on national IP regimes around the world – with the most significant changes experienced in developing economies.
“The Making of the TRIPS Agreement”, co-edited by Jayashree Watal and Antony Taubman, presents for the first time the diverse personal accounts of the negotiators of this unique trade agreement. Their rich contributions illustrate how different policy perspectives and trade interests were accommodated in the final text, and map the shifting alliances that transcended conventional boundaries between developed and developing countries, with a close look at issues such as copyright for software, patents on medicines and the appropriate scope of protection of geographical indications.
In launching the publication, DG Azevêdo said:
“This book is not just one for IP specialists; and it is not meant to be a book about the law of TRIPS. Instead, by describing the practical process of the making of the Agreement, and by explaining the working methods and negotiating techniques that were developed – or often improvised – it offers real insights.
“I think these insights are valid even today for those who wish to learn how such a potentially divisive subject could be negotiated to a successful conclusion. It therefore offers a rare insider’s account of the craft of international negotiations.
“The insights in this volume are not only of deep historic interest – they will also serve as an inspiration for success in future negotiations in other such complex and sensitive areas.”
His full speech is available here.
In the book, the contributors share their views on how intellectual property fitted into the overall Uruguay Round, the political and economic considerations driving TRIPS negotiations, the role of non-state actors, the sources of the substantive and procedural standards that were built into the TRIPS Agreement, and future issues in the area of intellectual property.
In probing how negotiations led to an enduring agreement that has served as a framework for policymaking in many countries, the contributions offer lessons for current and future negotiators. The contributors highlight the enabling effect of a clear negotiating agenda, and underscore the important, but distinct, roles of the Chair, of the Secretariat and above all, of the negotiators themselves.
Speaking at the launch, Antony Taubman said that “TRIPS has been proven to be an unexpectedly resilient and effective framework for balanced, good governance in the IP domain. The negotiations have shown us the benefits of taking an intellectually curious and inclusive approach to learning about technical issues under negotiation – an approach that is all the more valuable today as we seek together to learn from diverse experience working with TRIPS in over 130 jurisdictions”.
Jayashree Watal added: “The book makes no claim to present the authentic negotiating history of the TRIPS agreement, nor a guide to interpretation of its provisions. It merely presents as its title says – personal insights – from those who were involved in the negotiations.”
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TTIP and beyond: EU trade policy in the 21st century
Trade Commissioner Cecilia Malmström spoke on the future of Trade policy at New York’s Columbia University on 25 September. She called for a trade policy based on economic effectiveness and broader responsibility. Agreements like TTIP should address today’s economic issues, like services and digital trade. They also need to respect values like a high level regulatory protection and sustainable development.
I’m delighted to join you today.
Columbia Law School and the School of International and Public Affairs are both top class departments at a global level. So I’m looking forward to our discussion.
But I hope you’ll indulge me for a few moments so I can give you a sense of some of the issues we are dealing with in EU trade policy.
The title of this event is, “TTIP and Beyond: EU Trade Policy in the 21st Century.”
It gives a pretty accurate picture of my work at the moment.
Because in the public debate in the European Union today, trade policy is almost synonymous with the Transatlantic Trade and Investment Partnership.
And that’s understandable. But of course TTIP is in fact just a part – the biggest part but a part nonetheless – of our wider efforts on trade.
We are using a full range of trade policy tools to boost our economy and help us adapt to a changing world. We are working on more than 20 agreements with more than 60 countries across the Americas, Asia and Africa.
So I’d like to also give you a flavour of the “Beyond” part our trade agenda as well.
And I’d like to do that by looking at trade policy’s two biggest challenges: effectiveness and responsibility.
By effectiveness I mean that trade policy needs to work. To do that we must adapt to economic realities.
Trade is no longer just about finished products. Through global value chains, trade and investment have become part of the production process itself.
Some experts do argue that the growth of these chains has slowed in recent years. That may be cyclical or it may be permanent. It’s too soon to say.
But either way the linkages that have been forged in recent years require us to adapt. If we want to be competitive we have facilitate this value chain trade.
Trade policy also needs to take account of changes in the nature of cross-border flows. In the past, goods were far and away the most significant component. They are still vital.
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But we now also need to look at services – from transport, to finance, to technical support.
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We need to address investment.
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We need to address the rise of the digital economy, which means data flows also need to be part of the equation.
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We need to deal with the fact that people often now need to cross borders in order for trade to happen.
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And trade policy also needs to adapt in order to broaden the base of companies that take advantage of trade agreements. 30% of European exports are by small and medium sized enterprises or SMEs. But it’s still true that most SMEs don’t export. We have room for improvement.
What are we doing about these facts?
The best way to facilitate value chain trade is multilateral trade liberalisation through the World Trade Organisation. It caters for the fact that inputs may cross multiple borders multiple times:
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The EU is working hard with the US and others to deliver a result at the Nairobi Ministerial Conference at the end of the year.
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We are also making progress on a range of targeted negotiations with groups of WTO members on issues like information technology equipment, services and green goods.
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And we know we need to start thinking about what happens after the Doha Round is finished as well.
But we also need to keep multilateralism in mind when we negotiate our bilateral and regional free trade agreements.
TTIP is a particularly good example. It covers around 40% of the global economy already.
It is also important because it is ambitious.
Our aim is an advanced set of rules on issues like state-owned enterprises, localisation requirements, raw materials and energy. We are also trying to break new ground in international regulatory cooperation – in general and for 9 specific sectors including pharmaceuticals, cars and cosmetics.
The results of these efforts could serve as models for future global solutions to these issues. So through the bilateral we are preparing the ground for future multilateral work.
Moreover, an ambitious TTIP outcome on issues like services, digital trade and mobility, would help set precedents for tackling these issues in a way that fits with today’s economic realities. And TTIP will be the first agreement where the EU negotiates dedicated provisions to help SMEs benefit as much as possible.
TTIP should be our most ambitious agreement but in all the EU’s free trade agreements we seek to be as ambitious as possible – to make sure they are adapted today’s realities – and that they work. Our agreement with Korea has helped EU exports rise by more than 50% since it entered into force. Our 3 recent deals with Canada and Vietnam are also ground-breaking in different ways. That’s how we mean to go on.
We also need to think collectively about how bilateral agreements relate to each other. One example of where we’ve done this in is Latin America. We’ve had an agreement in place with Colombia and Peru for several years. And last year we reached a political deal with Ecuador that would allow it to accede to that agreement. That’s something we may wish to look at for other agreements as well, including, potentially, TTIP.
The second theme I want to talk about is responsibility.
Trade will always be fundamentally an economic policy. But it is not an island. The choices we make about trade must reflect our values.
This is not just an abstract wish. Over the last two years the public debate around trade policy has intensified – and not just in Europe. Much of the concern is essentially a call to greater responsibility.
Policy makers in democratic systems have to listen to that debate, understand it and respond to it.
Here again TTIP is at the forefront, not least because – in Europe at least – it is the most controversial.
I see this debate as an opportunity to look hard at some of our approaches and update them where needed.
One issue is about the way we negotiate. When trade deals cover issues like regulation on safety, health and the environment, people need to trust that we are not lowering standards.
If we want their trust we need to be more open. That’s why the EU now publishes our TTIP negotiating proposals on these issues. And why we are now assessing whether to apply this to other negotiations as well.
Responsibility is also about substance. For example, investment protection is one of the most intense issues in the TTIP debate in Europe.
There is considerable concern about the possibility for investors to take cases against governments.
The Commission listened to the debate in civil society and among national and European political representatives. We have – just last week – published our proposals for a new system.
We believe it keeps what is good about investment protection – it reduces risk and therefore encourages job-creating investment.
But it also makes clear that governments can make policy in the public interest.
And it turns an arbitration system that needed reform into a transparent courts system that citizens can trust.
This new approach – once agreed within the EU – will also serve as the basis for our investment deals in the future. So here again we have a result from TTIP that has wider impacts.
There is a second strand to the public debate on responsibility in trade – less linked to TTIP but no less important. And that’s the fact that consumers today are more concerned about the social and environmental footprint of the products they buy from abroad.
That is good news, as far as I’m concerned. Trade – like any other international policy – should help put our principles into practice. That goes for development of poor countries, human rights, labour rights and protecting the environment.
Trade policy makers around the world have increasingly come to this view in recent decades. The EU has also played its part:
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We offer advanced preference schemes for developing countries and free access for the products of least developed countries.
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We have also concluded a series of Economic Partnership Agreements with developing countries in Africa, the Caribbean and Pacific.
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Along with our Member States, we are the most significant provider of the Aid for Trade that helps countries take advantage of these opportunities.
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And the sustainable development rules of our free trade agreements encourage countries to respect the core conventions of the International Labour Organisation and the key international conventions.
I believe we need to do more.
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For example, we should have ambitious provisions on labour and the environment in TTIP…
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We should give more support to fair and ethical trade schemes…
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And we can do more to promote responsible supply chain management by companies.
The Commission will be talking about these and other issues in a new trade strategy document released very soon.
I hope this gives you an overview about the issues facing trade policymakers.
Resolving them will require hard work and political will from Europe and our partners around the world.
It will also need creative thinking, not only from within government but also the academic community.
So, no pressure but I hope to hear some of those from you today! Thank you.
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tralac’s Daily News selection: 1 October 2015
The selection: Thursday, 1 October
Entering uncharted waters: El Niño and the threat to food security (Oxfam)
Millions of poor people in Southern Africa, Asia and Central America face hunger and poverty this year and next because of droughts and erratic rains as global temperatures reach new records, and because of the onset of a powerful El Niño – the climate phenomenon that develops in the tropical Pacific and brings extreme weather to several regions of the world. The combination of record warmth one year followed by an El Niño the next is unique and the climatic implications are uncertain. If 2016 follows a similar pattern, we are entering uncharted waters.
Perhaps the greatest problems may occur in Southern Africa. The annual rains across Southern Africa are notoriously fickle and in addition, borderline El Niño conditions were prevalent by late last year. The rains that fell from October/November 2014 through to February 2015 were very erratic, starting a month or more late, and then from mid-December through January 2015, they were extraordinarily heavy and brought unusually extensive flooding to southern Malawi and northwest Mozambique. Zimbabwe suffered particularly poor rains. [The author: John Magrath]
Can intra-regional trade act as a global shock absorber in Africa? (Africa at LSE)
Several important issues remain for future research. First is gaining a better understanding of the relationship between regional integration and intra-regional trade and how to strengthen multilateral trade ties. Our results should not be interpreted as support for regional integration via preferential regional trade agreements at the expense of multilateral trade. Second, we have focused on the transmission of shocks from the advanced economies to Africa, leaving the impact of shocks in emerging markets on Africa to further investigation. Finally, future research could examine channels through which intra-regional trade facilitates diversification and integration of African RECs into global value chains. [The authors: Zuzana Brixiová, Qingwei Meng, Mthuli Ncube]
Informal trade flows in the EAC (Global Trade Review)
Speaking at GTR’s East Africa Trade & Commodity Finance Conference, Ecobank’s head of group research, Edward George, surmised that informal trade represents 30 to 40% of the EAC’s trade flows, affecting the competitiveness of the region’s formal traders. In this excerpt from his presentation, he questions who and what is driving this illicit activity and what hopes East Africa has for the future of trade.
Unlocking the trade potential of a continent on the move (Africa Outlook)
With a potential slowdown in China refocusing attention on SSA’s future growth and trading partners, Barclays has studied trade openness and market opportunity across SSA to provide a comparative perspective on the opportunities ahead. The research demonstrates: [The author, John Winter, is Barclays’ Corporate Banking CEO]
Business and the Sustainable Development Goals (Business Fights Poverty)
South Africa: August 2015 merchandise trade statistics (SARS)
The R9.95bn deficit for August 2015 is due to exports of R87.63bn and imports of R97.58bn. Exports decreased from July 2015 to August 2015 by R5.45bn (5.9%) and imports increased from July 2015 to August 2015 by R3.38bn (3.6%). The cumulative deficit for 2015 is R36.27bn compared to R69.94bn in 2014. Africa trade surplus: R15 330 million – this is a 6.9% decrease in comparison to the R16 464 million surplus recorded in July 2015. Trade statistics with the BLNS for August 2015 recorded a trade surplus of R9.12 billion.
US-South Africa trade dispute risks $1.7bn of exports (Bloomberg)
“South Africa needs to take concrete steps towards eliminating barriers to US trade and investment, a key criterion to be eligible for AGOA trade benefits,” Trevor Kincaid, a spokesman for the office of the U.S. Trade Representative in Washington, said in an e-mailed response to questions on Wednesday. “Ultimately, South Africa’s AGOA eligibility is in South Africa’s hands.”
Congressmen bewail SA’s trade ‘barriers’ (Business Day)
New AGOA apparel quota cap for 2015-2016 announced (AGOA.info)
DTI to lead an outward selling and investment mission to Zambia (Cape Business News)
The Department of Trade and Industry will lead a delegation of 38 business people to participate on an Outward Selling and Investment Mission to Zambia. The mission will take place from 6-8 October 2015 in Lusaka, Zambia. “Trade between South Africa and Zambia has increased from over R15bn in 2011 to more than R28bn in 2014. South Africa is Zambia’s main trading partner in the Southern African Development Community region, whilst Zambia is South Africa’s fourth trading partner,” says Davies.
Zimbabwe: Dairy producers want duty on inputs scrapped (NewsDay)
Dairy producers have called on government to scrap import duties on inputs which are not locally available to ensure that prices of final products are competitive in the region. Dendairy director Daryl Archibald told a delegation from the Office of the President and Cabinet (OPC) which toured the company’s Kwekwe plant on Tuesday that Zimbabwe’s milk products were failing to compete locally because of the heavy duty imposed by the Zimbabwe Revenue Authority on inputs such as packaging and other machinery imported by dairy companies. “If the government wants us to just produce for the local market it’s fine, but if we have to go into exports, we ask that they do not charge any duty on any product that is not available locally because even duty of 5% would make us lose the market to South Africa in the region,” he said.
Formalisation of informal economy (NewsDay)
Malawi to implement new visa regime from October 1st (StarAfrica)
Malawi through its Immigration Department will start implementing its new visa regime from 1st October whereby all foreign nationals will require to pay visas fees ranging from $50 to $100 to enter the Southern African country. Minister of Home Affairs and Internal Security, Jean Kalirani told reporters in the capital Lilongwe on Tuesday that the new regime is required from nationals of all countries except Southern African Development Community (SADC) countries except Angola, Common Market for Eastern and Southern Africa (COMESA) countries, diplomats and government officials. “Nationals from all countries that do not require Malawian nationals to pay visa fees when travelling to such nations will not pay to enter Malawi,” she added.
Falling import demand, lower commodity prices push down trade growth prospects (WTO)
WTO economists have lowered their forecast for world trade growth in 2015 to 2.8%, from the 3.3% forecast made in April, and reduced their estimate for 2016 to 3.9% from 4.0%. These revisions reflect a number of factors that weighed on the global economy in the first half of 2015, including falling import demand in China, Brazil and other emerging economies; falling prices for oil and other primary commodities; and significant exchange rate fluctuations. Trade growth remains uneven across countries and regions as illustrated by Chart 2, which shows WTO merchandise trade volume indices by geographical region.
More collaboration is needed to ensure the benefits of trade are enjoyed by all, panellists agreed at the plenary debates of the WTO’s 2015 Public Forum on 30 September. The need for multilateral cooperation among governments was highlighted in the opening plenary debate while the importance of public-private sector dialogue was underlined in the afternoon debate on making trade work for business. [The Forum www]
WTO accessions and trade multilateralism: case studies and lessons from the WTO at Twenty (WTO)
Ethiopia: IMF concludes 2015 Article IV Consultation (IMF)
Noting a softening of export activity, Directors recommended more decisive action to strengthen the business climate and enhance external competitiveness. Greater exchange rate flexibility, less burdensome regulation, and easier private sector access to credit and foreign exchange would be steps in the right direction. Opening some strategic sectors to foreign investment could also improve the provision of critical services.
Bullish Ethiopia and Djibouti agree on $1.55Bn pipeline; Kenya’s LAPSSET has reason to worry (M&G Africa)
Germany commits 37 million Euros to support regional integration in East Africa (EAC)
Delivering on the promise: Leveraging natural resources to accelerate human development in Africa (AfDB/Gates Foundation)
In the light of these challenges, this report makes three fresh contributions on how to leverage oil, gas, and mineral resources to accelerate human development progress in Africa. First, it provides a broad estimate of the possible magnitude and timing of potential new extractives revenues in Ghana, Liberia, Mozambique, Sierra Leone, Tanzania, and Uganda – six countries that have recently discovered significant oil, gas, or mineral resources. Second, it presents a practical policy framework for helping governments to better link their revenue management decisions to their human development agendas. Third, it highlights ways to leverage extractives companies’ direct spending, including procurement and employment throughout the lifecycle of extractives projects, to ensure businesses and individuals are ready to harness the benefits. [Download]
This research was inspired by a major conclusion of the 2013 African Economic Outlook on natural resources and structural transformation. The Outlook’s cross-country analysis stated that, while dependence on natural resources poses serious challenges, natural resource abundance is associated with positive outcomes such as long-term growth. By analysing the correlations among export diversification patterns of unprocessed, semi-processed and finished goods, this paper indicates that broadening the array of exported unprocessed commodities is a good predictor of higher manufacturing diversification. And, it is sometimes a first step towards industrialisation for many poor countries. This important conclusion makes a compelling case for inviting more low-income countries to join the OECD Development Centre’s ongoing Policy Dialogue on Natural Resources.
ALSF catalysing Uganda’s extractive resource sector (AfDB), Tanzania: New database launched for openness in gas, oil sector (The Citizen), Commodity exporters facing the difficult aftermath of the boom (IMF)
UN Office for Coordination of Humanitarian Affairs migration debate (UN News Centre)
As the world confronts the biggest refugee and migration crisis since the Second World War, Secretary-General Ban Ki-moon convened a high-level meeting on the issue and outlined eight guiding principles to improve preparedness.
Malaysia ramping up in Africa (Institute of Southeast Asian Studies)
Apart from South Africa, major trade partners for the export of Malaysia goods in 2014 included Kenya at $737m, Angola at $585m and Nigeria at $389m. The largest trade partners for the import of Africa goods, on the other hand, are concentrated in West Africa, with the highest ranking being Cote d’Ivoire at $355m, Ghana at $346m and Algeria at $310m
Dubai Chamber reviews investment potential of East African markets (CPI Financial)
WTO issues panel report on Argentinian financial, tax and forex measures affecting trade
Overview of INDCs submitted by 31 August 2015 (OECD)
AECF: African youths pivotal to agric business (Vanguard)
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South Africa Merchandise Trade Statistics for August 2015
The South African Revenue Service (SARS) has released trade statistics for August 2015 that recorded a trade deficit of R9.95 billion. This figure includes trade data with Botswana, Lesotho, Namibia and Swaziland (BLNS).
Including trade data with Botswana, Lesotho, Namibia and Swaziland (BLNS)
The R9.95 billion deficit for August 2015 is due to exports of R87.63 billion and imports of R97.58 billion. Exports decreased from July 2015 to August 2015 by R5.45 billion (5.9%) and imports increased from July 2015 to August 2015 by R3.38 billion (3.6%).
The cumulative deficit for 2015 is R36.27 billion compared to R69.94 billion in 2014.
The month of July 2015 trade balance was revised downwards by R0.72 billion from the previous month’s preliminary deficit of R0.40 billion to a revised deficit of R1.11 billion.
Trade highlights by category
The month-on-month export movements:
R’ million | ||
Section: | Including BLNS: | |
Mineral Products | - R4 205 | - 20.1% |
Base Metals | - R2 464 | - 20.0% |
Precious Metals & Stones | + R1 120 | + 7.3% |
Vehicle & Transport Equipment | + R 382 | + 3.4% |
Wood and articles thereof | + R 176 | + 41.2% |
The month-on-month import movements:
R’ million | ||
Section: | Including BLNS: | |
Vehicle & Transport Equipment | + R2 027 | + 22.1% |
Mineral Products | + R1 758 | + 12.1% |
Chemical Products | + R1 248 | + 12.4% |
Equipment Components | - R 743 | - 9.4% |
Base Metals | - R 681 | - 12.8% |
Trade highlights by world zone
The world zone results from July 2015 to August 2015 are given below.
Africa:
Exports: R26 195 million – this is a decrease of R 0.28 million from July 2015
Imports: R10 865 million – this is an increase of R1 106 million from July 2015
Trade surplus: R15 330 million – This is a 6.9% decrease in comparison to the R16 464 million surplus recorded in July 2015.
America:
Exports: R8 015 million – this is a decrease of R1 099 million from July 2015
Imports: R10 947 million – this is an increase of R 941 million from July 2015
Trade deficit: R2 932 million – This is an increase in comparison to the R 892 million deficit recorded in July 2015.
Asia:
Exports: R24 773 million – this is a decrease of R3 111 million from July 2015
Imports: R43 883 million – this is an increase of R1 599 million from July 2015
Trade deficit: R19 110 million – This is a 32.7% increase in comparison to the R14 399 million deficit recorded in July 2015.
Europe:
Exports: R21 371 million – this is a decrease of R 720 million from July 2015
Imports: R30 502 million – this is a decrease of R 332 million from July 2015
Trade deficit: R9 131 million – This is a 4.4% increase in comparison to the R8 743 million deficit recorded in July 2015.
Oceania:
Exports: R1 164 million – this is a decrease of R 162 million from July 2015
Imports: R1 300 million – this is an increase of R 203 million from July 2015
Trade deficit: R 135 million – This is a deterioration compared to the R 229 million surplus recorded in July 2015.
Excluding trade data with Botswana, Lesotho, Namibia and Swaziland (BLNS)
The trade data excluding BLNS for August 2015 recorded a trade deficit of R19.07 billion. The deficit is as a result of exports of R75.93 billion and imports of R95.00 billion. Exports decreased from July 2015 to August 2015 by R5.83 billion (7.1%) and imports increased from July 2015 to August 2015 by R3.31 billion (3.6%).
The cumulative deficit for 2015 is R105.59 billion compared to R135.91 billion in 2014.
Trade highlights by category
The month-on-month export movements:
R’ million | ||
Section: | Excluding BLNS: | |
Mineral Products | - R4 131 | - 21.8% |
Base Metals | - R2 365 | - 20.7% |
Vehicle & Transport Equipment | + R 434 | + 4.5% |
Precious Metals & Stones | + R 282 | + 1.9% |
Wood and articles thereof | + R 189 | + 71.3% |
The month-on-month import movements:
R’ million | ||
Section: | Excluding BLNS: | |
Vehicle & Transport Equipment | + R2 019 | + 22.0% |
Mineral Products | + R1 760 | + 12.2% |
Chemical Products | + R1 239 | + 12.9% |
Equipment Components | - R 743 | - 9.4% |
Base Metals | - R 677 | - 12.9% |
Trade highlights by world zone
The world zone results from July 2015 to August 2015 are given below.
Africa:
Exports: R14 495 million – this is a decrease of R 405 million from July 2015
Imports: R8 286 million – this is an increase of R1 039 million from July 2015
Trade surplus: R6 209 million – This is an 18.9% decrease in comparison to the R7 654 million surplus recorded in July 2015.
Botswana, Lesotho, Namibia and Swaziland (Only)
Trade statistics with the BLNS for August 2015 recorded a trade surplus of R9.12 billion. The surplus is as a result of exports of R11.70 billion and imports of R2.58 billion. Exports increased from July 2015 to August 2015 by R0.38 billion (3.3%) and imports increased from July 2015 to August 2015 by R0.07 billion (2.7%).
The cumulative surplus for 2015 is R69.32 billion compared to R65.98 billion in 2014.
The month-on-month export movements:
R’ million | ||
Section: | BLNS: | |
Precious Metals & Stones | + R 837 | + 4812.3% |
Base Metals | - R 99 | - 11.4% |
Chemical Products | - R 96 | - 9.1% |
Mineral Products | - R 74 | - 3.8% |
Vehicle & Transport Equipment | - R 52 | - 3.7% |
The month-on-month import movements:
R’ million | ||
Section: | BLNS: | |
Precious Metals & Stones | + R 60 | + 25.6% |
Machinery and Electronics | + R 28 | + 10.8% |
Live Animals | - R 19 | - 5.8% |
Raw Hides & Leather | - R 14 | - 37.0% |
Plastics & Rubber | - R 10 | - 25.5% |
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WTO Public Forum: Plenary debates on Day 1 highlight need for collaboration to make trade more inclusive
More collaboration is needed to ensure the benefits of trade are enjoyed by all, panellists agreed at the plenary debates of the WTO’s 2015 Public Forum on 30 September. The need for multilateral cooperation among governments was highlighted in the opening plenary debate while the importance of public-private sector dialogue was underlined in the afternoon debate on making trade work for business.
“Trade works,” Director-General Roberto Azevêdo said in his welcome address, “if it is accompanied by the right policies, if countries are supported to build the capacity they need to compete, and if we have a transparent system of rules which are agreed together and are enforced in a fair, open and cooperative way.”
“We need all of you to make sure the trading system will work for everyone,” Lilianne Ploumen, Minister for Foreign Trade and Development Cooperation of the Netherlands, said in her keynote speech. “I do hope that with our mutual commitments and with combined efforts we can help achieve equal opportunities for all.”
Opening plenary debate
Lerato Mbele, the moderator, opened the debate by noting that while trade indeed works, the benefits are not shared by all in the same way.
Panellists began the discussion by defining inclusivity. Yuejiao Zhang, Appellate Body member, said this meant getting equal access through the WTO’s most favoured nation principle and special and differential treatment for poorer countries.
Anabel Gonzàlez, Senior Director for Trade and Competitiveness Global Practice at the World Bank Group, emphasized the need to include people in rural areas, conflict zones, and the informal sector as well as women.
Susan Schwab, former United States Trade Representative, said consideration must be made for everyone from production to consumption.
Ms. Ploumen said inclusivity meant all players have access to the formal system with formal rules.
DG Azevêdo said inclusivity was important both at a geographical as well as an individual level.
Amina Mohamed, Cabinet Secretary for Foreign Affairs of Kenya, emphasized that developing countries and least-developed countries (LDCs) should be given attention.
The panellists discussed the benefits delivered by trade and the WTO; however, they also noted that benefits are not automatic to all. “This trickle down effect – forget about it. It only happens when we have policies to make sure everyone benefits,” Ms Ploumen said.
The panellists agreed that the prospects were even more worrying considering the current economic uncertainty. “We should be worried. I am concerned about the situation we are in,” Ms Schwab said, adding that trade and trade policy had the potential to be a “force multiplier” to deliver outcomes for women, youth, the environment, and other disadvantaged sectors. DG Azevêdo similarly said that, having exhausted fiscal and monetary policy, governments should explore using trade policy to turn around the slowdown and deliver gains to all.
To move forward, various policy options were discussed. Ms Gonzàlez and Ms Mohamed, for instance, emphasized the importance of domestic policy to improve an economy’s business climate, competitiveness and connectivity to regional and global trade.
On subsidies, Ms Zhang and Ms Mohamed noted the need for special and differential treatment for poorer countries while Ms Ploumen added that some developing economies have grown considerably since subsidies were first being negotiated and that talks need to reflect these changes.
On the environment, there were mixed views on whether stricter standards to address climate change were helping or hindering poorer economies.
Panellists agreed, however, that collaboration among governments on a multilateral level is necessary. “All these perceptions are valid. The good thing is the common thread,” said DG Azevêdo. “We need collaborative efforts.”
Afternoon plenary debate
The afternoon plenary debate focused on the relationship between trade and business, including small and medium enterprises (SMEs) and agribusiness.
DG Azevêdo opened the session by taking stock of what the WTO has accomplished for the business sector through efforts like the Aid for Trade initiative (which assists developing countries and LDCs export), the Trade Facilitation Agreement (which seeks to improve the ease of doing business at the border), the plan to eliminate tariffs on more information technology (IT) products through the expanded Information Technology Agreement and the plurilateral Environmental Goods Agreement in the pipeline.
“In recent years the WTO has shown that it can deliver agreements with real economic impact,” DG Azevêdo said. “Now we need the support of the business community to move ahead once again. The record shows that when we join forces – the private sector and governments in the WTO – we can achieve a great deal,” he said.
Harold McGraw III, chairman of the International Chamber of Commerce, echoed this by noting that the cooperation between governments and businesses is essential. “Government establishes policy but business is the one that executes it. They need to be on both sides of the coin,” he said. Mr McGraw further noted the importance of attracting investment to create growth and jobs as well as the significance of business organizations to help exchange information between government and the private sector.
Roland Auschel, Adidas board member in charge of global sales, discussed the importance of ironing out trade policy. “The reality today is that we’re still held by trade barriers, delays in importation and so on. We aren’t delivering on our consumer promise today,” he said. For Mr Auschel, cost and time are important factors that businesses consider as they integrate more and more into global value chains (GVCs).
Commenting on the GVCs, Gregory Doming, Trade Minister from the Philippines, noted that while integrated assembly lines are valuable for bringing in more businesses into trade, it is also important to consider alternatives for helping micro and small enterprises participate and export directly.
“The mind set has been from the perspective of large enterprises and this locks out micro and small businesses from international trade,” he said. “I’m saying GVCs are very useful but we have to add on to this. We need more pipelines for them to directly export.”
Evelyn Nguleka, President of the World Farmers’ Organization, meanwhile emphasized the importance of trade to farmers and agribusiness. Trading results in the balance of resources, she said. “There are certain areas of the world where there is more of a resource than the other. We need a scenario where it is possible and efficient and everyone can participate.” To accomplish this, however, the playing field needs to be more level in the case for instance of financing for poorer farmers.
At the close of the plenary, the moderator Ms Mbele asked each panellist whether trade works for business. Messrs McGraw, Auschel, Domingo and Ms Nguleka answered in the affirmative. When asked whether the WTO will do all it can to ensure this, DG Azevêdo replied: “Yes, if members let us.”
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Falling import demand, lower commodity prices push down trade growth prospects
WTO economists have lowered their forecast for world trade growth in 2015 to 2.8%, from the 3.3% forecast made in April, and reduced their estimate for 2016 to 3.9% from 4.0%.
These revisions reflect a number of factors that weighed on the global economy in the first half of 2015, including falling import demand in China, Brazil and other emerging economies; falling prices for oil and other primary commodities; and significant exchange rate fluctuations.
Volatility in financial markets, uncertainty over the changing stance of monetary policy in the United States and mixed recent economic data have clouded the outlook for the world economy and trade in the second half of the year and beyond.
If current projections are realised, 2015 will mark the fourth consecutive year in which annual trade growth has fallen below 3 per cent and the fourth year where trade has grown at roughly the same rate as world GDP, rather than twice as fast, as was the case in the 1990s and early 2000s.
“Trade can act as a catalyst for economic growth. At a time of great uncertainty, increased trade could help reinvigorate the global economy and lift prospects for development and poverty alleviation. WTO members can help to set trade growth on a more robust trajectory by seizing the initiative on a number of fronts, notably by negotiating concrete outcomes by our December Ministerial Conference in Nairobi,” Director-General Roberto Azevêdo said.
Global output is still expanding at a moderate pace but risks to the world economy are increasingly on the downside. These include a sharper-than-expected slowdown in emerging and developing economies, the possibility of destabilizing financial flows from an eventual interest rate rise by the US Federal Reserve, and unanticipated costs associated with the migration crisis in Europe.
At the time of our last forecast in April 2015, world trade and output appeared to be strengthening based on available data through 2014Q4. However, results for the first half of 2015 were below expectations as quarterly growth turned negative, averaging ‑0.7% in Q1 and Q2. Recent trade developments are illustrated in Chart 1, which shows seasonally-adjusted, quarterly merchandise trade indices in volume terms (i.e. adjusted to account for fluctuations in prices and exchange rates) by level of development.[1] Despite the quarterly declines in the first half of 2015, year-on-year growth in trade for the year to date remains positive at 2.3%.
Quarterly export growth of developed economies was essentially flat in the first two quarters of 2015 (-0.2% on average in Q1 and Q2), but those of developing countries were more negative (‑1.9%). The drop in exports was driven by weaker developing countries’ imports (-2.2%) and stagnation in developed countries’ imports (+0.1%).
Trade growth remains uneven across countries and regions as illustrated by Chart 2, which shows WTO merchandise trade volume indices by geographical region. After a long period of stagnation, Europe recorded the fastest year-on-year export growth of any region in Q2 at 2.7%, followed by North America (2.1%), Asia (0.6%), South and Central America (0.4%) and Other Regions (-1.0%, including Africa, the Commonwealth of Independent States and the Middle East). Disparities between regional growth rates was stronger on the import side than on the export side, with positive growth of 6.5% in North America, 3.1% in Asia and 1.6% in Europe, and declines of 2.3% in South and Central America and 3.1% in Other Regions.
Table 1 shows revised trade projections for 2015 and 2016, which depend on consensus estimates of world real GDP growth at market exchange rates. The WTO now expects world merchandise trade volume as measured by the average of exports and imports to grow 2.8% in 2015 and 3.9% in 2016. On the export side, shipments from developed economies should rise 3.0% this year and 3.9% next year. Developing economies’ exports are expected to grow more slowly at 2.4% in 2015 and 3.8% in 2016. Imports of developed economies should increase at around the same rate in 2015 (3.1%) and in 2016 (3.2%), while those of developing economies pick up from 2.5% this year to 5.2% next year.
The strongest downward revision to the previous export forecast for 2015 was applied to Asia, where our estimate was lowered to 3.1% from 5.0% in April. This is mostly due to falling intra-regional trade as China’s economy has slowed. The downward revision to Asia on the import side was even stronger, from 5.1% to 2.6%, partly due to lower Chinese imports which were down 2.2% year-on-year in Q2 (non-seasonally adjusted data). The product composition of China’s merchandise imports suggests that some of the slowdown may be related to the country’s ongoing transition from investment to consumption led growth. Large year-on-year drops in quantities of imported machinery (-9%) and metals (iron and steel -10%, copper ‑6%) were recorded in customs statistics for August, while strong increases were recorded for agricultural products including cereal grains (+130%) and oilseeds (+33%).
Another noteworthy revision relates to the import forecast for South and Central America in 2015, which was lowered to -5.6% from -0.5% in April. Much of this reduction can be attributed to adverse economic developments in Brazil, which has been simultaneously hit by a fiscal crisis, a financial scandal involving the country’s largest company, and falling export prices. Brazil’s merchandise imports in Q2 were down 13% year-on-year compared to the same period in 2014. A rebound in imports of South and Central America is expected in 2016 as Brazil’s GDP growth stabilizes and its imports start to recover. Other countries in the region should also see imports accelerate as their economies pick up next year. The size of the rebound in 2016 is also partly explained by the fact that future growth will be proceeding from a lower base following the steep decline in 2015.
If the slowdown in emerging markets worsens the revised forecasts in Table 1 could still prove to be overly optimistic. In particular, a slower rebound from recent declines in developing economies’ imports could shave half a percentage point off of global trade growth in 2015.
Finally, nominal merchandise trade statistics sometimes provide a better indication of current trade trends than statistics in volume terms since the former are generally timelier. These are illustrated by Charts 3 and 4. However, trade statistics in dollar terms are highly sensitive to fluctuations in prices and exchange rates and should be interpreted with caution.
Trade values in dollar terms have declined in most countries since last year and were down roughly 12% year-on-year in July at the world level. This is partly the result of a strong general appreciation of the US dollar over this period (+15% in nominal effective terms against major currencies according to the Bank for International Settlements). As Chart 3 shows, there is generally an inverse relationship between world trade values in current dollar terms and the value of the US currency. For example, Germany’s exports and imports were both down 14% year on year in dollar terms in July, but they were up 6% in euro terms.
Click here to view Chart 4 in full.
[1] Data are sourced from WTO short-term trade statistics, which can be downloaded here.
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Exchange rates still matter for trade
Exchange rate movements still have sizable effects on exports and imports, according to new research from the International Monetary Fund.
Recent currency movements have been unusually large. The U.S. dollar is up more than 10 percent in real effective terms since mid-2014. The yen is down more than 30 percent since mid-2012 and the euro by more than 10 percent since early 2014. Brazil, China, and India have also seen unusually large changes in their currency values.
Not surprisingly, these movements have kindled a debate on their likely effects on trade. Some predict strong effects on exports and imports, based on conventional economic models. Others argue that the increasing fragmentation of production across different countries – the so-called rise of global value chains – means that exchange rates matter far less than they used to for trade, and may have disconnected altogether.
This is an important debate, says Daniel Leigh, Deputy Division Chief in the Research Department, and lead author of the report. “A disconnect between exchange rates and trade would complicate policymaking. It could weaken a key channel for the transmission of monetary policy, and complicate the reduction of trade imbalances, as in the case of imports exceeding exports, via the adjustment of relative trade prices.”
From exchange rates to trade: lessons from history
Concerns about a disconnect between exchange rates and trade are not new. Back in the 1980s, the U.S. dollar depreciated, and the yen appreciated sharply after the 1985 Plaza Accord, but trade volumes were slow to adjust. Some commentators then suggested a disconnect between exchange rates and trade. But by the early 1990s, U.S. and Japanese trade balances had adjusted, largely in line with the predictions of conventional models.
The question is whether this time is different, or whether the apparent disconnect between exchange rates and trade will once again dissipate.
A new study, for the October 2015 World Economic Outlook, contributes to the debate by taking stock of the relationship between exchange rate movements and exports and imports.
The study examines the experience of both advanced and emerging market and developing economies over the past three decades – a broader sample than is typically examined. It uses both standard trade equations and an analysis of historical cases of large exchange rate movements.
“We find that, on average, a 10 percent real effective exchange rate depreciation comes with a rise in real net exports of 1.5 percent of GDP,” says Leigh, noting that there is substantial variation around this average (Chart 1). “Although it takes some years for the effects to fully materialize, much of the adjustment occurs in the first year,” he says.
Among economies experiencing currency depreciation, the rise in exports tends to be greatest for those with slack in the domestic economy and financial systems operating normally.
Disconnect or stability?
The study also finds little sign of a breakdown in the relationship between exchange rates and exports and imports.
There is some evidence, however, that the rise of global value chains, with different stages of production located across different countries, has weakened the relationship between exchange rates and trade in intermediate products used as inputs into other economies’ exports. This is particularly relevant for economies such as Hungary, Romania, Mexico, and Thailand, which have substantially increased their participation in global value chains.
But this finding needs to be seen in perspective: global-value-chain-related trade has increased only gradually through the decades and appears to have decelerated, and the bulk of global trade still consists of conventional trade.
There is also little sign, at least so far, of a generalized weakening in the relationship between exchange rates and total exports and imports. There is little evidence of disconnect for various country groups, including Asia and Europe, where the process of production fragmentation across countries has been particularly noticeable, as well as for samples of economies used in other recent studies.
Importantly, the rising size of exports and imports in GDP means that even a weaker relation between exchange rates and trade volumes could be consistent with exchange rate mattering more for trade in percent of GDP than before.
A key exception to this pattern of broad stability is Japan, which displays some evidence of disconnect. Export growth has been weaker than expected, despite substantial exchange rate depreciation. However, this weak export growth reflects a number of Japan-specific factors that have partly offset the positive impact of yen depreciation on exports and that do not necessarily apply elsewhere. These include, in particular, the sharp acceleration in production off-shoring since the global financial crisis and the 2011 earthquake, which created uncertainty about energy supply.
Redistributing net exports
These results are important because they mean that recent currency movements are shifting net exports from some economies to others. But this only speaks to the direct effects of exchange rate movements.
Overall changes in exports and imports also reflect shifts in the underlying fundamentals driving exchange rates themselves. These include demand growth at home and in trading partners, and movements in commodity prices.
But, in terms of the direct effects, the currency movements since January 2013 point to a shift of real net exports from the United States and economies whose currencies move with the dollar to the euro area, to Japan, and to economies whose currencies move with the euro and the yen (Chart 2).
“For policymakers, a key implication of these results is that exchange rate adjustments can still help to reduce trade imbalances,” says Leigh. Exchange rate changes also continue to have strong effects on export and import prices, with implications for inflation dynamics and the transmission of monetary policy.
In sum, exchange rates still matter!
The authors of this study are Daniel Leigh (team lead), Weicheng Lian, Marcos Poplawski-Ribeiro, and Viktor Tsyrennikov, with support from Olivia Ma, Rachel Szymanski, and Hong Yang.
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Entering uncharted waters: El Niño and the threat to food security
Millions of poor people in Southern Africa, Asia and Central America face hunger and poverty this year and next because of droughts and erratic rains as global temperatures reach new records, and because of the onset of a powerful El Niño – the climate phenomenon that develops in the tropical Pacific and brings extreme weather to several regions of the world.
Despite record global temperatures in 2014, an El Niño did not appear; nevertheless, in an unusual development, the climate in many parts of the world behaved as if one was occurring and growing seasons were seriously disrupted, mainly by drought. Temperatures have continued to soar this year and now an El Niño has indeed developed. It could be the most powerful since 1997-98, 2 which caused climate chaos and humanitarian disasters in many countries. With the boost of El Niño, unprecedentedly high temperatures are likely to continue into 2016.
Already, Ethiopia is facing a major emergency: 4.5 million people are in need of food aid because of successive poor rains this year. Floods, followed by drought, have cut Malawi’s maize production by more than a quarter; between two and three million people may face a food security crisis by February next year, at the peak of the lean season. In Zimbabwe, drought has reduced the maize harvest by 35 percent, and it is estimated that 1.5 million people will need assistance in early 2016. Farmers across the ‘dry corridor’ of Central America have been hit by drought for two years running, with huge harvest losses. Disruption to maize production in both Southern Africa and Central America is driving a surge in the price of maize on local markets, making it increasingly hard for people living in poverty to afford sufficient food.
Over the next few months the El Niño will attain maximum strength. This will coincide with the coming rains in Southern Africa, due from November onwards. Meteorologists predict a high probability of below-average rains again as a result. A second successive poor rainy season across Southern Africa will bring serious food security problems next year. The next rains in northern Ethiopia from March may also be affected.
El Niño has also already reduced the Asian monsoon over India, and is raising the odds of a prolonged drought in East Asia, coinciding with the planting and early development of the main rice crop in Indonesia; if world prices for rice increase there could be knock-on effects on poor urban consumers in import-dependent West African countries. In Papua New Guinea, 1.8 million people have been affected by drought already and El Niño will make this worse.
Yet meteorologists and international agencies such as the World Food Programme have provided ample warning of El Niño; the regions likely to be affected and the potential effects are understood. Agencies such as Oxfam have been monitoring conditions on the ground, helping communities cope with the current food crises and, increasingly, sounding the alarm that more must be done. Disasters are not inevitable at this point. If governments and agencies take immediate action, as some are doing, then major humanitarian emergencies next year can be averted. Prevention is better than cure.
In the immediate future, increasing climatic disruption, driven by rising temperatures, threatens to increase pressures on the humanitarian system at a time when resources and capacity are under enormous strain. Furthermore, scientists are warning that recent events could signify that big changes may be underway in the Earth’s climate system, 4 driven by rising surface temperatures and changes in major atmospheric and oceanic circulation systems such as those which give rise to El Niño.
Warming seas could double the frequency of the most powerful El Niños, and as global warming creates more and more sea-surface temperature ‘hot spots’ in the world’s oceans, and wind systems change as a result, extreme weather and greater climate disruption may be what a ‘normal’ future looks like if greenhouse gas emissions are not urgently and drastically reduced.
The combination of record warmth one year followed by an El Niño the next is unique and the climatic implications are uncertain. If 2016 follows a similar pattern we are entering uncharted waters.
Just one week after leaders adopted an historic new goal of eradicating hunger by 2030, as part of the package of Sustainable Development Goals, this unfolding crisis shows the scale of threat that climate change poses to its realization. For those leaders, the first test of their commitment will be to strike an agreement at the UN climate talks in Paris this December that delivers for the women, men and children on the frontlines of climate change.
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Commodity exporters facing the difficult aftermath of the boom
With a weak outlook for commodity prices, particularly for energy and metals, growth in commodity-exporting emerging and developing economies could slow further over the next few years, says a new study.
The study, published in the forthcoming 2015 World Economic Outlook, suggests that the recent declines in commodity prices could shave off one percentage point annually from the growth rate of commodity exporters over 2015-17 as compared with 2012-14. In exporters of energy commodities, the drag is estimated to be even larger – about 2¼ percentage points on average.
This slowdown is not just a cyclical phenomenon, the study finds. “It has a structural component as well,” says lead author Oya Celasun, Deputy Division Chief in the Research Department. “Investment, and accordingly, potential output, tend to grow more slowly in exporters during commodity price downswings.”
The decline in potential growth exacerbates the post boom slowdown, Celasun says. “This means that policymakers in commodity-exporting countries must go beyond demand-side measures and tackle structural reforms to improve human capital, increase investment and, ultimately, unleash higher productivity growth.”
Upswings and downswings
Commodity prices are unpredictable and can be very volatile. They can remain high or low for prolonged periods, giving the impression that their levels are permanent, only to exhibit very sudden and large changes.
Recent history is no exception. The first decade of the 2000s saw a persistent surge in commodity prices from record lows in the mid-1990s to record highs by 2011. More recently, however, the prices of commodities have fallen again, some in a dramatic fashion, and are expected to remain weak for some time (Chart 1).
Procyclicality, a common concern
In commodity-exporting economies, output growth, and economic developments more broadly, are unavoidably driven by commodity price cycles. To understand the channels better, the study examines data for more than 40 commodity exporters in emerging and developing economies for the last 50 years. It finds that output and, particularly, investment grow faster during commodity price upswings than in subsequent downswings (Chart 2). Much of this cycle reflects a strong investment response in the commodity-producing sector itself, which spills over into supporting industries such as construction, transportation, and logistics.
But it also reflects other mechanisms. In countries that rely heavily on resource revenues, fiscal policy is often procyclical with respect to the terms of trade. Government spending tends to increase when commodity terms of trade are improving, influencing economic activity more broadly. At the same time, governments, firms, and households in commodity-exporting economies all tend to borrow more easily during commodity booms than during downturns, amplifying the economic cycle set in motion by commodity prices.
Cyclical trends versus structural shifts
The appropriate policy responses depend not only on the extent of the growth slowdown but also whether commodity-price-related fluctuations in output are mostly structural or cyclical in nature. That is, policies would have to be designed differently if commodity price changes affect potential output and not just the cyclical fluctuations around it.
The study finds that both cyclical and structural factors tend to be at play during commodity-price driven fluctuations in output growth. On average, about two-thirds of the decline in output growth in commodity exporters during a commodity price downswing is cyclical, and one-third is structural, reflecting lower potential growth. This means that for commodity exporters that have enjoyed a prolonged surge in commodity prices, the recent slowdown also reflects weaker growth potential, as investment growth collapses.
What to expect going forward
What does the behavior of economic activity during past commodity price cycles imply for the current downswing? While the size and duration of the 2000s commodity boom exceeded its historical average, its reversal could lead to a sharper slowdown now. However, a typical commodity exporter is now better equipped to deal with a downswing than in earlier episodes.
Despite the more pronounced commodity price boom, growth rates over the last decade have been in line with earlier boom episodes and inflation rates have remained more subdued. This suggests that macroeconomic policies were more successful in smoothing the impact of the commodity windfall than in the past, as there was less of a growth boost than one would have expected given the size of the increase.
More specifically, fiscal policy has been less pro-cyclical – allowing for greater savings out of resource revenues – exchange rates have been more flexible, and financial depth has increased relative to the earlier episodes. All these factors were associated with smaller drops in output growth during previous downswings.
In addition, commodity exporters are entering the current downswing with stronger external positions, which can also help mitigate the effect of the commodity price downturn on their economies.
What are policymakers to do
The findings of the study imply that the growth slowdown in the immediate aftermath of a commodity price boom most likely represents a return to a more sustainable level of output. At the same time, slowing investment and economic capacity can lead to lower potential output growth.
Policymakers in commodity exporting countries therefore need to be careful not to overestimate the extent of excess capacity in their economies. A significant deceleration in growth rates is unavoidable for many economies.
Looking beyond the current juncture, the findings suggest that more flexible exchange rates and policy frameworks that avoid excessive pro-cyclical fiscal spending can help policymakers smooth the impact of commodity price swings on their economies.
Where growth is disappointing, policy efforts that focus on structural reforms to foster sustained medium-term growth are likely to be very fruitful. The structural reform priorities vary across countries, but removing infrastructure bottlenecks, improving the business climate, and enhancing the quality of education are common goals across many.
The authors of this study are Oya Celasun (team lead), Aqib Aslam, Samya Beidas-Strom, Rudolfs Bems, Sinem Kılıc Celik, and Zsoka Koczan, with support from Hao Jiang and Yun Liu and contributions from the IMF Research Department’s Economic Modeling Division and Bertrand Gruss.
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Azevêdo: “WTO accession is a success story of the organization”
Director-General Roberto Azevêdo launched a new publication entitled on Day 1 of the Public Forum on 30 September 2015, entitled “WTO Accessions and Trade Multilateralism: Case Studies and Lessons from the WTO at Twenty”.
He highlighted that since the WTO was established 20 years ago, 33 economies have joined the WTO, representing approximately 20 per cent of the WTO membership.
DG Azevêdo said that the ideals of the post‑war Bretton Woods framework – global economic governance, greater openness, prosperity and stability among nations – “remains central to our vision of the WTO today”.
“By bringing an increasing number of countries together in an atmosphere of cooperation and shared rules”, he said, “the multilateral trading system is a means not just to achieve growth and development, but also to support peaceful relations.”
“Increasing the membership of the WTO has always been a priority for us – not as an end in itself, but as a means to extend the coverage of multilateral trade rules and principles. Whenever a new country goes through the process of integrating into the multilateral trading system we see tariffs being lowered, market access increased, and the principles of non-discrimination, transparency and predictability further affirmed.
“The overall effect of increasing the membership is therefore to boost growth, increase stability in the global economy, strengthen the Organization and therefore to improve global trade governance – which is what the WTO is all about.”
DG Azevêdo’s full speech is available here.
The book, co-edited by Uri Dadush and Chiedu Osakwe, reviews the impact that 20 years of WTO accession negotiations has had on domestic reforms. It tackles a number of questions: What have WTO accessions contributed to the rules-based multilateral trading system? What demands have been made by original WTO members on acceding governments? How have the acceding governments fared?
The volume of essays offers critical readings on how WTO accession negotiations have expanded the reach of the multilateral trading system not only geographically but also conceptually, clarifying disciplines and pointing the way to their further strengthening in future negotiations.
In the age of globalization there is an increased need for a universal system of trade rules. Accession negotiations have been used by governments as an instrument for domestic reforms, and one lesson from the accession process is that there are contexts which lead multilateral trade negotiations to successful outcomes even in the complex and multi-polar twenty-first century economic environment.
The publication, co-published by the WTO and Cambridge University Press, brings together contributions from 54 authors, including Accession Working Party chairpersons, chief negotiators and technical experts.
Speaking at the launch, Foreign Affairs Cabinet Secretary Amina Mohamed of Kenya congratulated members that have joined the WTO since 1995 – and those still in the queue – for choosing the path of domestic reforms to join the WTO.
She said: “They have not only expanded the reach of multilateral trade rules and their values, they have expanded and deepened these rules which are more progressive, contemporary and meaningful, in tune with the 21st century commercial agenda and reality.” Ms Mohamed’s full speech is available here.
Co-editor Uri Dadush noted that he and his fellow co-editor, Chiedu Osakwe, Director of the WTO Accessions Division, had decided at the outset of this project that “the focus of the book was on the welfare outcomes and not on the fairness of the negotiating process”.
The co‑editors had determined that “the value of accessions should stand or fall on the answer to two questions: did they help the Article XII member achieve better development outcomes? Did they strengthen the multilateral trading system?” He said that the contributions by the 54 authors demonstrated clearly that the answer to these questions had to be in both instances: “yes”.
Co-publisher Kim Hughes from Cambridge University Press noted that this co-publication has the largest number of contributors for any single volume in the 15-year history of the WTO and Cambridge University Press publishing partnership, and looked forward to more joint projects.
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tralac’s Daily News selection: 30 September 2015
The selection: Wednesday, 30 September
Underway, in Lusaka: the African Green Revolution Forum
Launched, in Lusaka: AECF Impact Report 2014
Starting Thursday, in Kigali: 6th African Grain Trade Summit
Profiled commentary, by David Bornstein: 'Energizing the Green Revolution in Africa' (New York Times)
South Africa’s August trade data out later today (Standard Bank)
The SARS trade balance data for August is due for release today at 14h00. Bloomberg consensus pencils in a widening of the deficit to -ZAR3.4bn in August from -ZAR0.4bn in July. Our economics team’s forecast is in line with consensus at -ZAR3.4 billion. The rand is likely to remain under pressure ahead of the data release.
Zambia trade data: Imports increase to over K6bn (Daily Mail)
At regional level, Mr Kalumbi said Southern African Development Community was the largest source of Zambia’s imports accounting for 46.7% in August. Within SADC, South Africa was the major source of Zambia’s imports with 59.1%. Other notable markets were DRC, Mauritius, Mozambique and Zimbabwe. Mr Kalumbi said Asia was the second largest source of imports accounting for 27.7% with China being the main market. “The Common Market for Eastern and Southern Africa was the third largest source of Zambia’s imports accounting for 22.1%. The European Union accounted for 10.4% with the United Kingdom imports into Zambia accounting for 30.2%,” he said.
China's slowdown: an opportunity to boost Indo-Africa ties (Observer Research Foundation)
The past few months have seen a significant deterioration in Africa’s trade balance with China. In fact, the lower forecast growth rate of 3.1% of China depicts the fragile picture affecting the dynamics of Sino-African relationship. So, what is the exact impact of the Chinese slowdown on African economies?
Carlos Lopes: 'Preparing Africa for the next trade negotiations' (UNECA)
Africans have now to do their homework. And that homework is pressing and becoming heavier. First, there is little evidence of strategic consistency between the trade policy framework and industrial policy objectives. Secondly, all too often, there is lack of policy coherence at the different level of trade negotiations, namely bilateral, regional and multilateral. Thirdly, no matter how well they are designed, trade policies have little value unless they are put to good use.
Trade in sustainable fisheries (UNCTAD/Commonwealth Secretariat)
The main difference between multilateral, regional and bilateral trade negotiations often boils down to the level of ambition in terms of the rule-setting. The speed at which bilateral and regional trade negotiations have been concluded relative to the respective rounds of negotiations under the multilateral trading system and the WTO are testimony to this. For example, 14 years of fisheries subsidies negotiations under the Doha Development Agenda have not yet produced an outcome. The Bali package agreed at the 9th WTO Ministerial is a pale reflection of what was originally envisaged in the Doha Development Agenda and round of negotiations, the first since the WTO inherited the multilateral trading system in 1995. In comparison, some 260 regional trade agreements have been notified to the WTO. [Remarks by Commonwealth Deputy Secretary General Deodat Maharaj]
Improving fish post-harvest management and marketing in Malawi and Zambia (Cultivate Africa's Future Fund)
The Global Competitiveness Report 2015-2016 (WEF)
Sub-Saharan Africa continues to grow close to 5%, but competitiveness and productivity remain low. This is something countries in the region will have to work on, especially as they face volatile commodity prices, closer scrutiny from international investors and population growth. Mauritius remains the region’s most competitive economy (46th), closely followed by South Africa (49th) and Rwanda (58th). Côte d’Ivoire (91st) and Ethiopia (109th) excel as this year’s largest improvers in the region overall. [Downloads available]
Higher index ranking a boost for SA (Business Day), India 55th most competitive economy, moves up 16 positions (Hindustan Times)
Global Financial Centres Index 2015 (QFC), Joburg ranked as one of the most economically powerful cities in the world (Business Tech)
Global Forum on Competition: does competition kill or create jobs? Contributions from Zambia, Kenya
Kaushik Basu: 'Development in the digital age' (World Bank)
Activities that did not even have a name till a few years ago, now overwhelm our lives. There are 4.2 billion Google searches each day. 6000 tweets go out every second. That is on average. The record is 143,199 tweets in a second on 3 August 2013, when the Japanese were excited about watching a new animation film and Tweeted about it. These are fun statistics but the underlying technologies can change our lives. That is what this World Development Report explores and we have reason to believe that it will be a very influential report. [WDR regional consultation workshop, Nairobi: the presentations]
Technical workshop on labour migration statistics for the Africa region (AU)
As international migration moves to the forefront of policy agendas, there is a corresponding interest in accurate and up-to date data and statistics. However, accurate and up-to date information on migration levels and trends is largely incomplete, notably on a special category of migrants such as migrant workers which is a focus of the JLMP. In order to better implement the JLMP, accurate data and statistics on labour migration are needed to describe, reflect and support a better understanding of what is happening and to make more policy informed decisions on all facets of labour migration. For this reason, the international labour migration data collection was launched in June 2015 by the AUC for the Africa region. [Kigali March 2015 workshop]
South Africa: Home Affairs Stakeholder Summit (GCIS)
Last year we began a total review of the out-dated 1999 White Paper on International Migration; this process is now at an advanced stage. While it would be premature to outline specific policy positions, I can promise this house and the nation at large, that we will emerge with a modern, progressive and robust policy on International Migration. It will take into account the enormous current and potential contribution of immigrants to our society, and our connectedness with the rest of the world, while minimizing associated risks and protecting our national interests.
We need you to help us move from a zero sum mentality where we view immigrants working in the country as taking opportunities from South Africans, to one which recognizes that immigrants help us grow our economy and create jobs through their contributions as purchasers of South African goods, entrepreneurs, employers, employees and taxpayers;
South Africa: Tourism and Migration June 2015 (StatsSA)
The ten leading SADC countries in terms of the number of tourists visiting South Africa in June 2015 were Zimbabwe (28‚7%); Lesotho (21‚3%); Mozambique (19‚4%); Swaziland (12‚9%); Botswana (8‚2%); Namibia (2‚9%); Zambia (2‚7%); Malawi (2‚0%); Tanzania (0‚6%) and Angola (0‚6%).
Mozambique transport minister opposed to Shire-Zambezi Waterway (AIM)
The German consultant who drew up a viability study on the Malawian government's plans to turn the Shire and Zambezi rivers into a commercial waterway for the country's imports and exports concluded that the two rivers are not navigable in their natural state, according to Mozambican Transport Minister Carlos Mesquita, cited by Radio Mozambique. Mesquita was speaking after Wednesday's meeting in Lilongwe with his Malawian and Zambian counterparts. Mesquita pointed out that the study concluded that the rivers can only be used for commercial shipping if they are dredged. This would be extremely expensive.
Working on water across borders: spillover benefits for the SDGs (World Bank Blogs)
The CIWA program is one vehicle by which the World Bank and its Water GP contribute to the implementation of SDG #6 in Sub-Saharan Africa. Moreover, the results of the program to date – US$8.9 billion in infrastructure investments influenced that will potentially benefit 48.6 million people – have contributed to progress on a number of other SDGs, demonstrating the strategic value of targeting water development interventions at the trans-boundary level. Here are three ways in which the World Bank’s work in trans-boundary waters in Africa advances the SDGs:
TPA warns against VAT on transit goods services (IPPMedia)
Charging value added tax on transit goods’ auxiliary services will drive away clients and affect Dar es Salaam port’s competitiveness, Tanzania Ports Authority has warned. Acting Dar es Salaam Port Manager, Hebel Mhanga told The Guardian last week that many stakeholders in the business were against the tax. He said his office was coordinating their efforts to have audience with Tanzania Revenue Authority Commissioner General, Rished Bade, on the issue. Dar es Salaam Corridor Group (DCG), which has become the first casualty following failure to conclude a transit cargo shipping deal with Tanzania Zambia Railways Authority and Malawi Cargo Centre Limited because of fears of VAT on transit goods, said the worst is yet to come.
Mauritius expands freight rebate scheme (Southern Times)
Mauritius has expanded the Freight Rebate Scheme (FRS) for firms exporting to Africa, and Reunion Island to enhance the competitiveness of products from the Island to Africa vis-à-vis exports from Asia and other parts of the world, Enterprise Mauritius has said. EM said the scheme consisted of a 25 percent refund of freight costs, up to maximum of US$300 per 20ft container (standard container) for export to selected approved ports in Africa, Madagascar, and Reunion Island.
KAM signs 2yr funding pact with TMEA (Capital FM)
The Kenya Association of Manufacturers and TradeMark East Africa have signed a two-year agreement that will see an extension of a financial grant to KAM. The grant is aimed at supporting KAMs advocacy work in the area of Non Tariff Barriers, Standards and Counterfeits.
President Kenyatta woos US firms to invest in Lamu port (Daily Nation)
President Uhuru Kenyatta on Tuesday invited American firms to invest in the multibillion-shilling Lamu Port project. President Kenyatta argued that Kenya had taken measures to make it easier for investors to conduct business. He said the country had opened up opportunities for US multinationals to invest in mega infrastructure projects such as the Lamu Port-South Sudan-Ethiopia (Lapsset) project, which links the region.
US companies invest US$16bn in Mozambique (MacauHub)
US private investment in Mozambique exceeded US$16 billion in the past decade, the deputy minister for Foreign Affairs, Nyeleti Mondlane said Thursday in Maputo, the Mozambican press reported. The deputy minister of Foreign Affairs and Cooperation of Mozambique also pointed out that in the last ten years, the US had positioned itself as the largest contributor to official development assistance to Mozambique, totalling about US$2 billion in multifaceted support, focused on the provinces of Sofala and Zambézia in central Mozambique, and Niassa in the north.
Reaping the benefits from global value chains (IMF)
Against the backdrop of the rise of global value chains, particularly in Asia, this paper documents key developments of GVCs and investigates what factors cause economies to reap greater benefits from GVC participation. Key findings include: first, moving toward a more upstream position in production and raising economic complexity are associated with the country increasing its share of GVC value added. Second, fostering GVC participation and expanding the share of the domestic value added in a value chain require efforts to reduce trade barriers, enhance infrastructure, foster human capital formation, support research and development, and improve institutions. [Related: Exchange rates still matter for trade (IMF)]
Exchange agreement with China could allow Angola to overcome lack of dollars (MacauHub)
Trains will link Mozambique, Zimbabwe and Zambia (MacauHub)
Carbon pricing, divestment, and fossil fuel subsidy reform options for climate deal (ICTSD)
DEMO Africa: Scaling up African innovations for global market (Vanguard)
Foreign entry and domestic innovation (Vox)
Jomo Kwame Sundaram: 'We can overcome poverty and hunger by 2030' (IPS)
Restructuring of the Uganda National Roads Authority (EPRC)
US Chamber launches West African Business Initiative (World Stage)
Nigeria: Regional policy for accelerated infrastructure development (The Guardian)
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‘New normal’ productivity spells uncertainty for global economy
A failure to embrace long-term structural reforms that boost productivity and free up entrepreneurial talent is harming the global economy’s ability to improve living standards, solve persistently high unemployment and generate adequate resilience for future economic downturns, according to The Global Competitiveness Report 2015-2016, which is released today.
The report is an annual assessment of the factors driving productivity and prosperity in 140 countries. This year’s edition found a correlation between highly competitive countries and those that have either withstood the global economic crisis or made a swift recovery from it. The failure, particularly by emerging markets, to improve competitiveness since the recession suggests future shocks to the global economy could have deep and protracted consequences.
The report’s Global Competitiveness Index (GCI) also finds a close link between competitiveness and an economy’s ability to nurture, attract, leverage and support talent. The top-ranking countries all fare well in this regard. But in many countries, too few people have access to high-quality education and training, and labour markets are not flexible enough.
First place in the GCI rankings, for the seventh consecutive year, goes to Switzerland. Its strong performance in all 12 pillars of the index explains its remarkable resilience throughout the crisis and subsequent shocks. Singapore remains in 2nd place and the United States 3rd. Germany improves by one place to 4th and the Netherlands returns to the 5th place it held three years ago. Japan (6th) and Hong Kong SAR (7th) follow, both stable. Finland falls to 8th place – its lowest position ever – followed by Sweden (9th). The United Kingdom rounds up the top 10 of the most competitive economies in the world.
In Europe, Spain, Italy, Portugal and France have made significant strides in bolstering competitiveness. Thanks to reform packages aimed at improving the functioning of markets, Spain (33rd) and Italy (43rd) climb two and six places respectively. Similar improvements in the product and labour market in France (22nd) and Portugal (38th) are outweighed by a weakening performance in other areas. Greece stays in 81st place this year, based on data collected prior to the bailout in June. Access to finance remains a common threat to all economies and is the region’s greatest impediment to unlocking investment.
Among the larger emerging markets, the trend is for the most part one of decline or stagnation. However, there are bright spots: India ends five years of decline with a spectacular 16-place jump to 55th. South Africa re-enters the top 50, progressing seven places to 49th. Elsewhere, macroeconomic instability and loss of trust in public institutions drag down Turkey (51st), as well as Brazil (75th), which posts one of the largest falls. China, holding steady at 28, remains by far the most competitive of this group of economies. However, its lack of progress moving up the ranking shows the challenges it faces in transitioning its economy.
Among emerging and developing Asian economies, the competitiveness trends are mostly positive, despite the many challenges and profound intra-regional disparities. While China and most of the South-East Asian countries performing well, the South Asian countries and Mongolia (104th) continue to lag behind. The five largest members of the Association of Southeast Asian Nations (ASEAN) – Malaysia (18th, up two), Thailand (32nd, down one), Indonesia (37th, down three), the Philippines (47th, up five) and Vietnam (56th, up 12) – all rank in the top half of the overall GCI rankings.
The end of the commodity super cycle has strongly affected Latin America and the Caribbean, and is already having repercussions on growth in the region. Greater resilience against future economic shocks will require further reform and investment in infrastructure, skills and innovation. Chile (35th) continues to lead the regional rankings and is closely followed by Panama (50th) and Costa Rica (52nd). Two large economies in the region, Colombia and Mexico, improve to 61th and 57th, respectively.
It’s a mixed picture in the Middle East and North Africa. Qatar (14th) leads the region, ahead of the United Arab Emirates (17th), although it remains more at risk than its neighbour to continued low energy prices, as its economy is less diversified. These strong performances contrast starkly with countries in North Africa, where the highest placed country is Morocco (72nd), and the Levant, which is led by Jordan (64th). With geopolitical conflict and terrorism threatening to take an even bigger toll, countries in the region must focus on reforming the business environment and strengthening the private sector.
Sub-Saharan Africa continues to grow close to 5%, but competitiveness and productivity remain low. This is something countries in the region will have to work on, especially as they face volatile commodity prices, closer scrutiny from international investors and population growth. Mauritius remains the region’s most competitive economy (46th), closely followed by South Africa (49th) and Rwanda (58th). Côte d’Ivoire (91st) and Ethiopia (109th) excel as this year’s largest improvers in the region overall.
“The fourth industrial revolution is facilitating the rise of completely new industries and economic models and the rapid decline of others. To remain competitive in this new economic landscape will require greater emphasis than ever before on key drivers of productivity, such as talent and innovation,” said Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.
“The new normal of slow productivity growth poses a grave threat to the global economy and seriously impacts the world’s ability to tackle key challenges such as unemployment and income inequality. The best way to address this is for leaders to prioritize reform and investment in areas such as innovation and labour markets; this will free up entrepreneurial talent and allow human capital to flourish,” said Xavier Sala-i-Martin, Professor of Economics at Columbia University.
Background
The Global Competitiveness Report’s competitiveness ranking is based on the Global Competitiveness Index (GCI), which was introduced by the World Economic Forum in 2004. Defining competitiveness as the set of institutions, policies and factors that determine the level of productivity of a country, GCI scores are calculated by drawing together country-level data covering 12 categories – the pillars of competitiveness – that collectively make up a comprehensive picture of a country’s competitiveness. The 12 pillars are: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation.
Read more from The Global Competitiveness Report 2015-2016 at http://wef.ch/gcr15
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Preparing Africa for the next Trade negotiations
The deadlock in the World Trade Organisation (WTO) so called Doha Development Round negotiations remains firmly in place. Negotiators seem unable to meet deadline after deadline for delivering on many of the Round promises. Last year in the meeting that was held in Bali, Indonesia, there were some baby steps that were painted as a breakthrough. That optimism has evaporated since.
If development is at the heart of the Doha Round, agreement on agriculture contentious issues provide the legs on which the Round will stand or fall. Achieving concrete results in agriculture is critical not only to fulfil the Doha mandate and unlock this main “gateway issue”, but more fundamentally because the development of African economies cannot overlook a sector which employs two thirds of its labour force, and plays a pivotal role for food security and poverty eradication.
Twenty years after the entry into force of the Agreement on Agriculture, international agricultural markets remain heavily distorted, and characterized by relatively high protection. Developed countries have continued to subsidize (mainly large) producers, ultimately at the expense of small-holder farmers in the developing world. At the same time, whilst some emerging economy countries have been able to exploit the flexibilities in the agreement and adopt their own forms of domestic support, other developing countries, including most African countries, have so far been unable to do the same, and end up being disadvantaged twice.
New challenges have also emerged since the Agreement on Agriculture was signed: from market concentration among a few large corporations (notably on products of immediate interest to Africa, such as coffee or cocoa), to the financialization of commodity markets which has failed to redress the volatility in international prices; from the impact of climate change, to the increasing weight of non-tariff barriers. So far there is no breakthrough on meaningful reductions in domestic support (or domestic subsidies) by the major subsidizers including the US, EU and Japan. Given the clear understanding that the outcome in agriculture will be calibrated with the outcome in the other areas under negotiation, including non-agriculture market access (NAMA) and services, this in effect means that the possibility of concluding the Doha Round is not in sight. This also implies that the WTO is not yet in a position to provide impetus for a significant contribution towards the post-2015 development framework, although trade has been recognized in the new Sustainable Development Goals (SDGs) as a ‘means of implementation’ for a new, bolder agenda.
However, in view of the upcoming biennial WTO ministerial conference (MC10) that is due to be held in Nairobi in mid-December, there is broad consensus on the need to deliver some development-related outcomes especially since the conference will be held in Africa for the first time. In agriculture some movement with regard to export competition (export subsidies) is likely, since the modalities for a possible agreement have been in place since 2005. There may also be movement on the rules on ‘special products’ that developing countries want to protect for food security considerations; as well as on the rules on a special safeguard mechanism for agricultural products to guard against import surges. A comprehensive agreement on cotton in the areas of market access, domestic support and export competition may also be possible. Cotton is seen as a test for progress in other soft commodities. A permanent solution to the issue of public stockholding of food supplies which India pushed in Bali may be agreed.
On development, a package for Least Developed Countries (LDCs) that includes operationalization of the services waiver, improvements to duty-free quota-free market access and preferential rules of origin is within reach. There may also be movement in 25 areas that have been identified by developing countries for special and differential treatment. They are mostly aimed at enhancing policy space for industrial development and strategies for building productive capacity.
The African negotiators are now called to show unity and leadership in light of the next meeting taking place in Africa. An informal meeting of African ministers was held on 20 July and a follow up meeting is being planned to take place soon. Coordination meetings with the African, Caribbean and Pacific (ACP) Group, the LDC Group and the G90 group of developing countries are also expected to be held. On the side lines of the Africa Growth and Opportunity Act (AGOA) Ministerial Forum that was just held in Libreville on 24-27 August, African ministers engaged the US Trade Representative. These discussions included the main issues for an acceptable outcome from Nairobi.
Meanwhile, African ministers have signalled that if agriculture as the gateway issue is not resolved in Nairobi, it should be kept on the WTO’s agenda as it remains central to a development outcome from the Doha Round.
Africans have now to do their homework. And that homework is pressing and becoming heavier.
First, there is little evidence of strategic consistency between the trade policy framework and industrial policy objectives. Various countries have adopted a swathe of incentives to industrialize, yet they often lack focus, ushering in opaque discretionary and arbitrary practices. In this respect, there is a growing recognition that regional integration and gradual liberalization are the most promising avenues to harness trade for structural transformation of the African economies. Accordingly, the “Africa first” principle should be the polar star in the process of reconciling trade policy and industrial policy.
Secondly, all too often, there is lack of policy coherence at the different level of trade negotiations, namely bilateral, regional and multilateral. This is also an issue that the 2015 Economic Report on Africa discusses in detail. Let me take a couple of examples: Africans fought hard to obtain the decision on preferential rules of origin for LDCs in Bali… Now, how many African countries have called for the implementation of those preferential criteria in their bilateral negotiations with the EU under the Economic Partnership Agreements or the US under AGOA, or other partners? Furthermore what is the use of hard-fought flexibilities at the WTO, if Africa forgo the same flexibilities vis-à-vis large trading partners at the bilateral level?
Thirdly, no matter how well they are designed, trade policies have little value unless they are put to good use. In 2013, LDCs obtained an extension of the transition period for the implementation of the agreement on Trade-Related Intellectual Property Rights. What have they done to leverage this window of opportunity, and aggressively foster innovation, technology transfer and acquisition?
These issues are to be raised because there is a need to change gear in the way Africans conceive trade and industrial policies, and – even more importantly – in the way they implement them.
Carlos Lopes is the Executive Secretary of the UN Economic Commission for Africa.
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African Green Revolution Forum to elevate role of youth and women in agriculture
Leaders target investments and polices for African farmers and enterprises to meet rising food demand in an urbanizing Africa
The rapid rise of urban food markets across sub-Saharan Africa represents an unparalleled opportunity to drive development of African agriculture, and ultimately to engage millions of youth who enter the continent’s labor market each year, according to conveners of the African Green Revolution Forum (AGRF), which began on 29 September 2015 in Lusaka, Zambia.
More than 500 leaders from over 40 countries are expected to attend the AGRF, including high-level government officials, leaders of pan-African development organizations, representatives of youth and women’s organizations, academic experts, investors and agriculture business innovators.
“The AGRF can generate huge momentum for policies and programs that support Africa’s farmers and African-owned agriculture businesses to capture a bigger stake in the agricultural sector and rising urban markets,” said Sindiso Ngwenya, Secretary General, Common Market of East and Southern Africa. “Rather than meeting this demand through food imports, Africans need to grow, process, package and market the food consumed in our rapidly growing cities and towns.”
AGRF 2015 comes at a time when there is a growing consensus that rapid growth in all aspects of agriculture is crucial, both for food security and also because the sector is uniquely capable of rapidly generating economic and employment opportunities at all income levels across sub-Saharan Africa.
Agriculture is viewed as particularly promising for African women who produce 80 percent of the region’s food – their manual labor directly feeding their families and communities – and for the 200 million Africans under 25 who make Africa the world’s youngest continent.
The theme of this year’s AGRF is “Walking the Talk on Youth and Women: Bringing Inclusive Agricultural Markets to Life.” It comes at a time when Africa’s young population is searching for increased employment and meaningful opportunities. Of the 10 million young Africans who enter the job market every year, only a minority find formal employment.
“The African Union in 2014 pointed to the potential for agriculture-related jobs to employ at least 30 percent of African youth. Yet many young Africans are pessimistic about agriculture, because they see too many farmers and agriculture businesses struggling to survive,” said Dr. Agnes Kalibata, president of AGRA. “The good news is that economic opportunities in agriculture are much bigger than many realize, and with the right kinds of support, Africa's rapidly growing food sector can become as much as a $1 trillion source of a wide array of financially rewarding opportunities for Africa’s youth, on and off the farm."
AGRF 2015 also comes during the African Union designated “Year of Women’s Empowerment and Development.”
“Agriculture is the largest employer of women, employing up to 90 percent of women in some African countries,” said H.E. Rhoda Peace Tumusiime, commissioner for rural economy and agriculture, African Union. “Women anchor rural economies. Yet they farm without secure land rights, remuneration or the machinery and technologies essential to commercial agriculture. Policies and programs that address these gaps and link rural farmers to urban markets can transform livelihoods for smallholder farmers.”
The AGRF 2015 will define clear strategies to enable youth and women to engage in agriculture as a business enterprise and generate a triple dividend of improved food security, increased incomes and job creation. It will delve into issues including access to land, finance, energy and inputs, and the development of infrastructure, trade and markets, all with a particular eye toward overcoming challenges and expanding opportunities for women and youth.
AGRF will strive to call its partners and stakeholders to align themselves to measure, track and report their own progress at subsequent AGRFs in support of country priorities and African Union’s 2014 Malabo commitments, which pushed for accelerated agricultural growth. In the Declaration last June, African heads of state called for the doubling of food productivity in Africa, halving of poverty and significant progress toward the elimination of child undernutrition by 2025.
“The government of Zambia is honored to host this year’s AGRF, said the Hon. Given Lubinda, Minister of Agriculture and Livestock, Zambia “Together we will map the policies and investments needed to build a sustainable, diversified and competitive agricultural sector that assures food and nutrition security, creates jobs, and maximizes the sector’s contribution to Africa’s growth.”
The sponsors of the AGRF – the AGRF Partners Group, the Government of Zambia and the Common Market for East and Southern Africa (COMESA) – will engage with thought leaders from Africa and the world to shape policies and practices that can make the most from Africa’s once neglected but now rapidly expanding agriculture business sectors.
AGRA will be releasing its annual Africa Agricultural Status Report, providing a framework for how agriculture can become a viable and lucrative option for Africa’s young entrepreneurs.
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Nigeria: Regional policy for accelerated infrastructure development
In recent articles we have been talking about many issues ranging from the need to create enabling environments for investment, the infrastructure challenge for Africa, the financing gap and government policy formulation process among other issues.
All the issues we have been discussing require solid policy frameworks. We discussed in the most recent article the government policy formulation process proposed by John Kingdon, Emeritus Professor at the University of Michigan, who reasoned that decision making in government follows three main streams: the problem stream, the policy stream and the political stream.
We often prefer to illustrate things with real life examples, and the most recent pdf SADC Industrialization Strategy and Roadmap, 2015-2063 (2.34 MB) is a good example. This was crafted in the context of existing national and regional policies and specifically the decision taken at August 2014 Summit at Victoria Falls which was held under the theme: “SADC Strategy for Economic Transformation: Leveraging the Region’s Diverse Resources for Sustainable Economic and Social Development through Beneficiation and Value Addition”.
Decision making streams in action
In developing the SADC strategy, first was identification of the problems hindering sustainable economic development and poverty reduction in the SADC region (the problem stream). This was then followed by the Victoria Falls summit decision and the strategy development process (the policy stream), and there was overwhelming political support (the political stream). The outcome was a resounding strategy document for SADC industrialization and regional integration to be implemented in 3 phases up to 2063. The first phase lasts until 2020 focusing on laying down the foundations for long term development. The second phase, covering 30 years to 2050, constitutes a period of heavy lifting development and establishing strong momentum for competitiveness. The final third phase, covering 13 years to 2063, builds up for the convergence with the African Union long term Agenda 2063 and crossing into a fully developed country stage.
Interesting in this SADC strategy is that it identifies that accelerated industrialization is being hampered by three binding constraints – inadequate and poor quality infrastructure, a severe deficit of the skills needed for industrial development and insufficient finance. So the issue of inadequate infrastructure and lack of finance always takes centre stage. We have always argued that skills can always be imported from global partners and local people up-skilled as long as the funding is there, with an enabling policy environment and with adequate political will.
Strategy on infrastructure development policy
On infrastructure, the SADC strategy notes that increased investment in new infrastructure, soft as well as hard, allied with improved management and additional spending on maintenance, are prerequisites for industrial take-off. We have been discussing these issues in this column over the past few months. The SADC strategy hits the nail on the head in identifying these issues, the challenge remains accelerating the implementation of the strategy. To quote the strategy, it notes that Efficient and affordable infrastructural services (consisting of transport, communications, ICT, energy and water supply) are critical inputs for reducing transaction costs for industry and trade, as well as for enhancing the economic and social wellbeing of society at large. Effective implementation of the strategy would indeed require the building and/or close coordination of these services in a timely and optimal manner. To this effect, the strategy calls for
(i) enhanced access to quality infrastructure;
(ii) timely and locational availability of services to reduce input and transaction costs;
(iii) addressing the infrastructural deficits at the national and regional levels;
(iv) provision of quality infrastructure for the implementation of the Industrial Upgrading and Modernization Programme; and
(v) upgrading the transport, energy, ICT and water supply infrastructure.
The strategy notes that in tackling the infrastructure deficit through increased investment in new facilities, extra attention should be paid to maintenance and quality, as it is not just the supply of infrastructure that is constraining economic development, but the failure to provide adequate resources for the upkeep and maintenance of existing infrastructure, while ensuring that due attention is paid to the quality of infrastructure provision. The strategy then advocates that (i) the current Regional Infrastructure Development Master Plan (RIDMP) should be fast-tracked and aligned to meet the varied needs of the industrialization strategy; (ii) a strategy for leveraging the RIDMP should be developed to catalyze industrial development and reduce current high costs of doing business; and (iii) the infrastructure support programme for industrialization should be planned and implemented as a continuum, extending beyond the medium term.
Strategy on financing policy
To overcome the severe constraints imposed by the infrastructure and skills deficits, the strategy notes that governments will need to re-order their public expenditure programmes to give greater priority to public and private investment in physical infrastructure and human capital development. In part this will depend on the willingness of governments and electorates to embrace the paradigm of change in the form of a switch from consumption-led economic growth to investment-driven expansion. This is a very important paradigm shift that requires careful planning and re-orientation of both the electorate and the civil service.On domestic sources of capital, the strategy notes that existing savings and investment levels in the SADC region fall well short of what will be needed to drive structural transformation, economic diversification and poverty reduction.
Given the present and likely future state of the global economy, SADC countries cannot afford to rely on foreign savings to make good shortfalls in domestic savings, hence the need to develop the domestic sources that includes the internal fiscus, the financial sector, the capital markets, the private equity funds, the public-private partnerships, SADC Development Fund, Sovereign Wealth Funds, remittances and institutional savings including Pension Funds. The strategy recognises that exploiting the potential of these sources will require deepened financial sector reforms, innovative mechanisms and effective frameworks to maximize and sustain the high level of resources necessary for industrialization.
Alongside this, we believe that foreign direct investment plays a critical role early in the process. We noted in the most recent article on government policy formulation process that Finance Ministers will need to work very closely with the global financial network to tap into both existing and new and innovative ways of financing for projects. It will be practically impossible for the SADC industrialsation strategy to succeed in its objectives within the envisaged timeframe without taping into the global financial resources. Initially, external funding will be needed to address the bottlenecks. Key to attracting this external capital is creating an enabling environment, a theme that we have always repeated.
The SADC strategy notes that Governments’ central roles is the creation of enabling policies and regulatory environments for accelerated industrialization with a particular focus on tackling the binding constraints of infrastructure, skills development and financing. Once again, the SADC strategy hits the nail on the head and political will should lead to accelerated infrastructure development to support industrialization.
Nigeria seems well placed to lead regional integration in West Africa starting with sorting out key policy issues at home.
Russell Duke is Chairman and Managing Principal at National Standard Finance, LLC. Michael Tichareva is Principal and Managing Director of Africa operations at National Standard Finance, LLC.
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Experts discuss new ways to use trade policy to protect the world’s fish and oceans
UNCTAD and the Commonwealth Secretariat gather leading experts to discuss options to further advance trade in sustainable fisheries.
A gathering of leading experts in sustainable fisheries met in Geneva on 29 September, the first meeting at this level since world leaders signed up to the aim of conserving life under the sea and using oceans, seas and marine resources sustainably by adopting Goal 14 of the Sustainable Development Goals.
UNCTAD Deputy Secretary-General, Mr. Reiter, emphasized the importance of oceans and ocean resources, like fish, for livelihoods of population, especially in developing countries. He stressed that “We can do much for fish conservation and trade but we have no luxury of time; time has run out, now we need concrete and strong actions to stop the depletion of fish.”
Fisheries, if sustainably managed, have the potential to become one of the main contributors towards poverty reduction and food security, especially in developing countries. According to the World Bank, around 350 million jobs are linked to fisheries, port management and related activities[1] and the livelihoods of 10-12 percent of the global population depend on the sector.
Fish is also one of the most traded food commodities worldwide. It represents about 10 percent of all agricultural exports and 1 percent of all merchandise trade in value terms. The importance of trade in fish and fish products has been steadily increasing in the past two decades. World trade flows in fish and fish products reached $264 billion in 2013, a 76 percent more in terms of trade value than the amount traded in 1995. Developing countries are the main exporters of fish (56 percent), while developed countries account for approximately 69 percent of global imports.
However, instead of protecting and ensuring the sustainability of this valuable resource, the fisheries sector is being threatened on many levels, including by an over-exploitation of its resources, destructive fishing practices, ecosystem degradation and declining biodiversity, climate change, ocean acidification and pollution. Currently, 87 percent of the world’s marine fish stocks are fully exploited, overexploited or depleted. In addition, the consumption of fish is growing as population expands at an increased rate, adding to the stress endured.
The Food and Agriculture Organization of the United Nations estimates that rebuilding overfished stocks could increase production by 16.5 million tons and annual rent by $32 billion. The benefits of re-building fisheries in general outweigh the costs.
Despite national, regional and multilateral efforts in the past 20 years, the attempts made still seem insufficient to reverse the decline of global fish stocks.
At the Geneva expert meeting, Mr. Deodat Maharaj, Deputy Secretary-General of the Commonwealth Secretariat, said that: “The achievement of targets such as the end of overfishing and destructive fishing practices and the implementation of science-based management plans to restore fish stocks by 2020 will be extremely difficult to achieve without coherent global action.”
UNCTAD and the Commonwealth Secretariat convened governments, international experts, businesses and other relevant stakeholders to discuss and identify possible approaches and options within the trade policy toolbox to mainstream sustainable fishing practices.
[1] World Bank (2012). Living oceans. See http://go.worldbank.org/A2MYFIUQM0
Trade policy negotiations should contribute to sustainable fisheries
Remarks by Commonwealth Deputy Secretary General Deodat Maharaj issued during the Commonwealth-UNCTAD Expert Group Meeting on Trade in Sustainable Fisheries, 29 September-1 October 2015
Many of our Commonwealth member states are small island developing states (SIDS) – 25 out of a total membership of 53 countries – and oceans and their evolution are central to their socio-economic development. Many have jurisdiction over significant ocean areas that far, far exceed the land area of the countries themselves.
For example, the exclusive economic zone of The Bahamas covers an area that is 50 times larger than its land territory. Similar characteristics prevail throughout the Commonwealth – in St Vincent and the Grenadines and St Kitts and Nevis in the Caribbean, in Seychelles and Mauritius in the Indian Ocean, and in the Cook Islands, Kiribati, Solomon Islands, Tuvalu and Vanuatu in the Pacific.
For all of these Commonwealth member countries, the management of such expansive areas of ocean space and the creation of an ocean economy creates many challenges. The management of fisheries forms an integral element of this challenge for many of our members and is integral to their efforts to achieve sustainable development.
The global ocean market is estimated to be valued at approximately US$1,345 billion per annum, contributing approximately two per cent to the world’s gross domestic product. Approximately 350 million jobs globally are linked to the use of ocean space and resources through fishing, aquaculture, coastal and marine tourism, shipping and research activity. In excess of one billion people depend on fish as their primary source of protein.
The increased reliance on the oceans coupled with mismanagement of ocean resources is placing the oceans under enormous pressure, with implications for humanity that we are only now beginning to fully appreciate.
We have known for some time that global fish stocks are over-exploited and that many fisheries are in a parlous state. The seriousness of the situation was highlighted in figures released only this month in the Living Blue Planet Report, which revealed for the first time that there has been a 50 per cent reduction in utilised fish stocks globally between 1970 and 2010. For fish stocks of particular importance to regional economies and livelihoods, the decline may be even more dramatic. This trend is echoed in the status of marine biodiversity generally.
This illustrates very clearly that there is an urgent need to better manage our ocean space and to focus more on the conservation and rebuilding of global fish stocks. Whilst a series of national, regional and multilateral efforts have been undertaken over the past two decades to address fish stock depletion with some success, much more work remains to be done to improve marine species conservation and the protection of related ecosystems.
This year, I highlighted the need for a collective effort to establish a fairer, more inclusive and sustainable future for all of humanity. This collective effort is equally pertinent as we look for feasible approaches and frameworks to ensure that multilateral and regional trade policy negotiations can, and should, contribute to.
As we all know, 2015 is a significant year for the international community. Last weekend world leaders adopted the Sustainable Development Goals (‘SDGs’), which replace the Millennium Development Goals. The SDGs include a specific goal on our oceans (Goal 14), which urges the international community to take action to “conserve and sustainably use the oceans, seas and marine resources for sustainable development”.
The level of ambition within the SDGs is commendable, and there are hopes that they may reinvigorate and build momentum at the multilateral level. However, the question of how to balance sustainable development and conservation remains, as does the challenge of translating the SDG goals into practical action by WTO members within the existing framework of multilateral trade rules.
The main difference between multilateral, regional and bilateral trade negotiations often boils down to the level of ambition in terms of the rule-setting. The speed at which bilateral and regional trade negotiations have been concluded relative to the respective rounds of negotiations under the multilateral trading system and the WTO are testimony to this. For example, 14 years of fisheries subsidies negotiations under the Doha Development Agenda have not yet produced an outcome. The Bali package agreed at the 9th WTO Ministerial is a pale reflection of what was originally envisaged in the Doha Development Agenda and round of negotiations, the first since the WTO inherited the multilateral trading system in 1995. In comparison, some 260 regional trade agreements have been notified to the WTO.
SDG Goal 14 builds upon many of the provisions for oceans and fisheries conservation contained in the Rio+20 outcome document, the Samoa Pathway and the Istanbul Programme of Action – an LDC-led initiative that expires in 2020. The focus on creating a coherent strategy for developing countries includes recognition of the need for special and differential treatment and technical co-operation (Goal 14.7) for SIDS and LDCs.
Because of the level of ambition within the SDGs, some critics have said that implementation is likely to be difficult. The achievement of targets such as the end of overfishing and destructive fishing practices and the implementation of science-based management plans, to restore fish stocks by 2020 (Goal 14.4) will indeed be extremely difficult to achieve without coherent global action.
To conclude, multilateral and regional trade policy negotiations can and should contribute to more sustainable fisheries. Aligning negotiation strategies in view of the stated objectives of the SDGs is important.
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Carbon pricing, divestment, and fossil fuel subsidy reform options for climate deal
A series of reports regarding the use of carbon markets as a central means for achieving international climate goals were released as the seventh annual multi-stakeholder New York Climate Week unfolded from 21-28 September in the US, just ahead of the adoption of the new “2030 Agenda for Sustainable Development” by the UN General Assembly at its headquarters.
While the number of carbon pricing schemes worldwide has increased over the past few years, nations must accelerate their deployment in order to achieve an internationally agreed upon goal of limiting temperature rise to no more than two degrees Celsius above pre-industrial levels, according to a report on the state and trends of carbon pricing released by the World Bank last week.
Several parties support the use of global carbon markets as an option to meet emissions reduction targets as part of a new climate deal under the UN Framework Convention on Climate Change (UNFCCC) to be inked in December in Paris, France. These players specifically call for the agreement to include reference to the use of international transfers of mitigation units. However, no consensus has formed as to whether, or to what extent, market mechanisms will be cited.
Some strong ideological opposition and practical hesitations abound among other countries and analysts over the use of market-based mechanisms to tackle climate change, ranging from a desire to avoid commodification of the environment, to fears such policies will not result in credible emissions reductions.
Despite a lack of certainty in the international sphere, the number of implemented or planned carbon pricing schemes has almost doubled since 2012 with some 40 nations and 23 cities, states, or regions using emissions trading schemes and carbon taxes. These schemes now cover some 12 percent of annual global greenhouse gas (GHG) emissions and are worth approximately US$50 billion.
Carbon market developments
Recent developments in this area include the launch of South Korea’s carbon market at the start of this year, the approval of a national carbon tax by the Chilean government that is set to come online in 2017, and China’s announcement of a proposed national scheme that once operational in 2017 would overtake the EU’s Emissions Trade System (ETS) to become the largest in the world.
The World Bank, together with the Organisation for Economic Cooperation and Development (OECD) and the International Monetary Fund (IMF), also published a series of principles last week designed to help governments craft and implement carbon-pricing policies.
The principles, shortened to the acronym “FASTER” for short, stands for Fairness; Alignment of policies and objectives; Stability and predictability; Transparency; Efficiency and cost effectiveness; and Reliability and environmental integrity.
Higher carbon price
Although not setting a specific target price, the World Bank’s carbon pricing state and trends report calls for more ambitious carbon prices in order to significantly incentivise a shift for investors away from carbon-intensive industries towards cleaner sources of energy.
The price of carbon in the schemes covered in the report range from less than US$1 a tonne of carbon dioxide equivalent (CO2e) in Mexico to US$130 a tonne in Sweden. More than 85 percent of the schemes have a carbon price lower than US$10 CO2e, and according to the study, these numbers are “considerably” lower than what is required to avoid the worst consequences of climate change.
In addition, the report emphasises the importance of cooperation and supports the linking of carbon pricing instruments across borders, suggesting that this could result in net annual flows of financial resources of up to US$400 billion by 2030 and up to US$2.2 trillion by 2050.
While many experts supportive of market-based mitigation policies have echoed the benefits of linking carbon markets, concrete progress on the ground towards cooperation, particularly between the EU ETS and other countries, remains slow.
It is likely that the EU may finalise plans to link schemes with Switzerland within the next year or so, however, experts do not expect any linking with either China’s proposed national carbon market or South Korea’s scheme before the end of the decade, as the schemes must first be aligned in many key areas.
International credits
In a bid to boost demand for international carbon offset credits, the UN launched the “Go Climate Neutral Now” initiative on 22 September, a new online platform to purchase carbon offsets generated by one of the UN’s emissions crediting programmes, the Clean Development Mechanism (CDM).
The platform aims to make the CDM competitive on the “voluntary market” – in other words, where greenhouse gas cuts are not mandated – and purchases of offsets through the online platform can be made by any individual, government, or company without commission fees normally expected by brokers. The offsets generate revenue for projects and programmes geared towards reducing emissions in over 107 developing countries.
However, a number of analysts do not think that the initiative will have a significant impact on the current glut of CDM credits, and some experts have voiced concerns that it could possibly jeopardise high quality emissions reductions. Recent reported trends in carbon markets reflect these apprehensions, players such as the EU that used to accept international credits from the CDM have now transitioned to accepting only domestic offsets.
Shifting investments
Some members of the international community last week also hailed progress in a shift of investments away from fossil fuels, particularly from the high-emitting coal industry.
Some 436 institutions and 2040 individuals across 43 countries and representing US$2.6 trillion in assets have committed to stop supporting fossil fuels, according to a report from Arabella Advisors, an investment research firm, also unveiled during the New York Climate Week.
These numbers showcase a 50-fold increase since Arabella’s last report, which found that 181 institutions and 656 individuals representing US$50 billion had committed to divest in 2014.
While the total value of the holdings that investors are selling is not known, an analyst at Arabella has reported that in a sample of just seven percent of the investors involved, they had sold or promised to sell about US$6 billion of fossil fuel investments.
As the world shifts towards decarbonisation to tackle climate change in the long-term, some analysts contend that profits from investing in high-emitting industries could plummet. A report from global consulting company Mercer released in June, for example, found that the average annual returns from the coal sub-sector could fall by anywhere between 18 percent and 74 percent for investors over the next 35 years.
This could be partially attributed to the growing number of carbon pricing schemes and other associated policies that place a greater emphasis on the “negative market externalities” generated by greenhouse gas emissions.
Reforming subsidies
Industrialised and key emerging economies are still spending some US$160 to US$200 billion a year on policies that support fossil fuel consumption and production, according to a report by the Paris-based OECD released last Monday. The report identifies close to 800 spending programmes and tax breaks used by 34 OECD countries and governments in Brazil, China, India, Indonesia, Russia, and South Africa.
“The time is ripe for countries to demonstrate they are serious about combating climate change, and reforming harmful fossil fuel support is a good place to start,” said Angel Gurría, OECD Secretary-General, with the report highlighting that around two-thirds of the fossil fuel support measures were introduced before the year 2000 under different economic and environmental contexts.
Countries have been pledging to phase out or reform inefficient fossil fuel subsidies for several years, with the latest commitment coming from the meet of G7 leaders in June, and in the recent post-2015 development agenda.
The report concludes that while it appears that global support for fossil fuel subsidies may have already peaked in 2008 and then again in 2011-2012, it estimates that global progress towards reform remains slow.
For example, the OECD has been locked in negotiations to phase out a form of coal subsidy that helps developed countries export technology linked to fossil fuel generation. Another round of negotiations held earlier in September stalled, however, and reports indicate that the talks on understanding the role of export credits in achieving climate goals will resume again in mid-November.
Some experts suggest a positive agreement among these developed countries on export credits and the reform of other fossil fuel subsidies would help the global economy shift financial resources towards greener sources of energy and possibly open up much needed financial pathways for climate finance to developing countries before the Paris meet.
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China’s economic slowdown: An opportunity to boost Indo-Africa ties
Compared to China, the Indian economy is expected to grow faster, at 7.5%, and offers a large consumer market
As China is confronting property market challenges, overcapacity in industries, debt burden and financial risks, the recent slowdown in the economy and the devaluation of the Chinese currency has heightened major concerns for the various economies across the globe, including Africa.
Over the past decades, China has been a major and the largest trading partner of Africa, with bilateral trade amounting to $220 billion in 2014. China imports a wide range of products – from copper to oil – from Africa and the continent has become an increasingly important source for feeding the appetite of the consumer-rich Chinese economy. However, the dramatic slowdown of the Chinese economy has left the African region looking vulnerable.
The past few months have seen a significant deterioration in Africa’s trade balance with China. In fact, the lower forecast growth rate of 3.1% of China depicts the fragile picture affecting the dynamics of Sino-African relationship.
So, what is the exact impact of the Chinese slowdown on African economies? According to researchers at IMF: “No region may be more affected by the financial meltdown in China than Africa. If China sneezes, Africa can now catch a cold.” China is highly dependent on Africa for its mineral resources, oil and cheap labour. Given the fact that exports to China from Africa accounted for 30% of the region’s total exports between 2005 and 2012, African resource exporters are going to suffer negative shock-waves to their industries. Lower demand from China will shrink the economies of Africa and eventually heightened the debt burden.
For the top five exporters – Angola, South Africa, the Republic of Congo, Equatorial Guinea and the Democratic Republic of Congo – a 1% decline in domestic investment growth would mean a 0.8 percentage point decline in the region’s growth. According to Fathom Consulting research, Zambia – which has the large community of Chinese immigrants, having established successful businesses in the retail and the construction industries, followed by South Africa – is most exposed to the Chinese economic slowdown. Last month, with the devaluation of the yuan, South African stock markets suffered from heavy losses with the fall in the value of the rand by almost 8%. In addition to the damage caused on the rand, analysts also noticed the impact of the slowdown on the South African steel industry, which found it difficult to compete against cheaper Chinese steel exports. Moreover, Chinese firms are finding themselves increasingly at odds with their African hosts over environmental and labour issues.
Additionally, the tourism sector of Africa may have to bear the burden of the slowdown. The favourable exchange rate and wildlife has attracted Chinese tourists to Africa. A devaluation of the yuan would lower spending from China and thereby impact tourism. In South Africa, the situation is compounded by new complex visa regulations. For that country, the global volatility would create a double jeopardy for the local tourism industry.
Given these developments, the slowdown may bring benefits to the Indian economy. The India-Africa Forum Summit (IAFS) in October will be a testing time for India to seek a proactive and meaningful engagement to make the best of the times. Though not as strong as China, India’s commerce with Africa has seen considerable progress over the years. In 2013, the trade between both the regions stood at $70 billion. Nigeria and Angola account for more than a quarter of India’s oil and gas imports. India’s private sector has established a significant presence in South Africa, Kenya, Tanzania and Mauritius, which has led to strong entrepreneurial ties in sectors such as retail services, mining and commodities trading.
In light of Africa’s increasing dependency on and trouble with Chinese actors, African leaders are beginning to look beyond China in an attempt to diversify. Considering that the demand for African resources will get affected from the Chinese slowdown, India and the long-standing presence of Indian businesses in the continent can help Africa deal with the losses. Compared to China, the Indian economy is expected to grow more rapidly, at 7.5%, and offers a large consumer market. With growing energy demands and Make-in-India, further engagement with Africa is possible. Moreover, India provides a useful model for democratic development. The learning experience from India can help Africa strengthen its judicial system. Additionally, India can be a useful partner to support Africa against terrorism.
The upcoming IAFS will be an occasion to harness this opportunity and a meaningful strategic engagement beneficial to both the countries.
The author is research assistant, Observer Research Foundation, Delhi, and researcher, Wikistrat