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Appellate Body issues annual report for 2014
The Appellate Body issued on 3 July 2015 its Annual Report for 2014. The Report includes information about appeals filed by WTO members, the key findings of reports circulated in 2014, the composition of the Appellate Body, the participation of WTO members in appeals, dispute settlement statistics, and activities undertaken by the Appellate Body and its Secretariat during this period.
In January 2014, the Appellate Body welcomed a new cycle in the Mayan Calendar, fully aware of the challenges ahead. David Unterhalter completed his second term in December 2013, and the Appellate Body was left to function with only six Members for most of 2014. It was not until September that the Appellate Body reverted to normality with the appointment of Mr Shree Baboo Chekitan Servansing. Shree has already made his presence felt in the Appellate Body, and his skills and knowledge continue to make our institution stronger and wiser.
By the end of 2014, the Dispute Settlement Body had received nearly 500 requests for consultations. In its first 16 years, the DSB has handled disputes spanning over US$1 trillion in trade flows. Two thirds of WTO Members have participated in dispute settlement in one way or another. These numbers are quite telling. Despite the attention given to emerging regional trade initiatives, our dispute settlement system remains to be the preferred and perhaps the only forum where international trade disputes are adjudicated effectively and efficiently.
2014 saw the highest number of total active disputes at the panel and appeal stages. Thirteen panel reports were appealed in 2014, and the Appellate Body issued eight reports concerning five matters in: EC – Seal Products; US – Countervailing and Anti-Dumping Measures (China); China – Rare Earths; US – Carbon Steel (India); and US – Countervailing Measures (China). A ninth Appellate Body report, in Argentina – Import Measures, was circulated in January 2015.
The robust level of appeal activity in 2014 confirms the conclusions reached in the Appellate Body’s 2013 Workload Paper. As indicated in the 2013 Workload Paper, appeals have increased not only in rate, but also in complexity, to what was witnessed in the first decade of the WTO dispute settlement mechanism. Disputes now commonly involve multiple parties advancing a variety of claims, increased third-party participation, and greater procedural complexity. Looking at it from a broader context, 2014 has been a “trendsetting year” in terms of complexity of appeals and the number of panel reports appealed. On average, 68% of circulated panel reports are appealed. In 2014, that figure rose to 87%.
Be that as it may, 2014 is just the tip of the iceberg. As the 2013 Workload Paper projected, the upward trend of dispute settlement activity will continue for the next several years. On top of the current heavy workload, we anticipate appeals in the aircraft and tobacco cases, which are on the horizon.
All these facts have increased the burden that is placed on the dispute settlement system, and on the Appellate Body in particular, to produce high-quality reports. This significant strain on the system and its limited resources require effective and innovative solutions. The Appellate Body, together with the WTO Administration, continue to address budgetary and human resource issues to meet the challenges posed by the current workload. Nonetheless, there are structural aspects to these concerns that only the WTO Membership can address.
We interpret the upsurge in the use of dispute settlement, and in appeals specifically, as a sign of confidence by the WTO Membership in the dispute settlement system. We thus consider it our mission to continue delivering high-quality Appellate Body reports swiftly, regardless of the number and complexity of appeals filed.
For the past 20 years, the Appellate Body has served as a model for treaty interpretation and adjudication. Regardless of one’s agreement with our findings, it is uncontested that we adjudicate disputes on their merits and in a methodical manner. The WTO dispute settlement system is among the most active, complex, efficient, and sophisticated international dispute settlement systems. The quality of our reports is our trademark, and it is non-negotiable. We stand ready with the WTO Membership and the WTO Administration to address coming challenges and make the system work better than ever.
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One-Stop to boost Kenya-Tanzania deals
Two border posts in Kenya and Tanzania are to be officially launched in August leading to combined operations of relevant government agencies and faster flow of goods between the two countries.
According to Trade Mark East Africa (TMEA), who are the main consultants on the project, Tanzania’s President Jakaya Kikwete and Uhuru Kenyatta the President of Kenya, are expected to visit the refurbished facilities at both Holili in Tanzania and Taveta in Kenya under the One Stop Border Post (OSBP) system.
The project is one of the major steps towards eliminating non-tariff barriers and ease movement of goods and services across borders.
An OSBP facility is aimed at reducing time-spent at the border posts. For this case, plans are for reducing the time for clearing trucks and passengers by at least 30%.
Previously a transit truck could be cleared after 27 hours but now drivers can get moving within nine hours.
Likewise, passenger documentation will be cleared within three to five minutes while waiting at the various counters, unlike before when passengers had to wait for longer periods.
Officials say improved flow of goods will make the EAC region a better and cheaper place to do business and more attractive to foreign investors.
It means goods entering the country can have all the customs paperwork sorted from the other side without going through a cumbersome process at the border.
Under the One-Stop-Border project, all officials involved in the process of clearing people and goods come under one roof.
In the recent past, traders have for years complained about the numerous and lengthy customs documentation while crossing borders within the region. This has not only cost them time and money but goods are delayed in transit hence disrupting supply chains.
In a statement TMEA said the two projects, which started in 2011, has been financed by them soon after the immediate signing of the bilateral agreement between Tanzania and Kenya.
The two countries have already started using the facilities starting early June 2015.
The construction of the Tanzanian structures that costs $6 million was successfully completed in April last year, while the Kenyan buildings in Taveta were completed in May at the cost of $8.3 million,
In addition, TMEA is currently financing 13 other OSBPs in East Africa, including one at the Burundi/Tanzania border – the pilot post that is proving that the system works – at the cost of approximately between USD7m and USD8.5m each.
Each post consists of an office building for the border agencies, parking for trucks, a ramp for offloading goods, an inspection and verification warehouse and other facilities at every border post.
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tralac’s Daily News selection: 3 July 2015
The selection: Friday, 3 July
Today, in Addis: The future of disaster risk reduction and resilience in Africa (Common Africa Platform)
In order to obtain empirical data, the ECA commissioned four country studies in Zambia, Tanzania, the DRC and South Africa. These countries were selected because of the significant importance of the mineral sector to their respective economies as well as the diverse tax challenges that they face. These sample countries also allow for wider coverage of different mineral types. The Democratic Republic of Congo is a diversified mineral producer with copper, gold, diamonds and coltan while Tanzania and Zambia are principally gold and copper producing countries respectively. A further consideration was given to the fact that there exists a considerable body of literature on these countries to allow for both in-depth analysis and comparative inquiry. The Ad Hoc Expert Group Meeting will take place on 6-7 July 2015 in Addis Ababa. [Download]
Profiled audio recordings from the Global Review of Aid for Trade:
The role of trade facilitation in supporting Africa's regional integration agenda
Mombasa: one port, 200 million people
Looking ahead to the Nairobi Ministerial Conference
Closing remarks by WTO Director-General, Roberto Azevêdo
Kenya/Seychelles: WB update says 10 countries move up in income bracket (World Bank)
The World Bank’s latest estimates of Gross National Income per capita (GNI) continue to show improved economic performance in many low-income countries, with Bangladesh, Kenya, Myanmar, and Tajikistan now becoming lower-middle income countries, joining those with annual incomes of $1,046 to $4,125. Beset by civil war and a national oil industry at a standstill, South Sudan has fallen out of the lower middle-income classification and back into low-income status, where average per capita incomes are $1,045 or less. In 1990, Malawi’s GNI per capita was $180 – in 24 years its average per-capita income has increased by just $70. In the same period Norway, one of the world’s wealthiest countries, has seen its per capita income increase from $26,010 to $103,050, an increase of $77,040.
Building resilience in Sub-Saharan Africa’s fragile states (IMF)
An approach focusing on inclusive politics, effective governance, and fiscal health seems to offer a viable route to overcome fragility in sub-Saharan Africa, an IMF staff report said. The report, “Building Resilience in Sub-Saharan Africa’s Fragile States,” was released July 1 at the Center for Strategic and International Studies in Washington, D.C. The report highlights the persistence of fragility and documents progress across countries since the 1990s, including through detailed analysis of seven country case studies.
The report covers the period 1990-2013. The case study countries are Central African Republic, Democratic Republic of Congo, Ethiopia, Mali, Mozambique, Rwanda, and Sierra Leone. The report adds that Cameroon, Ethiopia, Mozambique, Niger, Nigeria, Rwanda, and Uganda made substantial progress in building resilience; it cites Cote d’Ivoire, Malawi, and Zimbabwe as countries that had regressed. [Download]
SSA trade and gender analysis training (UNCTAD)
Twenty-five researchers from 16 countries in sub-Saharan Africa have taken part in an UNCTAD regional workshop on trade and gender analysis. The event was hosted by the North-West University in Potchefstroom, South Africa, on 15-19 June, and funded by the Government of Finland. The second volume of the UNCTAD teaching manual on trade and gender, "Empirical analysis of the trade and gender links" was the basis for the activities.
UNCTAD analysis: 'Trade in the Post-2015 Development Agenda' (Chapter 9 of the OECD/ WTO publication, Aid for Trade at a Glance 2015)
Fin4Dev: a new shared platform (World Bank)
This new blog platform - Fin4Dev - aims to spark conversations and build a better understanding about how the world can and is coming together to provide the resources for the sustainable development we need. (Fin4Dev will be complementary to the UN-sponsored FFD3 blog that’s been running since early May and we will be cross-pollinating our content for maximum impact). Our ambition is to show how the multilateral model brings together government, private sector and civil society to achieve results and transform lives.
Ravi Kanbur: Africa should invest in people, not industries (video, World Bank)
The current African commodity/resource booms raise the question of how to appropriately use the revenues gained. Professor Ravi Kanbur of Cornell University talks to the distributional dilemmas and the best way forward for these growing countries to achieve transformation. He argues that African countries should generate sustainable growth by investing in infrastructure and human capacity building and not in the light manufacturing industrial policies that have worked so well in East and South Asia.
Africa’s transformation: leveraging partnership with Korea (World Bank)
Building African skills in applied sciences, engineering, technology (World Bank)
African governments invest in skills in sciences, engineering, and technology (World Bank)
Namibia: Government welcomes new AGOA trade agreement (The Namibian)
In an interview with Nampa this week, director of international trade in the Ministry of Industrialisation, Trade and Small and Medium Enterprise Development Benjamin Katjipuka said Namibia is currently not trading with the USA under AGOA, but he commended the USA's strong commitment to enhancing the Africa-US economic partnership. “Although we do not benefit much from AGOA, Namibia welcomes the new version of AGOA. We have been calling for a reauthorisation of 15 years, but still, the 10 years reauthorisation is a welcome development,” said Katjipuka.
In Namibia, he said, AGOA's benefits have not been fully utilised due to a number of challenges, in particular the closure of the Ramatex garment and textile factory in 2005, which left 600 people unemployed. Ramatex turned cotton into textile to export it to the US under AGOA. He said Namibia is currently trading with the US, but under the Most Favoured Nations (MFN) agreement. Namibian exports to the US mainly comprise uranium ore and concentrate; non-industrial diamonds; as well as refined copper and fish products. “None of these products is eligible under AGOA. We trade in those products with the US, but under MFN,” Katjipuka said.
Namibia: Livestock industry none the wiser after SA meeting (New Era)
Namibia’s multibillion livestock export industry to South Africa is still holding its breath after a high-powered delegation from South Africa’s agricultural ministry met with their counterparts of Namibia behind closed doors on Monday and on Tuesday this week. The fresh round of talks follows after a recent notice in the SA Government Gazette, which introduced a consultation process about the re-introduction of strict animal health regulations for imports from South Africa. Namibia has objected to this on the highest level after such drastic requirements was implemented overnight by South Africa, bringing the Namibian export industry worth some N$2.4 billion per annum to its knees in 2014.
Uganda: Absorption of Budget funds increases to 50 per cent (Daily Monitor)
Speaking at a joint news conference between ministry of Finance and Bank of Uganda on Tuesday at ministry of Finance headquarters, the Deputy Secretary to Treasury, Mr Patrick Ocailap, said over the last one year, there has been improvement in the absorption capacity in ministries leading to implementation of projects. “The level of absorption capacity in ministries, agencies and departments now stands at 50 per cent compared to an average of 23 per cent in the past years,” he said.
Rwanda: Govt launches business friendly investment code (New Times)
Rwanda Development Board has unveiled a new investment code that elucidates potential investment opportunities in the country as well as the key areas the government is marketing to investors. The new code aims bring in $1.12 billion worth of foreign direct investments (FDIs) by the end of the year. Figures from RDB put the country’s actual FDIs at $257 million in 2013 and $521 million projected investments in 2014.
Zimbabwe: Zimra lobbies for retail taxes to be reduced (The Herald)
The Zimbabwe Revenue Authority has recommended Government to reduce taxes for retailers as the influx of illegal vendors in cities and towns is threatening their survival. Zimra commissioner general Mr Gershem Pasi said this was in light of challenges that many retailers were facing as they have to contend with vendors who sell their wares on pavements in front of their shops. Retailers argue that the vendors are crippling their operations as they often sell similar goods to theirs at lower prices, disadvantaging them as they have to pay rent and taxes. Mr Pasi said the influx of vendors had also contributed to the high rate of tax evasion. Zimra is owed over $1 billion in unpaid taxes, a situation blamed on the current economic challenges.
Zimbabwe: Fresh vegetables exports to EU up 269pc (The Herald)
New ports and container terminals make Kenya the region’s trading hub (Business Daily)
Currently, the Mombasa port on Kenya’s Indian Ocean coastline has 19 functional berths with a capacity to handle over one million TEUs and two new container berths with a 1.2 million TEUs capacity. Over the past few years, the container traffic has been growing at an average rate of 11 per cent per annum. [The author, Gilbert Langat is CEO, East African Shippers Council]
Mombasa port strike hurts trade in East Africa (The EastAfrican)
US-SADC exchange on good regulatory practices in Southern Africa (US Department of Agriculture)
Rwanda, Kenya private sector bodies to strengthen ties (New Times)
Kenya scraps manual visa application to ease travel (Daily Nation)
Minister Malusi Gigaba on meeting on immigration regulations with Child Advocacy Groups (GCIS)
Adequate, targeted financing key to people-centred sustainable development – UN official (UN News Centre)
China’s foreign aid reform and implications for Africa (Brookings)
China Economic Update (World Bank)
This week in the news
Follow the links below to read tralac’s daily news selections for the past week:
The selection: Thursday, 2 July 2015
The selection: Wednesday, 1 July 2015
The selection: Tuesday, 30 June 2015
The selection: Monday, 29 June 2015
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This post has been sourced on behalf of tralac and disseminated to enhance trade policy knowledge and debate. It is distributed to over 300 recipients across Africa and internationally, serving in the AU, RECS, national government trade departments and research and development agencies. Your feedback is most welcome. Any suggestions that our recipients might have of items for inclusion are most welcome. Richard Humphries (Email: This email address is being protected from spambots. You need JavaScript enabled to view it.; Twitter: @richardhumphri1)
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China’s foreign aid reform and implications for Africa
Over the past several years, an increasingly strong voice has risen in China calling for the reform of its foreign aid policies and systems. In response to this voice, the Ministry of Commerce (MOFCOM) initiated a campaign in 2014 to “comprehensively deepen the reform of China’s foreign aid system,” which led to the release of new “Measures for Administration of Foreign Aid” in December. Under this grand scheme, MOFCOM is scheduled to introduce mid- to long-term policy guidelines on Chinese foreign aid in 2015.
While the changes to China’s foreign aid may not be as drastic as some have hoped, they will nonetheless affect the direction and practice of China’s foreign aid as an important policy instrument.
In China, there is now a general consensus that China’s foreign aid needs reform. The past decade has witnessed a great proliferation of foreign aid actors – from government entities to private companies to individuals and social entities – and a significant rise in foreign aid volume. China’s cumulative foreign aid between 1949 and the end of 2009 was 256.29 billion RMB (around $43 billion using the exchange rate of 2009), while the total amount between 2010 and 2012 was 89.34 billion RMB. This means that more than a quarter of the aid provided by China from 1949 to 2012 happened during the last three years of that period. The demands and expectations of recipient countries have also diversified, covering a broad range of areas including technical assistance, capacity building, and infrastructure projects.
As a non-OECD (Organization for Economic Cooperation and Development) country, China’s growing foreign aid has been having a significant impact on the landscape of the global development community. Chinese foreign aid has become a formidable alternative to existing Western aid. Multilateral development institutions championed by China such as the New Development Bank and the Asian Infrastructure Investment Bank (AIIB) are raising important questions about the future of existing institutions, including the World Bank and Asian Development Bank. As China dives into these new territories of multilateral development institutions, it also needs to adjust for discrepancies between its traditional bilateral-focused aid practice and the prevailing international norms.
In addition, in the past decade, controversies stemming from China’s foreign aid, especially business contracts in less-developed countries and connections to China’s quest for natural resources, have solicited scrutiny and criticism from international observers. How to manage the reputational risks associated with commercial aspects of China’s foreign aid and improve its foreign aid to better serve China’s broader national interests is a key task identified by analysts within the Chinese foreign policy community.
There is some degree of consensus among Chinese observers and scholars regarding the needed foreign aid reform. For example, most agree that China needs legislation on foreign aid from the National People’s Congress to replace the less formal and less authoritative executive orders and ministerial measures currently guiding the country’s foreign aid policy and practice. At the technical level, it is generally agreed that China needs more foreign aid professionals specializing in international development and better monitoring and evaluation (M&E) for the implementation of its aid projects. International development is a relatively new field for Chinese universities and academic institutions. Many if not most foreign aid staff in China today comes from a foreign language or international relations background. Their knowledge deficiency has limited the scope and depth of the mission they are expected to perform. Furthermore, monitoring and evaluation has not traditionally been a strong priority for China’s aid programs, especially beyond the completion of infrastructure projects.
Beyond this consensus, major disagreements persist. People debate the priorities of China’s foreign aid. Concessional loans, such as those on large-scale infrastructure projects, have recently become the largest component of China’s foreign aid, occupying 55.7 percent of China’s total foreign aid between 2010 and 2012 (between 1949 and 2009, the percentage was only around 28.7 percent). However, prominent observers inside China such as Xu Weizhong from China Institute of Contemporary International Relations have been calling for China to steer its foreign aid away from this model and more toward capacity-building and social welfare projects. This shift would foreseeably dilute the image of China using foreign aid to advance its commercial interests, yet it would also inevitably hurt those interest groups embedded in the approach.
Furthermore, the effort to shift the focus of China’s foreign aid away from infrastructure projects may not be in line with the current priorities of the Chinese government. As MOFCOM has stated, in the foreseeable future China will enhance its foreign aid to countries along the “One Belt, One Road” and in China’s periphery. Given the “One Belt, One Road” initiative’s overall emphasis on “connectivity” (infrastructure projects such as transportation networks), it is reasonable to expect that concessional loans for infrastructure projects will receive favorable consideration in China’s foreign aid in the years to come.
The diversification of aid actors and the role played by Chinese nongovernmental organizations (NGOs) remains a catch-22 for Beijing. The Chinese government acknowledges and desires the role played by some Western civil society organizations and NGOs in international development, especially in terms of their political independence, credibility, transparency, and creativity. However, given the Chinese government’s tendency to dominate the decision-making and implementation of aid projects to ensure their political and economic “correctness,” the role played by Chinese NGOs is at best minimal and marginal. The few Chinese NGOs involved in aid projects are often perceived as subsidiaries or policy implementers of the Chinese government, serving mostly propaganda purposes. Without significant changes to the current foreign aid structure, it is unlikely that Chinese NGOs could play a key role in China’s foreign aid.
There is a great deal of hesitation on China’s part with regard to aid cooperation with traditional donor countries and organizations. On one hand, China is concerned that such cooperation might enmesh China in the Western foreign aid discourse and system, thereby potentially making China’s foreign aid budget vulnerable to Western exploitation against China’s national interests. Furthermore, while China is already struggling to maintain its identity as a developing country, cooperation with developed countries on foreign aid could jeopardize that effort. On the other hand, multilateral aid cooperation offers China opportunities in capacity building and enhances China’s voice in the global development agenda. China has had some successful cooperation with the U.S., U.K., and Australia in low sensitivity areas such as agriculture, health, and disease control in less-developed countries. The China-led AIIB has also expressed the desire to work with the World Bank and Asia Development Bank in their development projects. It is safe to assume that trilateral/multilateral development cooperation will become increasingly popular for China’s foreign aid, although the specific path, model, and coverage will be contingent upon major internal deliberation and external negotiation.
Debates over technicalities do not disguise the fundamental issue of the association of China’s foreign aid with its commercial interests. In other words, China needs to decide whether or to what extent it will separate the non-commercial aid programs from those with a commercial portfolio. For the bulk of China’s foreign aid – the concessional loans – only the difference between the concessional loan interests and market interests is covered by China’s foreign aid budget. However, the setup helps to enhance the desirability of Chinese loans, obtain service contracts for Chinese companies, and secure returns in various forms, including natural resources. Although this “tied aid” practice is not unique to China, it does blur the distinction between altruistic foreign aid and mercantilist commercial endeavors. For China’s foreign aid reform, the essential question is what distinction and clarification the central government is willing to make.
This is also the fundamental issue underlying the bureaucratic reform of China’s foreign aid system. Currently, China’s bilateral foreign aid is primarily managed by MOFCOM. This bureaucratic setup naturally leads to suspicions, justified or otherwise, that China’s foreign aid is heavily influenced by commercial considerations. One proposal made by many Chinese analysts to address this and the aforementioned technical challenges is to establish a Chinese Agency for International Development (or a General Administration of Foreign Aid) to comprehensively manage the country’s foreign aid.
However, given the lengthy nature of China’s foreign aid reform and the vested interests associated with the current setup, few expect the top leadership to make any drastic moves in the near future. Nevertheless, technical reforms, internal adjustments, and enhanced multilateral cooperation are indeed on the horizon for China’s foreign aid.
Africa, as a primary recipient of Chinese foreign aid, is inevitably going to be affected by these reforms. On a strategic level, the rising voice on the need to emphasize the “aid” rather than the commercial aspects in China is gradually influencing the thinking and making of China’s foreign aid policy. China is already enhancing its input in capacity building in less-developed African countries through vocational schools and technical training. The momentum is expected to strengthen by this aid reform. This facilitates cooperation with more experienced traditional donor countries and multilateral development institutions while improving the technical capacity of China’s own foreign aid system and staff. However, China may not shift the bulk of its foreign aid away from concessional loans for infrastructure in the near future. Nevertheless, combined with China’s development financing, these financial resources will be highly valuable for Africa’s vast infrastructure development demand.
It should be noted that, although China’s foreign aid reform is primarily a domestic campaign, recipients, especially African countries could play an important role in shaping the discourse. To fully utilize China’s foreign aid resources and potential, African countries should not stay passively as mere recipients, but actively voice their needs and concerns. Only through interactive and collaborative efforts could China’s aid to Africa be shepherded for the maximum benefits for the recipient countries. If there is one voice that China’s aid community cannot afford ignore, it is that of Africa itself.
Yun Sun is a nonresident fellow in the Africa Growth Initiative.
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Inclusion, governance, fiscal space can help overcome fragility
An approach focusing on inclusive politics, effective governance, and fiscal health seems to offer a viable route to overcome fragility in sub-Saharan Africa, an IMF staff report said.
Still, given the multiple sources of fragility and the reinforcing interactions among them, fragile countries find it very difficult to build resilience, the study added.
The report, “Building Resilience in Sub-Saharan Africa’s Fragile States,” was released July 1 at the Center for Strategic and International Studies in Washington, D.C. The report highlights the persistence of fragility and documents progress across countries since the 1990s, including through detailed analysis of seven country case studies.
“One key message from this work is that countries need to reach a sufficient level of political consensus on the way forward to drive economic and other reforms that, over time, strengthen institutions and set the basis for economic growth” said David Robinson, Deputy Director of the IMF’s African Department.
“Since there is no single or common cause of fragility, in light of the variety of individual country circumstances, there can be no single template for building resilience,” said lead author Enrique Gelbard. “Still, some steps that are part of a long-term vision – because resilience takes a long time to achieve –and with adequate tailoring to the specifics of each situation, are usually necessary to build resilience.”
Such steps should aim at fostering security and inclusive politics as well as implementing selected and well sequenced legal, governance, and economic reforms; and building domestic capacity.
State fragility
Fragile states – states in which the government is unable to deliver basic services and security to the population – face severe and entrenched obstacles to economic and human development. While definitions of fragility and country circumstances differ, fragile states generally have a combination of weak and non-inclusive institutions, poor governance, low capacity, and constraints in pursuing a common national interest. Crises in such countries can also have significant adverse spillovers on other countries.
Initially, fragility was mainly seen as proclivity to or a legacy of internal conflict, the report said. However, more recent approaches highlight other aspects of fragility that are not directly related to, or even associated with, violence, and can be retraced to the weakness and lack of legitimacy of government institutions, a poor and unstable economic environment, and a divisive political context.
The focus has therefore shifted from the causes of conflict to the multiple dimensions of fragility – where conflict is a possible outcome with feedback loops into other aspects of fragility – and to how weaknesses along these dimensions interact and reinforce one another in a vicious circle. This approach starts from the recognition that countries that are considered fragile suffer from significant limitations in not just one, but several areas owing to weak state capacity.
Ability to respond
Assessing developments in 26 sub-Saharan African countries, the report documents progress in 11 countries but also notes that several countries remained fragile and some have even regressed.
Since each country’s experience is different, a buildup of resilience can be thought of as a transition from weak governance and institutions – in the extreme involving complete state failure and conflict – to a situation in which countries can deliver public services to their citizens against a backdrop of peace and stability.
Fiscal space – stronger government financial positions, favorable debt dynamics, higher revenue-raising capacity, and expenditure flexibility – is critical in fragile states as it provides room to meet pressing development needs, as well as the ability to respond to adverse shocks by running expansionary fiscal policies and therefore smoothing or cushioning the impact of shocks on the population.
Available data do suggest that, among the countries that were deemed fragile in the 1990s, those that have become “resilient” have generally managed to build stronger fiscal institutions and to widen their fiscal space.
Buildup of resilience
The experience of fragile sub-Saharan African countries suggests that there are three key factors that determine the success of countries in building resilience, the report said.
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A sufficiently inclusive political arrangement that helps sustain peace and fosters the development of a national vision going forward;
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A committed leadership that is both willing and capable of promoting policies that translate this vision into action and implement reforms that improve governance, transparency, and accountability; and
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Strong international support in the form of financial and technical assistance focused on security and on development. International stakeholders need to engage with fragile countries on a long-term basis, providing assistance in ways that can improve the effectiveness of the state, coordinating their efforts closely, and focusing capacity development efforts on economic institutions.
In particular, the study notes that policies that maintain economic stability, mobilize revenue, and make room for investment are critical to build resilience. Furthermore, the study highlights the primary role of fiscal policy and institutions, lower government spending on defense, and higher infrastructure spending as factors behind the buildup of resilience in selected countries in sub-Saharan Africa.
The importance of capacity building and economic policies in fragile states is good news: whereas broad-based institutions are deeply rooted in history and highly persistent, basic economic and fiscal institutions can be bolstered over a relatively shorter period and help build resilience.
The report covers the period 1990-2013. The case study countries are Central African Republic, Democratic Republic of Congo, Ethiopia, Mali, Mozambique, Rwanda, and Sierra Leone. The report adds that Cameroon, Ethiopia, Mozambique, Niger, Nigeria, Rwanda, and Uganda made substantial progress in building resilience; it cites Cote d’Ivoire, Malawi, and Zimbabwe as countries that had regressed.
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“Clear and immediate actions within reach” to reduce trade costs
WTO members must do more to bring down excessively high trade costs, and there are some “clear and immediate actions within reach” which can contribute to achieving this, Director-General Roberto Azevêdo said on 2 July at the close of the WTO’s Fifth Global Review of Aid for Trade. This is what he said:
I want to thank all those who have intervened this afternoon.
I have been kept well-briefed on your contributions throughout the Global Review, and I want to thank you for participating.
There has been a great sense of energy this week, which is reflected in the numbers for this event. We have had over a thousand attendees over the last three days, 46 sessions and several thousand pages of analysis. And it has also been reflected in the lively exchanges and debates that we have been having.
I want simply to highlight some of the key messages which have come out of the Global Review – and then to pose some questions that might guide our future work. And of course it is you, the members, who will then discuss, shape and define that work.
I think the clearest message is that trade costs matter. And that we cannot afford to neglect the impact that these costs have on connectivity.
Trade will be a key element in delivering the Sustainable Development Goals. If trade costs remain prohibitively high, particularly for the poorest, then we know that we will fall short.
But we also know that trade costs are not set in stone. We can take action to reduce them – and indeed a lot of good work is already under way.
The Global Review profiled a tremendous range of initiatives across Asia, Africa, Latin America, the Caribbean and the Pacific.
Indeed, the Pacific is a case in point.
By the simple fact of its geography, that region faces some of the biggest natural hurdles to connecting to the global trading system. And so I have been pleased to note the success of various projects which are working to support the Pacific Islands.
We also developed our understanding of the disproportionately heavy trade costs which are borne by SMEs. And we heard about different approaches which could help them to shed this burden.
Another theme that emerged strongly was gender. Women face a range of constraints that limit their ability to participate in trade. And I think that this is an area that needs further research and action.
Many of the sessions and speakers focused on trade facilitation. Slow and inefficient border procedures remain a key reason why trade costs are stubbornly high.
Implementation of the WTO’s Trade Facilitation Agreement is something we can do collectively and individually to address this. The first step is ratification. Two-thirds of WTO members must ratify the agreement for it to enter into force. So this must be a priority.
We heard yesterday from Minister Amina Mohamed of Kenya, who will chair our 10th Ministerial Conference, about how important the timely entry into force of the Trade Facilitation Agreement will be.
This is not least because of the Agreement’s unique architecture which recognises the need for technical assistance to help WTO developing country members to meet their commitments. Indeed, the WTO’s own Trade Facilitation Agreement Facility was established last year with this important need very much in mind.
We also heard about trade facilitation efforts which are being pursued at regional level – like those which have cut transit times and costs so significantly in East Africa.
These efforts are very positive. They show the huge value that there is in this work – and I think they can help accelerate TFA implementation.
We also heard about the importance of allying investment in hard infrastructure – like ports, airports and roads – with investment in soft infrastructure. Getting the regulatory processes right and creating a stable, transparent and predictable business environment is an absolutely vital element.
And we heard about some surprising benefits that trade facilitation may also bring. Overcoming the problems and delays faced by humanitarian relief and reconstruction agencies in dealing with crises or natural disasters is one powerful example.
As you all know, this is a year of milestones.
When we were approaching this 10th anniversary of Aid for Trade, some asked whether the initiative was still delivering.
So what conclusions can we draw after this Global Review?
I think we can say with certainty that Aid for Trade is a topic on which members remain actively engaged and committed.
Aid for Trade is delivering, but as with any such initiative, we need to remain flexible and open-minded about how it can do more, and what the future priorities should be.
I think that we need to consider the various suggestions which have been made this week for how we might take the initiative forward.
For example, some suggested a more systematic approach to the monitoring of trade costs. I think this is an interesting idea where more work could be done in a number of ways. But of course members will need to consider this and discuss what approach they may want to take.
There were three other elements which stood out to me as issues to be considered by members when discussing the future of Aid for Trade.
First is the need to adapt this work to complement the new Financing for Development framework that will be agreed in Addis Ababa in just two weeks’ time.
Second, members will need to have a similar discussion about how the initiative should evolve to reflect the post-2015 development agenda and the Sustainable Development Goals when they are agreed in New York in September.
Third, I have heard many delegations emphasising the need to deliver for small, weak and marginalised countries. I think this is an extremely important point which needs to be considered.
It has been highlighted, for example, that the LDCs are not currently the main recipients of Aid for Trade funding. In this context I was happy to note that the LDCs and their concerns were the focus of many of the sessions and that members continue to give them priority.
In addition, yesterday we launched the new phase of the EIF. I was delighted that Norway announced a very significant donation to the new phase at that event. We will need to secure further pledges for the EIF over the coming months so that it can continue and enhance its work in supporting LDCs.
So I think we have a lot of food for thought. And in concluding my statement I would like to offer a few suggestions on the route ahead.
Clearly, to travel along the path of inclusive, sustainable growth, we must do more to bring down high and excessive trade costs.
For us in the trade community, there are some clear and immediate actions which are within our reach and which can contribute to this agenda in a concrete manner.
First, we must implement the Bali Package – including the Trade Facilitation Agreement and the LDC decisions.
And second, we must deliver outcomes at the 10th Ministerial Conference in Nairobi which support growth and development.
As the Global Review comes to a close, there are many elements which have emerged from the discussions that are worthy of further attention, a few of which I underlined this afternoon.
So I invite members to reflect further. I will report more formally to the General Council on all of this at the end of this month.
I am very proud to have hosted this Global Review, and to have seen such a wealth of knowledge, passion and commitment on display.
It has reinforced my belief in what we can achieve when we are creative and open-minded.
So let’s keep this discussion going.
And finally, before I close I want to say two things:
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First, it’s only Thursday, so there is more still to come this week! Tomorrow we are co-hosting a ’Trade Data Day’ along with the ITC, UNCTAD, and the World Bank. This is a technical seminar that will focus on non-tariff trade policy measures, trade in commercial services, and future data challenges. So everybody is welcome to get involved in that conversation.
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Second, I want to thank everybody at the WTO who has worked so hard to make this Aid for Trade Global Review a success. And it really has been a success!
Congratulations to you all.
Thank you.
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Adequate, targeted financing key to people-centred sustainable development – UN official
In 2002, the global community came together in Monterrey, Mexico, to address key financial issues affecting global development. The International Conference on Financing for Development, the first United Nations gathering of its kind, resulted in a landmark global agreement in which developed and developing countries recognized their responsibilities in key areas such as trade, aid, debt relief and institution-building.
In less than two weeks, world leaders will gather once again, this time in the Ethiopian capital of Addis Ababa, to launch a renewed and strengthened global partnership to finance people-centred sustainable development. They will aim to ensure that resources go where they are needed most to promote economic prosperity and improve health, education and employment opportunities while protecting the environment.
The Third International Conference on Financing for Development comes at a critical time. Its outcome – still being negotiated by UN Member States – will be an important milestone on the road toward the adoption of a new sustainable development agenda in New York in September and a universal climate change agreement in Paris in December.
“The implementation and success of our new global agenda will rely on a robust financing framework, which will be adopted in Addis,” said Wu Hongbo, Under-Secretary-General for Economic and Social Affairs.
Mr. Wu, who is also the Secretary-General of FFD3, as the Conference is informally known, added that success in Addis will leverage strong political momentum for the September summit that will adopt the post-2015 development agenda and the UN Paris climate conference, known as COP 21, where Parties to the UN Framework Convention on Climate Change are expected to agree a new accord to keep global warming below 2°C.
“If we fail in Addis, the post-2015 development agenda cannot be successful,” he said in an interview with the UN News Centre. “If we fail both in the post-2015 development agenda and financing for development, I think the COP 21 negotiations will be adversely affected.”
“As many of the ambassadors put it well, ‘we cannot afford to fail’,” he stressed.
The Addis Conference will engage countries and businesses to channel their investments to improve people’s lives while protecting the environment. It is expected to result in concrete commitments on finance, trade, debt, governance, technology and innovation for the next 15 years.
One of the most important issues discussed in Monterrey, as well as at the follow-up conference held in 2008 in the Qatari capital, Doha, was official development assistance (ODA), which remains crucial even today, especially for the world’s 48 least developed countries.
The ‘Monterrey Consensus’ urged developed countries to make concrete efforts towards the target of 0.7 per cent of gross national product (GNP) as ODA to developing countries. Five countries have exceeded this target – Denmark, Luxembourg, Norway, Sweden and the United Kingdom.
While net ODA flows increased significantly after Monterrey, from $84 billion in 2000 to about $134 billion in 2013, preliminary data for 2014 indicate a decline.
“We are really trying to encourage all the donor countries, both in the OECD [Organisation for Economic Cooperation and Development] and outside, to take a very serious look at what they’ve been doing in providing official development assistance and trying to scale up their efforts to meet their commitments as early as possible,” said Mr. Wu.
At the same time, given that ODA alone will not generate the necessary resources, additional or innovative sources of financing will be crucial to achieve global development goals. An example of an innovative mechanism is the international solidarity levy on air tickets, the funds from which help to develop drugs to treat HIV/AIDS, malaria and tuberculosis.
Experts believe the necessary financial resources do exist, with some $22 trillion a year in global savings, but the resources are currently not allocated adequately. The funds must be unlocked, mobilized, channelled and used more effectively for sustainable development.
“We are trying to help the Member States to find their own way to finance the sustainable development agenda,” Mr. Wu stated. “We are trying to tell the international community how to help those who are in need, who are most vulnerable, with the financial support.”
According to the Under-Secretary-General, the Addis Conference should produce three key outcomes: a holistic financing framework for sustainable development; concrete deliverables, particularly in areas such as poverty eradication; and a strong follow-up process that leaves no one behind.
He believes political and finance leaders must take the responsibility and “rise to the challenge” when they meet in Addis from 13 to 16 July.
“The Addis Ababa Conference on Financing for Development will be a test to make finance work for people and the planet.”
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The Impact of Illicit Financial Flows on Domestic Resource Mobilization: Optimizing Africa’s Resources
An Ad Hoc Expert Group Meeting is being organized by the African Minerals Development Centre (AMDC) and the Macroeconomic Policy Division (MPD) to review the Study on The Impact of Illicit Financial Flows on Domestic Resource Mobilization: Optimizing Africa’s Resources on 6-7 July 2015 in Addis Ababa, Ethiopia.
Over the last decade, the economic performance narrative for Africa has been increasingly optimistic in light of its sustained impressive growth rates. However, this narrative continues to be tainted by several challenges, which continue to hinder the continent’s sustainable and inclusive development. Indeed, there are growing concerns with respect to the colossal amounts of financial resources, which illicitly flow out of Africa every year. It is obvious that such Illicit Financial Flows (IFFs) reduce the levels of resources available to African countries to finance their development objectives.
While IFFs occur in many countries around the world, their social and economic impact on Africa is far more severe given its smaller financial resource base and markets. IFFs impact adversely on both public and private domestic expenditure and investment. In concrete terms, this implies fewer hospitals and schools, less roads and bridges and fewer power plants. Furthermore, many of the activities, which generate the illicit funds, are criminal. Whilst financial crimes such as money laundering, corruption and tax evasion are damaging to all countries, the effects on developing countries are particularly corrosive.
It is in this context that IFFs out of Africa are becoming a growing concern given the scale and negative impact of such flows on Africa’s governance and development agenda. By some estimates, illicit flows from Africa could be as high as USD 50 billion per annum. In fact, conservative estimates have shown that without IFF from the continent, Africa’s Gross Domestic Product (GDP) would have been at least 16% higher.
IFFs include practices such as transfer mispricing, falsified invoicing and round tripping. Tax abuse by Multinational Corporations (MNCs) places a disproportionate burden on smaller domestic firms, which are typically responsible for most employment in African countries. This is confirmed by the Progress Report on IFFs from Africa, presented in March 2014 at the Seventh Joint Annual Meetings of the ECA/African Union Conference of Ministers of Finance, Planning and Economic Development. The Report highlights that commercial activities, such as tax evasion, aggressive tax avoidance and harmful tax holidays, were by far the largest component of IFF.
It cannot be emphasized enough that the loss of funds through IFF reduces revenues as well as the fiscal and other benefits from the mineral sector and other economic sectors. In addition, it also considerably weakens African countries’ ability to mobilize resources generated to fund development plans for the structural transformations of their economies. The opportunity for companies in the mineral sector in particular to minimize their tax costs through IFF practices is an incentive for them to move their profits out of Africa, where they operate. This in turn reduces the extent to which mining companies in Africa will re-invest their profits through greater value-adding linkages on the continent. The most obvious effects are the loss of investment capital and revenues that could be used to finance public services including infrastructure, education and health.
It is against this background that the Macroeconomic Policy Division (MPD) and the Africa Minerals Development Centre (AMDC) at the United Nations Economic Commission for Africa undertook a study on the impact of illicit financial flows on domestic resource mobilization in the mining industry. The purpose of the study is to enable the ECA to gain a deeper insight into the challenges of IFF in Africa. The Study is also intended to support mineral exporting African countries to gain deeper appreciation of the nature and magnitude of IFF related policy gaps and challenges. It is envisaged that this work will increase collaboration and cooperation among African countries, their regional economic communities (RECs) and external partners in addressing the challenges posed by IFFs.
In order to obtain empirical data, the ECA commissioned four country studies in Zambia, Tanzania, the Democratic Republic of Congo (DRC) and South Africa. The study assesses the policy and regulatory frameworks and practices related to IFF and Domestic Resource Mobilization (DRM) in the mining sector in the four countries in order to elucidate the main sources of revenue leakages. These countries were selected because of the significant importance of the mineral sector to their respective economies as well as the diverse tax challenges that they face. These sample countries also allow for wider coverage of different mineral types. The Democratic Republic of Congo is a diversified mineral producer with copper, gold, diamonds and coltan while Tanzania and Zambia are principally gold and copper producing countries respectively. A further consideration was given to the fact that there exists a considerable body of literature on these countries to allow for both in-depth analysis and comparative inquiry.
The key findings of this study were generated through two principle methods of inquiry: literature review and primary data collection through a survey administered in the four sample case countries. The study-report is presented as follows. Chapter 1 provides an introduction to the study. Chapter 2 addresses the importance of DRM along with its challenges and opportunities. The third chapter provides a definition of IFF, its estimated magnitude in Africa, causes and consequences for the governments of the Democratic Republic of Congo (DRC), Tanzania, South Africa and Zambia. The fourth and fifth chapters examine the regulatory and policy frameworks, which have been put in place in the 4 countries for domestic resource mobilization. These chapters also examine the gaps in the tax and fiscal frameworks for the mining sector to determine the sources of leakages for domestic resource mobilization and illicit financial flows. The final chapter proposes policy recommendations that should be implemented in African countries to combat IFFs.
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The Investing in Africa Forum: Partnering to accelerate investment, industrialization, and results in Africa
The Investing in Africa Forum: Partnering to Accelerate Investment, Industrializa-tion, and Results was held June 30-July 1, 2015, in Addis Ababa, Ethiopia, co-organized by the Government of Ethiopia, the China Development Bank, the China-Africa Development Fund, the World Bank Group, and the United Nations Industrial Development Organization. It brought together representatives of the public and private sector from China and African countries. Regional institutions, development partners and think tanks also attended.
Participants exchanged views on how African countries could attract greater investment, accelerate industrialization, create jobs and sustain development. The Chinese and African experiences were shared in order to provide information and lessons learned, and identify opportunities for enhanced partnerships.
H.E. Hailemariam Desalegn, the Prime Minister of Ethiopia opened the Forum and outlined the practical steps that Ethiopia is taking to become a manufacturing hub on the continent. Representatives of the other co-organizers – H.E. Liu Jianhua, the Vice Minister of Finance of China, Mr. Makhtar Diop, Vice President for Africa of the World Bank, Mr. Yuan Li, Executive Vice President of the China Development Bank, and Mr. Philippe Scholtes, Managing Director of the United Nations Industrial Development Organization, also spoke during the opening session. In his opening remarks, H.E. Xu Shaohua, Executive Vice Governor of Guangdong Province, indicated that Guangdong Province would host the next Forum in 2016.
The Forum was an opportunity for pragmatic, candid and constructive discussions on practical steps to accelerate industrialization and manufacturing; Special Economic Zones and ideas for how to make them work better in Africa; accelerating improvements in infrastructure and trade logistics; creating conditions to attract development-oriented investment; skills development for private-sector led growth; and on scaled up agriculture and agribusiness investments that also benefit rural populations.
There was agreement that African countries could benefit from elements of China’s experience, although the situation in each country must determine the strategies to be followed. When it began its process of industrialization, conditions in China were very similar to those pertaining in many African countries today. Key priorities of China’s development strategy was pragmatic and long term. It included an emphasis on education and training, expansion of infrastructure, increased agricultural productivity, incomes of smallholder farmers and food security, and labor intensive light manufacturing as the basis for industrialization. It established Special Economic Zones as vehicles to pilot economic reforms before adopting them nationally, and to open the economy to foreign investment, technology and skills.
Participants also agreed that African countries could benefit from changes in the structure of the Chinese economy, including a more highly skilled labor force and development of the service sector. The Government of China is encouraging outward investment, and more private companies engaged in manufacturing, as well as agribusiness, are relocating abroad. Provided they have the right policies in place and a conducive and inclusive business climate, African countries would be well-placed to attract this investment and expand manufacturing and agricultural production. It would be important to ensure upstream and downstream linkages with domestic private sector operators to maximize the impact of this investment.
The Forum agreed that Africa can accelerate investment and industrialization, building on its comparative advantages, youthful population and growing middle class. In many countries, competitive wages and proximity and access to developed markets provide opportunities for expansion of collaboration with China including relocation of manufacturing industries.
The Forum appreciated announcements by the Ministry of Finance of China that it is establishing a Trust Fund at the World Bank Group with a focus on infrastructure, including strong support to African countries, and that it, the China Development Bank and the World Bank Group will establish an Investing in Africa Think Tank Alliance. It also appreciated the announcement the China Development Bank and UNIDO signed an MOU during the Forum to consolidate each other’s strengths and resources for future cooperation, including in Africa. Participants also welcomed the announcement that Guangdong Province will host the next Investing in Africa Forum in 2016 as an affirmation that support to accelerate investment and industrialization is an ongoing partnership with African countries.
Source: Manufacturing FDI in Sub-saharan Africa: Trends, Determinants, and Impact (World Bank Group, 2015)
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tralac’s Daily News selection: 2 July 2015
The selection: Thursday, 2 July
Featured tweet, @Francismangeni: Zambia, with a population of just 13 million, is projected to get $149 million in net benefits every year from the TFTA
FTA challenges for Zimbabwe (The Herald)
All things being equal, local firms should brace for big business, but this is easier said than done. Certainly, there are challenges, which come with this arrangement such as loss of fiscal revenue, stiff competition and potential problems of unemployment. Zimbabwe at this juncture cannot benefit from this free trade agreement. Already, the country has been relegated to being a nation of consumers and heavily relies on imported products because of low productivity. For instance, South Africa alone takes more than 60 percent of shelf space in the domestic supermarkets.
As such, this makes it difficult to compete with producers or businesses from the whole African continent if the country cannot compete within the SADC region. The two fundamental challenges that could inhibit Zimbabwe from benefiting from the free trade agreements are lack of competitiveness which have negatively affected productivity. “We don’t have capacity to sell locally and let alone to export. It is very difficult to imagine that we can tap into the 625 million people in Africa when we cannot supply to 13 million,” economist and trade expert Dr Gift Mugano said.
tralac Newsletter: Looking ahead to the 3rd International Conference on Financing for Development
EAC Newsletter: Issue 95
South Africa to host SADC Double Troika Summit, 3 Jul (GCIS)
AU and the EU agree to enhance election observation in Africa (AU)
Immigration ministers give fresh impetus to visa relaxation (COMESA)
The Ministers in charge of immigration from COMESA Member States have come up with various decisions to give fresh impetus to the implementation of the Protocol on Gradual Relaxation and Eventual Elimination of Visa Requirements (commonly known as the visa protocol). Among them is a requirement for Member States to notify the COMESA Secretariat by 30 September 2015 when they will be in position to ratify or implement some provisions of the Protocol, taking into account whether they are some provisions they want to opt out of or not. The visa protocol is contained in the COMESA Treaty but the majority of Member States have not ratified it citing security concerns and difficulties in its interpretation. Additionally, the Protocol on the Free Movement of Persons, Services, Labour and the Right of Establishment and Residence also referred as Free Movement Protocol faces similar difficulties.
South Africa: March 2015 tourism and migration statistics (Statistics SA)
In March 2015, 188 551 (91,6%) of overseas tourists arrived in the country by air whilst 16 571 (8,0%) came in by road. This is in contrast to the number of tourists from SADC countries who came into South Africa predominantly by road [473 460 (92,8%)]. Only 36 868 (7,2%) tourists from the SADC countries came in by air. The number of tourists who came into South Africa by air from ‘other’ African countries was 14 934 (94,1%); with 910 (5,7%) using road transport. In March 2015, the distribution of overseas tourists was as follows; Europe, 136 104 (66,1%); North America, 31 764 (15,4%); Asia, 19 619 (9,5%); Australasia, 10 172 (4,9%); Central and South America, 4 168 (2,0%); and Middle East, 4 082 (2,0%).
Trade policy analysis (COMESA)
The COMESA-ACBF Capacity building for economic and trade policy analysis and research project is jointly organizing a Trade Policy Analysis Training using Computable General Equilibrium (CGE) MODELS with the Economic Commission of Africa on 13-17 July in Nairobi, Kenya. The objective of the training is to ensure that COMESA and its Member States are competent in generating relevant empirical research using computable general equilibrium modelling. The training will thus tackle contemporary tools for trade policy analysis.
The Investing in Africa Forum: three profiled background papers (World Bank)
China and Africa: expanding economic ties in an evolving global context
Global experiences with Special Economic Zones with a focus on China and Africa
Proposal for improving Chinese private investment in Africa China Development Bank
Access the full set of background papers and 'handouts'
Connecting a continent: the rise of Africa's payment systems (The Banker)
“Within the broader theme of financial deepening, I suspect that regional payments systems will be both a beneficiary and driver of Africa’s economic growth. They will act as a propeller for the continent’s ascent along with urbanisation, the demographic dividend and technological innovation,” says Goolam Ballim, chief economist and head of research at Standard Bank.
Kenya: Construction keeps economy afloat as manufacturing dips (Business Daily)
Strong growth in the construction, trade and transport sectors helped save the Kenyan economy from slowing down in the second quarter of the year, newly released official data shows. The Kenya National Bureau of Statistics said the economy grew by 4.9% in the first quarter of the year, slightly higher than the 4.7% recorded in the same quarter last year. The data shows that poor performance in the manufacturing and tourism sectors continued to drag growth. The manufacturing sector activity slowed down to 3.5% compared to 6.4% in a similar period last year. The construction sector, which mainly consists of infrastructure projects such as roads, rail and real estate, grew at the highest rate of 11.3% mainly helped by the ongoing construction of the standard gauge railway that started a few months ago. [Download]
Namibia: GDP records slow growth in first quarter (The Namibian)
The GDP for the first quarter of this year recorded a slow growth of 3,1% compared to 5,6% registered in the same period in 2014. Liina Kafidi, acting statistician general of the Namibia Statistics Agency said yesterday that the slow performance during the quarter under review was mainly due to wholesale and retail trade that recorded a decline in the real value added of 2,4%. Hotels, restaurants and the fishing sector recorded slow growths of 7,1% and 2,5% respectively. [Download]
South Africa: March 2015 quarterly financial statistics survey (Statistics SA)
Trade in South Africa has recorded the largest decrease in turnover (-8%) in the first quarter of 2015 among all industries in the SA economy - excluding agriculture, financial intermediation, insurance and government institutions. Data released by Stats SA on Tuesday indicated that between the fourth quarter of 2014 and the first quarter of 2015 turnover decreased in seven of the eight industries covered in its quarterly financial statistics (QFS) survey. The second largest percentage decrease in turnover was recorded in manufacturing (-5.5%), followed by transport, storage and communication (-4.9%); mining and quarrying (-3.5).
FDI is down, but SA is weathering the storm well (IOL)
Contrary to recent media reports, the investment pipeline into South Africa remains robust. According to the Investment Promotion and Inter-Departmental Clearing House at the Department of Trade and Industry, South Africa attracted R43bn in FDI in the previous financial year. Due to the cyclical nature of investment it should be expected that both inward and outward investment stock may vary from year to year. Over a protracted period of time, South Africa has maintained its position as the top FDI destination in Africa as well as a prolific investor on the African continent. Recent data indicate that this trend is continuing based on the 2014/2015 investment pipeline and the impact of various government programmes across the South African economy. Thus our continued topping of the FDI destination list is testimony to the strategic effectiveness of the ANC’s economic management principles. Despite the stormy climate of global financial markets the South African economy is threading healthier grounds in comparison to even Europe and other parts of the world. [The author, Mzwandile Masina, is the deputy minister at the Department of Trade and Industry]
Zim FDI projects top $1bn in 2014 (The Herald)
Ministerial Conference in Nairobi “must deliver on development” (WTO)
There is still a lot of work to do, but a meaningful deal which supports growth and development is achievable, Director-General Roberto Azevêdo said on 1 July, looking ahead to the WTO’s upcoming Nairobi Ministerial Conference. The Director-General joined Kenya’s Minister of Foreign Affairs, Amina Mohamed, at the WTO’s Fifth Global Review of Aid for Trade to discuss the 10th Ministerial Conference (MC10), which will take place in December. Minister Mohamed will chair MC10, the first to be held on the African continent. The Director-General highlighted the importance of securing outcomes on development issues in Nairobi, describing it as an “acid test of our success”.
Azevêdo welcomes launch of new EIF to support least-developed countries (WTO)
UNCTAD opens regional office in Addis Ababa
Development of a diagnostic instrument: EOI (AfDB)
The African Development Bank hereby invites Consulting Firms to indicate their interest in the following Assignment: Development of a diagnostic instrument to assist the Bank to better monitor fragility as well as assess country resilience through a multi risk assessment approach.
The Export-Import Bank’s authorization expired: what does this mean for Africa? (Brookings)
Not only is the bank important for African and U.S. businesses, but it also plays an integral part in the United States’ engagement with Africa overall. The Ex-Im Bank is involved in the U.S. Department of Commerce’s Doing Business in Africa campaign, the U.S.-Africa Clean Energy Development and Finance Center, and the Power Africa initiative, as well as coordinates with other active U.S. agencies on the continent like the U.S. Agency for International Development, the U.S. Trade and Development Agency, the Overseas Private Investment Corporation, the Department of State, and the Department of Energy. So where do we go from here? [The author: Amadou Sy]
Agricultural growth in West Africa: market and policy drivers (FAO)
Based on a detailed analysis of the drivers and trends shaping the development of West Africa's agrifood system and the system's response so far, the study identifies key implications for policies and agricultural investments. These findings will help inform the deliberations on and new orientations of "ECOWAP-10", ECOWAS' forthcoming update to the current West African agriculture policy, ECOWAP/CAADP. Improving the mix of public investments in agriculture in the region is as important as increasing their level, the report finds. It encourages governments to shift spending towards public goods such as roads, reliable electricity supply, research and schooling rather than towards subsidizing private goods such as fertilizer and tractors. [Download]
OECD – FAO expect stronger production, lower prices over coming decade (FAO)
Strong crop yields, higher productivity and slower growth in global demand should contribute to a gradual decline in real prices for agricultural products over the coming decade, but nonetheless, prices will likely remain at levels above those in the early-2000s, according to the latest Agricultural Outlook report produced by the OECD and FAO. Lower oil prices will contribute to lower food prices, by pushing energy and fertilizer costs down, and removing incentives for the production of first-generation biofuels made from food crops.
Foreign policy and security cooperation in Sub Saharan Africa: transcript (Africa Command)
Botswana expresses reservations on AU fees (Daily News)
India, Mauritius reach consensus on double taxation avoidance agreement
American Chamber of Commerce in South Africa: speech by Minister of Labour, Mildred Oliphant
Nancy Birdsall: 'A new mission for the World Bank' (Project Syndicate)
Uganda could reap from Rwanda, Tanzania’s demand for sugar (Daily Monitor)
Tanzania inaugurates Tanzania Ports Authority liaison office in Lusaka (IPPMedia)
This post has been sourced on behalf of tralac and disseminated to enhance trade policy knowledge and debate. It is distributed to over 300 recipients across Africa and internationally, serving in the AU, RECS, national government trade departments and research and development agencies. Your feedback is most welcome. Any suggestions that our recipients might have of items for inclusion are most welcome. Richard Humphries (Email: This email address is being protected from spambots. You need JavaScript enabled to view it.; Twitter: @richardhumphri1)
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OECD-FAO expect stronger production, lower prices over coming decade
Strong crop yields, higher productivity and slower growth in global demand should contribute to a gradual decline in real prices for agricultural products over the coming decade, but nonetheless, prices will likely remain at levels above those in the early-2000s, according to the latest Agricultural Outlook report produced by the OECD and FAO.
Lower oil prices will contribute to lower food prices, by pushing energy and fertilizer costs down, and removing incentives for the production of first-generation biofuels made from food crops.
The OECD-FAO Agricultural Outlook 2015-2024 projects that agricultural trade will increase more slowly than in the previous decade, while its share of global production and consumption will be stable. The Outlook points to further concentration of agricultural commodity exports among a few exporting countries, coupled with a dispersion of imports over an ever-larger number of countries – trends that make it imperative to ensure the smooth functioning of international markets.
The growing role of a relatively small group of countries in supplying global markets with key commodities could increase market risks, including those associated with natural disasters or the use of disruptive trade measures.
Major changes in demand are expected in developing countries, where population growth, rising per capita incomes and urbanization will increase demand for food, according to the report. Rising incomes will prompt consumers to continue diversifying their diets, notably by increasing their consumption of animal protein relative to starches. As a result, the prices of meat and dairy products are expected to be high relative to crop prices. Among crops, the prices of coarse grains and oilseeds, used for animal feed, should rise relative to the prices of food staples.
Presenting the joint report in Paris, OECD Secretary-General Angel Gurría said: “The outlook for global agriculture is calmer than it has been in recent years, but there is no room for complacency, as we cannot rule out the risk of new price spikes in the coming years”.
“Governments should take advantage of the current conditions to concentrate on developing policies that raise productivity, boost innovation, better manage risk and ensure that robust agriculture systems benefit consumers and farmers alike,” Mr Gurría said.
Calling the Outlook’s projection that developing countries are likely to continue to improve the caloric intake of their populations “good news,” FAO Director-General José Graziano Silva also noted that least-developed countries “remain significantly behind advanced economies; this is cause for concern, as it means hunger in these countries could persist.”
“And malnutrition is an issue: developing countries now have to face problems of overweight, obesity and other diet-related non-communicable diseases,” he added.
Commodity Highlights
The build-up of high cereal stocks over the past two years, combined with low oil prices, should lead to a further weakening of cereal prices in the short term. Slowly rising production costs and sustained demand should strengthen prices again over the medium term.
Strong demand for protein meal will drive further expansion of oilseed production, according to the report. This should result in meal being very important in the overall profitability of oilseeds, and would favour further expansion of soybean production, especially in Brazil.
Higher sugar demand in developing countries should help prices recover from low levels, leading to further investment in the sector. The market outcome will depend on the profitability of sugar versus ethanol in Brazil, the globe’s leading producer, and could remain volatile as a result of the sugar production cycle in some key Asian sugar-producing countries.
Meat output is expected to respond to an improvement in margins, with lower feed grain prices set to restore profitability to a sector that has been operating in an environment of particularly high and volatile feed costs for most of the past decade.
Worldwide fisheries production is projected to expand by almost 20 percent by 2024. Aquaculture is expected to surpass total capture fisheries in 2023.
Exports of dairy products are projected to further concentrate among four prime sources: New Zealand, the European Union, the United States and Australia, where opportunities for domestic demand growth are limited.
Cotton prices should be suppressed in the short term by the drawdown of large stocks in China, but they are projected to recover and stay relatively stable for the remainder of the outlook period. By 2024, both real and nominal prices are expected to remain below the levels reached in 2012-14.
Ethanol and biodiesel use is expected to grow at a slower pace over the next decade. The level of production is projected to be dependent on policies in major producing countries. At lower oil prices, trade in biofuels should remain small as a share of global production.
Outlook for Brazil
This year’s Outlook contains a special focus on Brazil, which is poised to capture most of the trade expansion to be generated by import demand growth, particularly from Asia.
Brazilian agricultural growth is projected to be driven by continued improvements in productivity, with higher crop yields, some conversion of pasture to cropland and more intensive livestock production. Structural reforms and a reorientation of support towards productivity enhancing investments, for example in infrastructure, could foster these opportunities, as could trade agreements that improve access to foreign markets.
Brazil has made outstanding progress in eliminating hunger and reducing poverty. Prospects for further reductions in poverty through agricultural development are growing, for producers of some food crops as well as producers of higher-value products such as coffee, horticulture and tropical fruits.
The Outlook says that Brazil’s projected agricultural growth can be achieved sustainably. While additional supply will continue to come more from productivity gains than area increases, pressure on natural resources can be alleviated by environmental and conservation initiatives, including support for sustainable cultivation practices, the conversion of natural and degraded cropland to pasture and the integration of crop and livestock systems.
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A joint mission and plan of action: Universal social protection to ensure that no one is left behind
Joint statement by ILO Director-General Guy Ryder and World Bank Group President Jim Yong Kim on the launch of the World Bank Group and ILO Universal Social Protection Initiative, calling the attention of world leaders to the importance of universal social protection policies and financing.
The World Bank Group and the ILO share a vision of social protection for all, a world where anyone who needs social protection can access it at any time. The new development agenda that is being defined by the world community, the Sustainable Development Goals (SDGs), provides an unparalleled opportunity for our two institutions to join forces to make universal social protection a reality, for everyone, everywhere.
Universal coverage and access to social protection are central to ending poverty and boosting shared prosperity, the World Bank Group’s twin goals by 2030. Universal social protection coverage is at the core of the ILO’s mandate, guided by its standards including the Social Protection Floors Recommendation, No. 202, adopted by 185 states in 2012.
For the World Bank Group and the ILO, universal social protection refers to the integrated set of policies designed to ensure income security and support to all people across the life cycle – paying particular attention to the poor and the vulnerable. Anyone who needs social protection should be able to access it.
Universal social protection includes: adequate cash transfers for all who need them, especially children; benefits and support for people of working age in case of maternity, disability, work injury or for those without jobs; and pensions for all older persons. This protection can be provided through social insurance, tax-funded social benefits, social assistance services, public works programs and other schemes guaranteeing basic income security.
Universal social protection is a goal that we, the World Bank Group and the ILO, strive to help countries deliver. Social protection systems that are well-designed and implemented can powerfully shape countries, enhance human capital and productivity, eradicate poverty, reduce inequalities and contribute to building social peace. They are an essential part of National Development Strategies to achieve inclusive growth and sustainable development with equitable social outcomes.
We are proud to endorse the consensus that has emerged in the early 21st century that social protection is a primary development tool and priority.
Since the 2000s, universality has re-entered the development agenda. First it was education: universal primary education became a Millennium Development Goal in 2000. In 2012, the UN General Assembly adopted a resolution endorsing universal health coverage. Now it is time for universal social protection.
The African Union, ASEAN, the European Commission, G20, OECD and the United Nations have all endorsed universal social protection.
Now, it is time to join forces to make it happen.
Universal Social Protection in the Post 2015 Development Agenda
Beginning in 2016, the world will begin the pursuit of an ambitious new development agenda, under the auspices of the United Nations: the Sustainable Development Goals (SDGs). Social protection systems, including social protection floors, figure prominently among the SDGs:
Goal 1. End poverty in all its forms everywhere
1.3 Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and vulnerable.
Social protection policies also feature in goals to achieve gender equality and to reduce income inequality.
Our joint vision reinforces this universal aspiration, to be applicable to all countries regardless of income level. Now is it time to ensure that the international community has the means to make this vision a reality.
A joint programme of action to increase the number of countries adopting Universal Social Protection
Our shared objective is to increase the number of countries that provide universal social protection, supporting countries to design and implement universal and sustainable social protection systems. There are many paths towards universal social protection. It belongs to each country to choose its own, and to opt for the means and methods that best suit its circumstances.
Many countries have embarked on expanding social protection coverage and are reporting significant progress. Yet, the vast majority of the world’s population is still far from enjoying adequate protection. It is time to take determined and innovative steps to trigger change on a larger scale.
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Ministerial Conference in Nairobi “must deliver on development”
There is still a lot of work to do, but a meaningful deal which supports growth and development is achievable, Director-General Roberto Azevêdo said on 1 July, looking ahead to the WTO’s upcoming Nairobi Ministerial Conference.
The Director-General joined Kenya’s Minister of Foreign Affairs, Amina Mohamed, at the WTO’s Fifth Global Review of Aid for Trade to discuss the 10th Ministerial Conference (MC10), which will take place in December. Minister Mohamed will chair MC10, the first to be held on the African continent.
The Director-General highlighted the importance of securing outcomes on development issues in Nairobi, describing it as an “acid test of our success”.
“This ministerial conference will be our first opportunity since our successful meeting in Bali in 2013 to show that the multilateral trading system can deliver negotiated outcomes – particularly for the poorest and the most marginalised,” he declared.
“I think there is a real sense of expectation out there,” he added, citing a recent global survey which found that African respondents had the most positive views on world trade. “Let’s reward that faith.”
Since the creation of the WTO in 1995, around two-thirds of poverty reduction has come from economic growth in developing countries, with trade serving as a major engine for that growth. But more needs to be done, the Director-General said, particularly on the negotiating front, where the WTO “has struggled to deliver”.
Recently, WTO members have made progress in stepping up engagement on the key issues, demonstrating a willingness to discuss new approaches. The Director-General acknowledged that it will be difficult to find solutions, but insisted that progress was possible.
“It’s going to be a long and winding road, but that’s how it always is here,” he added. “Nairobi is a very critical landmark, we have to deliver something credible.”
Minister Mohamed also stressed the importance of the development dimension for a successful outcome in Nairobi, particularly in contributing to the UN’s post-2015 sustainable development goals.
“We must deliver a pragmatic package on development,” she said. “In this 20th year of the WTO we should seek to strengthen trade multilateralism; it has promoted an inclusive, rules-based and non-discriminatory trading system and contributed to rapid economic growth.”
Minister Mohamed also highlighted the importance of advancing on trade facilitation. Steps already taken by Kenya and its partner countries in the East African Community have already led to significant time and cost savings in moving goods overland; a container shipped from Mombasa to Kampala can now take as little as six days to deliver instead of the 20-30 days required in the past, while the cost has fallen significantly.
To this end, Minister Mohamed stressed that WTO members should bring the Trade Facilitation Agreement into force as soon as possible. Kenya expects to secure ratification of the Agreement shortly and hopes others will do the same in order to ensure entry into force by MC10, she said.
The Fifth Global Review is bringing together more than 1,000 participants from around the world to examine actions being taken to reduce trade costs so that developing countries, and in particular least-developed countries (LDCs), can participate more effectively in global trade. Further details on the Global Review, which will run up to 2 July, are available here.
UNCTAD’s proposal for a Post-2015 sustainable development review process
A new policy brief elaborates the objectives, guiding principles and organizational framework within the United Nations system of a sustainable development review process.
UNCTAD is proposing a framework that will help countries to deliver the post-2015 development agenda. This is timely in light of ongoing discussions in the lead up to the Third International Conference on Financing for Development (13-16 July 2015) and the United Nations Summit to adopt the post-2015 development agenda (25-27 Sep 2015).
This preliminary proposal is based on UNCTAD’s experience with both national policy reviews (in the areas of trade policy, services, trade and gender, technology and innovation, debt management, etc.) and peer reviews (investment policy, competition policy).
It also builds on UNCTAD’s direct involvement in the Millennium Development Goals monitoring exercise, as well as in the assessment by the Millennium Development Goals Gap Task Force.
It takes into account UNCTAD’s experience with the two main institutional changes in the multilateral system in Geneva: the Universal Periodic Review that was brought about with the historic change of the Human Rights Commission into the Human Rights Council in 2006 and the Trade Policy Review Mechanism institutionalized when the World Trade Organization succeeded the General Agreement on Tariffs and Trade in 1995.
Lastly, this proposal builds on the broader institutional experience within the United Nations and other international organizations, such as the Organization for Economic Cooperation and Development, and other institutional experience at the regional level, such as the African Peer Review Mechanism.
How would a sustainable development review process work?
The following explains how the UNCTAD proposal on a sustainable development review process would be linked to each component of the universal review process outlined in the Secretary-General’s synthesis report.
A country-led national component
At the country level, the objective of the sustainable development review process should be to review four basic subcomponents:
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The progress made in the achievement of sustainable development goals (i.e. improvement against national indicators).
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The means of implementation (including financial) available to a particular country.
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The challenges faced by Members States, as the main actors of the sustainable development agenda.
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The functioning of partnerships in sustaining the efforts of Member States.
This approach would contrast with that used in the implementation of the Millennium Development Goals, which focused on the indicators of progress towards the Goals, rather than the comprehensive review now proposed.
A regional component for peer reviewing
The synthesis report calls for a “regional component for peer reviewing” to be “undertaken by existing mechanisms”. Its function would be “to… identify regional trends, obstacles, commonalities, best practices and lessons learned and to generate solutions and mutual support”. The core value of a regional review process, as UNCTAD understands it, is that such a process would promote cooperation and coordination of government actions at the regional and/or subregional levels with a view to achieving the sustainable development goals. These regional reviews could take place at the level of institutions for regional cooperation, under the auspices of the United Nations regional commissions.
A thematic component to chart global progress
The synthesis report also suggests a “thematic component” that would “help to identify challenges and bottlenecks” in an issue-specific manner with a view to identifying and mobilizing actions to address such challenges. It likewise recommends that a thematic review should “… rely on relevant coordination and review ‘platforms’”, which would include “… existing specialized or functional commissions, councils or committees that convene United Nations and other multilateral entities, relevant treaty body reviews and outcomes, as well as Member States, partners from civil society, science, academia and the private sector that could monitor and advance each respective thematic area”. Such thematic clusters could be designed based on the “six essential elements” for delivering on the sustainable development goals suggested in the synthesis report (paragraphs 66-86), which are dignity, people, prosperity, planet, justice and partnership.
A global component and a component to review the global partnership
The synthesis report calls for a “global component for knowledge-sharing” as part of a periodic universal review to “discuss lessons learned in each country’s implementation of the agenda and the opportunity to review both short-term outputs and long-term outcomes related to attaining the goals”. In parallel, the synthesis report calls for another component to “review the global partnership for sustainable development”, particularly with respect to the mobilization of the means necessary for implementing the sustainable development goals at the national level.
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AU Commission Chairperson commends re-authorizing the African Growth and Opportunity Act (AGOA)
The Chairperson of the African Union Commission, Dr. Nkosazana Dlamini Zuma, on behalf of all AGOA eligible countries, has commended President Barack Obama for his leadership and strong commitment to enhancing Africa-U.S. economic partnership. President Obama, on Monday June 29, 2015, signed into law the Trade Preference Extension Act of 2015, to enact a 10-year renewal of the African Growth and Opportunity Act (AGOA).
The Chairperson of the AU Commission also expressed her gratitude to members of both Houses of Congress for their strong and broad bipartisan support for the reauthorization of AGOA. “Their vote to extend AGOA for 10 years is an eloquent illustration of the importance they attach to the U.S.’s relationship with Africa, and their interest in advancing sustainable trade relations with the continent,” said the Chairperson.
The Chairperson also commended the efforts of the private sector, African civil society and the Diaspora, who worked tirelessly with the African Ambassadors Group in Washington, D.C. and the AU Mission to promote a long-term extension of AGOA for the best interest of Africa-U.S. relations.
The preferences that AGOA provides have fostered a mutually beneficial partnership that will allow for job creation in both Africa and the U.S., and the enhancement of trade and business environments. AGOA demonstrates how a trade preference can catalyse the expansion and creation of new industries, new export sectors, and new jobs that promote the reduction of poverty and sustainable economic development of the continent.
Over 1.5 million jobs have been directly and indirectly created on the continent thanks to the economic opportunities it provides, with many supporting women and youth. Extending AGOA through September 2025 will provide the necessary certainty for long term and predictable U.S. investments in Africa and foster ever increasing economic development and deepened commercial ties over the next decade.
The AUC Chairperson reiterated the commitment of the AU Commission to work with all stakeholders to ensure that the new AGOA legislation meets its potential in promoting growth, development, increased industrialization and furthering integration of Africa into global and regional supply chains.
The Chairperson Dr. Dlamini Zuma looks forward to hosting President Barack Obama on the historic occasion of the first ever visit of a sitting U.S. President to the AU headquarters at the end of July. The Presidential visit will provide an excellent opportunity to further advance common interests and to take the Africa-U.S. strategic partnership to a higher level.
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tralac’s Daily News selection: 1 July 2015
This paper seeks to provide some insights on the failure of national policies and regulations to support regional integration efforts in Africa. It presents a general analysis of the Southern African Development Community (SADC) market integration experience with respect to select national policies and regulatory frameworks of member states. The selected areas relate to national trade, industrial, agricultural, competition, and labour policies. The paper concludes that most of these policies are underpinned by restrictive measures arising from inadequate implementation of the adopted protocols and policy frameworks at national levels, thereby hindering progress on regional integration in SADC.
Effective mechanisms for strategy development, planning, and especially for monitoring and evaluation of protocols and other core policies, are urgently required in SADC. Such mechanisms need to be underpinned by a rules-based institutional framework that enhances compliance by member states. The current institutional mechanisms remain inadequate to foster greater policy and regulatory convergence among member states. [Download]
New Trade Briefs from tralac (all written by Gerhard Erasmus):
The new Principles for Negotiating the Continental FTA
Implications of the Tripartite FTA for SADC and its Member States
The Implications of the Tripartite FTA for SACU
SADC countries to petition SA over new visa regulations (263chat)
Countries in the SADC region will be forced to petition South African government over its new visa regulations, which require children under the age of 18 to produce an Unabridged Birth Certificate at all ports of entry, a senior Government official said. Tourism and Hospitality Industry Minister Engineer Walter Mzembi said the new system will pose myriad of problems to the region’s tourism since South Africa is the main port of entry for travellers. “ We feel aggrieved by the South African Passport Documentation Act which compels countries that are visa free and South Africans themselves to produce unabridged birth certificates.”
Mozambique: Government relentless on illegal employment of foreigners (Club of Mozambique)
37th Plenary Assembly of the SADC-PF
The South African Parliament will host the Southern African Development Community Parliamentary Forum (SADC-PF) in Durban from 6 – 12 July 2015. Migration and development; Free movement of people: towards regional integration; and diaspora engagement, are amongst the topics to be discussed at the 37th Plenary Assembly of the SADC-PF 2015. [Download]
SADC water ministers to converge in Zimbabwe for annual meeting (StarAfrica)
Ministers responsible for water from the 15-member Southern African Development Community will meet on Friday in Harare to review progress on the implementation of the third phase of the Regional Strategic Action Plan on Integrated Water Resources Management and Development (RSAP III) 2011-2015. The ministers would further provide strategic and political guidance on the fourth phase of the SADC Water Programme (RSAP IV) which is under development. The SADC water minsters meeting would be preceded by meetings of senior officials in the water sector and the Zambezi Watercourse Commission Council of Ministers, which would be held on Thursday.
This note discusses how strengthening subregional, regional and interregional dialogue and cooperation can contribute to the economic integration and development of developing countries and countries with economies in transition. Approaches that work best to boost productive capacities in a framework of regional integration need to be analysed and discussed, and this note attempts to distil key policy lessons for development-oriented regional integration and identify important gaps in the understanding of these issues.
Fifth Global Review of Aid for Trade: update
As part of the Fifth Global Review, the WTO and the Organisation for Economic Cooperation and Development (OECD) launched a new joint report highlighting the importance for developing countries and LDCs in reducing trade costs in order to benefit from the market opportunities the multilateral trading system creates. The report contends that cumbersome and time-consuming border procedures, obsolete or ill-adapted infrastructure, limited access to trade finance, and the complexity and cost of meeting an ever broader array of standards “all serve to price too many countries out of international trade”.
The WTO/OECD report notes that donors have already disbursed some USD 1.9 billion in aid for trade facilitation since 2005. Annual commitments now stand at USD 668 million, an eight-fold increase in donor support since 2005, with many donors indicating they intend to increase their support over the next five years.
Aid for Trade at a Glance 2015: reducing trade costs for inclusive, sustainable growth [Country profiles, Pocket edition]
Investing in Africa Forum: update (World Bank)
To boost responsible investment on the continent, the government of Ethiopia, China Development Bank, the World Bank Group, and the United Nations Industrial Development Organization have joined forces to host the “Investing in Africa Forum,” in Addis Ababa on June 30 and July 1. Policy makers, development partners, and foreign and local private investors will discuss what it will take to make Africa the next great investment destination. The bottom line? It will take partnerships between governments and the private sector, between African countries and their neighbours, between Africa and non-neighbour countries, and between Africa and its development partners. Africa has a unique opportunity to attract strategic, job-creating investment. The time for action is now.
2015 Global Sustainable Development Report (United Nations)
The report provides a survey of scientific findings that includes oceans and livelihoods, natural disasters, industrialization, sustainable consumption and production, and use of “big data” in Africa. [Download]
High-level Political Forum on Sustainable Development: update, resources (UN)
Addressing fragility and building resilience in Africa: AfDB group strategy 2014–2019 (AfDB)
South Africa: May 2015 merchandise trade statistics (SARS)
The R4.99bn surplus for May 2015 is due to exports of R88.94bn and imports of R83.95bn. Exports increased from April 2015 to May 2015 by R3.94bn (4.6%) and imports decreased from April 2015 to May 2015 by R2.49bn (2.9%). The cumulative deficit for 2015 is R29.85bn compared to R46.95bn in 2014. Africa: a trade surplus of R16 786 million (a 2.9% decrease from April). BLNS only: a trade surplus of R9.10 billion. [Download]
Tanzania: Growers of pulses for export to India cautioned on standards (IPPMedia)
The Indian market is looking forward to import 4 million metric tonnes of pulses from Tanzania, Malawi and Kenya to meet its consumption needs, he said, noting that it’s high time the farmers from these countries used this opportunity to penetrate the market. To meet the existing Indian demand of 4 million tonnes of pulses, EAGC will work with farmers’ organizations’ stakeholders to spread the benefit of Supporting Indian Trade and Investment for Africa” (SITA ) project to a large number of small-scale farmers in the country, he said.
Climate change impacts on African crop production (CGIAR)
The SBSTA crops paper, produced in collaboration between CIAT and ILRI scientists, shows that, under our current emissions trajectory (RCP8.5, where global warming by the end of the 21st century is between 6-8 ºC), common bean, maize, banana and finger millet are projected to reduce their suitable areas significantly (30-50%) across the continent, and will need some kind of adaptation plan, or be replaced with other crops. On the other hand, sorghum, cassava, yam, and pearl millet show either little area loss or even gains in suitable areas.
Kenya: Local importers face higher levies under EAC customs rules (Business Daily)
The recent haggling among the East African finance ministers has left Kenyan consumers facing another wave of price increases as Customs taxes rise on a number of commonly imported items. Farmers will from today pay 25 per cent duty to import aluminium milk cans instead of the 10 per cent levied on their peers in the region, an East African Gazette notice shows. The notice dated June 19 indicates farmers will also pay 25 per cent tariff on made-up fishing nets instead of 10 per cent being applied at the moment. Manufacturers will also have to ship in paper and paperboard products at 25 per cent customs duty instead of 10 per cent throughout the next fiscal year.
Kenya: Second-hand clothes importers face harsh penalties (Business Daily)
Silvester M Kututa: 'Through maritime cluster model, our ports can become the new Singapores of Africa' (Business Daily)
Kampala meeting charts regional telecoms future (Daily Nation)
NGOs, individuals may be allowed to open cases at Arusha's African Court (IPPMedia)
The East African Community partner states have been challenged to make a declaration to allow non-governmental organisations and individuals to bring cases before the Arusha-based African Court on Human and Peoples’ Rights (AfCHPR). Addressing about 30-member delegation of the Kenya’s International Peace Keeping Training Centre (IPSTC) and the National Steering Committee (NSC) yesterday, the AfCHPR’s President Justice Augustino Ramadhani said that the African Court was based in East Africa and East African countries should take a lead in ratifying and making a declaration to allow individuals, NGOs and other entities to bring cases directly to the Court.
Towards the Africa Mining Vision: Lesotho launches new legislative framework for the mining sector (UNECA)
Clare Short/Jonas Moberg respond to Paul Collier's statements at NRGI conference (EITI)
AU Commission Chairperson commends re-authorizing the African Growth and Opportunity Act (AU)
Kenya: Small scale irrigation and valued addition project - ESIA summary (AfDB)
Joint communique by President Barack Obama and President Dilma Rousseff (The White House)
US-Brazil statement on climate change (The White House)
China, Brazil launch $20bn fund to support production capacity cooperation (ecns)
New Zealand govt rejects TPP "China containment": trade minister (Xinhua)
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Signed Agreement Establishing a Tripartite Free Trade Area Among COMESA, the EAC and SADC
The Heads of State and Government of the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC) and Southern African Development Community (SADC) met on 10 June, 2015 in Sharm El Sheikh, Egypt at the Third Tripartite Summit to officially launch the COMESA-EAC-SADC Tripartite Free Trade Area (TFTA).
Twenty four Member/Partner States have signed the Sharm El Sheikh Declaration launching the TFTA; only Libya and Eritrea have not signed. The TFTA Agreement has been signed by the following 16 member countries: Angola, Burundi, Comoros, Democratic Republic of Congo (DRC), Djibouti, Egypt, Kenya, Malawi, Namibia, Rwanda, Seychelles, Sudan, Tanzania, Uganda, Swaziland, and Zimbabwe.
Documents from the Third Tripartite Summit and the text of the final TFTA Agreement are available in the four official languages – English, Arabic, French and Portuguese – here.
Agreement Establishing a Tripartite Free Trade Area Among the Common Market for Eastern and Southern Africa, the East African Community and the Southern African Development Community*
Preamble
WE, the Member States of the Common Market for Eastern and Southern Africa, the Partner States of the East African Community, and the Member States of the Southern African Development Community, hereinafter referred to as “Tripartite Member/Partner States”:
RECALLING AND AFFIRMING the strong and indissoluble bonds of history, freedom, liberation struggles, friendship, solidarity, commerce, trade, shared natural resources, and culture among the people and Governments of the Member/Partner States of the Common Market for Eastern and Southern Africa, the East African Community, and the Southern African Development Community;
RECOGNISING the Kampala Communiqué of the Tripartite Summit of 22 October 2008 under which the Heads of State and Government representing the three regional economic communities agreed, inter alia, to establish a single Customs Union beginning with a Free Trade Area;
FURTHER RECOGNISING the Declaration Launching the Negotiations for the Establishment of the Tripartite Free Trade Area of Johannesburg, South Africa, 12 June 2011;
RECALLING the Tripartite Memorandum of Understanding signed on 19 January, 2011 and its provisions on the establishment of the Tripartite Free Trade Area;
COMMITED to championing and expediting the continental integration process under the Treaty establishing the African Economic Community and the Constitutive Act of the African Union through regional initiatives;
COGNISANT of the provisions establishing free trade areas in the Common Market of Eastern and Southern Africa Treaty, Treaty for the Establishment of the East African Community and the Southern African Development Community Protocol on Trade;
DETERMINED to build upon the success and best practices achieved in trade liberalisation within the three Regional Economic Communities;
COMMITTED to resolving the challenges of overlapping memberships of the Tripartite Member/Partner States to the three Regional Economic Communities;
CONSIDERING that trade in goods and services, infrastructure, cross-border investment, industrial development and movement of business persons should be major areas of co-operation;
DETERMINED to take the necessary measures for reducing the cost of doing business and creating a conducive environment for private sector development;
MINDFUL of the important role of micro, small and medium enterprises in job creation and income generation for the majority of the people in the Tripartite Member/Partner States;
RECOGNISING the significant contribution of trade in goods and services to national incomes of the Member/Partner States;
DETERMINED to progressively liberalise trade in goods and services, promote industrial development, facilitate movement of business persons, support the strengthening of infrastructure, promote competitiveness, build the capacity of micro, small and medium scale enterprises, and contribute to the deepening of integration in the Tripartite Member/Partner States;
RECOGNISING that the development of trade and investment is essential to the economic integration of the Region and will create new opportunities for a dynamic business sector;
CONVINCED that a framework of trade co-operation among Tripartite Member/Partner States based on equality, fair competition and mutual benefit will contribute to the creation of a viable development community;
MINDFUL of the different levels of economic development and geographic specificities of the Tripartite Member/Partner States and the need to share equitably the benefits of regional economic integration;
COMMITED to improving the competitiveness of Tripartite Member/Partner States at enterprise, industrial and regional levels so as to fully derive benefits from regional and global trade opportunities;
RECOGNISING the progress achieved in the elimination of import duties and other trade barriers within the three regional economic communities;
RECOGNISING the initiatives undertaken by the regional economic communities in establishing themselves as single investment areas and building on this progress; and
RECOGNISING our international obligations under the existing agreements;
HEREBY AGREE as follows:
PART I
INTERPRETATION, ESTABLISHMENT, OBJECTIVES AND PRINCIPLES
Article 2
Establishment of the Tripartite Free Trade Area
A Free Trade Area among the Member/Partner States of COMESA, EAC and SADC is hereby established.
Article 3
Scope and Coverage
This Agreement shall, without derogating from the purpose already outlined herein comprise of:
a) Trade in goods;
b) Trade in services; and
c) Other trade-related matters.
Article 4
General Objectives
The general objectives of the Tripartite Free Trade Area shall be to:
a) promote economic and social development of the Region;
b) create a large single market with free movement of goods and services to promote intra-regional trade;
c) enhance the regional and continental integration processes; and
d) build a strong Tripartite Free Trade Area for the benefit of the people of the Region.
Article 5
Specific Objectives
For purposes of fulfilling and realising the objectives set out in Article 4 of this Agreement, Tripartite Member/Partner States shall:
a) progressively eliminate tariffs and Non-Tariff Barriers to trade in goods;
b) liberalise trade in services;
c) cooperate on customs matters and implementation of trade facilitation measures;
d) establish and promote cooperation in all trade-related areas among Tripartite Member/Partner States; and
e) establish and maintain an institutional framework for implementation and administration of the Tripartite Free Trade Area.
PART III
LIBERALISATION OF TRADE IN GOODS
Article 9
Elimination of Import Duties
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Tripartite Member/Partner States shall not impose new import duties or charges of equivalent effect except as provided for under this Agreement.
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The provisions of paragraph 1 shall not apply to goods that are not subject to liberalisation.
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The Tripartite Member/Partner States shall progressively eliminate import duties in accordance with schedules contained in Annex I on Elimination of Import Duties.
Article 10
Non-Tariff-Barriers
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Tripartite Member/Partner States shall eliminate all existing Non-Tariff-Barriers to trade with each other and shall not impose any new ones in line with Annex III on Non-Tariff Barriers.
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Tripartite Member/Partner States recognise the existing reporting, monitoring and elimination mechanisms on Non-Tariff-Barriers established by the three RECs and undertake to harmonise them into a single mechanism as provided for in Annex III.
Article 11
Elimination of Quantitative Restrictions
Tripartite Member/Partner States shall not impose quantitative restrictions on imports or exports in trade with other Tripartite Member/Partner States except as otherwise provided for in Article XI.2 of GATT1994, the WTO Agreement on Safeguards and Articles 17 and 18 and Annex II on Trade Remedies of this Agreement.
Article 12
Rules of Origin
Goods shall be eligible for preferential treatment under this Agreement if they are originating goods in any of the Tripartite Member/Partner States in accordance with the criteria and conditions set out in Annex 4 on Rules of Origin.
PART IV
CUSTOMS COOPERATION AND TRADE FACILITATION
Article 13
Customs Cooperation
Tripartite Member/Partner States shall take appropriate measures including arrangements regarding customs cooperation and mutual administrative assistance to ensure that the provisions of this Agreement are effectively applied in accordance with Annex 5 on Customs Cooperation and Mutual Administrative Assistance.
Article 14
Trade Facilitation
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Tripartite Member/Partner States agree to design and standardise their trade and customs documentation and information in accordance with internationally accepted standards, taking into account the use of electronic data processing systems.
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Tripartite Member/Partner States shall ensure an efficient and effective application of this Article in accordance with Annex VI on Trade Facilitation.
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Tripartite Member/Partner States undertake to initiate trade facilitation programmes in accordance with Annex VI on Trade Facilitation aimed at:
a) reducing the cost of processing documents and volume of paper work required in respect of trade among Tripartite Member/Partner States;
b) ensuring that the nature and volume of information required in respect of trade within the Tripartite Free Trade Area does not adversely affect the economic development of, or trade among, the Tripartite Member/Partner States;
c) adopting common standards of trade procedures within the Tripartite Free Trade Area where international requirements do not suit the conditions prevailing among Tripartite Member/Partner States;
d) ensuring adequate coordination between trade and transport facilitation within the Tripartite Free Trade Area;
e) keeping under review procedures adopted in international trade and transport with a view to simplifying and adopting them;
f) collecting and disseminating information on international development regarding trade facilitation;
g) promoting the development and adoption of common solutions to problems in trade facilitation instruments;
h) initiating and promoting the establishment of joint programmes, for the training of personnel engaged in trade facilitation; and
i) establishing and promoting one-stop border posts.
Article 15
Transit
Tripartite Member/Partner States agree to facilitate the movement of goods and means of transport in transit to other Tripartite Member/Partner States in accordance with Annex VII on Transit Trade and Transit Facilitation.
* Only extracts from the Agreement are reproduced here.
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Agency heads cite importance of reducing trade costs to support growth and development
Reducing trade costs through initiatives such as the WTO’s Trade Facilitation Agreement (TFA) will go a long way towards helping businesses and consumers in poorer countries reap the benefits of the global trading system, the heads of major international agencies agreed on 30 June at the Fifth Global Review of Aid for Trade.
In opening the Fifth Global Review, WTO Director-General Roberto Azevêdo said high costs arising from delays at the border and other obstacles “suffocate trade. They limit the gains from trade. Worse, the burden of high trade costs falls heaviest on the poorest countries, the smallest firms and the lowest income consumers.”
“High trade costs disconnect the economy from international flows of goods and services,” he continued. “They therefore stifle creativity – the motor behind productivity that drives economic growth. We must find ways to further cut trade costs, lower trade barriers, reduce distortive subsidies, and increase people’s capacity to trade, so that the poorest can access more of the benefits that trade can provide.”
World Bank President Jim Kim said that despite some scepticism that trade helps the poor, “our best evidence suggests that, when countries are effectively integrated into regional and global markets, their poorest citizens can reap substantial benefits.” He cited China, Viet Nam and Cambodia as examples where targeted reforms and openness to trade have boosted exports and substantially reduced the number of extreme poor.
More than 1,000 participants from around the world are taking part in the Fifth Global Review, which is examining actions being taken to reduce trade costs so that developing countries, and in particular least-developed countries (LDCs), can participate more effectively in global trade.
New study underlines benefits from reducing trade costs
As part of the Fifth Global Review, the WTO and the Organisation for Economic Cooperation and Development (OECD) launched a new joint report highlighting the importance for developing countries and LDCs in reducing trade costs in order to benefit from the market opportunities the multilateral trading system creates.
The report contends that cumbersome and time-consuming border procedures, obsolete or ill-adapted infrastructure, limited access to trade finance, and the complexity and cost of meeting an ever broader array of standards “all serve to price too many countries out of international trade”. It calls for a redoubling of efforts to tackle trade costs which continue to marginalise many of the world’s poorest and most fragile economies, and cites the TFA as an important step towards achieving this goal.
DG Azevêdo said implementation of the TFA would represent a “leap forward” in cutting trade costs. He cited Cambodia, Guatemala, Kenya, Lesotho, Peru, Tajikistan and Togo as examples where border modernization efforts have already led to faster clearance times, higher customs revenues and savings for traders.
OECD Secretary-General Angel Gurría said the joint WTO/OECD report “clearly shows that while producers in low-income countries are often competitive at the farm and factory gate, they are priced out of the international market”.
“This is because of cumbersome border procedures, poor infrastructure, lack of finance, and complex standards,” Mr. Gurría continued. The TFA “creates a significant opportunity to reduce trade costs and enhance participation in the global value chains”.
Donor support increasing
The WTO/OECD report notes that donors have already disbursed some USD 1.9 billion in aid for trade facilitation since 2005. Annual commitments now stand at USD 668 million, an eight-fold increase in donor support since 2005, with many donors indicating they intend to increase their support over the next five years.
Takehito Nakao, President of the Asian Development Bank, said his agency was increasing support for trade facilitation efforts in various parts of Asia, where more than 500 million people still live in extreme poverty. He highlighted a three-pronged approach to aid for trade including infrastructure investment, trade facilitation and trade finance in Asia and the Pacific
Joakim Reiter, Deputy Secretary-General for the United Nations Conference on Trade and Development, said high trade costs act as a double-edged sword.
“These costs squeeze citizens through lower wages in the export sector. At the same time, they lead to higher prices on imported consumer goods and deter investment.”
The Fifth Global Review will continue up to 2 July. More information on the meeting, including the full programme, news items, photos and background details are available here on the WTO website.
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South Africa: Merchandise Trade Statistics for May 2015
The South African Revenue Service (SARS) has released trade statistics for May 2015 that recorded a trade surplus of R4.99 billion. This figure includes trade data with Botswana, Lesotho, Namibia and Swaziland (BLNS).
Including BLNS
The R4.99 billion surplus for May 2015 is due to exports of R88.94 billion and imports of R83.95 billion. Exports increased from April 2015 to May 2015 by R3.94 billion (4.6%) and imports decreased from April 2015 to May 2015 by R2.49 billion (2.9%). The cumulative deficit for 2015 is R29.85 billion compared to R46.95 billion in 2014.
Trade highlights by category
The month-on-month export movements:
R’ million
|
|
|
Section:
|
Including BLNS:
|
|
Vehicle & Transport Equipment
|
+ R1 852
|
+ 19.7%
|
Vegetable Products
|
+ R 961
|
+ 27.4%
|
Mineral Products
|
+ R 949
|
+ 5.1%
|
Precious Metals & Stones
|
- R 934
|
- 5.4%
|
Chemical Products
|
- R 852
|
- 13.5%
|
The month-on-month import movements:
R’ million
|
|
|
Section:
|
Including BLNS:
|
|
Machinery & Electronics
|
- R1 680
|
- 7.4%
|
Vehicle & Transport Equipment
|
- R 476
|
- 5.3%
|
Plastics and Rubber
|
- R 289
|
- 8.1%
|
Mineral Products
|
+ R 654
|
+ 4.6%
|
Vegetable Products
|
+ R 241
|
+ 13.9%
|
Trade highlights by world zone
The world zone results from April 2015 to May 2015 are given below.
Africa:
Exports: R24 965 million – this is a decrease of R 529 million from April 2015
Imports: R8 179 million – this is a decrease of R19 million from April 2015
Trade surplus: R16 786 million.
This is a 2.9% decrease in comparison to the R17 295 million surplus recorded in April 2015
America:
Exports: R8 333 million – this is a decrease of R 129 million from April 2015
Imports: R9 819 million – this is an increase of R1 337 million from April 2015
Trade deficit: R1 486 million
This is a decrease in comparison to the R 20 million deficit recorded in April 2015
Asia:
Exports: R27 235 million – this is an increase of R3 390 million from April 2015
Imports: R37 626 million – this is a decrease of R1 650 million from April 2015
Trade deficit: R10 391 million
This is a 32.7% decrease in comparison to the R15 432 million deficit recorded in April 2015
Europe:
Exports: R19 808 million – this is an increase of R1 242 million from April 2015
Imports: R26 737 million – this is a decrease of R2 292 million from April 2015
Trade deficit: R6 928 million
This is a 33.8% decrease in comparison to the R10 463 million deficit recorded in April 2015
Oceania:
Exports: R1 070 million – this is an increase of R 88 million from April 2015
Imports: R1 390 million – this is an increase of R 137 million from April 2015
Trade deficit: R 320 million
This is an 18% increase compared to the R 271 million deficit recorded in April 2015
Excluding BLNS
The trade data excluding BLNS for May 2015 recorded a trade deficit of R4.11 billion. This is as a result of exports of R77.69 billion and imports of R81.81 billion. Exports increased from April 2015 to May 2015 by R3.44 billion (4.6%) and imports decreased from April 2015 to May 2015 by R2.47 billion (2.9%). The cumulative deficit for 2015 is R72.04 billion compared to R88.46 billion in 2014.
Trade highlights by category
The month-on-month export movements:
R’ million | ||
Section: | Excluding BLNS: | |
Vehicles & Transport Equipment | + R1 699 | + 20.6% |
Vegetable Products | + R1 018 | + 34.7% |
Mineral Products | + R 916 | + 5.6% |
Precious Metals & Stones | - R1 234 | - 7.3% |
Chemical Products | - R 855 | - 15.9% |
The month-on-month import movements:
R’ million | ||
Section: | Excluding BLNS: | |
Machinery & Electronics | - R1 691 | - 7.5% |
Vehicles & Transport Equipment | - R 461 | - 5.2% |
Plastics and Rubber | - R 294 | - 8.3% |
Prepared Foodstuff | - R 261 | - 12.8% |
Mineral Products | + R 657 | + 4.6% |
Trade highlights by world zone
The world zone results from April 2015 to May 2015 are given below.
Africa:
Exports: R13 722 million – this is a decrease of R1 029 million from April 2015
Imports: R6 037 million – this is a decrease of R 8 million from April 2015
Trade surplus: R7 685 million
This is an 11.7% decrease in comparison to the R8 706 million surplus recorded in April 2015.
BLNS (Only)
Trade statistics with the BLNS for May 2015 recorded a trade surplus of R9.10 billion. This is as a result of exports of R11.24 billion and imports of R2.14 billion.Exports increased from April 2015 to May 2015 by R0.50 billion (4.7%) and imports decreased from April 2015 to May 2015 by R0.01 billion (0.5%). The cumulative surplus for 2015 is R42.19 billion compared to R41.50 billion in 2014.
Trade Highlights by Category
The month-on-month export movements:
R’ million | ||
Section: | BLNS: | |
Precious Metals & Stones | + R 299 | + 69.6% |
Vehicles & Transport Equipment | + R 152 | + 13.1% |
Articles of Stones and Plaster | + R 73 | + 52.7% |
Miscellaneous Manufactured Articles | + R 55 | + 21.2% |
Vegetable Products | - R 57 | - 9.9% |
The month-on-month import movements:
R’ million | ||
Section: | BLNS: | |
Precious Metals & Stones | - R 198 | - 95.1% |
Vehicles & Transport Equipment | - R 16 | - 38.5% |
Prepared Foodstuff | + R 91 | + 26.8% |
Chemical Products | + R 62 | + 15.7% |
Wood and articles thereof | + R 13 | + 18.3% |
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AIIB nears completion but China’s ‘global leader’ status remains in question
The China-led Asian Infrastructure Investment Bank seems on track to begin full operations early next year.
This week, 50 of the bank’s founding members signed the articles of agreement formally establishing the world’s newest multilateral financial institution. Held in Beijing, where the bank’s headquarters will also be established, the ceremony wrapped up nearly two years of contentious negotiations, brainstorming and justifications over the need for a new multilateral bank to help address the region’s growing infrastructure demands. Asia-Pacific is said to need almost $800 billion in infrastructure investments annually over the next decade – an amount that even the combined resources of the world’s multilateral institutions cannot yet fill.
As expected, the international community welcomed news of the completion of AIIB’s articles of agreement. World Bank President Jim Yong Kim and Asian Development Bank President Takehiko Nakao agree the Beijing-based bank is a welcome addition to the legion of institutions committed to ending poverty and uplifting people’s lives. Yet both bank chiefs have also strongly asserted the need for AIIB to adhere to international standards.
For some development experts, AIIB’s rise underscores two things: China is serious in its attempt to legitimately gain global leadership status, and the international development landscape is steadily evolving.
“This signifies the start of a new chapter in the evolution of international development – a multilateral institution, global in membership, whose agenda is not predominantly determined by the U.S. and its Western allies,” Alexander Cooley, director ofColumbia University‘s Harriman Institute, told Devex.
He also said that China’s ascent as a global leader “should not be surprising” given the rising profile of emerging donors in the international development scene. Last year, the economic group comprising Brazil, Russia, India, China and South Africa established the New Development Bank.
“[AIIB’s near completion] also signifies China’s willingness to join the global development cause and lead on exploring new development solutions by international standards,” Mengke Liang, a Chinese independent consultant and founder of InterDev China Consulting, told Devex. But she also noted that Beijing has a long way to go as it “still needs to withstand real world challenges,” particularly transparency and corruption issues.
While 50 nations signed the articles, seven prospective founding members – Denmark, Kuwait, Malaysia, the Philippines, Poland, South Africa and Thailand – have asked for more time to assess the agreement. They have until December 2015 to sign on.
China’s de facto veto power
The articles of agreement laid out the purpose of the bank, membership rules, capital share, voting power, governance structure and other general considerations regarding AIIB’s adherence to international standards.
Built to “foster sustainable economic development, create wealth and improve infrastructure connectivity in Asia” while promoting “regional cooperation and partnership in addressing development challenges,” AIIB will have a $100 billion startup capital – $20 billion in paid-in capital and the rest will come in the form of callable shares.
Among the provisions in the 34-page document is a shareholder clause opening up only 25 percent of stocks to nonregional members. Shi Yaobin, China’s deputy finance minister, explained that while the shareholding ration may change later on, the stocks of regional members cannot fall below 70 percent to “preserve the regional character bank.”
This 70:30 ratio eschews traditional shareholding breakdowns at other multilateral institutions. At ADB, for instance, nonregional members can hold as much as 36 percent of capital shares and 34 percent of voting shares – something that China has criticized in the past.
Strikingly, China seems set to dominate capital and voting shares at the Beijing-based institution. Its $29.78 billion paid-in capital gives it as much as 30 percent in shareholdings and over 26 percent in voting shares. India is the second-biggest shareholder with $8.37 billion in paid-in capital, with Russia – which the AIIB Secretariat classified as a regional member – comes in third with $6.5 billion. The largest nonregional member in terms of capital shares is Germany with $4.84 billion.
The institutional design laid out for AIIB “effectively gives China a veto,” according to Cooley. But this is “hardly surprising given that the organization was born of Chinese initiative.” The Columbia University professor also explained that this is not very different in the case of the U.S. – the largest shareholder at the World Bank.
In an attempt to gain the trust of traditional donor countries, China has said that it will forego its veto power at the bank. But its voting share alone already gives it de facto veto power. As stated in the articles of agreement, a 75 percent vote is needed for major operational and financial decisions once the bank is fully running.
Yaobin has been quick to dismiss concerns about China’s automatic veto power, saying the bank’s development is still in its early stages. He also said that as new members are admitted later on, “the proportion of voting shares of China and the other founding members can be gradually diluted.”
Evolution in practice needed
Curtis Chin, former U.S. ambassador to ADB, explained that the country’s past actions at other multilateral organizations “underscore why there is legitimate concern over China’s future behavior at this newest of international financial institutions.”
Chin said he saw firsthand how “China’s domestic and international political agenda forced ADB to change course on a project or even in one case to retreat in its efforts to ensure compliance with bank social safeguards.”
There are general provisions on adhering to international standards in AIIB’s article of agreements, but implementing them will test China’s capability to manage AIIB effectively and efficiently. IDCC’s Liang explained that it is “very important for China to recognize the environment and social impact on outward infrastructure investment projects.” One way to go about it is to hire environmental and community development experts and make sure these perspectives are always “visible, meaning they are heard, considered and adopted.”
Cooley meanwhile explained that there should be a shift in how China – as the leading voice and hand in establishing AIIB – should look at how it administers its development assistance. China is best known for its principle of noninterference when giving aid, but the professor shared that in running AIIB, an evolution in practice should happen.
“This will require robust systems of monitoring and, for the enforcement of these standards, some sort of aid conditionality,” Cooley said. “Officials understand that adopting international standards are important for AIIB’s international legitimacy.”
Lastly, China should give assurance that AIIB will not be used as a vehicle to advance its own political and economic interests. The Columbia University professor said China has to have no room for error.
“The first year will be critical for the bank’s legitimacy and global perceptions about Beijing’s intentions,” Cooley concluded. “Should the bank find itself embroiled in problematic, graft-ridden or politically controversial projects, it will give its critics a platform to continue criticizing China’s commitment to international development standards.”