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Deputy President Cyril Ramaphosa: Asia-Africa Business Summit
Address by His Excellency Deputy President Cyril Ramaphosa on the occasion of the Asia-Africa Business Summit in Jakarta, Indonesia, 21 April 2015
Sixty years ago, some of the most outstanding leaders of our two continents, Africa and Asia, congregated in Bandung, driven by a desire to build a free, just and peaceful world.
Many of those leaders came from countries that had just attained independence.
The conference resolved to ‘condemn colonialism in all of its manifestations’ and promote Afro-Asian economic and cultural ties.
The Bandung Conference helped to shape the post-colonial world.
It has a rich and enduring legacy, binding our two continents together in solidarity and cooperation.
This week we are both remembering and reaffirming the commitments made in 1955, and again in 2005 through the New Asian-African Strategic Partnership.
The Bandung Conference recognised the urgency of promoting economic development in Asia and Africa.
Since then, the two continents have experienced significant economic development.
Asia has led the way, achieving remarkable economic growth and making great strides in lifting millions of its people out of poverty.
It helped to keep global economic growth buoyant even as the financial crisis struck many national economies.
It is significant that the Asian region grew by 5.4% in 2014 compared to the world average of 3.3% in the same period.
There are many valuable lessons that Africa can learn from Asia’s success – a success from which Africa has benefited in recent years.
As demand has grown in Asia, Africa’s exports of natural resources have similarly grown.
Though dominated by extractive commodities, Africa’s exports have also included processed commodities, light manufactured products, household consumer goods and food.
Africa’s labour intensive capacity enables it to export these non-traditional goods and services competitively to our Asian partners.
Trade flows between the two continents have increased significantly over the years, totalling US$ 423 billion in 2013.
However, as of 2014, Asia accounted for only 26% of Africa’s trade flows.
In addition, all of the top 10 Asian imports from Africa were commodity-based, with crude oil and gas accounting for 58% of imports and ores and metals accounting for a further 20%.
Africa’s imports from Asia were more diverse, comprising of machinery, vehicles and electronics, which accounted for 30% of imports.
We need to increase trade between Africa and Asia to ensure the realisation of our respective economic development agendas.
We need also to address the current trade imbalance.
We are therefore delighted that a platform of this nature exists, allowing us to share best practice and explore opportunities for greater economic cooperation.
This gathering allows us to look at ways to grow value added exports, increase investment flows, improve trade facilitation mechanisms and create more conducive trade and investment environments.
To place Africa-Asia trade on higher trajectory of growth we need to undertake a number of reforms.
The first can be described as ‘at the border’ reforms. These are aimed at eliminating escalating tariffs on Africa’s leading exports.
The second are ‘behind the border’ reforms, in which Africa takes steps to improve competitiveness and strengthen its basic market institutions.
The third – ‘between the border’ reforms – are aimed at improving trade facilitation infrastructure and institutions to reduce transaction costs associated with customs administration, transport and communications.
Lastly, a series of reforms would have to be instituted to leverage linkages between investment and trade to allow the participation of African businesses in modern global production.
Allow me to elaborate on the African growth story.
Within the ambit of the African Union, we have made immense progress in promoting the unity and solidarity of African states.
We have improved coordination and intensified cooperation.
We have sought to harmonise political, diplomatic, economic, educational, cultural, health, welfare, scientific, technical and defence policies.
We have been steadily changing perceptions of our continent.
The continent has experienced robust economic growth and a rising population, combining to improve spending power across Africa.
In the past decade, Africa has grown two to three percentage points faster than global GDP.
Regional growth is predicted to remain stable above 5% in 2015, supported by increased foreign direct investment, public investment in infrastructure and higher agricultural production.
Because of its young population, Africa’s working age population is expected to double to 1 billion by 2040, surpassing both China and India.
The consumer market is rising in tandem with its growing population.
The environment for doing business is steadily improving.
Access to financial services is improving, largely thanks to the roll out of technology and innovation.
The continent is blessed with an abundance of natural resources.
Over the past five years, 30% of the world’s oil and gas discoveries were in Sub-Saharan Africa.
Further to this, Africa has 60% of the world’s arable land.
While these statistics are impressive, they cannot mask the harsh reality of the daily struggles of many of our people.
We need to make a concerted effort to free them from poverty and provide them with opportunities to improve their lives.
By improving cooperation between Africa and Asia we can contribute to the achievement of this objective.
There are a number of areas in which we can collaborate.
One of these is agriculture.
Because of the diversity of crops cultivated on the continent, Africa has the potential to increase the nutritional value of global food supply more than any other region in the world.
However, for African farmers to benefit fully from their contribution to global food supply, they need to be more involved in the food value chain – from seed to market.
African countries should seek to add economic value locally.
Another area for greater collaboration is manufacturing.
The manufacturing sector is key to economic transformation in Africa.
Few countries have managed to improve their national income by relying solely on the export of raw materials.
Manufacturing is vitally important to Africa’s economic future as it can contribute substantially to improving growth, reducing unemployment and addressing balance of payment issues.
With a market of close to 900 million people, Africa has the capacity to become a manufacturing success.
Infrastructure also holds great potential for Africa-Asia collaboration.
Africa’s ability to trade is hampered by a lack of physical infrastructure.
Many African countries – without adequate rail, road and port infrastructure – are unable to productively exploit their abundant natural resources.
Asian countries – with their skills, capital and technical and engineering expertise – can partner with African countries in developing this critical area.
For Africa to become globally competitive, we need a highly skilled workforce.
Africa is short of technical expertise and training.
This is a further area for collaboration, as many Asian countries are at the forefront of education and skills development.
This year, a number of African countries will implement the Tripartite Free Trade Agreement, which will add impetus to Asia’s involvement in Africa.
This initiative will expand intra-African trade, promote collaboration between the regional economic communities and facilitate joint resource mobilisation and project implementation.
It will establish an integrated market with a combined population of 600 million people, a total GDP of US$ 1 trillion, and a long-term growth rate in excess of 5% per annum.
Infrastructure development is crucial to the success of the Tripartite Free Trade Agreement, both to connect markets and to generate enough electricity to support the development of manufacturing and other sectors.
Soon we will begin work, under the leadership of the African Union, to create a continental free trade area, bringing 54 countries together into a massive single market.
This Summit provides an ideal platform for African business to connect with Asian business.
Such partnerships are crucial for the economic growth and development of both our regions.
I wish this conference every success.
I sincerely hope that our respective business communities will be able to identify areas of mutual cooperation.
By strengthening South-South cooperation, we can begin a new era in global trade – one that will be driven and sustained by two of the world’s fastest-growing regions.
Initiatives of this nature enable us to deepen trade.
They enable us to identify and pursue untapped opportunities for intercontinental commerce.
They provide impetus to our efforts – now 60 years old – to build a new Silk Road that brings the people of Asia and Africa still closer together.
I thank you.
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Minister Nhlanhla Nene: African Tax Administration Forum Conference on Cross Border Taxation in Africa
Speech by South African Finance Minister Nhlanhla Nene at the African Tax Administration Forum (ATAF) Conference on Cross Border Taxation in Africa, 21 April 2015
Good morning, and for those of you who are visiting us from abroad – Welcome to South Africa!!
At the onset, the Government of South Africa condemns the attacks on foreign nationals in the strongest possible terms. We can assure you that we as Government are doing everything in our power to deal with this scourge. We have mobilised our security apparatus and are focusing our efforts on social mobilisation to isolate the criminal elements that are responsible for these acts of violence against our own brothers and sisters.
These acts of violence are worse than the terrorist attacks that we have seen in some parts of the world; because this is nothing, but violence within the family. The President had to cancel his overseas travel to address this whilst His Majesty The King of the Zulus also addressed his subjects in KwaZulu-Natal.
Over the weekend I attended the Spring Meetings of the IMF and the Wold Bank; one of the issues that were extensively discussed was the third International Conference on Financing for Development. It was acknowledged by all stakeholders (developing countries, developed countries, international financial institutions) that the meeting in Addis Ababa will be one of the key steps in determining the framework for financing the Post-2015 development agenda, including the sustainable development goals. The matter that we must be seize with is how we can finance development especially on the African continent. As one of the most under-developed regions, we on the African continent must find new ways in which we no longer speak of aid but rather of sustaining our development through our own resources. And a significant part of those resources have to come through taxation.
So the discussions you will be having over the next few days on the taxation of cross-border transfers could not come at a more appropriate time.
Importance of African Economic Development
Never has Africa gained so much attention for all the right reasons! Our economies are developing at an average rate of 5% and investors are becoming more interested in Africa. The continent has enjoyed reasonably good progress and in many instances countries have been able to assert their sovereignty to develop and structure their own economies.
While challenges remain in Africa, it is pleasing to see that from an economic point-of-view, the continent remains the central destination for European export markets. With a relatively stable democratic climate and national elections having taken place in 28 countries in 2014 with little to no political violence, it is evident that Africa is “getting it right”. Despite the terror attacks and a growing insurgency in West Africa, the continent is resilient in its economic growth and prospects. So allow me to briefly dwell on some of these aspects.
Growth figures in Sub-Saharan Africa
Sub-Saharan Africa’s growth improved, for the second consecutive year, to 4.5% in 2014 and is projected to pick up to 5.1% by 2017. In Nigeria for example, the region’s largest economy, activity expanded at a robust pace (6.3%), supported by a buoyant non-oil sector. Growth was also strong in many of the region’s low-income countries, including Côte d’Ivoire, Mozambique, and Tanzania. Excluding South Africa, the average growth for the rest of the region was 5.6%. This is a faster pace than other developing regions, excluding China.
Risks to Growth in Sub-Saharan Africa
However, the risks to the region’s outlook stem from both external and domestic factors. Domestic factors include the Ebola epidemic, expansionary fiscal policy and currency weaknesses, and the precarious security situation in several countries. A sudden increase in volatility in international financial markets, and lower growth in export markets are among the major external risks to the region’s outlook (2015 Global Economic Prospects, The World Bank). Other risks include the increasing fiscal vulnerabilities, with large deficits prompted by an acceleration of recurrent spending in a few countries (2014 Regional Economic Outlook: Sub-Saharan Africa, IMF)
Taxation and the Globalised Economy
New ways of doing business in a globalised economy urgently call for a re-think on how taxation of new forms of business should take place – notwithstanding the fact that some of the rules have not kept up with the pace of changes. I would like to highlight some key tax challenges in the new globalised economy:
a) The increasing mobility of capital and people, and the rapid adoption of technology to improve communications, has resulted in restructuring of MNE business models and operations;
b) Such restructurings offer the opportunity to contractually shift risk and valuable intellectual property from, for example, local distributors to a central entrepreneurial company (the principal) in a low tax jurisdiction. This ability to contractually shift risk and intellectual property among the members of an MNE (but not outside the MNE group as a whole) allows MNEs to plan where profits are reported, and thus where tax is paid;
c) Developing country tax administrations are seeing many such restructurings, and challenging them frequently involves the interaction of a number of international tax rules – transfer pricing rules, tax treaties, the taxation of non-residents, and rules concerning the transfer of intangible assets.
What does this mean for taxes in Sub-Saharan Africa? Tax revenues in Africa continue to increase external financial flows and tax revenues continue to be an important contributor to Africa’s development (African Economic Outlook, 2014). To fund Africa’s development, mobilising domestic resources and developing a sound revenue generation capability is crucial. Strengthening domestic resources offers an antidote to aid dependence and increases the country’s ownership of its development and growth agenda. However, beyond its fiscal role, the tax system has a more substantive role in Africa: it is an important tool for good governance, democracy and the basis for the social fiscal contract between governments and its citizens and corporations.
For Africa as a whole, the tax burden stood at 26.0% of GDP in 2012, compared to 24.4% in 2011. In 2011, tax accounted for 26.8% of Africa’s GDP, up from 26.6% in 2010. The tax-to-GDP ratio peaked at 31.1% in 2008 as the financial crisis hit, which suggests there is still room to increase tax revenues.
In 2012 low-income African countries on average mobilised only around 16.8% of their GDP in tax revenues, below the minimum level of 20% considered by the United Nations as necessary to have achieved the Millennium Development Goals.
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Lower-middle-income African countries fared little better, with an average tax burden, i.e. the share of tax revenues to GDP, of 19.9% in 2012.
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With an average tax burden of 34.4% in 2012, upper-middle-income countries came closer to the average in OECD countries of 35% (African Economic Outlook, 2014).
Risks and challenges to the African tax base
Reliance on single source of revenue, inadequate tax-mix
Resource-related tax revenues typically distract governments from generating revenue from more politically demanding forms of taxation such as the corporate income tax (CIT) on other industries, the personal income tax (PIT), the value-added tax (VAT) and excise taxes. In addition, this makes Africa’s resource revenue vulnerable to highly volatile international commodity prices and external shocks. For example, during the commodity price boom between 2002 and 2008, resource revenues increased from about USD 45 billion to USD 230 billion. But as the global economic crisis hit Africa in 2009, resource taxes fell back to USD 129 billion. So it is important to get the tax-mix right, in order for us to develop more resilient and sustainable economies.
BEPS-related issues
But there are also other significant risks and challenges to the African tax base. I allude to the problems associated with tax-base erosion and profit shifting (BEPS) through the activities of multinational corporations (MNCs), which tend to use tax reducing financial strategies to shift profits across borders to take advantage of favourable tax rates. There is no doubt that current tax regimes have failed to keep pace with an increasingly globalised economy.
The result is that multinationals are able to take advantage of the outdated international tax laws to minimise their tax liability, that is, partake in Base Erosion and Profit Shifting (BEPS), as was so sharply illustrated in the United Kingdom when in 2012, a series of news articles described the tax affairs of three US-based multinational groups, Starbucks, Amazon and Google. The news reports prompted not only public protests, but also parliamentary hearings and a call for legislative action to curtail base erosion.
In Africa, Multinational Enterprise (MNE) activities constitute large and significant proportions of national income. In some African countries, tax revenue from MNEs often represents a significantly greater share of the tax base than in more developed countries and such countries rely very heavily on MNE taxation. For example, Rwanda reported that 70% of its tax base comes from MNEs and Nigeria reported that MNEs represent 88% of the county’s tax base (ATAF Consultative Conference on New Rules of the Global Tax Agenda, March 2014). Burundi has stated that one MNE taxpayer contributes nearly 20% of the country’s total tax collection.( ) In this context, the revenue loss from BEPS can be very substantial for some countries in Africa and addressing these BEPS issues is therefore crucial.
Developing countries’ wealth is increasingly being held offshore: 1/4 of all Latin American household wealth and 1/3 of all Middle Eastern and African wealth is held offshore (Boston Consulting Group, Global Wealth, “Shaping a New Tomorrow” June 2011). The Global Financial Integrity Report (2008) estimates tax losses to Developing countries at US$ 100 billion per year (GFI, 2008 and OECD DAC 2009). They further report that for every US$ 1 that goes into developing countries as development assistance (ODA), US$ 10 flow from the country through illicit means (Global Financial Integrity, 2012).
Non-BEPS-related issues
While base erosion and profit shifting is a problem affecting almost all developed and developing countries alike, profit shifting is not the only driver of the erosion of the African tax base.
Factors contributing to erosion of the continents tax-bases are exacerbated when, for instance, governments sign away their own tax revenues through:
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Ill-conceived tax incentives,
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Insufficient tax mix and overreliance on single source taxation,
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Poorly negotiated contracts and non-transparent concessions (especially in the extractive industry),
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Inadequate taxation of high net worth individuals,
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The lack of automated systems in tax administration,
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A disconnect between tax policy and tax administration – which leads to weak policies and legislation and under-resourced tax administrations.
It has been suggested that weaknesses in Africa’s tax regimes give away so much of the tax base that some of these new international tax rules may not even matter.
Other drivers of tax base erosion in Africa, but not significantly related to MNEs, also include trade mis-invoicing, that is, the fraudulent over- and under-invoicing of trade transactions. Of the illicit flows of capital through developing countries (i.e. approximately US$ 542 billion per year on average over a 10-year time series), trade mis-invoicing represents close to 80% of this amount – or US$ 424 billion (Global Financial Integrity, 2014).
Capital flight not only drains domestic resources much needed to fund developing countries’ development agenda, but it also exacerbates inequality and facilitates crime and corruption. Using case studies of Ghana, Kenya, Mozambique, Tanzania, and Uganda, a study produced by the Global Financial Integrity (GFI) found that trade mis-invoicing is a significant source of illicit outflows and inflows of capital in each country, resulting in billions of dollars of lost investment and hundreds of millions of dollars in unrealised domestic resource mobilisation.
Further drivers of base erosion not adequately addressed in the BEPS Action Plan but of significance to Africa are the issues relating to the taxation of natural resources and, most importantly, tax incentives and tax exemptions. Much still needs to be done in these areas.
Africa’s response to BEPS
Having identified these contributors to the erosion of the African tax base, it is imperative that in our collective efforts we work to make an impact at the international level as well as continue to develop our own capacities to deal with the challenges. Therefore, it is imperative that all African, and other developing, countries be involved in the BEPS process to ensure that sufficient attention is given to the different levels of readiness of developing country tax administrations and the resource and capacity limitations they face.
These specific risks and challenges faced by African and other developing countries need to be addressed if the OECD/G20 BEPS project is to adequately deliver the necessary solutions to these global tax problems. It is therefore critical that African countries use all the opportunities to make their inputs into the BEPS project to ensure that the views and experiences of African countries shape the development of the potential BEPS-related solutions. I am pleased that the African Tax Administration Forum (ATAF) has been mandated to define the African position with its members and to communicate the African response to the BEPS project. And this gathering here today, is another important step for the continent in contributing to the crafting of the global solutions.
It cannot be over-emphasised that the continent must endeavour to mobilise its own resources through the development of strong and capable tax systems and reliable trade facilities, as well as by strengthening and developing the supporting infrastructure.
Taking the work forward
Africa must protect its own tax base and advance Domestic Resource Mobilisation through a common voice, a common concern and a common action plan. The discussions that will be taking place here over the next two days provide an encouraging continuation of efforts in presenting coordinated African contributions to the international tax developments. The current global focus on international taxation offers a unique opportunity for African leaders to embark on their own continental taxation renaissance. And this should include giving consideration to the establishment of a Tax Policy and Tax Administration Commission (glaringly missing within the structures of the African Union) that would deal with harmonising the continent’s tax policy, legislation and administration, as well as seeking ways to improve cross-border cooperation and thereby optimising continental revenue mobilisation.
It is in this way that we would move closer to firmly placing Africa on a steady path to achieving the African Union’s Agenda 2063 (the approach to how the continent should strategically exploit all possible opportunities available in the short, medium and long term, so as to ensure positive socioeconomic transformation within the next 50 years) as well as the Sustainable Development Goals.
Over the next few days, this gathering has a significant opportunity to strengthen the African voice in the G20/OECD process on Base Erosion and Profit Shifting. It is imperative that we ensure that any redefinition of the international tax rules currently being developed take into consideration the needs and conditions of the African continent. I wish to further appeal to African revenue administrations to make available their expertise and technical resources in this important global process in order to unlock the revenue mobilisation blockages in Africa, as led by the ATAF Technical Committee on Cross-Border Taxation. And lastly, I wish to urge African Ministries of Finance to fully participate in these efforts to optimise Africa’s revenue collection capabilities.
I thank you.
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Competing smarter: Assessing the report from the President’s Advisory Council on Doing Business in Africa
One positive outcome of last year’s U.S.-African Leaders Summit was the creation of the President’s Advisory Council on Doing Business in Africa (DBIA), whose purpose is to make recommendations on how to strengthen U.S. commercial engagement on the continent.
The council, a group of 15 seasoned business leaders with a genuine understanding of Africa’s business environment, recently issued its first report and set of recommendations.
Important proposals are put forward, such as strengthening healthcare infrastructure as well as the perishable supply chain in order to reduce post-harvest food losses. Another critical recommendation is for strong advocacy for African governments to seize global leadership in bringing the World Trade Organization’s (WTO) Trade Facilitation Agreement into force prior to the December 2015 WTO ministerial in Kenya, the first such session to be held in Africa.
The entire report deserves careful consideration and is a welcome addition to the increasingly useful policy debate on how to increase economic ties between the U.S. and Africa. However, several key aspects of the U.S.-African commercial equation were neglected within the report and should be essential parts of any conversation about how to make American companies more competitive across the continent.
Lingering questions and important omissions
Notably, there is only one reference to the African Growth and Opportunity Act (AGOA), the cornerstone of the U.S. commercial relationship with Africa, and it is an easily missed expression of “trust” that Congress will renew the legislation this year.
A full-throated endorsement by the council of AGOA’s renewal for 15 years, as the Obama administration has called for, would have been important not only as a strong signal of support from these respected business leaders and companies, but also in setting a clear context for the group’s recommendations.
In fact, this omission, as well as the report’s equally passive call for Congress to fund the Export-Import Bank, reflects a more fundamental dilemma of the document: Is this a Commerce Department report or a document whose recommendations aim to strengthen a “whole of government” approach to doing business in Africa, inclusive of the nearly 12 federal agencies involved in the DBIA campaign? On this, the lines are blurry.
A key recommendation of the council is the creation of a “forward-deployed” and “business-driven” U.S.-Africa Infrastructure Center. The purpose of the center would be to “align business resources with government resources to identify, vet, prioritize, and develop a unified approach to compete for critical projects.”
This is a timely and creative proposal. Given the caution of U.S. companies, the complexity of Africa’s investment environment, and China’s dominance in this sector, there is a compelling need for coordinated support from all relevant U.S. agencies to help American companies win African infrastructure projects.
What is not clear is who would “own” the U.S.-Africa Infrastructure Center. Would it be State, Commerce, USAID, the private sector, or a hybrid of agencies? Moreover, how would this center align with the efforts of the administration’s new Trade and Investment Hubs whose mission was also recast at last year’s summit to help U.S. companies capture market share on the continent?
The report addresses the critical issue of access to “reliable” capital and makes the important recommendation that the Commerce Department develop a public-private partnership with institutional investors in an effort to reduce risk and increase investor confidence. It would have been helpful to have mentioned the Overseas Private Investment Corporation (OPIC) in this context given the influential role the agency plays in risk-mitigation across the continent. Despite its successes and indeed the net revenue it generates for the U.S. Treasury, OPIC remains understaffed and subject to key regulatory constraints.
There is also useful discussion of an “Investor Toolkit” in the report, building on the knowledge of the U.S. Foreign Commercial Service (FCS), to help U.S. companies identify and vet local partners and gain local market intelligence. The FCS, under Secretary Prizker’s leadership, has only recently increased its presence in Africa after more than a decade of downsizing. Partnerships with dynamic local organizations such as the Kenya Private Sector Alliance in Nairobi, the American Chamber of Commerce in Johannesburg, and LCF Advogados in Luanda would add significant value to the development and maintenance of these FCS-led toolkits.
Going further to reinforce U.S. government coordination
Perhaps the most salient recommendation that the council makes is to encourage the administration to establish an interagency committee to coordinate U.S. trade facilitation and to engage recommendations from private sector organizations. This is consistent with bipartisan legislation, first introduced in 2013 and again in February 2015, that calls for a special coordinator in the White House to “ensure government agencies are working in tandem,” maximize support for U.S. businesses entering African markets, and increase U.S. exports to Africa.
A special coordinator could also help to guide the “Steering Group on Africa Trade and Investment Capacity Building,” which was established at last year’s summit and tasked with making recommendations on a “comprehensive approach” to expanding the region’s capacity for trade and investment. The Steering Group was supposed to have issued its report to the president through National Security Advisor Susan Rice in January; however, the group has yet to impact the dialogue on these issues.
With the administration preparing for President Obama’s participation in the Global Entrepreneurship Summit in Kenya in July, it is essential for the White House to clarify who in the administration is in charge of the U.S. commercial engagement in Africa. Clearly, there is growing recognition that the White House needs to enhance its leadership in this area.
Finally, the report acknowledges the Commerce Department’s role in leading the U.S.-East African Community (EAC) Commercial Dialogue, which is the “central platform” for public-private sector engagement under the Trade Africa initiative.
This is true.
What is not mentioned is that the U.S. also has a pdf U.S.-EAC Trade and Investment Framework Agreement (TIFA) (110 KB) led by the U.S. Trade Representative that has as the goal, “to strengthen the United States-EAC trade and investment relationship.” The optimal recommendation would be to integrate the Commercial Dialogue and the TIFA, to be co-chaired by the Secretary of Commerce and the U.S. Trade Representative, and joined by a robust private sector delegation. In short, there is a compelling need for a genuine Team USA approach that lessens the time and resource demands on all sides while enhancing the priority and urgency of deepening trade relations with Africa.
As far as advisory council reports on Africa are concerned, it is one of the most relevant and thoughtful reports ever released – and in a relatively short period of time. However, the report is also notable for what it omits, and significant work remains to be done to fully realize the potential of a robust U.S.-African commercial relationship.
Witney Schneidman is a non-resident fellow at the Africa Growth Initiative in the Global Economy and Development program. Andrew Westbury is Associate Director, Africa Growth Initiative.
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Experts review progress in the implementation of the Istanbul Programme of Action for LDCs
Experts from the African Union reviewed the progress in the implementation of the Istanbul Programme of Action (IPoA) for least developed countries (LDCs) during a meeting at the end of March. In general they agreed that the pace of growth in LDCs has slowed, with the number of countries experiencing a growth rate of 7 percent or more declining from 14 in 2012 to 11 in 2013.
The plan’s main goal is to halve the number of LDCs by 2020, through a combination of strong economic growth, greater gender equality, decreased vulnerability to economic shocks and natural disasters, and better governance.
Since the 1970s, the United Nations has identified LDCs as states which, for reasons of very low income, poor human development, and high economic vulnerability, face more structural handicaps than other countries in rising out of poverty. But the increased focus on LDCs’ challenges has not been matched by solutions. In the three decades since the first UNLDC conference in 1981, the number of LDCs has almost doubled from 25 to 48. Only three countries have graduated from the LDC status: Botswana, Cap Verde and the Maldives.
The IPoA sets out specific objectives: 7 percent annual growth, driven by strengthened productive and human capacities, reduced vulnerability, increased financial aid, and better governance.
According to the LDC IV Monitor – an independent initiative established by several organisations to monitor and assess the implementation of the IPoA launched in October 2014 – the global economic and financial crisis further exposed the structural vulnerabilities of LDCs’ economies.
Trade
According to the report released by the AU committee of experts, LDCs have experienced only limited transformation and are still vulnerable to economic shocks.
LDC share of the world’s exports of goods and services was estimated by the UN at 1.1 percent in 2011 therefore “short of the target of 2 percent to be achieved by 2020” mentions the report. Primary commodities accounted for about 94 percent of exports from African LDCs, compared with about 40 percent from LDCs of the Asia Pacific region, states the AU report.
The LDC IV monitor report notes for his part, that given the “minuscule” share of LDCs exports in global trade, the IPoA goal of doubling LDCs share of world merchandise trade looks doubtful. The report recommends therefore the urgent implementation of international commitments including those related to market access of LDC goods and services.
Additionally the AU report recognises the “important role” played by non-reciprocal preferential schemes in promoting exports from LDCs to developed country markets and notes that the African Growth and Opportunity Act – the US trade preference programme that provide duty-free treatment to eligible sub-Saharan countries which is up for renewal this year – is an illustration of such initiative.
Some observers have however argued that the impact of the AGOA has had only limited effects owing to the legislation’s product coverage whereby for example, key agricultural products of interest for beneficiary countries are excluded.
“African least developed countries exports admitted duty free into developed countries have remained relatively flat, changing by less than 1 percent between 2010 and 2011,” states the AU experts report.
Reference is made to some of the commitments reiterated during the WTO Bali conference in 2013 such as duty free quota free market access to exports from LDCs, and the document stresses that to be in a position to fully benefit from these preferential schemes, African LDCs will need to address their supply –side constraints and trade related infrastructure deficits.
Vanuatu and Equatorial Guinea up for graduation
The AU paper states that they are currently 10 countries that are eligible for graduation based on the 2015 thresholds namely, gross national income per capita equal or above US$1, 242; human asset index (>66 or above) and economic vulnerability (32 or below). Of these countries, Vanuatu and Equatorial Guinea are scheduled to graduate in 2017, says the report.
On this point, the LDC IV monitor recommends that LDCs and their development partners, including international development agencies, should prepare an overarching framework for smooth transition toward graduation and a set of guidelines that promote sustainable post-graduation developments.
Equatorial Guinea and Angola have gross national incomes that are more than double the required threshold which makes them eligible for graduation based solely on the GNI.
The report notes however that the Ebola virus disease outbreak in West Africa has hampered the chances for graduation for Guinea, Liberia and Sierra Leone.
Productive capacity
According to the report, African LDCs continue to face infrastructure deficits and a under-skilled labour force, which constrain their on-going efforts and those of their development partners to promote sustainable development.
To this regard, the LDC IV monitor also underlines that progress on building productive capacities by investing in high-quality infrastructure and through technology transfer has been unsatisfactory.
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WTO and FAO announce enhanced cooperation on trade and food security
Collaboration to start with flagship report on commodity markets
The World Trade Organization and the Food and Agricultural Organization will bolster their collaboration on matters related to trade and food security, offering mutual assistance on critical themes such as the functioning of international grain markets.
WTO Director-General Roberto Azevêdo, met with José Graziano da Silva, the Director-General of the Food and Agriculture Organization of the United Nations (FAO), announced their agreement in Geneva on Friday 17 April.
“Food security is closely linked to trade and therefore it is an important element of our work at the WTO,” Azevêdo said. “I am delighted that we will now be able to enhance our work on this crucial issue, which affects so many people, through an even closer partnership with the FAO.”
Collaboration includes focus on commodity markets
The WTO will be taking part in the preparatory work on FAO's flagship publication, the State of Agricultural Commodity Markets, which this year will focus on trade and food security.
The FAO and WTO chiefs discussed how the report could provide evidence and greater clarity on a range of issues related to the governance of trade flows and the pursuit of broader food security. The FAO will also hold a symposium on food security at the WTO on 5 June.
Considering the important role of open and strengthened food markets in supporting food security objectives, the two directors-general discussed how both enhancing opportunities for trade and the multilateral trading system could help in creating a more favourable global environment for both food security and sustainable agriculture.
“I am deeply engaged in continuing to develop our joint work with WTO as food security and trade can together play a very important role to help fulfill FAO's mandate,” said Graziano da Silva.
They also discussed the current state of play in the Doha Round of trade negotiations, and the renewed efforts that the governments are making towards a successful outcome.
Common Economic Strategy on the anvil to boost intra-BRICS trade
A Common Economic Strategy was currently being worked out in Moscow to bring about a user-friendly and easily accessible trade framework for boosting intra-BRICS trade, said Ms. Sujata Mehta, Secretary (ER & DPA), Ministry of External Affairs, Government of India, in New Delhi on 17 April 2015 at a Capacity Building programme on ‘Promoting Trade and Investments with BRICS countries’, organized by FICCI, under the aegis of the BRICS Business Council, in partnership with Exim Bank.
She said that there were several shared interests that bring the BRICS economies together. One of the major agenda of the grouping is to reform the global governance architecture which is yet to reflect the changing global picture where the emerging economies are playing a larger role. Ms. Mehta added that over the last two years the BRICS Business Council has played an important role in ensuring that there was a regular dialogue between the business communities and governments of the BRICS nations.
Ms. Mehta said that the BRICS economies present huge opportunities for collaboration which can take economic growth and development to the next level in all our countries. The synergies and complementarities between the economies underscore the opportunities for collaborating across a wide range of areas from agriculture to infrastructure to energy and financial markets.
She welcomed suggestions with regard to doing business with any of the BRICS countries, which could be taken up at the G2G level. Ms. Mehta urged FICCI to compile all such suggestions and forward them to her Ministry so that concerned departments of the government and executing agencies could bring further improvements that could help exporters and investors.
On the occasion, Ms. Mehta released an EXIM Bank study ‘Research & Development in BRICS: An insight’.
Ms. Geetha Muralidhar, Executive Director (CMD-addl. charge), ECGC Ltd., exhorted the business community to make plans to enhance trade. She added that though the trade now stands in favour of China, but with Brazil’s increasing imports in the last three to four years and South Africa’s ability to absorb more, India could boost its trade volume s by engaging with other BRICS nations, apart from China.
On the lines of EXIM Bank, Ms. Muralidhar said that ECGC had also signed MOUs with its counterparts in respective BRICS nations. The MOUs, besides exchange of information would also look at supporting common projects undertaken by two or more BRICS countries in a third nation and respective export credit agencies of the BRICS nations could join hands to take such endeavour forward.
Mr. Yaduvendra Mathur, CMD, EXIM Bank of India, said that the financial institutions of the BRICS countries created a framework and signed nine MOUs amongst themselves over the last four years to enhance the trade ties. He added that the five banks have been meeting on the sidelines of BRICS Business Council meetings to innovate and arrive at real collaborative processes. Mr. Mathur said that trade figures have been in favour of China but attempts were being made to bring the other four BRICS countries at par.
Speaking about the objective of the meeting, Mr. Mathur said that it was an opportunity to identify prospective businesses that could be explored for expanding the trade base of BRICS. Besides, challenges could also be addressed at the forum and businesspersons could explain what kind of innovative financial products they were looking for. The financial institutions could then innovate products around those parameters.
Mr. Onkar Kanwar, CMD, Apollo Tyres and Chairman, BRICS Business Council India Chapter, said that several suggestions were drawn out based on the inputs received from individual companies, industry associations and other development agencies from across BRICS countries. One related to issuance of visa for travel to BRICS countries by bonafide business people. This has been a subject of concern for some time now and respective governments have been requested to look into this matter. Also, the business community was looking forward to the guiding principles of the New Development Bank and felt that this institution must on priority support projects that promote intra-regional connectivity, further use of renewable energy and focus on skill development in the BRICS countries.
Mr. Kanwar said that the considered view of the BRICS Business Council promotion was that promoting trade in local currencies would provide a great impetus to intra-BRICS trade. Further, having a common declaration on investment principles was suggested. It was felt that if all BRIC countries agree on such a declaration it would bring transparency in investment procedures and guarantee investments made by businesses from BRICS in any of the member countries. This could be a major stimulant to attracting future investment in BRICS countries and promoting intra-BRICS investments.
In his concluding remarks Mr. Sidharth Birla, Immediate Past President, FICCI and Chairman, Xpro India Limited, said that one of the fundamental contribution or rather achievement of BRICS grouping is its demonstrated capacity to set up global institutions. The New Development Bank, which will become operational in near future, is a significant step forward in our mutual cooperation. The governance structure in the New Development Bank will be equitable and all partner countries will be able to leverage resources to finance infrastructure and sustainable projects in their countries as per their own development priorities.
He invited Ms. Muralidhar to have ECGC join the BRICS Business Council Working Group on Financial Services and added that EXIM Bank was already a member of this group and ECGC’s presence would further strengthen India’s position.
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Senate, House leaders introduce Bipartisan Bill to support American manufacturers, strengthen trade ties with developing countries
On 16 April 2015, the leaders of the U.S. Senate Finance and House Ways and Means Committees announced bipartisan, bicameral legislation to help advance America’s trade priorities and better facilitate U.S. trade with developing countries.
The AGOA Extension and Enhancement Act of 2015, introduced by Committee Chairman Orrin Hatch (R-Utah) and Ranking Member Ron Wyden (R-Ore.) along with House Ways and Means Committee Chairman Paul Ryan (R-Wis.) and Ranking Member Sander Levin (D-Mich.), would renew both the African Growth and Opportunity Act (AGOA) and the Generalized System of Preferences (GSP) and provide continued trade benefits for Haiti. Both the Senate Finance and House Ways and Means Committees have jurisdiction over international trade policy.
“By strengthening trade relations through the renewal of trade preference programs like AGOA, GSP, HOPE and HELP we can better promote trade liberalization and economic reform around the world,” said Hatch. “These programs have helped to make trade with the developing world mutually beneficial, worked to reduce global poverty, and created growth and opportunity for American job creators by reducing tariffs and lowering costs. I’m pleased we were able to come together and produce consensus legislation to help move America’s trade priorities forward.”
“This long-term extension and update of the African Growth and Opportunity Act improves this important development and trade program in a way that’s good for everyone. It provides certainty for sub-Saharan African countries, investors, and workers while strengthening our economic and political ties with Africa,” Wyden said. “Our AGOA bill makes it easier to crack down on bad actors and make sure that countries stay strictly in line with the important eligibility criteria. By retroactively extending our Generalized System of Preferences, our legislation will save American businesses an estimated $2 million a day. Finally, by providing for a forward-looking extension of our preference program for Haiti, this bill helps foster development for our neighbors.”
“This legislation will promote American trade and strengthen our economic ties with important countries,” said Ryan. “It will encourage our friends in Africa and Haiti to pursue free enterprise and solidify the rule of law. This legislation demonstrates that more trade can create opportunity at home and promote our economic values abroad.”
“Promoting growth in developing countries has been a critical component of U.S. trade policy for 30 years. GSP has been the cornerstone of that policy, and its renewal is both welcome and long overdue,” said Levin. “Our special programs for Africa and Haiti are critical to providing their workers and businesses with meaningful market access opportunities that will enhance investment and job creation.”
Renewal & Enhancement of AGOA:
The African Growth and Opportunity Act (AGOA) helps African countries work towards long-term sustainable economic development by promoting international trade and investment with other countries. The program facilitates increased trade with the beneficiary countries by lowering U.S. tariffs to their exports.
The AGOA Extension and Enhancement Act of 2015 extends AGOA for ten years, including a ten year extension of third-country fabric provisions, which are important to nurture the development of the textile and apparel industry in Africa. The measure simplifies rules of origin, promotes greater regional integration and provides greater certainty in the operation of AGOA. The measure will also strengthen congressional oversight through additional notification and reporting requirements and improves transparency and participation in the AGOA review process.
Renewal of GSP:
American companies have paid nearly $2 million per day in taxes since GSP expired on July 31, 2013. One of the oldest and broadest U.S. preference programs, GSP provides duty-free entry for approximately 5,000 agricultural and non-agricultural products from 126 designated beneficiary countries.
The AGOA Extension and Enhancement Act of 2015 extends the program through December 31, 2017 and provides retroactive relief to eligible products that were imported during GSP’s lapse.
Trade Benefits for Haiti:
The Hemispheric Opportunity through Partnership Encouragement Act (HOPE) and the Haiti Economic Lift Program (HELP) were established to provide trade benefits to Haiti.
The AGOA Extension and Enhancement Act of 2015 extends the HOPE and HELP programs for products from Haiti through September 30, 2025. Currently the program supports approximately 30,000 jobs in Haiti and promotes export growth and economic development. Program extension will encourage additional investment in Haiti.
» For a full summary of the AGOA Extension and Enhancement Act of 2015, click here.
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SA poultry producers in bid to end Agoa logjam
South African poultry producers are making concessions in order to end a dispute with the US over local poultry tariffs and keep the country on track to be included in the renewal of the Africa Growth and Opportunity Act (Agoa).
The South African Poultry Association (Sapa) was drafting a letter with “realistic, rational and reasonable proposals”, which if accepted by their US counterparts would form the basis of a new agreement, Sapa chief executive Kevin Lovell said yesterday.
This comes after the Minister of Trade and Industry Rob Davies late last week agreed with US trade representative Michael Froman to strengthen and deepen their bilateral trade and investment relations during the Trade and Investment Framework Agreement (Tifa) Council meeting that was held in Washington.
In a statement, the Department of Trade and Industry (dti) said that Davies and Froman had fruitful and constructive discussions on Agoa, outstanding market access issues and the investment climate, as well the multilateral trade agenda.
Sapa was expected to table an improved offer that would likely lead to a deal being finalised.
According to the dti, the proposed deal will see US chicken bone-in cut exports being restored to their value prior to 2000 with a growth factor that takes into account current dynamics in the South African market.
Quantity
The outstanding issue is for both poultry associations to agree on the quantity of US chicken that will be excluded from anti-dumping duties.
Davies appealed to the US to engage its poultry industry to also show flexibility in the negotiations so that the outcome was reasonable and in line with what both parties could live with.
Lovell said he was drafting the letter whose contents were discussed over dinner with his US counterpart and that if the letter was agreed to, it would be escalated to an agreement.
“I am confident that what we propose is fair and rational. For the Americans, the sweet spot is to get sufficient access to not find it worthwhile to pursue the matter,” he said.
Lovell, who could not give out details of the new agreement, said Sapa was trying a fair way to give the US access to the local market without harming the local industry.
He said what was clear was the signing of a new trade deal by the relevant representatives indicated that the poultry dispute was in itself not sufficient reason for the exclusion of South Africa from Agoa, hence the poultry practitioners had to meet and resolve their disagreements.
“We will get an outcome quite soon,” Lovell said.
The two countries signed the revised Tifa in 2012, a key platform to address issues of bilateral concerns and boost bilateral relations.
Davies had committed that South Africa would work towards concluding the poultry discussions soon, the dti said.
The same message was communicated in his meeting with US Senators Chris Coons and Johnny Isakson, who have been lobbying for greater access for US poultry to the local market.
For 15 years, US poultry exports to South Africa have been subjected to what US officials have called punitive anti-dumping tariffs – more than 30 percent raising the ire of US lawmakers in recent months.
Coons and Isakson have pushed for South Africa to be kicked out of Agoa if it does not scrap the poultry tariffs.
Barring South Africa from Agoa would cost South Africa as much as $2.5 billion (R30.1bn) in benefits and put thousands of jobs in jeopardy. Agoa must be renewed ahead of its September expiration date.
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Asian-African summit to focus on pragmatic economic, trade cooperation
Delegates from 109 Asian and African countries will discuss new opportunity on pragmatic economic and trade cooperation while commemorating the 60th anniversary of the Bandung conference.
The Asian-African summit and a series of events under the theme “Strengthening South-South Cooperation to Promote World Peace and Prosperity” will be held in Jakarta and Bandung on April 22 to 24.
The forum is aimed to bridge Asian and African nations to stronger partnership and to share experience in enhancing both regions’ economic development, according to analysts here.
It’s also an opportunity to discuss solutions to overcome common challenges through strengthening South-South cooperation.
Indonesian Foreign Minister Retno Marsudi told the ministerial meeting ahead of the 60th anniversary of the Asian-African Conference (AAC), also known as Bandung Conference, that a Bandung Message is expected to be released during the commemoration later this week.
“To implement it (the Bangdung Message), we will have the NAASP (the New Asian-African Strategic Partnership). To support the NAASP, we have the South-South cooperation,” said the minister.
The New Asian-African Strategic Partnership (NAASP) is not a new concept, which was launched at the commemoration of the golden jubilee of the Asian-African conference in 2005.
The NAASP serves as the blueprint to bolster pragmatic collaboration of two continents in the future. As a venture to build a bridge between Asian and African, NAASP focuses its cooperation on the three broad pillars of partnership namely political solidarity, economic cooperation and socio-cultural.
As agreed by the leaders on the Summit 2005, NAASP follow up mechanism will be consisted of Summit back to back with business Summit for every four years, Ministerial Meeting for every two years and Ministerial Technical Meeting when it deems necessary.
However, the Summit has always been delayed, and related cooperation have not been implemented due to lack of substantial mechanism.
Some officials said Asian and African countries should seize the opportunity of the commemoration of the 60th anniversary of Bandung conference to push forward the NAASP institutionalization, promote pragmatic cooperation between the two continents, and invigorate the Bandung spirit.
In 1955, 29 Asian and African countries agreed in Bandung on the principles to respect the sovereignty and territorial integrity of all nations and to promote Asian-African economic and cultural cooperation.
Six decades later, Asia and Africa are home to some of the world’s fastest-growing emerging markets.
Asia and Africa are “the developing engine” and “hopeful continents,” said Yuri O Thamrin, Indonesian Foreign Ministry’s Director General for Asia and Africa, “Foreign direct investment and trade have increased tremendously between the continents, growing from 2.8 billion U.S. dollars in 1990 to 270 billion dollars by 2012.”
The countries in both regions want to take a greater role in setting global development agendas, he said.
“What we need to do right now with Bandung is to move away from just political struggle and make sure that we strengthen and fortify economic cooperation, we need more economic cooperation into these world than before,” said Pakamisa Sifuba, South African ambassador to the ASEAN.
The Ambassador of India to Indonesia Gurjit Singh said that the commemoration conference should solve the challenges such as the weak global economic recovery and uneven distribution of global wealth, adding that all the participants should promote the maritime connectivity and multilateral energy and security cooperation under the framework of Asian-African conference.
Thamrin said that both continents do not have mechanism to implement the Asian-African economic cooperation until the declaration of the NAASP.
The commemoration of the 60th anniversary of Asian-African conference will further promote Asian and African countries to seek cooperation opportunities and step up efforts on investment cooperation.
Umar Juoro, Chairman of the Center for Information and Development Studies in Jakarta, said that China’s “Belt and Road” initiative will bring a lot of benefit to other countries in the region and will provide a new model of mutual benefit and common development for Asian-African countries.
The “Belt and Road” initiative and the new Asian Infrastructure Investment Bank (AIIB) will help Asian and African countries develop their infrastructure and upgrade their connectivity capability, which meet their requirements of economic development and go with the tide of win-win cooperation, said Li Zhuohui, an Indonesian political analyst.
Therefore, the “Belt and Road” initiative which connects Asia, Europe, Africa and adjacent seas and the AIIB are expected to be discussed in the commemoration of the 60th anniversary of Bandung conference, said Li.
“Growing together is a must,” said Marsudi. “One day we want to see that the cooperation will not only narrow the development gap among countries but will contribute to world peace and prosperity.”
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SADC private sector meets in Harare
The Business Council of Southern Africa (BCSA) in collaboration with the NEPAD Foundation and the Association of SADC Chambers of Commerce and Industry (ASCCI) will be hosting a regional private sector conference alongside the extraordinary SADC Industrialisation Summit in Harare at the end of this month.
In a statement, the BCSA said the conference will be held under the theme “Positioning the Private Sector in Industrial Development, Beneficiation and Value Addition to Natural Resources.”
“This BCSA and NEPAD Foundation conference is coming at the right time as it will flag the private sector’s views on key economic developments such as industrial development, regional value chains and beneficiation of natural resources and is expected to proffer solutions for inclusive and evidence based policy direction,” the statement said.
BCSA added that the need for the private sector to have an input in regional trade and industrial policy formulation process cannot be over emphasised as the private sector players are the implementers of these economic policies.
Speakers will be drawn from key regional private sector enterprises, quasi government organisations and relevant government ministries from SADC member states.
Other high-level speakers include a former Head of State and trade experts from the region while a dinner will be attended by various ministers and government officials from the region.
“As BCSA and NEPAD Foundation, we fully support deeper regional integration and regional industrial development.”
More than 200 delegates from the region are expected to attend the regional conference.
The major output of the conference will be a position paper to be presented to the Council of Ministers for onward submission to SADC Heads of State and Government.
The April SADC extraordinary industrialisation summit in Harare avails an opportunity for the BCSA, Association of SADC Chambers of Commerce and Industry and NEPAD Business Foundation to convene concurrently a regional business conference.
The common agenda of SADC is defined in Article 5 of the SADC Treaty (1992) and the Report on the Review of Operations of SADC Institutions (2001).
The regional bloc focuses on promoting sustainable and equitable economic growth and socio-economic development; promoting common political values systems and other shared values; consolidating and maintaining democracy, peace and security.
SADC acknowledges the critically indispensable role of the private sector in regional development hence its Regional Indicative Strategic Development Plan (RISDP) outlines specific outputs in the area of private sector involvement.
However, the private sector has not fully exploited opportunities to input, engage and influence regional development dynamics.
“The private sector is thus committed to ensure that the SADC leaders develop a road map that identifies priority actions required to improve productivity and competitiveness.
This is not only commensurate with the new dream and thrust on regional value chains and resource beneficiation, but also enhances industrial production and intra-regional business that emphasises comparative advantage,” BCSA said.
According to BCSA, the conference intends to amplify supply-side issues and constraints that have impeded the growth of SADC economies.
BCSA said the private sector is committed to playing its role in driving regional industrialisation towards a deeper integration agenda that includes services, investment, and competition policy while effectively addressing national level supply-side constraints.
“Our role transcends an agenda that focuses exclusively on border measures, nevertheless an issue the private sector has relentlessly championed.”
The BCSA is a regional apex private sector business representative body and acts as the voice of the private sector in SADC.
Its composition includes the Regional Tourism Organisation of Southern Africa, the Association of SADC Chambers of Commerce and Industry, Federation of Southern Africa Transport Associations, Federation of Clearing and Forwarding Associations of Southern Africa, SADC Banking Association, Southern Africa Railways Association, the timber and mining industries.
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Africa’s short-term priority: Tackle shock of lower oil prices
Managing the impact of sharply lower oil prices is sub-Saharan Africa’s short-term policy priority, IMF African Department Director Antoinette Sayeh said.
She told a news conference during the 2015 IMF-World Bank Spring Meetings in Washington D.C. that the subcontinent is set to remain one of the world’s fastest-growing regions this year.
But although the economic outlook continues to be favorable, growth would this year likely settle in the lower end of the range of the past few years, Sayeh stated, mainly reflecting the impact of the sharp decline in oil prices on the region’s oil exporting economies such as Nigeria and Angola.
Sayeh said sub-Saharan Africa is set to post another year of solid performance in 2015, and an expected growth rate of 4½ percent this year would leave the region’s growth performance second only to that of emerging and developing Asia.
“That said, the economic expansion this year will be at the lower end of the range experienced in the recent years. This mainly reflects the impact of the sharp decline of the oil and commodity prices that we have witnessed over the last six months,” Sayeh stated.
Hard-hit oil exporters
The oil shock would have very differentiated effects on sub-Saharan Africa’s diverse economies, she said. Oil exporters would be hard hit and, with generally limited room for maneuver on budgets, significant fiscal adjustment would dent their growth outlook.
Oil importers, conversely, stand to benefit from lower oil prices, although gains would be partly offset by lower prices for their non-oil commodity exports. But infrastructure investment and strong consumption would likely support growth there – particularly in low-income countries.
Another, more domestically induced problem area for the region is the Ebola outbreak that has affected Guinea, Liberia, and Sierra Leone. While slowly abating, the disease continues to exact a heavy economic and social toll in those countries.
In addition, security-related risks have recently come to the forefront, including in the Sahel and Kenya. “Beyond the unbearable humanitarian costs they have on societies, these incidents, if they were to escalate, would also pose serious fiscal risks and further deter domestic and foreign investors,” Sayeh said.
Rapid reversal
Externally, global financial conditions could tighten as U.S. monetary policy normalization proceeds. The large fiscal and current account deficits in some sub-Saharan African countries could leave them vulnerable to a rapid reversal in market sentiment and to a cut in external financing.
The uneven global recovery could also disappoint, notably in Europe and China – which are sub-Saharan Africa’s main trade partners.
In the short run, dealing with the oil shock will be the region’s policy priority, Sayeh declared. Fiscal spending cuts among oil exporters should focus on non-priority recurrent spending, although cuts in public investment would also be unavoidable.
“The drop in oil prices also provides a unique opportunity to advance politically difficult energy subsidy reforms across the region,” Sayeh observed. The fall in commodity prices was also a reminder to advance economic diversification.
Tremendous opportunity for long-term growth
Beyond the immediate challenges, long-term growth prospects remain very favorable for the region. But the current commodity price shock is a powerful reminder of the need to make rapid progress toward economic diversification.
Demographic trends are on the side of the region: by 2030 or so, the number of people reaching working age in sub-Saharan Africa will exceed that of the rest of the world combined. “This offers a tremendous opportunity for sub-Saharan Africa which, properly tapped, can be a strong engine for growth going forward”, Sayeh said.
Responding to reporters’ questions, Sayeh said energy subsidy reforms are politically difficult because consumers have to be convinced that whatever savings arise from cutting subsidies will be put to good use.
Show examples
“We certainly encourage our member countries to make sure that they communicate clearly to their populations about what they intend to do with the gains from subsidy reduction, and to actually show some examples of how they might use those resources, to convince people that it is worth going down that path,” Sayeh said.
Asked about policies to offset the impact of electricity shortages in sub-Saharan Africa, Sayeh noted that power outages are affecting both low-income and emerging market economies in the region.
Sayeh urged governments to make space in their budget for these and other essential development expenditures, both by boosting revenue mobilization and improving the efficiency of spending.
Sayeh also cited the use of public-private partnerships to free up infrastructure financing and to introduce private sector innovations that can improve performance. Such partnerships have risks that would also need to be properly managed in a regulatory framework that takes account of those risks, and in which procurement practices maximize returns for the public sector.
Other policy options could include power utilities generating more of their own revenue. Sayeh noted that several countries in the subcontinent have public sector power utilities that are not permitted to recover their costs through tariffs.
Sayeh said electricity tariff reforms would be an important part of a package of energy sector reforms that countries can take forward to provide more electricity.
Debt limits
Asked to identify a tipping point between ramping up infrastructure investment and possibly eroding debt sustainability, Sayeh cautioned that the bond financing tapped by some countries in the region in recent years might become more costly as the United States normalizes its monetary policy.
Sayeh noted that the IMF has been working on revisions to its debt limits policy, partly in light of countries’ need to make more room for borrowing to finance infrastructure, while at the same safeguarding borrowers’ debt sustainability.
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Renewed global development partnership vital to post-2015 agenda, Ban tells top finance institutions
Kicking off a high-level meeting with global financial institutions and development agencies at United Nations Headquarters on Monday morning, Secretary-General Ban Ki-moon called on governments, the business sector and civil society to work closely together to push forward the post-2015 development agenda.
“Too much is at stake,” Ban Ki-moon said, stressing the need to identify and tackle the root causes of the biggest challenges to economic growth, including heightened geopolitical tension, high youth unemployment and the employment gender gap.
“Strong engagement from all sectors here today illustrates the unprecedented cooperation that is critical to forging ahead on a sustainable development agenda,” Mr. Ban said in his opening remarks.
The annual high-level meeting – organized by the UN Economic and Social Council (ECOSOC) – included representatives from the World Bank, the International Monetary Fund (IMF), the World Trade Organization (WTO), and the UN Conference on Trade and Development (UNCTAD).
Monday’s keynote address was delivered by Deputy Prime Minister of Turkey, Ali Babacan. Several finance ministers, business leaders and civil society representatives are also present for Monday and Tuesday’s discussion.
“The post-2015 development agenda is ambitious. The financing needs are enormous. They can be met if we work together but we will not succeed unless we forge a partnership and learn the lessons of the current global economy,” the UN chief said.
“The global economy recovery continues to be sluggish,” Mr. Ban continued. “We must ensure the availability of the required resources at all levels, national international public and private.”
Monday’s morning session focused on coherence, coordination and cooperation in the context of financing for sustainable development for the post-2015 development agenda. The afternoon thematic debate will address current challenges and emerging opportunities for the mobilization of financial resources.
This meeting comes ahead of July’s Third International Conference on Financing for Development (FfD) in Addis Ababa, Ethiopia. The conference will include Heads of State and ministers and will aim to result both in a negotiated and agreed outcome and in summaries of the plenary meetings and other deliberations of the Conference.
Mr. Ban said that the Addis Ababa gathering will be an opportunity to devise a politically inclusive development agenda. The outcome must provide three things: first, cohesive and holistic framework for sustainable development; second, concrete deliverables in critical areas and finally, a strong follow-up process to ensure that “no country is left behind,” Mr. Ban continued.
“Only a concerted effort by all stakeholders will allow us to succeed. We must work closely together to make this year a year of global action,” he stressed.
Delivering opening remarks alongside Mr. Ban was President of the Economic and Social Council, Martin Sajdik, who said the meeting comes at a crucial time in history.
“We all have been working closely together this year in order to chart a new era of sustainable development. We have to do our utmost to extend the unprecedented agenda. And it must be with the effort of national, regional and international development,” Mr. Sajdik said.
Mr. Sajdik said that negotiations of the financing framework have made the international community aware of the wide-range of issues it needs to tackle. Better coordination between public and private investment will maximize its developmental impact.
Past regional and global financial crises have shown that decades of progress can be undone very quickly, he warned. “Indeed, a strong fertile economy would be great ground for the post-2015 agenda,” but crises in Ukraine, Syria, Iraq and Yemen have caused humanitarian challenges of unprecedented proportions and devastated national economies.
“The appalling magnitude of unsolved economic and political challenges must not be ignored,” Mr. Sajdik urged. “In order to mitigate these challenges we must strengthen economic cooperation, create productive jobs, maintain financial stability.”
The ECOSOC President also underscored the need to stand up against organized crime and human trafficking. “We all know too well that good governance and rule of law are basic requirements to establish and guard these full societies,” he emphasised.
Putting our planet on the right path lies with governments, however, only a joint effort leveraging the strengthen of governments, businesses, and civil society – based on equity, cooperation and accountability – can affect transformative change.
“Now more than ever, we must work as one and deliver for all,” he said.
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In Washington, UN chief urges finance leaders to ‘plant seeds’ of post-2015 agenda
Financing will be key for the creation and unveiling of an ambitious post-2015 development agenda, United Nations Secretary-General Ban Ki-moon declared on 18 April 2015, as he stressed that 2015 marked a time of global action for people and the planet.
“Our aim is to eradicate poverty and create shared prosperity, the Secretary-General told the International Monetary Fund’s International Monetary and Finance Committee during his ongoing trip to Washington, D.C.
“Done wisely, this transformation will not come at the cost of economic growth,” Mr. Ban continued. “Indeed, in can be a catalyst for growth that is cleaner, more sustainable and more equitable. As leaders of public finance, you can help plant the seeds of this transformation.”
The post-2015 development agenda would be characterised by two events in particular, the UN chief said, as he pointed to the three-day UN Special Summit scheduled for September in New York and the climate negotiations to be held in Paris in December.
For both events, he observed, financing would be “key” and an ambitious and comprehensive global climate financing framework remained a necessity in order “to stimulate investment, boost inclusive, low-carbon growth and create decent jobs.”
“We need a credible trajectory for realizing the $100 billion goal per year by 2020, as well as the operationalization of the Green Climate Fund. This was a commitment which was made in 2009 during the Copenhagen climate change summit meeting,” Mr. Ban explained. “We have only mobilized $10 billion as an initial capitalization of this Green Climate Fund. I would really hope that there will be a trajectory, a path, which will be shown to the Member States.”
The Secretary-General acknowledged that the public and private sectors would need to join together in order to create incentives and regulatory frameworks that would encourage long-term sustainable growth and development. In addition, he said, a conducive international enabling environment would also be “critical” which, in turn, required addressing issues of global economic governance and ensuring that “all our international institutions are fit for purpose.”
“Creating a holistic approach to financing for sustainable development can only be accomplished with your active support,” Mr. Ban added.
“Let us work together in this pivotal year for global action to truly build a safer and more sustainable world for all.”
Meanwhile, in separate remarks delivered to the IMF’s Development Committee, the Secretary-General reiterated the importance of the IMF, World Bank Group and Regional Development Banks in helping the UN roll-out the post-2015 development agenda.
“It is essential to strengthen cooperation within the multilateral system to forge a comprehensive package on the means of implementation,” he declared. “That means we also need a paradigm shift in financing sustainable development.”
Mr. Ban outlined what he described as “six guideposts” which he said would help usher the international community to its desired goals including domestic resource mobilization; tapping both public and private funds; developing new instruments and policies to increase non-concessional finance and more effectively blend concessional and non-concessional support to the public sector; mobilizing climate finance; boosting the quality of private finance; and innovating and transferring appropriate technologies as a non-financial means of implementation.
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Financing the Future of Development
The 2015 World Bank Group-International Monetary Fund Spring Meetings are over, but a pivotal year in development has only just begun.
By September, the world probably will have a new set of ambitious development targets, such as ending extreme poverty and hunger by 2030. In December, leaders will come together to agree on a way forward to tackle climate change.
At the Spring Meetings, UN Secretary-General Ban Ki-moon, heads of development banks, and government ministers discussed these goals and a critical issue: how to raise the trillion or more dollars a year needed to finance them.
Achieving the sustainable development goals, as they are known, will require a “transformational vision that combines all potential sources of financing,” including official development assistance (currently $135 billion), public and private sources of funds, said the Development Committee in a communiqué at the close of the meetings. The options include addressing illicit financial flows and seeking effective ways to promote and encourage private finance and investment and coordinated action on global issues.
Success in achieving the goals will take more than money, however. It will require a “global change of mindsets, approaches, and accountabilities to reflect and transform the new reality of a developing world with highly varied country contexts,” said the World Bank Group, IMF, and other multilateral development banks in a joint statement.
“We’re committed to tackling health, sanitation, gender equality, climate, pollution, and other issues,” said World Bank Group President Jim Yong Kim at a rally against poverty Saturday on the National Mall.
“We’ll unlock private sector investment. We’ll set our ambitions much, much higher – meaning that we’ll aim to mobilize not just billions of dollars to end extreme poverty. Instead, we’ll mobilize trillions of dollars. One billion people want an opportunity for a better life. They will continue to insist that they have an equal chance at a better life for themselves and their children. They’re counting on us.”
The Development Committee said it welcomed “innovative solutions to global challenges” and encouraged the World Bank Group to “enhance its support on infrastructure development and financing, including an enabling environment to mobilize private long-term finance for commercially-viable projects, and strengthening public and private partnerships, including through the recently approved Global Infrastructure Facility.”
It called on the Bank Group and IMF to help countries build resilience to adverse shocks and to to help countries hit hard by falling export receipts, tax revenues, or remittances, and to advise on energy pricing and the use of clean energy.
The committee commended the Bank Group’s commitment to “mainstream low-carbon development and Disaster Risk Management while maintaining focus on its poverty eradication mandate” and encouraged the Bank to work toward a successful climate change agreement at the 21st Conference of the Parties of UNFCCC in Paris. “We take note of the WBG and IMF work on appropriate market-based solutions and energy policy reforms,” the committee said.
On Ebola, it said the Bank Group’s rapid response was “critical” to contain the outbreak. The Bank fast-tracked assistance and has committed a total of $1.62 billion to Guinea, Liberia and Sierra Leone for Ebola response and recovery, including $650 million announced during the Spring Meetings.
“Looking ahead, we encourage the [Bank Group] in coordination with other international actors, to explore the potential of a Pandemic Financing Facility to mobilize and leverage public and private resources, including insurance mechanisms, to help countries receive rapid funding in the face of an outbreak based on strong preparedness plans,” the communiqué said.
The committee also welcomed a new Global Financing Facility in Support of Every Woman Every Child to be launched in Addis Ababa in July. “We also note the importance of addressing hunger and malnutrition.”
A new fund, the Power of Nutrition, announced this week, aims to unlock $1 billion to help millions of children get proper nutrition and reach their full potential. The independent fund is supported by Children’s Investment Fund Foundation, UBS Optimus Foundation, the UK’s Department for International Development, UNICEF, and the World Bank Group, and is open to private and public investors.
The Bank Group and faith-based organizations joined forces on the goal of ending extreme poverty by 2030. More than 30 leaders jointly drafted a “moral imperative” statement pledging to use their voices and influence to help achieve the goal; several took part in an event ahead of the meetings, The Power of Faith to Help End Extreme Poverty.
On Friday, the Bank Group pledged to enable as many as 1 billion financially excluded adults to gain access to a transaction account and hosted an event at which chief executives from major oil companies and senior government officials from several oil-producing countries committed, for the first time, to ending the practice of routine gas flaring at oil production sites by 2030 at the latest.
The Development Committee is a ministerial-level forum of the World Bank Group and the International Monetary Fund for intergovernmental consensus-building on development issues. Known formally as the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries, it was established in 1974.
Development Committee Communiqué
World Bank/IMF Spring Meetings 2015
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The Development Committee met today, April 18, in Washington, D.C.
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The global economy is growing slightly faster than in 2014, although growth rates vary widely among countries. We remain vigilant to the risks from potential financial market volatility, movements in exchange rates and oil and other commodity prices, and sluggish global trade. While some middle-income countries (MICs) are experiencing easing of growth, low-income countries, as a group, continue to record good growth rates. We call on the World Bank Group (WBG) and the International Monetary Fund (IMF) to support countries’ efforts to spur inclusive growth and job creation and build resilience to adverse shocks, in order to reduce poverty, and enhance shared prosperity in a sustainable manner, and protect hard-won gains in these areas.
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In aggregate, cheaper oil and commodities will result in a significant real income shift from oil exporters to oil importers, with a net positive effect on growth in developing countries. This creates challenges for policy makers in oil exporting countries, but also provides a favorable environment for subsidy and tax reforms for more inclusive and sustainable growth. We urge the WBG and the IMF to help countries hit hard by falling export receipts, tax revenues, or remittances, and to advise on energy pricing and the use of clean energy.
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In this critical year, the international community will set the development vision and agenda for the next 15 years. We look forward to the Third Conference on Financing for Development in Addis Ababa in July, as one of the key steps in determining the framework for financing the Post-2015 development agenda, including the Sustainable Development Goals (SDGs). We commend the WBG, the IMF and the African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development, European Investment Bank and Inter-American Development Bank for their close cooperation on this agenda. We also welcome the special participation of the Secretary-General and high level officials of the United Nations, and the Heads of the Multilateral Development Banks at this Development Committee meeting. We encourage the WBG to ensure the technical robustness of the goals and targets and to strengthen countries’ data capacity, to enable development and to monitor progress towards the WBG’s goals and the SDGs.
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The WBG’s goals of ending extreme poverty and boosting shared prosperity, set in the broader context of social, economic and environmental sustainability, are fully in line with the SDGs. Achieving the SDGs requires a transformational vision that builds on lessons from the MDGs and combines all potential sources of financing, including more effective and catalytic use of ODA, particularly for the poorest; strengthening domestic resource mobilization, sound public financial management, and addressing the challenge of illicit finance; promoting private finance and investment; and coordinating action on global issues. We expect the WBG and the IMF to continue to work in partnership with governments, the UN, multilateral institutions, bilateral agencies, civil society and the private sector, as well as with the new development institutions, within their respective mandates.
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We welcome efforts to deepen local financial markets and improve the policy and regulatory environments to address risk, and catalyze investment from traditional and non-traditional, institutional and other public and private investment sources and the development of innovative solutions to global challenges. IFC and MIGA have a distinct and critical role in engaging the private sector to implement this ambitious agenda.
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We urge the WBG to enhance its support for sustainable infrastructure development and financing, an enabling environment to mobilize private long-term finance for commercially-viable projects, and strengthening public and private partnerships, including through the recently approved Global Infrastructure Facility (GIF).
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IDA and IFC’s rapid response, in coordination with other partners, was critical to contain and mitigate the Ebola outbreak and we encourage the WBG to continue to support the affected countries in the recovery. Looking ahead, we encourage the WBG to explore, in coordination with other international actors, the potential of a Pandemic Financing Facility to mobilize and leverage public and private resources, including insurance mechanisms, to help countries receive rapid funding in the face of an outbreak based on strong preparedness plans. We commend the IMF for its support to Ebola-affected countries and for creating the Catastrophe Containment and Relief Trust. We welcome the approach of the Global Financing Facility in Support of Every Woman Every Child to be launched in Addis Ababa. We also note the importance of addressing hunger and malnutrition.
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Enhancing and accelerating gender equality is central to a comprehensive vision of sustainable development. We look forward to the renewed gender strategy later this year and its implementation in the context of the one WBG approach.
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Achieving the SDGs will also require countries to deal with the challenges and consequences of climate change and natural disasters. We commend the WBG commitment to mainstream low-carbon development and Disaster Risk Management while maintaining focus on its poverty eradication mandate. We encourage the WBG to further enhance its efforts and financing to contribute to the success of the 21st Conference of the Parties of the UNFCCC in Paris. We take note of the WBG and IMF work on appropriate market-based solutions and energy policy reforms.
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We encourage the WBG to continue to implement its new strategy and complete the associated reforms, including the Expenditure Review, in order to effectively deliver knowledge and financing to its clients. We also welcome the ongoing consultations on the proposed World Bank Environmental and Social Framework and the new Procurement Framework. We emphasize the importance of effectively implementing the new frameworks with sufficient resources, building country capacity, and protecting communities and the environment.
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We ask the WBG to continue to monitor carefully the quality of its portfolio, to strengthen collaboration across the Group focusing on development results, to promote South-South cooperation and to provide effective support to fragile situations, small states, and regional cooperation. We emphasize the importance of the WBG and IMF in providing significant support, where feasible, for countries in turmoil in the Middle East and North Africa and in other regions. We also urge the WBG to enhance its engagement with MICs to help them end extreme poverty and boost shared prosperity in a sustainable manner. We look forward to the exploration of different options to generate additional IDA financing capacity, while focusing on the poorest countries.
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We take note of the progress made by the Board so far on the 2015 Shareholding Review. We attach great importance to these regular reviews,[1] in line with agreed principles. We look forward to further work by the Board on the 2015 Review and commit to its completion by the time of the Annual Meetings in October.
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The next meeting of the Development Committee is scheduled for October 10, 2015 in Lima, Peru.
[1] In 2010 Governors agreed to conduct periodic IBRD and IFC Shareholding Reviews, every five years, beginning in 2015, noting that: “In each review, the Board of Governors would review the weight of all members in the world economy; review contributions to the WBG development mission; and assess progress towards equitable voting power between developed and developing members. While reviews would take place regularly, shareholding realignment would not necessarily be required with each review, but only when shareholders, through the Board of Governors, decided that the results warranted adjustment.” (DC2010-0006, April 19, 2010)
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Building African participation in global value chains
Government representatives, business leaders and other members of the public and private-sector came together on April 16th for an event focused on the hurdles and benefits of engaging African businesses in the ever-expanding international trade market.
The event, “Building African Participation in Global Value Chains,” took place during the World Bank Group-International Monetary Fund Spring Meetings in Washington DC.
During the event, participants discussed a range of issues from the importance of regional integration to the value of carefully reading business contracts.
Anabel Gonzalez, senior director of the World Bank Group’s Trade and Competitiveness Global Practice, hosted. Hubert Danso, chief executive officer and vice chairman of Africa investor (Ai), moderated the discussion.
Gonzalez pointed out that the panel members all seemed to be in favor of integration into the global economy, but that the possible paths to that outcome were diverse.
“We may agree on this vision, but how to implement it is a much more complex question,” she said.
Mukhisa Kituyi, Secretary General of the United Nations Conference on Trade and Development, urged countries to invest in knowledge and to encourage partnership between public and private entities. He said corporate social responsibility – not just infrastructure, but investment – was key to boosting economic growth in Africa.
Malian Minister of Finance and the Economy Mamadou Igor Diarra discussed his country’s success in organizing cotton producers to improve their capacity and augment national production.
Christina Duarte, Minister of Finance and Public Administration in Cape Verde, issued a fiery challenge: “This global value chain story needs to be told in a different way,” she said.
Duarte called on her fellow Africans to show leadership, vision and ownership, and to ensure that more of the value in value chains was located on the African continent.
Duarte said that African governments would need to develop more equal partnerships with multinational organizations. She said that this would require vigilance in the public sector. “How many contracts have been jeopardized because our staff did not read the footnotes?” she asked.
Solomon Asamoah, Vice President for Infrastructure, Private Sector and Regional Integration at the African Development Bank, urged African governments to commit to building a strong private sector, but to stand firm against too many private sector demands.
“I always tell ministers when I speak to them: Listen very carefully to the private sector. Don’t give them what they want; give them what they need,” Asamoah said.
Ashish Thakkar, founder of the Mara Group and Mara Foundation and a successful “serial entrepreneur” who grew up in the UK and Uganda, said that any successful global value chain production needed to combine “the best of global and the best of local.” He said that because the only factory in Africa that makes window glass is located in South Africa, his company was building another one in Nigeria. He urged countries to solve the problem of small-enterprise failure and grow formal employment that way.
In final remarks wrapping up the discussion, Gonzalez underscored the value of locally generated solutions to developing stronger global value chains in Africa. She said the role of the World Bank Group and other development institutions is to support country leaders in the steps they are able to take to ensure that more value is generated in Africa and that it stays in Africa.
“The very important role is to support home-grown models of development,” she said.
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Nigeria: Ministers to validate strategy for implementing West Africa industrial policy
Ministers in charge of Industry and Quality in West Africa are to meet in Accra, Ghana, 24-25 April 2015 to consider and validate several documents including the strategy for implementation of the West Africa Common Industrial Policy (WACIP 2015-2020), designed to facilitate the industrialization of the region, it was announced here Sunday.
Since the adoption of WACIP by ECOWAS leaders in July 2010, a lot of work has been done, mainly in the harmonization of standards of products as part of the strategy for the implementation of the ECOWAS Quality Policy (ECOQUAL), but there is still the need to address a number of identified challenges.
According to the ECOWAS Commission, the ministerial session will be preceded by an experts’ meeting 20-23 April, 2015, also in the Ghanaian capital.
The main objective of the meetings is for the ministers, experts, the organized private sector and other key stakeholders to examine the revised strategy for the implementation of WACIP and the related programmes.
These include the ECOWAS Industry Strategy Review, ECOWAS Quality Infrastructure Programme, ECOWAS Regional Pharmaceutical Industry Plan (2014-2020); as well as the documents on the Facilitation of Industry Development through a value chain approach and competitiveness, the ECOWAS Industry Forum and the Agro-industry Cluster approach.
Expected outcomes of the meetings include validation of the Revised Strategy for Industrial Development (2015-2020); an ECOWAS Industrial Database and Information System framework; Support for the implementation of the third-phase of the West Africa Quality Programme; Validation for adoption of the ECOWAS Harmonized Standards (ECOSTAN).
Documents on the ECOWAS Industrial Forum/Exhibition and the Ministerial support to the Agro-value chains; support to Construction Industry value chains development initiatives; support to Industrial Cluster Development and Upgrading of Industries will also be validated.
Participants at the meetings include ministers in charge of Industry and Quality of ECOWAS Member States, national industry experts, ECOWAS Standard Harmonization Technical Monitoring Committee Bureau, representatives of ntional manufacturers associations, chambers of commerce and industry, technical and financial partners, including the World Bank, UN Food and Agriculture Organization (FAO), UN Industrial Development Organization (UNIDO), and UN Economic Commission for Africa (UNECA).
Also expected are representatives of regional and continental organizations – UEMOA, African Union and the ECOWAS Bank for Investment and Development (EBID) and the West African Health Organization – as well as regional business associations.
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SA gets “political commitment” to be included in AGOA
President Jacob Zuma says government has received a political commitment from the United States government that the African Growth and Opportunity Act (AGOA) would be signed with the inclusion of South Africa.
The President said this when he responded to questions for oral reply at the National Assembly on Thursday.
National Freedom Party MP Professor Nhlanhla Khubisa had asked the President if the South African delegation that attended the AGOA Summit in Washington in August had drawn any lessons or reached any agreements that would benefit Africa and South Africa.
“In the main… we communicated intensively the importance of the extension of the African Growth and Opportunity Act to our country and to Africa.
“South Africa has benefitted immensely from AGOA, with 95 percent of our exports having entered the US through preferential treatment under AGOA.
“We were pleased to secure a political commitment from the US government for the renewal of AGOA with the inclusion of South Africa.
“We will continue to engage with the US Administration and the US Congress in this regard,” he said.
Leading up to the AGOA Summit last year, several media reported that there was a possibility that the act would be renewed with the exclusion of South Africa.
The President’s reply will come as good news to South Africa, which enjoys a lot of trade ties that have led to 600 US companies investing in the country, creating thousands of jobs in the process.
The President said these ties were further deepened during various engagements with government and businesses during the summit.
“At a bilateral level, our formal bilateral discussions with US Vice President Joe Biden and informal discussions with President Barrack Obama and senior members of the US Congress set the tone for further discussions and cooperation in many areas.
“The visit was a success as well in terms of promoting US-South Africa trade and investment ties.
“We had productive sessions of marketing the country with the US-South Africa Chamber of Commerce and a meeting with the Washington National Press Club,” he said.
The President also said, meanwhile, that Trade and Industry Minister Rob Davies is currently in the US holding talks over export markets.
“As we speak, the Minister of Trade and Industry is in the US in negotiations about South African poultry exports into the US market.”
President Zuma said, meanwhile, that the African continent benefited from the summit through agreements in the field of trade and peace and security.
He said this contributed positively to the promotion of Africa’s regional integration and development goals.
“Another significant outcome, among others, is the support of the peace and security measures that Africa wants to institute, for example, the African rapid response mechanism and standby force.
“We emphasised our guiding principle of African solutions to African problems. This means that any support would need to be African-developed and African-led,” he said.
» Minister Rob Davies on South Africa-USA Bilateral Trade and Investment relations
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African cocoa a golden ticket for Tanzania chocolate factory
Jaki Kweka is that rare breed of gourmet chocolatier. She makes fine chocolate in Africa using local African ingredients.
Other African companies such as Ghana’s Golden Tree use local cocoa, but import milk powder and sugar. Multinationals such as Nestlé mass produce chocolate in South Africa for the continent’s consumers and source ingredients globally.
But few firms match Kweka’s ideal – she uses Tanzanian beans and local sugar to make organic chocolate that is 100 percent African. She packages her bars in recycled maize husks for extra authenticity.
Kweka’s Chocolate Mamas is one of a handful of East African firms carving out a niche in the chocolate world and seeking to reverse a trend that has led to the foreign domination of Africa’s growing chocolate economy.
The firm employs five people and its small size sheds light on a big issue: Africa produces more than 70 percent of the world’s cocoa but the $110 billion (R1.325 trillion) chocolate industry is dominated by Western companies.
Top cocoa producers Ivory Coast and Ghana lack dairy and sugar industries to compete with the main manufacturers and cocoa is traded globally so African bean growers do not have a competitive advantage when it comes to making chocolate.
“You don’t really find large-scale chocolate manufacturing (by African companies) in sub-Saharan Africa because it’s not commercially viable. It’s expensive to produce,” said Victoria Crandall, an Ecobank analyst in Ivory Coast.
Chocolate Mamas’ dark and milk chocolate bars sell at premium prices in high-end shops and hotels in Dar es Salaam and Zanzibar and they have a devoted following among wealthy Tanzanians, expatriates and tourists.
The firm launched in 2012 and Kweka began using cocoa from small-scale farmers in south-western Tanzania after seeing the price of importing baking chocolate from Europe. It took nine months of trial and error to perfect recipes.
“We found out a lot of things, including that heat and humidity don’t go very well with making chocolate,” said Kweka, a lawyer turned pastry chef.
A few months ago she and her business partner opened a store at an upmarket shopping plaza in Dar es Salaam with views of the Indian Ocean.
“There is so much unexhausted potential for making things that are not on the market here,” she said.
Absolute chocolate
Chocolate consumption in sub-Saharan Africa is on the rise. Sales in South Africa rose to R6.4bn in 2014 from R5.8bn in 2013, according to market research firm Nielsen.
South Africa, which does not produce cocoa on a large scale, is also the continent’s biggest chocolate producer. Aside from Nestlé, Mondelêz and Lindt also have factories.
The most prominent mass-market chocolate maker in West Africa is Ghana’s Cocoa Processing Company, which makes around 1 000 tons of chocolate per year under its Golden Tree label.
Street hawkers sell the bars, some for less than a dollar, and they contain an ingredient to stop melting in the hot sun.
Golden Tree serves a domestic market and is yet to export its products successfully. On that score, Africa’s most successful wholly-local chocolate brand may be Madecasse, a company founded in Madagascar in 2006.
Peace Corps volunteers established it to help farmers make money from the island nation’s coveted cocoa and vanilla. Its idealistic origins are a key to its success and an indication of how tough it is to drive an African chocolate business.
The bars, which cost $6, sell at Whole Foods and other gourmet food outlets in the US, though they are not on sale yet in their country of origin where the price could limit their appeal.
“We have ambitions to scale considerably but for us it’s always a question of getting the right… investors,” said Tim McCollum, a founder and chief executive of Madecasse, based in New York.
In Kenya, Naheed Ahmed started Absolute Chocolate in November soon after getting his first taste of fine chocolate at culinary school in South Africa. He now makes 100kg a month, selling his chili-infused truffles from under glass cases at a shop made to look like a jewellery store in Nairobi’s upscale Village Market.
His nearby factory shows how distant is the dream of an all-African chocolate bar: The machines are Italian, the praline moulds come from Belgium and the sea salt comes from England. The cocoa comes from Ghana, however. It’s virtually the only African input.
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tralac Annual Conference: Keynote Address by Treasure Thembisile Maphanga, Director of Trade and Industry, African Union Commission
Towards a continental integration agenda
H.E. Commissioner Acyl extends her greetings and apologies for not being able to join this important conference. Allow me to take this auspicious opportunity to sincerely thank tralac for inviting the African Union Commission and choosing such an impressive and modern theme of “Towards a continental Integration Agenda”. All topics to be discussed in this conference are equally important. Be it the Architecture of the Continental Free Trade Area; industrial policy; Trade Remedies and Dispute Settlement in African RECs; the proposed Tripartite Non-tariff Barrier Elimination Mechanism; Services regulatory issues; an update on regional trade in services developments, and the Tripartite Free Trade Area.
Africa’s integration initiative is embedded within the Abuja Treaty (signed on 3rd June 1991) – the Treaty Establishing the African Economic Community through the following stages: Strengthening of Regional Economic Communities; Establishment of a Continental Customs Union; Implementation of Common Sector Policies; and Establishment of a Continental Common Market.
That’s why the January 2012 Summit of Heads of States and Government endorsed the Action Plan on Boosting Intra African Trade (BIAT) and decided on the establishment of a Continental Free Trade Area by an indicative date of 2017. The Action Plan has seven clusters on; trade policy, trade facilitation, productive capacity, trade related infrastructure, trade finance, trade information and factor market integration. It is believed that development and implementation of projects in each of the clusters will increase intra African trade substantially by the next decade. The AU has adopted the Strategy on Accelerated Industrial Development of Africa (AIDA), sectoral programmes such as the Common African Agricultural Development Programme (CAADP), the Programme for Infrastructure Development (PIDA), the Africa Mining Vision (AMV) and Action Plan and so forth. These sectoral policy frameworks are already being implemented by the AUC, RECs and member states. Agenda 2063 which is a visionary framework for the continent will provide an impetus to have a people-driven approach to implementing, monitoring and evaluation of continental programmes. More than ever before, the African Union is engaging all stakeholders on the continent in the implementation of these continental programmes, especially the private sector and civil society.
Africa’s integration is not a matter of choice. It is rather imperative. The African market at 1.1 billion people is one of the biggest in the world with a growing middle class, the highest number of young people, and the rate of urbanization ranking one of the highest in the world. Africa is indeed the world’s fastest growing but least globally integrated continent. In order to benefit from the looming deepening of integration at sub-regional to continental levels, African countries must be able to produce tradable manufactured products that will enable them to enhance or boost cross border or intra-regional trade in manufactured goods. Total African trade in 2012 was around $630 billion with the biggest proportion of 38.3% or $240 billion of this trade, going to and from the EU, 25.3% to Asia and North America enjoying only 11.7% of Africa's trade with intra-African trade of $81billion (13%).
However, intra African trade is growing faster than exports to the rest of the world. From 2000-2010, exports to the rest of the world grew by only 2/3rds of the rate of exports within Africa which has been growing at a rate of 13.5% annually in the same period. Notwithstanding, while imports into Africa grew faster than in any other region of the world, the share of these imports going to African producers was minimal. Imports have grown twice as fast as exports, averaging 13.8% per year but African countries have least participated in this import growth. The enabling environment has seldom been directed to domestic industries as it is directed to foreign direct investment (FDI).
Intra-African exports are somehow fairly diversified, 46% of intra-African trade comprises of manufactured goods, according to a study conducted by UNECA in 2011. Trade in Manufactured and intermediate goods enjoyed more dynamism among the sub-regional groupings than at continental level. So as we discuss the CFTA, it is imperative to consider how we can boost our intra-African trade in manufactured and intermediate goods. This requires accelerating Industrialization through promotion of regional value chains. For this to happen we need to build our domestic industries productive capacities and technological, capabilities through regional value chains by giving focus on 5 key areas: infrastructure, trade facilitation, Rules of Origin, trade Finance and Quality Infrastructure.
The Good News! Empirical studies revealed that implementation of the CFTA will double intra-African trade to 22% by 2022. The CFTA and the implementation of the Action Plan on Boosting Intra-African trade will lead to the structural transformation for the continental economy driven by value addition is of industrial goods and increased competitiveness of services. Trade creation amongst African countries as a result of CFTA implementation will see an increase in welfare. Furthermore, various analytical assessments have underscored the dynamic impact of increased trade among African countries for industrial development, better infrastructure connectivity, and economies of scale, enhanced competitiveness and structural transformation.
Lowering the cost of production is critical for boosting Africa’s competitiveness. This requires huge investment in infrastructure mainly transport, ICT and energy. A mix of policy prescription that allow backward and forward linkages in infrastructure investment would support domestic production and accelerate industrialization. Likewise simplifying regional import and export procedures can boost intra-African trade in manufactured products. Trade in services used to be seen as a separate agenda before we had understood the implications of global value chains and the rise of the importance of the service sector in our economies.
As we move into negotiations of CFTA we should ensure that we put in place the Rules of origin that favour regional value chains and to promote made in Africa branding as well as the promotion of trade amongst African countries. This will not only support regional value chains development but will also integrate Africa’s small and medium industries into global value chains. Last but not least is the issue of quality infrastructure and the minimizing that Non-Tariff Barriers; Standards and other related quality infrastructure issues such as SPS, are key to supporting industrialization and enhancing intra- regional trade in processed products.
Fortunately in a number of areas we are seeing good practices emerging, which should make it easier for other countries and regions to replicate. As the Commission we do not believe in reinventing the wheel rather we endeavor to build upon that which is operational and effective already. We are also keen to be explore innovative approaches which could enable us to achieve our targets.
The preparations for the launch of the CFTA negotiations at the June Summit are advanced, with several studies being concluded as requested by the last African Ministers of Trade Meeting held in December last year. We also have key documents, namely the Draft Objectives and Principles Guiding the Negotiation of the CFTA, the draft Terms of Reference for the CFTA Negotiating Forum, the RoadMap and Draft Schedule for the CFTA Negotiations, as well as a draft Declaration and draft Decision, being considered by the AU policy organs in the next eight weeks, culminating in the launch of the CFTA negotations. Much has been said about the indicative date of 2017, this is not the most important issue in my view.
What is urgent is for Africa to advance its integration starting with consolidating and implementing existing levels of liberalisation, and to engage in negotiations that will go beyond trade in goods, including trade in services regulatory harmonisation, movement of people, investments, competition and intellectual property rights. This is especially true in view of the mega-trade deals that are being negotiated outside the continent and their impact on setting rules outside of the WTO framework. Further analytical work on the impact of the CFTA is being undertaken in order to make the case more eloquently. Also, the impact of third party agreements should be properly analysed and in our view should be subject to notification within the CFTA process, so that there is greater transparency of undertakings by AU member states.
The institutional capacity building as outlined in the CFTA Architecture is critical for the efficiency and effectiveness of the negotiations and most critically the implementation of the regional agreements which have already been concluded. We are working on the establishment of the African Trade Observatory, African Business Council as well as a Monitoring and Evaluation framework for BIAT and the CFTA – this will strengthen evidence based policy making. Through closer collaboration between the AUC and RECs, the private sector and member states, the engagement of civil society, parliamentarians, and the private sector through innovative means, we foresee a different approach and outcomes for the CFTA. The African Trade Forum which was foreseen to hold annually has been unable to meet due to financial constraints – we need to revive it in 2016 and beyond. An advocacy and communication strategy has been developed to ensure that there is a buy in from all these stakeholders, so that they can play their respective roles in this critical process. The need to enhance the capacity of the AUC has come into the spotlight and we are working with member states and development partners to establish a dedicated CFTA Negotiations support unit and a capacity building programme for the national, regional and continental levels as a priority given the envisaged scope and ambition of the negotiations.
As I conclude my remarks, I have to reiterate that African countries need to display the political commitment to push through with the principles of integration that they have already agreed to. It is recognized that the CFTA provides a strategic route for Africa’s integration into the global economy as a respected partner. Achievements of the CFTA will be an important milestone in the realization of the Abuja Treaty establishing the African Economic Community. At the global level, AU member states through the Common African Position on the Post-2015 Development Agenda have reaffirmed the need to implement “continental mechanisms to promote intra-African trade” in the context of the AU’s Agenda 2063 “which presents the vision for the continent’s development”. To this extent, the CFTA is not just about trade liberalization agenda between African countries and regional economic communities. It is an important pillar in the continent’s overall strategy for transformation. Therefore it would be a significant achievement to have all AU member states engaged in the negotiations from the beginning, with their specific concerns being addressed within the negotiations and the ensuing implementation process. We sincerely appreciate the excellent collaboration from institutions such as UNECA, UNCTAD, ITC, tralac, inter alia with the support of a broad range of development partners which make our work feasible.
With these remarks, I once again congratulate tralac for such a wonderful event where we expect fruitful and healthy discussions whose outcome will guide Africa’s integration journey.
I thank you. God bless you.
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‘Chicken war’ to be over soon – Davies
Minister of Trade and Industry Rob Davies has assured an audience in Washington that a settlement on the contentious ‘chicken issue’ is on the horizon.
“Our industries are engaging on this issue and we are of a view that a settlement will be reached soon. While I’m in Washington I will also be meeting with Senators Chris Coons and Johnny Isakson, who continue to advocate for an amicable solution on the chicken issue,” Davies said at a media briefing in Washington.
The two influential US senators Isakson and Coons, who represent chicken-producing states, have threatened to block South Africa from the lucrative African Growth and Opportunity Act (Agoa) trade agreement if Pretoria fails to lift import duties on cheaper cuts of chicken.
Chicken wars
Davies said the Agoa agreement generated enormous goodwill for the US on the continent and if renewed more can still be done.
“The attitude of the South African government remains one of constructive engagement on all the concerns raised by the US constituencies, including on the chicken issue,” he said.
“Our Deputy President Cyril Ramaphosa has also indicated to US Vice-President Joe Biden, during a teleconference call on April 13 2015, that SA is serious about reaching an agreement to grant some market access for US chicken bone-in (brown meat) cuts, and remains committed to the process.”
In the US white chicken meat (chicken breasts) fetches a premium price due to market demand. Brown meat, or bone-in chicken, is a surplus product which allows the US to enter the SA market with cheaper prices.
South Africa has imposed anti-dumping tariffs of above 100% since 2000 on certain products derived from the chicken carcass.
US position ‘unacceptable’
In an exclusive interview with Fin24 in March on the current state of negotiations, South African Poultry Association CEO Kevin Lovell said that the US position is “both unreasonable and unacceptable”.
“Effectively, they want to remove the third-largest producer from our market in volume terms. As our market is closed and is not growing – if it was we would have increased production – extra imports mean that the local industry shrinks,” he said.
A week later, at the end of March, 13 US senators signed off a letter to Davies voicing their concern that the South African poultry industry was taking a hard line on its most recent offer to the US poultry industry.
Davies described Agoa as a two-way agreement with mutual benefits for both the US and Africa.
“We are of the view that Agoa played a role in promoting bilateral trade and investment among South Africa, the United States, and sub-Saharan Africa. The benefits of Agoa are two way and that is why it is important to renew the programme for all eligible countries with South Africa included as a beneficiary country,” he said at the briefing.
Agoa benefits
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Total two-way trade between South Africa and the United States increased from R56.7bn in 2001 to R141bn in 2014. Bilateral trade recovered beyond the pre-crisis figure of R127bn in 2008 (which declined to R83bn 2009).
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South Africa’s exports to the US grew from R30bn in 2001 to R69.8bn in 2014. Similarly, US exports to South Africa grew from R26.6bn to R71bn in 2014. Both exports and imports have recovered to beyond their pre-crisis levels.
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South Africa’s top exports to the US were vehicles and associated transport equipment (representing 27% of total SA exports to the US), precious metals (23%), base metals (11%), mineral products (9%), and chemical or allied industries (16%). These sectors jointly accounted for about 86% of South Africa’s total exports to the US in 2014. However, metal and mineral exports accounted for 43% of total South African exports to USA.
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Top US exports to South Africa were machinery and mechanical appliances; vehicles, vessels and aircraft; chemical products; plastics and optical and medical equipment.
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Sub-Saharan Africa Agoa exports increased from $12.4bn in 2000 to the highest peak of $79.7bn in 2008. However, in 2012 exports declined to $43bn and again to $34bn in 2013. This is largely due to a significant decline in oil exports.