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Policy reforms and investment needed to curb the shortfall in Africa’s energy sector
The conclusion of the World Economic Forum raises concerns – particularly for Africa – as to how important issues discussed at the meeting will be addressed. Sustainable energy for example emerged as a priority matter.
“Every single African country is experiencing energy shortages and power outages. That is costing the continent two percent of its GDP,” said Donald Kaberuka, President of the African Development Bank, who addressed a press conference at the launch of the Africa Energy Leaders Group (AELG) during the 2015 World Economic Forum, which took place from January 21-24 in Davos, Switzerland.
“Millions of Africans, even when energy is available, have no access to it. There are millions of Africans who see power lines going up above them but they cannot access electricity,” he said, underscoring the importance of focusing on energy sustainability and energy efficiency.
To achieve this, Kaberuka observed that it was crucial to create energy markets for Africa. “It is not possible for our individual 54 countries to have energy security for their own domestic resources. We have to create viable regional markets for power. This requires a lot of policy reforms internally and regionally,” he noted.
Supporting this view, Kandeh Yumkella, the United Nations Under-Secretary General and the Chief Executive Officer of the Sustainable Energy for All initiative (SE4ALL), said sustainable development in Africa cannot be achieved without expanding the energy market.
Statistics indicate that 620 million people in Africa are without electricity. By 2050, another one million people will be added to the group.
To advance the Davos energy discussions, the AfDB hosted a SE4ALL workshop in Abidjan to discuss steps to boost Africa’s energy sector. These are policy reforms and mobilising investment. The January 26-27 event brought together representatives from African countries and partner organisations.
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EALA approves Supplementary Budget of USD 2 million for EAC programmes
The Assembly late on 27 January 2015 passed the EAC Supplementary Appropriation Bill 2015 providing a supplementary expenditure to the tune of USD 2,040,520 out of the budget for the Financial Year ending 30th June 2015.
Of the said amount, USD 99,840 will come from the EAC General Reserve Fund while USD 1, 940,680 is to be sourced from development partners.
The supplementary budget allocates USD 919,413 to undertake mediatory and confidence building activities prior to the upcoming May-June 2015 elections. The support from the European Union will assist the EAC/COMESA/AU Early Response mechanism (ERM) – African Peace Facility support to implement activities in the COMESA/EAC region. It is part of on-going efforts by the regional economic communities to consolidate democracy and promote peaceful elections in the region.
The Chair of the Council, Hon Dr. Abdalla Sadaala Abdalla presented the Supplementary Budget for the Financial Year 2014/2015 to the House.
USD 295,000 is earmarked for the expenditure incurred on maintaining the EAC Regional Food balance sheet and trade help desk while USD 170,000 shall be utilised for the development of EAC-African Growth and Opportunity Act (AGOA) Strategy and sensitisation. The Supplementary Budget further provides for USD 150,000 to be used for the expenditure incurred on conducting the EAC HIV and AIDS Symposium during the period. The Minister, Dr. Abdalla Sadaala maintained that the symposium under the theme ‘Getting to Zero in the EAC region’ will focus specifically on HIV and AIDS, Tuberculosis (TB) and Sexually Transmitted Infections. A similar amount is required to support the expenditure for carrying out a baseline survey on population, health and environment (2015-2020).
An assessment study on the needs and preparedness of the Partner States to implement the new generation E-Passport and a review of the existing passport issuance legal frameworks shall also get a boost following the allocation of USD 49,840 to the activity. According to the Chair of the Council of Ministers, procurement of the necessary e-passport issuance infrastructure, passport booklets and capacity building for the immigration personnel need to be integrated into the 2015/16 budget cycle. The phase-out programme of the national passports as proposed in the roadmap shall be customised by each Partner State to address the respective needs and peculiarities.
USD 50,000 shall be earmarked for the formulation of the EAC Vision for 2050. A Multi-disciplinary team of experts shall be engaged to ensure success in the exercise.
The Assembly resolved itself into a Committee of Ways and Means to consider the Financial Statement for the Financial Year 2014/15 and A Committee of Supply to consider and approve the Revised Estimates of Expenditure for the Financial Year 2014/15.
Prior to this, the Committee on General Purpose presented its report on the EAC Supplementary Appropriation Bill which was debated and received support from the Members. Rising up to make contributions were Hon Yves Nsabimana, Hon Dora Byamukama, Hon Mumbi Ngaru, Hon Frederic Ngenzebuhoro and Hon Bernard Mulengani. Others were Hon Hafsa Mossi, Hon Pierre Celestin Rwigema and Hon Abubakar Zein.
Meanwhile, six other new Bills also sailed through the first reading in the House.
The EAC Electronic Transactions Bill 2014 makes provision for the use, security facilitation and regulation of electronic communications and transactions to encourage the use or e-government service and to provide for related matters.
The Bill is premised on Article 103 of the Treaty for the Establishment of the EAC in which Partner States recognizing the fundamental importance of science and technology in economic development, undertook to promote cooperation in the development of science and technology in the Community. This can be achieved through the promotion, development and application of Information technology in the EAC.
The Bill moved by Dr. James Ndahiro anticipates that Partner States need to create a proper environment for all possible users and beneficiaries of ICT to educate them on the operations involving electronic transactions and in doing so, make necessary amends to ensure security of users of ICT. It is further states that the Community needs to make effective use of ICTS.
The East Africa Science and Technology Commission, 2015 anticipates the formation of the East Africa Science and Technology Commission as an Institution of the Community in recognition of the fundamental importance of collaboration in science and technology for economic development.
In its institutional arrangements, the Bill establishes a Governing Board with a Secretariat, which shall be the executive arm of the Commission. The Bill which is moved by the Council of Ministers will greatly enhance the integration of the people of East Africa in addition to fulfilling the mandates of the Partner States as specified under Article 103 of the Treaty for the establishment of the EAC. In terms of funding, it is envisaged the Commission shall draw funds from the Community’s budget, from stakeholders’ contributions, development partners and other sources determined by the Council.
In a bid to spur competition in the region, the Council of Ministers is also set to introduce the EAC Competition (Amendment) Bill 2015. The Bill seeks to amend the Competition Act in order to establish a mechanism to eliminate counterfeiting and piracy trade in the Community. This is seen as crucial in providing impetus in order to promote industrialisation and economic growth. The Bill further anticipates to create a conducive investment climate in the Community, free of unfair competition practices embodied in counterfeiting and policies and to promote the creation of intellectual property rights in the Community.
Closely related to trade issues is the EAC Customs Management (Amendment) Bill, 2015. The principal object of the Bill is to amend the East African Customs Management Act, 2004 to facilitate the discharge of the functions of the Directorate of Customs and Trade as provided for in the Act and to facilitate smooth implementation of the Act, particularly on the procedures that facilitate the implementation of the EAC Single Customs Territory. The new Bill hopes to amend 9 sections and to introduce a new section on importation of goods.
Hon Dr. James Ndahiro has also introduced a Private Members Bill on the EAC Creative and Cultural Industries Bill 2015 which sailed through the First reading. According to the mover of the Bill, Creative and Cultural industries are considered one of the fastest growing sectors in the global economy and contribute significantly to the Gross Domestic Product (GDP) of many developed and developing countries.
The object of the Bill is to promote the creative and cultural industries at the EAC. The Bill seeks to establish the Creative and Cultural Industries Council that shall provide an environment conducive to the enhancement and stimulation of creativity and innovative endeavours among the citizens of the Community. Once formed, the Council shall provide high quality training for skills and creativity development and formulate policies and strategies that shall stimulate creativity and innovations among the youth to ensure long term supply of talents.
Although the East African region has the potential to develop new areas of wealth and employment as it is rich in cultural heritage and inexhaustible pool of talents, the region still remains a marginal player in the global market.
Nurturing and exploitation of creative and cultural industries in the EAC through an effective regional legal framework can contribute to job creation, income generation and poverty alleviation.
Also sailing through was the EAC Elimination of Non-Tariff Barriers Bill, 2015.
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Assembly passes EAC Cooperative Societies Bill, 2014
The East African Legislative Assembly (EALA) on Wednesday passed the East African Community (EAC) Cooperative Societies Bill 2014 meant to provide a legal framework for co-operative societies in the region.
The Bill that now awaits assent by heads of state, sailed through on the third reading with a few amendments to reflect relevancy and consistency.
It takes into account Article 128 of the treaty establishing EAC, in which partner states agreed to adopt programmes to strengthen and promote the private sector as the engine of economic growth.
Mike Sebalu (Uganda), who moved the Bill said the new law is premised on the desire by partner states to encourage efficient use of scarce resources to develop all sectors of the private sector.
“The Bill is based on the understanding that each partner state shall undertake to encourage efficient use of resources; and to promote the development of private sector organisations engaged in all types of economic activities, such as the chambers of commerce and industry, confederations and associations of industry, agriculture among others,” reads part of an EALA statement.
Stakeholders such as Eastern Africa Farmers Federation (EAF), supported the Bill.
EAF President, Phillip Kiriro, said: “Today is definitely a good day for the cooperative movement and this is very exciting news. I laud the legislators for enacting the key Bill”.
EAF Executive Director, Steve Muchiri, described the passing of the Bill as historic, after a long wait.
Rwanda Cooperative Alliance boss Damien Mugabo, said that he would consult his minister “for guidance” on how to adjust the national situation to align with the regional law if the Heads of State assent to it.
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China’s ‘Maritime Silk Road’: Don’t forget Africa
China’s “Maritime Silk Road” is expanding beyond Asia to the African coast.
On Sunday, a Chinese State Council official told a conference in Hainan that more than 50 countries are interested in participating in China’s Silk Road Economic Belt and Maritime Silk Road projects, jointly known as “one belt and one road.” “Along the belt and road are many developing countries with a combined population of 4.4 billion and an annual economic output of 2.2 trillion U.S. dollars,” Xinhua paraphrased the official as saying. In other words, China’s Silk Road is a big deal, and not just for Asia. In fact, the Silk Road is making progress on an entirely different continent – Africa.
During Foreign Minister Wang Yi’s trip to Africa in mid-January of this year, he visited Kenya and spoke about China’s plan to build a $3.8 billion railroad linking Nairobi, Kenya’s capital, to Mombasa, a port on the Indian Ocean. Though the railroad project isn’t being pitched as part of the Silk Road, it’s no coincidence that Nairobi, an inland city, is included on Xinhua’s Maritime Silk Road map. The rail link between Nairobi and Kenya’s largest port will be crucial in actually connecting Nairobi to the maritime trading route.
For now, Nairobi (presumably via Mombasa) is the only African city specifically marked on the map. But both Africa and China have far more ambitious dreams for upgrading African infrastructure. Speaking about the railroad project while in Kenya, Wang referenced a 2014 statement by Nkosazana Dlamini Zuma, the chair of the African Union Commission, in which Zuma spoke of a “a dream that one day the capitals of all African countries will be linked by high-speed railways.” Wang added, “As a good friend of Africa, China is willing to make efforts to help African friends realize the dream.” Building up that sort of infrastructure (which Wang called “a century project”) would potentially connect all of Africa to China’s Silk Road vision. The Kenya railroad project alone will eventually link Nairobi with the capitals of Uganda, Rwanda, Burundi, and South Sudan.
And Mombasa is not the only port China is developing on the African coast. China is also involved in developing ports in Djibouti, Tanzania, and Mozambique; it may also have plans to invest in ports in Madagascar and the Seychelles according to a Bloomberg report citing the Namibian Times. That would give China no less than six African ports on the Maritime Silk Road, ranging from the Indian Ocean through the Red Sea.
Brian Eyler, writing for East By Southeast, suggests that the Maritime Silk Road “is all about Africa.” Eyler argues that “in actuality the focus of the Maritime Silk Road is to support and facilitate booming trade growth between Asia and Africa.” Eyler further reports that China and Thailand recently agreed to create investment vehicles for developing 12 ports – including seven African ports (in Djibouti, Tanzania, Mozambique, Gabon, Ghana, Senegal, and Tunisia).
The Maritime Silk Road, like its overland counterpart, is currently in a stage that heavily emphasizes the building of infrastructure projects. That was China’s rationale for founding the Asian Infrastructure Improvement Bank in addition to a separate $40 billion Silk Road Fund. Both funding sources aim to “break the connectivity bottleneck,” in President Xi Jinping’s words.
China has long engaged in these sorts of infrastructure development projects in Africa, constructing roads, railways, and public buildings. While still rhetorically separate from the Maritime Silk Road, these projects speak to the same vision: regional connectivity, brought to you by Beijing. So while China publicizes its Silk Road progress in Asia, don’t forget that similar themes are unfolding in Africa – and that the two projects will eventually link up, if Beijing has its way.
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High Level African Trade Committee (HATC) discusses the launch of the Continental Free Trade Area (CFTA) negotiations
The 4th High Level African Trade Committee (HATC) meeting kicked off on 29 January 2015 in Ethiopia, Addis Ababa on the sidelines of the 24th Ordinary Session of the Summit of the African Union.
The HATC meets and provides policy orientation and recommendations to the Assembly on the acceleration and deepening of Africa’s market integration agenda. The meeting was organized by the Department of Trade and Industry of the African Union Commission and chaired by H.E. Mr. John Dramani Mahama, President of the Republic of Ghana.
The HATC meeting received an update on the progress of the Tripartite Free Trade Area Negotiations, as well as a presentation on the outcome of the 9th Ordinary Session of the Conference of AU Ministers of Trade. It also recommended actions for implementation by the Commission and Member States in preparation for the launch of the Continental Free Trade Area (CFTA) negotiations, the World Trade Organisation (WTO) issues, the African Growth and Opportunity Act (AGOA) and the implementation of the Boosting Intra-African Trade (BIAT) action plan.
The HATC’s main responsibility is to facilitate and unlock the blockages in the implementation of the framework, road map and architecture for fast-tracking the establishment of the continental free trade area (CFTA), and the action plan for boosting intra-African trade (BIAT) which became AU policy in January 2012.
The meeting reviewed and discussed the recommendations of the Ministers of Trade on intra-African trade, CFTA, WTO issues, EPA and AGOA among others and gave strategic guidance to the Commission on the way forward, particularly in the light of mega trade deals being concluded at the global level. The HATC also reviewed progress towards the launch of the CFTA Negotiations at the next AU Summit.
In his opening remarks, the President of the Republic of Ghana, H.E Mr. John Dramani Mahama emphasized on the urgency of the establishment of the CFTA saying, “It was a dream of our founding fathers to create a continent where people can move freely and goods and services across the continent. Fast tracking the creation of a CFTA is the way to go”
Also speaking during the meeting was the Deputy Chairperson of the African Union Commission,H.E Dr Erastus Mwencha,who commended the efforts of the tripartite members for the progress made towards launchingof thetripartite free trade area.
However, the deputy chair noted that for realization of the establishment of a CFTA, we need to move forward and not leave anyone behind.
“It is crucial to enhance value of African products, to industrialize and to forge toward the realization of a CFTA. We need to maintain the unity of purpose and talk with one voice for integration purposes.”
High Level African Trade Committee is made up of the Chairpersons of the Regional Economic Communities. The current members of the HATC are Chad (Chair of ECCAS and CENSAD), Ghana (Chair of ECOWAS), Ethiopia (Chair of IGAD), Kenya (Chair of EAC), Libya (Chair of AMU), Zimbabwe (Chair of SADC) and Democratic Republic of Congo (Chair of COMESA). The African Union is the key institution driving Africa’s Continental Free Trade Area (CFTA) initiative, with the Department of Trade and Industry having the primary responsibility for the CFTA within the AU Commission.
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Industrial Policy as a Tool of Development Strategy
Using FDI to Upgrade and Diversify the Production and Export Base of Host Economies in the Developing World
Harsha Vardhana Singh – drawing on arguments developed by Dani Rodrik, Ricardo Hausmann, Justin Lin, and others – argues that industrial policy may have a key role to play in designing development strategy in the contemporary period.
Traditional views of industrial policy have typically begun with trade protection as a strategy to promote the creation of infant industries that grow to become viable international competitors. Following Lin’s Comparative-Advantage-Following (CAF) model, this paper adopts a perspective quite at variance with the older trade-protection approach, starting instead with foreign direct investment (FDI) promotion to attract multinational corporations into sectors that bring the host country immediately to the frontier of technology, management, and quality control.
The focus on harnessing FDI – in particular in manufacturing and assembly – to promote broad-based development complete with economic and social spillovers and externalities assumes special importance in light of the discovery that developing countries that diversify and upgrade their production and export base enjoy more rapid growth and greater welfare gains than those that simply do more and more of what they have always done.
As shown later, FDI in manufacturing offers target-rich opportunities for host governments that want to use it to bring structural transformation to the host economy. But this paper also points out that there are important market failures and tricky obstacles to attracting investors in higher-skilled and novel sectors in untried emerging market locales. This brings the analytic investigation back to the design of industrial policy in the contemporary period. What are the precise market failures and obstacles to using FDI to upgrade and diversify a would-be host’s production and export base? And what are the corresponding public sector interventions needed to achieve success?
Here is where this paper hopes to make an important contribution – the most significant market failures and obstacles to using FDI to upgrade and diversify the host production and export base are slightly – but significantly – different from what the Hausmann-Rodrik-Lin framework leads us to conclude. The design of industrial policy has to be refocused to deal with the empirical discoveries about market failures and obstacles that are introduced here. At the same time, some popular conclusions adopted by some of those who use the Hausmann-Rodrik-Lin framework – notably Rodrik but not Lin himself – can be shown to be counterproductive and even damaging to the prospects for development.
The resulting combination of new proposals for the design of industrial policy and new cautions about the design of industrial policy will bear directly on the role of “policy space” for the WTO to better address the needs of developing countries.
Implemented jointly by ICTSD and the World Economic Forum, the E15Initiative convenes world-class experts and institutions to generate strategic analysis and recommendations for government, business and civil society geared towards strengthening the global trade system. The E15 expert group on Reinvigorating Manufacturing: New Industrial Policy and the Trade System is co-convened with the National School of Development at Peking University.
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Davos: Trade Ministers call for credible, realistic path to finish Doha Round
Trade ministers from 21 WTO members called on Saturday for negotiators to instil a sense of urgency in their efforts to elaborate a work programme by July, which would need to set out a “credible and realistic path” towards concluding the long-running Doha Round talks.
Meeting on the sidelines of the World Economic Forum’s Annual Meeting in the Swiss ski resort of Davos, the officials’ comments appeared geared toward giving a political push to the negotiating process, which resumed back in Geneva last week.
“We should be aware of each other’s interests and constraints, focus on what is doable, consider new ways of engaging in order to move ahead more efficiently, and be prepared to review longstanding negotiating positions,” said Swiss Federal Councillor Johann Schneider-Ammann, who chaired the meeting, in his personal remarks summarising the discussions.
The 21 WTO members represented by either their ministers or deputy ministers included Brazil, Canada, China, Colombia, Costa Rica, Egypt, the European Union, Indonesia, Japan, Kenya, Korea, Malaysia, Mexico, New Zealand, Norway, Russia, South Africa, Switzerland, Thailand, Turkey, and the US, according to a list published by Switzerland’s State Secretariat for Economic Affairs (SECO).
Geneva process kicks off
“What I have seen and heard in Davos and Geneva in recent days is encouraging. A spirit of urgency and realism begins to sink in,” WTO Director-General Roberto Azevêdo said on social media site Twitter on Saturday following the Davos discussion.
“I've heard things in recent days that I've not heard in years. Ministers fully understand that we can't keep dusting off tired positions,” he continued.
WTO members had met in Geneva at the ambassadors’ level in an informal Trade Negotiations Committee (TNC) just days ahead of the Davos ministers’ gathering, at the behest of the Director-General.
“We must maximise the time we have available to us before July – and maintain the momentum that we regained at the end of 2014,” the WTO chief said at last Wednesday’s TNC, calling for a detailed, substantive discussion on the various Doha Round areas.
Negotiators would need to discuss new trade rules on agriculture, manufactured goods, and services, as well as the other issues mandated when the talks were launched in 2001.
“Development and issues of interest to LDCs” would also need to be examined, the Director-General said, in a reference to the group of least-developed countries. “Today we are restarting on all of these issues. So be ready – and get involved.”
Following up on last week’s TNC and Saturday’s Davos meet, the Director-General has already convened successive small group consultations this week with sets of ambassadors – dubbed “Green Room” talks by delegates – and is planning additional meetings with the full WTO membership in a bid to promote transparency and inclusiveness in the process.
These so-called “Room W” meetings, named for the room at WTO headquarters in Geneva where they are held, are a throw-back to the days when members were preparing for the December 2013 ministerial conference in Bali, Indonesia, where ambassadors were brought together regularly by the Director-General for intense negotiations.
These meetings were widely seen by negotiators at the time as successful in part due to the attempt to ensure all countries were included in the discussion for the eventual Bali deal.
The next such meeting with all WTO members is scheduled for this Thursday, following “Green Room” discussions on Monday and Tuesday, and another meeting on Wednesday convened by the chair of the WTO agriculture negotiations, New Zealand ambassador John Adank.
Push for Nairobi deal?
Delegates told Bridges that some members – reportedly the EU and Mexico – had argued that the organisation should try to conclude the Bali deal by the time of the next WTO ministerial conference in the Kenyan capital of Nairobi this December.
Others were more cautious, suggesting that members still had a lot of work to do in determining which aspects of the previous draft deal might be acceptable to members, and how any aspects that needed modifying should be changed.
The US and some large developing countries continued to disagree over the extent to which a draft text tabled in 2008 should form the basis for further talks.
An opinion piece by US Trade Representative Michael Froman in Reuters last week argued that the Doha talks “haven’t kept pace with tectonic shifts in the global economy, most notably the rise of the emerging economies.”
It argues that India and China are now among “the top four users of trade-distorting agricultural subsidies in today’s world,” and called for the discussion at the WTO to keep in mind current conditions.
“If the debate over the next few weeks makes it apparent that others will not support an ambitious outcome – in opening markets to manufactured goods, services, as well as the full array of agricultural issues – the time has come to deal with that reality,” the US trade chief warned, while noting that an ambitious outcome is still Washington’s preferred option.
If support for an ambitious outcome is lacking, he said, then a “more focused and tailored agenda” could then be another way forward.
India reportedly retorted that it would not accept “differentiation” among developing countries in the talks, sources said.
Beyond the rhetoric
One developed country negotiator told Bridges that the US focus on emerging economies was “a great talking point - but without specifics, they may be using it as an excuse” for inaction.
Other negotiators also argued that instead of writing off the draft text as a whole, Washington now needed to provide specifics about where and how they thought the text should be changed.
“Restating well-known positions won’t help the chairs,” one developing country official observed.
Adank has previously warned WTO members against sparring fruitlessly over whether the latest draft should be the basis for further talks.
On Wednesday, he is expected to revisit questions on market access and domestic support that he originally posed delegates in July.
These are addressed to members who consider that some aspects or elements from past negotiations need to be reconsidered, and ask them to specify “what alternative approaches would you suggest?”
Similarly, negotiators pointed out that in reality the draft text on the table already “differentiates” between different groups of developing countries, by treating China differently from Chad, for example.
The draft deal also spells out different types of rules for “small, vulnerable economies,” least developed countries, recently-acceded members – as well as other categories such as developing countries with high tariff bindings. A number of country-specific exceptions are included, ranging from Moldova and Venezuela to the United States.
“Concrete” work programme
Regardless of the feasibility of concluding Doha by December, negotiators told Bridges that Azevêdo appeared to be determined to establish a “concrete” work programme by the July deadline, with something that negotiators would recognise as a “modalities” text – a draft document setting out formulas and figures for tariff and subsidy cuts that members could consider.
However, some speculated that new farm policies introduced in major trading powers since the 2008 text was drafted could affect the ability of some capitals to accept proposed concessions.
The US in particular passed a new version of the Farm Bill last year, which some experts say could lead to an increase in trade-distorting farm subsidies, especially in a low-price scenario.
“I think the truth is no one can really handle high ambition,” one delegate from an agricultural exporting country told Bridges.
MC10 approaching
Officials have touted 2015 as having the potential to be a pivotal year for the global trade body, with the WTO celebrating both its 20th anniversary and its 10th ministerial conference.
The upcoming ministerial in Nairobi, Kenya from 15-18 December will also mark the first time that the WTO’s highest level of meetings will be hosted by a Sub-Saharan African country.
While the potential for injecting new momentum into the long-stalled Doha talks will likely draw most of the attention in the coming months, ministers have also raised the timely ratification of the WTO’s Trade Facilitation Agreement (TFA) as another element that would help ensure success at the Kenya ministerial, Switzerland’s Schneider-Ammann said on Saturday.
The US became the third member to deposit their instrument of acceptance for the TFA, with US Trade Representative Michael Froman giving the document to WTO Director-General Roberto Azevêdo in Davos. Singapore and Hong Kong had already submitted theirs.
Two-thirds of the global trade body’s 160 members must ratify TFA domestically in order for the deal to come into force for those members. While the 2013 Bali package had set July 2015 as the original deadline for this, that target was removed in November as part of an overall deal reached on implementing the Bali decisions on TFA and public food stockholding.
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Carlos Lopes makes strong push for infrastructure development
At the opening of the High-level Round Table on infrastructure and development, held in the context of the NEPAD Heads of State and Government Orientation Committee, the Executive Secretary of the Economic Commission for Africa, Mr. Carlos Lopes made a call for rapid development of regional infrastructure “to facilitate the movement of goods people, services, ideas and innovations.”
While lauding the progress made over the last two years, Mr. Lopes said that challenges remain in attracting significant private sector involvement, which currently only stands at $ 8billion per year.
The private sector’s reluctance, he said, “is partly due to fears about the expropriation of assets, the enforceability of contracts and other regulatory risks that arise as a result of incongruous frameworks across countries and subregions.”
He added that to meet the annual infrastructure gap of $48billion per year, countries need to put in place appropriate policy, legal and regulatory frameworks.
Mr. Lopes told the high-level forum that ECA, in partnership with the African Union and the NEPAD Agency, will be working on a common regional framework to facilitate private sector financing of infrastructure projects in Africa. The project will entail mapping of policies, laws and regulations that affect private sector interests and a process of harmonization to address longstanding issues. These include project preparation and development, divergent laws, local content, among others.
He made the call against the backdrop of a geographically fragmented continent that reduces the possibility of creating growth by exploiting the economies of scale. Furthermore, 40% per cent of its population lives in landlocked countries and most are isolated and operate inefficient markets.
“Regional integration holds the key to addressing these inefficiencies and boosting intra-African trade,” he stressed.
The high-level Round Table on Structural Economic Transformation and Regional Integration in Africa took place in the margins of the African Union Summit. The NEPAD Heads of State and Government Orientation Committee has, the development of Africa’s infrastructure, as a key area of focus and is credited with championing the implementation of regional priority infrastructure projects.
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Global Investment Trends in 2014 and Prospects for 2015
Global foreign direct investment (FDI) inflows declined by 8% in 2014. A solid FDI rise remains distant, reports the latest UNCTAD Global Investment Trends.
In 2014, global foreign direct investment (FDI) inflows declined by 8% to an estimated US$1.26 trillion, due to fragility of the global economy, policy uncertainty and geopolitical risks. A large divestment in the United States also reduced the global level of FDI flows.
FDI flows to developed countries dropped by 14% to an estimated US$511 billion, significantly affected by a large divestment in the United States. FDI flows to the European Union (EU) reached an estimated US$267 billion; this represents a 13% increase on 2013, but is still only one-third of the 2007 peak.
Flows to transition economies more than halved to US$45 billion as regional conflict, sanctions on the Russian Federation, and negative growth prospects deterred foreign investors (especially from developed countries) from investing in the region.
Developing economies saw their FDI inflows reach a new high of more than US$700 billion, 4% higher than 2013, with a global share of 56%. At the regional level, flows to developing Asia were up, those to Africa remained flat, while FDI to Latin America declined.
In 2014, China, with an increase of 3%, became the world's largest recipient of FDI. The United States fell to the 3rd largest host country with almost a third of their 2013 level. Among the top five FDI recipients in the world, four are developing economies.
Cross-border mergers and acquisitions (M&As) rose by 19%, driven mainly by restructuring deals. Announced greenfield investment projects rose by 3% in 2014.
A solid FDI rise remains distant. A subdued global economic outlook, volatility in currency and commodity markets and elevated geopolitical risks will negatively influence FDI flows. On the other hand, the strengthening of economic growth in the United States, the demand-boosting effects of lower oil prices and proactive monetary policy in the Eurozone, coupled with increased liberalization and promotion measures, will favorably affect FDI flows.
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AU/NEPAD Strategy and Roadmap on Agriculture launched for mutual accountability and results
The African Union Commission and NEPAD Agency have launched the AU Implementation Strategy and Roadmap to achieve the 2014 Malabo Declaration, for agricultural growth and shared prosperity. The Strategy was launched on 27 January 2015 at a high-level dinner.
In his statement to 300 senior officials, NEPAD Agency CEO Dr Ibrahim Mayaki said that the Strategy is a celebration of leadership, partnership and regional integration since the commitment made by African leaders in 2003 to give Agriculture-led development a priority and which resulted in the adoption of the Comprehensive Africa Agriculture Development Programme (CAADP). Dr Mayaki said that African leaders have realised that “most of Africa’s national problems do not have optimum national solutions, but regional solutions”.
AUC Commissioner for Rural Economy and Agriculture, Mrs Tumusiime Rhoda Peace emphasised that the Strategy will transform agriculture for more inclusive growth, by focusing on increased agricultural production, intra-African trade, resilience of livelihoods, and strengthening the governance of land, water and other natural resources.
Mrs Rhoda Peace urged that the 2014 Malabo Declaration expresses a firm commitment toward attaining an agriculture revolution in Africa. African leaders and all stakeholders involved must be accountable to actions and results, she said.
The roadmap will guide African member states and development partners to accelerate agricultural growth so as to achieve the 2025 vision for shared prosperity and improved livelihoods. Key to the process is the CAADP Results Framework to track progress and ensure accountability of governments starting 2017.
The high-level event brought together members of the AU Executive Council (Ministers of Foreign Affairs), Permanent Representative Committee (Ambassadors), AU Senior Officials, Regional Economic Communities (RECs); Chief Executives from the private sector, farmer organisations; CSOs, youth and women organisations, and development partners.
It also marked the formal closure of the 2014 AU Year of Agriculture and Food Security, and officially commenced actions towards the Malabo Declaration which was adopted by African Heads of State and Government at the 23rd AU Assembly in Malabo, Equatorial Guinea, in June 2014.
The Strategy was officially launched by the Chairperson of the AU Executive Council, Ms Fatma Vall Mint Soueinae.
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Can Ethiopia’s resource wealth contribute to its growth and transformation?
Ethiopia has averaged a 10.7% economic growth rate over the last 10 years, more than double the annual average of countries in Sub-Saharan Africa, which was around 5.2%. However, despite having a huge potential to contribute to Ethiopia’s economy, the development of oil, gas, and mineral resources are not among the key drivers of the country’s growth.
Although the country has geological potential for the discovery of new, sizeable oil, gas and mineral deposits, most of its extractive industry is still in its infancy stage. Currently, there is one large-scale gold mine in operation, while a growing number of large mining projects are under development and exploration for oil and natural gas is intensifying after significant discoveries in neighboring countries. Ethiopia also has an extensive and unique artisanal mining sector; the government estimates there are around 1 million miners, making it an important source of job creation, and an important source of foreign currency.
Although the industry is in its infancy stage, the contribution to the country’s exports is already significant. In 2012, mining was responsible more than 19% of the total value of exports, and up to 10% of foreign exchange earnings. Gold makes close to 100% of mining exports and most of it, about 2/3, comes from artisanal mining, according to a recent World Bank Group (WBG) partner study, Strategic Assessment of the Ethiopian Mineral Sector.
The report notes that resource wealth can potentially have a positive impact on the social and economic development of Ethiopia if the industry is developed and managed in a sustainable and transparent manner, following international good practices.
What can Ethiopia do to ensure that its resource wealth contributes to sustainable development? The report highlights the following recommendations:
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Obtain good-quality geo-data and put in place an effective data management system: To to manage and plan for the industry, the government needs to know what is actually in the ground. Effective acquisition, maintenance and dissemination of geo-data can help to attract investment and can help governments to make informed decisions and negotiate more effectively. Currently, only 74% of Ethiopia is mapped at a low-quality scale.
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Put in place an effective management system and a governance framework: This will ensure that the benefits are distributed as fair and widely as possible, and social and environmental risks are minimized:Ethiopia was admitted as a candidate country to the Global Extractive Industries Transparency Initiative (EITI) in March 2014,one step towards that goal.
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Diversification of Ethiopia’s economy and facilitation of economic linkages to avoid heavy dependency on the resource wealth: The linkages that are being created between the potash and agricultural industries in the Afar Region is just one example of potential economic partnerships; supporting the production of potash fertilizers in order to increase small holder farmer’s crop production.
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Balance short-term and long-term development priorities, and reinvest the resource wealth into productive investments including high-quality health and education.
Past experiences of other resource-rich countries provide a roadmap that can inform Ethiopia’s decision-making as the government start to put institutions, policies and laws in place to ensure that resource wealth contributes to sustainable development.
Developing the untapped potential of the extractive industry is not without its challenges, which include the possibility of increased corruption and the need to manage the potentially significant social and environmental impacts. Recognizing this, the WBG, along with other development partners, have joined together to support Ethiopia’s efforts to develop the industry in a clear and viable way.
“As highlighted in the study, if well managed and well supported, the Ethiopian mineral sector has the potential to make a difference in the economic development of Ethiopia and to contribute to the poverty reduction agenda,” said Christian Moller, WBG lead economist. “This will require a strong public sector. As the World Bank Group, we are committed to contribute to this process.”
In October 2014, the WBG and the Ministry of Mines jointly organized the 2014 Ethiopia Extractive Industries Forum, one of the major recent initiatives. It was organized with support from other key partners such as the UNDP, the Australian Government, Department of Foreign Affairs, Trade and Development (Canada), UK Department for International Development (DFID), and the African Minerals Development Center (AMDC). The event, the first of its kind, was held to help raise awareness about opportunities and challenges in the extractive industry, as well as to share good practices for its sustainable management. It included a broad-based representation of stakeholders with about 120 participants from industry, government, development partners, and civil society.
The forum also provided the opportunity to discuss the findings of the “Strategic Assessment of the Ethiopian Mineral Sector” study, which was jointly published by the Ministry of Mines and other development partners. The report represents the first comprehensive assessment of the Ethiopian mining industry, examining the primary opportunities and challenges for growth and transformation in mining, while also providing an initial analysis of policy options for Ethiopian decision makers.
“In today’s global village the Ethiopian government by itself cannot overcome the challenges facing the mining sector,” said His Excellency Ato Tolosa Shagi, Minister of the Ministry of Mines, in his opening speech during the forum. “Therefore, we would like to underpin our co-operation with development partners and best performing countries in the areas of building up the indigenous expertise with more emphasis in regulating the mineral and oil and gas resources to properly administer contracts as we are dealing with nonrenewable natural resources.”
The WBG is providing technical assistance to the Ethiopian government to support them in translating the recommendations of the report to build a competitive, predictable, and responsible strategy, legislative and institutional framework for the Oil, Natural Gas and Mining industry. This will allow the Ethiopian government to conclude better deals for the extraction on their oil and mineral resources in a way that maximizes the benefits to the country, reducing the risk of costly or politically difficult remediation at later stages. It is supported by the Extractive Industries Technical Advisory Facility (EI-TAF), a demand driven multi-donor trust fund. The EI-TAF will be launched in the beginning of 2015 and will help to structure extractive industry development projects and related policies.
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Carbon pricing: a challenge for the future
The concept of carbon pricing as a tool to combat climate change is broadly accepted by the international community. But at what price, and under what conditions? As the world looks for ways to cut CO2 emissions, many questions remain unanswered. EurActiv France reports.
At the World Economic Forum in Davos last week, François Hollande, Ban Ki-moon and Jim Yong Kim, the president of the World Bank, all stressed the importance of placing a price on carbon.
Many of the methods used to tackle climate change have evolved in recent years, even though a growing consensus has emerged around the pricing of greenhouse gas emissions.
But opinion is divided over how pricing systems should be implemented. Emilie Alberola, an economist in charge of carbon market research for CDC Climat, said “A real consensus emerged over the price of carbon at the UN summit in New-York in September, but there were no calls to establish carbon markets”.
The difficult beginnings of the first carbon market
The reputation of carbon markets has suffered in recent years. Headlines were made at the COP 20 in Lima, when indigenous tribes appealed to the United Nations conference not to develop carbon markets for fear that they would encourage land speculation. In Europe a lack of credibility is the major issue.
The European emissions trading system (ETS) has weathered many storms, including massive VAT fraud, quota thefts, various scams like Ponzi schemes, and criticism from environmentalists. It is also in direct competition with other EU energy policies, such as the large-scale subsidising of renewable energies. Renewables are responsible for over half the EU’s reduction of CO2 emissions since 2008.
Though the aim of the ETS is clearly being achieved, with greenhouse gas emissions falling, the precise achievements of the carbon market are harder to pin down.
Despite this lack of clarity, the carbon market has its supporters.
Emilie Alberola said, “The carbon market has not reached the end of its shelf-life. It represents a way of defining an explicit [carbon] price, whether in the form of a quota or a tax. The alternative is to bring about an implicit price through the introduction of new standards. In any case, we must recognise that neither system is totally efficient”.
Majority support
The concept of carbon markets enjoys the broad support of the international community. Its increasing introduction by governments around the world illustrates their political acceptability as a method of taxation. China has established no fewer than six carbon markets, South Korea has recently launched its first, and the United States has two major markets, one on the east coast and one on the west.
Certain European countries, including the United Kingdom and Sweden, believe in carbon pricing so thoroughly that they have implemented parallel carbon taxes.
EU reform under way
Juliette de Grandpré, a climate and energy expert at WWF Germany, said “Reform takes time, it’s true. But the latest developments are encouraging. In the European Parliament even the Industry, Research and Energy (ITRE) Committee is not opposed to the scheduled reduction of the quotas on offer”.
On 22 January, the ITRE Committee failed to adopt a common position on carbon market reform. German European People’s Party members voted with the Greens and the Socialists and Democrats to speed up progress on the newly proposed Market Stability Reserve. The reserve would see carbon quotas withdrawn from the market in order to increase the price of CO2 emissions.
The European Parliament Environment (ENVI) Committee will decide in February whether to begin withdrawing quotas from the market in 2017, four years ahead of the current schedule.
The future model of carbon quota allocation will be more delicately managed than the current model. Since becoming operational in 2005, the ETS has systematically over-allocated carbon quotas.
Private sector to the rescue?
Private initiatives are also part of the range of tools being considered for the job of fixing a price on carbon emissions. Emilie Alberola said, ”It is possible that businesses will address the issue themselves[...] those that bet on and invest in a decarbonised model could see returns in the long term”.
In the absence of clear regulation, this is a bet that some companies are already willing to take. 73 states and 1,000 companies (including Unilever and Philips) are already participating in a scheme organised by the World Bank, that aims to put a firm price on the carbon they emit.
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Tripartite free trade area in Africa to launch in May: AU official
A senior official of African Union (AU) said Tuesday the long-awaited tripartite free trade area between three regional blocs is expected to be launched in May in Cairo, Egypt.
To boost intra-Africa trade, AU heads of state in January 2012 decided to establish the continental free trade area (CFTA) by 2017 between the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC), and the Southern African Development Community (SADC).
In a press briefing in the framework of the 24th AU summit at the AU headquarters in Ethiopia’s capital Addis Ababa, Fatima Haram Acyl, AU Commissioner for Trade and Industry, said the tripartite free trade area is something to be encouraged as a roadmap for the continental free trade area in Africa.
“This is something to be encouraged because as a roadmap for the continental free trade area, this is the first point that was noted by the member states, by the heads of states. We are very happy that it will advance and we are launching this tripartite FTA in May of 2015 in Cairo,” she said.
With 26 countries, 625 million people, and 1.2 trillion U.S. dollar gross domestic products (GDP), the three regional blocs said earlier they would be completing the tripartite free trade area in December of 2014, recalled the commissioner.
“I just want to say that 26 member countries as I say 625 million people and 1.2 trillion of GDP. So, it is very important for Africa and that’s why actually, we as a Commission, we go there and we part of the negotiations, we follow with keen interest the negotiations,” she said.
The commissioner said her department has made progress in promoting intra-African trade.
She announced that the commission is striving towards providing a common AU passport to facilitate a continental free movement of people across the borders of the respective African countries which will enhance trade within Africa.
The commissioner underscored the need for the statistics of the free trade areas to be reviewed so as to provide African business men with updated data to enable them to do their business transaction and networking efficiently.
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Traders’ reprieve after EAC agency rules on export tax
Kenyan traders have won a major reprieve after a top organ of the East African Community trading bloc ruled that taxes on exports will be based on ex-factory prices of goods, offering a clarification that potentially minimises stand-offs with Customs officials.
Increased spats have recently slowed trade as tax authorities from the respective EAC member countries battled over the valuation of goods transferred from one partner state to another.
The EAC bloc is Kenya’s single-biggest export market, which makes the ruling a big win for manufacturers in the country.
“We have been receiving complaints by traders across the region over non-level playing fields and we decided to intervene and give a technical direction on how things should be done. All partner states must play by the rules,” said the EAC director general in-charge of customs and trade, Peter Kiguta, in an interview.
Kenyan manufacturers welcomed the ruling, saying it would help accelerate trade.
“A notable effect is that the cost of goods is likely to be cheaper in the target markets which is good for trade,” said Emmanuel Alenga, an official of the Kenya Association of Manufacturers.
A common dispute has been on the valuation of goods produced and sold within EAC, with some States insisting that value added tax (VAT) should be pegged on the final cost of products, including cost of transport, insurance and handling.
But the EAC directorate of Customs has said taxation of goods will be based on their factory production costs.
“The valuation of goods by Customs for VAT purposes upon entry into a partner state is the ex-factory price of that product, which is the basis upon which local VAT is computed for the same or like product in the partner State,” it said in an administrative ruling.
“The inclusion of other costs after ex-factory level would be inconsistent with the principles of a Customs Union since they introduce a discriminatory element in the treatment of goods.”
An assessment done by a key organ of the community mid-2014 revealed that Kenya, Uganda, Tanzania, Rwanda and Burundi are struggling to balance the spirit of the Customs Union launched four years ago by shielding local businesses from competition.
The report by the EAC Sectoral Council on Trade, Industry, Finance and Investment showed that the EAC members had introduced taxes that are inconsistent with the Customs Union Protocol, which champions for seamless trade among them.
The taxes and other non-tariff barriers appear targeted at discouraging exports, with accusations of rules of origin being breached by manufacturers re-selling imports without any significant value addition.
Vehicle assembly, tobacco, beer, sugar, rice, beef, dairy and metal are among the industries at the centre of the dispute.
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Surge in Botswana share of SACU revenues
Botswana’s share from the Southern African Customs Union (SACU) common revenue pool showed a significant jump during the 2012-2013 financial years.
In its latest annual report, the Botswana Unified Revenue Services (BURS) says that SACU receipts for the 2012-2013 financial years surprised the market when they registered a huge increase of P5.8 billion, from P8.4 billion. This reflects a 68.7 percent increase from the previous period.
BURS commissioner general, Ken Morris stated that Botswana’s share from the common revenue pool remains a major revenue source for the national economy. He noted that the rise in the receipts was due to an increase in the members’ shares as an adjustment to account for the surplus in the common revenue pool, which was realised in the previous financial year.
Botswana’s share from the pool remains second highest after South Africa, constituting nearly 21 percent of the total shares. SACU member states use a revenue sharing formula that South Africa dislikes because it has a massive burden on its treasury and calls for a more equitable formula. “SACU member states are required to assess, collect and pay all customs, exercise and additional duties into the common revenue pool established by Article 33 of the SACU Agreement,” said Morris.
He further said in compliance with this requirement, Botswana collected and paid into the common revenue pool a total of P424 million during 2011-2012, representing a 25.7 percent increase from the previous year’s total of P337 million.
Customs duties, which contributed 70.8 percent of the total, recorded a significant growth of 143.6 percent, mainly due to the resurgence during the period of imports from outside the SACU region plus exercisable goods produced.
Meanwhile, Morris expressed disappointment at the tax revenue collections and targets, which show an overall shortfall of 1.0 percent during the year. He noted that the lower than expected performance was due to the low performance of income tax, which fell below target by 10.4 percent. “On the other hand, VAT [Value Added Tax] recorded a gain of 17.7 percent and there was also a modest gain of 0.5 percent in SACU receipts which was attributed to exchange rate fluctuations,” he said.
However, gross VAT collection for the reporting period was P7, 671 million, while total VAT refunds paid to taxpayers amounted to P2,234 million. According to Morris, this means that the net collection was P5,437 million, which is above the target by 17.7 percent, adding that it is mainly because of improved collections on internal VAT and reduction in the value of VAT refunds.
“Overall, all VAT collection streams recorded an increase over the previous year’s collections except for imports VAT,” said the commissioner general.
Moreover, income tax revenue collection from the assessed tax followed by deducted tax contributed 53 percent and 31 percent respectively to the total collection. The collections for 2012-2013 were lower than the previous year’s collections. It is believed that the drop in the collections is attributable mainly to subdued performance of the minerals sector caused by the global economic downturn.
During the period under review, BURS collected P609.1 million on behalf of government departments and agencies. Most of the collections came from the alcohol levy with 37.8 percent. The two together constitute 81.8 percent of total service levy collections.
Net revenues transferred to government departments and agencies, less the Revenue Service’s commission fee of P40.2 million, amounted to approximately P568.9 million.
Morris also revealed that investigations yielded revenue recovery amounting to P2.2 million, which is a 23 percent increase on last year’s recovery, which was P1.8 million. He added that a large portion of the recovered amount was from duties and taxies paid for goods that were either not declared or were undervalued at the time of import.
Infographics
SACU Receipts
Botswana’s share from the SACU Common Revenue Pool remains a major revenue source for the national economy. During the year under review, Botswana’s share from the Common Revenue Pool stood at P14.2 billion. This marked a significant increase of nearly P5.8 billion, from P8.4 billion received the previous year – a 68.7% increase from the 2011/12 period. The increase in the receipts was attributed to an increase in members’ shares as an adjustment to account for the surplus in the Common Revenue Pool which was realised in the previous financial year.
Customs and Excise Duty Collections
SACU Member States are required to assess, collect and pay all customs, excise and additional duties into the CRP established by Article 33 of the SACU Agreement. In compliance with this requirement, Botswana collected and paid into the CRP a total of P424 million during 2011/12, representing a 25.7% increase from the previous year’s total of P337 million. Customs duties, which contributed 70.8% of the total, recorded a significant growth of 143.6%, due mainly to the resurgence during the period of imports from outside the SACU region plus excisable goods produced.
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EU divided over ‘conditionality’ of aid
Belgium has suspended part of its aid programme to Rwanda in response to the country’s poor human rights record. The conditionality of aid is a subject of disagreement among European countries. EurActiv France reports.
The question of whether to give without expecting anything in return has become a major headache for the European Union, the world’s biggest donor of development aid.
Belgium’s Minister for Development Cooperation Alexander De Croo announced his intention earlier this month to place stricter conditions on assistance to developing countries, following his government’s decision to suspend part of its aid to Rwanda.
Belgium decided to withhold €40 million of aid after deciding the Rwandan government had failed to meet some of its commitments in the domains of political transparency, good governance and freedom of the press. The aid was conditional on those commitments.
In Belgium the attachment of such conditions to aid payments is seen as a way to exercise leverage on human rights matters, while in other European countries, particularly in France, it is perceived as counter-productive.
Doubly punitive measures
“Aid conditionality has a doubly punitive effect on the poorest populations,” a source in the French Ministry for Foreign Affairs told EurActiv.fr. “If a country does not respect human rights, and this leads to the suspension of public development aid, it is systematically the fragile populations that suffer as a direct result”.
For France, it is exceptional to take disciplinary measures involving public aid, and they can only take place “in the case of a coup d’état or an illegitimate government”. In such a case, France would “suspend its financial aid to the state,” but maintain its humanitarian aid commitments, as well as keeping open the channels to civil society and NGOs.
The coup d’état in Mali in March 2012 led France to suspend its budgetary aid for almost a year, without cutting its humanitarian aid.
European disagreement
European relations with the African, Caribbean and Pacific countries (ACP) that receive public development aid are regulated by the Cotonou Partnership Agreement.
In return for European Union aid, the ACP countries must respect a series of political, technical and democratic conditions defined by the agreement. This provides a framework for both partners regarding the respect of fundamental rights, and prescribes a consultation period of up to two months when these rights are breached.
Article 97 of the agreement states that if the consultations fail, or in “serious cases,” donor countries can take “appropriate measures” to remedy the situation. That may include the suspension of payments.
In practice, the EU will only cut its financial ties with ACP countries in response to a breakdown of the democratic order. Such “serious cases” included the 2009 coup d’état in Madagascar, as well as similar situations in Zimbabwe, Togo and Guinea-Bissau.
Tiptoeing around the issue of LGBT rights
There still appear to be a certain number of taboo subjects in the political dialogue between the EU and the ACP countries. If human rights, democratic principles, the rule of law and gender equality feature in the Cotonou agreement, the rights of sexual minorities remain conspicuously unaddressed.
A source from the French Ministry of Foreign Affairs said, “On the subject of homosexuality, we run the risk of giving the impression that European countries are trying to impose their values on certain countries”.
Homosexuality is still a criminal offence in 76 countries, 38 of which are in Sub-Saharan Africa. According to a report by Amnesty International, it is punishable by death in five countries.
In early 2014, Uganda caused uproar in Europe by hardening its stance on homosexuality. The Netherlands and Denmark suspended their bilateral aid programmes, but at the European Council in Brussels, the member states were unable to agree on a joint response.
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TTIP is ‘big bonanza’ for developing countries, EU claims
The planned EU-US free trade agreement TTIP holds unexpected opportunities for developing countries, according to a recent study. But while the European Commission has high hopes for the deal, NGOs are warning of a transatlantic “Economic NATO” with devastating effects for the global world order. EurActiv Germany reports.
After heated controversy over chlorine-treated chicken and Nürnberger grilled sausage from Kentucky, German Development Minister Gerd Müller has decided to go the extra mile.
On Wednesday (21 January), Müller presented a study by the Munich-based ifo Institute for Economic Research covering the effects of the planned Transatlantic Trade and Investment Partnership (TTIP) on developing and newly industrialised countries.
The ifo study, commissioned by Müller three months ago, is meant to establish an “independent basis for discussion” over the global effects of TTIP, the Minister said.
“The trade agreement with the United States offers a unique chance to structure globalisation more fairly. We want to set minimum ecological and economic standards for the entire world,” Müller explained.
In the new study, researchers depend on interviews with experts, case studies and particularly on an evaluation of existing published analyses. They refute the concern voiced by numerous critics that TTIP would push smallholders in poorer southern regions further into poverty.
The sheer size of the transatlantic trade relationship could lead to economic competitors in third countries not having a chance anymore, the researchers write. But at the same time, increases in growth in the EU and the United States would considerably increase the demand for goods and services from developing and newly industrialised countries.
With regard to energy feedstocks, the EU imports more from developing countries than the United States, Canada, Japan and China combined.
“With this study we are sending a warning. The effects on developing and newly industrialised countries are relatively harmless. And when it comes down to it, there are winners as well as losers,” said the director of the study, Gabriel Felbermayr.
Southeast Asia: TTIP loser
According to the study, the region with the most TTIP losers would be Southeast Asia. Due to TTIP, countries in the region would lose their competitiveness opposite Europe, and the United States would suffer.
While TTIP countries are breaking down their tariff-barriers, tariffs for third countries will stay, the authors write. When companies compete over the same products, those from developing and newly industrialised countries will lose out, the study indicated.
But considering that industrialised and developing countries often produce and trade completely different products for different sectors, the deadweight losses in so-called “losing states” over the course of ten or twelve years would be under 1%.
“In light of annual growth rates of 3-4% such effects seem rather small,” said Felbermayr.
The big winners from TTIP are raw materials-producing states as well as countries that are already well-integrated into the value chains of the EU and United States, such as the oil-exporter Brazil, and automotive-exporter Morocco. But here as well, profits would only rarely surpass 0.2% of per capita income.
The director of the study, Felbermayr, called on TTIP negotiators to tweak at the right adjustment screws in the coming months. Only in this way can one speak of creating more equitable globalisation through the agreement.
The EU and the United States must ensure that mutual recognition of transatlantic standards is extended to third countries as far as possible, the study’s director pointed out, and developing countries must be included more in negotiations over new standards. TTIP should not create an “economic NATO”, that simply seeks to knock out China in the fight over global leadership, said Felbermayr.
EU sees TTIP route confirmed
Meanwhile the European Commission sees its actions confirmed by the ifo study.
“The effects of TTIP on the rest of the world are low. We have been saying that for a long time,” explained Marc Vanheukelen, Director of the Commission’s trade department (DG Trade) after the presentation of the study in Berlin. The removal of non-tariff barriers within the transatlantic area offers significant growth opportunities for export-oriented companies in third countries, he said.
“With TTIP, in most cases products will only need to be in line with one standard. For exporters to the transatlantic market that will lead to a simplification of life. We might eliminate 50% of non-trade barriers, a big bonanza for third country producers,” Vanheukelen chimed.
Development NGOs, on the other hand, are criticising the economic research study. The selection of analysed data is questionable, they claim, especially when it is not even certain yet, what the TTIP text will look like in the end.
“But we do know one thing from experience: bilateral trade agreements always have the effect that third countries are not as well off,” said Christa Randzio-Plath, deputy chairman of VENRO, the umbrella organisation of German development organisations.
So far, negotiations have completely overlooked the interests of developing countries, said Randzio-Plath, this must change in the future. At the same time, more concessions must be made for poorer countries in the World Trade Organisation’s Doha Round. “TTIP cannot simply become a nucleus for a new multilateral world order.”
Oxfam: TTIP could intensify global imbalances
The development NGO Oxfam said the study lacks a prognosis over the influence TTIP would have on unequal distribution of income on a global scale, but also within developing countries. The EU’s growth and the United States over the past few decades have aggravated these imbalances, the NGO argues.
“The open question then is, whether and how TTIP could be used to counter this development,” said Oxfam’s campaign advisor David Hachfeld. On Monday (19 January), Oxfam published its own study, indicating the distribution of global wealth is becoming increasingly imbalanced.
Uwe Kekeritz, a Green Party MP in the Bundestag, said the ifo study does not come closer to illuminating what the “positive growth effects” for developing countries could look like. Instead of pursuing whether or not growth is inclusive and reaches all parts of the population, Kekeritz said, the study supports the idea that the poor south is constantly reliant on the wealthy north.
TIMELINE:
By the end of 2015: Planned completion of TTIP negotiations
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In Ethiopia, poverty high despite growth
The rapid economic growth Ethiopia has witnessed in the past decade has failed to bring about the kind of structural changes that would help reduce poverty in a meaningful way, a new assessment report by the World Bank says.
The Ethiopia Poverty Assessment Report released recently in Addis Ababa notes that the manufacturing and service sectors have failed to reduce poverty the way agriculture has.
“Although there is evidence of manufacturing growth starting to reduce poverty in urban centres at the end of the decade, structural changes have been remarkably absent from Ethiopia’s story of progress,” the report says.
“The majority of Ethiopian households still engage in agriculture and live in rural areas. Additional drivers of poverty reduction will be needed to end poverty in Ethiopia, particularly those that encourage the structural transformation of the country’ economy.”
In order to boost poverty reduction, the report recommends that the government introduce policies that encourage further agglomeration through urbanisation.
“This in turn requires policies that favour the entry and growth of firms, in addition to support to self-employment in non-agricultural activities. Programmes targeted at improving the wellbeing of the urban poor will also become increasingly important,” the report notes, indicating the need for a replication of the rural-focused productive safety net programme (PSNP) in urban areas where unemployment is rising.
Since 2005, when the PSNP was introduced in the country, around one-and-a-half million Ethiopians in rural areas are believed to have moved out of absolute poverty (those earning less than $1.25 per day), according to Ruth Hill, a senior World Bank researcher who presented the report.
Even though poverty fell from 44 per cent in 2000 to 30 per cent in 2011, it remains widespread in Ethiopia, and the poorest households have become poorer than they were in 2005, according to the report, which some have criticised for failing to include the economic performance of the country after 2011.
“High food prices that improve incomes for many poor farmers make buying more challenging for the poorest. Despite improvements, Ethiopia still has relatively low rates of education enrolment, access to sanitation and attended births, and challenges remain around investment in the health, safety and education of women and girls,” says the report.
It, however, notes that average household health, education and living standards today have improved since 2000, and that the number of people living below the poverty line has fallen.
“Reductions in poverty were driven mainly by agricultural growth, underpinned by high and consistent economic growth,” notes the report.
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Kenya’s global market share of horticulture on the decline
Kenya has lost a chunk of its global market share in horticulture in the last five years, a new study shows.
Despite a jump in exports of fruits and vegetables from 100,000 tonnes in 1997 to 350,000 tonnes in 2013, Kenya’s global market share fell to 1.23 per cent last year. In 2008, its global market share was 1.28 per cent, notes Global Competitiveness Study by USAID and the financial transactions and reports analysis centre of Canada released this week.
Over-reliance on tea and flower exports as well as poor export value per hectare are to blame for the contraction, the report notes.
“Kenyan exporters tend to heavily rely on two or three markets, implying need for diversification,” it says.
Out of the $355 million (about Sh33 billion) worth of horticulture Kenya exported last year, $255 million of it went to the European Union.
Over-reliance on Europe
The report ranks Kenya as the largest African horticulture exporter to the EU with a 16 per cent market share. However Ghana, South Africa and Egypt export more to the Middle East, signifying Kenya’s over-reliance on Europe.
Interestingly, despite Kenya being ranked as the largest horticulture exporter in sub-Saharan Africa, arid countries in the North and the Middle East not only export more per capita but beats Kenya in terms of export value per hectare.
Produce per capita
Take Israel for instance. In 2012, the desert country, the size of Tsavo National Park, exported $559 worth of horticulture per capita. Egypt and Morocco, both arid countries, exported goods valued at $132 and $69 per capita respectively while Kenya shipped just $8 worth of produce per capita.
Overall, potatoes, mangoes, avocados and fresh peas exports have been growing steadily in the last 10 years due rising demand in Europe and Gulf markets.
French beans, passion fruits and onion exports fell due to competition from Latin America as well as unreliable supply locally.
“Despite a huge potential in avocado and passion fruit exports especially in Europe where the crop does not grow due to weather patterns, production of these crops is led by small holders whose scale of production cannot benefit the value chain,” notes the report.
“Although there is a capacity to produce all-year-round, production of passion fruits has been tied to the rainy season leading to premature harvesting in order to meet demand which is hurting Kenya’s prospects.”
Cost of inputs
The survey also found that compared to its rivals, the cost of farm inputs in Kenya is high while funds spent on agriculture are less than half that of regional competitors. In addition, local farmers get the lowest credit from banks compared to their counterparts in the region.
“Only six per cent of commercial banks in Kenya are lending to the agricultural sector, which is the lowest in the region.”
“The cost of crop production is also relatively high and despite the strength of the private seed sector, seed availability remains a problem in Kenya with most farmers getting seed through export companies who have exclusive contracts with seed companies.”
The report adds that Kenyans use far less fertiliser than the global benchmarks while crop protection chemicals in the country are over three times the cost in Tanzania and twice the cost in Peru in South America.
To succeed, Kenya needs to work on branding and co-ordinate farmers to comply with export market requirements, director for the study, Mr Ian Chesterman, told Smart Company. “There is huge problem in Kenya’s marketing strategy when one of your signature export crops is called French beans.”
“There are no promotional strategies of Kenya as a brand in the global horticulture market and farmers rely on the existing distribution channels, which are not enough and interestingly none of the produce is marketed as uniquely Kenyan.”
Mr Chesterman cited transport costs and time taken by Kenyan products to reach the market as other key challenges.
“It costs as much to transport a container from Nairobi to Mombasa as from Mombasa to Rotterdam,” he noted.
“Because of this, many farmers rely on air transport, which is expensive and you cannot compete in the fruit produce export market, for example, unless you use sea freight. But getting a container to Mombasa is painfully slow and expensive,” he said.
Growing demand
However, the report projected export market potential based on growing demand in 50 major countries in Europe, North America, Asia and the Middle East that Kenyan farmers could exploit.
High value crops required in these areas include potatoes, onions, French beans, mangoes, avocado, passion fruits and fresh beans.
In order to reach these markets, smallholder farmers have been advised to form Saccos and cooperatives.
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Africa 2014 in Retrospect
In last year’s Foresight Africa 2014 report, Africa Growth Initiative (AGI) scholars and colleagues highlighted many issues they believed would influence the course of the continent’s development in 2014. The majority of the issues focused on priorities to accelerate economic growth, including job creation for youth, development finance, the Post-2015 Development Agenda for the continent, agricultural and industrial production and transformation, and strategies to harness emerging partnerships for Africa’s development. Other issues discussed in Foresight Africa 2014 emphasized security – specifically dealing with piracy in the coast of Somalia and the Gulf of Guinea, as well as approaches to strengthen Africa-led peace interventions. Finally, the issue of Africa and international justice was discussed with a special focus on the International Criminal Court and its relationship with Africa. AGI fellows monitored the issues identified in Foresight Africa 2014 throughout the year, and their insights became a valuable part of policy discussions in various countries and also at the regional and continental levels. Thus, to a large extent, Foresight Africa 2014 accurately highlighted the many critical issues of 2014, and therefore no doubt contributed to policy discussions.
In 2014, several other events and issues – both negative and positive – emerged and had major impacts on the course of development in the continent. Here we highlight a few of those issues:
Economic Growth
African countries continued to register robust growth rates in 2014. The high rates of growth of the African economies, though supported to some extent by high commodity prices, were also due to continued improvement in the investment climate, prudent macroeconomic policies and also sustained flow of foreign direct investments. While the investment climate remains relatively poor, Africa was the most improved region actually recorded the largest number of regulatory reforms (75 of 230 worldwide) to improve business environments in 2014 (Doing Business 2015, World Bank). Progress in the diversification of economies was positive, and innovation based on mobile phone technologies (money transfers, health, agricultural information and insurance, etc.) were important in contributing to growth. Although the price of oil dropped substantially, the overall impact of this drop did not impact growth rates significantly – though this may not be the case in 2015 for oil-dependent economies.
Despite high rates of growth, the benefits of this growth were concentrated on the wealthy. The growth was not inclusive, especially when it came to lowering overall unemployment and youth unemployment rates specifically (an issue discussed in Foresight Africa 2014). Furthermore, although there were positive developments in economic diversification, the most important sector – agriculture – did not experience the transformation necessary for increased productivity. Thus, economic growth in 2014 had the effect of exacerbating inequality and increased unemployment.
Of note also is that five African countries – Nigeria, Kenya, Zambia, Uganda and Tanzania – rebased their GDPs, revealing that their economies are 89 percent, 25 percent, 25 percent, 13 percent and 32 percent larger (respectively) than previously estimated. In fact, with this rebasing, Nigeria became the largest economy on the continent.
Deepening Trade and Investment with the United States and Other Global Powers
During the year, Africa continued to deepen trade and investment relationships with major global players – though the benefits vary. In 2014, the United States signed a Trade and Investment Framework Agreement (TIFA) with the Economic Community of West African States (ECOWAS). This TIFA will provide a mechanism for expanding trade (valued at $23.3 billion in 2013) and investment between the United States and the 15 ECOWAS member states. The European Union entered into new reciprocal trade arrangements with African countries – the Economic Partnership Agreements (EPA) – that provide African countries with duty-free access to European markets. While this development has potential to truly benefit these countries, there are real concerns that the EPAs could detract from intra-African trade and integration, and, in turn, associate with large losses to African countries.
Sub-Saharan Africa also made significant headway in trade and investment with emerging markets, especially with China. In May 2014, Chinese Premier Li Keqiang spent eight days on the continent, visiting Ethiopia, Nigeria, Angola and Kenya with the primary objective of bolstering economic ties with the continent. The trip resulted in numerous trade, energy, investment and development agreements and ended on a high note in Nairobi, where Li signed a deal with Kenyan President Uhuru Kenyatta and other East African leaders to construct a $3.6 billion, 380-mile railway line linking Nairobi to the important Kenyan port of Mombasa. This link will be a part of a regional railway system that will eventually extend through Rwanda, Uganda, Burundi and South Sudan.
The U.S.-Africa Leaders Summit
Among the notable events impacting Africa’s development in 2014 was the U.S.-Africa Leaders Summit that was convened in August by President Obama. The 2014 summit has the potential to herald a new era of U.S.-Africa relations where Africa occupies a more prominent position in U.S. foreign policy. In fact, the focus of the summit was not the traditional donor-recipient relationship but one based on mutualism. Thus, in addition to tangible investment commitments, the summit had the effect of redefining the U.S.-Africa relationship.
The summit brought together 45 African heads of state as well as business executives and civil society leaders. In addition to direct discussions between President Obama and African leaders, the summit also featured a business forum to promote ties between African and American executives, as well as a youth forum. Overall, the summit was significant not only because it was the first such summit where an American president met with African leaders, but also because concrete commitments were made to advance Africa’s development and also increase U.S.-Africa commercial ties. Specifically, over $14 billion in new deals between U.S. companies and African governments (in the renewable energy, aviation, banking and construction sectors) were announced at the U.S.-Africa Business Forum.
Regional Integration
In 2014, the various regional economic communities (RECs) continued to make progress in the advancement of regional integration. Though the pace of progress varied across the RECs, there was a general positive progress in removing barriers to trade in goods and services and also in the movement of people. Negotiations on the COMESA-EAC-SADC Tripartite Free Trade Area (FTA) are ongoing, and the FTA is expected to be launched at the 3rd Tripartite Summit of Heads of State and Government in Cairo, which has been postponed from mid-December 2014 to February 2015. In addition, member states focused increasingly on regional infrastructure to advance the regional integration agenda. In the East African Community for example, there were heightened discussions on monetary integration. Thus, although the pace of integration could be higher, the trajectory was positive in 2014.
Ebola Outbreak in West Africa
The Ebola outbreak in West Africa, which began in a remote Guinean village in December 2013, is probably the single most significant issue that impacted the course of Africa’s development in 2014. The spread of the disease in West African countries – specifically Guinea, Liberia and Sierra Leone – led to a total number of confirmed, probable and suspected cases of Ebola of 19,695, with 7,963 deaths in these countries (as of December 29, 2014). In the United States and Mali, where there has been localized transmission, there have been 12 total cases and seven deaths, while in the previously affected countries of Nigeria, Senegal and Spain there have been 22 cases and eight deaths.
In addition to the tragic number of lives lost, the Ebola outbreak had a devastating effect on the economies of the affected countries. Countries such as Liberia that have been among the fastest-growing economies on the continent saw their growth drastically reduce from 5.9 to 2.2 percent. The outbreak also strained the health systems in the affected countries, exacerbating their already fragile human development. While the outbreak was limited to the few countries in West Africa, the spillover effects were felt throughout the continent and beyond. Reduced movements of people across national boundaries and flight bans to the rest of the continent also affected trade and tourism across sub-Saharan Africa. Attention to Ebola damaged the image of Africa in the eyes of people around the world and overshadowed recent accomplishments, such as the U.S.-Africa Leaders Forum. In addition, unfortunately, the long-term consequences on investment and economic growth look rather bleak.
Initially, the response to the Ebola crisis was slow and uncoordinated. However, as the crisis unfolded, many governments, multilateral organizations, civil society organizations and private sector intervened. Thus, by the end of the year, there were signs that the combined effort of the various organizations was bearing fruit leading to a slowdown in the spread of infections. The continent took a while to respond, but is now successfully rallying to end the crisis.
Terror Attacks in West and East Africa
The rise in terrorism incidences in Nigeria and in East Africa, especially in Kenya, has also hurt development on the continent. In addition to the direct security challenges and humanitarian losses, terrorism undermines economic growth and slows the delivery of services. Investors are wary of countries with high risks of violence.
In Nigeria, the radical Islamist group Boko Haram increased its violent attacks on innocent populations. In April, members of Boko Haram abducted over 200 girls from Chibok, Nigeria – they still have not been found. Despite the Nigerian government’s assertion that Boko Haram agreed to a cease-fire on October 17 and would soon release the kidnapped schoolgirls, at least 25 more girls in northeastern Nigeria were kidnapped the following week. There has since been no update from the Nigerian government on the girls’ expected release. Boko Haram continued with its terror activities through the year – killing and displacing innocent people, and disrupting economic activities. This year might not be much different: We’re only a few weeks into 2015 and Boko Haram’s terror activities have intensified.
In East Africa, the terrorist group al-Shabab continued to target African peacekeepers and related civilian personnel in Somalia as well as civilians in Kenya – especially in the coastal and northeastern region of the country. However, the African Union-led peacekeeping made substantial progress in stabilizing Somalia.
Conflict and Political Instability
Similarly, while generally conflict on the continent has been declining both in terms of intensity and duration, a number of countries – especially the Central African Republic, South Sudan, the Democratic Republic of the Congo (DRC), Burkina Faso and the Gambia – experienced violent conflict or, at the very least, political instability. Although these cases appear isolated, the spillover effects of conflict and political instability in one country impacts neighboring countries also and thus have some multiplier effects.
In the Central African Republic, the violence, which began in late 2012, continued between ex- Séléka and anti-balaka forces, despite multiple attempts at cease-fires and the presence of African, French and (as of September) United Nations peacekeepers. While disarmament processes were underway across the country, the security situation remained volatile, with recurrent intercommunal attacks. Elections that were scheduled for February 2015 have been postponed until August amid ongoing security concerns.
On-and-off peace negotiations in South Sudan made little progress in stemming the conflict between government forces loyal to President Salva Kiir and rebels led by the former Vice President Riek Machar that has been ongoing since 2013. Recent reports indicate that the fighting might escalate again when the rainy season ends if the two parties fail to reach a timely negotiated settlement.
Security in the Democratic Republic of the Congo (DRC) remained fraught in the eastern regions of the country where rebel groups continued assaults on civilians. U.N. and Congolese forces were preparing to launch an offensive against the Democratic Forces for the Liberation of Rwanda (FDLR) rebel-group in the eastern DRC, which could prompt mass displacement of civilians and potentially a humanitarian emergency.
President Blaise Compaoré of Burkina Faso was ousted after almost 30 years of rule due to his attempt to prolong his stay in power by amending constitutional term limits. Since his overthrow, the military briefly held onto power before returning the country to a civilian interim government. This demonstration of public outrage, which compelled Compaoré to leave office, could deter other African leaders from trying to extend their rule by altering or defying constitutional limits.
In the Gambia, a small group of conspirators, including two U.S. citizens of Gambian origin, attempted to overthrow the government by attacking President Yahya Jammeh in his residence. The coup failed as the president’s security personnel repelled the assailants; however, the president has sent soldiers to uncover additional details of the plot in a display of intimidation that is worrying some human rights experts.
Despite these pockets of instability, good governance in Africa increased in 2014, though minimally: The Mo Ibrahim Foundation’s African Governance Index highlighted incremental improvement in good governance. The 2014 Ibrahim Index on African Governance revealed that continent-wide governance performance increased by just 0.9 percent over the past five years, representing a slight decrease from the previous five years’ (2005-2009) growth of 1.2 percent.
Thus, Africa in 2014 saw both wins and losses, tragedies and successes, triumphs and failures. We enter the new year, though, with lessons learned from these events. Africa will continue to build upon the new trade and investment brought to the continent. It will translate its regional integration and African approaches into movements for halting security threats, supporting its violence- and disease-afflicted neighbors, and creating a climate for social, human and economic development for all.
Mwangi S. Kimenyi is senior fellow in the Africa Growth Initiative and currently serves as advisory board member of the School of Economics, University of Nairobi.