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Rusumo border post to boost regional trade says Rwanda Minister
Rwandan minister of Infrastructure James Musoni has said that the Rusomo one stop border will unlock Rwanda’s business opportunities and boost intra-regional trade.
He was speaking on Saturday while officially launching the Rusumo international bridge and One Stop Border post in Ngoma district, Eastern Rwanda.
Rusomo Bridge lies between Rwanda and Tanzania and it facilitates cross border movements between the two neighbouring countries.
The project that was funded by the Japanese government to a tune of 32 million U.S. dollars is expected to help address the challenge of increased traffic on the central corridor, an important regional route connecting the region to the port of Dar es Salaam.
“This is quite an important mile stone towards facilitating regional trade and deepening East African Community (EAC) integration.
“This structure will help eliminate traffic congestion and improve the efficiency of cargo transportation,” Musoni told journalists shortly after the launch.
He noted that the plan to construct border posts at borders in EAC is in line with the regional integration plan to help ease movement of people and goods.
“Rwanda being a land locked country, this is an opportunity for us to increase trade exchanges with our neighbours and other countries that connect us to the sea,” he said.
The project works included the construction of the new Rusumo International Bridge with 80m of length and 13.5m width, and other facilities such as the administration building.
It consists of a control shed for vehicle control purposes, guard quarters, and car park for large vehicles.
The new two-lane bridge has replaced the old one-lane bridge constructed 40 years ago.
The new bridge has the capacity to support 180 tonnes from the current capacity of 53 tonnes.
“We are so happy because this is going to ease our business.
“The traffic congestion is going to considerably reduce and the time we spend at the border is going to reduce,” Hamza Ntirenganya, a Rwandan truck driver.
He added that it was very challenging for them because they would spend too much time at the border clearing their merchandise because of too much traffic caused by trucks.
Presently Nemba One Stop border post between Rwanda and Burundi in eastern province is operating as well as Ruhwa border post in Rusizi District, that also links Rwanda to Burundi.
Kagitumba border post is under construction while others to be constructed include Gatuna border, the busiest post between Rwanda and Uganda as well as Cyanika border that also connects to Uganda.
Plans are under way to upgrade La Corniche border post in Gisenyi Sector, Rubavu District in western province that connects to DRC.
The Rusumo international bridge that has been under construction since May 2012 was on Wednesday opened to traffic.
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Making Nigeria a load centre in West Africa
Shipping experts are of the view that Nigeria urgently needs to build a brand new deep seaport in Lagos, among other reforms that will reduce costs and corruption in the ports system, as the only way to beat other West and Central African countries in the struggle for a load centre in the region, writes Francis Ugwoke
By her population and capacity for trade, Nigeria ought to be the load centre in West Africa. In shipping terms, a load centre is simply a trans-shipment base for cargo vessels of all types and sizes. It is simply a point of convergence for vessels trading in a particular region. Now, instead of bigger vessels having to take cargo to every port in the region, such vessels can simply deliver such cargoes to a trans-shipment base from where a small vessel takes the same cargo for final delivery to other neighbouring ports.
The quest for a load centre is over 16 years when the World Bank first sponsored experts to carry out a study in West Africa to find out which of the countries in the region should be chosen. After that report which did not favour Nigeria even with her tremendous size of trade, no particular country has been named so far by the relevant international agencies and ship-owners as a trans-shipment base in the West African region. But the first report had cast aspersion on the present Lagos ports as likely load centre for obvious reasons.
The issue of high cost of doing business, which is a combination of many factors, was identified. High level of corruption in the port system, including multiplicity of agencies and agents of government, trying to extort importers and ship-owners , was raised. The other issue was the size of the ports and facilities, including the shallow level of the draught. So far, the fears of the experts in choosing Nigeria as trans-shipment base appear to have been confirmed. The roads leading to the Lagos ports have in the past 10 or more years been in a terrible state. Government has failed year after year to address the issue. Life and business in Apapa have been nightmarish for many.
Although, a lot of reforms have been carried out, including concessioning of the ports, not much has been achieved in terms of improving the facilities. 24-hour cargo delivery which every administration desired has failed. Ships come to the ports and spend close to two weeks waiting to be berthed before the cargos can be discharged. And the practical way to confirm this is to study the shipping position released each day by the Nigerian Ports Authority (NPA). Some ships can actually be on the high sea waiting to be berthed for more than two weeks. Many ships coming with petroleum products are the worst hit. In the past, some of such ships simply discharged midstream and sail after greasing a lot of palms. The Ministry of Transport during the time of Chief Ojo Madueke had on learning about this economic fraud raised alarm, and stopped the scam.
Now, the situation can no longer be the same with terminal handling under private firms who will monitor everything to ensure no revenue is lost. But the terminal operators are yet to improve on a lot of facilities that will place Nigeria in a position to compete for the position of a load centre with other neighbouring countries. Surprisingly, the NPA as a landlord cannot do much as it is sometime accused even by its own Minister of failing to live up to expectation in its statutory responsibilities. The poor equipment profile by many terminal operators is a nightmare for many importers and freight forwarders.
Many of them still spend close to two weeks waiting for their containers to be positioned for examination. It is this particular scenario that the Nigerian Shippers’ Council (NSC) as the Ports Economic Regulator is trying to correct, so that if the terminal operator or the shipping company is responsible for the delay in clearing any consignment resulting in demurrage, the importer is exempted from this.
Stakeholders who are passionate on Nigeria becoming the hub are of the view that there is the need to study modern trends in other international ports and replicate them in Nigeria as the only option to position Nigeria as a load trade centre in West Africa.
Countries Aspiring to be Load Centres in Africa
The current situation in the shipping industry is such that every country wants to be a load centre in West and Central Africa. This explains the rush to build giant deep seaports across the West and Central Africa. So far, Togo, Cote d’Ivoire, Ghana and Cotonou are all into the project of having an internationally accepted deep seaport. Although, these countries do not have the size of market like Nigeria, the President, National Council of Managing Directors of Customs Agents (NCMDCA), Mr Lucky Amiwero, said all these countries are targeting cargos coming to Nigeria. Noting that two load centres are needed in both West and Central African region, Amiwero disclosed that so far, many of these countries are building deep seaports that have draught of at least between 16 and 18 meters. Amiwero said that all these countries want is to siphon cargos coming to Nigeria to their own ports after the completion of their deep seaport projects. He identified Ghana which has a natural deep seaport as a big threat to Nigeria.
New Deep Seaport in Lagos as Trans-shipment Base
Amiwero was of the view that for Nigeria to be a trans-shipment base, there cannot be any other place other than Lagos. But he cautioned that the current seaports are simply out of consideration since they are River ports with limited draught. Although Nigeria is currently building seaports in Lekki and Ibaka, Akwa Ibom State, Amiwero said the biggest problem for these deep seaports and others outside Lagos is their location. He believes that any deep seaport outside Lagos is doomed to fail. Ruling out the Lekki Deep Seaport and the one planned for Badagry, he called on federal government to consider another deep seaport in Lagos where the draught level would be between 16 and 19 meters where modern vessels coming with 15,000 to 19,000 teus can berth. So far, vessels coming to Lagos ports are those with 2,000 teus with the highest so far being the vessel that came with 4,000 teus. The Lagos ports are 13 meters deep and can certainly not take modern vessels with capacity for 15,000 teus. On the particular area in Lagos where the deep seaport should be built, Amiwero, a renowned shipping expert, said that the federal government needs to carry out a feasibility study to identify a suitable place. He described as laughable the deep seaports being developed outside Lagos, adding that what government and other investors in these projects should ask is the viability of these ports.
Reform of Customs Procedure
As part of the efforts to have a transshipment base, Amiwero opined that every effort should also be made to reform the Nigeria Customs Service (NCS). Describing the current procedures as not in line with the law, he claimed what the Customs does is simply to impose duties through Debit Notes (DNs) on importers which they must pay or they lose their cargos.
Rail Service
For Nigeria to be a load centre, a shipping expert, Mr Lawrence Metuh, was of the view that Nigeria must study what happens in other advanced countries, adding that no seaport can overcome congestion without a good rail system. He argued that for Nigeria to be considered as a load centre, government must be ready to link the Lagos ports with rail.
Fight against Corruption, Illegalities
Metuh also advised government that while building a load centre, concerted efforts must be made to check all forms of corruption and illegality in the ports. He added that what makes the neighbouring ports thick needs to be studied too. Describing Nigerian ports as very expensive, Metuh was of the view that government must pursue efficiency to the highest level. According to him, a new customs service is needed to stamp out all forms of corruption in the system.
Accusing some customs officers of induced corruption, he said that unscrupulous importers have continued to engage in all forms of trade malpractice because there are some willing officers who collect settlement to keep blind eyes to the appropriate punishment on trade crime. Once appropriate punishment is meted out, this will force the importers and their customs brokers to retrace their steps on corrupt practices, he added. When this is achieved, he said, it will increase revenue generation from the system.
Metuh equally called on the government to move a step ahead in its support for the Ports Economic Regulator by issuing a statement which condemns attempt by terminal operators and shipping companies from stifling regulation in the system. He added that equally important is the need to ensure that both the terminal operators improve on their cargo equipment at the ports to reduce the time spent waiting for containers to be positioned for examination. He believes that when the current high cost of doing business is reduced, it will open the Lagos ports to the admiration of not just Nigerian importers but also the international shipping community as the choice of a transshipment base.
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BRICs will be ICs if Brazil and Russia don’t shape up, phrasemaker warns
Brazil and Russia’s membership of the BRICs may expire by the end of this decade if they fail to revive their flagging economies, according to Jim O’Neill, the former Goldman Sachs Group Inc. chief economist who coined the acronym.
Asked if he would still group Brazil, Russia, India and China together as emerging market powerhouses as he did in 2001, O’Neill said in an e-mail “I might be tempted to call it just ‘IC’ or if the next three years are the same as the last for Brazil and Russia I might in 2019!!”
The BRIC grouping will be dragged down by a 1.8 percent contraction in Russia and less than 1 percent expansion in Brazil, according to the median estimate of economists surveyed by Bloomberg News. China is seen growing 7 percent and India 5.5 percent.
The BRICs were still booming as recently as 2007 with Russia expanding 8.5 percent and Brazil in excess of 6 percent that year. The bull market in commodities that helped propel growth in those nations has since ended, while Russia has been battered by sanctions linked to the crisis in Ukraine and Brazil has grappled with an unprecedented corruption scandal involving its state-owned oil company.
“It is tough for the BRIC countries to all repeat their remarkable growth rates” of the first decade of this century, said O’Neill, a Bloomberg View columnist and former chairman of Goldman Sachs Asset Management International (GSGEPPA). “There was a lot of very powerful and fortuitous forces taking place, some of which have now gone.”
Growth Recovery
The growth slump this year isn’t a new normal though and O’Neill sees expansion in Brazil and Russia partially recovering, helping the BRICs average about 6 percent growth per annum this decade – still more than double the average for the Group of Seven nations.
Their share of global gross domestic product will “rise sharply,” he said.
O’Neill had previously estimated average annual growth of 6.6 percent for the BRICs this decade, a pace it was close to achieving through last year mainly because China exceeded the 7.5 percent annual average growth he estimated for the first three years, he said.
Unlike Brazil and Russia, China is embracing economic change while India, after the election of Narendra Modi as prime minister and benefiting from low oil prices and a young labor pool, may have brighter prospects this decade than last, O’Neill said.
With China and India spurring growth, the BRICs will remain the most dominant and positive force in the world economy “easily,” said O’Neill.
China, India
China growing at 7 percent will add about $1 trillion nominally to global output every year, O’Neill said. When measured by purchasing power parity, China’s growth adds twice as much as the U.S.’s, he said. India expanding at 6 percent will add twice as much as the U.K. in those terms, he said.
“Their consumption is increasingly key for global consumption and which markets were amongst the world’s strongest in 2014? China and India both were up significantly,” he said. “So many investors are herd like, they probably have already forgotten the BRIC’s but it is silly. They are the most important influence in the world.”
A prediction in his book, “The Growth Map,” that the BRICs economies would overtake the U.S. in size this year will be delayed likely until 2017 primarily by the drag from Russia, O’Neill said.
The founding of the BRIC’s Development Bank signals the group’s influence in global economic affairs will rise, O’Neill said.
By 2035, the BRICs will be as big as the Group of Seven nations while China is in “a reasonable position” to be bigger than the U.S. in 2027 and India may overtake France to become the world’s fifth biggest economy by 2017, “certainly before 2020,” he said.
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The importance of Africa’s integration
Visiting Ghana, Africa’s heartland when it comes to African unity and integration, how can one not be tempted to share his or her views about such lofty ideals, especially as 2015 unfolds while the goals remain elusive?
I believe it is high time to revisit the project whose credibility was provided by its chief intellectual architect, no other than Kwame Nkrumah, the first President of this West African country renowned for its deep African roots in history. African integration, indeed, needs a big push to get out of its current deadlock. Rethinking them may therefore be the right starting point to move them forward in earnest!
As Minister of Finance and Planning of Cape-Verde, I am visiting Ghana in the company of our Deputy Prime Minister and Minister of Health, Cristina Fontes Lima, who, along with other devoted policy-makers and leaders, has been instrumental in transforming for better, in a broad-based and shared approach, the fate of our small island nation, located off the West African coast.
The importance of regional integration has been debated and settled. In fact, we have been fighting for the idea of integration for the most part of the last five decades and have, arguably, made some successes towards its attainment. Yet, it is clear that a lot remains to be done.
We all know that regional integration is linked to economies of scale, bigger markets, and lower transaction costs. For many of our small countries on the continent, integration is a crucial ingredient for higher level of competitiveness. Everyone also agrees on the fact that the world economy has become more global and increasingly more competitive. Regional integration has therefore become a necessary condition for Africa to optimize its growth potential and to be able to compete and play a leading role in the global marketplace. Individually, most of our countries are simply too small.
If we all know and agree on these basic arguments, why then does regional integration face so many hurdles on the continent? In other words, why have we been so slow in integrating our economies despite the large number of regional integration groupings existing in Africa? The count now is about 14 trading blocks, which have been established to pursue regional integration.
The reality is that intra Africa trade is growing but it remains at only about 10% of total trade. For Western Europe and North America, comparable figures are 60% and 40%, respectively. The intra Africa trade is telling and although many can argue about the perennial problems of data and how it does not take into account informal trade. The fact is with or without the informal cross border trade our continent can be significantly better integrated on all fronts. The question we should be asking is why intra-Africa trade is so low compared to other regions.
The experts have advanced many explanations. Among them, one can argue that Africa is the only continent in which we produce what we do not consume and we consume what we do not produce. Another explanation lies in the poor state of Africa’s infrastructure. The inadequate trade finance mechanisms have also been blamed. Last but not the least, the excessive number and overlapping regional blocs have also been identified as part of the challenge. This is especially when one considers the fact that many of the regional organizations are weak and hindered by the lack of resources. For many, African governments are simply reluctant to empower the regional integration institutions as a result of fear of losing their sovereignty or power to make policies.
In my view, as Africans, it is time we challenge ourselves as to why we are not doing what we know must be done. Why do we have lofty goals if we are not ready to do what is necessary? It is therefore crucial that we begin to seek new solutions. Importantly, we need to begin to engage the society. Regional integration is about the coming together of nations with the idea of achieving more than the sum of the parts.
In many ways, what we have so far is integration by protocols signed by states and which many do not adhere. This is the top down approach. We have failed to some extent to act where integration will take place: people to people, business to business. We will need a bottom up approach.
One exciting possibility that have come in recent years is the new vision for Economic Community of West African States (ECOWAS), which envisages a community of peoples and not simply of states. We have to begin to see regional integration not only through the prism of accords and treaties. Time has come when we should now engage also the non-state actors, the people and businesses that in many ways are on the front-line of regional integration in Africa.
We should promote cross border investments by African companies and investors and ensure that the rules are favourable. Linked to this is the need for African nations to seek to mobilize investments from other countries within the continent. Imagine the impact that mobile phone companies are having integrating African countries with one network in some of our regions. What will happen if, rather than look to Europe, America or Asia for investors, we look to Africa? Examples are emerging. One simply has to look at the rate which Nigerian Banks and the South African firms are expanding throughout the continent. The challenge before us as policy makers is how can we engage with these businesses and empower them and others to do more? Can we shift the regional integration dynamics along these lines or at least put equal emphasis on these?
Institutions like the African Development Bank (AfDB) can help through special windows to promote and fund projects that will facilitate regional integration, especially with respect to infrastructure and cross border investments. The regional blocks and some of the regional instruments such as the Development Bank of Southern Africa (DBSA), Banque de Développement des Etats de l’AfriqueCentrale (BDEAC) and their other counterparts on the continent can refocus their efforts and recapitalize to fund regional integration projects not simply from States but also the private sector in areas of infrastructure, intra Africa trade and exports.
We also know that nothing will happen if we do not get the support that can be derived from real political will. But political will does not come from thin air. We the people through our civil society organizations have to foster action and put the necessary pressure as more and more of our countries adopt the democratic principles of governance.
We also know that no progress will be made if we do not address the infrastructure deficit and make it easier to get from one country to another on the continent. We must seek ways to get people and goods to move across the continent with ease in terms of time and cost. To that end, we need to foster multi modal transportation solutions in road, railways, air and maritime transportation. We must deal with the energy/power issues as well as the roads and water. We must utilize the experience of the mobile telephone in Africa in getting right the other infrastructure. We have to create the enabling environment and regulatory framework and also empower the private sector to partner with governments to transcend the infrastructure deficit on the continent.
This leads me to institutions because without the institutional infrastructure we will be handicapped. Institutional infrastructure is, indeed, a critical binding constraint that we must have the courage to address on the continent. It matters! We need to significantly strengthen our institutions – both regional and national in order to bring about regional integration. Today, many of our nations are simply not cohesive whether economically, socially or politically. The disparities within and between our nations are in some cases glaring. What we find is that many of our nations are moving at quite different velocities.
Yes, we cannot all be at the same level. But we must all be working towards the same goals. It is therefore crucial that we also deal with the “national” level if we are to achieve our agenda for the “regional” level. This is fundamental for regional integration and it is in the process of building the national that we can also harmonize and put in place rules that promote a regional integration that is a win-win for all.
The reality is that we have no option but to embrace regional integration. A small country like mine, Cape Verde, simply has no chance going it alone. Many of our countries face the same reality. We must integrate to optimize Africa’s growth potential and for Africa to play a lead role in the global marketplace as envisioned by our early pan-African leaders.
Cristina Duarte is Minister of Finance and Planning, Republic of Cape-Verde.
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The twilight of the resource curse?
Africa’s growth is being powered by things other than commodities
FOR decades commodity prices have shaped Africa’s economic growth. The continent is home to a third of the planet’s mineral reserves, a tenth of the oil and it produces two-thirds of the diamonds. Little wonder then that, as a rule, when prices for natural resources and export crops have been high, growth has been good; when they have dipped, so has the continent’s economy (see chart 1).
Over the past decade Africa was among the world’s fastest-growing continents – its average annual rate was more than 5% – buoyed in part by improved governance and economic reforms. Commodity prices were also high. In previous cycles African economies have crashed when the prices of minerals, oil and other commodities have fallen. In 1998-99, during an oil-price fall, Nigeria’s naira lost 80% of its value. African currencies again took a beating during a period of turmoil in commodity markets in 2009.
Since last year the price of oil has fallen by half and many metals such as copper and iron ore have also dropped sharply. With commodity prices plunging, will the usual pattern repeat itself?
In some economies large drops in commodity prices have led to currency falls. At least ten African currencies dropped by more than 10% in 2014. But there have been few catastrophic depreciations. This suggests that investors do not see lower commodity prices as a kiss of death. Ghana’s currency, the cedi, was the continent’s worst-performing currency in 2014, having lost 26% against the dollar. But it tumbled not because investors fret about the impact of lower commodity prices. In fact, Ghana is by African standards not especially commodity-dependent. Rather, it has in recent years run a lax fiscal policy. In 2013 its budget deficit hit 10% of GDP.
The mall, not the mine
One reason currencies have been robust may be because economic growth is starting to come from other places. Manufacturing output in the continent is expanding as quickly as the rest of the economy. Growth is even faster in services, which expanded at an average rate of 2.6% per person across Africa between 1996 and 2011. Tourism, in particular, has boomed: the number of foreign visitors doubled and receipts tripled between 2000 and 2012. Many countries, including Ethiopia, Ghana, Kenya, Mozambique and Nigeria, have recently revised their estimates of GDP to account for their growing non-resource sectors.
Despite falling commodity prices, the outlook also seems favourable. Wonks at the World Bank reckon that Sub-Saharan Africa’s economy will expand by about 5% this year. Telecommunications, transportation and finance are all expected to spur economic growth.
What explains Africa’s increasing economic diversification? A big pickup in investment helps. That has arisen partly because governments have worked hard to make life better for investors. The World Bank’s annual “Doing Business” report revealed that in 2013/14 sub-Saharan Africa did more to improve regulation than any other region. Mauritius is 28th on the bank’s list of the easiest places to do business. Rwanda, which 20 years ago suffered a terrible genocide, is now deemed friendlier to investors than Italy.
After two decades of poor performance, Africa’s total investment as a percentage of GDP increased after 2000. Foreign direct investment (FDI) into Africa rose by 5% in 2012 and 10% in 2013, despite global stagnation.
Ten years ago almost all FDI went to resource-rich African economies; resource-poor economies received very little (see chart 2). Resource-rich countries still receive more FDI in absolute terms; but resource-poor economies outpace them when investment is measured as a share of GDP. Foreign investors from other African countries are especially keen on non-commodity industries: nearly a third of their investments are in financial services.
The most resource-intensive economies are working hard to diversify. For the past three years growth in Nigeria, Africa’s biggest economy, has exceeded 5%. You might think its growth is being powered by oil exports. Nigeria has Africa’s second-largest reserves, it is the fifth-largest exporter and, according to the IMF, oil accounts for 95% of all exports. But in recent years the Nigerian oil industry has stagnated. Growth has instead come from things like mobile phones, construction and banks. Services now represent 60% of GDP.
Angola is similar. It is Africa’s second-largest oil producer and the stuff makes up the vast majority of exports. But its 5.1% expansion in 2013 came mainly from things such as manufacturing and construction. In 2013 fishing expanded by 10%, and agriculture by 9%. About a third of government revenue now comes from non-oil sources, compared with almost nothing a decade ago, economists at Standard Bank reckon.
In Botswana the percentage of GDP made up by the mining and quarrying of goodies like diamonds, gold and copper has fallen from 46% in 2006 to 35% in 2011, according to the “African Economic Outlook”. Other countries that are successfully diversifying are Rwanda – which has thriving banks and business-services firms – and Zambia, which although still copper-dependent has posted growth of 12% a year in financial services. Congo-Brazzaville, where oil makes up 80% of exports, is seeing rapid growth in construction and transport. That may be further fuelled by the All-Africa Games, which are to be held this year in the capital, Brazzaville.
Better fiscal policy also plays an important role. Commodity markets are volatile; government spending smooths out the booms and busts. Until a few years ago, nearly all African economies spent freely when their economies were hot, only to rein in spending when things cooled down. That is the opposite of what most economists would advise a finance minister to do. But in recent years, according to a report from the World Bank published on January 7th, fiscal policies in many African countries have become more sensible. These days a fair number of African economies save money during the good times, in order to spend it in the bad ones.
There is still a long way to go. Africa is still the continent most dependent on commodity exports. Countries such as Tanzania and Nigeria want to develop giant gasfields which, while boosting the economy in the short term, could tie them more closely to commodity cycles. Some worry that investment in infrastructure will fall as mining companies retrench.
Even so, there is reason to think the “resource curse” is losing its power. Despite turmoil in commodity markets, Africa is still one of the world’s fastest-growing regions. With better education systems, investment in infrastructure and sensible regulatory reforms, the continent could completely break the spell that has held it back so often in the past.
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Most developing countries will benefit from oil price slump, says World Bank Group
Gains from low oil prices can be substantial for developing-country importers if supported by stronger global growth, says a World Bank Group analysis of the oil price decline, contained in the latest edition of Global Economic Prospects.
The decline in oil prices reflects a confluence of factors, including several years of upward surprises in oil supply and downward surprises in demand, receding geopolitical risks in some areas of the world, a significant change in policy objectives of the Organization of the Petroleum Exporting Countries (OPEC), and appreciation of the U.S. dollar. Although the relative strength of the forces driving the recent plunge in prices remains uncertain, supply related factors appear to have played a dominant role.
Soft oil prices are expected to persist in 2015 and will be accompanied by significant real income shifts from oil-exporting to oil-importing countries. For many oil-importing countries, lower prices contribute to growth and reduce inflationary, external, and fiscal pressures.
However, weak oil prices present significant challenges for major oil-exporting countries, which will be adversely impacted by weakening growth prospects, and fiscal and external positions. If lower oil prices persist, they could also undermine investment in new exploration or development. This would especially put at risk investment in some low-income countries, or in unconventional sources such as shale oil, tar sands, and deep sea oil fields.
“For policymakers in oil-importing developing countries, the fall in oil prices provides a window of opportunity to undertake fiscal policy and structural reforms as well as fund social programs. In oil-exporting countries, the sharp decline in oil prices is a reminder of significant vulnerabilities inherent in highly concentrated economic activity and the necessity to reinvigorate efforts to diversify over the medium and long term,” said Ayhan Kose, Director of Development Prospects at the World Bank.
The analysis on oil prices in Global Economic Prospects is complemented by two special features on how trends in global trade and remittance flows are impacting developing countries.
Global trade weak on cyclical and long-term factors
Global trade expanded by less than 3.5 percent in 2012 and 2013, well below the pre-crisis average annual rate of 7 percent, holding back developing country growth in recent years.
Weak demand, mainly in investment but also in consumer demand, is one of the main causes of the deceleration in trade growth. With high-income countries accounting for some 65 percent of global imports, the lingering weakness of their economies five years after the crisis suggests that weak demand continues to adversely impact the recovery in global trade. However, long-term trends have also slowed trade growth, including the changing relationship between trade and income. Specifically, world trade has become less responsive to changes in global income because of slower expansions of global supply chains and a shift in demand from trade-intensive investment to less trade-intensive private and public consumption.
The analysis finds that these long-term factors affecting trade will also shape the behavior of trade flows in the years ahead – in particular, that the expected recovery in global growth is not likely to be accompanied by the rapid growth in trade flows observed in the pre-crisis years.
Remittances have potential to smooth consumption
A second special feature reports that remittance flows to many low- and middle-income countries are not only significant relative to GDP but also comparable in value to foreign direct investment (FDI) and foreign aid. Since 2000, remittances to developing countries have averaged about 60 percent of the volume of total foreign direct investment flows. For many developing countries, remittances are the single largest source of foreign exchange.
The study finds that, in addition to their considerable volume, remittances are more stable than other types of capital flows, even during episodes of financial stress. For example, during past sudden stops, when capital flows fell on average by 14.8 percent, remittances increased by 6.6 percent. The stable nature of remittance flows, the analysis concludes, means that they can help smooth consumption in developing countries, which often experience macroeconomic volatility.
» Download the full report: Global Economic Prospects: Having Fiscal Space and Using It | January 2015 (6.77 MB)
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Uganda has little to show for African trade agreement with the US
When Uganda recruited more than 1,400 women from rural villages and took them to the country’s capital, Kampala, in 2002, the east African state dreamed big.
The women were told that they would work in a textile firm, which would export clothes made in Uganda to the US under the African Growth and Opportunity Act (Agoa), generating a lot of revenue for the country. They were promised good pay, better working conditions and a “bright future”.
They were employed by Tri-Star Apparel from Sri Lanka, which had set up in Uganda to take advantage of the Agoa initiative. But relations between the company and its workers soon turned sour.
A year later, in 2003, the women went on strike, citing mistreatment by their employer and pitiful pay. Each woman earned just $40 (£26; about 75,000 Ugandan shillings at that time) a month. As a result of their protest, roughly 300 women were fired.
Despite huge subsidies, including tax waivers and loan guarantees to boost its production, Tri-Star Apparel went bust in 2006.
Their dreams shattered, most of the Agoa women went back to their villages; others sought petty employment in the city. The episode was perhaps the first sign that Uganda would benefit little from Agoa.
The act was signed into law by Bill Clinton, the US president at the time, in May 2000. It was designed to allow goods from sub-Saharan African countries’ – except firearms – to enter the US tax and quota free. With more than 6,500 product lines eligible for export to the US under Agoa, including live animals and animal products, the initiative looked like a good deal for countries such as Uganda.
It was hoped that the act would raise production at home, boost employment and improve people’s livelihoods. Agoa’s architects reasoned that trade, not aid, could fight poverty on the continent.
In a special advertisement supplement published in the New York Times on September 19, 2002, Uganda’s president Yoweri Museveni sounded certain of the benefits. “We are on the threshold of a strategic breakthrough,” he said. “We have carried out all the reforms and what is most important for us is market access. Now we have it. In five years’ time, Uganda will be a totally different story – once we can take advantage of what is in front of us.”
However, nearly 15 years later, Gerald Sendawula, who was Uganda’s finance minister in the early 2000s, and pushed for the country to endorse Agoa, said: “We don’t have anything to show. I haven’t seen anything going to Agoa.”
It appears some countries, including Uganda, did not have the capacity to reap fully the benefits from Agoa. Uganda has the highest youth unemployment in Africa, estimated at 62%.
Last year, Uganda’s exports to the US were worth $47m, up from $34.8m in 2003. Meanwhile, US goods exported to Uganda had reached $125m in 2013. Last year, Uganda’s top exports to the US included spices, tea, freshwater fish, crafts, and live trees.
Uganda’s neighbours are doing well. While Kenya exported goods worth $389.5m in 2012, Uganda could only manage $34.5m. Tanzania earned $114m that year.
One of the problems is that Uganda has no major manufacturing facilities. It was expected to capitalise on its potential in agriculture, which employs three-quarters of the population, and cash crops such as coffee and cotton were to lead the way.
The landlocked country was regarded as one of the best cotton producers in the world ; it would have an edge over rivals in the global market.
Ironically, when Tri-Star Apparel arrived, the company imported cotton from Pakistan, even though Uganda had the capacity to supply the factory.
Meanwhile, Uganda’s position as one of the biggest producers of coffee on the continent has been eroded, with volumes dwindling and some farmers battling coffee wilt.
The majority of Uganda’s exports – including coffee, vanilla beans, fish, cocoa beans and tea – already enter the US duty-free under the Most Favored Nation (MFN) programme, which means they are not counted as Agoa products.
“Uganda’s first mistake was that it failed to empower local farmers to be able to produce for Agoa,” said Dr John Mutenyo, an academic at Makerere University’s school of business. “Yet this was the main intention of Agoa.”
According to Martin Okumu, secretary general of the Uganda National Chamber of Commerce, the country was never ready for the US market. He argued that, instead, Uganda should have focused on markets closer to home in South Sudan and the Democratic Republic of the Congo. Uganda was earning $240m in exports from South Sudan annually before fighting broke out in the country in December 2013 – far above what it got from US, according to the Bank of Uganda.
“Are you going to enter the US market with tomatoes?” says Okumu. “We can’t compete with US farmers, who are heavily subsidised.”
Unlike Kenya or Tanzania, Uganda failed to establish an Agoa strategy to mobilise and guide those producing goods through the initiative.
“It is in Uganda where an investor who wants land, or [who wants to] have a transformer connected to their factory, must see the president personally. Genuine investors don’t want such things,” said Fred Muhumuza, a senior manager at the audit firm KPMG Uganda and also a former adviser to Uganda’s finance minister.
The World Bank’s Doing Business report 2015 ranks Uganda 150th out of 189 nations. The report cited red tape and high transport costs as big turn-offs to investors.
Erin Truhler, information officer for the public diplomacy section at the US mission in Uganda, said the countries who have benefited most from the scheme are those that “have done the most to create an attractive business environment, both for foreign investors and domestic firms, by encouraging investment and trade”.
Agoa is due for renewal in September, and Uganda will be seeking an extension.
Last month, Museveni announced a new firm, Fine Spinners Uganda, to lead the country’s Agoa efforts if it is extended. The firm will process and export textiles. “We have not benefited from Agoa,” he said. “I am happy that other African countries are benefiting. I would be happier if Uganda benefited too.”
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Foresight Africa: Top Priorities for the Continent in 2015
The year 2015 will be an eventful one for the more than one billion people living in Africa. China, Africa’s largest trading partner, will hold the 6th Forum on China-Africa Cooperation; the Post-2015 Development Agenda will chart a new course for global responses to poverty, among other priorities for the region; West Africa will begin its recovery from the devastating Ebola crisis; and the continent’s largest economy, Nigeria, will face a defining presidential election (along with more than 15 other countries). Many of these milestones will bring opportunities for Africa to redefine its relationships with global partners and strengthen its voice on the world stage. Others will present obstacles to the continent’s steady march towards peace, security, and economic and human development.
The 2015 Presidential Elections in Nigeria: The Issues and Challenges
Jideofor Adibe reviews the issues, introduces the candidates and explains the complexities of the 2015 presidential election in the continent’s most populous country and biggest economy.
The Sixth Forum on China-Africa Cooperation: New Agenda and New Approach?
As the region prepares for the 2015 Forum on China-Africa Cooperation, Yun Sun discusses the evolving China-Africa relationship, whether China’s priorities might be shifting, and how African countries are strengthening their voices in the conversation.
How the West Can Do More Militarily in Africa
Michael O’Hanlon and Amy Copley argue that, despite the news coverage, violence across the continent is decreasing, but to continue this trend in 2015 the international community needs to appreciate that the root causes of terrorism and intra-country conflicts extend beyond extremism.
Africa Looks Forward to the Post-2015 Development Agenda
Homi Kharas and Julie Biau explain the three prongs of the Post-2015 Development Agenda – job creation, infrastructure and governance, and peace and security – and what they mean for Africa.
2015: A Crucial Year for Financing Development in Africa
Amadou Sy offers recommendations for the 2015 International Conference on Financing for Development and identifies ways donors, governments, and the private sector can successfully leverage foreign direct investment for long-term growth.
An African Union for an Emerging Continent: Reforms to Increase Effectiveness
Mwangi S. Kimenyi reflects on the African Union’s successes and failures, recommending policy changes to increase its capability and influence as the institution confronts complex challenges in 2015.
Fighting Ebola: A Strategy for Action
In the midst of the ongoing Ebola crisis, Vera Songwe examines the long-term impacts of the epidemic and the global reaction, with an emphasis on the economic consequences and ways forward.
2015: A Pivotal Year for Obama’s Africa Legacy
Witney Schneidman appraises the White House’s current initiatives in and policies toward Africa, calling for strong leadership from the president in order to deepen U.S.-Africa relations in 2015. Read the article here.
African Elections in 2015: A Snapshot for Côte d’Ivoire, Tanzania, Burkina Faso and Sudan
John Mukum Mbaku gives an overview of the 2015 elections in Côte d’Ivoire, Tanzania, Burkina Faso and Sudan, including a history of democratization in these countries, the top issues in the elections, and what to expect in 2015.
Since 2010, the Brookings Africa Growth Initiative has asked its scholars to assess the top priorities for Africa in the coming year. This year, AGI’s experts and colleagues continue this tradition with Foresight Africa 2015, which presents a series of briefs on the critical issues and key moments for Africa over the next 12 months. It is their hope Foresight Africa 2015 will start a dialogue and ultimately support sound policy for sustained economic growth and development for the people of Africa.
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The Tony Elumelu Foundation’s Africapitalism Institute holds Inaugural Global Advisory Board Meeting to Discuss Local Value Creation in Africa
Global Advisory Board discuss forthcoming Africapitalism Index
The Africapitalism Institute, the research and policy arm of the Tony Elumelu Foundation, held its inaugural global advisory board meeting in Abuja to review the Institute’s recent work and to discuss the methodology behind the upcoming groundbreaking Africapitalism Index. The Index is a unique, annual analysis of the way African economies are growing that places emphasis on local value creation and is scheduled for release later this year.
The renowned global thought leaders that make up the Institute’s Global Advisory Board include former Spanish President Jose Maria Aznar; notable economist and proprietor of the economic classification terms “BRIC” and “MINT”, Jim O’Neill; Professor Tandeka Nkiwane, Special Advisor to the CEO of NEPAD; Matthew Bishop, globalization editor of the Economist, and Amir Ben Yahmed, Managing Director of the Jeune Afrique Group.
The Tony Elumelu Foundation and Africapitalism Institute founder, Tony O. Elumelu, C.O.N, commented, “The Africapitalism Institute was launched last year to research, analyse and advocate for public policies and business practices that will unlock opportunities for all Africans. The expertise of our board is exceptional and it is a privilege to discuss Africapitalism with them in order to advance the Institute’s objectives of setting Africa on a more inclusive development path.”
During the board meeting, discussions focused on the principles of Africapitalism, the work of the Africapitalism Institute to date, the Institute’s ongoing strategy and the research that is currently being undertaken for the Index. In addition, the Board held a public panel discussion on “Maximising Local Value Creation”, which looked at the direct economic and social improvements made possible by developing a well-enabled and inclusive business environment. These improvements ultimately in turn further drive private sector growth, creating a virtuous cycle for development, a more diversified economy and greater opportunities for all African citizens.
Dr Jim O’Neill, said, “Africa’s economies are growing but in order to ensure that this growth is sustainable, countries must focus on policy; from property rights to education, governments need to deliver an enabling environment. This year, the Africapitalism Institute will launch its flagship Index, designed to highlight the extent to which governments are successful in this respect”.
The Africapitalism Index will serve as a diagnostic tool to help African economies and their various stakeholders across sectors identify areas of policy or practice promoting and inhibiting the country’s social and economic development. It will be published on an annual basis, tracking the progress of Africa’s nations against key indicators and revealing trends in economic development across the continent.
President Jose Maria Aznar, commented, “It is essential that Africa’s economies are built on a foundation of enabling public policy, value addition, and inclusiveness. To this end, I am delighted to be able to share my experience with the Africapitalism Institute board and look forward to taking part in discussions about the upcoming Africapitalism Index.”
The Index comes at a time when several of Africa’s fastest growing, natural resource-based economies have begun to feel the impact of a global downturn in the price of oil – an abundant commodity in Africa and one for which the vast majority of its value is realized outside the continent. We must learn from this crisis; the African public and private sectors must heed the Africapitalism message to foster the necessary conditions to capture more value within African economies.
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South Africa-India trade to reach $20 bn by 2018: Minister
Seeking expansion of economic ties with India, South Africa said on Wednesday it is targeting to increase bilateral trade volume to USD 20 billion by 2018 from the current USD 15 billion.
“The bilateral trade stands at USD 15 billion and we are targeting to reach more than USD 20 billion by 2018,” South Africa’s Minister for International Relations and Cooperation Maite Nkoana-Mashabane said in Gandhinagar.
She was addressing the annual Pravasi Bharatiya Divas.
The Minister said she hopes both countries will draw on their long-standing ties as well as increased cooperation in new forums like BRICS for achieving all economic and social goals set by them.
India and South Africa are members of BRICS, a grouping of five major emerging economies.
Nkoana-Mashabane, the guest of honour at the event which is coinciding with Mahatma Gandhi’s return to India in 1915 from South Africa, said her country is looking forward to cooperation with India on information and communications technology, renewable energy and healthcare.
She suggested joint work on maritime trade, saying nations like India and Mauritius in the Indian Ocean can work together to grow “ocean economy”.
South Africa also wants a change in the working of United Nations Security Council (UNSC) and the Bretton Woods finance institutions (IMF and World Bank), Nkoana-Mashabane maintained.
“... We must intensify the pitch for global institutions of governance such as UNSC and international financial institutions.”
The Minister said South Africa is also looking forward to the establishment of BRICS Bank, which will have an Indian as its first President and will be based in China.
The BRICS Bank was given a concrete shape when the leaders of the grouping met in Brazil in July last year.
The bank, which will begin with an initial size of USD 100 billion, will fund infrastructure and development projects in BRICS and other emerging and developing economies.
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Global economy to improve marginally, but mounting uncertainties and risks could undermine economic growth
Global economic growth is forecast to increase marginally over the next two years, according to the United Nations World Economic Situation and Prospects 2015 (WESP) report, launched on 10 December 2014. The global economy is expected to grow 3.1 per cent in 2015 and 3.3 per cent in 2016, compared with an estimated growth of 2.6 per cent for 2014.
The global economy expanded during 2014 at a moderate and uneven pace. Legacies from the global financial crisis continue to weigh on growth, while new challenges have emerged, including geopolitical conflicts such as in Ukraine and the Ebola epidemic.
Unemployment figures remain historically high in some regions, but appear to have stopped rising. While global inflation remains subdued, the spectrum ranges from deflation risks in the euro area to high inflation in some developing countries. Foreign direct investment inflows have remained the most stable and relevant source of financing for developing countries whereas portfolio capital flows are highly sensitive to changes in risk appetite.
Trade growth is expected to pick up moderately with the volume of world imports of goods and services projected to grow by 4.7 per cent in 2015. In 2015, fiscal tightening in most developed economies will continue, although the pace of tightening is expected to slow. The strong US dollar is expected to remain the dominant trend on foreign exchange markets.
“While some economic indicators are positive and moving in the right direction which points to the potential for a gradual return to consistent economic growth,” said Pingfan Hong, Director of the Development and Policy Analysis Division for the UN Department of Economic and Social Affairs, “many risks and uncertainties could dash efforts to get the global economy on track and moving forward.”
Developed economies
Among the developed economies, while the US maintained an annual growth rate above 2 per cent in 2014, the economic situation in Europe has been precarious, particularly in the euro area, where a number of euro members teetered on the brink of recession. In Japan, momentum generated by a fiscal stimulus package and monetary easing from 2013 tapered off in 2014.
The US economy is expected to improve in 2015-2016, with GDP projected to expand by 2.8 and 3.1 per cent, respectively. Only a slight improvement in growth is expected in Western Europe. The region is held back by the travails of the euro area, where the level of GDP has yet to regain its pre-recession peak. A projected slowdown in Japan is mainly attributed to the drop of private consumption due to a higher consumption tax.
Developing countries and economies in transition
Growth rates in developing countries and economies in transition diverged more during 2014, as a sharp deceleration occurred in many large emerging economies, particularly in Latin America and the Commonwealth of Independent States (CIS). In contrast, East Asia, including China, experienced only a mild slowdown, while India led South Asia to a moderate uptick.
Among the developing countries, Africa’s overall growth momentum will continue, with GDP growth expected to accelerate to 4.6 per cent in 2015 and 4.9 per cent in 2016. East Asia will remain the fastest-growing region, and is projected to see stable growth of 6.1 per cent in 2015 and 6.0 per cent in 2016. Economic growth in South Asia is set to gradually pick up, while economic growth in Latin America and the Caribbean is projected to moderately improve. In the CIS, prospects are weak with near-zero growth expected in the Russian Federation. More detailed regional forecasts from WESP will be released in January 2015.
Looming risks and uncertainties could set back global economy
The euro area’s recovery remains precarious. While the sense of crisis has dissipated, great risks remain. The underlying growth momentum in the euro area has decelerated to the point where an exogenous event could lead to a return to recession. The forthcoming further normalisation of the US Federal Reserve’s monetary policy holds significant risks and uncertainties for the global economic outlook, depending on the timing and strategy of the monetary tightening, as well as the response by financial markets.
Many developing countries and economies in transition appear vulnerable to a tightening of global financial conditions, as well as a further aggravation of geopolitical tensions and an escalation of the Ebola epidemic. The ongoing high current-account deficits in some large emerging economies, such as Brazil, Indonesia, South Africa and Turkey, remain a concern, along with rapid credit growth in several emerging economies. A sudden change in market sentiment, similar to mid-2013 and early 2014, could trigger a painful adjustment process, especially in countries with large external deficits. A broad-based downturn in emerging economies, particularly a sharp slowdown in China, would weigh on economic performance worldwide.
A further risk lies in extreme volatility in oil prices which can have significant impacts on both oil exporting and oil importing countries. The crisis in Ukraine continues to have major regional macroeconomic repercussions. The situations in Iraq, Libya and the Syrian Arab Republic continue to hamper economic and human development regionally and remain major sources of uncertainty.
International policy coordination must be strengthened
To reduce risks and meet challenges, the report says, it is imperative to strengthen international policy coordination. In particular, macroeconomic policies worldwide should be aligned toward supporting robust and balanced growth, creating productive jobs, and maintaining long-term economic and financial stability.
WESP is produced at the beginning of each year by the UN Department of Economic and Social Affairs (UN/DESA), the UN Conference on Trade and Development (UNCTAD), the five UN regional commissions and the World Tourism Organisation (UNWTO).
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IDC anticipates 2015 will see closer intra-Africa trade
The International Data Corporation (IDC) anticipates that 2015 will see closer intra-Africa trade facilitated by ICT initiatives such as payment systems, financial inclusion initiatives, and cross-border payments. Technology will help breach intra-Africa trade barriers by removing obstacles, increasing efficiency and encouraging transparency.
Also, IDC experts have said that ICT investments addressing African market realities will fuel GDP growth in key African countries, as we step into 2015 and countries largely dependent on oil and gas continue to count their losses.
They said that ICT growth will be a key driver of Gross Domestic Product (GDP) growth in key countries such as Kenya, Nigeria, and Rwanda, with mobile services penetration, financial inclusiveness initiatives and government service delivery driving ICT spend in the telecommunications, financial services, and government verticals.
Regional Director, Sub-Saharan Africa, IDC Middle East, Africa and Turkey; Mark Walker, Research Manager, Software and IT Services (Africa); Lise Hagen, and Senior Research Manager for Telecoms and Media (Africa), George Kalebaila, all representing IDC; predict that governments with relevant and effective national ICT policies will begin to dominate the economic landscape.
According to them: “Increased government policies and relevant processes that favour ICT activities in the society will have a significant impact in countries such as Nigeria, Kenya, Rwanda, and Egypt where policies increase ICT awareness and access, device penetration, improved service platforms and boost infrastructure developments.
“2015 heralds the battle for the SME market in more developed African markets: While a variety of ICT providers have made concerted efforts to tap into the SME market in recent years, 2015 heralds the open battle for the SME market, where telcos will be strongly positioned to leverage their existing relationships with this segment”.
» ICT Set to Shape Africa’s Economic Landscape in 2015 as Governments and Businesses Embrace the Cloud
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How can BRICS survive amidst TTIP?
As the US and the EU prepare to enter into the largest trade deal in history – the Transatlantic Trade and Investment Partnership (TTIP) – an arrangement which would complement the other gigantic US-led trade deal, the Trans-Pacific Partnership (TPP), speculations run rife over the striking absence from the deal of the countries which emerged as the more assertive leaders after the 2008 financial crisis, and steered the global economy from plunging further, namely the BRICS. The five countries represent about 43% of the world’s population. As of 2013, their combined foreign-currency reserve is $4.4 trillion. From $27 billion in 2002, trade within the group surged to $282 billion in 2013. The group accounts for about 15% of the world trade and 20% of the global FDI flows. Interestingly, according to the UNDP, Brazil, China and India’s combined GDP will be greater than the combined GDP of the US, the UK, Canada, France, Germany and Italy by 2020.
With these developments, however, the question of how the BRICS adapt and consolidate their position globally is one that holds considerable relevance. With the negotiations of the TTIP between the EU and the US-together responsible for the makeup of 46% of the world economy-verging conclusion, the options available to the BRICS are limited. The TTIP is not only an attempt to forge a trade deal aimed at market liberalisation and eliminating trade barriers between the US and the EU, but it essentially marks the latest strategy to preserve the rules on international trade and thus continue to dominate over the international governance structures.
It is notable that while the US and the EU don’t enjoy the same economic prowess as they once did, the emerging economies of the BRICS continue to gain more clout in international forums and work towards evolving an order favourable to their development and growth. This slow, continued transition of the global economic governance from the developed world to the developing countries can be seen at the Doha Round negotiations, where the developing countries led by the emerging economies like India and Brazil form the majority of the membership of the WTO; and the interests of these countries form the core of the negotiations. Furthermore, multilateral forums like the WTO allow these countries to rely on the special and differential treatment to protect their interests and block the initiatives of the developed countries.
Consequently, while the Doha talks continue to drag along, trade agreements like the TTIP seem the perfect avenue for the US and the EU to set standards for world trade-shutting out, in the process, the emerging trade blocs like the BRICS from playing an active role. Considering the fact that the US and the EU account for a third of the world trade, and that the exports from BRICS largely depend on advanced-economies’ demand, the third world countries will presumably be compelled to adapt to their standards and regulations. Thus, effectively, this deal is principled on the policy of exclusion of the emerging economies, resulting in a setback for multilateralism. Considering this, one must consider the potential impact the TTIP would have upon states that are not part of the FTA.
A recent study speculates that low-income countries, collectively, could stand to gain approximately 2.4 billion euros, suggesting benefits for non-TTIP countries. The same study argues that the TTIP would lead to an increase in GDP and thus an increase in income for households in the US and the EU. Such an increase in household income would translate into a greater purchasing power and thus a higher demand for goods and services, including those offered by countries that are not part of the TTIP. However, a similar report sees a significant loss of market share for developing countries as a result of the FTA. The study speculates that trade between Germany and BRICS would drop by around 10% while US-BRICS trade would decline by around 30%. Both studies present distinct scenarios and predictions resulting from the conclusion of the TTIP negotiations.
In these two contexts, the BRICS can decide to go two ways. First, they can pursue a BRICS FTA as a way to balance the TTIP and further increase the BRICS’ political and economic influence. A study analysing the proposed BRICS FTA found that China, Brazil, India, Russia and South Africa would see gains in welfare. Such a move would certainly be a concrete step towards enhancing cooperation between the countries and would enable them to counter this attempted move to marginalise them. Second, they can maintain status quo. The TTIP does not pose a significant threat to the BRICS and has the potential to have a positive spillover towards other countries. The BRICS could take an approach of passive engagement. While not directly attempting to balance the TTIP, the BRICS could intensify their efforts at closer cooperation among themselves and consolidate position as a powerful trade bloc.
The biggest impediment, however, to the BRICS becoming a cohesive force is the bilateral economic tensions. China, for one, continues to have the lion’s share in the intra-BRICS trade, resulting in fragile bilateral economic relations with the other countries of the bloc. Currency manipulation by China remains another sticking point. Conclusive actions for removal of barriers to trade and investment need to be taken. Inadequate infrastructure and framework conditions, in particular, are barriers-the negative effects of which far exceed the tariff barriers and other non-tariff barriers. The establishment of the BRICS Development Bank would to a great extent address infrastructure funding shortages in these countries.
The author is a Senior Fellow at Observer Research Foundation, Delhi
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2015: A Pivotal Year for Obama’s Africa Legacy
The Priority
The legacy of the Obama administration in Africa is very much a work in progress. Several initiatives address genuine opportunities and concerns, yet other aspects of the U.S. agenda need sustained attention. The next 12 months will determine whether President Obama will fulfill the tremendous promise of his presidency as it concerns U.S. policy toward the continent.
Much to the disappointment of many in the United States and Africa, President Obama paid little attention to Africa during his first four years in office. In June 2012, the administration issued the “U.S. Strategy toward Sub-Saharan Africa,” which developed a clear framework for engaging the region. Since then, the White House has put in place a series of initiatives to implement the strategy, which could provide a very positive legacy in Africa for Obama. Given the high expectations when he entered office, the relevance of President Obama’s legacy will be defined by his ability to raise Africa as a priority on the U.S. foreign policy agenda, deepen commercial ties with the continent and forge effective partnerships with African nations to respond to the most pressing security challenges.
Why Is It Important?
On a continent where more than two-thirds of the population is without electricity, Power Africa – a public-private partnership designed to make electricity available across the continent – has the potential to be truly transformative over time. The program involves 12 U.S. agencies and $7 billion in U.S. government commitments in addition to another $20 billion in direct loans, guarantee facilities and equity investments from financial partners. In fact, in 2014, the president tripled the initiative’s target from 10,000 MW to 30,000 MW of electricity generation capacity, and increased the number of households and businesses that will gain access to a reliable supply of electricity from 20 million to 60 million.
No administration has done more to move trade and investment to the forefront of U.S. engagement in Africa than the current, though President Clinton’s African Growth and Opportunity Act (AGOA) initially introduced trade as a key stimulus for economic development in the region. Whether it is President Obama’s participation in two U.S.-Africa business fora in the space of 13 months (Tanzania in July 2013 and Washington in August 2014), or the private sector’s role in Power Africa, Feed the Future and the Young African Leaders Initiative (YALI), Obama understands the critical importance of leveraging the power of commercial engagement to enhance the U.S. role in Africa.
For instance, both Feed the Future, President Obama’s global food security initiative, and YALI, which provides intensive leadership training for young African leaders, rely on private sector support to operate. Feed the Future is leveraging over $10 billion in private sector investments (in partnership with the African Union Commission) to assist African countries in the implementation of their national food security strategies. The YALI program has received $38 million in funding from the U.S. Agency for International Development to build four regional leadership centers in Ghana, Kenya, Senegal and South Africa; these funds have been matched by investments of $70 million from U.S. and African companies.
At the same time, no issue is as important to U.S. commercial objectives on the continent as the extension of the African Growth and Opportunity Act (AGOA). As the cornerstone of the U.S.-African commercial relationship, AGOA provides duty-free access to the U.S. market for 6,400 products from 40 countries. If AGOA is not extended in a timely manner in 2015 (it now is set to expire on September 30, 2015), Obama’s credibility in Africa would be severely diminished, and U.S.-African trade and investment relations would be weakened. However, if there is a 10-15 year extension of AGOA (as the administration and Congress have committed themselves to achieve), trade and investment would be secure as a priority in U.S.-Africa relations for the foreseeable future. This would be a very welcome development for the long-term benefit of all.
The Obama administration, however, has expressed a desire not merely to extend AGOA but to strengthen the legislation as well. In addition to a “long-term” and “seamless” extension, including the third country fabric provision, which allows AGOA beneficiaries to source textile inputs such as yarns and fabrics from any other country (for example, India and China), the White House expressed a desire to expand AGOA’s product coverage by examining 316 tariff lines, mostly agricultural products, that might be included in the renewed legislation. Improving rules of origin and updating the AGOA eligibility criteria and review process were two other areas in which the administration expressed an interest to see AGOA strengthened.
Nevertheless, even if AGOA is extended in a timely manner, the administration’s trade agenda in Africa could be frustrated on two fronts. U.S. Trade Representative Mike Froman sought to achieve a trade and investment agreement with the East African Community (EAC), one of the fastest growing regional markets on the continent. The administration does expect to sign a trade facilitation agreement on agricultural and industrial standards with the EAC but it is unclear whether it will be a stepping stone to a more structured and binding agreement. Moreover, the U.S. now has Trade and Investment Framework Agreements (TIFAs) with 11 countries and regional organizations in sub-Saharan Africa and six Bilateral Investment Treaties (BITs). Despite these positive developments, given that the TIFAs are nonbinding and none of the BITs are with our largest trading partners (i.e., Nigeria, South Africa, Angola and Kenya), U.S. trade ties with Africa remain overly dependent on AGOA and policy dialogues.
In addition, the Economic Partnership Agreements (EPAs) of the European Union also threaten to impede the access of U.S. companies to the African market. The EPAs are reciprocal trade agreements that compel African governments to allow EU companies and products preferential access to African markets. They have been roundly criticized for undermining intra-regional and U.S-African trade by granting European companies advantages over even their African counterparts within regional markets. Meanwhile, AGOA is a non-reciprocal preference program designed to accelerate economic development in Africa. Unfortunately, AGOA and the EPAs are working at cross-purposes, to the detriment of Africa’s development objectives and U.S. commercial interests. The administration’s silence on the friction between EPAs and African (as well as U.S.) interests essentially cedes the African market to the EU.
It is instructive to examine the impact of the EU-South African free trade agreement (formally known as the EU-South African Trade and Development Cooperation Agreement (TDCA)) that was signed in 1999. According to the National Trade Estimates of 2014, “U.S. exports face a disadvantage to EU goods in South Africa,” (USTR 2014). This tariff disadvantage impacts U.S. firms in a range of sectors, including cosmetics, plastics, textiles, trucks, agricultural exports and agricultural machinery. It is a safe prediction that U.S. manufacturers will face a similar disadvantage over the next decade in the 33 countries in Africa that have initialed EPAs. By raising this issue in the context of the Trans-Atlantic Trade and Investment Partnership negotiations, and working to harmonize the EU and U.S. trade programs for Africa, Obama would do a great service for U.S. commercial interests and the prospects for regional integration in Africa.
The robust commercial engagement by Chinese private and state-owned companies across the continent further demonstrates the challenge faced by American companies establishing a presence on the continent. In 2009, China overtook the U.S. as Africa’s largest trading partner. Two-way trade between China and Africa was $210 billion in 2013, and there are no signs that the commercial engagement is slowing (TRALAC 2014). In fact, 2014 was the first year in which Chinese outbound investment exceeded inbound foreign direct investment. In November, China’s premier, Li Keqiang, announced a 10-point plan for financial reform which includes a pledge to use China’s vast foreign reserves for “the development of an overseas market for Chinese high-end equipment and goods.” Engaging China for trilateral cooperation, rather than fierce competition, among U.S., African and Chinese companies could work for the better of all.
In fact, President Obama has signaled his openness in this area. As he told The Economist: “When I was in Africa, the question of China often came up, and my attitude was every country that sees investment opportunities and is willing to partner with African countries should be welcomed. The caution is to make sure that African governments negotiate a good deal with whoever they’re partnering with. And that is true whether it’s the United States; that’s true whether it’s China. And I do think that China has certain capacity, for example, to build infrastructure in Africa that’s critical.”
The U.S. will also need to step up support for American companies to help them become more successful in Africa.
One of the administration’s signal triumphs in 2014 was the U.S.-Africa Leaders Summit. Given the challenge of hosting 50 heads of state and their delegations in Washington, there was a great deal of uncertainty prior to the event. However, the genuine engagement by the president and the administration, the focused but relatively free-flowing structure of the event and the several thousand supporters who converged on Washington to participate in innumerable events with the visiting delegations, made the summit a truly unique experience. The administration announced $14 billion in new deals at the summit in an effort to emphasize its commitment to promote U.S. investment on the continent. These deals included investments in clean energy, aviation, banking and construction. The president must maintain this momentum for the summit to have a significant impact on the continent.
Africa’s potential will not be achieved unless it can enhance security on the continent. To this end, the administration announced the Security Governance Initiative at the summit, a joint program between the U.S. and Ghana, Kenya, Mali, Niger, Nigeria and Tunisia. The goal of this program is to strengthen civilian and military institutions and the ministerial responsibilities that provide state oversight of the security sector. Responding to threats posed by groups like Boko Haram, al-Shabab, and al-Qaida in the Islamic Maghreb (AQIM) is one of the goals of the program. (For more on security challenges facing the continent, see “How the West Can Do More Militarily in Africa.”)
Nevertheless, the Obama administration needs to do more to rationalize and enhance the U.S. engagement in Africa’s security challenges in 2015. In addition to the Security Governance Initiative, another security program, the African Peacekeeping Rapid Response Partnership (or A-Prep), was launched at the U.S.-African Leaders’ Summit. However, it appears that the U.S. security engagement in Africa lacks an overall strategic framework and, as a result, is made up of a series of loosely connected programs and initiatives that are successful to varying degrees. For example, U.S. support for the U.N.-AU force in Somalia, AMISOM, has been critical in pushing al-Shabab out of Mogadishu. At the same time, the U.S. has been helping Ugandans hunt for Joseph Kony for more than a decade, without success, although a number of his lieutenants have been removed. The unexpected overthrow of the Mali government in 2012. led by a U.S.-trained soldier, and the decision by the Nigerian government in December to halt U.S. training of its soldiers to fight Boko Haram suggests a need, at minimum, for the U.S. to review its strategic approach to responding to Africa’s security challenges.
Finally, inevitably, the Obama legacy in Africa will be impacted significantly by the U.S. response to the Ebola crisis. The administration’s initial response did not take place for nine months after the first cases were reported. For an administration that launched the Global Health Initiative in 2010 as a “comprehensive, whole-of-government approach to shape U.S. investments in global health,” the delayed response was inexplicable. In September, Obama announced a scaled-up response, including the deployment of 3000 troops and the construction of 17 Ebola treatment centers in Liberia to train 500 health care providers per week, among other steps.
By the end of December, it appeared that the administration had mounted an effective response to the crisis, especially in Liberia. Rebuilding the economies of the affected countries will be important and the U.S. should encourage an international response as occurred after the SARS epidemic (2003-2004), the earthquake in Haiti (2010), and the Sumatra-Andaman earthquake in Asia which created the epic tsunami in Asia (2004).
What Should Be Done in 2015?
President Obama needs to take several actions in 2015 to fully define his legacy and there are a number of areas in which he can enhance U.S.-African relations in his term and all presidential terms to come:
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Gaining passage in 2015 of the still-pending Energize Africa Act in the new Congress will ensure ongoing funding for Power Africa and that the initiative will exist after Obama leaves office.
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Similarly, the president must push to extend and strengthened AGOA. An enhanced, long-term AGOA, especially with an expansion of product coverage and a review of eligibility criteria, would ensure a new relevance for the legislation and impact on very positively on Obama’s legacy in Africa.
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The Obama administration should use the next two years to develop a new bipartisan and mutually beneficial framework for deepening commercial ties with Africa that is legally enforceable. A free trade agreement that takes into account the development challenges, or “asymmetrical” realities that exist between the U.S. and Africa, would be a good place to start.
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In addition, the U.S. could leverage its network of TIFAs to address private sector issues. With the launch of the three regional Trade and Investment Hubs and an expanded Commerce Department presence, the TIFAs could be useful vehicles for bringing U.S. and African officials together to help to advance U.S. commercial interests on the continent.
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The Obama administration should engage China in an effort to foster trilateral cooperation in specific areas among U.S., Chinese and African companies. Power Africa and Feed the Future could be useful vehicles for achieving this cooperation.
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An effective follow-up to the Africa Leaders Summit will be central to ensuring that the gains made in August are sustained. To this end, the president should convene an African Leaders Forum in Africa that would focus on the gains made by Power Africa, Feed the Future, the Young Africa leaders Initiative and, hopefully, a renewed and strengthened AGOA. A third Obama visit to the continent would help ensure accountability for the commitments made at the 2014 summit and deepen the impact of the administration’s key initiatives.
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President Obama should also address the African Union. Not only would it be historic but, as the first African-American president, it would have a special resonance for millions across the continent.
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In terms of security, the Secretary of Defense-designate, Ashton Carter, should plan to meet with his African counterparts, perhaps initially on a regional basis. The U.S. meets at the ministerial level with energy, trade and finance officials but there has yet to be a similar dialogue on security issues. It is time to initiate this conversation.
The Obama legacy in Africa could be singularly significant but more work needs to be done to ensure its full potential is realized.
Witney Schneidman is a senior international advisor for Africa.
This article also appears in Foresight Africa: Top Priorities for the Continent in 2015, published by the Brookings Africa Growth Initiative.
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How to boost non-oil exports’ competitiveness, by UNECA
Just as development experts predict a mixed year for Nigeria and other countries within the sub-Saharan African region, the United Nations Economic Commission for Africa (UNECA) has underlined the importance of implementing trade policies aimed at overcoming market and institutional failures that hinder export competitiveness.
According to UNECA, boosting intra-African trade and building up regional value chains to strengthen the capabilities and potential of industries remains a viable option in mitigating the risks of declining oil prices.
Experts under the aegis of Future Development in their outlook for 2015 stated that 2015 would be a mixed year for growth, poverty reduction, and stability in Sub-Sahara Africa.
Specifically, they noted that Nigeria would suffer the consequences of declining oil prices and political and social upheaval related to the 2015 general elections.
The experts submitted thus: “The pace of investment into Africa will slow, as exploration money drops off and higher US interest rates attract foreign investment to the US; but many investors will see the long-term potential of African industries such as renewable energy, fashion, farming and fisheries; and African leaders and their partners will recognize that they need to seize the opportunity to attract foreign investment now – a very slim window exists.”
Furthermore, the experts stated that the decline in oil prices would slow growth in oil exporters while boosting it slightly in oil importers.
According to them, while facing budgetary pressures, many oil exporters will reduce their energy subsidies, leading to more efficient economies adding that despite a more favorable external environment, oil importers will not slow their reform momentum, particularly in the Middle East and North Africa.
Executive Secretary of the Economic Commission for Africa, Carlos Lopes, however stated that the body through its yet-to-be released report would explore the question of how trade can serve as an instrument to accelerate industrialization in Africa.
“We are building a case for the strategic and sequenced use of trade policies for boosting intra-African trade and building up regional value chains to strengthen the capabilities and potential of African industries,” he said.
The UNECA report, which is a joint effort of the Economic Commission for Africa and the African Union Commission emphasized the role of trade in fostering industrialization at the regional and global levels; and underlined the importance of implementing trade policies aimed at overcoming market and institutional failures that hinder export competitiveness.
On global growth and trade, experts at Future Development stated that the US economy will strengthen far above predictions.
“Together with lower oil prices and a better business climate in emerging markets, this will create substantial positive spill-overs, including to the smaller export-oriented Asian economies, boosting the growth of their manufactured exports well above recent trends.
“The US will look to open new free trade agreements in Asia – India may try to join – and seek opportunities to do the same in Africa”, the group added.
Meanwhile, Germany will face increasing resistance to the free-trade agreement with America (TTIP), just as Angela Merkel celebrates her 10th year in office.
“Lower oil prices will force Russia into a compromise on Ukraine. This should boost European investor confidence and Euro-Zone growth will surprise on the upside”, the group added.
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EAC fast becoming oil and gas hotspot: report
The oil find in Kenya is attracting billions of dollars in the country, a new survey notes.
“Neglected by investors for many years, it was overshadowed by the rapid development in West Africa and the established markets in North Africa, Kenya and its neighbours’ oilfields are fast becoming one of the world’s most interesting oil and gas hotspots,” a report by Visiongain, a business intelligence company, says.
The survey notes that Kenya and its neighbours, Uganda and Tanzania, saw Sh325 billion ($3.66 billion) spent in exploration in 2014.
The East African Oil and Gas Market 2014-2024: upstream and midstream spending in Tanzania, Mozambique, Kenya, Uganda, Ethiopia, South Sudan & Somalia report adds that gains from the investments sanctioned by respective countries might soon see Kenyans enjoy cheaper oil and spark a boom in fuel export business.
With East Africa covering a territory roughly six times the size of the North Sea – a highly valued oil source – the region’s future can only be better as it has fewer than 500 wells drilled to date where proven commercially viable oil deposits have been found.
Visiongain report says the discoveries have forced major international companies to take notice and are becoming involved alongside smaller firms, indicating the industry’s confidence in East Africa’s potential.
Noting that Kenya and Uganda could start exporting oil, Mozambique and Tanzania offshore gas reserves and proximity to Asian demand centres offer the potential for LNG export in a decade.
Kenya, it adds, has leased numerous blocks for exploration by international companies, some of which have struck commercially viable reserves in Turkana County. Exploration is going on in North Eastern, Turkana, Nyanza and Baringo, as well as Lamu.
The report is aimed at helping firms make decisions that directly affect their future business strategy for the next decade.
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Meat Board fights export battle for producers
The Namibian Meat Board is to seek an urgent independent study on the requirements for animal health and livestock exports to South Africa from the South African authorities as the next step in the restriction drama by South Africa since December 2013, which has halted livestock exports from Namibia and robbed thousands of households of their main source of income.
Confirming the latest development exclusively to New Era yesterday, general manager of the Meat Board, Paul Strydom, said an urgent meeting between Namibian and South African authorities regarding this delicate situation is the first priority of the Meat Board for the New Year.
Strydom says it is the absolute priority of the Meat Board in the next few weeks to seek relief for Namibian livestock exporters in the South African markets. “We have not contacted our counterparts in South Africa yet as most officials are still on holiday, but we will do so soon and start preparations for the first official meeting to discuss our dilemma in great detail.
The Meat Board will seek an independent study on animal health and once again remind South Africa of the clean bill of health status that Namibian livestock producers enjoy worldwide. The South African authorities must then spell out the reasons for the almost impossible requirements from their side and we will move forward from their and adjust if we have to,” Strydom says.
Namibia’s multi-billion-dollar Namibian livestock industry on whose livelihood some 70 percent of the 2.2 million inhabitants depend, rakes in more than N$2 billion annually from an average of 160 000 weaners exported to South Africa, as well as 100 000 sheep and about 240 000 goats. Communal famers make up for about 60 percent of the total export. With the stringent requirements set, no weaners have been exported from Namibia to South Africa since May 2014. It may, therefore, seem to some people that the border is closed. This is not the case. It is, however, extremely difficult to meet the export requirements.
Strict requirements set by South African authorities, like vaccinations and tests among others, cost producers a lot of money to comply with. Therefore, most producers choose not to export their weaners to South Africa. The big challenge for Namibia is the testing of a whole herd for Brucella melitensis (BM) and tubercullosis (TB) even if only certain animals are to be sent to South Africa, and that animals have to be quarantined.
The meat industry met towards the end of last year to find short- and long-term solutions for the export of weaners, sheep and goats. Following the meeting, it was decided that the Directorate of Veterinary Services should prepare an interpretation regarding the requirements which have to be met, as well as the costs thereof, while their capacity has to be increased to do all the required tests.
The Meat Board also suggested that exports to neighbouring countries of Angola, the DRC, Zambia and Zimbabwe be researched, while a market for goats should be explored in the Middle-East. Local slaughtering capacity must be increased and under-utilised farms must be made available.
In the medium-term, it should be investigated how more animals could be rounded off locally for feedlots, among others. Structural changes to herds may also have to take place in future.
Namibia now will have to convince South African authorities and give guarantees regarding its animal health status for further export negotiations to take place.
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Algeria’s accession to WTO: 13th round planned for Q1 2015
The 13th round of the multilateral negotiations for Algeria’s accession to the World Trade Organization (WTO) is planned for the first quarter 2015, said Minister of Commerce, Amara Benyounes in an interview with APS.
He said that this meeting “will be decisive as it will allow Algeria to be fixed on the date of its accession to the WTO which counts 160 member countries.”
“The next round is going to further advance our file and most likely we will know the timetable of our accession to the WTO if it will be the end of 2015 or not,” he added.
Besides, the minister said that 2015 will mark the 20th anniversary of the WTO and the holding in Kenya of its 10th ministerial conference scheduled from 15 to 18 December, “two facts that will be a good opportunity for Algeria to join the WTO.”
Following his meeting last October with Alberto Pedro D’Alotto, the chairman of the working group on Algeria’s accession to WTO and with Mukhisa Kituyi, Secretary-General of UNCTAD, last December, Benyounes should meet early this year, with senior officials from the United States and the European Union to discuss this accession.
“The US and the EU are the largest partners in the membership file. We need to reach bilateral agreements with these parties,” he stressed.
However, Benyounes affirmed that Algeria accession to the WTO “is not an obsession” for the Algerian government: “The political decision has been made and we are discussing and negotiating at our pace. We must say that accession to the WTO is not an obsession but a well thought-out project. “
In this regard, the minister ensures that Algeria’s accession to the multilateral organization “is not going to sell out the economic interests of the country”, recalling that Algeria has made many investments in recent years, particularly in the industrial public sector with over $ 12 billion.
These investments “must reach maturity and start yielding fruit,” he insisted.
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Republic of the Congo rethinks its investment policy
UNCTAD experts have reviewed the investment policy of the Republic of the Congo and detailed their findings in a report presented and approved at a workshop organized by the Ministry of Economy, Finance, Planning and Integration, in partnership with the United Nations Development Programme and the Food and Agriculture Organization of the United Nations, in Brazzaville on 20 November.
Isadore Mvouba, Minister of State for Industrial Development and Private Sector Promotion, said that the review had correctly identified all the problems. Referring to the need to formulate a plan of action for implementing the recommendations, he stated that “the move from subsistence farming to industrial farming requires a change of mentality” and that, for the move to be successful, “foreign direct investment must be integrated in a manner that takes account of your recommendations”.
With a view to guaranteeing food security in the Congo, the review warns against the risks associated with large concerns and proposes incorporating inclusive agricultural models in national development strategies. Such models favour a gradual development of land which is respectful of local communities and biodiversity, while satisfying the need for increased local production.
The review recognizes the huge investment potential of the Congo and highlights its current dependence on the oil sector and the need for economic diversification. With this in mind, the UNCTAD report recommends specific solutions to the main challenges faced by local and foreign investors, especially during the start-up phase and in accessing factors of production. In this connection, the review underscores the need for clear guidelines in various domains and for institutional capacity-building to improve the transparency and efficiency of the public administration.
Prepared on the request of the Government of the Congo, the investment policy review focuses on two areas: the legal and institutional framework for investment, and the choice of an agricultural development model compatible with the country’s development goals. These issues were also discussed in the course of high-level bilateral meetings between the main sector ministers and the country’s development partners.
The Government of the Congo has undertaken to follow through the review process and to take an active role in implementing the recommendations. The final report will be made public at an intergovernmental presentation during the Spring 2015 session of UNCTAD’s Investment, Enterprise and Development Commission.
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More than copper: toward the diversification and stabilization of Zambian exports
This paper analyzes Zambian export patterns using a new transaction-level trade data set for the period 1999-2011. The data show that, in international comparison, Zambian exports are exceptionally concentrated (on mining products). This reliance has been increasing in recent years. Zambia’s exports are also characterized by a high level of churning of firms and products. Multivariate models of survival probabilities suggest that exchange rate volatility and difficult access to imported inputs significantly inhibit diversified and stable exports. The econometric analysis is complemented with a qualitative study of the Zambian export sector. The analysis concludes that one of the main policy levers for unleashing Zambia’s full potential as an exporter is by facilitating access to imported inputs. Additional measures that ease foreign exchange transactions, simplify export and certification requirements, and increase the predictability of Zambia’s trade regime could be effective to promote Zambia’s nontraditional exports.
Zambia is well known for its mineral riches, which naturally endow the country with a highly successful export industry. This lucrative asset, however, also implies an internationally exceptional degree of export product concentration. We show that, even controlling for its level of economic development, Zambia has one of the world’s highest degrees of export concentration, as copper and cobalt account for more than 80% of the value of formal exports. Zambia’s exports are in addition characterized by a large degree of churning. Analyzing new transaction-level trade data covering the period 1999-2011, we find that Zambian firm-level export spells are numerous but short.
The Zambian authorities have long been aware of these features of their economy, and efforts at diversifying and stabilizing exports are ongoing. For such efforts to be effective, it is important that the main impediments to export diversification and stabilization be understood. Interviews with Zambian exporters bring up two recurrent themes: problems with unexpected exchange-rate movements and constraints on foreign exchange transactions, and impediments to importing inputs required for export-oriented production – in addition to a number of well-known challenges linked to human capital shortages, bottlenecks in transport and telecommunications infrastructure, erratic policy changes, and political favoritism. We therefore analyze the export micro data with a view of substantiating these frequently heard explanations for the fragility of Zambian exports. The data are consistent with what many business people say: exchange-rate volatility and problems related to the importing of inputs contribute to destabilizing Zambian firm-level export spells.
Figure 1: Share of Sub-Saharan African destination countries in total Zambian exports of non-traditional products
This paper is a product of the Trade and Competitiveness Global Practice Group. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world.