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Azevêdo: WTO celebrates 20 years of helping the global economy grow
Director-General Roberto Azevêdo, noting that the WTO will celebrate its 20th anniversary in 2015, said: “Over the past 20 years, this organization has, on balance, made an important contribution to the global economy and to smoother trading relations between nations. Indeed, at a time when the global economy is more interconnected than ever it is difficult to imagine a world without the WTO”.
The WTO at 20 – a message from DG Azevêdo
20 years ago, on 1 January 1995, the WTO opened its doors for business. Since then this organization, and the system of transparent, multilaterally-agreed rules that it embodies, has made a major contribution to the strength and stability of the global economy. Over the years the WTO has helped to boost trade growth, resolve numerous trade disputes and support developing countries to integrate into the trading system. It has also provided a bulwark against protectionism, the value of which was made plain in the trade policy response to the 2008 crisis, which was very calm and restrained in contrast to the protectionist panic that followed previous crises. Indeed, when the global economy is more interconnected than ever, it is difficult to imagine a world without the WTO.
Our organization has evolved since 1995. We have welcomed 33 new members, ranging from some of world’s largest economies to some of the least developed. Today our 160 members account for approximately 98% of global trade. Moreover, at our 9th Ministerial Conference in Bali in 2013, we took our first major step forward in updating multilateral trade rules. The measures agreed in Bali were a real breakthrough for the WTO, and they will provide a significant economic boost. In December 2014 WTO Members came together to recommit to implementing all aspects of the Bali package.
So as we look to the year ahead there is a lot of work to do – and many challenges to meet. While we have delivered in many areas, and despite the success of Bali, the pace of negotiations remains a source of frustration. In future we know that we need to deliver more outcomes, more quickly. In addition, we know that our poorest members are still not adequately integrated into the trading system, so again we need to do more to help them reap the benefits that the system can offer.
2015 is set to be an eventful year for the WTO. We will be holding our 10th Ministerial Conference in Nairobi from 15 to 18 December – the first time the WTO has ever held a Ministerial Conference in Africa. Heads of international organizations will convene at our headquarters in Geneva to participate in the 5th Global Review of Aid for Trade from 30 June to 2 July, and we will welcome business people, NGOs, academics and others to discuss our work and a range of trade issues at the WTO's annual Public Forum from 30 September to 2 October. Moreover, we will be working to implement all aspects of the Bali package and we already have a full negotiating agenda – including a deadline of July to conclude a detailed road map to tackle the remaining issues of the Doha Development Agenda. We will also be seeking to make progress in negotiations on trade in environmental goods and on an agreement to remove tariffs on a wide range of information technology products.
Success in each of these areas would be the best way to mark our 20th anniversary – and to reaffirm the contribution that the WTO has made to improving people’s lives and prospects over the last two decades.
I would like to wish everyone a happy 2015.
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Pan-African Cotton Road Map
A continental strategy to strengthen regional cotton value chains for poverty reduction and food security
Despite its significance in local economies, the African cotton sector is faced with serious problems.
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Yield is low and has considerably diminished during the last decade.
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Cotton research in most countries suffers from a lack of organization and means.
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Support structures for trade and marketing are not always commensurate with the economic importance of the sector.
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Value-addition to the sector can be substantially improved.
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The low price of seed cotton and long delays in payment to farmers have contributed to a decrease in production by as much as 50% in certain countries.
There is the need for sectoral policy support at the national, regional and Pan-African levels, following the example of sectors in countries whose producers are supported by public policy. Furthermore, synergy and coordination of existing initiatives would need to be developed and sustained.
At the international level, African cotton is undermined by distorting trade practices of some large producers. Efforts to remedy this situation through the multilateral trade system have remained at a stand-still for several years now.
Although the African cotton sector is at a historical turning point, the calamitous fall of international cotton prices from 2002 to 2009 reflects a moment that crystallized awareness in the minds of the sector’s stakeholders and public authorities on the need to safeguard the sector for the long-term. Indeed, they are now conscious that the low competitiveness of the sector is also tied to internal factors and that questions in relation thereto should be treated in parallel to WTO debates.
The spectacular rise of prices in 2010 will strengthen this awareness and further support the request made by African governments to UNCTAD in December 2008 to facilitate a high level meeting on African cotton.
Held in Cotonou at the end of June 2011, the Pan-African meeting on cotton gave participants the opportunity to outline details and expectations with regards to the sector. The Pan-African Road Map (henceforth the “Road Map”) sketched out in Cotonou and the subject of this present report, takes into account not only the conclusion of the debates but also the existing three regional strategies mainly in the areas of productivity, marketing and value-addition.
The objective of the Road Map is to create synergies between the numerous interventions in favor of African cotton, including the three strategies, and between the different categories of stakeholders at national, regional and international level. As such, it aims to become a complement to what already is in place in the regions by providing a common framework at the Pan-African level that addresses the three existing strategies and national and regional policies from a Pan-African perspective.
This Road Map is organized as follows:
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Part I succinctly describes the background to the Road Map, its link to the achievement of Millennium Development Goals and the translation of these into actions to be conducted.
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Part II enunciates the Road Map’s various activities based on the outcome of the Cotonou meeting around the three themes: Productivity, Marketing and Value-addition.
This part also introduces other proposals, facilitation of the Road Map, its Action Plan and indicators of progress.
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‘Record’ illicit money lost by developing countries triples in a decade
Developing countries are losing money through illicit channels at twice the rate at which their economies are growing, according to new estimates released Tuesday. Further, the total volume of these lost funds appears to be rapidly expanding.
Findings from Global Financial Integrity (GFI), a watchdog group based here, re-confirm previous estimates that developing countries are losing almost a trillion dollars a year through tax evasion, corruption and other financial crimes. Yet in a new report covering the decade through 2012, GFI’s researchers show that the rate at which these illicit outflows are taking place has risen significantly.
In 2003, for instance, cumulative illicit capital leaving developing countries was pegged at around 297 billion dollars. That’s significant, of course, but relatively little compared to the more than 991 billion now estimated for 2012 – a record figure, thus far.
In less than a decade, then, these illicit outflows more than tripled in size, totalling at least 6.6 billion dollars. GFI reports that this works out to an adjusted average growth of some 9.4 percent per year, or twice the average global growth in gross domestic product (GDP).
One of the most common mechanisms for moving this money has been the falsification of trade invoices.
“After turning down following the financial crisis, global trade is going up again and so it’s increasingly easy to engage in misinvoicing – a lot more people are coming to understand how to do this and are willing to indulge,” Raymond Baker, GFI’s president, told IPS.
“These rates are not only growing faster than global GDP but also faster than the rate of growth of global trade.”
Further, these estimates are likely conservative, and don’t cover a broad spectrum of data that is not officially reported – cash-based criminal activities, for instance, or unofficial “hawala” transactions.
Baker emphasises that these capital losses are a problem affecting the entire developing world. Yet given that illicit outflows run in tandem with a country’s broader interaction with global trade, these rates are particularly strong in the world’s emerging economies, led by China, Russia, Mexico and India.
There are also significant differentials between regions, both is size and the rate at which they’re increasing. In the Middle East and North Africa, for instance, illicit financial flows are growing far higher than the global average, at more than 24 percent per year.
Even in sub-Saharan Africa, home to some of the world’s poorest communities, these rates are growing at more than 13 percent per year. Such figures eclipse both foreign assistance and foreign investment – indeed, the 2012 figure was more than 11 times the total development assistance offered on a global basis.
“If we take [these] findings seriously, we can address extreme poverty in our lifetimes,” Eric LeCompte, an expert to U.N. groups that focus on these issues, said Monday. “Countries need resources and if we curb these illicit practices, we can get the money where it’s needed most.”
Lucrative misinvoicing
There is a broad spectrum of potential avenues for the illegal skimming from or shifting of profits in developing countries, carried out by criminal entities, corrupt officials and dishonest corporations. And for the first time, certain of these key issues are receiving new and concerted international attention.
Multiple nascent multinational actions are now unfolding aimed at cracking down particularly on tax evasion by transnational companies. New transparency mechanisms are in the process of being rolled by several multilateral groups, including the Group of 20 (G20) industrialized nations and the Organisation for Economic Cooperation and Development (OECD), a Paris-based grouping of rich countries.
Such initiatives are receiving keen attention from civil society groups, and would likely constrict these illicit flows. Yet in fact, GFI’s research suggests that the overwhelming method by which capital is illegally leaving developing countries is far more mundane and, potentially, complex to tackle.
This has to do with simple trade misinvoicing, in which companies purposefully use incorrect pricing of imports or exports to justify the transfer of funds out of or into a country, thus laundering ill-gotten finances or helping companies to hide profits. Over the past decade, the new GFI report estimates, more than three-quarters of illicit financial flows were facilitated by trade misinvoicing.
And this includes only misinvoicing for goods, not services. Likely the real figure is far higher.
Experts say that stopping misinvoicing completely will be impossible, but note that there are multiple ways to curtail the problem. First would be to ensure greater transparency in the global financial system, to eliminate tax havens and “shell corporations” and to require the automatic exchange of tax information across borders.
Efforts are currently underway to accomplish each of these, to varying degrees. Last month, leaders of the G20 countries agreed to begin automatically sharing tax information by the end of next year, and also committed to assist developing countries to engage in such sharing in the future.
GFI’s Baker says that developing countries need to bolster their customs systems, but notes that other tools are already readily available to push back against trade misinvoicing.
“There is a growing volume of online pricing data available that can be accessed in real time,” he says. “This gives developing countries the ability to look at transactions coming in and going out and to get an immediate idea as to whether the pricing accords with international norms. And if not, they can quickly question the transaction.”
Development goal
There is today broad recognition of the monumental impact that illicit financial flows have on poor countries’ ability to fund their own development. Given the centrality of trade misinvoicing in this problem, there are also increasing calls for multilateral action to take direct aim at the issue.
In particular, some development scholars and anti-poverty campaigners are urging that a related goal be included in the new Sustainable Development Goals (SDGs), currently under negotiation at the United Nations and planned to be unveiled in mid-2015.
Under this framework, GFI is calling for the international community to agree to halve trade-related illicit flows within a decade and a half. The OECD is hosting a two-day conference this week to discuss the issue.
“We’re not talking about an aspirational goal but rather a very measurable goal. That’s doable, but it will take political will,” Baker says.
“We think the SDGs should incorporate very specific, targetable goals that can have huge impact on development and helping developing countries keep their own money. In our view, that’s the most important objective.”
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Strong reforms offer countries path to high-income status
Sub-Saharan Africa’s small middle-income countries should implement strong reforms to boost growth and avoid the “middle-income trap,” seminar participants concluded in Mauritius.
At an event featuring peer-to-peer learning, 18 senior officials from seven small middle-income countries in Africa came together at the Africa Training Institute in Mauritius to discuss their common macroeconomic and structural challenges. They agreed that peer learning offers untapped potential to help move reforms forward in their countries.
Organized by the IMF African Department and the Africa Training Institute, the November 18-21 seminar built on initial discussions during two earlier high-level meetings on the sidelines of the 2013 and 2014 IMF-World Bank Spring Meetings and joint work with the authorities in the context of a new book titled “Africa on the Move: Unlocking the Potential of Small Middle Income Countries (SMICs).”
The seminar involved multiple stakeholders and received broad sponsorship from the IMF’s African Technical Assistance Centers in Ghana and Mauritius, from the Africa Training Institute in Mauritius, from the Regional Multi-Disciplinary Center of Excellence in Mauritius, and from the European Union.
Avoid the trap
Building on past success, small middle-income countries in sub-Saharan Africa have now set themselves the challenge of reaching high-income status and avoiding the middle income trap. While still positive, growth has slowed, as previous growth drivers weaken and the rise in per capita income wanes.
The concept of a middle income trap grew from the observation that middle-income countries graduated to high-income status far less often than low-income countries became middle-income countries. From 1960-2012, fewer than 20 percent of middle-income countries – and none from sub-Saharan Africa – became high-income states, compared with more than half of low-income countries graduating to middle-income status.
The seven small middle-income countries facing this trap in sub-Saharan Africa are Botswana, Cabo Verde, Lesotho, Mauritius, Namibia, Seychelles, and Swaziland. The seminar examined common policy challenges these countries face, reviewed what individual countries have done to address them, and how IMF surveillance can build on successful approaches to help countries move forward.
Boosting growth
Opening the seminar, IMF African Department Deputy Director Anne-Marie Gulde-Wolf noted that while sub-Saharan Africa remains the second fastest-growing region in the world, the small middle-income countries are among the slowest growing in the region, and there are significant downside risks to this outlook.
Participants then explored policy responses to challenges to boosting growth in five key areas – macroeconomic vulnerability, employment and inclusiveness, productivity growth, financial inclusion, and the political economy of economic reform. To allow for peer learning – an approach which to date has been used relatively rarely by the IMF – small breakout sessions among country participants were a key feature of the program, with group discussions and presentations leading to review of country experiences and failure using specific policy initiatives.
Consensus emerged on the following points:
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Like many small states, small middle-income countries are highly vulnerable to shocks, and there was broad agreement on the importance of building sufficient policy buffers to absorb external shocks – especially since official financing flows for these countries will fall over time. At the same time, there are significant opportunity costs of buffers such as holding large reserves, especially in view of important infrastructure gaps that restrain long-term growth in such countries.
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To promote diversification there is a need for policies to reduce skills mismatch. If done right, these policies could help “crowd in” private sector employment, as supported by the analytic work in the book, while the state continues to foster smooth functioning of the labor market and provides safety nets. However, there is also a need to implement public employment and wage policies that will improve labor market outcomes, and to avoid the government becoming the “employer of last resort”.
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Returning to an era of strong growth is necessary to achieve high-income status. This will require deeper reforms and innovative policies to boost productivity. In particular, the quality of public spending, especially for education and economic governance, was considered an important tool for supporting productivity growth.
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Discussion on financial inclusion highlighted emerging evidence that financial inclusion is crucial for structural transformation and inclusive growth – while noting that small middle-income countries have some of the most uneven distributions of income in the world. Many country participants emphasized the need to go beyond relaxing financing constraints for small and medium-sized enterprises, such as loan subsidy programs, to address underlying market failures and structural weaknesses in the financial sector that keep intermediation costs high. At the same time, efforts by governments to promote financial inclusion need be pursued in a manner that preserves financial stability.
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In the discussion of political economy constraints on reform, country participants highlighted the importance of effective communication in building support. Appropriate sequencing could reduce the chances of reform fatigue in small middle-income countries. They also agreed on the usefulness of “reform champions” that are insulated from short-term political cycles. Ultimately, they recognized that strategies to advance reforms need to be driven by country-specific circumstances.
Benefits of peer learning
Looking ahead, country participants felt that peer learning could help move reforms forward in their countries. They also concurred on the value of the forthcoming book as a vehicle to further foster peer learning among this group and offered to contribute their own country experiences and perspectives – which will enrich the analysis and improve traction.
The peer group is also eager to pursue cost-effective tools for knowledge sharing, including online, which the IMF African Department and the Africa Training Institute will help explore. More broadly, seminar participants noted that capacity building and training institutions in the region could become vehicles for peer-to-peer learning and support. They envisaged that these countries could eventually set common policy goals among themselves, with those doing well helping those that are lagging behind.
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Infrastructure Financing Trends in Africa – 2013 Report
The Infrastructure Consortium for Africa (“ICA”) has published its Infrastructure Financing Trends In Africa 2013 annual report, which finds that, for the second year running, there was a significant rise in total commitments for energy, transport, water and information and communications technology (ICT) in 2013. Results were reported by ICA members and from independent research carried into other public and private sector funding flows.
ICA members – the G8 countries, South Africa, African Development Bank, Development Bank of Southern Africa, European Commission, European Investment Bank, and the World Bank Group – reported 2013 commitments up 35% compared with 2012, reaching a record level of $25.3bn. The increase has been substantially helped by $7bn of commitments by US government agencies in US President Barack Obama’s Power Africa initiative. The signs are that the rise in commitments has continued in 2014 as ICA members have lined up to support initiatives including Power Africa.
Commitments from the private sector, non-ICA members including China, India, the Arab Co-ordination Group of funds and institutions, and other European countries contributed to total external funding commitments of $52.9bn in 2013, reinforcing a trend of growing support for Africa’s infrastructure, which recorded $34.3bn and $46.6bn total external funding in 2011 and 2012, respectively.
The report indicated sustained growth in African national governments' spending on infrastructure. In the African countries for which data was obtained, while overall budgets increased by 3% in the 2011-13 period, budget allocations for infrastructure increased by 8% in the same period with 21 African countries reporting budget commitments of approximately $46bn.
External Financiers of Africa’s infrastructure
Project preparation frustrations
ICA members’ disbursements (not to be compared directly to commitments in the same year) reached only $11.4bn, 11% lower than reported in 2012. The annual report said: “ICA members identified the enabling environment as the biggest challenge in project preparation, including ensuring the right attitudes, policies and practices with stakeholders.” Critical issues included determining a project’s financial structure.
Respondents to ICA’s now annual Private Sector Survey (compiled by CbI) listed the slow pace at which DFI-led facilities disburse funds among the major constraints on implementing projects. “It seems that the public and private sectors share similar frustrations when it comes to project preparation, a process which may eat up 7-15% of total project costs,” said CbI’s managing director, Mark Ford.
The report said: “The extent that international focus is shifting towards solving the problem of gaps in Africa’s infrastructure is underlined by the attention now given… by senior leaders. It is reflected in an ever-growing number of initiatives – from the innovative Africa50 fund to help underwrite commercial infrastructure projects developed by the African Development Bank and the African Union’s potentially transformative Programme for Infrastructure Development in Africa to the United States’ Power Africa initiative, a range of European Union programmes and funding from China and other non-ICA member states, plus the United Nations-led global Sustainable Energy for All initiative. As the report shows, Power Africa is making progress in meeting the initiative’s initial goals of increasing energy access in sub-Saharan Africa.”
The ICA has created a Project Preparation Facilities Network with the aim of better co-ordinating schemes and their potential donors during the difficult early development stage. Respondents to the private sector survey highlighted the lack of early-stage funding as a key barrier to market entry. The report noted the launch of new early-stage project development facilities by a partnership of Dutch DFI FMO and the Lagos-based Africa Finance Corporation, and the African Sustainable Energy Facility, which “may prove to be useful tools”.
ICA members made by far their largest commitments in 2013 to the energy sector: 51.6% of the total, at $13bn, followed by transport ($5.3bn) and water ($5bn). The largest share of commitments by region was made to West Africa ($8.5bn, equivalent to 34% of the total), followed by East Africa ($6.9bn).
African states are themselves looking to provide more resources to finance infrastructure projects. The report said “national budget allocations’’ appear to be growing but investment levels vary substantially from year to year in several countries”.
China
China remains the largest bilateral investor in infrastructure on the continent. Lending reached $13.4bn in 2013, almost the same as in 2012, although somewhat less than in 2011, and all directed at sub- Saharan Africa.
Diversification of Private Sector Portfolio
Private sector interest is growing, reaching $8.6bn in 2013, spurred by a handful of large-scale projects/programmes such as South Africa’s Renewable Energy Independent Power Producer Programme (REIPP) and large port projects in Nigeria. The private sector survey found that most investors were looking to an internal rate of return of between 16% and 25%, and anticipated that their African infrastructure portfolios would expand over the next five years.
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Ghana’s battle for seed sovereignty
Whoever controls the seed controls the entire food chain. If Ghana’s Plant Breeders Bill passes, small-scale farmers’ rights over this essential resource could go straight into the hands of transnational corporations, write Ali-Masmadi Jehu-Appiah and Chris Walker.
This month, Ghanaian farmers could see the way they control an ancient and essential resource, their seeds, change forever. Members of Ghana’s parliament have been due to resume negotiations on the Plant Breeders Bill 2013 since mid-October. The proposed legislation would put in place intellectual property laws that would allow companies and seed breeders anywhere in the world to gain ownership over seed varieties they claim to have created. Farmers would be prevented from saving, adapting or exchanging these varieties within traditional seed economies, risking heavy fines or even imprisonment if they do.
President John Mahama’s government claims that the laws would incentivise the breeding of safe, saleable and productive seeds to improve the country’s food security. Yet in recent months, farmers, campaigners, trade unions and faith groups have taken to the streets in the cities of Accra, Tamale and beyond. They fear the bill would allow a takeover of Ghana’s seeds and broader food system by transnational corporations (TNCs). It’s why campaigners have dubbed the bill “the Monsanto Law”.
TNCs indeed stand to make vast profits from the Plant Breeders Bill. Seed companies would be able to claim ownership of varieties that have adapted through millennia of indigenous seed breeding but which have been finely altered in a lab, possibly through – thanks to concurrent policy reforms in the country – genetic modification. The Bill does not require the seed breeder to disclose the origin of the genetic material used to develop the variety it wishes to protect or compensate the farmers affected, opening the doors to what opponents are calling “bio piracy”.
Across the world, farmers have got into dangerous levels of debt at the hands of companies which have promoted “improved seeds” and come to control their seed supply. The Ghana National Association of Farmers and Fishermen fears this will be the case with the proposed bill. “The Plant Breeders Bill aims to replace traditional varieties of seeds with uniform commercial varieties and increase the dependency of smallholders on commercial varieties”, says the association. “This system aims to compel farmers to purchase seeds for every planting season.”
Ghana’s bill follows a global push by governments towards new laws promoted under the controversial International Union for the Protection of New Varieties of Plants (UPOV). This trend aims to promote “harmonised” intellectual property laws worldwide, accommodating a truly globalised seed economy. With backing from aid donors, the International Monetary Fund, the World Bank and corporate investors, plant variety protection legislation is gaining pace around the world. But resistance is also growing, and legislation has been stopped in its tracks by widespread protests in both Guatemala and at the European Union this year alone.
Food Sovereignty Ghana and other campaign groups have raised particular alarm over Clause 23 of Ghana’s bill. This declares that the right of a plant breeder protected under the legislation would be “independent of any measure taken by the Republic to regulate within Ghana the production, certification and marketing of material of a variety or the importation or exportation of the material.” It is, in effect, a legislative “lock-in”. “We fail to see how in a country based on a constitutional rule, the rights of the plant breeder… [are] being made independent of any measure taken by the Republic to regulate within Ghana,” says Food Sovereignty Ghana.
The government has claimed that such legislation is a condition of Ghana’s membership of the World Trade Organisation (WTO). Yet WTO member states are permitted to develop “sui generis” legislative frameworks to suit the needs and context of each country. With the bill failing to provide specific protection for small-scale and indigenous farmers, opponents accuse the government of falling prey to hard lobbying from both the US government and TNCs.
Ghana’s proposed seed laws are the latest manifestation of a worldwide push by corporations to take over African food systems. Currently, 90% of Africa’s food production comes from small-scale farmers. But alongside issues such as land-grabbing, control over seeds and genetic material forms a key frontier in the battle for control of food systems in which small-scale farmers are increasingly losing control of their livelihoods. Seed companies including Monsanto, Dupont and Syngenta, who together already control 53% of the global seed market, are now gaining access to sub-Saharan Africa’s markets with the help of initiatives including the G8’s New Alliance for Food Security and Nutrition. Activists fear that community models of seed development and trade will be all but swept aside. “The origin of food is seed,” says Food Sovereignty Ghana. “Whoever controls the seed controls the entire food chain.”
Ali-Masmadi Jehu-Appiah is the Chairperson, Food Sovereignty Ghana. Chris Walker is a Food Campaigner, World Development Movement, UK.
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AFC completes $300m fund raising scheme for trade facilitation, others
Africa Finance Corporation (AFC), a leading investment grade rated multilateral development finance institution, on 17 December 2014 announced the close of a $300 million dual tranche (two-year and three-year) club facility arranged by six initial mandated lead arrangers (IMLAs) and bookrunners.
The financial institutions involved are Bank of Tokyo-Mitsubishi UFJ, Ltd; Citibank N.A; Deutsche Bank AG; FirstRand Bank Limited; Standard Bank of South Africa Limited; and Standard Chartered Bank.
Each of the IMLAs and bookrunners committed $50 million funding to the facility.
Subsequent to the initial funding, a secondary market syndication of the facility was arranged, which witnessed a strong demand for the credit, with new commitments of $336.5 million obtained from 16 lenders across various geographies, such as Asia, Europe and the Middle East.
The lenders include Industrial and Commercial Bank of China Limited, Commercial Bank of Kuwait K.P.S.C, Korea Development Bank, KDB Bank Europe Limited, Burgan Bank S.A.K, Tunis International Bank, First Gulf Bank PJSC, Bank of China Limited, State Bank Of India, Banque des Mascareignes Ltée, Commercial Bank of Qatar Q.S.C, The Export-Import Bank of the Republic of China, Korea Exchange Bank, Al Ahli Bank of Kuwait K.S.C.P, First Commercial Bank Limited, Mega International Commercial Bank Co and United Taiwan Bank S.A.
Altogether, the facility was more than two times oversubscribed during the primary and secondary market processes, with AFC receiving total commitment of $636.5 million from 22 lenders.
The proceeds of the facility will be used by AFC for general corporate purposes including the facilitation of trade.
AFC, a multilateral finance institution, was established in 2007 with a capital base of $1 billion, to be the catalyst for private sector infrastructure investment across Africa.
The Senior Vice President and Treasurer of the development finance institution, Banji Fehintola, explained that “AFC’s long term vision is to help address Africa’s infrastructure deficit and ensure sustainable economic growth for the continent.”
He added: We are encouraged by the confidence that our lenders have placed in us. We believe that the well documented need for bridging the infrastructure investment divide across Africa will provide the opportunity to apply AFCs differentiated model of providing long-term infrastructure financing and value added infrastructure asset project development expertise, to generate real value for our investors and stakeholders”.
AFC’s investment approach combines specialist industry expertise with a focus on financial and technical advisory, project structuring, project development and risk capital to address Africa’s infrastructure development needs and drive sustainable economic growth.
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OECD Development Assistance Committee: High Level Meeting Final Communiqué
The OECD Development Assistance Committee DAC convened its 2014 High Level Meeting from 15 to 16 December 2014 in Paris.
The principal objective of the meeting was the modernisation of the OECD DAC development finance measurement framework to ensure that it is credible and fit-for-purpose in today’s global context.
The decisions and actions taken in the meeting will enable the OECD and its members to make an important contribution to future monitoring of the financing framework underpinning the forthcoming Sustainable Development Goals.
This meeting was the culmination of an imperative fully endorsed by political leaders at the DAC High Level Meeting in December 2012. They called on the DAC to adapt its long-standing statistical concepts to the profound changes in the global financial and economic landscape.
Final Communiqué, 16 December 2014
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We, the members of the OECD Development Assistance Committee (DAC), convened at high level in Paris on 15-16 December 2014. We welcomed the five new members who have joined the Committee since our last High-Level Meeting in 2012: the Czech Republic, Iceland, Poland, the Slovak Republic and Slovenia. We also welcomed the United Arab Emirates as the first country beyond the OECD membership to become a Participant of our Committee. The International Monetary Fund, the World Bank, the United Nations Development Programme, the Inter-American Development Bank and non-DAC OECD members – Chile, Estonia, Hungary, Israel, Mexico and Turkey – participated in our deliberations.
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We have witnessed tremendous development progress over the past 15 years. Globally, extreme poverty has been halved, substantial progress has been made toward reaching gender parity in school enrolment at all levels and in all developing regions and child mortality has been halved as has the proportion of people without access to safe water. Yet the job of ending global poverty is unfinished, and we encounter continued instability and conflict, humanitarian crises and rising inequality. Addressing all these challenges in a sustainable way requires a renewed global partnership for development.
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We met as the world prepares the ground for the post-2015 agenda, an ambitious global framework for achieving inclusive, sustainable development for all. Three decisive events taking place next year will sharpen the vision and clarify the means of implementation underpinning this agenda: the Third International Conference on Financing for Development, the United Nations Summit for the Adoption of the Post-2015 Development Agenda, and the 21st Conference of the Parties on the United Nations Framework Convention on Climate Change.
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As we shape the new sustainable development goals for the post-2015 era, we want to ensure our contributions make the difference that is needed. We invite the OECD to fully use its interdisciplinary expertise to support members and partners as they design and implement the range of policies needed to achieve these goals in all countries. This new set of goals will require both financial and non-financial means and efforts. As regards the financing challenge, a wide array of domestic and international resources – both concessional and commercial in nature – needs to be mobilised from public and private sources and from all providers. These different resources must also be used effectively, drawing on their respective comparative advantages. In this context, we welcome relevant efforts from across the OECD on development finance, including in the areas of taxation and investment. We consider that improving global access to reliable statistics regarding all these resources will be essential for all stakeholders, including developing and provider countries, to optimally plan, allocate, use and account for development resources. Reliable statistics will also facilitate national, regional and global transparency and accountability.
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OECD DAC statistics on development finance are a global public good that informs policy choices, promotes transparency and fosters accountability. Following a mandate that we adopted at the 2012 High Level Meeting, we began work to modernise our statistical system, measures and standards to ensure the integrity and comparability of data on development finance and create the right incentive mechanisms for effective resource mobilisation. We have today taken stock of progress achieved in this regard, and have taken decisions in a number of areas.
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Official Development Assistance (ODA) will remain a crucial part of international development co-operation in implementing the post-2015 agenda, particularly for countries most in need. We also acknowledge the important role of international private flows. Domestic resources, however, will continue to be the main pillar of development finance for the broad majority of developing countries.
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We note that despite challenging fiscal circumstances in many OECD countries, we have maintained high levels of ODA – which reached an all-time high of USD 134.8 billion in 2013. We reaffirm our respective ODA commitments, including those of us who have endorsed the UN target of 0.7 per cent of Gross National Income (GNI) as ODA to developing countries, and agree to continue to make all efforts to achieve them.
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We also agree to allocate more of total ODA to countries most in need, such as least developed countries (LDCs), low-income countries, small island developing states, land-locked developing countries and fragile and conflict-affected states. We have agreed today to commit to reversing the declining trend of ODA to LDCs. Those members who have committed to the specific UN target of 0.15-0.20 per cent of GNI as ODA towards these countries reconfirm their commitment. We underscore the importance of collective action and individual steps to better target ODA towards countries most in need (See Annex 1). We will monitor progress in line with each member’s commitments through the OECD peer review process, and additionally on an aggregate DAC level at our senior level meetings.
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In line with the 2012 High Level Meeting mandate, we have carefully examined how the ODA measure could be strengthened to reflect the nature of today’s development co-operation and to better address current and future development challenges, while maintaining its core character. We remain committed to maintaining the integrity of the ODA definition and further strengthening transparency regarding its measurement and use, including through defining clearly concessionality and updating the reporting guidance on peace and security expenditures. We also recognise that ODA can help bring in private investment to support development, and that it is essential to capture the breadth of official support provided to developing countries.
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While most ODA is provided in the form of grants, concessional loans form an important part of the measure. However, differences have developed in the way members interpret the unclear “concessional in character” criterion of the ODA definition. We therefore agree to modernise the reporting of concessional loans to make it easier to compare the effort involved with that in providing grants, by introducing a grant equivalent system for the purpose of calculating ODA figures. This means that under the new reporting system, ODA credit counted and reported will be higher for a grant than for a loan. Furthermore, among loans which pass the tests for ODA scoring, more concessional loans will earn greater ODA credit than less concessional loans. Alongside reporting on a grant equivalent basis, ODA figures will continue to be calculated, reported and published on the previous cash-flow system. This means that data on actual disbursements and repayments of loans will continue to be collected and published in a fully transparent manner.
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We have further decided to assess concessionality based on differentiated discount rates, consisting of a base factor, which will be the IMF discount rate (currently 5%), and an adjustment factor of 1% for UMICs, 2% for LMICs and 4% for LDCs and other LICs. This system, combined with a grant equivalent method, is expected to incentivise lending on highly concessional terms to LDCs and other LICs. To ensure that loans to LDCs and other LICs are provided at highly concessional terms, only loans with a grant element of at least 45% will be reportable as ODA. Loans to LMICs need to have a grant element of at least 15%, and those to UMICs of at least 10%, in order to be reportable as ODA.
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Consistent with our commitment to pay particular attention to debt sustainability when extending loans to developing countries, we agree that loans whose terms are not consistent with the IMF Debt Limits Policy and/or the World Bank’s Non-Concessional Borrowing Policy will not be reportable as ODA. We request the WP-STAT to prepare the revised Reporting Directives, in accordance with our agreement further detailed in Annex 2, for endorsement by the DAC by the end of 2015.
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We recognise the importance of strengthening private sector engagement in development and we want to encourage the use of ODA to mobilise additional private sector resources for development. We recognise that the present statistical reporting system does not fully reflect the changing way in which members are engaging with the private sector, nor does it incentivise innovation. We take note of progress already made in developing a modern taxonomy of financial instruments, and methodologies to measure private sector resources mobilised, for example through guarantees. We agree to urgently undertake further work to reflect in ODA the effort of the official sector in catalysing private sector investment in effective development. In doing so, we will explore further the institutional and instrument-specific approaches that have been developed by members, and potentially other approaches, with the aim of concluding at our next meeting. We will continue to collaborate with agencies with special expertise in this field, such as donors’ Development Finance Institutions and other bilateral institutions that use private-sector instruments, and similar multilateral institutions.
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The development agenda is becoming broader. It is therefore important to recognise and further incentivise the efforts that are being made above and beyond ODA. Accordingly, we agree to continue to develop the new statistical measure, with the working title of Total Official support for Sustainable Development (TOSD). This measure will complement, not replace, the ODA measure. It will potentially cover the totality of resource flows extended to developing countries and multilateral institutions in support of sustainable development and originating from official sources and interventions, regardless of the types of instruments used and associated terms. The components of this measure have been discussed and will be refined, working with all relevant stakeholders, in the lead-up to the Third International Conference on Financing for Development in Addis Ababa. Its ultimate parameters will be clarified once the post-2015 agenda has been agreed. We will also collect data on resources mobilised by official interventions from the private sector using leveraging instruments such as guarantees. We support continued work to establish an international standard for measuring the volume of private finance mobilised by official interventions and want to explore whether and how this could be reflected in a new measure.
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Supporting developing countries to optimally use the increased diversity of funding sources that they can access today will be important. The transparency of resource flows reaching developing countries plays a role in enhancing the effectiveness of development co-operation. We will therefore strengthen our dialogue with developing countries to ensure that our statistical system contributes to meeting their information and planning needs. Further, we will continue to develop our systems for measuring resource inflows to developing countries, building on our longstanding work with country programmable aid.
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Recognising that building peaceful and inclusive societies will be an increasingly important part of the development agenda, we will generate greater political momentum in support of peacebuilding and statebuilding efforts. We agree to further explore how support in this area could be better reflected in our statistical system through a possible broader recognition in TOSD, and through updating ODA reporting instructions. In doing so, we will ensure that the main objective of ODA remains the promotion of the economic development and welfare of developing countries. We aim to complete this work in time for our next meeting.
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We have come some distance in our efforts to upgrade and modernise our statistical systems and tools in order for them to contribute to monitoring the financing framework underpinning the post-2015 agenda. By implementing these changes, we reaffirm our commitment to remain the centre of excellence of high-quality statistics on official development finance. We will explore ways of engaging more systematically with other stakeholders (e.g. partner countries, other providers of development finance, foundations, civil society, private sector, the United Nations and other international organisations) in the further development and use of our statistical system, measures and standards. We welcome the reporting of development co-operation data from an increasing number of sovereign states beyond DAC members (such as European Union Member States, Israel, Kuwait, Liechtenstein, the Russian Federation, Saudi Arabia, Thailand, Turkey, and the United Arab Emirates) as well as other development actors (including the Bill and Melinda Gates Foundation and more than 30 multilateral institutions), and encourage other providers to follow their example.
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We strongly support the work of the Global Partnership for Effective Development Co-operation (GPEDC), agreed in Busan, as a leading international policy platform and a hub to “share, support and spread development success”, including through the contribution of voluntary initiatives and building blocks. We believe the GPEDC’s flexible, multi-stakeholder, action-focussed approach means that it can play a useful role in helping to implement the post-2015 agenda. We stand ready – with other international fora such as the Development Cooperation Forum – to drive efforts at the international level to anchor the quality of co-operation and the development effectiveness principles in the post-2015 agenda, and at country level to foster learning and exchange of experience in achieving sustainable development results. We reaffirm our existing aid and development effectiveness commitments and resolve to further engage with other providers. We note that a strengthened GPEDC monitoring framework can be a useful tool to measure and report on progress in support of future efforts to implement the post-2015 agenda at developing country level.
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We look forward to actively contributing to the UN-led process to shape the ambitious post-2015 agenda, and the renewed global partnership to support its implementation, including the future accountability and monitoring system. We will engage with international, regional and local initiatives and actions for a successful outcome of the decisive meetings in 2015.
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We will reconvene end-2015/early-2016 to take stock of progress in implementing the decisions we have taken today, and in carrying out additional analytical work to bring to closure our effort to modernise the DAC statistical system for the post-2015 era.
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Clim-Dev Africa providing more and better climate services to enhance adaptation to climate change
The Climate for Development in Africa (Clim-Dev Africa) programme dinner dialogue was held at the margins of the UN Global Climate Change Conference (COP 20) in Lima, Peru, to discuss various perspectives for enhancing the provision of climate information services in support of Africa’s economic transformation and capacity to adapt to climate change.
This Clim-Dev Africa programme is implemented under the auspices of the African Union Commission (AUC), African Development Bank (AfDB), and the United Nations Economic Commission for Africa (ECA) and intends to strengthen the policy response to climate change.
Africa currently bears the greater share of the burden posed by climate change, even as it has enjoyed the fastest continuous economic growth of all global regions over the past decade. Africa’s economic growth needs to be resilient to climate change using the best sciences and climate information services. Climate information services are the dissemination of climate data to the public or a specific user.
Fatima Denton, Director, Special Initiatives Division, UN Economic Commission for Africa (ECA), and Olushola Olayide, representative of the Commissioner for Agriculture at the Africa Union Commission, welcomed the recent operationalization of the Clim-Dev Africa Special Fund (CDSF), the financing arm of the programme housed in the AfDB. The objective of CDSF is to finance the enhancement of national and regional meteorological and hydrological services in providing African countries quality data and climate information services. CDSF has €33 million seed money from the Swedish International Development Agency, the European Union and Nordic Development Fund.
Alex Rugamba, Director of the Energy, Environment and Climate Change Department of the AfDB, said that “improving weather and hydrological observation network in Africa is an enormous undertaking that not only requires significant resources, but is also essential for Africa’s ability to adapt to the impacts of climate change.”
As an example, Clim-Dev Africa Special Fund has just approved its first project of €1 million to support enhancing access to climate data and information services in Ethiopia. This project aims to improve early warning systems for climate change adaptation in key climate sensitive sectors of agriculture, water, energy and health. Twenty automated meteorological monitoring stations and seven mobile calibration units will be added to the Ethiopian network.
The Environment Minister from Senegal, Abdoulaye Baldé, highlighted the importance of climate information to enhance resilience of crops in the agriculture sector. Climate affects sectors in a variety of ways and many climate services are used differently for the different sectors.
For her part, ECA’s Denton also stressed that climate information services provide the shield for safeguarding the gains made in economic growth, and capitalizing on emerging opportunities for continuous growth. Besides encapsulating Africa’s development from climate impacts, it can be a catalyst for increasing the scope and scale of transformation, and serving as a lubricant for interrelated sectors in optimizing their productivities cost-effectively, while minimizing trade-offs across systems.
Various perspectives from experts, policy-makers, actors and the private sectors about the means to increase in investments in climate information services and the need for further partnerships were also discussed.
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Development Partners delivered a statement on “Supporting Agricultural Development in Africa”
The European Union as Chair of the Development Partners Task Team and the World Bank presented a statement agreed by development partners affirming their support to the Malabo Declaration on “Accelerated Agricultural Growth and Transformation for Shared Prosperity and Improved Livelihoods”. The Declaration was approved by African Heads of State and Government during the June 2014 AU Summit in Malabo.
The African Union partners welcomed the Malabo Declaration and its focus on agriculture’s central role in promoting sustainable development on the continent. The Malabo Declaration revitalizes the Comprehensive Africa Agricultural Development Programme (CAADP) as the overarching framework for increasing investment in the agricultural sector and for using sound, evidence-based approaches to inform policymaking.
The Malabo Declaration is timely as the “2014 Year of Agriculture and Food Security” draws to a close and there is a need to redouble efforts to make broad-based agricultural development a stronger tool in the fight to end poverty and boost prosperity on the continent.
The African Union partners committed themselves to enhancing their collaboration with African nations for the transformation of the agriculture sector in a consultative and coordinated manner taking into account the existing frameworks for continental, regional, and country-level cooperation. The results of their support will be communicated through the commonly agreed CAADP Results Framework.
Speaking on the occasion on behalf of the Partners, EU Ambassador said that the Malabo Declaration priorities are perfectly in line with Partners priorities for Food and Nutrition security. Malabo represents a paradigm shift insofar as the ‘political development targets’ set at continental level have taken over the ‘investment’ targets of the first 10 years of CAADP. He acknowledged the focus of the Declaration on African resources and efforts which demonstrates real African leadership and ownership. He strongly welcomed African Union Member States to take greater responsibility, within their countries, for pursuing the Malabo Declaration, for reaching the 10% allocation of public expenditures to agriculture, and for continuously improving their agricultural policies.
The Commissioner for Rural Economy and Agriculture of the African Union Commission, H.E. Mrs. Tumusiime Rhoda Peace, in her statement, acknowledged the collaborative endeavors which led to the Malabo Declaration and emphasized the significance of supporting accelerated implementation at the country level through a coordinated and harmonised approach at different levels, which partners can facilitate actions at country levels in their bilateral cooperation.
The Malabo declaration emphasizes ending hunger and malnutrition, enhancing growth and shared prosperity, enhancing intra-African trade, enhancing resilience of production systems and livelihoods, and mutual accountability for actions and results.
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Is Africa’s oil and gas sector under threat?
The gathering of oil and gas companies at Africa Oil Week this year was characterised by a number of concerns regarding the sector’s prospects. Held in Cape Town in early November, the most immediate worry expressed at the event centred on plummeting oil prices and the impact of this trend on investment flows into new exploration.
Oil prices have been on the decline since the middle of 2014 when oil was commanding prices in excess of $100. By November, they had fallen to under $80 a barrel. At that price, the viability of the kinds of new frontier exploration that typify activities in Africa look particularly risky.
Weak oil prices have already had a huge impact on Africa’s largest economy, Nigeria, where the government relies on hydrocarbons for 80% of its revenues. Due to fears over tumbling prices, the Nigerian Stock Exchange all-share index went into freefall in November. In a bid to defend its currency, the Central Bank of Nigeria (CBN) has used its foreign reserves, which have descended to a four- month low, in order to avoid the need to increase interest rates or devalue the naira. By the end of the Africa Oil Week conference, on 7 November, Nigeria’s foreign exchange reserves had dropped for more than two weeks, sliding to $38 billion. It is estimated by Deutsche Bank that Nigeria needs an oil price of $126 a barrel to balance its budget. Were the oil price to continue its precipitous fall, a rise in interest rates and/or a devaluation of the currency would seem inevitable for Nigeria. This would deal a serious blow to President Goodluck Jonathan’s election prospects next year.
However, for all Nigeria’s woes, Rolake Akinkugbe, the Head of Energy and Natural Resources Coverage at First Bank of Nigeria, reminded the Africa Oil Week conference that only a minority of Africa’s 54 countries actually possess known oil and gas reserves. Even fewer actually export hydrocarbons, and as she pointed out, the effect of lower oil prices is generally welcome news to Africa’s majority of non-producers.
The next sub-prime crisis?
Another major concern for the oil and gas industry currently comes from the threat of climate change. More pressure has been exerted on the industry recently following the publication of a landmark report by the Intergovernmental Panel on Climate Change (IPCC). The publication issued the starkest warning yet that the world is on a path to a temperature rise of four degrees, a scenario scientists say would be “catastrophic”.
As Rajendra Pachauri, the IPCC chief, warned: “We have little time before the window of opportunity to stay within two degrees [of warming] closes. To keep a good chance of staying below two degrees, and at manageable costs, our emissions must drop by 40% to 70% globally between 2010 and 2050.”
Given these warnings, the oil and gas industry in Africa fears new emissions legislation could curb their activities. The burning of fossil fuels accounts for around 37% of all global greenhouse gas emissions, and 7% of global oil and gas supplies come from Africa. There have of course been plenty of similar alarms raised by experts and scientists in the past, but what makes the newest report particularly significant is the political backing it has received.
UN Secretary-General Ban Ki-Moon threw his weight behind the panel’s findings, stating: “Human influence on the climate system is clear, and clearly growing.” Meanwhile, US Secretary of State John Kerry claimed that “those who choose to ignore or dispute the science clearly laid out in this report do so at great risk for our kids and grandkids.”
Most significantly, however, US President Barack Obama and China’s President Xi Jinping announced in November after meeting in China that their respective countries – the former with the world’s highest per capita emissions, the latter with the world’s largest absolute emissions – would commit to targets to lower their carbon emissions.
The current flurry of activity around climate change comes ahead of UN talks in Lima, Peru, this month, which will set the groundwork for a global warming pact to be debated in Paris early next year. The tentative progress being made has encouraged some observers that negotiations are on track, but as ever, the devil will be in the detail. And Africa’s oil and gas interests will be keeping a particularly close eye on how any treaty talks differently about developed and developing economies. Many argue that any deal must be careful not to stand in the way of poorer countries industrialising and growing. This means that Africa’s obligations ought to be different to those of nations that reached high levels of industrialisation long ago.
Another way in which African oil and gas companies may avoid restrictions imposed by a climate change agreement comes in the form of Carbon Capture and Storage (CCS). CCS is a technology whereby fossil fuels are “stripped” of their dirty gas emissions that are then buried in underground reservoirs.
The first full-scale CCS plant, located in Canada, is reportedly operating relatively successfully, and in a surprise announcement, the European Union recently endorsed the process in its climate and energy package. If the technology were to be developed and the knowledge transferred to Africa, it could be used as an option to offset greenhouse gas emissions and therefore allow the continued exploitation of hydrocarbons.
The oil and gas industry could certainly do with these kinds of breakthroughs as a number of financiers and investors have warned that fossil fuels might be the next sub-prime crisis in waiting. Mark Lewis, the former head of energy research at Deutsche Bank, for example, says that if the Paris meeting results in emissions limits, the fossil fuel industry “would stand to lose $28 trillion of gross revenues over the next two decades, compared to a business-as-usual scenario. The oil industry alone would face ‘stranded assets’ of $19 trillion.”
Renewable competition
A further challenge that the oil industry will need to confront going forwards is competition from renewable energy. The rapidly declining price of solar panel systems and, to a lesser extent, wind turbines, makes them highly attractive propositions, especially with more African utility companies offering “buy-in” tariffs. Solving issues around energy storage and consistent generation would even further open up the possibility of grid-scale power plants using concentrated solar power.
There are currently systems being tried such as pumping water uphill during the times when electricity is generated then letting it fall to drive turbines and generate power at “off-times”, or attempts to use solar energy to heat molten salts which can store the energy to be released when needed. These are promising technologies, but in their current formulations, neither is particularly efficient.
However, scientists such as Nicolas Calvet, professor of mechanical and materials engineering at the Masdar Institute in Abu Dhabi, are constantly innovating and researching in the hope of developing more viable alternatives. And Calvet, who leads Masdar’s thermal energy storage research group, believes he may be onto a promising new system. Calvet believes using sand, which is both cheaper than salts and can store thermal energy at 1000°C rather than molten salts’ 600°C, could work even better.
It will be a while before we know how viable, efficient and scalable such a system would be, but either way it is clear that Africa’s oil and gas industry faces considerable challenges in the near future.
Whether from economic arguments against exploration, growing concerns around climate change, or competition from renewable energies, the delegates of Africa Oil Week will no doubt be polishing their crystal balls to work out what’s next for the industry.
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Bold energy reforms needed across major emerging economies to sustain economic growth and tackle sustainability challenges
Major emerging economies should push forward with policies to address high energy intensity and corrosive energy subsidies, and to encourage wider investment, according to the World Economic Forum’s Global Energy Architecture Performance Index Report 2015, which was released on 10 December 2014.
The annual index, designed to help countries address challenges and identify opportunities across their energy systems, benchmarks the energy architecture of 125 countries based on their ability to provide energy access across three dimensions of the energy triangle – affordability, environmental sustainability, and security and access. This year’s report focuses on energy reforms in major emerging economies, drawing on examples from Brazil, China, Colombia, India, Indonesia and Nigeria. The report, written in collaboration with Accenture, is being launched today in Mexico, highlighting the significance of the country’s far-reaching energy reforms in transforming its energy sector.
“2014 has been a turbulent year for the energy sector – geopolitical uncertainties, slowing economic growth and the drop in oil prices are affecting energy systems around the world,” commented Roberto Bocca, Senior Director, Head of Energy Industries, World Economic Forum. “In this context, effective energy reforms are more important than ever to drive economic competitiveness, particularly in major emerging economies – these nations face some of the greatest challenges across the energy triangle.”
The shortlist of top performers – led by Switzerland (1st), Norway (2nd) and France (3rd) – demonstrates that there is no single pathway to a more affordable, sustainable and secure energy system, but that a balanced approach to energy policy across the three dimensions of the energy triangle pays off. All top 10 countries are European and/or OECD countries, with the exception of Colombia (9th).
Major global economies tend to perform less well on the index as their transitions take longer to unfold, due to the complexity of their energy systems. Of these economies, a number are examined in the report. The impact of the Energiewende in Germany (19th) clearly highlights the risks and benefits associated with the energy transition. In the US (37th), the surge in shale gas production is having a profound impact on national competitiveness and climate policy.
Of the major emerging economies, India (95th) needs to address the growing gap between domestic demand and production, to limit further increases in energy import bills in coming years.China (89th) has taken resolute action to tackle air pollution and meet future energy needs, sparking a renewable energy transition, but much more work remains to control emissions. As growth slows, this will be increasingly difficult.
Energy Reform in Major Emerging Economies: New Models for Sustained Growth
Reforming state-owned enterprises (SOEs) in major emerging economies, which together account for nearly half of global energy consumption and carbon emissions, will help create effective regulatory frameworks, investment signals and public engagement. This will in turn drive the global energy transition, according to the report.
“Energy reforms will typically take years to implement, so strong institutional and regulatory frameworks that transcend shorter political cycles are critical,” said Arthur Hanna, Senior Managing Director, Accenture Strategy, Energy, and a member of the World Economic Forum’s Global Agenda Council on The Future of Oil and Gas. “In the long term, the prize of effective energy reforms in major emerging economies is great, both for the individual nations concerned, and for addressing affordability, sustainability and security challenges across the global energy system.”
The report explores three areas for reforming governments to consider based on lessons learned from other emerging economies:
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Enacting sound policies in solid institutions: Nations with responsive policy frameworks and governance structures will be better placed to manage change and create competitive energy architectures. Effective reforms will require modernizing and reforming SOEs to increase their effectiveness and ability to adapt to fast-changing conditions.
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Signalling market readiness: Effective investment signals are required to attract the levels of capital needed to build more efficient energy systems. This includes rebalancing the risk and reward ratio for investors, and demonstrating visible leadership commitment to reforms. In Colombia, amendments made to the fiscal regime more than a decade ago helped change the incentives for oil and gas investors. These have had impressive results for the oil and gas sector, including increased flows of foreign direct investment.
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Mastering public engagement: The complexity of the energy sector and its central role in the wider economy means that serious reform will involve negotiation and interplay between numerous interlocking interests. Progress can appear slow-paced, but this should not be a barrier to serious reform. Engagement with stakeholders across the energy value chain will be essential to sustain momentum for reforms. China’s swift response to public pressure on air quality, which included a range of measures at local and national levels, demonstrates how effective the interplay among different parties can be.
Ultimately, there is no universally applicable formula for energy reform. Difficult choices and trade-offs will therefore need to be made at a country level in order to advance the energy transition globally.
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Ethiopia, Kenya ink cross-border trade agreement
The governments of Kenya and Ethiopia have signed an agreement that aims at creating opportunities for communities at the borders of the two countries, President Uhuru Kenyatta said on Wednesday adding that the agreement will create stability and security.
Speaking at a farewell ceremony for Ethiopia's Ambassador to Kenya, Shemsedin Ahmed, President Kenyatta assured the outgoing envoy that his government is determined to implement the special status agreement signed between the two countries.
On the recent terror attacks that took place in Kenya, the president said that his country is committed to winning the war and that his government will continue working with and borrow best practices from Ethiopia, which also neighbors Somalia.
“A busy person will have no time thinking of taking a gun to commit crime, rather he would be so committed to their businesses which he/she knows will ensure they get their daily livelihoods,” the president said.
The Ethiopian envoy condoled with the president and the people of Kenya following the recent terror massacre in Mandera saying the Ethiopian government will work closely with Kenya to ensure they root out the Al-Shabaab menace in the region.
He assured the president that his government is committed to the implementation of the agreement saying it will ensure security and stability within the region.
Ambassador Shemsedin said conflict between border communities has also contributed to border insecurity.
He said that the ongoing construction of Isiolo-Moyale road onwards to Ethiopia will facilitate economic growth and that the Ethiopian government is committed to enhancing border trade without much bureaucracy.
“Issues of currency will not matter when it comes to border trade. We will allow our people to trade freely with their neighbors with no restrictions,” Shemsedin said.
President Kenyatta said the agreement will not only accelerate the implementation of the infrastructural projects but also enhance relations between the peoples of the two countries.
“Everybody will gain; no one will lose in this agreement. This agreement will help our people move freely and develop together. It will help us move from government-to-government engagement to people-to-people relations,” Kenyatta said.
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African Development Report 2014: “Leveraging Regional Integration for Inclusive Growth”
The 2014 edition of the African Development Bank’s African Development Report, on the theme of “Regional integration at the service of inclusive growth”, was officially launched Tuesday, December 16 at the Bank’s headquarters in Abidjan.
In her opening address, AfDB Secretary General and Vice-President Cecilia Akintomide emphasized how “Africa’s regional integration is a major pillar in the Ten-Year Strategy of the Bank, which is celebrating its 50th anniversary in 2014 as Africa’s premier development finance institution.”
Presenting the report, AfDB’s Acting Chief Economist and Vice-President Steve Kayizzi-Mugerwa highlighted the themes developed in it: regional integration and inclusive growth, regional institutions, regional infrastructure, regional migration, regional financial integration and value chains.
Indeed, this report puts regional integration under the spotlight as being necessary for Africa’s development, recalling that this is an aspiration dating back to the independence period in the 1960s. Critically examining the developments that have marked these last 50 years in terms of economic and political integration, the publication underscores how much it needs to be stepped up. The world may well be radically changing, but African integration remains as topical as ever, concludes the Report, which also highlighted how much integration could stimulate sustained, inclusive growth.
The development of distribution networks and regional trade within global and African value chains into which the continent fits, institutional challenges, infrastructure – both tangible and “intangible” – indispensable to interconnect markets and boost competitiveness, strengthened financial systems, were among the challenges to the continent’s integration that were examined in the report.
The launch of the publication was also the occasion for a Davos-style discussion with three AfDB Executive Directors, Abdallah Msa (representing Benin, Burkina Faso, Cape Verde, the Comoros, Gabon, Mali, Niger, Senegal and Chad), Dominic O’Neill (Italy, Netherlands and the United Kingdom) and Shehu Yahaya (Nigeria and São Tomé and Principe), and by Marlène Kanga, AfDB Central Africa Regional Director, and Sylvain Maliko, Acting Director of the AfDB’s NEPAD Regional Integration and Trade Department.
All five discussed the increase in migratory flows, while obstacles to mobility never cease to appear (particularly in Central Africa), and the looming gap between regional integration policies depending on whether they are carried out at national or regional levels.
The panellists did, however, note some progress, particularly with regard to infrastructure development and the free movement of persons, especially in the east and west of the continent.
To close the launching ceremony, AfDB President Donald Kaberuka focused on the respective national policies of African states: “More than infrastructure, it is political will that boosts regional integration in Africa,” he said, before recalling that over the last 10 years the Bank had been ceaselessly financing road infrastructure throughout the continent, with the aim of interconnecting countries. He also lamented the fact that the Regional Economic Communities (RECs) seemed to be working disparately, struggling from a lack of coordination and resources to implement initiatives to further integration, because far too often national interests take precedence over regional ones.
“I recommend that all those interested in the challenges of regional economic integration in Africa and the opportunities arising from this integration read this report,” said Kaberuka. “The Bank will continue to play a leading role in supporting the economic integration of Africa, while helping regional economic communities to create dynamic and attractive regional markets, so that every country in the continent, including the most landlocked and fragile, can benefit from interactions with global markets and from intra-African trade.”
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Building infrastructure to spur intra-African trade and tourism
African Heads of States and Governments recognize the potential contribution of tourism to the growth and transformation of the continent, given that Africa is endowed with rich and diverse cultures, landscapes, and biodiversity. Consequently, tourism is one of the strategic areas in the New Partnership for Economic Development (NEPAD) framework, and is identified there as a key driver for socio-economic growth.
To foster the development of tourism in the continent, the NEPAD Tourism Action Plan (TAP) was formulated under the guidance of African Ministers of Tourism, who convene annually under the auspices of the World Tourism Organization (WTO) Commission for Africa (CAF). The TAP was adopted at the 3rd General Assembly of the African Union (AU) in July 2004 in Addis Ababa, Ethiopia. Since the adoption of the TAP, the continent has been experiencing growth in the tourism sector despite facing major challenges, including a serious infrastructure deficit.
TAP was primarily established to harness Africa’s vast endowment of geographical assets and cultural heritage through promotion of the tourism sector. Indeed, the continent’s abundant natural resources have contributed an average of 5.2% annually to the continent’s economic growth over the past decade, including through foreign exchange earnings.
In 2013 alone, the continent’s receipts from international tourism were USD 34.2 billion. Therefore, it comes as no surprise that tourism as a service sector has been acknowledged as a driver of socio-economic development and growth in Africa. Moreover, it has been identified as such in the African Union (AU) Agenda 2063, which sets out a long-term strategy to “optimize use of Africa’s resources for the benefit of all Africans” and to accelerate development and integration across the continent.
Despite the progress made in the tourism industry, most African countries have yet to reach their full potential. A myriad challenges face the tourism sector: the urbanization of the continent is faster than anywhere else in the world and by 2025 half of the African population will live in cities.
The issue of urbanization will bring serious challenges of integrated waste management, transport and pollution, which will impact touristic activities. Additionally, slow visa facilitation; low investment levels; the capacity gap in the hospitality service industry; poor connectivity and infrastructure are major impediments to tourism growth and sustainability. For instance, what should be a normal 6-hour trip from West to Southern Africa can take as long as 48 hours due to poor air connectivity.
On the other hand, Africa is experiencing low levels of intra-regional economic exchange, while it also has the smallest share of global trade of all regions. Africa is the least integrated continent in the world.
Infrastructure inefficiencies are costing Africa billions of dollars annually and are stunting growth. Bridging the gap in infrastructure is vital for economic advancement and sustainable development. However, this can only be achieved through subregional and continental cooperation and solution finding. The Program for Infrastructure Development in Africa (PIDA) encourages regional cooperation as a means of building mutually beneficial infrastructure. It helps to strengthen the ability of countries to trade and establish regional value chains for increased competitiveness, as well as the free movement of African citizens. As the unique strategic and sectoral framework to accelerate the physical integration of the continent, PIDA promotes the development of infrastructure projects in the areas of transport, energy, information and telecommunications technologies, as well as transboundary water supplies.
The United Nations World Tourism Organization (UNWTO) 2014 report, Tourism Towards 2030, predicts that tourism arrivals in Africa will reach 134 million by 2030, from the present-day level of 65 million. This is a strong growth that could significantly contribute to the GDP, job creation, and transformation of African countries and the continent at large.
However, for this projection to become a reality, there is a need for an enabling environment that would facilitate infrastructure development, investment in human capacity development and growth in the Africa market to promote regional tourism.
In this regard, the importance of infrastructure to tourism development and growth in the continent cannot be over-emphasized hence PIDA implementation is imperative.
This will require building strong partnerships and the collective effort and actions of African governments, the private sector, civil society, regional and continental institutions, as well as development partners.
This article appears in the November 2014 issue of the NEPAD Newsletter.
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Construction of Rubavu-Goma one-stop border post launched
Construction of one-stop border post linking Rubavu in Western Province to Goma town in eastern DR Congo was launched on 15 December 2014.
The border post is expected help meet the required standards of a proper functional border post and reduce the overall transit time for cargo and passengers while easing trade and commerce.
The groundbreaking ceremony was held in Rubavu at La Corniche border post, commonly referred to as ‘Grande Barrière’.
The construction, worth $9 million (about Rwf6 billion), is being financed by the Howard G. Buffet Foundation, according to Christian Rwakunda, the permanent secretary in the Ministry of Infrastructure.
The Howard G. Buffet Foundation is a US-based philanthropist organisation working to improve the standard of living and quality of life for the world’s most impoverished and marginalised population.
The government will cover taxes, including value added tax, customs and duty free and the expropriation cost, at $1.7 million. The financer also donated another $9 on the DR Congo side.
Shortly after laying the foundation stone where one border post will be constructed, Howard Buffet said they financed the facility because they believe it will boost trade between the two countries and enhance peace and security.
“It is a dream to see Rwanda and DR Congo sit together to build peace and trade and this is one opportunity to work together,” Buffett said.
The project outlook
The project will cover the construction of border post facilities, including the main building to accommodate all services, passenger car parking and handling facilities, warehouses as well as the heavy trucks transit parking.
Officials believe that this will improve border crossing efficiency and cut down unnecessary costs due to duplication of operations
Rwakunda welcomed the support, saying it was timely and will boost trade and enhance security between two countries as all institutions working at the border will have upgraded facilities.
He said the one-stop border post will significantly enhance the mobility of people and goods at the border and thus intensify regional economic growth through the promotion of market integration, infrastructure and industrial development as well as enhanced competitiveness.
Rwanda Transport Development Agency (RTDA) will be the implementing agency on behalf of the government and will closely follow up on implementation of the project in conjunction with the Howard Buffett Foundation.
The construction is expected to be completed in 18 months, according to Rwakunda.
Border communities have welcomed the construction of the border post, saying it will halt delays and cut unnecessary costs.
Between 4,000 and 5,000 people cross the border, where the one-border post is to be constructed, majority being informal traders.
Agricultural produce and livestock remain the major commodities traded informally across the Rwanda-DR Congo borders.
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OECD experts advise multilateral action to reduce export restrictions
The BIR world recycling organisation has welcomed OECD proposals of multilateral action to counter the harmful impact of export restrictions on steelmaking. The advice was given at an OECD workshop in Cape Town on December 11 which highlighted the detrimental effects of such export restrictions and the efficiency gains to be made from their simultaneous removal both upstream and downstream of steelmakers.
It was strongly argued in Cape Town that export restrictions introduced to protect a national metals industry’s primary and secondary raw material supply could actually jeopardise the viability of, respectively, the mining and the scrap supply sector. The access to cheap domestic scrap created by export restrictions could lead to uncompetitive plants remaining in operation and could serve as a deterrent to investment for the future. Furthermore, such restrictions placed governments in the position of arbitrating between industry sectors across the same value chain.
Making the use of export restrictions more transparent was the first step proposed towards their removal because only then could alternative policies to achieve the same objective be determined. Indeed, the best way forward was the simultaneous multilateral removal of export restrictions. The time was ripe for such action, it was said, in order to seize the opportunity created by the oversupply of steelmaking raw materials in the next few years.
In comparison to other industries, the steel industry is most affected by trade-restrictive measures, and the risk of trade friction in the global steel industry has increased of late. The industry is particularly susceptible to protectionist measures owing to its well-known history of subsidies and excess capacity. It was explained in Cape Town that the most common reasons given for introducing export restrictions were to strengthen the competitive position of national processing industries and to enhance government revenues. As regards the latter, better alternative policies existed that did not deter investment, it was stated. Regarding trade defence instruments, steel accounts for: over 40% of Countervailing Duty Initiations; for nearly a quarter of anti-dumping cases; and for over 15% of safeguard actions. The OECD saw the need was now to avoid further escalation of trade actions.
“While the trend towards more export restrictions is currently the case, this OECD workshop has now made the case for multilateral action to reduce such restrictions in order to benefit the steel industry worldwide,” comments BIR Environmental & Technical Director Ross Bartley, who attended the workshop. “The slower alternative is for countries to remove export restrictions though bilateral trade agreements. The difficulty is that almost all steelmakers and their governments would need to be convinced of the benefits to take multilateral action, and to take that multilateral action in order to get those increased benefits to more steelmakers more quickly.”
Organised jointly by governments participating in the OECD Steel Committee and by South Africa’s Department of Trade and Industry, the Cape Town workshop brought together almost 100 representatives from governments and the steel industry value chain with the aim of: assessing emerging market trends and policy developments affecting trade in steelmaking raw materials; achieving a better understanding of the impacts of trade-restrictive raw material policies on the global steel industry; and exploring policy approaches that would improve the longer-term efficiency and functioning of these markets. Eric Harris, Associate Counsel/Director of Government & International Affairs at BIR’s US member ISRI, actively participated in two of the panel discussions.
It was also noted at the event that local export restrictions were often being justified on the basis of historical experiences of the industrialisation of Europe and North America, but that such experiences did not match current business practices. The overriding conclusion was that worldwide export restrictions had been more effective as an investment deterrent than as an industrialisation incentive. OECD modelling has showed that the simultaneous abolition of export restrictions on all major steel raw materials would increase trade, reduce steelmaking production costs and expand the global supply of steel inputs. And there would be a dual benefit if the steelmakers in the countries facing relief from restrictions were also exporters.
» Excess capacity and risks of trade friction cloud the outlook for the global steel industry (OECD)
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Local Content Requirements and the Green Economy
This publication, Local Content Requirements and the Green Economy, is a product of the Trade Environment, Climate Change and Sustainable Development Branch, DITC, UNCTAD.
It was commissioned for and forms part of the background documentation for an ad hoc expert group, entitled: “Domestic Requirements and Support Measures in Green Sectors: Economic and Environmental Effectiveness and Implications for Trade”, held in Geneva on 13 and 14 June 2013.
The study is far from an exhaustive examination of these issues. In many areas, the analysis is speculative, aimed at raising questions and suggesting areas where domestic and international policy makers may need to consider undertaking further analysis. Above all, it should be stressed that the study raises these matters at a very general level.
Whether any given governmental measure is consistent with WTO rules is a highly contextual question, that may well depend on the exact design features of that particular measure, and its broader context – regulatory, technological and commercial. Thus, nothing in this study should be considered as a judgment that any actual measure of any particular government violates WTO rules.
The study and the meeting are part of a larger effort by UNCTAD to analyze issues arising at the intersection of green economy and trade policy. The study has been prepared at a time when the “green economy” concept moved from theory to practice, with a range of developed and developing countries placing local content at the heart of their green economy strategies, and their green economy plans at the heart of their industrial policies.
It reflects developing countries’ increasing emphasis on the “sustainable” element of traditional development objectives, such as rural development, urban planning and industrialization.
The study has also been prepared at a time when countries across the income spectrum are taking a fresh look at local content requirements, after having largely phased them out in traditional strategic industries such as fossil fuel energy and automobiles.
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What do we know about the economic and environmental effectiveness of performance requirements in green sectors?
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Do performance requirements provide a compelling business case, with short- and long-term returns?
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Is there anything unique about renewables that makes them a special case for performance requirements?
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Does the politics of accommodating the higher cost of renewable energy demand a clear-cut avenue towards job creation through localization?
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Does greening the value chains provide a new rationale for performance requirements?
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Can better governance play a role in dealing with protectionist elements of support measures?
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Are there any upsides for developing countries in a world where performance requirements are extensively used?
Objective evidence on the economic and environmental effectiveness of trade-related measures such as subsidies or local content requirements can provide the answers.
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Secretariat to assist MS with legislation on One Stop Border Posts
COMESA Secretariat is coming up with a model legislation to assist Member States in implementing the One Stop Border Post (OSBP). The model will be shared with Member States early 2015 for their input.
This decision was made by the Council of Ministers during its 33rd meeting in Lusaka on 9 December 2014.
The OSBP is one of the highly successful initiatives in facilitating smooth flow of intra-regional trade along the major transit corridors especially those connecting landlocked countries to seaports. Currently, three OSBP namely Chirundu (Zambia/Zimbabwe) Malaba (Kenya/Uganda) and Nemba/ Gisenyi (Rwanda/Burundi) are operational. Other border posts whose work has already begun for development of OSBP include Mchinji, Nakonde, Namanga, Akamnyaru Haut, Mpondwe/Kasidi and Rubavu Goma.
In making the decision, the Council noted that OSBP are critical in easing transit trade since the longest delays occur at borders. The OSBP thus reduce the time it takes to cross borders whose effect has great potential to facilitate trade.
The Chirundu border-post is perhaps a best practice for replication across more borders in COMESA and beyond. Since the introduction of the OSBP, waiting time for trucks has reduced from up to nine days, to 20 minutes for accredited clients and a maximum of two days for clients who don’t declare their documents in advance.
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Members prepare for 200-day push on GI register portion of post-Bali programme
WTO intellectual property negotiators said they were committed to meet the July 2015 deadline for laying down plans on how to complete the Doha Round talks – in their case on how to set up a geographical indications register for wines and spirits. But speakers on both sides of the debate said in a 12 December 2014 informal meeting that hard talking would have to wait until a clearer picture emerges in other key subjects.
“1 July 2015 is only 200 days away – we will have to think concretely about how to structure our work next year and how to get back to the substance of our mandate,” warned Ambassador Dacio Castillo of Honduras who chairs a negotiation that has been inactive since early 2011 and has only met twice since then (in March 2012 and April 2014).
The talks on the geographical indications register are returning to activity following the breakthrough in the General Council on 27 November. This included agreement to resume work agreed at the 2013 Bali Ministerial Conference and to set a new deadline of July 2015 to produce a work programme (download decision here) for completing the Doha Round negotiations as a whole.
Ambassador Castillo proposed starting with an informal information meeting – rather than a negotiating session – in February 2015. This would include a summary of what had happened up to 2011, as reminder to delegates on where the talks had reached. It could also include information on developments outside the WTO that might have a bearing on the talks.
Several speakers asked for more information on how the information session would be organized so they could consult their capitals. The chairperson said he would consult members on this and invited them to contact him.
The 12 December meeting was an informal negotiations meeting of the full membership, officially an “open-ended” informal “Special Session” of the WTO’s intellectual property (TRIPS) council. Ambassador Castillo reminded delegates that these talks are only mandated to negotiate a multilateral register for geographical indications for wines and spirits and that any change to the mandate would have to be decided in the WTO bodies overseeing the negotiations. He urged them not to repeat known positions but to introduce any new ideas they may have.
Delegations on either side of the negotiation offered no new ideas and said the talks should not return to the substance until a clearer picture emerges on negotiations in agriculture, non-agricultural market access and services.
One group repeated its position that talks on the register should be part of a package that includes two other proposals.
One is to extend to other products the higher level of protection for geographical indications currently given to wines and spirits (“GI extension”).
The other is a proposal to require patent applicants to disclose the origin of genetic resources and any associated traditional knowledge used in their inventions, evidence that they received “prior informed consent” (a term used in the Biological Diversity Convention), and evidence of “fair and equitable” benefit sharing (the “disclosure proposal”).
This group are sponsors of document TN/C/W/52 of 19 July 2008 (download document). They claim to have over 100 supporters and to be the largest coalition in the WTO.
Sponsors of the alternative “Joint Proposal” repeated their view that these negotiations should stick to the mandate: to negotiate the geographical indications register and nothing else. They also argued that the weight of numbers does not count since WTO decisions are taken by consensus.
The current version of the draft text on the register dates back to April 2011.