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Private sector can boost growth in landlocked developing countries – senior UN official
Private sector engagement is key to accelerating development in the world’s 32 landlocked developing countries (LLDCs), said delegates attending an event in the margins of the Second United Nations Conference on LLDCs, currently underway in Vienna, Austria.
In his opening remarks to the Business and Investment Forum, Secretary-General of the Conference, Gyan Chandra Acharya, said that the exchange between business and governments is “critical for partnerships and strategies to ensure a proper role for the private sector in the overall sustainable development of LLDCs.”
The day-long forum is an integral part of the Second UN Conference on LLDCs and brings together business leaders, government officials from landlocked countries and transit countries, as well as development partners.
It is important that the discussion consider the emerging post-2015 development agenda and the role that the private sector can play in successfully implementing the anticipated sustainable development goals, added Mr. Acharya, who is also the UN High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States.
Also speaking at the event, Ole Hansen, head of UN Global Compact LEAD noted, “Many LLDCs face unique and significant economic, environmental and social challenges. The long distances from world markets and absence of ocean ports literally take a toll on growth, on tax revenues and on standards of living.”
On average landlocked developing countries are some 1,370 kilometres from the nearest seaport – which is vast when compared to industrialized economies, such as those in Europe, which on average, are some 170 kilometres away from the nearest port. The reality is that the lack of access to the sea means that it is costlier for LLDCs to do business than it is for their maritime neighbours.
In her remarks the Permanent Representative of the International Chamber of Commerce to the United Nations, Louise Kantrow highlighted that, “Over the last decade, it has come to be understood that it is important for the private sector to be engaged in the early stages of policy development and partnerships [and] also for the dynamic role that it can play in transforming societies and being a driver of economic growth in LLDCs.”
During an open exchange of views, John Sullivan from the Centre for International Enterprise highlighted the need for an enabling business environment, where the registration of companies and intellectual property rights was simplified. Panelists also collectively emphasized the need to support small and medium enterprises and to view entrepreneurial set ups as key to the sustainable growth of the LLDCs.
Over 15 members of landlocked and transit countries were surveyed in the lead-up to the Conference to identify concrete proposals for how the private sector can effectively work with LLDCs.
Recommendations from this group have made up a committee survey to inform the intergovernmental deliberations on areas such as infrastructure, international trade, technological innovation and constraints on access to capital.
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LDCs encourage WTO members to design more effective preferential Rules of Origin
The Least Developed Countries (LDCs) Group at the WTO presented a report to the multilateral organisation’s Committee on Rules of Origin (CRO) on 30 October, calling for a more effective design of preferential rules of origin. The discussions are part of the work mandated by trade ministers at their last WTO ministerial conference in Bali, Indonesia in this area.
In the report, the LDC Group encourages WTO members to allow for changes in their rules of origin, or RoO, by taking into account the needs of low-income countries to source foreign inputs in today’s global value chains and the trade challenges faced by landlocked and island LDCs.
RoO confer an economic nationality on products traded across borders, defining how much processing must take place locally before goods are considered to be the product of the exporting country and benefit from preferential treatment.
LDCs have repeatedly voiced concerns that these preferential RoO are often too restrictive and impose onerous compliance burdens, making it difficult for LDCs to take full advantage of existing preferential margins. Furthermore, they say, such rules are currently designed on a unilateral basis, without any harmonised standard.
However, some experts say that even though well-designed rules of origin are a potentially powerful tool for LDC industrial development, there is a risk that the immediate benefits arising from more flexible rules are offset by longer term costs, specifically those associated with keeping LDCs in low value-added segments of production enjoying preferential market access.
In the report, the LDC Group underscores that existing preferential RoO are old and have not followed evolutions in world trade.
“The present rules were initially drawn up in the 1970s and they have not materially changed much since, whereas the commercial world has,” the paper says, while referring to the emergence of global value chains.
The report also explains that preferential margins have been eroded as a result of the proliferation of trade agreements, whereas the costs of compliance with RoO have increased significantly. These two factors combined render “preferences unattractive.”
EU, Canada as role models
In their paper, the LDCs use the examples of RoO reforms in Canada and the EU to illustrate how a shift towards more lenient and flexible RoO is conducive to development in preference-receiving countries.
“The results achieved by these two preference giving countries… show that a change in RoO reflecting global value chains generates a market response in terms of investment and trade flows,” the document states.
Consequentially, the paper calls upon WTO members, particularly the United States and Japan as major LDC trading partners, to review the substance and form of their RoO systems which “have not materially changed” since the 1970s.
In this context, the document states that “simple and transparent rules of origin for LDCs are those rules of origin permitting a full utilisation of trade preferences.”
In subsequent paragraphs, the report discusses how the EU and Canadian RoO reform efforts impacted trade with LDCs.
In the case of the EU, which upgraded its allowance for non-originating material to 70 percent in many sectors – from the previous 40 percent – and retained a single instead of a double processing stage for clothing in 2011, the paper finds that reform efforts helped increase the utilisation rates of preferential margins by LDCs from 89 percent in 2010 to 99 percent in 2013, excluding fuel and agricultural products.
With respect to Canada, where the government implemented more lenient RoO including greater opportunities for cumulation in 2003, the report argues that the LDC garment industry has reaped substantial benefits.
After the reform, utilisation rates are documented to have reached immediately 100 percent and, in the example case of knitted and crocheted garments, export volumes skyrocketed from US$17.8 million in 2002 to US$966 million in 2013, equalling a more than 50-fold increase.
Concerning US preferential RoO, the report highlights that “the US rules of origin seem to have been so far unable to trigger a diversification of exports and the value of trade covered by the US GSP is abysmally low.”
Preference-receiving LDCs such as African countries in the context of the African Growth and Opportunity Act (AGOA) reveal high utilisation rates only in a few sectors – particularly clothing – and would benefit from a revision of the US RoO scheme. The report makes a similar point for the preference-giver Japan, where LDC utilisation rates have stagnated.
The reform and policy changes witnessed in the EU and Canada “have yet occur in the case of the US and Japan,” concludes the LDCs Group.
Moving forward with the LDC agenda at the WTO
The continuation of work on preferential RoO in the context of the CRO was well received in the Geneva-based trade community, sources say, particularly given the persistent stalemate at the WTO on the implementation of two other Bali decisions relating to the Trade Facilitation Agreement and public food stockholding, respectively.
The identification of specific challenges facing LDCs in complying with existing RoO is part of a broader agenda launched under the WTO Ministerial Decision on preferential RoO in during last December’s Bali ministerial conference.
This Decision mandated the CRO to “annually review developments in preferential rules of origin applicable to imports from LDCs… [and] report to the General Council.”
In this context, WTO members also took note of the LDCs’ case for rules on a more generous sourcing of foreign inputs “in order for a good to [still] qualify for benefits under LDC preferential trade arrangements.”
In the report presented at the latest CRO meeting, the LDC Group reiterated its calls for more lenient RoO. Among other proposals, and in light of the increasing global fragmentation of value chains, it argued for greater flexibility for LDCs to source inputs from abroad.
Specifically, the group said that LDC exports should be conferred domestic origin by preference givers even when these exports feature a share of non-originating materials as high as 85 percent. In this context, the report states that “the LDCs will further engage in research to identify appropriate level of percentages.”
The LDC Group also argues that preferential RoO should take into account the costs of freight and insurance when it comes to determining the value of materials, particularly from landlocked and island LDCs, which have to ship goods through transit countries and overcome significant hurdles to integrate into global value chains.
Sources familiar with last week’s CRO meeting indicate that when presented with the report and the above-mentioned reform proposals, Brazil, India, Switzerland, Canada, and the EU were among those who welcomed the effort but asked for additional time to study the document in detail. Subsequently, Ken Chang-keng Chen of Chinese Taipei, who chairs the CRO, said that discussions in this regard would continue at the committee’s next meeting in April.
During last week’s meeting, the Swiss delegation reportedly affirmed that it is vital to move forward on least developed country issues at the WTO, without allowing the difficulties facing other areas of the organisation to slow down the committee’s work.
From Singapore to Bali
WTO negotiators first attempted to address the issue of preferential RoO in the context of the Duty Free Quota Free (DFQF) initiative, which was introduced at the WTO's First Ministerial Conference in Singapore in 1996.
Little progress was made in the following decade, although the 2005 Hong Kong Ministerial Declaration does feature a brief reference calling upon developed countries and developing countries in a position to do so to design “simplified and transparent rules of origin so as to facilitate exports from LDCs.”
The RoO debate gained momentum in the run-up to the Bali Ministerial Conference in December 2013 and culminated in the adoption of a set of guidelines setting out technical aspects of preferential RoO. The guidelines also discuss different methodologies to determine when substantial or sufficient transformation has taken place, as well as possibilities for cumulation of inputs that would enable LDCs to source material competitively and integrate into regional and global value chains.
Though being a “step in the right direction,” as some trade delegates have said, many observers were quick to mention that the Bali decision was mainly in in the form of non-binding guidelines, implying that developed country members are free to choose whether to adopt these guidelines.
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Azevêdo welcomes call to implement trade facilitation to benefit poorest landlocked nations
Director-General Roberto Azevêdo welcomed on 5 November 2014 a joint statement issued at the conclusion of a United Nations conference on landlocked developing countries which underlined the importance of the Trade Facilitation Agreement in helping reduce trade costs.
The “Vienna Programme of Action” (download below) adopted at the end of the Second UN Conference on Landlocked Developing Countries (LLDCs) includes trade and trade facilitation as one of its six priorities. It states:
“The Agreement on Trade Facilitation and its timely implementation in the context of the Bali package are important so as to facilitate trade for landlocked developing countries. The Agreement includes important provisions on technical assistance and capacity-building to help landlocked developing countries to implement it effectively.”
LLDCs are often prevented from participating fully in international trade by their very high transaction costs, as exports can have to cross multiple borders to reach their markets. A World Bank study found that, on average, it costs more than $3,000 to export a standard container of cargo from a landlocked developing country compared to just under $1,300 for a coastal country.
Once implemented, the Trade Facilitation Agreement, which was agreed by all WTO members in Bali last December, will help to speed up the transit of goods to and from LLDCs, while also reducing the costs involved.
However, since July WTO members have been unable to find consensus on the implementation of the Agreement. DG Azevêdo urged members on 31 October to continue talking about ways to resolve the impasse.
DG Azevêdo said:
“The landlocked developing countries had a prominent voice in the negotiations which led to the Trade Facilitation Agreement. Today they are calling once again for the Agreement to be implemented so that they can improve their economic prospects and lift their people out of poverty. The voices of the LLDCs must be heard – and others should listen carefully to what they have to say.”
DG Azevêdo attended the conference on 3 November to highlight what the WTO was doing for LLDCs, and the importance of implementing the Trade Facilitation Agreement in their interests. His speech is available here.
Mr Gyan Chandra Acharya, Under-Secretary-General and High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States, said:
“This Trade Facilitation Agreement when it is fully implemented has the potential to address some of the fundamental transit policy issues that affect LLDC exports and will bring concrete benefits to these countries in terms of easier and faster cross-border trade.”
Ambassador Juan Esteban Aguirre Martínez of Paraguay, who coordinates the LLDCs at the WTO, said:
“The Trade Facilitation Agreement will bring concrete benefits to LLDCs in terms of easier and faster cross-border trade. Being able to facilitate the flow of trade making it quicker, easier and cheaper would allow LLDCs to benefit more fully from market access and significantly improve their competitiveness and integration into the world markets.”
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Biofuels remain an important and growing sector for developing countries, new UNCTAD report says
The report entitled: “The State of the Biofuels Market: Regulatory, Trade and Development Perspectives” offers a comprehensive snapshot of today’s biofuels market and how it contributes to enhancing access to renewable energy sources sustainably and improving the livelihoods of people in developing countries.
Biofuels now account for 1 per cent of global energy use, a new UNCTAD report on the state of the global biofuels market has found, with second-generation technologies, climate change concerns and economic pressures shaping the future of this increasingly important sector.
Nonetheless, “while alternative energy sources are growing faster than any other energy source, they still account for a very limited share of primary energy demand, therefore they are not expected to replace fossil fuels but to play a complementary role in satisfying the world energy demand,” the report says.
The State of the Biofuels Market: Regulatory, Trade and Development Perspectives was launched on 24 September at the World Bio Markets Brazil Conference in Sao Paulo, Brazil, and offers a comprehensive snapshot of today’s biofuels market and how it contributes to enhancing access to renewable energy sources sustainably and improving the livelihoods of people in developing countries.
The report is an update of a similar report produced by UNCTAD in 2006 and notes that as of 2014 bioethanol and biodiesel had already become established products traded daily in all continents thanks to their use in the transport sector, especially for road vehicles.
However, an important development has been the emergence of alternative markets for liquid biofuels, which are now used in commercial aviation, electricity generation, for cooking energy and even in maritime transport.
As well as offering analysis of the state of today’s biofuels market, the report contains policy recommendations for developing countries to make beneficial use of biofuels.
These include the creation of regulatory frameworks tailored to national resource endowments which do not antagonize food and energy supplies but rather enhance agricultural productivity, rural income and workers’ skills.
The development of competitive second-generation biofuels, which are made from woody crops, agricultural residues or waste (unlike first generation biofuels made from the sugars and vegetable oils found in arable crops), will pose a number of challenges to developing countries, the report says.
One key recommendation is a call for international strategies to avoid the emergence of a technological gap between land-intensive first generation and capital-intensive second-generation biofuels.
Developing countries also need to:
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Ensure that the cost of sustainability certification is spread along supply chains in a way that protects small farmers from undue cost burdens.
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Promote a continuous inflow of private investment and production and process technologies to developing countries, especially through predictable business environments.
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Prioritize research and deployment of advanced technologies that can convert non-edible biomass into bioenergy products, doing so in cooperation with other countries to reduce costs.
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Facilitate trade by engaging in consultations and adoption of regulations which are compatible with sustainability rules adopted in major markets.
The report represents a contribution to the wide-ranging global discourse on energy security, sustainable development and poverty alleviation.
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EU lifts decade-long economic sanctions on Zimbabwe
The European Union (EU) has lifted its decade-long economic sanctions on Zimbabwe in a move that will see the trading bloc extending 234 million Euros (about 300 million U.S. dollars) to support socio-economic programs in Zimbabwe in the next five years.
EU ambassador to Zimbabwe Philipe Van Damme told journalists at a press conference that President Robert Mugabe and his wife Grace, however, still remain on the EU restrictive measures which are due for review next February.
He said the lifting of the appropriate measures under Article 96 of the Cotonou Agreement which governs relations between the two sides will pave way for Zimbabwe to benefit from the 11th European Development Fund for the period 2015 to 2020.
The lifting of the measures which were imposed in 2002 following political differences with Harare is with effect from Nov. 1, 2014.
He said the funding will be channelled towards political and economic governance, health and agricultural sectors.
After imposing the appropriate measures, the EU was channelling its support to Zimbabwe through multilateral and donor agencies and Van Damme said the EU will review each funding project to see how best it can channel the funds.
“With this decision of having Article 96 appropriate measures lifted, I think we have reached a very important step towards normalization of relations with Zimbabwe because what this implies is that we can once more re-engage in a more structured and formal way with government to have constructive dialogue on political and policy issues,” Van Damme said.
He said part of the EU funding will be used to enhance economic reforms in Zimbabwe so that it can create a conducive environment for investment attraction.
“With the lifting of the appropriate measures the EU will be able to support the Zimbabwe government in implementing the IMF Staff Monitored Program and engage government on essential economic reform programs,” he said.
The lifting of the measures comes as the EU, which has been gradually easing the measures since 2009, has begun efforts to re-engage Zimbabwe as evidenced by a British trade delegation currently visiting Zimbabwe while the Danish trade minister is scheduled to visit next week to explore areas of cooperation.
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COMESA-EAC-SADC: Technical Committee on Movement of Business Persons
The 3rd meeting of the COMESA-EAC-SADC Tripartite Technical Committee on Movement of Business Persons (TTC-MBP) is being held from 3 to 6 November 2014, at Le Méridien Hotel, in Pointe aux Piments.
Discussions are ongoing on a draft negotiating text on the Movement of Business Persons. Around 80 delegates from the 26 Tripartite Member States are participating in the meeting.
The first COMESA-EAC-SADC Tripartite Summit held in October 2008, in Uganda took major decisions in terms of moving towards a single market. One of the immediate priorities is to establish an enlarged Free Trade Area (FTA) encompassing the 26 Member States of COMESA, SADC and EAC. The Summit also agreed that negotiations to facilitate the movement of business persons should run in parallel with the negotiations on the Tripartite FTA, but on a separate track.
The issue of movement of business persons is very important to Mauritius with regard to its regional integration process. The mobility of business persons is a key factor of free and open trade. Facilitating access to our businessmen to move in the region provides benefits in terms of reduced delays, costs and burdensome administrative procedures, thereby leading to more efficient flow of goods, services, capital and people. Without an appropriate framework on the movement of business persons, the benefits of regional integration would be undermined.
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Poorest landlocked nations must be heard on trade facilitation, DG tells UN meeting
Landlocked least developed countries were vocal in negotiations on cutting red tape in customs and other border procedures – known as “trade facilitation” – and the support they continue to give should be heard, particularly now that the deal is at an impasse, Director-General Roberto Azevêdo told the second UN conference on these countries’ issues in Vienna, 3 November 2014.
I am delighted to be here today at this important event, and to have the chance to address this distinguished audience.
As we have already heard this morning, landlocked developing countries face some very specific challenges which can obstruct their integration into the global economy.
The poorer the country, and the fewer resources it has, the more difficult these challenges can be to overcome.
As a consequence, many LLDCs are less likely to reap the development benefits that trade and foreign direct investment can bring – and many millions of lives remain bound, needlessly by poverty.
This is not acceptable in the 21st century, when we have the technology in transport and communications to eliminate distance as an economic issue.
So, in the few minutes I have now, I want to talk briefly about two ways that the WTO can help to improve this situation.
The first area of our work that I’d like to mention is the Aid for Trade initiative.
LLDCs receive comparatively less foreign direct investment than coastal states – and of course they need more help to deal with their specific challenges, such as diversifying export markets, for example, or dealing with bottlenecks in transit.
The Aid for Trade initiative can help to fill this gap. The most recent figures available on Aid-for-Trade flows indicate that commitments to LLDCs stood at 8.8 billion US dollars in 2012, up from 7.2 billion in 2011.
In addition, all landlocked countries that are also Least Developed Countries, receive support through the Enhanced Integrated Framework.
The Enhanced Integrated Framework is an important Aid-for-Trade programme – of which the WTO is proud to be a key partner. It can do a great deal to support those LLDCs to build their capacity to trade.
I am currently working to ensure that this programme is continued into a new phase – so that it can provide more, and better, support to LLDCs, and others, in the future.
The second way that the WTO can help is by supporting efforts to facilitate trade across borders.
The WTO struck a major agreement on this issue in Bali last December.
The LLDCs had a very prominent voice in the negotiations which led to the Trade Facilitation Agreement along with a number of other important issues – and I want to take this opportunity to thank you for the role you played.
You rightly identified, very early in the process, the great potential that the Trade Facilitation Agreement would have to address many fundamental issues for the LLDCs.
And your efforts paid off. Once implemented, the agreement will cut the costs and delays at borders which can prove so prohibitive.
And, thanks in no small part to your influence, the agreement makes clear that countries should not apply their technical regulations and standards to goods in transit. This is crucial for LLDCs, as it will provide LLDC producers with significant cost savings, making their exports more competitive in foreign markets.
And Trade Facilitation does not just work in theory – we have ample evidence that it works in practice too – especially for LLDCs.
An excellent illustration of this is the corridor in East Africa linking Burundi, the Democratic Republic of Congo, Rwanda, Uganda and South Sudan to the Kenyan port of Mombasa.
The achievements here have been remarkable. For example, the cost of moving a container from Mombasa to Kampala has been cut by almost 50%. And the time taken for goods to complete this journey has been cut from 18 days to just 4.
Reducing costs and delays like this can be the difference between a business failing or thriving.
The WTO’s Trade Facilitation Agreement would apply this approach on a global level – and it would provide for capacity building support to help developing countries make the necessary reforms.
We know that the main challenge holding LLDCs back from increased participation in international trade continues to be their very high transaction costs. So it is essential for LLDCs that this agreement is implemented as soon as possible.
48 developing country members of the WTO have already taken practical steps to prepare for the Agreement by notifying us of the commitments they are ready to implement. Of those 48, 6 are LLDCs and 10 are transit countries. This is a technical point, but I raise it because it shows that transit measures would likely be put in place as soon as the agreement is implemented. This would be a crucial step for LLDCs.
However, I am sorry to say that WTO members are currently at an impasse on the implementation of the Agreement. This has been the case since July, and we continue to do all we can to ensure that a solution is found.
I have heard strong support for Trade Facilitation in Vienna today – and this is reflected in the draft Programme of Action for LLDCs (click here to download) that is before this conference.
It is vital that the Programme of Action sends a strong message about the importance which LLDCs attach to the Trade Facilitation Agreement.
The voices of the LLDCs must be heard – and others should listen carefully to what you have to say.
For the sake of the LLDCs – and all developing countries – I am determined that we will make progress.
CONCLUSION
In closing, I would just like to make one further point.
The adoption of this new Programme of Action for LLDCs comes at a crucial time in the development calendar, as the post-2015 development agenda and the Sustainable Development Goals are being discussed.
It will be important to build strong links between these two agendas to support development and poverty reduction in the LLDCs.
In addition, I believe any development agenda which is people-focused and forward-looking must have a strong emphasis on the economic aspects of human development. And therefore trade must also be central.
I look forward to continuing this debate with all of you in the weeks and months ahead.
Thank you very much for listening. I wish you a successful conference.
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Address by the Minister of International Relations and Cooperation on Agenda 2063
Address by the Minister of International Relations and Cooperation, Ms Maite Nkoana-Mashabane, to the Special Joint Sitting of Parliament debating Agenda 2063 in Cape Town, 31 October 2014
“We must continue to promote the African Agenda. It remains the anchor of our foreign policy. We should thus continue to work closely in support of the African Union, and its agencies to build a credible, prosperous and peaceful Africa.”
This is what President Jacob Zuma told the 2014 Heads of Mission Conference about the tasks that must be executed effectively and efficiently by every South African diplomat.
Therefore, today we are gathered here to speak about the Africa we want for our generation and those who will inherit this continent from us.
Africa has undoubtedly transformed from where it was in 1963 when we formed the Organisation of African Unity (OAU) to chart a new path for the continent, and lay the foundation for the African Union we are proud Members of today.
Last year we celebrated the 50th anniversary of the OAU/AU “Moropa o llile kgorong tsa Addis Ababa”. We looked back with measured satisfaction at the road we have travelled. But we also committed ourselves to doing more and better in the next fifty years. In making this commitment, our leaders at their May 2013 Summit, undertook to prepare a vision and road-map of where Africa should be in fifty years, in the year 2063. This vision, now consolidated into a framework document, is what we know today as Agenda 2063. What we are talking about here is not a wish-list but a carefully thought our plan with identified drivers and an implementation strategy.
Agenda 2063 is about the Africa we want to build in the future. It connects the Africa of yesterday to the Africa of today and the Africa of tomorrow. The Africa of yesterday is the indispensable lessons we have learnt since the days of independence. The Africa of today is our destiny that is firmly in our hands with every action we take. The Africa of tomorrow is the future we are creating through what we do today.
However, Agenda 2063 is people-centered and people-driven. In this regard, the June 2014 Summit of the AU requested Member States to consult domestically, to ascertain the views of all our people, across all sectors, on Agenda 2063. This Joint Sitting is part of these consultations.
Other South African stakeholders are also being consulted. The Department of International Relations and Cooperation (DIRCO) has convened consultations with government departments as well as representatives of the Youth; Academics and Think-Tanks; Women; Civil Society; and the Business sector consultation process continues.
In the consultations convened by DIRCO, the stakeholders welcomed the African Union’s decision to develop Agenda 2063. Amongst others, the consultations confirmed the urgency with which the stakeholders want the African Union and its Member States to strengthen the implementation of policies aimed at bettering the lives of ordinary Africans. Stakeholders emphasised that Africa should have the essential resources to attain the seven Aspirations of Agenda 2063.
What will be needed, the stakeholders told us, is sustained political will; as well as bold and transformational leadership across the sectors of our society and nation.
Government departments also had their say. Their input highlighted the need for strengthened cooperation and coherence in the formulation of policies at the national, regional and continental levels. This would ensure clarity and complementarity in resource allocation and management; and also for monitoring and evaluation purposes.
The phase of conceptualisation and consultations over the base programme of Agenda 2063 is expected to be concluded at next year’s January Summit of the AU where, among others, the first of the ten-year implementation plans for this vision will be considered. AU Member States and the Regional Economic Communities will be required to include the elements of Agenda 2063 Plan in their national and regional programmes, respectively. This Parliament will be expected to be an active part of the implementation of this Plan, including through its oversight role.
To jog our memories, the evolving Agenda 2063 is currently premised on seven aspirational pillars, which are:
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A prosperous Africa based on inclusive growth and sustainable development;
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An Integrated Continent, politically united, based on the ideals of Pan Africanism;
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An Africa of good governance, democracy, respect for Human Rights, Justice and the Rule of Law;
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A peaceful and secure Africa;
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An Africa with strong cultural values and ethics;
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An Africa where development is people-driven, relying particularly on the potential of women and youth; and
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Africa as a strong and influential global player and partner.
In highlighting the above Aspirations, the African people unequivocally expressed a collective desire to uplift the continent from the morass of underdevelopment and degradation. With Agenda 2063, the AU is rallying all African to continue the march for the rebirth of the African continent in all aspects – to extend our political liberation to economic and social liberation.
We once again commend Parliament for convening this Joint Sitting whose purpose is:
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To get Parliament’s insight and full participation in Agenda 2063 processes;
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Gather inputs for the finalization of the Agenda 2063 Draft Framework Paper which has been widely circulated;
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Validate and strengthen the seven Aspirations that will drive the continent’s transformation; and
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Determine how Africa should resource its transformation and continental institutions to reduce its dependency on donors, among others.
Agenda 2063 prioritises our unity and regional integration as key vehicles for Africa’s accelerated social and economic development. The Solemn Declaration adopted by AU leaders during the 50th anniversary celebrations held in May 2013 speaks to this determination, and the collective responsibility required in order to develop Africa to its fullest potential. Recognizing that Africa can achieve this potential, Agenda 2063 echoes the Pan-African call that Africa must unite in order to realize its Renaissance. The destiny of Africa is in our hands. We must act now to shape the future we want. This is what is at the heart of Agenda 2063 – that as Africans, we must define, shape and pursue the future that we want.
Agenda 2063 is thus a shared strategic framework for inclusive growth and sustainable development for Africa’s transformation. Importantly, it is a continuation of the Pan-African drive for self-determination, freedom, progress and collective prosperity – in order to, amongst others; galvanize and unite in action all Africans and the Diaspora around the common vision of a peaceful, integrated and prosperous Africa, driven by its citizens and taking its rightful place in the world.
Our government’s work for a better life for South Africans is intertwined with the country’s pursuit of a better Africa in a better world. The county’s destiny is inextricably linked to that of the Southern African region and the entire Africa. Regional and continental integration is the foundation for Africa’s socio-economic development and political unity, and essential for South Africa’s prosperity and security. Consequently, Africa is at the centre of South Africa’s foreign policy.
South Africa’s National Development Plan (NDP) already includes the key proposals in Agenda 2063, including a strengthened focus on regional cooperation and integration. The NDP highlights that South Africa needs to deepen its investment and promotion of cooperation and integration as means to enhance socio-economic development, both in Southern Africa, and in the rest of the continent. Amongst others, enhanced regional integration will expand regional and continental trade; and the sharing of experiences and technical cooperation across the sectors.
The realisation of Agenda 2063 will be influenced by where the world will be in 30 to 50 years. Several scenarios have been developed by experts and think-tanks for the world of the next five decades. Scenario planning is of course not an exact science but it is nonetheless helpful for planning purposes and projecting into the future. One thread running through the various scenarios for the future tells the story of the shift in the international balance of forces in the direction of the countries of the South. Therefore Africa has to ensure that is part of this shift; that it leverages it to attain the goals of Agenda 2063.
There are challenges in our current global system that will need to be overcome, and among them are:
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The untransformed and undemocratic nature of the global institutions that govern the world we live in;
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The uni-polarity and unilateralism which undermine our multilateral institutions and the multi-polarity required for Africa to have a greater voice in the world; and
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The continuing threat to international peace which affect our continent and other developing countries; whose objective, in many instances, is regime change and control over our natural resources.
A transformed international order is what we want as Africa. Indeed, one of the seven Aspirations of Agenda 2063 is about “Africa as a strong and influential global player and partner”. Africa will prosper better in a transformed world that is governed democratically. A better world will enable Africa to leverage its demographic dividend to claim its place in the 21st century. The Africa we see rising today must be in full flight in 2063.
But how high and fast we rise as a continent will depend on what we do today. The following principles should therefore inform our approach to the future, and these are:
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African ownership, including finding our own solutions to our problems;
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Silencing the guns once and for all;
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Self-reliance to reverse and eradicate our dependency including on Aid for fiscal support;
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Our people must come first, with the benefits of a prosperous Africa fairly shared among all of us;
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Industrialisation supported by a strong infrastructure, instead of dependence on commodities and other raw materials;
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African unity should remain paramount; and
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Africa should continue to be assertive in world affairs and not give in in its demand for a permanent presence on the UN Security Council.
The potential of our continent is not in doubt. The UN’s children agency, UNICEF, estimates that based on current trends, within the next 35 years, 25 in every 100 people in the world will be African; and that by then, 40 percent of the children in the world aged under five years, will come from our continent. Our people are our wealth.
One article in African Business Magazine of January 2013, caught my eye because of its title “Why Africa Will Rule The 21st Century”; which read as follows:
“According to the authors of a new book, The Fastest Billion – the story behind Africa’s Economic Revolution, Africa’ s current sustained growth level is set to not only continue but rise over the next four decades so that, come 2050, the continent’ s GDP will equal the combined GDPs of the US and the EU at current prices” (close quote)
Indeed, in his address to that historic gathering in Addis Ababa in 1963 which established the OAU, President Kwame Nkrumah of Ghana, speaking about Africa’s potential, highlighted that,
“The resources are there. It is for us to marshal them in the active service of our people. Unless we do this by our concerted efforts, within the framework of our combined planning, we shall not progress at the tempo demanded by today’s events and the mood of our people” (close quote).
Agenda 2063 seeks to provide this framework as we, today, seek to respond to the demands of our time for a better Africa.
Looking beyond into the future as South Africa, we take our guide and inspiration from the Freedom Charter. “There Shall be Peace and Friendship”, we said. With peace, we will seek no wars. With friendship, South Africa will have no enemy in the world’s community of nations but partners and friends.
The NDP is our roadmap to the year 2030; and happily so, resonates very well with Agenda 2063.
Between now and 2019, in our Medium Term Strategic Framework – and in creating a better South Africa, contributing to a better and safer Africa in a better world – our output priorities are:
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Advancing our national priorities in our bilateral and multilateral engagements;
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An economically integrated Southern Africa;
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Political cohesion within Southern Africa to ensure a peaceful, secure and stable Southern African region;
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A peaceful, secure and stable Africa;
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A sustainable, developed and economically integrating Africa;
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An equitable and just system of global governance;
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Strong, mutually beneficial South-South cooperation; and
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Beneficial relations with strategic formations of the North.
As South Africa we are clear of the task at hand. Agenda 2063 is a call to action.
President Oliver Tambo had us in mind when he addressed the 50th session of the OAU Liberation Committee in Harare in May 1988 when he said:
As we mark this historic occasion of the 25th anniversary of the OAU Liberation Committee and its 50th session, and cast our eyes west into the Caprivi Strip and Namibia and across the Limpopo into South Africa, we see the tree of freedom rising in all its magnificence, watered by the blood of our own peoples and nourished by the victories that the peoples of our continent have scored during the last quarter of a century.
There will be no 50th anniversary of the Liberation Committee to celebrate and no hundredth session, because long before then, we shall all meet in a liberated Namibia and liberated South Africa, together to attend to the urgent question of the rebuilding of our continent as a zone of prosperity, peace and friendship among the people. (close quote).
Two years after this address, Namibia got its independence. Ours followed four years later. Our freedom was just but the beginning of a more difficult struggle for a better South Africa in a better Africa and a better world. President Tambo was clear about the task for a free South Africa. As he put it: “together [we must] attend to the urgent question of the rebuilding of our continent as a zone of prosperity, peace and friendship among the people.”
The poignant message from Comrade O.R. resonates well with Agenda 2063.
This is what we have been doing since 1994. Prosperity, peace and friendship are critical to the attainment of the vision encapsulated in Agenda 2063.
Honourable Members, I encourage you today to propose, critique, and offer solutions and strategies on the Africa you want by 2063. We all know the challenges. The vision is clear. Of importance today is what must be done to achieve the Africa we want? Today’s Joint Sitting must help us answer this question.
Now is the time to contribute to the vison of our fore bearers to achieve the goals of the Africa we want.
I thank you!
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The Tripartite FTA: Is it the way to deepen integration in Africa?
On October 25, the Tripartite Sectoral Committee of Ministers announced that the Tripartite Free Trade Area (TFTA) covering three Regional Economic Communities – the East African Community (EAC), the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA) will be launched in mid-December at the Tripartite Summit of Heads of State and Government in Cairo, Egypt. Talks on the project among the 26 countries ranging from Egypt to South Africa, were launched in 2008 and endorsed in 2011. The TFTA will have a combined population of 625 million people, and an aggregate GDP of US$1 trillion covering 58 percent of the continent’s economic activity. The immediate objective is to reduce the thickness of borders across the continent so as to raise inter-regional trade across the continent, now standing at just 12 percent to total trade. An action plan released by the African Union says that the TFTA would be followed by a continental customs union forming in 2019.
According to the WTO, in 2010, the 58 African countries were involved in 55 Preferential Trade Agreements (PTAs) of which 43 were South-South PTAs. PTAs (RECs or Regional Economic Communities is the usual acronym used when discussing regional integration in Africa) are good politics. Broad evidence suggests that economics and politics are complements rather than substitutes (as argued by defenders of multilateralism): RTAs reduce the probability of war through two channels: (i) by increasing the opportunity cost of war; and (ii) by reducing information asymmetries as partners know each other better. But to survive, PTAs must extend beyond unfilled good intentions and have a sufficiently sound economic basis, the focus of this note.
So far success on the economic front has been modest, not least because of the great diversity in memberships across PTAs. Members include resource-rich and resource-poor (see Figure 1), coastal and landlocked (15 landlocked countries in Africa), large and small, artificial borders, and many ethnic groups and languages. Figure 1 shows that the EAC is the REC with the smallest disparities in per capita exports of rent-generating natural resources. It also happens to be the REC – along with UEMOA – where integration has been ‘deep’, a five-member customs union operational since 2009.
Figure 1: Box-plot of Per capita exports of Fuels, Ores, and Metals exports by RTA groups (2012 US$)
Source: Melo and Tsikata (2014). PAFTA is the 18 member Pan-Arab Free Trade Area.
The very different interests across partners in each REC has strengthened countries’ insistence on the “respect for the sovereignty and territorial integrity of each state and the inalienable right to independent existence,” as written in the Organization of African Unity (OAU) charter of 1963. Commitment to pan-Africanism was weak during the first post-colonial wave of regional integration efforts, and has remained so during the more outward-oriented second wave of PTAs. Can the TFTA provide the glue needed to integrate African economies more deeply? Several clouds are on the horizon.
The ‘one-size-fits-all’ constraint. The TFTA is to get around the overlap in membership across PTAs that has prevented ‘deep integration’ which has also been slowed by large membership. For example, Zambia is both a member of the COMESA Customs Union (CU) – which requires applying Common External Tariff (CET) to non-members – and of the SADC FTA, putting the country in conflict over its trade policy choices. The large membership in the TFTA (and a fortiori for a continental customs union) exacerbates the “one-size-fits-all” constraint imposed by the desire (and necessity) of achieving convergence in policies to achieve ‘deep integration’. The variable geometry approach adopted may help build support, but at the cost of delaying the deepening of integration since what was intended to be a ‘single undertaking’ to establish a proper FTA that, in the end, will allow the co-existence of different trading arrangements with small integrating effects.
Africa’s linear model of integration has slowed the pace of integration. The TFTA is to be implemented in two sequences: phase one is to focus on tariff liberalization, rules of origin (RoO), trade remedies, and customs and transit procedures; and phase two will address trade in services and other issues such as intellectual property, competition policy, and trade competitiveness. This is the linear model of integration that has been followed in Africa until now. It has been criticized for neglecting ‘behind-the-border’ measures that have been a break to intra-regional trade and of missing the opportunity to open markets in services which are now essential for ensuring competitiveness in goods markets where outsourcing has been rising rapidly.
Phase one is to be officially concluded in December 2014 after the 3rd Summit of Heads of State and Government which will see the signing of the Declaration on the Conclusion of Negotiations on Phase One – Trade in Goods as the decision takes “into account the fact that the majority of the Tripartite Member/Partner States have made ambitious tariff offers.” While the decision to operationalize the free trade area by the end of this year is to be welcomed because it will jump-start negotiations on trade in services, much will remain to be done to reduce barriers to trade in goods, especially regarding the adoption of rules of origin that do not impede trade excessively.
Rules of origin. In phase one, the COMESA-EAC-SADC troika is to reach agreement on trade remedies and a dispute settlement mechanism. They also face the challenge of harmonizing the currently very different RoO across the three groupings. Up to 56 percent of RoO are different across the three RECs. Negotiators have decided to adopt a line-by-line approach (or product-specific RoO (PSRO)) to resolve this problem. This approach is a quasi-guarantee that the most restrictive PSRO will be adopted since PSRO are invariably “business-owned” rather than “business friendly”(the EU still has over 500 different PSRO), leading many to conclude that preferential trade amounts to giving with one hand (preferences) and taking away with the other (restrictive PSRO). For example, the main benefits of the Africa Growth and Opportunity Act (AGOA) was the unilateral decision by the U.S. to simplify the triple-transformation requirement for textiles & apparel (T&A) to a single-transformation rule allowing AGOA beneficiaries to source inputs from non-preferential sources. This relaxation has been estimated to amount to an increase in exports of T&A six times greater than the simple removal of tariffs. Difficult as it may be to reach consensus, negotiators could take inspiration from the simple and transparent RoO requirements in ASEAN where a wholly obtained requirement applies for unprocessed agricultural products and a single across-the-board rule of a 40 percent local content for manufactures (or a change of tariff classification if that rule is deemed too constraining).
Challenges ahead: Thinking 21st-Century FTAs
With the exception of South Africa and Egypt, TFA membership is largely composed of small fragmented and often isolated economies with resources distributed very unequally among them. In addition to political benefits, on economic grounds, this makes for a compelling case to integrate regionally to reap efficiency gains, exploit scale economies, and reduce the thickness of borders. But the distribution of gains from ‘deep integration’ will be very unevenly distributed, potentially leading to compensation mechanisms that will be distortionary (e.g. exceptions hidden under restrictive PSRO and other opaque measures) as occurred under the first wave of regional integration in the immediate post-independence period.
Equally important, until recently at least, regional integration in Africa was founded on a 20th century exchange of market access at the expense of outsiders. With the reduction in trade costs and the subsequent fragmentation of production, 21st century regionalism is about a new bargain: an exchange of domestic market reforms for FDI which brings home the service activities necessary to participate in the global value chain. In this new environment, where trade is trade in tasks and increasingly involves an exchange of intermediate goods, protection (or exchange of market access) amounts to preventing oneself from participating in global outsourcing. Indeed, Asian regionalism has been characterized by ‘race to the bottom’ tariff-cutting to bring about the services needed to diversify and participate in international production networks. It is against this changing background that the TFTA has to be evaluated.
Jaime de Melo is a nonresident senior fellow in the Global Economy and Development program.
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Globalization is recovering from financial crisis, DHL Global Connectedness Index reveals
- The world’s economic center of gravity shifts eastward; emerging economies see bigger connectedness gains than advanced economies
- Flows of trade, capital, information and people stretched out over more distant geographies, documenting a decline in regionalization
- Europe remains most globally connected region; Netherlands again ranks No. 1
DHL, the global logistics leader, on 3 November 2014 released the third edition of its Global Connectedness Index (GCI), a detailed analysis of the state of globalization around the world. The latest report shows that global connectedness, measured by cross-border flows of trade, capital, information and people, has recovered most of its losses incurred during the financial crisis. Especially the depth of international interactions – the proportion of interactions that cross national borders – gained momentum in 2013 after its recovery had stalled in the previous year. Nonetheless, trade depth, as a distinct dimension of globalization, continues to stagnate and the overall level of global connectedness remains quite limited, implying that there could be gains of trillions of US dollars if boosted in future years.
“In the aftermath of the financial crisis, globalization has increasingly come under pressure and international trade negotiations face growing resistance,” said Frank Appel, CEO Deutsche Post DHL. “In this environment of uncertainty, the DHL Global Connectedness Index offers a comprehensive, fact-based understanding of globalization and demonstrates the huge potential for countries to further increase their connectedness. I am convinced that a prosperous world needs more, not less integration.”
The DHL Global Connectedness Index 2014 documents the substantial shift of economic activity to emerging economies that is pushing the world’s economic center of gravity eastward. Emerging countries are now involved in the majority of international interactions whereas before 2010, the majority of international flows were from one advanced economy to another. Notably, the 10 countries where global connectedness increased the most from 2011 to 2013 are all emerging economies, with Burundi, Mozambique and Jamaica experiencing the largest gains.
Advanced economies have not kept up with this shift. This suggests that they may be missing out on growth opportunities in emerging markets. “Counteracting this trend would require more companies in advanced economies to boost their capacity to tap into faraway growth,” said Professor Pankaj Ghemawat, co-author of the report and internationally acclaimed globalization expert and business strategist. “This is particularly evident in light of the fact that a decades-long trend toward trade regionalization has gone into reverse.” In fact, the GCI 2014 reveals that every type of trade, capital, information and people flow measured has expanded over greater distances in 2013 than in 2005, the report's baseline year.
The 2014 Index Results
In addition to a comprehensive overview on the state of globalization, the 2014 report also provides detailed insights into the connectedness of individual countries and regions. The Netherlands retained its top rank as the world’s most connected country and Europe is once again the world’s most connected region. All but one of the top 10 most globalized countries in the world are located in Europe, with Singapore as the one standout.
North America is the second most globally connected region and leads on the capital and information pillars, with the United States as the most connected country in the Americas. Overall the US is ranked 23rd place out of the 140 countries measured by the GCI. The largest average increases in global connectedness from 2011 to 2013 were observed in countries in South and Central America and the Caribbean. Middle East and North Africa was the only region to experience a significant decline in connectedness.
Measuring Globalization in 3-D
The report was commissioned by DHL and prepared by Pankaj Ghemawat (Professor at New York University Stern School of Business and at IESE Business School in Barcelona, Spain) together with Steven A. Altman (Senior Research Associate and Lecturer in Strategic Management at IESE Business School).
Unlike other established globalization indices, the GCI analyzes globalization in 3-D: It looks at the depth of countries’ cross-border interactions, their directionality (outward flows versus inward flows) as well as their geographic distribution (breadth). “The GCI, with its unique 3-D approach, is the only one of the globalization indices to register what many observers regard as the biggest drop-off in the intensity of globalization during the financial crisis,” explains Professor Ghemawat. “That should boost confidence in using it as the basis for diagnosis and decision-making.”
The 2014 DHL Global Connectedness Index draws on more than 1 million data points from international flows covering trade, capital, information and people accumulated over the last nine years. The ranking encompasses 99% of the world’s GDP and 95% of the world’s population.
» See also: How globalized is the world today? Delivering Tomorrow blog by Pankaj Ghemawat
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COMESA Merger Assessment Guidelines
The COMESA Competition Commission (the Commission) is charged with the administration and enforcement of the COMESA Competition Regulations (the Regulations). Since the Commission commenced operations in January 2013, the most active provisions of the Regulations have been the Merger Control Provisions. As a consequence of this, the Commission has found itself with the responsibility of explaining and interpreting the Regulations and for responding to inquiries from the public regarding their application. This prompted the Commission to commence the development of the COMESA Merger Assessment Guidelines (the Guidelines). The Commission is therefore hereby publishing the Guidelines. The Guidelines are prepared as part of the Commission’s ongoing efforts to clarify and provide guidance about its merger enforcement policies and practices. The preparation process of the Guidelines was done in cooperation with the International Finance Corporation (IFC), a member of the World Bank Group.
The preparation of the Guidelines engaged wide consultations with the various stakeholders among them, the International Bar Association, the American Bar Association, international and regional law firms, National Competition Authorities and the International Competition Network. The preparation further consulted existing literature on the subject matter including the European Union (EU) Merger Regulations and Guidelines and the prevailing Regulations and Rules of Member States. The process of preparing the Guidelines also took into account the nature of markets in the Common Market. Following input and review from the aforementioned stakeholders, the Guidelines have since been finalized and adopted by the Board of the Commission.
The Commission wishes to thank the IFC and Consultants who were engaged to draft the Guidelines. Further, the Commission wishes to thank the Steering Committee and other experts who contributed to the process of preparation of these Guidelines.
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India assures Mauritius on bilateral tax treaty
India on 2 November 2014 told Mauritius that it will not take any decisions that will “adversely impact” bilateral relations while reassuring the country that amendments to the bilateral tax treaty would be made only after considering the legitimate interests of both sides.
This was conveyed by External Affairs Minister Sushma Swaraj during her meetings with top leadership of Mauritius including President Rajkeswur Purryag and Prime Minister Navinchandra Ramgoolam.
She assured them that “India was in the process of reviewing the Double Taxation Avoidance Agreement (DTAA) and will not do anything to that will adversely impact the island nation’s ties with India,” official sources told PTI.
Swaraj, who is here on a three-day visit, also said that enhanced bilateral relations between the two countries will benefit people-to-people contacts. She recalled that the first batch of Indians had arrived in Mauritius on November 2, 1834.
Earlier, terming the India-Mauritius double taxation avoidance convention an important agreement between the two countries, External Affairs Ministry spokesperson Syed Akbaruddin said both countries would ensure that their “legitimate interests” would be secured in any new agreement.
“Discussions on this are an ongoing issue and once these are ready and there is agreement between the two countries, we will then move to the next step of amending it.
“We have an agreed format in which all issues on this matter are being discussed. Given the nature of our close bilateral relations and ties, we are confident that we will take into account each other’s concerns and interests while making any changes to it,” the spokesperson said.
A proposed revision of the tax treaty has been hanging fire for a long time amid differences between the two countries. India has been seeking to make the agreement stronger to check any possible round tripping of Indian funds through the island nation.
Mauritius has been one of the biggest sources of FDI into India, which attracted inflows of $77.77 billion FDI from the country between April 2000 and January 2014.
In 2012-2013, India exported goods worth $1.31 billion and imported goods worth $28.49 million. India’s exports to Mauritius comprise largely petroleum products.
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Top Tanzania officials arrested in row over oil, gas contracts
Top officials at Tanzania’s state-owned oil agency were arrested this week on charges of failing to release to parliament oil and gas contracts the government signed with foreign and local investors.
The arrests on Monday bring to a head a simmering row over whether Tanzania is getting a fair deal for its newfound natural resources.
Huge offshore gas finds promise to lift the east African nation into the ranks of middle-income countries by 2030 and free it from dependency on foreign aid.
However, the government has insisted on keeping terms of production-sharing agreements secret, raising suspicion over whom they benefit.
The Parliamentary Committee on Public Accounts (PAC) instructed police to arrest James Andelile, acting director general of Tanzania Petroleum Development Corp (TPDC), and its board chairman Michael Mwanda for refusing to comply with its Nov. 3 deadline for releasing 26 oil and gas contracts to the parliamentary oversight panel.
“It is confirmed. They were arrested today and they will be charged in the court according to the law,” Zitto Kabwe, the committee's chairman, told the Thomson Reuters Foundation.
TPDC has resisted requests to disclose the production-sharing agreements on the grounds that it was bound by confidentiality clauses.
TPDC’s information officer Sebastian Shana said it was impossible for the agency to release the contracts, given the short time frame, before consulting with investors.
The maximum penalty is up to two years in prison. Dar es Salaam Special Zone Police Commander Suleiman Kova said the officials have the right to apply for bail pending investigations.
According to local media reports, the TPDC had asked for more time, but the National Assembly’s clerk Thomas Kashililah wrote to TPDC last week giving it until Monday to release all documents relating to the contracts, and to submit an audited report for the 2013 financial year.
STRUGGLE FOR TRANSPARENCY
Civil society groups are pressing for open contracts in the extractives industry as a means of heightening government accountability over natural resource wealth and to promote more public discussion over how revenues are invested.
From mining to natural gas, the attempts to make various contracts publicly accessible have been an uphill struggle, even though Tanzania is a member of Open Government Partnership, an international initiative that sets standards for transparency and public accountability.
Earlier this year, a leaked contract showing ExxonMobil and Norway’s Statoil will pay Tanzania no more than 50 percent of profit from a natural gas field in the Indian Ocean sparked an uproar with legislators, right groups and ordinary citizens calling for disclosure of all the contracts.
Critics have raised concerns that major international oil companies may be taking advantage of the relative lack of experience of the TPDC in negotiating highly complex exploration and production deals.
“Transparency of contracts is fundamental for ensuring proper management of natural resources. Without transparency, no accountability,” Kabwe said.
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Trade facilitation instruments behind the robust institutions
Trade facilitation instruments developed by COMESA have contributed to the creation of robust regional institutions that provide re-insurance services and regional customs guarantees. These instruments are the COMESA Yellow Card, the Regional Customs Bond Guarantee (RCTG) Scheme, and the COMESA Virtual Trade Facilitation System (CVTFS).
The Yellow Card and the RCTG are credited with significantly contributing to the success of the COMESA owned PTA Reinsurance Company (ZEP-RE). The company manages and provides re-insurance to the Yellow Card and the RCTG and is now rated among the best performing institutions in the continent.
“ZEP-RE is not only underwriting reinsurance business in the entire African continent but also in parts of Asia”, COMESA Secretary General Sindiso Ngwenya told delegates attending the 28th Meeting of the Council of Bureaux of the Third Party Motor Vehicle Insurance (Yellow Card) Scheme in Dar es Salaam last week. The company is rated by Global Credit Rating (GCR) AA for local/national and BBB- for international Business.
The African Trade Insurance Agency (ATI) another COMESA institution established in 2000 to provide political risk cover from commercial sources or export credit agencies has similarly thrived. Fifteen countries in the Economic Community of West African States (ECOWAS) have enlisted as members.
The Yellow card was developed by COMESA as a trade facilitation instrument to enable trans-boundary motorist to use only one insurance cover which is valid in all countries participating in the scheme. The RCTG commonly known as the RCTG CARNET provides one regional bond for transit goods to replace multiple national bonds for each country of transit. It has reduced the total cost of freight by between 15% and 20%.
It is against this background that COMESA has developed the Virtual Trade Facilitation System, a software application that integrates all trade facilitation instruments, including the Yellow Card and the CARNET under one online platform.
“The system provides real time information on the location of goods and means of transport and integrates all customs and trade related documentation under a single sign on,” Ngwenya told the delegates. “It also allows customs authorities to pre-clear cargo and the freight forwarders and transport operators to efficiently manage the logistic supply chain thus reducing the cost of doing business and enhancing competitiveness.
He said the CVFTS will enable the industry to eliminate forgeries of Yellow Cards and minimize the fraudulent insurance claims of goods that have hither to been paid under the guise that they either have been lost in transit or destroyed in accidents.
Subsequently, the Council of Bureaux on the Yellow Card Scheme has agreed to advance US$ 1 million to the CVTFS, subject to an Agreement between COMESA and ZEP Re the managers of the Yellow Card Reinsurance Pool. The advance will be made by ZEP RE.
Tanzania, though a non-Member of COMESA, is already implementing the Yellow card scheme and has also assured of its participation in the RCTG CARNET and CVTFS as well. This will enhance the competitiveness of the logistic supply chain through the port Dar es Salaam to and from the hinterland served, namely Burundi, Eastern and Southern D.R. Congo, Malawi, Rwanda, Uganda and Zambia.
Results from FinScope Consumer Survey South Africa 2014
What changed in people’s lives according to FinScope since 2004? A ten year perspective on financial inclusion in South Africa
FinMark Trust released the results of its FinScope Consumer South Africa 2014 survey today. The FinScope Survey, developed by FinMark Trust, is a research tool to assess financial access in a country and to identify the constraints that prevent financial service providers from reaching the financially under- and unserved people. The FinScope Survey is a nationally representative survey of how individuals source their incomes and how they manage their financial lives. It also provides insight into attitudes and perceptions regarding financial products and services. FinScope South Africa involved a range of stakeholders engaging in a comprehensive consultation process, thereby enriching the survey. To date, FinScope Consumer Surveys have been conducted in 19 countries. The study which was conducted by TNS Research Surveys was based on a nationally representative sample of 3 900 adults who are 16 years or older.
Highlights from the survey
Overview of changes in the past ten years
The survey results show an increase in access to infrastructure in 2014 with more adults having access to electricity (82% in 2004 to 94% in 2014), tap water on property (increased from 67% in 2004 to 81% in 2014) and flush toilets (increased from 55% in 2004 to 64% in 2014). An improvement in the standard of living is indicated by the decrease in LSM 1-5 by 4.4 million since 2004 while LSM 6-10 increased by 12.2 million people since 2004. Working and unemployment status of individuals has not changed much over the past ten years with 9 million people (22%) unemployed in 2004, and 9.5 million (23%) still unemployed in 2014. The usage of cellphones has increased to 33 million up from 12 million in 2004.
Although there is an increase in the salaried adult population in 2014 (7.2 million in 2004 to 12.4 million in 2014), there is also an increase in dependence on government grants (19% in 2004 to 30% in 2014). 78% of the adult population earned an average personal monthly income of less than R2 000 per month in 2014. However the number of adults with no personal income decreased from 4.1 million in 2013 to 2.7 million in 2014.
Increase in financial inclusion
This year’s survey results indicate an increase in the number of financially included adults from 17.7 million in 2004 to 31.4 million in 2014. Banking increased from 46% in 2004 to 75% in 2014. The overall increase in financial inclusion from 61% to 86% over the past ten years is mainly driven by an increase in banking with more people accessing banking products driven by organic banking growth and SASSA roll out. Although an increase in banking is noted in 2014, the survey shows that the rate of growth in banking has dropped as indicated by bank account product usage remaining static at 75% for both 2013 and 2014.
Transactions
One of the determinants of deepening financial inclusion is the ability of South Africans to use transactional accounts to purchase/make payments for goods and services and electronic fund transfers. The study shows that 27.2 million adults have transactional products, and only 12.9 million adults use EFT or bank card payments at least once a week or monthly. Almost 100% of the banked population have transactional products.
Savings
The study reveals that 7.3 million (20%) adult South Africans have savings products with formal financial institutions in 2014. Whilst the majority of those who are saving possess long-term savings products, it is a concern to note that only 44% of the salaried individuals have long-term savings or retirement products. The contribution towards pension funds has decreased since 2013 from 4.8 million (13%) to 3.9 million (11%) in 2014. This could be the effects from the perception or “talk” that the government will nationalise pension funds and other uncertainty surrounding Government Employees Pension Fund (GEPF).
Credit and borrowing
According to the survey, 13.7 million people have formal credit products in 2014 compared to 13.9 million people with formal credit products in 2013. While secured loans are on the increase, the increase in unsecured loans, at 40%, are mainly used for developmental purposes such as child education, building/extending homes and investing in business. Use of personal loans from a bank is on the increase with 1.6 million people in 2014 compared to 1.2 million in 2013. The study shows that 2.7 million people have a credit card in 2014, a drop from 3.1 million in 2013. 36% of adults have formal credit facilities from non-bank financial institutions which could be in the form of store cards, hire purchase (HP) credit, cellphone contracts and outstanding balance for a service offered. The survey indicates that borrowing from family and friends is on the increase at 3.7 million in 2014 up from 1.8 million in 2013.
Of the 56% of the adult population who do not borrow, 32% cited not having a job as a reason for not borrowing, while 31% did not want debt and 20% claim that they cannot afford to borrow.
The study reveals that 4.9 million people are showing signs of over-indebtedness, an increase from 4.7 million in 2013. 1.9 million people have applied to have their debt rescheduled and 1.4 million have had a garnishee or emolument order, while 2.2 million people have considered cancelling insurance and investment policies in order to pay back borrowed money.
Insurance – are South Africans over-insured with funeral cover?
While some growth has taken place in the insurance sector with 60% of adults having insurance, a significant increase has occurred with burial society membership at 32% in 2014 up from 20% in 2004, and formal funeral cover doubling at 33% in 2014 up from 15% in 2004. The increase in burial society membership is also evident from 25% in 2013 to 32% in 2014. 40% of adult South Africans do not have any kind of financial product covering risk with lack of affordability cited as the main barrier to uptake. The results show a decrease in formal insurance uptake from 7.8 million in 2013 down to 7.1 million in 2014.
Increase incidence of remitting through supermarkets
The incidence of remittance within South Africa increased from 20% in 2013 to 23% in 2014. According to the survey, 85% of remittances are conducted monthly with an increase by 22% in remitting through a supermarket (an increase from 1.8 million in 2013 to 2.2 million in 2014), while remitting through cellphones has increased by 15% (up from 1.3 million in 2013 to 1.5 million in 2014). Remitting by banks only increased by 4.2% in 2014 (an increase from 2.4 million in 2013 to 2.5 million in 2014).
Mobile money – Do South Africans find technology complicated?
There has been a substantial increase in the usage of cellphones since 2004, with 33 million adults using cellphones in 2014 up from 12 million in 2004. However, despite the increase in usage of cellphones at 90% in 2014, only 24% of the adult population use cellphone banking. Cellphone banking only increased from 8.3 million in 2012 to 8.6 million in 2014. Over one third of adults in South Africa find technology complicated to use for financial activities according to the study.
Are consumers beginning to understand their rights and responsibilities?
Consumer protection and financial education are fundamental to the financial inclusion agenda of South Africa. An environment of poor financial literacy, coupled with a lack of adequate consumer protection, is likely to encourage consumer abuse and inappropriate use of financial services. Users of financial services can easily be victims of unfair treatment by service providers, which is sometimes caused by opaque disclosure or nondisclosure of costs or conditions. However, FinScope 2014 reveals that about 4 million banked adults have switched banks in the past 12 months prior to the survey. Reasons for switching banks could be related to 55% of the adult population claiming to understand the benefits of banking products.
Conclusion
Overall there are 10 million unbanked people in South Africa. The survey showed that while savings is difficult due to low levels of income, most people prefer to save at home possibly due to high banking fees and a lack of confidence in the financial services sector. Although unsecured loans are on the increase, 40% of these are being used for developmental reasons. Funeral cover seems to be the most popular insurance taken by most South Africans. The number of excluded people has dropped to 5.3 million in 2014 from 5.7 million in 2013. 48% of those that are excluded reside mainly rural traditional areas. The challenge for financial institutions is to bring appropriate affordable services to those who are not banked.
FinScope
FinScope was launched in 2002 by FinMark Trust (www.finmark.org.za). Its purpose is to establish credible benchmarks on the use of, and access to, financial services in South Africa. It is designed to highlight opportunities for innovation in products and delivery. The FinScope survey is a comprehensive and national representative study on financial inclusion, looking at how people source their income and manage their financial lives. It has been implemented in 19 countries (11 in SADC, 5 non-SADC Africa and 3 in Asia). The FinScope survey is currently being implemented in 3 more countries in Asia and 4 in the SADC region (1 first cycle and 3 repeat surveys).
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Oxfam inequality report adds to groundswell of public opinion
With the launch of their inequality campaign this week, Oxfam have deepened the groundswell of opinion that includes billionaires, the IMF, World Bank, and millions of ordinary people. Their campaign report – “Even it up” – is a welcome addition to discussions around inequality.
In Africa, inequality slows poverty reduction. Despite Africa’s impressive growth, a business-as-usual trajectory means that Africa will account for 80 percent of the world’s poor by 2030. Inequality keeps millions in poverty. It also undermines growth and contributes to economic instability.
In this year’s Africa Progress Report – Grain, Fish, Money – we argued that growth in the agricultural sector could directly benefit the two thirds of Africans who depend on farming for their livelihoods. We urged African governments to boost agriculture in order to generate better, fairer growth for millions.
Oxfam’s report contains many useful recommendations on themes that we also support.
First, equity must be a core principle within the post-2015 development goals. Equity was a core part of the Millennium Development Goals (MDGs), but not explicitly so. And some countries progressed towards the 2015 MDGs despite growing inequalities.
Equity is critical to poverty reduction. We have already picked the low-hanging fruit on poverty reduction. Sustained progress in child and maternal health, for example, requires strategies to tackle malnutrition, extend basic health services to remote areas, and empower people to hold service providers to account.
An obvious starting point for post-2015 strategies therefore will be the identification of who is being left behind. The Overseas Development Institute and others recommend the use of rolling equity targets – three to five year “stepping stones” – that focus on narrowing disparities. These “stepping stones”, determined nationally, could focus on disparities across wealth levels, gender, and regions, for access to basic services such as health and education.
Second, fiscal policy can be used more effectively to protect the more vulnerable segments of society. Tax avoidance and evasion are global problems but hit Africa hardest, especially in the extractives sectors, effectively depriving people of health and education. The global community should give better representation to Africa in discussions on tax reform. In the meantime, Africa needs technical and financial support to build capacity for tax administration in order that it can also benefit from new OECD standards on tax.
African governments must reform their fiscal policies to benefit society’s poorest groups. Move away from taxes – such as value added tax – that disproportionately hit the poor. Move away from subsidies – such as fuel subsidies – which benefit the wealthiest most. Africa spends three times as much on energy subsidies than on social protection.
The stakes are high. As the Oxfam report rightly says, some inequality is necessary to reward talent, skills, and a willingness to innovate and take entrepreneurial risk. But today’s extreme inequalities block too many people from achieving their true potential. That is a loss – not just for the individuals, but for society too.
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At UN conference, top officials urge greater development assistance for landlocked countries
The international community must aid the world’s landlocked developing countries (LLDC) in pursuing their goals for greater economic development to transition from being landlocked to “landlinked,” Secretary-General Ban Ki-moon advised today, noting that only through comprehensive improvements in trade would such nations be best prepared to tackle the post-2015 agenda.
Speaking at the opening of the Second UN Conference on LLDCs, taking place from 3 to 5 November, in Vienna, Austria, the Secretary-General told more than 1,000 delegates that the world’s new plans to address global challenges “must take account” of conditions in LLDCs.
“We need greater regional integration. This will strengthen trade ties. It will increase economic groupings,” declared Mr Ban. “Regional integration can transform countries from being landlocked to ‘landlinked.’
There are 32 countries classified as landlocked developing, 16 of which are located in Africa, 10 in Asia, 4 in Europe and 2 in Latin America. Lack of territorial access to the sea, remoteness and isolation from world markets and high transit costs continue to impose serious constraints on their overall socio-economic development.
Eleven years since an action plan for the LLDCs was adopted in Almaty, Kazakhstan, exports have increased and tangible in-roads have been made in improving their share of global trade. But such gains have not been enough to boost the prospects of these countries, many of which are still on the bottom rung of the development ladder.
Notwithstanding a sharp drop in the number of children dying from preventable diseases and an uptick in the number of young girls in school, nine of the 15 countries with the lowest Human Development scores are landlocked.
In his address to the Conference, UN General Assembly President, Sam Kutesa, told delegates they had gathered to “take stock” of the progress made since LLDC states adopted the Programme of Action in Almaty eleven years ago.
“We should feel heartened by the notable progress that has been made in several key areas,” the Assembly President said, highlighting issues such as the harmonization of transport and transit policies and procedures with transit countries, the development of transport infrastructure, and the expansion of trade.
Nevertheless, he warned “deep-rooted and multifaceted structural challenges” still remain plagued the LLDCs, hindering the economic development of landlocked states.
“Export volumes, compared to imports, are still low, and are predominantly raw materials and commodity based. Critical physical infrastructure, such as roads, railways and energy is either lacking or inadequate.”
Citing the Secretary-General’s “sobering assessment” of the state of LLDC’s, Mr. Kutesa also observed that those countries were unable to meet their development objective on their own. In 2012, he stated, the trade volume of LLDCs had been only 61 per cent that of coastal countries while import and export costs were twice as expensive as those of their non-LLDC neighbours.
“With such statistics, it may be an understatement to say that LLDCs are swimming against the tide,” he added.
Mr. Kutesa, a Ugandan national, pointed out that he too was from a landlocked developing country and thus understood the direct importance of infrastructure development, transit and trade facilitation, and policy framework, in order to reduce prohibitive transit costs and enable LLDCs to fully participate in global trade.
“Emphasis must be given to deepening regional cooperation and promoting inter and intra-regional trade. Above all, there must be renewed political will to address transit limitations and other challenges,” he continued, stressing the need for LLDCs in receiving “sustained and unwavering cooperation from transit countries; financial and technical support from bilateral and multilateral partners; and firm commitments from the international community.”
The President of the General Assembly appealed to the gathered delegates to adopt a new Programme of Action at the end of the Vienna conference in an effort to boost the LLDCs competitiveness, stimulate their productive capacities, diversify their exports and “ensure a better future for their 450 million citizens.”
At the same time, in his remarks to the Conference, Gyan Chandra Acharya, the UN High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States, called for greater synergy between the LLDC development agenda and the ongoing discussion around the next generation of development goals.
“We have all agreed that the post-2015 development agenda would be transformative, inclusive and should ensure a life of dignity for all. LLDCs issues therefore rightly deserve due consideration in the formulation in the formulation of the next global agenda,” he stated.
“Let there be a call for actions that match the magnitude of the challenges of being landlocked.”
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African Economic Conference calls for investment in skills and innovation for the continent’s transformation
Knowledge and innovation are pivotal in Africa’s quest for sustained and inclusive economic growth and should therefore be encouraged based on both targeted government policies and private sector participation. This was the conclusion from the 9th Annual African Economic Conference held from November 1-3 in Addis Ababa, Ethiopia.
The conference, co-organised by the African Development Bank (AfDB), the United Nations Economic Commission for Africa (UNECA) and the United Nations Development Programme (UNDP), provided a forum for discussions among public officials, business leaders and academics under the overarching theme “Knowledge and Innovation for Africa’s Transformation”.
“African countries are aware that their development hinges on how fast and how well their citizens acquire the skills and technological competencies needed to be competitive in today’s global market,” said AfDB President Donald Kaberuka at the opening of the three-day meeting. Kaberuka was seconded by the Executive Secretary of UNECA, Carlos Lopes, who affirmed that ”African enterprises can only develop and influence the breadth and depth of industrial linkages if they harness (…) the skills and technologies needed to upgrade production processes, and identify market opportunities.”
“Capacities are not the same as capabilities. We have lots of capabilities; but we need capacities,” added Lopes, emphasizing the need to build capacity to transform growth into quality growth on the continent.
Abdoulaye Mar Dieye, Director of UNDP’s Regional Bureau for Africa, further emphasised the human dimension underpinning the innovation-growth nexus: He called upon governments “to make sure people are at the centre of the development process.” Participants discussed various priority areas for action in order to harness the development effects from innovation and technology, among which education policy and public-private partnerships featured prominently.
A panellist and researcher from Cameroon, Luc Nembot Ndeffo, explained that the low level of Africa’s innovation compared to other regions of the world depends on four main factors, namely weak institutions, poor infrastructure, a poor regulatory and institutional environment and an inadequate education system. According to Ndeffo, these factors form a vicious circle that keeps Africa in a state of underdevelopment compromising innovation opportunities.
Investing in education and women’s skills
In the opening session of the conference, the role of education in ensuring a higher pace of skill and technology development in Africa took center stage. In this context, the Ethiopian Minister of Science and Technology Demitu Hambissa portrayed the absence of a critical mass of university-educated manpower as a major impediment to innovation on the continent.
Adding to this point, the AfDB President Kaberuka affirmed that the skill deficit is exacerbated by the fact that “Africa’s stock of graduates is still highly skewed towards the humanities and social sciences, while the share of students enrolling in science, technology, engineering and mathematics averages less than 25 percent.”
The pivotal role of education in ensuring people-centred innovation was also highlighted by academics attending the conference: For example, Abdoulaye Seck from the Cheikh Anta Diop University in Dakar, Senegal, presented a paper on technology spillovers in the Economic Community of West African States (ECOWAS), showing that the spread of world technology will be conducive to local appropriation and innovation in ECOWAS countries if the latter’s human capital is strengthened.
Moreover, participants noted that there is a gender imbalance in developing entrepreneurial skills through education: “There is a clear gender dimension to the technological divide”, said Zuzana Brixiova, a Principal Research Economist at the AfDB. According to Brixiova, women have acquired simple employable rather than entrepreneurial skills, which, in the absence of more gender-inclusive education and vocational policies, will lead to frustration and an even more pronounced outflow of female workers into the informal sector.
Brixiova further highlighted that unemployment was recorded at 11.9 percent in 2012 and 2013, with young workers making up 50 percent of the unemployed. “Policy-makers should identify the factors that force many women in Africa to join the less productive informal sector, as well as seek to address why women get lower education attainments in several countries on the continent,” she said.
Generally, value addition in human capital is paramount for Africa’s ultimate industrial boom – and basic education alone will not suffice, according to Manitra Rakotoarisoa, an Economist at the Food and Agriculture Organization of the United Nations.
Leveraging the private sector for development
In addition to education policy, participants discussed the role the private sector can play in stabilising African countries stricken by conflict, political instability and natural or man-made disasters. These debates were stimulated by the report “Assessing Progress towards the Millennium Development Goals (MDGs) in Africa”, co-authored by the three conference organisers and the African Union and released on the second day of the conference.
The report argues that stronger partnerships and domestic financing, backed notably by the private sector, are key to meet the MDGs and ensure sustainable and stable growth in Africa in the post-2015 period.
“The private sector has a huge role to play in finishing the business of the MDGs and sustaining progress beyond 2015. In fact, part of the work will consist in making sure future investments are safeguarded in the face of crises like the one we are seeing in West Africa,” said the AfDB President Kaberuka, referring to the Ebola virus ravaging principally Sierra Leone, Guinea and Liberia.
During one of the plenary sessions on the “Role of research and innovation in enhancing productivity and competitiveness in Africa”, participants noted the lack of strategic public-private partnerships on education and skills development which contributes to undermine the continent’s efforts to bridge the innovation gap. Discussants also underscored that each country should develop a coherent innovation strategy with a clear roadmap based on its specific reality and situation to facilitate monitoring progress.
“It is going back to understand what are our comparative advantages, and then focus on those comparative advantages and build centers of excellence around it,” said Antonio Pedro from UNECA.
In its background note on this year’s African Economic Conference, UNECA argues that for African companies to tap into global value chains, they “will need to upgrade operational competitiveness, meet global technical standards and adopt world-class manufacturing practices – which require a level of expertise that is not readily available.”
The African Economic Conference is organised on an annual basis and builds on the general guidelines set out in the African Union’s Agenda 2063 and the African Common Position on the Post-2015 Development Agenda, which themselves portray technology development, transfer and innovation as premises for structural transformation and people-centred development in Africa.
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Can Africa expand its trade in the face of climate change?
Specific adaptation strategies, coupled with smart trade policies, could play a role in helping African economies ensure future climate-proof development pathways.
Africa’s share of global trade has increased steadily from 2.3 percent in 2001 – equal to roughly US$277 billion – to 4.6 percent in 2011 weighing in at around US$1 trillion. This amounts to a doubling over 10 years. However, while the continent as a whole makes up 20 percent of the world’s land, African economies currently account for less than five percent of global trade. The region clearly still has a long way to go to integrate into the global economy. Meanwhile, the ominous threat of climate change looms, a factor that could seriously stunt any future potential growth.
One of the clearest climate change impacts on trade will be on infrastructure and trade routes. Across the African continent, coastal sea level rise is expected to be 10 percent higher than in the rest of the world, and studies have shown that major port cities stand to undergo substantial damages to infrastructure. The port in Dar es Salaam, Tanzania – one the largest in East Africa – could experience asset losses of up to 10 percent of the country’s GDP or US$10 billion. Agriculture is another sector where climate change will take its toll. This will have significant implications for trade in foodstuffs worldwide. In sub-Saharan Africa alone crop yields could be reduced by up to 20 percent by 2050 under a two degree Celsius warming scenario.
Africa lost its status as a net exporter of agricultural products in the early 1980s when prices of raw commodities fell and production stagnated. Since then, agricultural imports have grown faster than exports, reaching a record high of US$47 billion in 2007. A brief glance at the continent’s natural resource and landscape statistics suggests that this should not be the case. Africa holds about 60 percent of the world’s uncultivated land and 65 percent of its workforce is engaged in the agriculture sector. Meanwhile, many countries in the region rely on natural resources as an engine for economic growth. But will African economies be able to make more of these endowments in the future when faced with the predicted grave consequences of climate change? The answer is yes. For lasting success, many African nations must pursue development plans that foster structural transformation, industrial productivity, as well as ecological resilience. Fortunately, some examples exist where countries demonstrate how food systems can be adapted to climate change and coastal zones safeguarded against further erosion.
At a time when the global economy needs to make a critical shift towards a low-carbon and energy-efficient development pathway, Africa could forge ahead in this respect, and simultaneously shore up some of its climate vulnerabilities. Based on an approach called ecosystem-based adaptation (EBA), the continent could generate ecosystem goods and services, with future climate-proof sustainable production and trade in mind. Examples of ecosystem goods include food – meat, fish, and vegetables – water, fuels, and timber. Climate boosting services range from clean air, clean water, the natural recycling of waste, to soil formation and pollination. EBA uses biodiversity and ecosystem services as part of an overall adaptation strategy to help people and communities cope with the negative effects of climate change. Unlocking the potential of this approach, however, will require various regulatory and governance changes at local, national, regional, and global levels.
Increasing trade in Africa through use of ecosystems goods and services
Can African countries use their ecosystems to protect the continent’s productive sectors from the negative impacts of climate change? Without sufficient adaptation and preparation for climate impacts, African economies could face damages equal to around seven percent of the continent’s total GDP, according to a 2013 Africa Adaptation Gap report. Beyond the exchange of goods, trade can also have unintended or unaccounted environmental impacts, which under certain scenarios can exacerbate the climate challenge. For example, increasing food production can lead to deforestation, resulting in less carbon sequestration. Such trade-offs may seem economically viable in the short term but are likely to be costly further down the line. This is where various governance mechanisms and global trade system come into play and there are ways to create win-win scenarios.
Natural resources such as Shea trees provide a range of ecosystem services such as carbon mitigation, soil stabilisation, and the production of non-timber forest products such as Shea butter. Burkina Faso’s second highest export product after cotton is the Shea nut. Issues related to the production of quality Shea butter, however, prevent the sector from securing even more gains from international markets. Consequently, in one national project 120 female workers were trained in high quality Shea butter production techniques. The training was a success; the women are now able to generate higher profits and each brings home around US$18 a month from Shea butter sales. The increase moves these individuals much closer to the average national monthly income of US$47 for a family of six. At the same time the participants are incentivised to protect five hectares of Shea trees and the associated ecosystem from destruction.
In Mozambique, ecosystem-based adaptation was used to reduce environmental damage along the coastline, which was largely caused by the felling of mangroves. Found mostly in developing countries, mangroves provide ecosystem goods ranging from food to timber and perform essential ecological functions. Mangrove degradation poses a serious challenge worldwide, however, with estimates suggesting these important ecosystems are currently being destroyed at a rate three to five times higher than average deforestation rates and resulting in economic damages of between US$6 and US$42 billion annually.
Key hotspots of mangrove loss are in Mozambique and Western Africa, where the coastal forests have been impacted by agriculture, dam construction, pollution, and tourism. In certain instances, however, the EBA approach in Mozambique helped to diversify livelihoods away from practices that resulted in environmental degradation. Communities were able to develop crab and fish farming businesses while also rehabilitating mangroves. In addition to stabilising the coastline, the restored mangrove habitat had the added benefit of reviving fish populations, providing another income from wild fish catches.
An “ecosystem-based adaptation for food security” is a subset of the EBA approach, and entails the harnessing of ecosystems services to enhance the productivity of ecosystems, address climate change, and build resilient food systems. An ecosystem-based adaptation strategy for food security can increase agricultural volumes through higher crop yields generating the potential for more sustainable trade and promotes ecosystem resilience in the face of climate change. In Zambia these approaches have resulted in surplus increases of up to 60 percent per household.
The ecosystem-based approach and the subsequent trade in ecosystem goods offers the opportunity to sustainably increase trade volumes. This is particularly true for African least developed countries (LDCs) where the bulk of people’s livelihoods is directly based on their natural environment. By working to scale up ecosystem goods and services African economies can simultaneously move towards sustainable development and climate resilience. To this end, good international policies that help to properly protect and market these ecosystem goods and services and international trade policies that recognise their value globally, will be important.
What needs to be done to boost sustainable African trade?
In addition to removing barriers to trade in various tradable ecosystem goods and services, there are a number of additional ways to boost sustainable trade on the continent, all the while addressing climate challenges. Potential actions would include granting reciprocal preferences and incentives for trade-relevant ecosystem goods and services in Economic Partnership Agreements (EPAs) currently under discussion with the EU. Strong preferences for goods derived from an EBA approach could also help to allay some of the concerns regarding unfair competitive advantages enjoyed by large European firms once such trade agreements are sealed.
It will also be important to ensure the inclusion of climate change assessments in all trade negotiations. Although many developed countries now require environmental assessments as part of any trade agreement that they enter into, these assessments tend to focus on national, rather than cross-border or global environmental impacts. In order to move to a more modern approach, which takes account of the reality of global value chains, various platforms such as the UN climate talks, the sustainable development goals (SDGs), or the multilateral trade community could offer support in this area. In particular, certain developing economies would need assistance in building the capacity to conduct such assessments. Completing country trade-climate assessments in developing nations would also be a useful exercise to understand the interaction between trade expansion and climate change impacts. For example, if a country’s comparative advantage is found to be in a low-carbon production system, then it could perhaps seek to establish trade preferences based on this finding. This would likely require additional capacity building that could be facilitated through existing international commitments around technology transfer and capacity building.
Evaluating the “demand pull” and “supply push” international incentives for tradable ecosystem goods and services will also be important. “Demand pull” mechanisms are measures that target changes in consumer behaviour. “Supply push” mechanisms work in the opposite direction, in other words, they provide subsidies or other benefits to encourage the production of goods in an environmentally friendly way. The ideal combination of incentives may vary by product or country. African countries should examine the potential benefits and drawbacks of each approach from global, regional, and national perspectives.
Another option would be to explore possibilities for endorsement of ecological production methods. Ecosystem-based adaptation or climate resilience production certification schemes could take place between trading partners either at a bilateral, regional, or international level. Granted, however, the bilateral level may prove to be an easier first step although this raises the question of generating a complex panoply of labelling schemes. African countries could also consider including “like product” verification schemes in trade agreements that do not harm national and local producers and at the same time ensure environmental accountability.
Climate change poses a significant threat to development objectives. As evinced by the latest warnings from UN climate scientists, no society or landscape will remain untouched from its effects, and colossal damages are foreseen for some of the poorest on this planet. There are ways to both limit further impacts and cope with consequences that are already locked in. Africa, with its vast natural resources and potential to leap frog over out-dated technologies and approaches, is well positioned to expand its trade through products derived from EBA strategies. As the world gears up to clinch both a post-2015 development agenda and a global emissions-cutting deal next year, it is worth investing in such strategies, which could help the continent achieve both sustainable development and climate policy objectives.
Richard Munang is Coordinator, Africa Regional Climate Change Programme, United Nations Environment Programme (UNEP). Jessica Andrews, Ecosystem Adaptation Officer, UNEP Regional Office for Africa.
This article is published under Biores, Volume 8 - Number 9 by the International Centre for Trade and Sustainable Development.
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Mobile payments to determine future of global economy
Half the global working age population does not have a bank account, yet six billion people have access to a mobile phone. Ninety percent of people in developing countries have mobile phone subscriptions and 84 percent have signed up to mobile broadband subscriptions.
This supports an upward trend in adoption of mobile payment technologies in developing countries, where many users now have a means to utilise previously inaccessible financial services via their mobile phones.
It has been predicted that mobile payment subscribers will reach almost 1.1 billion users by the end of 2015, with an annual 1.3 trillion dollars in global mobile commerce by 2017.
The growth of mobile data traffic in Africa is also expected to increase 20 times between 2013 and 2019, Latin America is forecasted to experience a 67 percent growth in mobile data traffic by 2017, and Asia Pacific will produce 47 percent of all global mobile data traffic within this same period.
On a global scale, mobile data traffic will surpass growth rates of Internet access, driven primarily by developing economies that are reliant on mobile data to access the internet. Mobile devices will continue to be more common than desktop or laptop computers in developing countries, signaling that mobile commerce will continue to dominate e-commerce.
Societies that have weaker financial systems with less regulation are quicker to accept m-payment technologies, with better consumer response than in developed economies, possibly due to different expectations than those in developed economies.
These emerging economies will face a range of growing pains as regulations and competition surface in markets where digital transactions represent the first ‘mainstream’ financial system. It’s unclear whether the current model will be sustainable.
It’s highly likely that emerging economies will bypass diffusion of credit or debit cards completely. Current trends have demonstrated a move directly from cash to mobile. In order to get a credit or debit card, individuals must go through a lengthy process and merchants must invest in hardware to accept cards. Using mobile payments typically just requires a basic mobile phone subscription in developing countries.
Mobile payments and mobile banking in developing countries will establish a financial system which will be led primarily by private sector telecommunication companies.
Banks will try to enter these new markets, utilising this technology, but in many areas, telcos are already dominating the marketplace. For example, Safaricom’s M-Pesa service in Kenya has already encompassed 92 percent of the market.
“If banks try to enter markets where they’re not very well known, they’re going to have to spend huge sums trying to gain market traction and convert customers, whereas telecommunications providers are there already. Most of the services available are heavily engrained,” said Markus Milsted, CEO of mobile payment solutions provider, Omlis.
“The natural synergy is that a telecommunications provider and a financial institution sign up together, to provide banking facilities through a mobile phone which is regulated by the bank, controlled by the bank, but there’s a joint venture partnership.”
Estimates say that there is over one billion dollars in cash being saved outside of formal financial services in Africa. A reliance on cash has been shown to initiate crime, but putting money into digital accounts may drive crime rates down and secure finances for those who never had access to protection.
Populations that have never had access to a bank gain will now have access to transaction services, bill-pay, insurance, and credit scoring through new mobile payment systems.
Traditional forms of currency aren’t likely to become obsolete anytime soon, but the number of people using them will diminish in the years to come. When it comes to decentralised systems like cryptocurrency networks and the introduction of new payment technologies, complex parametres will need to be implemented for global regulation of currencies and the management of new and emerging technologies.
Digital transactions will also shed light on previously unmonitored financial activity in emerging markets. Data will become available that can help economists develop a further understanding of how money flows between people and places.
However, financial services provided by unregulated and unpracticed private companies could also result in higher costs, monopolies, and inflation. Entire populations begin to rely on unregulated systems for storing their money, placing trust in an entity that may not be secure.
With the right technology and improved security, new opportunities become available to emerging economies, enabling new business development and individual progress, borderless transactions, and financial inclusion.
“The last 50 years has seen us accelerate massively, with profound changes in terms of actually using transactions and currency as a primary method of trade. So in terms of what the future holds for digital payments, we’re only beginning to see the start. I don’t think 2015 or 2016 will be the year of mobile payments, but I think it will be 2020 before we see the critical mass of mobile payments,” said Milsted.
“This is because of certain political, cultural and socioeconomic trends and the global world pace, and the fact that it takes a while to get that technology into the mass hands. The critical changing point will be when you take mobile payments at the merchant point of sale, where the merchant isn’t competing with the providers of the mobile payments, when there is a standardised approach and the mobile can be used by people of all types, generations, backgrounds, and creeds.”
Emma Thompson is Marketing Executive at UK-based Omlis Ltd.