Trade data analysis and visualisation
Recognising the paucity and often incomplete and inaccurate trade data available for African countries, tralac periodically reports on the recent trading relationships between the African continent and several existing and rising trading partners by preparing trade data analysis briefs and sector and country/region-specific trade and tariff profiles. tralac researchers also undertake statistical modelling exercises to examine the potential trade effects and impact of various (regional) trade agreements on participating countries.
Review of intra-Africa trade liberalisation and the composition of intra-African trade: Implications for the AfCFTA
Trade Data Analysis
Trade Policy Review: Zimbabwe
The third review of the trade policies and practices of Zimbabwe takes place on 30 September and 2 October 2020. The basis for the review is a report by the WTO Secretariat and a report by the Government of Zimbabwe.
Report by the Secretariat: Summary
Agriculture, mining and tourism are the main pillars of the Zimbabwean economy, which has succeeded in developing strong export industries in each of these sectors. Exports of agricultural commodities and minerals (led by gold, nickel, and tobacco) account for nearly 90% of total merchandise exports. While manufacturing has been in decline since the last TPR, Zimbabwe retains a relatively large and diversified manufacturing base. Services contribute about 66% to GDP, led by wholesale and retail trade, education services, and tourism.
The country in 2019 was still struggling to stabilize its economy, following a long spell of governance problems and international isolation. Economic reforms, including the adoption of a multiple-currency regime in 2009 with the US dollar as the principal currency, had contributed to its economic recovery with double-digit GDP growth rates and had ended hyper-inflation. However, in a difficult socio-economic context, Zimbabwe then adopted FDI restrictions in 2012 under the Indigenization and Economic Empowerment Act. In consequence, foreign investment has been subdued and the economy has resumed a modest growth performance since 2013 until 2016, hampered by foreign exchange shortages. GDP growth recovered slightly in 2017 and 2018.
Under the multiple currency system introduced in 2009, Zimbabwe formally ceased to have a domestic currency. However, in 2014, the Reserve Bank of Zimbabwe (RBZ) started to credit account holders with electronic money balances, termed “Real Time Gross Settlement” (RTGS), using for accounting purposes an exchange rate of one-to-one between the RTGS dollar and the US dollar. Most domestic transactions and salary payments were carried out with the RTGS electronic currency. However, due to increased fiscal deficits financed by the RBZ, the RTGS balances were not backed up by enough foreign currency earnings to maintain parity, leading to high parallel market premiums for the US dollar.
In November 2017, Zimbabwe witnessed the departure of the President in power since its independence in 1980. The new Government inherited an economy characterized by large fiscal deficits, rising inflation, shortages of basic goods (including fuel and electricity), and critically low international reserves. Zimbabwe’s per-capita income was about USD 1,500 in 2018; the economy was forecast to contract strongly in 2019 (by up to 6% according to the authorities), due to, inter alia, fiscal consolidation and the impact of Cyclone Idai.
The new Government implemented various reforms, including the elimination in December 2017 of the 49% foreign ownership cap for most sectors. The remaining restrictions in the diamond and platinum sectors were removed in March 2019. The one-to-one RGTS$/USD exchange rate was eventually abandoned in February 2019, and Zimbabweans consequently witnessed a major loss of value of their electronic currency balances in US dollar terms. On 24 June 2019, Zimbabwe abolished the multi-currency system and re-introduced the Zimbabwe dollar as sole legal tender.
During the review period, Zimbabwe’s exchange rate policy with an artificially overvalued electronic currency has perhaps been the most important source of distortion to its international trade in goods and services. Indeed, in order to deal with its chronic foreign exchange shortages, Zimbabwe put in place a priority list for imports and other foreign currency payments, and introduced mandatory forex surrender for exporters. The policy involved taking a share of foreign exchange earnings from private foreign currency accounts and replacing them with electronic RTGS dollars. The forex surrender scheme became, effectively, a substantial tax on exporters as RTGS$ receipts from exports lost their value in US dollar terms. Imports were also distorted; those who had access to foreign currency at the official one-to-one RTGS$/USD rate benefitted from cheap imports, which greatly increased the demand for fuel and consumer goods.
Furthermore, to save foreign currency, the forex control measures were implemented alongside import-restrictive measures. As a result of all the trade restrictions imposed by Zimbabwe over recent years, the importance of trade for its economy has significantly declined: its ratio of trade in goods and services to GDP has dropped from 89.5% in 2011 to about 50% in 2017.
Merchandise imports declined sharply between 2011 (USD 8.6 billion) and 2018 (USD 6.3 billion), reflecting the slowdown in economic growth, as well as the restrictive trade and foreign currency measures. Nonetheless, imports of goods continue to significantly outstrip exports. Zimbabwe sources most of its imported goods from South Africa; imports of fuel are mainly from Singapore. Merchandise exports have recovered significantly in recent years, reaching USD 4 billion in 2018. They are destined mainly to South Africa, followed by the United Arab Emirates. Zimbabwe’s export performance closely mirrors the cyclical developments in the mining sector, which staged a recovery following a sharp downturn in 2013-15. Manufacturing exports dropped from USD 740 million in 2011 to USD 470 million in 2018, on the account of liquidity constraints and the high cost of imported raw materials, and power shortages. Tobacco is the number one agricultural commodity for Zimbabwe (21% of total exports in 2018). Zimbabwe is a net-importer of services, although the deficit has narrowed due to a decline in services imports. Remittances (8% of GDP in 2018) play an important role in supporting the people and sustaining the economy.
In the period under Review, Zimbabwe has participated in the negotiations on the African Continental Free Trade Agreement, and the COMESA-EAC-SADC Tripartite Free Trade Area. An early harvest of the latter is a web-based facility allowing stakeholders to report and monitor trade barriers, which has helped to resolve over 70 cases involving measures by Zimbabwe. Zimbabwe has also since 2012 implemented the Interim Economic Partnership Agreement between the EU and the Eastern and Southern Africa group.
Zimbabwe ratified the WTO Trade Facilitation Agreement (TFA) in October 2018. It has notified all its TFA commitments to the WTO, as well as its technical assistance needs for category C measures. Zimbabwe would benefit from the simplification of its customs documentation requirements, as up to 15 paper documents may be required. Given its geographical location, Zimbabwe plays a critical role in the facilitation of regional transit traffic; yet despite harmonized transit provisions within COMESA and SADC, most member countries, including Zimbabwe, run their own national transit systems.
Zimbabwe’s simple average applied MFN tariff increased from 15.4% at the time of its last Review in 2011 to 15.8% in 2019. A quarter of all tariff lines are bound. The applied rates exceed the corresponding bound levels (in some cases by as much as 60 percentage points) on 61 tariff lines; another 64 lines carry non-ad valorem rates that could potentially exceed their ad valorem bindings if the import prices of the products concerned were to fall. Moreover, a surtax is levied at the rate of 25% on imports of numerous products from all countries including COMESA and SADC members.
Zimbabwe continues to maintain a multitude of statutory instruments (over 150 in 2019) that provide for exemptions, suspensions or rebates of customs duties, excise duties, VAT or surtax. The high number of tariff exemption schemes is an indicator that some of Zimbabwe’s MFN tariff rates may be too high, and thereby negatively affect the competitiveness of industries that rely on imported capital goods and inputs.
A system of non-automatic import licensing remains in place for import substitution purposes. The system has changed frequently and conditions to obtain licences appear to be opaque. Furthermore, licences issued to importers are often dependent on other permits or authorizations from other agencies; this multiple-layered system combines non-automatic licensing, quantitative restrictions and SPS requirements for agricultural products.
Pre-shipment inspection requirements were phased-out in 1998. However, in 2015 Zimbabwe made trading across borders more difficult by introducing a mandatory pre-shipment conformity assessment programme, which was notified to the TBT Committee. The scheme covers a range of products (12% of tariff lines at HS 8-digit level), subject to the payment of high and complex ad valorem fees. Zimbabwe provided five SPS notifications related to food safety. Overall, its legal framework for SPS measures requires modernization.
Zimbabwe’s non-automatic licensing regime for exports covers a wide range of products, including most agricultural commodities. As in the case of import licensing, compulsory export licences are intended to ensure that enough quantities of produce are available domestically. Export taxes are in place on several minerals, with lower rates for transformed products.
State-owned enterprises play a major role in the economy, including in manufacturing, mining, utilities, and telecoms. For 2017, the Auditor General of Zimbabwe reported a worsening of the losses by the SOEs (some 107 of them in 2019) due to a continued lack of appropriate governance. Several of these SOEs, such as the Grain Marketing Board and the Minerals Marketing Corporation of Zimbabwe (MMCZ), are engaged in international trade.
Zimbabwe has recently modernized its government procurement regime: The Public Procurement and Disposal of Public Assets Act came into force in January 2018; it contains domestic preference provisions. The new Procurement Regulatory Authority of Zimbabwe (PRAZ) oversees public procurement and has started for the first time to compile procurement data. In 2018, public procurement amounted to USD 1.5 billion, or 10% of GDP.
Zimbabwe’s intellectual property rights regime is administered by the Department of Deeds, Companies and Intellectual Property under the Ministry in charge of Justice. The Zimbabwe Intellectual Property Office (ZIPO) oversees the registration of trademarks, patents, geographical indications, integrated circuit layout designs and industrial designs. Zimbabwe also has a plant breeder’s rights legislation; however, the country is not a member of UPOV. Zimbabwe has yet to accept the Protocol amending the TRIPS Agreement to provide additional flexibilities to grant special compulsory licences for exports of medicines.
Agriculture is the main source of subsistence for most of the population. The sector’s performance has varied substantially due to drought and other natural disasters, as witnessed by Cyclone Idai which hit Mozambique and Zimbabwe in March 2019. As a result, Zimbabweans remain highly food-insecure, with millions of people in need of food aid over the recent years. Maize is the key food security crop and therefore at the centre of Zimbabwe’s agricultural policy. A range of policies are in place, essentially to control maize supplies, trade and prices. In response to the 2019 drought, the Government introduced a single-buyer regime whereby all marketed maize production must be channelled through the Grain Marketing Board (GMB). Other measures include temporary import and export bans depending on the domestic supply situation, an input subsidy scheme called “Command Agriculture”, price support, and consumer subsidies. The GMB administers the Strategic Grain Reserve and acts as buyer of last resort for all grains and cotton. Applied MFN tariffs on agricultural products (WTO definition) averaged 25.1% in 2019.
Zimbabwe is endowed with more than 40 mineral and metal resources, including gold, platinum group metals, diamonds, nickel, coal, and chromite. A “beneficiation” policy to encourage local downstream processing is enforced through export taxes on “un-beneficiated” platinum group metals, diamonds and lithium. Exports are controlled by two state-owned marketing monopolies (MMCZ and Fidelity Printers and Refiners).
Zimbabwe’s electricity sector is in a state of prolonged crisis, as reflected by chronic power cuts, lagging investment, and a drain on the public finances caused by the national power utility. Fuel imports have also been affected by a reduced availability of foreign currency, resulting in chronic fuel shortages. Zimbabwe’s fuel import regime would benefit from market-based reforms, transparency, and strong competition policy enforcement.
Zimbabwe’s manufacturing policy has been largely inward looking, relying on import substitution policies made effective through tariffs on final products and exemptions on inputs, as well as discretionary import licensing and a newly adopted local content strategy.
Zimbabwe has a long insurance tradition and is host to some of the world’s oldest multinational insurance companies, such as Old Mutual. The main national insurance groups have close ties with Zimbabwe’s main commercial banks as several financial conglomerates have insurance or banking subsidiaries.
Zimbabwe is one of the few countries where the State still has substantial ownership in mobile telecom operators. International communications are among the most expensive in Africa, suggesting that the sector’s reform could be of considerable benefit to the economy. One of the main drivers of telecom services in Zimbabwe has been mobile banking, an alternative to cash for making payments. Zimbabwe saw a surge in mobile money transactions in 2018, as the foreign exchange shortage escalated into a cash crisis.
Tourism is Zimbabwe’s flagship industry benefiting from the country’s beauty and wildlife, and well-trained workforce. Tourism also benefits from more competition among air transport companies following the opening of the Zimbabwean skies.
WTO report shows members moving to facilitate imports even as trade restrictions remain high
While import-restrictive measures introduced by WTO members continued to affect a growing share of global trade, the Director-General’s latest mid-year report on trade-related developments presented to members on 24 July also indicates a shift towards import-facilitating measures, including products related to the COVID-19 crisis.
Between mid-October 2019 and mid-May 2020, WTO members implemented 363 new trade and trade-related measures, 198 of them trade-facilitating and 165 trade-restrictive. Most of them, 256 (about 71 per cent) were linked to the pandemic.
"The report makes clear that a substantial share of world trade continues to be affected by new and accumulated import-restrictive measures, which is cause for concern at a time when economies will need trade to rebuild from the effects of the COVID-19 crisis," said Director-General Roberto Azevêdo, who presented the report to WTO members. "On a more positive note, the report shows that members also introduced import-facilitating measures on an impressive scale, and have started to scale back trade restrictions introduced earlier in the pandemic,” he added.
The Director-General's full speech to launch the report is available here.
The report, which was reviewed at a meeting of the WTO’s Trade Policy Review Body, notes that 56 new trade-restrictive measures not related to the pandemic were implemented between mid-October 2019 and mid-May 2020 - mainly tariff increases, import bans, exports duties and stricter exports customs procedures. The new import restrictions covered traded merchandise worth an estimated USD 423.1 billion, the third-highest value since October 2012. WTO estimates indicate that the cumulative trade coverage of import-restrictive measures implemented since 2009, and still in force, amounts to USD 1.7 trillion or 8.7 per cent of world imports. This figure has grown steadily since 2009, both in value terms and as a percentage of world imports.
Even if trade restrictions remain widespread, the report also finds evidence of WTO members moving towards trade-facilitating policies across sectors during the review period, with 51 new trade-facilitating measures not related to COVID-19 implemented. These measures mainly included the elimination or reduction of import tariffs, the elimination of import taxes, the simplification of customs procedures and the reduction of export duties.
The trade coverage of non COVID-19 related import-facilitating measures was estimated at USD 739.4 billion, which is significantly higher than the USD 544.7 billion recorded in the previous report (from mid-May to mid-October 2019) and represents the second-highest figure since October 2012.
The report shows that by mid-May 2020 WTO members implemented 256 trade and trade-related measures explicitly linked to the COVID-19 pandemic, with export bans accounting for the totality of the pandemic-related export restrictions recorded. These COVID-19 related measures appeared to have come in two clearly identifiable waves. In the early stages of the pandemic, several of the measures introduced restricted the free flow of trade but as of mid-May 2020, 57 per cent of all measures were of a trade-facilitating nature. In early May, some members began to phase out export constraints, targeting products such as surgical masks, gloves, medicine and disinfectant. There is further evidence that a roll-back of other trade and trade-related measures taken in the early stages of the pandemic is also taking place. For instance, around 28 per cent of the COVID-19-specific trade-restrictive measures implemented by WTO members and observers had been repealed by mid-May.
Prepared against the backdrop of COVID-19, the report does not yet reflect the full impact of the pandemic on trade. According to WTO data published on 22 June, estimates for the second quarter of 2020 indicate a year-on-year drop in world trade of around 18 per cent.
Regarding general economic support measures, only 21 per cent of WTO members notified these actions in response to the Director-General's request for information. From the limited information received, and from the research undertaken by the WTO, the current review period confirmed that WTO members appeared to continue to implement such measures as part of their overall trade policy.
Separate from these longstanding policies, the review period saw an unprecedented number of emergency support measures introduced by members in response to the economic and social turmoil caused by the COVID-19 pandemic. Most of these measures appeared to be of a temporary nature. These include grants, monetary, fiscal and financial measures, measures targeting micro, small and medium-sized enterprises (MSMEs), loans, credit guarantees and stimulus packages. Several measures were one-off grants while others included disbursements staggered over a few months and up to three years. Some of these measures form part of larger emergency rescue programmes worth several trillion US dollars.
Global trade continues nosedive, UNCTAD forecasts 20% drop in 2020
New data shows a worrying deterioration of trade for developing countries and a continued struggle for the automotive and energy sectors, while office equipment rebounds.
International trade in goods is expected to continue its nosedive in the coming months as economies struggle to recover from lockdown measures used to slow the COVID-19 outbreak.
New UNCTAD data published on 11 June show that merchandise trade fell by 5% in the first quarter of the year and point to a 27% drop for the second quarter and a 20% annual decline for 2020.
“There is still a lot of uncertainty about the possibility of any economic recovery in the second half of the year,” says Pamela Coke-Hamilton, UNCTAD’s director of international trade.
“International trade is likely to remain below the levels observed in 2019,” she adds, “but how far depends on the pandemic’s evolution and the type and extent of the policies governments adopt as the try to restart their economies.”
The latest UNCTAD figures were featured in the first edition of the Global Trade Update, the organization’s new quarterly report providing a comprehensive snapshot of international commerce and the main issues affecting trade flows.
An increasingly worrying scenario for developing countries
Although the coronavirus-induced trade slowdown has spared no one, forecasts show a particularly rapid deterioration for developing countries. While South-South trade saw a drop of just 2% in the first quarter of the year, UNCTAD data shows a dramatic 14% fall in April.
“For developing countries, while declines in exports are likely driven by reduced demand in destination markets, declines in imports may indicate not only reduced demand but also exchange rate movements, concerns regarding debt and a shortage of foreign currency,” the report says.
Preliminary data for April suggests the sharpest downturn for South Asia and the Middle East, which could register trade declines of up to 40%. Meanwhile, the East Asia and the Pacific regions appear to have fared best, with trade drops remaining in the single digits both in the first quarter of 2020 as well as in April.
China appears to have fared better than other major economies in April, registering 3% growth for exports. But the most recent data indicates that the recovery may be short-lived, as the nation’s imports and exports fell by about 8% in May.
Automotive and energy sectors collapse, agri-foods stabilize
The report shows that economic disruptions wrought by COVID-19 have affected some sectors significantly more than others.
In the first quarter of 2020, textiles and apparel declined by almost 12%, while office machinery and automotive sectors fell by about 8%. In contrast, the value of international trade in the agri-food sector, which has so far been the least volatile, grew by about 2%.
Preliminary data for April indicates further declines in most sectors, with a very sharp contraction in the trade of energy (-40%) and automotive (-50%) products. Significant decreases are also observed in chemicals, machineries and precision instruments, with drops above 10%.
On the other hand, office machinery appears to have rebounded in April, largely because of China’s positive export performance.
“In general, the variance across sectors,” the report says, “has been driven by decreases in demand and disruptions of supply capacity and global value chains due to COVID-19.”
Medical products’ exports more than double
A notable side effect of the COVID-19 pandemic has been the increase in demand for medical goods and equipment, such as ventilators, monitors, thermometers, hand sanitizers, protective masks and garments.
While the international trade of such goods contracted at the onset of the pandemic, it rebounded in February and March and almost doubled in April 2020, as countries scrambled to secure medical and protective equipment.
The flow of imports and exports, the report says, followed the spread of the virus.
For example, the first two months of 2020 saw an increase in Chinese domestic demand, resulting in a jump in medical product imports, primarily from Europe and the United States, which had not yet been significantly hit by the pandemic.
Meanwhile, Chinese exports of such equipment dropped by 15% as national production shifted towards satisfying domestic need.
Data for March shows that at as the pandemic took hold in Europe, imports of medical equipment jumped by 21% in the region while continuing to increase in China (41%).
Then in April, as COVID-19 eased its grip on China and continued its spread across the globe, Chinese exports of medical equipment surged by a staggering 338%, driven primarily by exports of protective equipment.
The month’s data for the United States reflects the spread of COVID-19 within the nation, with medical product imports increasing by almost 60% while exports declined by approximately 20%.
Trade in medical products related to COVID-19 has been growing fast
SARS releases merchandise trade statistics for April 2020
The South African Revenue Service (SARS) today released trade statistics for April 2020 recording a trade deficit of R35.02 billion. These statistics include trade data with Botswana, Eswatini, Lesotho and Namibia (BELN).
The year-to-date (01 January to 30 April 2020) trade deficit of R0.33 billion is an improvement from the R8.87 billion deficit for the comparable period in 2019. Exports decreased by 3.5% year-on-year whilst imports deteriorated by 5.5% over the same period.
Including trade data with Botswana, Eswatini, Lesotho and Namibia (BELN)
The R35.02 billion trade deficit for April 2020 is attributable to exports of R53.01 billion and imports of R88.03 billion. Exports decreased from March 2020 to April 2020 by R65.06 billion (55.1%) and imports decreased from March 2020 to April 2020 by R6.11 billion (6.5%).
Exports for the year-to-date (01 January to 30 April 2020) decreased by 3.5% from R394.72 billion in 2019 to R381.08 billion in 2020. Imports for the year-to-date of R381.41 billion are 5.5% less than the R403.58 billion imports recorded during the same period in 2019. The cumulative trade deficit for 2020 is R0.33 billion.
On a year-on-year basis, the R35.02 billion trade deficit for April 2020 is a deterioration from the R3.56 billion deficit recorded in April 2019. Exports of R53.01 billion are 48.8% less than the R103.45 billion exports recorded in April 2019. Imports of R88.03 billion are 17.7% less than the R107.01 billion imports recorded in April 2019.
March 2020’s trade surplus was revised downwards by R0.31 billion. Due to the ongoing Vouchers of Correction (VOC’s), the revision was from the preliminary surplus of R24.25 billion to the revised surplus of R23.94 billion.
Excluding trade data with Botswana, Eswatini, Lesotho and Namibia (BELN)
The trade data excluding BELN for April 2020 recorded a trade deficit of R37.42 billion. This deficit is a result of exports of R48.60 billion and imports of R86.02 billion.
Exports decreased from March 2020 to April 2020 by R57.45 billion (54.2%) and imports decreased by R4.48 billion (4.9%) over the same period. The cumulative deficit for 2020 is R25.52 billion compared to R38.29 billion deficit in 2019.
Botswana, Eswatini, Lesotho and Namibia (Only)
Trade statistics with the BELN countries for April 2020 recorded a trade surplus of R2.41 billion. This surplus is a result of exports of R4.41 billion and imports of R2.01 billion.
Exports decreased from March 2020 to April 2020 by R7.61 billion (63.3%) and imports decreased from March 2020 to April 2020 by R1.63 billion (44.8%). The cumulative surplus for 2020 is R25.19 billion compared to R29.43 billion in 2019.
The African Continental Free Trade Agreement: Welfare gains estimates from a general equilibrium model
In March 2018, representatives of member countries of the African Union signed the African Continental Free Trade Area (AfCFTA) agreement, providing a framework for trade liberalization in goods and services which is expected to eventually cover all African countries.
Using a multi-country, multi-sector general equilibrium model, the authors of this IMF Working Paper estimate the welfare effects of the AfCFTA for 45 countries in Africa. The model simulations use a comprehensive database comprising output, trade flows, and import tariff and non-tariff barriers (NTBs) for 26 sectors in all countries considered. Simulations include full elimination of import tariffs and a 35 percent reduction in NTBs.
Results reveal significant potential welfare gains from trade liberalization in Africa. As intra-regional import tariffs in the continent are already low, the bulk of these gains come from lowering NTBs. Overall gains for the continent are broadly similar under the three model specifications used, with considerable variation of potential welfare gains across countries in all model structures.
The authors find that the welfare gains from combined tariff elimination and NTB reduction is about 2 to 4 percent, depending on the model structure used and the extent of NTB reduction considered. Because existing intra-African tariffs are already generally low, overall gains from tariff elimination in the continent are quite modest, with the bulk of gains stemming from the reduction in NTBs.
There are several policy implications of these results that should be considered to realize the full potential welfare benefits of the provisions contained in the AfCFTA. These include:
AfCFTA members should adopt a well-articulated and phased program for reducing all NTBs to the maximum extent feasible. The simulations assume partial, albeit significant, elimination of NTBs, and there is much to be gained from further reduction in these barriers. The NTB reduction program should include addressing a broader array of barriers that hinder trade, including infrastructure gaps, and an improvement in the business environment in Africa. The quality of ports, air transportation, and other measures of infrastructure where efficiency is relatively low in Africa compared with other regions, need to be addressed. The reduction in ground transportation costs is especially critical to encouraging intraregional trade, given the geographic configuration of the continent. Other areas, such as customs efficiency and other administrative procedures required for international trade, also need an overhaul to improve efficiency. In addition, creating an enabling business environment would be particularly relevant to facilitate intraregional trade. In this area, the reduction in the cost and time necessary to create new businesses is important. Finally, concerted efforts are required to increase financial depth and inclusion in Africa to bring it on par with other regions, as well as promoting access to trade financing or bank funding to create or expand businesses. It is expected that all these efforts and initiatives will help to promote the AfCFTA agenda.
AfCFTA members should limit the extent and scope of carve outs for tariff reductions. This a very relevant consideration since the AfCFTA proposes to liberalize only 90 percent of the tariff lines. Intra-African trade is concentrated in a few products, and much of it is already tariff-free, being concentrated in the existing free-trade areas. If a substantial portion of the remaining trade is contained in the remaining 10 percent of tariff lines, the potential welfare benefits of the AfCFTA would be reduced, especially if potentially exempted sectors are the most protected. To fully realize welfare benefits from the AfCFTA, member countries need to liberalize 100 percent of the tariff lines, even if this is completed in a phased manner over the medium term.
In the long run, to fully leverage the economic opportunities of the AfCFTA, policy makers would need to adopt supporting policies to encourage structural transformation. In particular, countries will need to lower their dependence on commodities and move up the value chain. Policies to encourage structural transformation could include training programs for workers to ensure a smooth reallocation of labor and capital to sectors that are more likely to grow, such as manufacturing. It is only in this way that the continent would be able to use the AfCFTA as a mechanism to claim its place in the global value chain.
Finally, there are at least three areas in which the analysis presented in this paper could be extended in future work. First, the model is static, so it is unable to provide guidance on the potential dynamic supply-side responses to the AfCFTA, such as increased private and public investment. As mentioned above, a significant reduction in infrastructure gaps will require substantial public investment. The effects of this could be modeled more thoroughly in a dynamic setting that allows comparison of costs and benefits from it, including those resulting from lower trade costs. A dynamic model could also take account of higher foreign direct investment flows into the region in response to the increase in unified market size derived from the agreement. These responses would further raise the welfare and income gains from the AfCFTA. Second, while the model considers the distribution of income or welfare changes across countries, it focuses on economy-wide changes at the national level, and does not consider domestic income distribution effects. These effects can be economically and socially important and deserve to be examined, and adequate responses to them provided. Third, work can be extended to capture some specific characteristics of African economies, including a broad coverage of the informal economy and informal trade between countries, as well as imperfect factor mobility across sectors.
This paper was prepared by Lisandro Abrego, Maria Alejandra Amado, Tunc Gursoy, Garth P. Nicholls, and Hector Perez-Saiz. IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF.
West Africa’s ICE focuses on demographic dynamics for sustainable development in the region
The 22nd Meeting of the Intergovernmental Committee of senior officials and Experts (ICE) for West Africa concluded in Liberia on 10 May 2019. It was held under the theme, Demographic dynamics for sustainable development in West Africa: challenges and policy measures.
Organised by the Sub-Regional Office for West Africa (SRO-WA) of the United Nations Economic Commission for Africa (ECA) and the Government of Liberia, this ICE session is expected to come up with solid recommendations on economic and social development issues facing the continent’s most populous region.
Delegates discussed recent regional and international developments likely to impact economic and social development in West African countries; identify major challenges and to propose policy guidelines to help accelerate sustainable development in the sub-region.
Liberia’s Finance and Development Planning Minister, Samuel D. Tweah Jr, lauded the ECA for its continuous support to Liberia and the sub-region, especially in pursuit of the 2030 Agenda for Sustainable Development Goals and Africa’s Agenda 2063.
“I hope that strong recommendations in terms of education, agriculture and finances will be made by the participants at this important meeting. These recommendations should also be available at the level of our parliaments so that they have an impact on national polices,” the Minister said.
He said such recommendations should not only be the preserve of the annual Conference of African Ministers of Finance, Planning and Economic Development but trickle down to lawmakers and others for maximum benefit.
For his part, Director of the ECA in West Africa, Bakary Dosso, said three reasons justify choosing the theme of this meeting.
“First, it is a strategic choice. Demographic Dynamics for Development is the new area of specialization of the ECA Sub regional Office for West Africa. Secondly, the West African region is at the forefront of issues related to population dynamics and development. Lastly, the current momentum. There is a worldwide agenda to identify and seize the windows of opportunity of demographic dividend in Africa,” he said.
Mr. Dosso said the region was in 2018 home to 377 million people or 30 percent of Africa’s population. He said the most populated region of the continent was growing at a pace of 2.7 percent per annum, adding this will double every 25 years.
“Out of an estimated population of 377 million in 2018, just over 200 million or 53.5 percent of the people live below the national poverty line demonstrating the magnitude of the challenges facing the region,” said the Director.
Accordingly, he said that countries in the sub-region need to reform their macroeconomic and financial frameworks; invest in human capital; tackle infrastructure deficits; and improve the business climate to positively and sustainably reverse trends.
Mr. Dosso said the success lies in the ability of the national leadership to execute on time, to monitor and evaluate the implementation of the different agendas to which it has committed for the transformation of their respective countries and continent.
He said institutional capacity for evaluation and monitoring of development agendas has been identified as one of the missing links in development processes in West Africa.
The Representative of the United Nations Development Program (UNDP) in Liberia, Pa Lamin Beyai, said: “The challenges we face as a sub-region are immense. But the United Nations, working as one in each of your countries, is ready to support you to benefit from the demographic dividend. For that to happen, the progress made in regional integration needs to be sustained in the short, medium, and long terms to ensure that our youthful population is a true force for development, peace, and security.”
The Intergovernmental Committee of Experts meets annually with high-level decision-makers from member States to discuss economic and social performance and make relevant recommendations.
In this light, participants reviewed statutory reports prepared by the Secretariat. They also reviewed the reports on Implementing the SRO-WA Work Program in 2018 and prospects for 2019; Regional Profile of West Africa; and Progress in Implementing the Sustainable Development Goals (SDGs) in West Africa.
This ICE session was preceded by an ad hoc expert group meeting from 6 to 7 May 2019, on the theme: National capacities and mechanisms in evaluating progress in the implementation of agendas 2030 and 2063: assessment, challenges and prospects in West Africa.
Delegates from the 15 West African States as well as senior representatives and experts from the ECOWAS, Union Economique et Monétaire Ouest Africaine (UEMOA), the Mano River Union (UFM), and other intergovernmental organizations (IGOs) of the Sub-Region attended the ICE. In addition to ECA experts, representatives of other UN agencies, partners, NGOs, development and research institutions were also in attendance.
National capacities and mechanisms for assessing progress in the Implementation of Agendas 2030 and 2063:
State of play, challenges and prospects in West Africa
The purpose of this study was to analyse the capacities and mechanisms of the fifteen (15) West African countries to assess progress in the implementation of the 2030 and 2063 agendas. The aim was to take stock of the capacities of the national statistical systems, the organisation of the monitoring and evaluation system for the 2030 and 2063 agendas, identify the major challenges and propose recommendations for improving the system.
At the end of the analysis, the following main messages deserve to be highlighted.
At the level of the National Statistical Systems:
Overall, the National Statistical Systems (NSS) in West Africa are relatively well organized with the NSIs as a central structure with a primary producer role. All countries also have a legal framework for statistical activity. NSS in all countries also have Statistical Master Plans, which are essential strategic planning tools for effective statistical activity. In addition, most master plans include a plan for strengthening statistical production and staff training that builds the capacity of statistical staff.
In terms of statistical data quality, West African countries have the most significant deficiencies in the regularity and accessibility of statistical data.
With regard to regularity in particular, on average, 52.3% of the main data collection operations do not respect the prescribed production deadlines. In some countries, the rate of non-regularity exceeds two thirds (2/3) of the main collection operations. For some collection operations, relatively long delays are noted, sometimes exceeding 100% of the prescribed deadlines.
Given the low level of regularity of major data collection operations in countries, there is a significant risk that a relatively large proportion of the SDG and Agenda 2063 indicators may not be regularly reported, which would compromise the timely and regular reporting. On average in the 10 countries analysed, more than half of the indicators are at risk of not being reported due to a lack of regularity.
In almost all countries, production structures have significant deficiencies in terms of professional statisticians. 8 out of 10 countries consider that they do not have sufficient statistical professionals to effectively meet the need for statistical production for the monitoring and evaluation of the SDGs, including Agenda 2063. On average, the number of statisticians per 100,000 inhabitants is 2.88 compared to a European average of about 15 statisticians per 100,000 inhabitants.
National statistical data production and dissemination structures have limited knowledge of new data collection, processing and dissemination techniques – data collection by tablet/smartphone (CAPI) and online data collection using web tools (CAWI). Of the 10 countries examined, 8 have unsatisfactory knowledge of online data collection using web tools.
The autonomy of countries in financing statistics is weak. Indeed, in almost all countries, most of the main data collection operations are financed mainly from external resources, giving the impression that statistics are not a priority in West African countries.
Generally, States’ commitments to finance statistics are not respected. This argument is supported by the low disbursement rates of NSO budgets, some of which are below 50% in some years.
Very few West African countries have statistical development funds, which contributes to increased instability and irregularity in the resources allocated to statistical financing.
Closing the statistical data gap to ensure that the 232 SDG indicators, including Agenda 2063, are properly reported will require relatively large amounts of funding ranging from 340 thousand to 280 million US dollars depending on the country.
At the level of the institutional monitoring and evaluation system:
After 4 and 6 years of implementation of the SDG and Agenda 2063 respectively, very few countries have formalized through official acts the monitoring and evaluation mechanism of the two Agendas.
In most countries, 90% of the countries surveyed believe that the current structures that produce the SDG report are the most appropriate. The situation is more mixed with Agenda 2063. Indeed, only 60% of the countries consider the choice of the structure in charge of monitoring-evaluation of this reference framework to be appropriate.
The frequency of reporting differs from one Development Agenda to another but also from one country to another; this also complicates the production of an integrated and coherent report at the country and regional levels, in accordance with the requirements of the AU/UN Development Framework.
The schedules of data-producing structures, in particular the INS, and those responsible for producing SDG and Agenda 2063 reports are poorly synchronized; this is not likely to promote up-to-date data to meet the need for report production.
East Africa’s economy races ahead of its African peers, modest growth forecast for the rest of the continent – African Development Bank
Job creation and ramping up manufacturing will continue to be major priority areas for creating growth, according to the African Development Bank Regional Economic Outlook Reports 2019.
Economic growth in East Africa is soaring ahead of other regions on the continent at close to 7 percent while the overall outlook for the rest of Africa is cautious, but positive. Job creation and ramping up manufacturing will continue to be major priority areas for creating growth and employment across the continent the African Development Bank regional reports noted.
The Bank launched four of its five regional economic outlook reports this week in Abuja, Yaounde, Nairobi and Pretoria, with specific forecasts for West, Central, East and South Africa. The reports follow the January launch of the 2019 African Economic Outlook, which provides a broader, continent-wide perspective.
East Africa is leading the continent with GDP growth estimated at 5.7 percent in 2018, followed by North Africa at 4.9 percent, West Africa at 3.3 percent, Central Africa at 2.2 percent, and Southern Africa at 1.2 percent.
Economic growth across Eastern Africa will remain at a robust 5.9 percent in 2019, making it a promising investment and manufacturing destination. Within the region, Ethiopia is in the lead as the fastest growing economy with a predicted 8.2% growth in 2019, while Rwanda (7.8%); Tanzania (6.6%); Kenya( 6%), Djibouti (5.9%) and Uganda (5.3%) follow behind.
Growth in Central Africa is gradually recovering, but remains below the average for Africa as a whole. It is supported by recovering commodity prices and higher agricultural output. The region is one of the continent’s least integrated, with potential for reforms and greater linkages, the Central Africa regional report said.
The West Africa Regional Economic Outlook calls on the region to explore innovative means of raising revenue through reforms that enhance tax collection, minimize tax evasion, and curb illicit financial flows. Between 2014 and 2017, West Africa’s GDP growth trailed the rate for Africa as a whole, though it was faster than in Central and Southern Africa. Countries bucking the downward trend, such as Cote d’Ivoire, Ghana and Senegal, continue to offer positive examples of economic recovery in a sober economic environment.
Growth in Southern Africa is expected to remain moderate in 2019 and 2020 after a modest recovery in 2017 and 2018. Southern Africa’s subdued growth is due mainly to economic stagnation in South Africa, the largest regional economy, which has a ripple effect on neighboring countries.
All the regions face similar risks to their economic prospects in 2019-20, these include rising debt, fragility, population growth and climate change.
Job creation, regional integration, key areas for focus
From East to West, North to South, and across Central Africa, employment remains a major concern and concerted efforts must be made to keep up with growth rates, the reports noted. The flagship African Economic Outlook Report pinpoints industrialization as a key to the continent’s employment conundrum. Regional integration, the special theme for this year’s report, is seen as a key gateway to Africa’s economic growth, with a borderless Africa being the foundation of a competitive continental market.
The report outlines five trade policy actions that could bring Africa’s total gains to 4.5 percent of its GDP, or $134 billion a year. First is eliminating all of today’s applied bilateral tariffs in Africa. Second is keeping rules of origin simple, flexible, and transparent. Third is removing all nontariff barriers on goods and services trade on a most-favored-nation basis. Fourth is implementing the World Trade Organization’s Trade Facilitation Agreement to reduce the time it takes to cross borders and the transaction costs tied to nontariff measures. Fifth is negotiating with other developing countries to reduce by half their tariffs and nontariff barriers on a most-favored-nation basis.
Access the regional reports here:
5th EPRN Rwanda Annual Research Conference: The AfCFTA – Challenges and Opportunities
Quality research needed to help implement the AfCFTA
With a few more ratifications needed for the African Continental Free Trade Area (AfCFTA) to become effective, scholars meeting for the Economic Research Conference in Kigali pledged to produce good high-quality research papers to inform policymakers and help move the agreement forward.
The 5th Economic Research Conference was held on 12 March, organized by the Economic Policy Research Network (EPRN Rwanda) in collaboration with the UN Economic Commission for Africa (ECA), and in partnership with the United Nations Development Programme (UNDP) and the German Cooperation (GIZ).
Andrew Mold, Acting Director of ECA in Eastern Africa, said that AfCFTA may give the impression that the agreement is simply about free trade, but in reality it is much more ambitious than that. “The AfCFTA goes beyond trade.- It is about creating a continental market. It is about free movement of people and free movement of goods and services, it is about protocols on government procurement and intellectual property,” explained Mold.
Andrew Mold stressed that with the implementation of AfCFTA approaching, policymakers will need high-quality policy advice and research about the potential implications for their economies and where the opportunities reside, as well as where there may be potential vulnerabilities that need addressing.
Twenty-two ratifications are required for the Agreement to enter into force. So far 19 countries have ratified it.
Speaking also at the conference, Leonard Rugwabiza, the Economic Advisor at the Rwanda Ministry of Finance and Economic Planning said that in the face of changing global context and economic uncertainties, Africa must also change the ways it does business.
“It will be more difficult to govern if we cannot change the structure of our economies and create jobs for our youth. The AfCFTA and the African single market offer us more opportunities to do so than challenges”, said Rugwabiza.
The UNDP Rwanda Country Director, Stephen Rodrigues said that the implementation of the agreement needs to be done in a way that is inclusive and benefits small and medium-size SMEs on the continent.
“We should ensure that women and youth are included in implementing the AfCFTA. It is necessary to make policies that are inclusive and take into account people living with disability and those with low levels of education”.
The Economic Policy Research Network is a Non-Governmental Organization aiming at strengthening the capacities of individuals and organizations active in or with an interest in economic policy research and analysis. One of the flagship activities of EPRN is the Annual Economic Research Conference.
This year, the 5th Economic Research Conference convened more than 200 participants, including researchers, senior policy-makers, representatives of the development partners, civil society, private sector and the media.
During the conference, research papers and reports on the topic were presented and discussed. This year’s main theme was “The African Continental Free Trade Area: Challenges and Opportunities”, which was broken down into three sub-themes: i) Regional Integration; ii) Human Capital Development; and iii) Financial Sector.
The conference sought to provide a research platform and opportunity for economic researchers from a wide spectrum such as academics, government officials, representatives of development partners and international and local NGOs with interest on research topics related to African Continental Free Trade Area.
The purpose of the conference was to witness the current progress, evaluate the policy progress, suggest innovative policy solutions and, discuss strategies for achieving desired goals and targets. During the conference, Research Papers by EPRN Researchers and Reports by partner institutions were presented.
Key takeaways from the conference include the following:
Policymakers will need good research on regional integration issues to formulate policies and how this can be implemented
Human capital use and innovation must be tackled as a priority
We need to enhance competitiveness and enterprise development for innovation and growth
Transforming agriculture and food processing should be an engine of growth
Capability and accountability of state institutions for economic growth is needed
Government should put in place policies to help customers acquire long trade credit terms to boost sales and make profit
There is a need for periodic and continuous policy dialogue around African market-related topics
The final papers with key policy recommendations will be published on the EPRN website.
The Case for Implementing the AfCFTA in East Africa – Some New Estimates
When quantifying the potential benefits of the AfCFTA, different methodologies give different results: Gravity models tend to give larger effects of regional trade agreements, while Computable General Equilibrium (CGE) simulation models show relatively smaller effects of trade policy (Fosu and Mold, 2008).
How Much is the East African Community Currently Under-trading?
Based on a gravity model using a stochastic frontier approach, the bilateral export flows of the five EAC members States (Burundi, Kenya, Rwanda, Tanzania and Uganda) over the period 1995 to 2016 were examined. Intra-EAC trade is at around half of its potential: The ratio of actual/observed exports (US$ millions) to potential maximum exports (US$ millions) is 51% exports to the EAC and 56% to Africa.
Computable General Equilibrium Approach
The Potential Benefits of AfCFTA on East Africa
A Computable General Equilibrium model – Global Trade Analysis Project (GTAP) – was used to measure the static effects of the AfCFTA on East Africa, using 2014 baseline data with complete liberalisation (i.e. 100%) and standard closure, but fixing wages to reflect high unemployment rates prevalent on the continent.
Results suggest large potential gains from the AfCFTA:
- Increase intra-African exports of Eastern Africa by almost US$ 1 billion
- Chief beneficiary sectors are labour-intensive ones
- Job creation of 0.5 to 1.9 million
- Consumer welfare gain of US$ 1.4 billion
A Partial Equilibrium Model – World Integrated Trade Solution SMART – was also used to measure the impact of the AfCFTA on East African countries, with 2015 as the base year for most countries and using a complete liberalisation scenario.
Results suggest a significant increase in intra-African exports – for Rwanda, a 22% increase over the base year followed by Uganda (21%), Tanzania (17%) and Kenya (10%). Over one-third of the exports are in manufactured goods.
This presentation has been made available to download courtesy of the United Nations Economic Commission for Africa (UNECA) Office for Eastern Africa.