India revives Preferential Trade Agreement initiative with SACU

Discussions between Southern African Customs Union (SACU) [South Africa, Namibia, Botswana, Lesotho, Eswatini] and India to achieve a Preferential Trade Agreement (PTA) have been revived with the two sides holding a virtual meeting last week to discuss various aspects of the PTA. 

The Indian side at the dialogue was led by Srikar Reddy, Joint Secretary, Department of Commerce while SACU was led by Amb. Steve Katjiuanjo, Executive Director, Ministry of Industrialization,Trade and SME Development of Namibia. 

Reddy underlined India’s historically close ties with Southern Africa and its steadfast commitment to deepen economic engagement with this region. He informed that in 2019-20, trade between India and Africa as a whole stood at $ 66.7 billion, of which the India-SACU trade was $ 10.9 billion with an immense potential to expand further. 

Amb Katjiuanjo called India as a strategic partner for SACU. Trade is currently in SACU’s favour, thus showing that the region is benefiting from access to the vast Indian market. 

Prashant Agrawal, High Commissioner of India to Namibia, said on the occasion that in these unprecedented times of Covid-19 pandemic and its economic challenges, economies of the region, including of Namibia, could vastly benefit by enhanced trade and commercial links with India’s $ 2.9 trillion economy. 

India stood fully committed and ready to support manufacturing and industry in Namibia in areas such as agriculture, irrigation, renewables, ICT, pharma and medical supplies. Both sides reviewed the progress made and discussed steps to quickly move forward on the PTA. 

India-Namibia bilateral trade during 2018-19 was $ 135.92 million with India’s exports valued at $ 82.37 million, while India’s imports stood at $ 53.55 million. Mining sector is an area of mutual interest. Namibia is rich in uranium, diamonds, copper, phosphates and other minerals. Indian technological prowess in IT, engineering, pharmaceuticals, railways and SMEs is of interest to Namibia. Bilateral cooperation in the energy and agricultural sectors also has good prospects. 

Meanwhile exports from India to South Africa include vehicles and components thereof, transport equipment, drugs and pharmaceuticals, engineering goods, footwear, dyes and intermediates, chemicals, textiles, rice, gems and jewellery, etc. Imports from South Africa to India include gold, steam coal, copper ores & concentrates, phosphoric acid, manganese ore, aluminium ingots & other minerals. India-S Africa bilateral trade was $ 10,584.5 million during 2018-19. 

Source: India Times, 19 July 2020

FDI to Africa set to drop 25% to 40% in 2020

WIR 2020 Graph Africa

The trend of declining foreign direct investment (FDI) to Africa is set to exacerbate significantly in 2020 amid the dual shock of the coronavirus pandemic and low prices of commodities, especially oil.

FDI flows to the continent are forecast to contract between 25% and 40% based on gross domestic product (GDP) growth projections as well as a range of investment specific factors, according to UNCTAD’s World Investment Report 2020.

“Although all industries are set to be affected, several services industries including aviation, hospitality, tourism and leisure are hit hard, a trend likely to persist for some time in the future,” said UNCTAD’s director of investment and enterprise, James Zhan.

Manufacturing industries intensive in global value chains are also strongly affected, a sign of concern for efforts to promote economic diversification and industrialization in Africa.

Overall, there is a strong downward trend in the first quarter of 2020 for announced greenfield investment projects, although the value of projects (-58%) has dropped more severely than their number (-23%).

Similarly, as of April 2020, the number of cross-border merger and acquisition (M&A) projects targeting Africa had declined 72% from the monthly average of 2019.

Hope for recovery

However, two distinct factors offer hope for the recovery of investment flows to the continent in the medium to long run. The first is the higher value being assigned to ties to the continent by major global economies, promoting investment in infrastructure, resources, but also industrial development.

Investments from these countries, which have varying degrees of political backing, despite being affected by the joint impact of COVID-19 and low commodity prices to some degree, could be relatively more resilient.

The second is deepening regional integration due to the commencement of trade under the African Continental Free Trade Area (AfCFTA) after years of deliberation and the expected finalization of its investment protocol.

In the short term, curtailing the extent of the investment downturn and limiting the economic and human costs of the pandemic is of paramount importance.

Longer term, diversifying investment flows to Africa and harnessing them for structural transformation remains a key objective. Both of these objectives will require a prudent, coordinated and timely response from countries on the continent.

FDI was already on the decline before the crisis

The COVID-19 crisis has arrived at a time when FDI was already in decline, with the continent having experienced a 10% drop in inflows in 2019 to $45 billion.

The negative effects of tepid global and regional GDP growth and dampened demand for commodities inhibited flows to countries with both diversified and natural resource-oriented investment profiles alike, although a few countries received higher inflows from large new projects.

North Africa

FDI inflows to North Africa decreased by 11% to $14 billion, with reduced inflows in all countries except Egypt, which remained the largest FDI recipient in Africa in 2019, with inflows increasing by 11% to $9 billion.

Sub-Saharan and Southern Africa

After a significant increase in 2018, FDI flows to Sub-Saharan Africa decreased by 10% in 2019 to $32 billion.

Southern Africa was the only sub-region to have received higher inflows in 2019 (22% increase to $4.4 billion) but only due to the slowdown in net divestment from Angola.

FDI inflows to South Africa decreased by 15% to $4.6 billion in 2019, despite key investments in mining, manufacturing (automobiles, consumer goods) and services (finance and banking).

West Africa

FDI to West Africa decreased by 21% to $11 billion in 2019. This was largely driven by the steep decline in investment in Nigeria due to new investment regulations for multinational enterprises in the oil and gas industry.

East Africa

FDI flows to East Africa also decreased, by 9% to $7.8 billion. Inflows to Ethiopia contracted by a fourth to $2.5 billion caused to some degree by political tensions in parts of the country.

Similarly, inflows to Kenya dropped by 18% to $1.3 billion despite several new projects in IT and healthcare.

Central Africa

Central Africa received $8.7 billion in FDI, marking a decline of 7%. The key highlight in the sub-region was the decrease in flows to the Democratic Republic of the Congo (9% to $1.5 billion).

The Netherlands overtook France as the largest investor by stock

On the basis of FDI stock data through 2018, the Netherlands overtook France as the largest foreign investor in Africa.

The investment stock held by the United States and France in Africa declined by 15% and 5% respectively, owing to profit repatriation and divestment. Meanwhile, the investment stock of the United Kingdom and China increased by 10% each.

FDI outflows also fell in 2019, by approximately a third

FDI outflows from Africa decreased by 35% to $5.3 billion. South Africa continued to be the largest outward investor despite the reduction in outflows from $4.1 billion to $3.1 billion.

Outflows from Togo increased significantly, from a mere $70 million to $700 million, a tenfold increase. In North Africa, Morocco also increased outward FDI, to approximately $1 billion from $800 million in 2019.

Source: UNCTAD, World Investment Report, 16 June 2020

AfCFTA – an uphill struggle in quest for regional trade on the continent

Picture : Bloomberg.com

The following article was published by Bloomberg and sketches the day-to-day hardship for cross border trucking through Africa. In a sense it asks the very questions and challenges which the average African asks in regard to the highly anticipated free trade area. While rules of origin and tariffs form the basis of trade across borders, together with freedom of movement of people, these will mean nothing if African people receive no benefit. As globalisation appears to falter across Europe and the West, it begs the question whether this is in fact is the solution for Africa; particularly for the reason that many believe globalisation itself is an extension of capitalism which some of the African states are at loggerheads with. Moreover, how many of these countries can forego the much need Customs revenue to sustain their economies, let alone losing political autonomy – only time will tell.

Nyoni Nsukuzimbi drives his 40-ton Freightliner for just over half a day from Johannesburg to the Beitbridge border post with Zimbabwe. At the frontier town—little more than a gas station and a KFC—he sits in a line for two to three days, in temperatures reaching 104F, waiting for his documents to be processed.

That’s only the start of a journey Nsukuzimbi makes maybe twice a month. Driving 550 miles farther north gets him to the Chirundu border post on the Zambian frontier. There, starting at a bridge across the Zambezi River, trucks snake back miles into the bush. “There’s no water, there’s no toilets, there are lions,” says the 40-year-old Zimbabwean. He leans out of the Freightliner’s cab over the hot asphalt, wearing a white T-shirt and a weary expression. “It’s terrible.”

By the time he gets his load of tiny plastic beads—the kind used in many manufacturing processes—to a factory on the outskirts of Zambia’s capital, Lusaka, he’s been on the road for as many as 10 days to traverse just 1,000 miles. Nsukuzimbi’s trials are typical of truck drivers across Africa, where border bureaucracy, corrupt officials seeking bribes, and a myriad of regulations that vary from country to country have stymied attempts to boost intra-African trade.

The continent’s leaders say they’re acting to change all that. Fifty-three of its 54 nations have signed up to join only Eritrea, which rivals North Korea in its isolation from the outside world, hasn’t. The African Union-led agreement is designed to establish the world’s biggest free-trade zone by area, encompassing a combined economy of $2.5 trillion and a market of 1.2 billion people. Agreed in May 2019, the pact is meant to take effect in July and be fully operational by 2030. “The AfCFTA,” South African President Cyril Ramaphosa said in his Oct. 7 weekly letter to the nation, “will be a game-changer, both for South Africa and the rest of the continent.”

It has to be if African economies are ever going to achieve their potential. Africa lags behind other regions in terms of internal trade, with intracontinental commerce accounting for only 15% of total trade, compared with 58% in Asia and more than 70% in Europe. As a result, supermarket shelves in cities such as Luanda, Angola, and Abidjan, Ivory Coast, are lined with goods imported from the countries that once colonized them, Portugal and France.

By lowering or eliminating cross-border tariffs on 90% of African-produced goods, the new regulations are supposed to facilitate the movement of capital and people and create a liberalized market for services. “We haven’t seen as much institutional will for a large African Union project before,” says Kobi Annan, an analyst at Songhai Advisory in Ghana. “The time frame is a little ambitious, but we will get there.”

President Nana Akufo-Addo of Ghana and other heads of state joined Ramaphosa in hailing the agreement, but a number of the businesspeople who are supposed to benefit from it are skeptical. “Many of these governments depend on that duty income. I don’t see how that’s ever going to disappear,” says Tertius Carstens, the chief executive officer of Pioneer Foods Group Ltd., a South African maker of fruit juices and cereal that’s being acquired by PepsiCo Inc. for about $1.7 billion. “Politically it sounds good; practically it’s going to be a nightmare to implement, and I expect resistance.”

Under the rules, small countries such as Malawi, whose central government gets 7.7% of its revenue from taxes on international trade and transactions, will forgo much-needed income, at least initially. By contrast, relatively industrialized nations like Egypt, Kenya, and South Africa will benefit from the outset. “AfCFTA will require huge trade-offs from political leaders,” says Ronak Gopaldas, a London-based director at Signal Risk, which advises companies in Africa. “They will need to think beyond short-term election cycles and sovereignty in policymaking.”

Taking those disparities into account, the AfCFTA may allow poorer countries such as Ethiopia 15 years to comply with the trade regime, whereas South Africa and other more developed nations must do so within five. To further soften the effects on weaker economies, Africa could follow the lead of the European Union, says Axel Pougin de La Maissoneuve, deputy head of the trade and private sector unit in the European Commission’s Directorate General for Development and International Cooperation. The EU adopted a redistribution model to offset potential losses by Greece, Portugal, and other countries.

There may be structural impediments to the AfCFTA’s ambitions. Iron ore, oil, and other raw materials headed for markets such as China make up about half of the continent’s exports. “African countries don’t produce the goods that are demanded by consumers and businesses in other African countries,” says Trudi Hartzenberg, executive director of the Tralac Trade Law Center in Stellenbosch, South Africa.

Trust and tension over illicit activity are also obstacles. Beginning in August, Nigeria shut its land borders to halt a surge in the smuggling of rice and other foodstuffs. In September, South Africa drew continentwide opprobrium after a recurrence of the anti-immigrant riots that have periodically rocked the nation. This could hinder the AfCFTA’s provisions for the free movement of people.

Considering all of these roadblocks, a skeptic would be forgiven for giving the AfCFTA little chance of success. And yet there are already at least eight trade communities up and running on the continent. While these are mostly regional groupings, some countries belong to more than one bloc, creating overlap. The AfCFTA won’t immediately replace these regional blocs; rather, it’s designed to harmonize standards and rules, easing trade between them, and to eventually consolidate the smaller associations under the continent­wide agreement.

The benefits of the comprehensive agreement are plain to see. It could, for example, limit the sort of unilateral stumbling blocks Pioneer Foods’ Carstens had to deal with in 2019: Zimbabwe insisted that all duties be paid in U.S. dollars; Ghana and Kenya demanded that shippers purchase special stickers from government officials to affix to all packaging to prevent smuggling.

The African Export-Import Bank estimates intra-African trade could increase by 52% during the first year after the pact is implemented and more than double during the first decade. The AfCFTA represents a “new pan-Africanism” and is “a pragmatic realization” that African countries need to unite to achieve better deals with trading partners, says Carlos Lopes, the former executive secretary of the United Nations Economic Commission for Africa and one of the architects of the agreement.

From his closer-to-the-ground vantage point, Olisaemeka Anieze also sees possible benefits. He’s relocating from South Africa, where he sold secondhand clothes, to his home country of Nigeria, where he wants to farm fish and possibly export them to neighboring countries. “God willing,” he says, “if the free-trade agreement comes through, Africa can hold its own.”

In the meantime, there are those roads. About 80% of African trade travels over them, according to Tralac. The World Bank estimates the poor state of highways and other infrastructure cuts productivity by as much as 40%.

If the AfCFTA can trim the red tape, at least driving the roads will be more bearable, says David Myende, 38, a South African trucker resting after crossing the border post into South Africa on the way back from delivering a load to the Zambian mining town of Ndola. “The trip is short, the borders are long,” he says. “They’re really long when you’re laden, and customs officers can keep you waiting up to four or five days to clear your goods.” 

Source: article by Anthony Sguazzin, Prinesha Naidoo and Brian Latham, Bloomberg, 30 January 2020

Port of Gauteng development

China’s most ambitious One Belt, One Road (OBOR) initiative

View the high resolution version here!

Visual Capitalist – Costing between $4-8 trillion and affecting 65 countries, China’s ambitious One Belt, One Road (OBOR) initiative is the granddaddy of all megaprojects.

By the time of it’s estimated completion in 2049, OBOR will stretch from the edge of East Asia all the way to East Africa and Central Europe, and it will impact a lengthy list of countries that account for 62% of the world’s population and 40% of its economic output.

Today’s infographic from Raconteur helps visualize the initiative’s tremendous size, scale, and potential impact on Asian infrastructure.

The tangible concept behind OBOR is to build an extensive network of infrastructure – including railways, roads, pipelines, and utility grids – that help link China to the rest of Asia, as well as Africa and Europe. 

This multi-trillion dollar project will fill the infrastructure gap that currently inhibits economic growth potential on the world’s largest continent, but it has other important objectives as well. By connecting all of these economies together, China is hoping to become the gatekeeper for a new platform international trade cooperation and integration.

But that’s not all: if China’s economic corridor does what it’s supposed to, the countries in it will see more social and cultural links, financial cooperation, and a merger of policy goals and objectives to accomplish. 

Naturally, this will expand the clout and influence of China, and it may even create the eventual scaffolding for the renminbi to flourish as a trade currency, and eventually a reserve currency.

One Road or Roadblock?

When billions of dollars are at play, the stakes become higher. Although some countries agree with the OBOR initiative in principle – how it plays out in reality is a different story.

Most of the funding for massive deep-water ports, lengthy railroads, and power plants will be coming from the purse strings of Chinese companies. Some will be grants, but many are taking the form of loans, and when countries default there can be consequences.

In Pakistan, for example, a deep-water port in Gwadar is being funded by loans from Chinese banks to the tune of $16 billion. The only problem? The interest rate is over 13%, and if Pakistan defaults, China could end up taking all sorts of collateral as compensation – from coal mines to oil pipelines.

Meanwhile, Sri Lanka was unable to pay its $8 billion loan for the Hambantota Port. In the middle of 2017, the country gave up the controlling interest in the port to a state-owned company in China in exchange for writing off the debt. China now has a 99-year lease on the asset – quite useful, since it happens to be right in the middle of one of China’s most important shipping lanes to Africa, the Middle East, and Europe.

Natural Opposition

While most economies in Asia are willing to accept some level of risk to develop OBOR, there is one country that is simply not a fan of the megaproject.

India, a very natural rival to China, has a few major qualms:

  • The China-Pakistan Economic Corridor (CPEC) goes right through Kashmir, a disputed territory
  • Chinese investment in maritime trade routes through the Indian Ocean could displace India’s traditional regional dominance
  • India sees the OBOR megaproject as lacking transparency

Meanwhile, with neighboring states such as Sri Lanka and Pakistan getting billions of dollars of investment from Chinese state-run companies, it likely creates one more issue that Indian Prime Minister Modi is not necessarily happy about, either.

Source: Original article by Jeff Desjardins, Visual Capitalist, published on 15 March 2018

Top 20 Easiest Countries for Doing Business

Another great infographic from the folks at Visual Capitalist. For the full diagram please click their webpage at this link.

Tambo Springs Intermodal Facility gets the Go-ahead

Tambo Springs Rendering

Tambo Springs Rendering – Transnet

The following abridged article was authored by Suren Naidoo, published in MoneyWeb on 6 June 2019.

Ports and logistics parastatal Transnet is moving ahead with plans to develop a new ‘inland port’ [terminal] in Gauteng and on Wednesday announced the winning bidder that will develop and operate the R2.5 billion Tambo Springs Intermodal Terminal in Ekurhuleni.

Transnet’s says the deal represents a major public-private partnership (PPP) that will see Southern Palace Joint Venture Consortium holding a 20-year concession for the new inland terminal, which will complement the container facilities at City Deep.

A wholly black-owned and managed diversified industrial holding company, Southern Palace is the lead concessionaire in the consortium. Its partners in the project include Italian state rail and infrastructure company Ferrovie dello Stato Italiane as technical partner and supply chain and advisory group Makoya as logistics and marketing partner.

The new terminal in Springs will have an initial capacity to handle around 225 000 TEU [20-foot-equivalent unit] containers in its first phase and ultimately grow to handle some 550 000 TEUs. City Deep, located near the Johannesburg CBD, has a capacity of 400 000 TEUs and has already reached almost 80%.

The new Springs terminal will boost efficiencies as a fully-fledged modern intermodal facility, directly connected to the Natal Corridor (Natcor) rail link between Durban and Johannesburg.

The PPP project will improve the rail freight system in the country and boost economic growth. Transnet has experienced challenges on the general freight rail side, which has been in systemic decline over the years.

The decline of general freight rail has contributed to the growth in the number of trucks on national roads, especially the N3 between Durban and Johannesburg. There is therefore some urgency to get general freight working again on rail. With time-sensitive cargo, rail can play a critical role as part of the intermodal mix.

The Springs terminal is expected to break ground by November and is anticipated to open in 2022.

It will be located on a 67-hectare (ha) site within the broader Tambo Springs Logistics Gateway development, which is being master-planned by the Tambo Springs Development Company on 607ha of land near the N3. Transnet has already purchased 35ha of land within the new development node, with another 32ha being negotiated.

The City of Ekurhuleni will provide major bulk services for the development. The terminal will be developed as part of a next-generation logistics gateway combining direct terminal handling facilities as well as back-of-terminal property development and related value-add logistics services and activities.

The existing Natcor dual directional freight rail line runs directly to the site of the [new terminal]. Transnet will therefore not incur significant additional costs for new rail infrastructure to connect to the new terminal, but rather, leverage off the existing infrastructure.

Once the terminal is developed, it is expected to spur surrounding industrial and commercial property development to the tune of around R20 billion from the private sector.

Southern Palace, told Moneyweb that Southern Palace has brought in international rail and container terminal specialist Italferr, which is part of the Ferrovie dello Stato Italiane group. The joint-venture consortium is also supported by Concor and engineering firm AECOM.

Southern Palace has raised around R7 billion to date through its various businesses, so the terminal will be largely “self-funded”.

See the unabridged article here!

WCO 2018 – Secure Business Environment for Economic Development

WCO 2018 Theme

On 9 November 2017, the Secretary General of the World Customs Organization (WCO), Kunio Mikuriya, announced today that 2018 will be dedicated to strengthening the security of the business environment, with the slogan “A secure business environment for economic development.”

The development of international trade is not an end in itself, but rather a vehicle through which economic development can be achieved. We should, therefore, strive to create an environment for businesses that will foster their participation in trade, for the benefit of all.

With the above in mind, it is imperative that we ask ourselves, how we can, as Customs, contribute to better secure the business environment and, in doing so, boost economic prosperity. Three key elements come to the forefront:

Enabling environment

It is globally recognised that Customs can contribute to making the business environment more stable and predictable by, for example, streamlining procedures, tackling corruption, enhancing integrity, and facilitating the movement of goods, conveyances and people in general.

Safe environment

Legitimate businesses require a secure supply chain to prosper, but some threats come from within the trade itself, such as the shipment of illicit goods that could endanger peoples’ health, safety and security. Combating cross-border crime, including the illicit funding of international terrorism through trade activities, is our responsibility. By taking advantage of the WCO’s tools, instruments and expertise, Customs has the means to actively secure the global trade landscape.

Fair and sustainable environment

The importation of illegal goods, such as goods that infringe intellectual property rights (IPR), or legal goods which, for example, are smuggled into a country to avoid the payment of duty or whose value has been misreported, can do immense harm to a country’s economy. It is not only a question of financial losses for both legitimate traders and governments, such activities can also affect governance, the economy, development and human security across the globe.

“All these different aspects of securing the business environment are invariably connected to the current Customs focus on trade facilitation, in particular the implementation of the WCO Revised Kyoto Convention and the World Trade Organization’s Trade Facilitation Agreement that support the goals contained in the United Nations’ Transforming our world: the 2030 Agenda for Sustainable Development,” said Secretary General Mikuriya.

The WCO’s annual theme will be launched on International Customs Day, which is celebrated annually by the global Customs community on 26 January in honour of the inaugural session of the Customs Co-operation Council (CCC) which took place on 26 January 1953. The WCO invites the Customs community to mark 26 January 2018 in their diary.

Source: wcoomd.org

Globalisation to give way to “localisation”

global-local

Global trade has reached its peak and globalisation is giving way to localisation, which is one of the most “profound changes” currently facing the global economy, says Paul Donovan, global chief economist at UBS Wealth.

Accounting for about a quarter of the world’s GDP, global trade is at a record high. “This is as good as it gets. What we are now starting to see is localisation returning to the manufacturing sector,” Donovan said on Tuesday, speaking at a Sasfin Wealth event.

Advances in robotics and artificial intelligence, collectively referred to as the fourth industrial revolution, mean that factories are mechanising, and are placed closer to companies’ consumer markets.

Swedish retailer H&M is using robotics, manufacturing most of its clothing in Europe, not Asia, enabling it to respond to consumer demand more effectively, Donovan said.

This allows the fast-fashion front-runner to quickly respond to consumer demand and even unseasonal weather.

“The fourth industrial revolution will dramatically alter investment, economics and society.”

At SA’s recent inaugural Singularity University event, disruption innovation expert David Roberts said that 40% of the S&P 500 companies would disappear in the next 10 years as exponential technologies disrupted a host of industries. The average lifespan of an S&P 500 company had decreased from 67 years to 15 years, he said.

While only about 9% of jobs would disappear altogether, automation and digitisation would affect about 40% of jobs, said Donovan. This would require people and companies to adapt to new ways of doing things.

“If your university degree is reliant on memorising a textbook, you are a low-skilled worker. We need companies and countries with workforces that are flexible.”

Donovan predicted a return to the imperial model of trade, where raw materials and intellectual property were imported, while “everything else” happened close to the consumer. “Raw materials will still be globalised, but finished products will be declining as a force for global trade in the years ahead.”

Source: Originally published in Business Day, Ziady. H, September 6, 2017. Globalisation gives way to localisation, in profound change, UBS economist says.

AGOA – a Poisoned Chalice?

AGOA States-GAO

“Is the Africa Growth and Opportunity Act (AGOA) always a poisoned chalice from the United States of America?”, asks an editorial in The East African. The Kenya newspaper suggests it appeared to be so after the US allowed a petition that could see Tanzania, Uganda and Rwanda lose their unlimited opening to its market.

This follows the US Trade Representative assenting last week to an appeal by Secondary Materials and Recycled Textiles Association, a used clothes lobby, for a review of the three countries’ duty-free, quota-free access to the country for their resolve to ban importation of used clothes, the The East African continues.

The US just happens to be the biggest source of used clothes sold in the world. Some of the clothes are recycled in countries like Canada and Thailand before being shipped to markets mostly in the developing world.

In East Africa, up to $125 million is spent on used clothes annually, a fifth of them imported directly from the US and the bulk from trans-shippers including Canada, India, the UAE, Pakistan, Honduras and Mexico.

The East Africa imports account for 22 percent of used clothes sold in Africa. Suspending the three countries from the 2000 trade affirmation would leave them short of $230 million in foreign exchange that they earn from exports to the US.

That would worsen the trade balance, which is already $80 million in favour of the US. In trade disputes, numbers do not tell the whole story. Agoa now appears to have been caught up in the nationalism sweeping across the developed world and Trumponomics.

US lobbies have been pushing for tough conditions to be imposed since it was enacted, including the third country rule of origin which would require that apparel exports be made from local fabric.

The rule, targeted at curbing China’s indirect benefits from Agoa through fabric sales, comes up for a legislative review in 2025, making it prudent for African countries to prepare for the worst. Whether that comes through a ban or phasing out of secondhand clothing (the wording that saved Kenya from being listed for a review) is immaterial.

What is imperative is that African countries have to be resolute in promoting domestic industries. In textiles and leather, for instance, that effort should include on-farm incentives for increasing cotton, hides and skins output, concessions for investments in value-adding plants like ginneries and tanneries and market outlets for local textile and shoe companies.

The world over, domestic markets provide the initial motivation for production before investors venture farther afield. Import bans come in handy when faced with such low costs of production in other countries that heavy taxation still leaves those products cheaper than those of competitors in the receiving countries.

The US has also been opposed to heavy taxation of used clothes, which buyers say are of better quality and more durable. For Kenya to be kept out of the review, it had to agree to reduce taxes on used apparel.

These factors have left Agoa beneficiaries in a no-win situation: Damned if you ban, damned if you do not. With their backs to the wall, beneficiaries like Tanzania, Uganda and Rwanda have to think long term in choosing their industrial policies and calling the US bluff.

Beneficiaries must speak with one voice to effectively guard against trade conditions that over time hamper domestic industrial growth. Source: The East African, Picture: US GAO

Angola – New Customs Tariff

Angola CustomsThe introduction in the coming months of a new customs tariff in Angola is feeding expectations among economic agents that replacing the current regime will be a stimulus to the country’s growth.

A new customs tariff system, submitted to the Council of Ministers and expected to be implemented this year, proposes cuts on import duties on foodstuffs such as fruit and vegetables, cooking oils and grains (including wheat flour), as well as raw materials such as iron, steel and aluminium products as well as second-hand cars, the Angolan press reported.

The aim is to replace the existing customs tariff system – introduced in 2014 before the start of the economic and financial crisis now facing the country – which is generally regarded as protectionist of local farmers and manufacturers, seeking to make imports more expensive in order to encourage diversification of an economy that is highly dependent on oil.

The current tariff has been the subject of much criticism from local and international companies as well as from the World Trade Organization (WTO).

In its most recent report on Angola, the Economist Intelligence Unit (EIU) said replacing the current tariff would likely be a positive move, as it had the effect of increasing the cost of domestic production and reducing competition in the market.

Despite tariff protection, the EIU points out that operational challenges – such as a lack of electricity, poor supply chain management and lack of human resources – have kept the country dependent on imports.

In addition to this, the fall in the price of oil following the introduction of the 2014 tariff has limited access to foreign currency for Angolan companies, making payments to suppliers abroad difficult and, as the kwanza has weakened, imports have become significantly more expensive.

“If and when (the new tariff is) applied, the cost of imports should fall and this should help fight inflation. A less protectionist customs regime should also stimulate Angola’s trade with its neighbours and can help the country finally meet the long-standing promise of joining the Southern African Development Community’s free trade zone,” the EIU said.

“A review of Angola’s current punitive customs regime should give a positive boost to the national economy. However, it is still unclear when the new tariffs will be applied,” it said.

In 2016, Angola formalised its accession to the International Convention for the Simplification and Harmonization of Customs Procedures (Kyoto Convention) of the World Customs Organisation, which aims to facilitate international trade.

Each acceding country has a deadline of 36 months to apply the general rules of this agreement, which provides for the minimisation of customs controls between members, thus facilitating and simplifying international trade. Source: macauhub

WCO Workshop on Inland Depots in Lao PDR

inland-port-7The World Customs Organization (WCO) organized a National Workshop on Inland Depots under the sponsorship of the Customs Cooperation Fund (CCF)/Japan and the Japan International Cooperation Agency (JICA). It was held from 20 to 22 September 2016 in Savannakhet Province, Lao People’s Democratic Republic.

Twenty six Customs officers from the Lao Customs Administration participated in the workshop, along with guest Customs experts from The Former Yugoslav Republic of Macedonia, Japan and JICA. Mr. Somphit Sengmanivong, Deputy Director General of the Lao Customs Administration, opened the workshop. He highlighted the importance of Inland Depots as a national strategy to secure his country’s economic growth and sought participants’ active participation in the discussions on this topic.

Presently, there is no clear definition of “Inland Depot” and many similar terms, such as Dry Port, Inland Terminal, Free Trade Zone and Special Economic Zones, are used in the international logistics. During the three-day workshop, participants discussed the functions and a possible definition of Inland Depot from a Customs perspective.

AmatiComment – Inland container terminals serve as important hubs or nodes for the distribution and consolidation of imported and export destined cargoes. There are 16 Landlocked countries in Africa, which signifies the importance of hinterland logistics development and its consequential impact on regional trade groupings. Consequentially, it behooves governments to understand and support the logistics supply chain industry in maximizing inland transportation (multi-modal) infrastructures to achieve a common and mutually beneficial economic environment. Furthermore, the more facilitative these arrangements, the better opportunity there is for success and longer-term economic sustainability.

The WCO Secretariat made presentations on international standards for relevant procedures, including Customs warehouses, free zones, Customs transit, inward processing, clearance for home use and temporary admission. Experts from The Former Yugoslav Republic of Macedonia and Japan described their national and regional experience of Customs warehousing, and Customs transit procedures. The JICA expert presented the bonded procedures applied by neighbouring countries to Lao People’s Democratic Republic. Lao Customs administration explained their national system for Inland Depots and a logistics company of Lao PDR shared its expectations on inland depots.

On the last day, participants discussed the challenges and possible solutions to enhance the functional and efficiency of Lao’s Inland Depots. Possible solutions, such as the use of modern information technology, further cooperation with the private sector, clear regulations on relevant procedures, coordinated border management and international cooperation were considered. Source: WCO

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SACU – All’s not fair in proposed Customs Union reforms

SACU mapThe Southern African Customs Union (SACU) is an almost invisible organisation. Yet it has arguably had a profound impact on South Africa’s economic and even political relations with its much smaller neighbours – and on those four small countries themselves. But there are also deep differences among its five members – the others are Botswana, Lesotho, Namibia and Swaziland (BLNS) – about what the essential nature of SACU should be.

This weekend, SACU ministers will be meeting in South Africa for a retreat to try once again to set a new strategic direction, a roadmap into the future, for this critical body.

The leaders of the member countries will meet in a summit, also in South Africa, sometime before 15 July – when South Africa’s term as SACU chairs ends – to adopt or reject this roadmap. The aim of the changes in the SACU treaty would be to turn it ‘from an arrangement of convenience held together by a redistributive revenue formula to a development integration instrument,’ South African Trade and Industry Minister Rob Davies said during a press briefing in Kasane, Botswana, last Friday.

Davies said there were still ‘lots of differences’ among SACU members, which they had been unable to resolve despite years of negotiations.

SACU was founded in 1910 – the year South Africa was also created. Since then, the common external tariff it created has functioned as an instrument for the much larger South Africa to support the much smaller BLNS economically, by re-distributing to them a disproportionate share the customs tariffs collected at the external borders. Or, depending on your point of view, to relegate them to being passive markets for South African products.

The new African National Congress government, which came to power in 1994, ‘democratised’ relations with the BLNS by creating a Council of Ministers to make decisions by consensus in a new post-apartheid SACU treaty, which came into force in 2004. But the basic deal remained the same, as Davies implicitly acknowledged in last Friday’s briefing when he said: ‘we have historically just set the tariffs on behalf of SACU … and … in return for that, provided compensation … in the revenue-sharing formula.’

Also read – SACU Retreat announced by President Zuma

The re-distributive revenue-sharing formula has been hugely important for the government revenues of the BLNS. In South Africa’s 2015-2016 budget year, for example, the total revenue pool was expected to be about R84 billion, of which the BLNS would receive R46 billion – according to Xolelwa Mlumbi-Peter, Acting Deputy Director-General in South Africa’s Department of Trade and Industry, in a briefing to the parliamentary portfolio committee on trade and industry last year. She added that South Africa contributes about 98% of the total pool, while BLNS receive about 55% of the proceeds.

That meant South Africa was losing – or re-distributing – about R44.3 billion in that budget year, as de facto ‘direct budgetary support’ to the BLNS, to use the language of Western development aid.

‘This is seen as “compensation” for BLNS’s lack of policy discretion to determine tariffs, and for the price-raising effects of being subjected to tariffs that primarily protect SA industry,’ Mlumbi-Peter said.

A glaring example of that dynamic is South Africa’s maintenance of import tariffs on foreign automobiles to protect its own automobile industry. That, of course, makes automobiles more expensive in the BLNS countries.

And should South Africa choose instead to grant rebates on some tariffs – for example to encourage imports of inputs into South African industrial production – this would also impact negatively on the BLNS by reducing their tariff revenues, Mlumbi-Peter suggested.

In 2011, South African President Jacob Zuma chaired a SACU summit to review these inherent disparities. It agreed on a five-point plan to change SACU’s fundamentals, including a review of the revenue-sharing formula; prioritising work on regional cross-border industrial development, including creating value chains and regional infrastructure; promoting trade facilitation measures at borders; developing SACU institutions; and strengthening cooperation in external trade negotiations.

Nonetheless, as Davies said in Kasane, ‘we haven’t really been able to reach an understanding of what does development integration in SACU mean.’ And so Zuma had just completed a tour of visits to his counterparts in the BLNS countries to discuss these plans, and the upcoming retreat and summit. Davies said Zuma had found the BLNS leaders ‘flexible’ – though regional officials suggest otherwise.

Does South Africa, as the only really industrialised nation in SACU, not have inherent and irreconcilable differences with the rest of the body? Davies acknowledges that South Africa – with about 85% of the combined population, and about 90% of the combined GDP – also has most of the industries that demand tariff protection.

Nevertheless, he added, ‘We are all committed on paper to seeing tariffs as tools of industrial development… But there is also an obvious temptation for a number of other countries to see the revenue implications as more important.’ And, he did not add, there is also a growing feeling in South Africa that it could do with that R44 billion a year or thereabouts, which it gives to the BLNS every year.

The coincidence of the signing, on 10 June, of the Economic Partnership Agreement (EPA) between the European Union (EU) and the Southern African Development Community (SADC), and the attempt to revive SACU, underscored an ironic analogy of South Africa’s and the EU’s predicaments.

Also read – Historic Economic Partnership Agreement between EU and SADC 

With the EPA, the EU hopes to shift its relations with the SADC nations away from the traditional donor-recipient type of arrangement, to one of more equal and normal trade and industrial partners. That, essentially, is what South Africa is also hoping to achieve with its proposed reforms of SACU.

But it’s hard to see how South Africa is going to convince the BLNS to give up R44 billion a year of hard cash in hand, in exchange for the rather dubious future benefits of being absorbed into South Africa’s industrial development chains.

Source: Peter Fabricius – ISS Consultant.

Historic Economic Partnership Agreement between EU and SADC

EU SADC EPAThe EU has signed an Economic Partnership Agreement (EPA) on 10 June 2016 with the SADC EPA Group comprising Botswana, Lesotho, Mozambique, Namibia, South Africa and Swaziland. Angola has an option to join the agreement in future.

The other six members of the Southern African Development Community region – the Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Zambia and Zimbabwe – are negotiating Economic Partnership Agreements with the EU as part of other regional groups, namely Central Africa or Eastern and Southern Africa.

For specific details on the key envisaged benefits of the agreement click here!

The EU-SADC EPA is the first EPA signed between the EU and an African region, with an East African agreement expected to follow in a few months, but with the West African agreement having met fresh resistance. EU Trade Commissioner Cecilia Malmström stressed at the signing ceremony the developmental bias in the agreement, which extended duty- and quota-free access to all SADC EPA members, except South Africa. Africa’s most developed economy has an existing reciprocal trade framework known as the Trade and Development Cooperation Agreement, which came into force in 2000.

South Africa, meanwhile, had secured improved access to the EU market on a range of agricultural products, as well as greater policy space to introduce export taxes. EU statistics show that bilateral trade between South Africa and the EU stood at €44.8-billion in 2015, with the balance tilted in favour of European exports to South Africa, which stood at €25.4-billion. This improved access had been facilitated in large part by South Africa’s concession on so-called geographical indications (GIs) – 252 European names used to identify agricultural products based on the region from which they originate and the specific process used in their production, such as Champagne and Feta cheese. In return, the EU has agreed to recognise over 100 South African GIs, including Rooibos and Honeybush teas, Karoo lamb and various wines.Sources: EU Commission and Engineering News

 

 

SA Wine exports increase by more than 20 perent over four years

SA WineWhile commodity prices tanked and unemployment rose during South Africa’s worst ever drought over the last few months, wine making increased.

What’s more, South African wine exports were up a further five percent in 2015 and the industry is expecting even more growth in 2016 as South African wine continues to find new markets around the world.

While almost every farming industry is struggling in South Africa, the wine industry is going through “one of its most exciting phases in history” according to Roland Peens, director of wine retailer Winecellar.co.za.

 

The country is the seventh largest producer of wine in the world and for the 12 months preceding June 2015, wine production was at 959 million liters, with 423 million liters sold for export and 395 million liters sold domestically.

Not only is South Africa producing some fantastic wines, but the struggling rand is actually helping wineries as it offers a lucrative export market. The UK is by far the biggest receiver of South African wines with 109 million liters exported here. Germany is second with 79 million while Sweden, France, Netherlands and Denmark all take between 20 to 25 million litres of South African wine.

Canada (18 million litres), USA (11 million liters), Belgium and China (9 million litres each) and Japan and Switzerland (6 million litres each) make up the other big export markets.
Source: www.thesouthafrican.com