COMESA-EAC and SADC Launch Climate Change Intitiative

The East African Community (EAC), Common Market for Eastern and Southern Africa (COMESA) and the Southern Africa Development Community (SADC) have launched a joint five-year Programme on Climate Change Adaptation and Mitigation. The focus of the Programme is increasing investments in climate resilient and carbon efficient agriculture (climate-smart agriculture) and its linkages to forestry, land use and energy practices by 2016. The programme has received $20 million funding from the Royal Government of Norway, the European Union Commission and UK’s Department of International Development (DfID), signifying an exemplary partnership between Africa and Europe on climate change.

The three RECs comprising the Tripartite will synergize on their respective comparative advantages that include: main-streaming climate change in national and regional policies and strategies; climate resilient and climate smart agriculture; vulnerability assessment and disaster risk reduction approaches; and climate change policy negotiations to provide African solutions to climate change.

EAC’s key achievements in the area of climate change over the last few years include: approval of the EAC Climate Change Policy and issuance a Declaration on Food Security and Climate Change by the EAC Summit; the establishment of the EAC Climate Change Fund and Climate Change Coordination Unit at the EAC Secretariat; as well as the development of a Regional Climate Change Position as input to the African Common Negotiating Position on Climate Change.

See full article here and previous articles on climate change here.

Legal constraints on the EU’s ability to withdraw EPA preferences

Dr Lorand Bartels provides useful and timely advice on the legal constraints behind the EU's ability to withdraw EPA preferences from ACP States and he identifies various problems with the EC Commission’s proposal.   These include steps taken towards ratification i.e. progress to date and the mechanism of provisional application. 

He concludes by stating that EC Council Regulation 1528/2007 can only be terminated in accordance with Article 25(2) of the Vienna Convention on On the Law of Treaties. This provision lists three ways in which this can be done: by agreement between the parties; according to the treaty itself; and when the party seeking to terminate notifies the other party or parties that it does not intend to become a party to the treaty. Where these conditions are not satisfied, the provisions of the treaty being provisionally applied are treated as applicable for that party.

While the EU can still remove ACP countries from the list of beneficiaries, if it wishes to do this, it must notify them of its intention not to become a party to the respective agreements. What it cannot do is remove beneficiaries from Annex I of the Regulation as the Commission is proposing to do - not, at least, without violating Article 25(2) of the Vienna Convention on the Law of Treaties, and thereby also EU law itself.

Assess full article here and see previous EPA posts here.

China and EAC Sign Trade and Investment Framework Agreement

The Framework Agreement between EAC and China focuses on the promotion of commodity trade, exchange of visits by business people from EAC and China, co-operation in investment, infrastructure development, human resource development and training. The two sides also created a Joint Committee on Economy, Trade, Investment and Technical Cooperation (JCET) as the implementation framework for the Agreement. 

This is a different type agreement from the EPAs. It focuses on market enabling assistance in areas such as infrastructure development, skills development and private sector engagement. In fact, China has indicated she will provide funding for feasibility studies on roads and infrastructure. The focus on commodity trade also signals willingness to expand agricultural production and processing of agricultural commodities and thereby enhancement of the value chain.

World Bank Unveils Portal On Diaspora Remittances to Africa

This transparency is important.

Send Money Africa provides data on the cost of sending and receiving relatively small amounts of money from selected countries worldwide to a number of African countries, as well as within the African continent. The objective of the database is to increase transparency in the market and provide migrants with complete and reliable information on all the components of the transaction. Send Money Africa allows the users to compare the costs applied by several providers to send and receive money from 15 major sending countries to 27 African receiving countries, for a total of 50 "country corridors".

See country corridors here.

EAC Finalizes Industrialisation Policy and Strategy

East African Community (EAC) Secretariat is in the final stages of completing a regional industrialization policy which is to among others promote regional industries.

EAC is in the process of formulating its Industrialization policy and strategy, which is expected to provide a detailed regional framework for cooperation in the field of Industrial and small and medium enterprises (SME) development," said the EAC Head of Corporate Communications and Public Affairs Richard Owora.

He revealed that the regional industries whose economic benefits extend beyond national boundaries that have been identified include: pharmaceutical, automotive, agricultural machinery and tools, basic metal, petrochemicals, Information Communication Technology (ICT) and computer and SME development among others. 

"That is why the secretariat with support from the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) held a five-day experts meeting to review the draft EAC industrialization policy and strategy in Uganda. He said the discussions revolved around formulating policy inputs and recommendations from the stakeholders for the finalization of the policy and strategy, identification of priority regional industries to be promoted on comparative advantages, identification of policy interventions projects and programmes to be undertaken at national and regional levels and to update the draft final documents.

"The goal of cooperation in industrial development is to enable partner states to collectively and individually attain accelerated, harmonious, and balanced development, as envisioned in the EAC Treaty," he said adding that the draft policy and strategy has identified several industries, which will be promoted through collective community efforts, so as to realize economies of scale and attain international competitiveness.

Uganda's Director of Trade, Industry and Co-operative in the Ministry of Trade, Industry and Co-operative, Mr Samuel Ssenkungu noted that industrialization and technological diffusion have both potential to make a sustainable contribution to economic growth and job creation in the region.

EAC to review Rules of Origin

Business Daily

The East African Community is set to review border passage rules for goods, paving the way for more Kenyan exports to access the regional market. The bloc’s custom and trade division has invited consultants to align the rules of origin with changes in manufacturing to facilitate intra-regional trade in the region.

“We expect the reviewed rules of origin to capture as many changes including transport costs that have grown in importance for firms,” Peter Kiguta, EAC’s director-general in charge of trade and custom said in a telephone interview.

Mr Kiguta also said the review would prepare the region for an eventual merger with Comesa and SADC. The rules will also be phased out once a single EAC revenue collector is set up.

Trade Mark East Africa has floated the tender asking consultants to simplify the rules of origin so that they can be implemented easily.

The present rules of origin only allow goods produced wholly from local inputs to cross national borders without attracting custom taxes.

Goods produced from imported raw materials also enjoy duty-free treatment where the exporter can prove that at least 35 per cent of the ex-factory value was added within the region.

The proof is usually that the local transformation process has moved the product to a tariff category different from that of imported parts or inputs.

The application of this rule has been controversial, with traders claiming it is selectively applied by customs officials to bar Kenyan products from entering Tanzania, Uganda, Rwanda and Burundi.

The partners phased out duties on Kenyan goods that meet these rules from January after the end of the transition period. Some of the vehicles from the Nairobi-based General Motors East Africa and CMC Motors are among products affected by the rules of origin.

While assemblers stake their claim to the regional market on the number of jobs and operations involved, border officials have maintained that the process entails very little transformation on the completely knocked down vehicle parts.

The beauty products sold by Inter-consumer Products Ltd; Nido, Milk and Nescafe produced by Nestle Kenya; television sets manufactured by Aucma Digital Technology Africa; and lubricants manufactured by Kenol/Kobil have also encountered similar restrictions at border posts.

“Our market share has grown significantly in the region since the EAC’s verification mission cleared our products last year with Uganda becoming our largest market,” Charles Njogu, KenolKobil’s spokesman, said on Tuesday.

Kenya Revenue Authority officials said the rules of origin are now outdated because of rapid changes that have taken place since they were conceived more than six years ago.

The officials said they are encountering cases where genuine goods are being locked out simply because the rules are blind to their unique circumstances. The use of technology and other cost-efficient production techniques has rendered the 35 per cent value addition threshold irrelevant, KRA said, adding that a change in tariff heading alone would be more objective.

“Use of total cost to determine local value addition is not objective,” an official who could not be named under KRA protocols said yesterday. “An operation that contributed 35 per cent to total cost six years ago may have fallen to 20 per cent due to cost cutting. The RoO does not factor in investments that contribute to efficiency

Lately, Kenyan edible oil firms such as Kapa Oil and Bidco Oil have been fighting to defend their markets from custom officials who maintain the refining of imported crude palm oils does not meet the value addition threshold.

The firms import crude palm mainly from Asia to manufacture products such as cooking fats and soaps which they export to EAC and Comesa countries.

“In this case, refining process is the huge but hidden investment that must be recognised for the rules of origin to make sense to exporters,” said the KRA official.

EPA Negotiations

The European Commission (EC) finally announced today that countries that have concluded an Economic Partnership Agreement (EPA) but not taken the necessary steps to ratify and implement it would no longer benefit from the EPA market access to Europe as from 1st January 2014.

The EC Market Access Regulation (MAR) 1528 of 1st January 2008 provides duty free quota free market access for African Caribbean and Pacific countries that have concluded an EPA. The Regulation requires countries to sign, ratify and implement the Agreement within a “reasonable period of time”. At it currently stands, the MAR is a temporary, unilateral instrument of the EU to ensure that, pending the implementation of the agreement by ACP countries, there would be no trade disruption.

A quick glance at it reveals the following facts: Only 18 island countries from the 36 ACP countries that had initialled or signed an arrangement have concluded the agreement. The other remaining countries are yet to complete the contract, with the risk of seeing their marriage cancelled.

The announcement of this proposal is no surprise: Trade Commissioner De Grucht and other representatives of the European Commission have constantly been warning that this situation was not sustainable and would therefore have to end at some point in time.

The proposal will come into effect on 1st January 2014, after approval by the Council. It is worth mentioning here that MAR 1528 in 2008, was adopted prior to the Lisbon Treaty, and therefore the Parliament will not have to give its assent to it. The timing is also not surprising: 1st January 2014 is also the time when the new Generalised System of Preferences (GSP) Regulation should come into effect. It is also the date when the countries that have signed and ratified an EPA will have to start implementing their respective trade liberalisation commitments (remember some countries had a 5 year moratorium before starting liberalisation).

The message is therefore clear: if countries want to continue to benefit from EPA market access, either they have to sign and start implementing their existing EPA or conclude a new regional EPA. For others, either they will fall under one of the schemes of the new GSP (i.e. Everything but Arms, Standard GSP or GSP Plus) or they will have no preferences (as might be the case for Botswana and Namibia).

What does this imply?

This coming year will be a political litmus test for the relationship between the EU and its African and Pacific partners. If from a legal and a “coherence” perspective the Proposal of the EU is well understood, there are also good reasons why, four years down the road, since the MAR in 2008, nothing has happened. First, some compromise on many issues, including on the accompanying development measures, are yet to be agreed. Moreover, most countries are also engaged in building their regional integration agenda: many are either consolidating their existing customs union or setting it up. And Europe is well placed to know that regional integration takes time. So while a deadline by 1st January 2014 might seem a reasonable time for the EU, it is in fact very short for the proper sequencing of regional agenda with trade negotiations with third countries. Finally, some might have simply lost interest in the process.

So, like in 2007, expect some tensions in the coming months: some countries might be pressured to sign, ratify and implement the EPA that might not fulfil their ambitions and interests in terms of content, timing and geographical configuration by fear of market disruption, in particular if they risk loosing preferential access to the EU. Others might simply walk out. If no common position can be found at the regional level, the EPAs could seriously disrupt any regional integration effort.

But 2014 is not 2007. The world has changed and this time the response might be different. The financial crisis invited itself to the dance, Africa has gained a lot more confidence in its economic prospects and the increasing importance of “emerging” partners has brought in a new geopolitical dynamism, de facto reducing the leverage of the EU.

Finally, it takes two to tango. African and Pacific countries now have to reveal their strategies, interests and preferences regarding their relationship with the EU. It is a question of political will in many cases and for those interested in an EPA, it will require some effort to reach a compromise. At the same time, while one might understand the European logic to put an end to an instrument that has remained “temporary” for too long and is not compatible with rules of the WTO, there are still some “contentious issues” that remain unresolved. The EU has also to reveal its cards on how far it would be willing to accommodate some genuine concerns that are blocking the negotiations. Setting a deadline is therefore not sufficient, the EU should come up with concrete proposals on how to move the negotiations forward.

Just putting a deadline could open the way for a new impetus to the current negotiations towards the conclusion of regional EPAs. But it could well turn out to be a guillotine if no flexibility is provided to advance the negotiations.

By San Bilal and Isabelle Ramdoo. 

For a another report on this see here.

BRICS- SA's Role

Interesting analysis below from the business day. Should note that SA's BRICS membership also adds another dimension to the tripartite  FTA consisting of COMESA-EAC-SADC Member States.

------------------------------------------------

There is wide consensus that SA’s place in the emerging-market bloc that groups Brazil, Russia, India and China together, is only justified by SA’s strategic importance on the continent.

That means the country needs to tread a careful path between touting its own interests and facilitating links to the rest of Africa.

"It would be in SA’s interest to see this as a bargaining opportunity for the continent rather than just being expedient," said Standard Bank ’s group chief economist, Goolam Ballim. "Otherwise this could be harmful in the longer term for inter- African relationships."

It is a delicate task as SA does not have a mandate at this point to speak for any other African country. Jim O’Neill, the banker from Goldman Sachs who invented the acronym for the first four Bric countries, has said that Nigeria is in a better position to join the grouping.

SA’s economy is only a quarter the size of Russia’s, the next-smallest Brics member, and its share of world trade has been stagnant at 0,5% over the past decade. Its pace of growth also lags well behind the bloc’s other members.

But SA has a lot to offer the group, which analysts say could evolve into a political force rivalling the Group of Seven developed nations, campaigning for the interests of emerging economies. SA has one of the strongest financial sectors in the world, and receives about 95% of Africa’s portfolio inflows — foreign buying of local shares and bonds.

It could provide capital for companies looking to expand into the continent and is rated as the easiest place to open a business among all the other BRICS countries.

That would make it the logical choice for firms to establish their headquarters in SA.

The country is already the services hub for the continent and has significant corporate clout in the global arena.

Where it falls short is on transport infrastructure, both within the country and linked to its African neighbours.

Nonetheless, SA’s place on the continent is seen as key to its debut in the Brics club this week at the meeting at a Chinese resort.

"We are not individually important enough but if we can fill the role of an entry point to Africa, it will be an enormous opportunity," says Absa Capital economist Jeff Gable.

Sub-Saharan Africa has become the second-fastest growing region in the world after Asia and has been more resilient to the global financial crisis then Asia, Latin America and Eastern Europe. It offers an untapped market of hundreds of millions of people.

Standard Chartered’s regional research head for Africa, Razia Khan, thinks that the summit is unlikely to come up with concrete measures that will immediately affect the Brics economies.

But some analysts are expecting preferential trade agreements and developmental finance deals, given the participation of state-owned financial institutions.

Iraj Abedian, chief economist for Pan African Capital Holdings, hopes that the Brics summit will establish a "credible institution" to underpin its political clout. If that does not happen, it will remain a political multilateral rather than an economic leadership forum, he says.

For another piece on BRICS see here.

Tripartite FTA COMESA-EAC-SADC

The Second Tripartite Summit of Heads of State and Government (COMESA-EAC-SADC) took place on 12 June, 2011, in Johannesburg, South Africa. A major achievement of the summit includes the official launch of negotiations on the Tripartite Free Trade Area (FTA). Agreement was reached on the negotiating principles, processes, scope and institutional framework. A roadmap and timelines for establishing the FTA were also agreed.

Negotiations will be open to all the 26 countries of the COMESA-EAC-SADC Tripartite. It was agreed that the first phase of negotiations will address tariff liberalisation, rules of origin, customs cooperation and customs related matters, non-tariff barriers, sanitary and phytosanitary measures, technical barriers to tade and dispute settlement. The second phase will focus on negotiation trade in services and trade related issues, including intellectual property rights competition policy and trade development and competitiveness, . Facilitating movement of business persons within the region will be negotiated in parallel with the first phase as a separate track..

A timeline of 36 months has been set for completion of negotiations for the first phase and the movement of business person which will run concurrently. No timeframe has, however, been indicted for the second and final phase of FTA negotiations. .

Once in place, the Tripartite FTA will establish a larger market for Eastern and Southern Africa - leading to improved trade performance and competitiveness for the region.

Resource materials can be accessed here.

The negotiations were concluded, see related materials here.

Kenya: Safaricom’s M-Pesa goes global with Western Union

Safaricom, Kenya’s biggest mobile operator, has announced a deal with Western Union, the international money transfer company, to enable its M-Pesa mobile money service subscribers to receive direct cash transfers from Western Union agents worldwide.

Consumers can now send money directly to the mobile ‘wallets’ of Safaricom M-PESA subscribers in Kenya from 45 countries and territories,” explains Karen Jordaan, East and Southern Africa Director at Western Union.

The service taps into Africa’s huge remittances flows, which the World Bank estimates to have totalled $40bn in 2010. 

See full piece here and related posts here.

Ghana Reaches World Bank Middle Income Status

Interesting...

On July 1, 2011 Ghana moved from low-income to lower middle-income status, according to World Bank country classifications. 

Projections from the Bank’s Global Economic Prospects position Ghana as the fastest growing economy in Sub-Saharan Africa for 2011, with a forecast GDP growth of 13.4 percent. Authorities are now anxious to see that the oil windfall has a positive, lasting impact on the lives of all Ghanaians. In particular, Ghana hopes to steer clear of the so-called “Dutch disease”—the unique paradox where resource-rich countries grow too heavily dependent on oil at the expense of other productive sectors.

On another note, Ghana’s largest and most important creditor for the past three decades has been the International Development Association (IDA), the soft loan window of the World Bank. That will soon come to an end given the country's middle income status. The combination of Ghana’s rapid economic growth and the recent GDP rebasing exercise means that Ghana suddenly finds itself above the income limit for IDA eligibility. Formal graduation is imminent and comes with significant implications for access to concessional finance, debt, and relations with other creditors. 

See related article here.

Kenya Launches Government Data Portal

On transparency...

Kenya is the first developing country to have an open government data portal. This brings into focus the supply and demands sides of government information that other countries may take for granted. 

The Kenya government data portal makes public data which includes national census, government expenditure, parliamentary proceedings, education, health, poverty, water, sanitation, energy and public services. The goal of opendata.go.ke is to make core government developmental, demographic, statistical and expenditure data available in a useful digital format for researchers, policymakers, ICT developers and the general public and enhancement of universal access to information..

The Year in Trade 2010

A good resource for anyone working in or covering the field of international trade. The USITC’s Year in Trade 2010 is one of the US government’s most comprehensive reports on U.S. trade-related activities, covering major multilateral, regional, and bilateral developments.

The publication reviews U.S. international trade laws and actions under these laws, activities of the World Trade Organization (WTO), U.S. free trade agreements and negotiations, and U.S. bilateral trade relations with major trading partners. The Year in Trade 2010 also includes complete listings of antidumping, countervailing duty, safeguards, intellectual property rights infringement, and section 301 cases undertaken by the U.S. government in 2009.

Innovation for Growth in Africa

...there are a number of areas where Africa must quickly focus its energy to improve its productivity and accelerate growth; agriculture, health, information technology and the arts. 

Access the full speech by Dr. Ngozi Okonjo-Iweala, Managing Director, World Bank here

BRICS’ to Discuss Economic Coordination

and some politics as well....

Leaders from five of the world’s top emerging economies will discuss a coordinated stance on economic issues such as commodity price fluctuation (however, the yuan’s exchange rate is off the agenda).

The mid-April ‘BRICS’ summit will gather leaders from China, Russia, India, Brazil and South Africa in the southern Chinese beach resort of Sanya.  The summit will give the world’s big rising economies a venue to coordinate views on global financial reforms, commodity prices and other shared concerns since the BRICS countries have similar concerns on important questions like the global economy, international finance and development, reform of the international currency system, commodity price fluctuations, climate change and sustainable development. 

See full report here.

Lamy Warns on WTO DDA Negotiations

At a meeting in Kenya last week, Mr Pascal Lamy said the risk of failure of the talks — commonly referred to as Doha Development Agenda (DDA) after the Qatari city that first hosted them — is higher today than it was a few years ago. 'Should the talks fail, this could lock exports from poor countries out of major world markets'. See full report here.

Global Preferential Trade Agreements Database

The World Bank has recently launched the Global Preferential Trade Agreements Database, (GPTAD) which includes trade agreements that have been notified to the World Trade Organization (WTO) and those that have not been notified to the  WTO. The database contains about 330 agreements which are indexed using a classification consistent with WTO criteria.

The WTO houses a similar database on RTAs. The WTO Regional Trade Agreements Information System includes agreements that have either been notified to the WTO or of which an early announcement has been made at the WTO. This database contains all the relevant documentation received by the WTO, following notification by a WTO member that an RTA has been established.

great tools for policy makers. 

Manufacturing share of African GDP falling

Interesting piece.  In fact, Africa's agricultural and manufacturing GDP is falling. These realities should also be considered in light of the long standing WTO negotiations on agriculture and  non agricultural products. 
---------

Africa is uncompetitive, insufficiently export-driven, and situated too far from the world's main markets, argues economist Tony Hawkins.

"Africa has not been industrializing; it has de-industrialised. Since the 1990s, the GDP share of the continent's manufacturing sector has declined and now accounts for about 10% of the continent's GDP," said Tony Hawkins, economist and professor at the graduate school of management at the University of Zimbabwe.

"Over 60% of the industrial output from the whole of sub-Saharan Africa is generated in one country - SA."

"Asia's manufacturing industry, on the other hand, is growing fast. One of the reasons is that the industry in this part of the world is export-driven. In Asia, manufacturing accounts for 70% of the continent's total annual exports. In Africa, this is 20%," he said.

One of the reasons why Africa would not able to compete with China lay in the market it produced for. "Africa is manufacturing goods for their own, local markets," he added.

Africa is a small and poor market, with a low demand for high-tech products and a high demand for cheap goods. The problem is that the market for cheap goods is growing much slower than the high-tech markets the Asian manufacturing industries are producing for.

Let's not forget that Asia also produces cheap products for the export market and these are much more inexpensive compared with the goods made in Africa. They are often of a better quality. This hampers Africa's competitiveness.

Another major disadvantage was Africa's geographical location, Hawkins noted. Many African countries, especially in sub-Saharan Africa, are situated far away from the world's major markets such as Europe, Asia and Latin America. Exporting goods to these parts of the world requires high transport costs.

"Asia in this respect has taught us that having a competitive advantage globally no longer depends on natural resources and cheap labour," Hawkins continued. "It is about knowledge, strategic locations, and skills - among other things."

The situation in Africa could change for the better, he noted: "But only if African governments invest in their manufacturing industries and make them more competitive while upgrading the continent's export structures to overseas markets."

Kenya To Establish the Nairobi International Financial Centre

Kenya hopes to position itself as a financial services hub similar to other financial hubs in the world e.g. London, New York, Dublin, Mauritius and Johannesburg.

Towards this end, finance minister Hon. Uhuru Kenyatta has launched a committee that will guide the establishment of the Nairobi International Financial Centre (NIFC), whose key task will be integrate the domestic financial sector to others in the region and globally. The committee will come up with proposals on the preferred type, financial implications, funding options and an implementation plan for the centre. The Steering Committee for Nairobi International Financial Centre was gazette is now operational.

The term “international financial centre” (NFIC) is often used interchangeably with “tax haven” or “secrecy jurisdiction,” although the latter terms have more negative connotations. Scholars generally label as “tax havens” those territories that offer favourable tax regimes and bank secrecy laws designed to attract foreign investors.

An International Financial Center is part of Kenya's Vision 030 and the Vision pointed to Mauritius and the Seychelles as potential models for the Kenyan IFC. It is envisioned that the NIFC may grant tax incentives, including a maximum 10-year tax holiday, along with VAT and customs exemptions.

It is envisioned that the NIFC may grant tax incentives, including a maximum 10-year tax holiday, along with VAT and customs exemptions.  However the international Financial Center will transform the economy, but observers warn it could contribute to illicit financial flows, inequality and a lack of transparency.

Meanwhile, in the regional context the World Bank has provided funding for the development of the  EAC Financial Sector Development & Regionalization Project and Financial Services is one of the 7 trade in services sectors to be liberalized under the EAC Common Market Protocol on the Free Movement of Services.

Setting up of the NIFC along with legal and institutional reforms are some of the projects envisioned for the financial sector under the country’s economic blueprint — vision 2030 — along with banking sector consolidation, pension reform and increasing diaspora remittances. 

The NIFC would also have a separate legal and judicial framework that would attract companies to set up shop.

See related story here.

EAC Financial Services and Double Taxation Avoidance Treaty

The 9 year EAC Financial Sector Development & Regionalization Project, funded by the World Bank is a welcome development.   A strong regional financial sector is needed to underpin an effective common market and build a single financial services market for the region.  The development of a regional financial services sector, will also benefit the establishment of a monetary union and single currency.  In addition, the EAC region stands to gain by trading on a regional stock exchange, i.e a single East African Stock Exchange and furthermore, the harmonization of the financial services sector will play a key role in unlocking the removal of barriers for the free movement of capital across the EAC region- as provided for by the Common Market Protocol. 

In related news, the EAC region has apparently not implemented the Treaty on Avoidance of Double Taxation. The Double Taxation Treaty would allow income generated in any of the five member states to be taxed only once but lack of implementation has given national revenue bodies the legitimacy to maintain the status quo with revenue authorities making double claims for revenue earned in each individual country.

Why Investors are Flocking to Mauritius

Foreign companies with an eye on Africa’s emerging markets are apparently flocking to Mauritius to incorporate local subsidiaries in a move that could deny more than a dozen African governments billions in corporate taxes and position the island nation as the region’s economic hub.

Possibly the the range of incentives available to foreign firms in Mauritius. This includes a 15 per cent charge on a company’s taxable income such as business or trading profits. This amount is half the almost 30 per cent rate that other countries in the region apply to  similar income.

Foreigners living in Mauritius are also apparently spared royalty taxes compared to other countries in the region who in some cases tax at the rate of 20 per cent.  In addition, Mauritius has more than 30 double taxation treaties with African countries alone and has recently entered into Investment Promotion and Protection Agreements (IPPAs) with its double taxation partners.

Finally an efficient judicial and dispute resolution mechanisms has also given Mauritius an edge over the competition in Africa, with the The World Bank’s Doing Business 2011 report, ranking Mauritius’ judicial system as the best in Africa in terms of reforms aimed at facilitating business and investment transactions.

See related full article here.

US State Department to aggressively increase FDI in Africa.

Its about time we linked AGOA to FDI.  So far, US companies have played a more limited role in boosting AGOA exports from Africa. 

Regarding the linkage between AGOA and FDI, especially in the textile and apparel industry in SSA, an example is the textile and apparel industry in Lesotho, one of the largest in SSA, which has been boosted in recent years by the influx of Asian investors who have taken advantage of the AGOA program.

However this is not investment coming from the US.

See related article here.

Agency Banking- Reaching the Unbanked

The agent bank offers the same services as a real bank —cash deposits and withdrawal, disbursement and repayment of loans, payment of salaries, pension, transfer of funds, and issuance of mini-bank statements, among others.

The agent also facilitates new account opening, credit and debit card application, cheque book request and collection and is linked to Equity Bank’s systems electronically, eliminating the need for the commercial bank to have a branch in Ruaka to do business.

This is being replicated across the country, especially in rural areas, with Equity Bank saying that already 1,000 banking agents have started operating.

The Central Bank has licensed four banks, including Equity, to carry out agent banking business and approved 8,809 specific agents since last year.

Should the remaining over 7,000 agents roll out their services as expected early in the year, then this would deeply boost penetration of banking services in the country even as banks eliminate costs on physical branch expansion in areas with low volumes.

Agents may be able to play a role in a broad range of services, including account opening, cash-in and cash-out services (including cash disbursement of bank-approved loans and repayment collection), payment and transfer services (including international remittances and person-to-person domestic transfers), and perhaps even credit underwriting.

A major obstacle to financial inclusion is cost—not only the cost incurred by banks in servicing low value accounts and extending banking infrastructure to un-derserved, low-income areas, but also the cost incurred by poor customers (in terms of time and expense) in reaching bank branches. Achieving financial inclusion therefore requires innovative business models that dramatically reduce costs for everyone and thus pave the way to profitable extension of financial services to the world’s poor.

India's National Innovation Council

There is much we can learn from India on innovation (viewed as the transformation of knowledge into goods and services for the marketplace).  Realising that innovation is the engine for the growth of prosperity and national competitiveness in the 21st century, the President of India declared 2010 as the ‘Decade of Innovation’. To take this agenda forward, the Office of Adviser to the PM on Public Information Infrastructure and Innovations (PIII) developed a national strategy on innovation with a focus on an Indian model of inclusive growth. The idea is to create an indigenous model of development suited to Indian needs and challenges.

Towards this end, the Prime Minister has approved the setting up of a National Innovation Council (NIC) under the Chairmanship of Mr. Sam Pitroda, Adviser to the PM on PIII to discuss, analyse and help implement strategies for inclusive innovation in India and prepare a Roadmap for Innovation 2010-2020. NIC would be the first step in creating a crosscutting system which will provide mutually reinforcing policies, recommendations and methodologies to implement and boost innovation performance in the country.

One of the outcomes of this process has been a proposal to set up 14 new “universities for innovation” that will aim at stimulating economic growth.  Africa can learn a lot from India’s experiences, especially in regard to the importance of bringing technical knowledge to bear on development through a new species of universities.  These universities will aim at doing for India in the 21st century what its institutes of technology did in the last century.  India is showing Africa that the secret of economic success is not a secret: it lays in re-inventing the university system.

Africa should therefore no longer be an enclave reserved for mineral and raw material extraction.  There is alot of potential in the African continent however the limiting factors include Africa’s low level of training in engineering sciences and the lack of venture capital to turn ideas of products for the marketplace. On education, a new generation of technology/innovation schools directly linked to the productive sector, will be an effective way to move to the frontiers of technological innovation.

Useful discussion on innovation in Africa can be accessed here.

Structural Changes in the SA Aviation Industry

A new airline is reportedly seeking a certificate and air service licence issued by the Air Service Licensing Council in SA in order to gain admittance into the local South African airspace. This should be good news for consumers.

The Business Day carries the following excerpt:

"A NEW airline flying between Cape Town, Durban and Johannesburg may grace SA’s skies this year, adding to competition in a sector traded by at least three budget airlines and South African Airways.  Very little is known about the backers of Durban-based Velvet Sky, and a source who did not wish to be named said yesterday that it would be premature to comment on plans.....

SA’s airline industry is in a state of structural change, with premium national airlines such as South African Airways losing market share against no-frills competitors such as JSE-listed 1time and kulula.com.

Last month, low-cost airline Mango took over all the Durban-to-Cape Town flights from its parent, South African Airways. The move has been interpreted as part of a strategy by the national carrier to exit short-haul routes where it has lost market share."

Predictions: The Next BRICs and EAGLEs

There is much debate about the economic or political merits of South Africa's invitation to join the BRIC group of countries. The term BRIC (Brazil, Russia, India and China) was invented in 2001 by Economist Jim O’Neill, now the chairman of Goldman Sachs Asset Management. While path-breaking when coined, the concept of BRIC seems outdated today given increased growth differential among the four countries and given that the grouping is also not considered a structural concept since it depends on a country’s growth projections. 

Which countries were predicted to be the next BRICs? Goldman Sachs identified the Next 11 (N-11) countries that could rival the G7 over time, in the context of several important BRICs themes: energy, infrastructure, urbanisation, human capital and technology. The N-11 include Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam. 

Meanwhile, a new group of countries have been coined EAGLESs by BBVA. The EAGLEs, which stands for Emerging and Growth-Leading Economies include the four giant economies (China, India, Brazil and Russia) but also six more countries, namely Korea, Indonesia, Mexico, Turkey, Egypt and Taiwan. 

BBVA has also identified the Next 11 Eagles which which have common characteristics with the EAGLEs and could be included if their growth prospects (already very positive generally) improved in coming years. The 11 countries in the Nest are: Nigeria, Poland, South Africa, Thailand, Colombia, Vietnam, Bangladesh, Malaysia, Argentina, Peru and Philippines.

Some facts about the EAGLEs:

In terms of the criterion for inclusion, each of these ten countries are expected to contribute more to global GDP growth than the average of the countries which have long been considered the most relevant ones worldwide, namely the G7.

In other words, EAGLE countries are chosen because they will be the most relevant in terms of new generated business. The EAGLEs are expected to be responsible for 50% of all global growth in the next 10 years. That compares with 14% for the G7.

This is not only about China or the BRICS. The EAGLEs countries outside the BRICS will grow by almost 4 trillion the next decade, equivalent to 10% of world growth. That compares with 2.4 trillions for the aggregate of Japan, Germany, UK, France, Canada and Italy (six percent of world growth).

From an African perspective, Egypt appears to have made both lists (Next BRIC and EAGLE) while Nigeria was identified as a Next BRIC and potential EAGLE. Meanwhile South Africa was identified as a potential EAGLE but may now be the newest Member of the BRIC group.

Fragility of African Stock Exchanges

Reuters Africa

One of the biggest obstacles to investing in African stock markets is the paucity of listed companies and the limited number of shares traded on them. So the prospect of two fairly major delistings is not a particularly comfortable one for African exchanges at a time they are trying to encourage more companies to list and to capitalise on the growing investor appetite for Africa.

Bharti Airtel is delisting its Lusaka-listed Celtel Zambia unit – the second biggest company by market capitalization on the Zambian stock exchange – following a mandatory offer to buy out minority shareholders.

Meanwhile, Greek Coke bottler Coca-Cola Hellenic – the world’s second biggest Coke bottler – plans to buy out the Nigerian Bottling Company and turn it into a wholly-owned subsidiary in a $126 million deal. It already owned two-thirds of the shares.

In neither case is there a suggestion the parent company will not be planning to pump in more investment – quite the opposite in fact as Africa is increasingly seen as a place to get above average returns and with excellent growth prospects.  But taking the companies off the stock exchanges removes the chance for other investors to get that direct exposure to the African opportunities.

There was a chance South African retailer Massmart could disappear from the bourse too after WalMart announced a buyout plan, but the U.S. giant now intends to keep the Johannesburg listing – so Massmart investors can keep their participation in the expected growth it sees in Africa.

Overall it hasn’t been a bad year for African stock exchange listings given that we’ve seen Nigeria’s Dangote Cement – the biggest firm in sub-Saharan Africa outside South Africa – float its shares in a listing which valued it at $14 billion at the time (now nearer $12 billion).  That said, the free float – the proportion of shares held by investors likely to trade – is only just over 5 percent.

African stock exchanges certainly have their work cut out to encourage more companies to see them as the best place for raising finance. Questions have long been raised over whether Africa needs so many small national exchanges and whether it might not be to everyone’s advantage to have listings on fewer, bigger markets.

See previous post here.