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. 
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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.