by Catherine Grant Makokera | Feb 12, 2018 | Blog, Publications
Authors: Catherine Grant Makokera and Faith Tigere
The Group of Twenty (G-20) remains the premier forum for international cooperation on global economic governance and finance. Representing a large chunk of the global economy (86{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}) and world trade (78{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}), it is not surprising that over time the Group’s mandate has expanded to address other issues. Through the different summits that have been held, issues ranging from development, environment and health have been included on the agenda. In addition to that, the adoption of the UN’s 2030 Agenda and the Sustainable Development Goals (SDGs) has required the G-20 to adjust its approach to development issues. This has resulted in the G-20 adopting a range of plans to contribute to the implementation of the SDGs.
The G-20’s policies and plans have an impact on Africa’s overall economic development. As such, the participation of Africa in the G-20 process is crucial. South Africa is the only permanent member of the G-20 from Africa. It bears a huge responsibility in ensuring effective participation for its interests as well as those of the continent where necessary. Representative agencies who have an observer status, such as the New Partnership for Africa’s Development (NEPAD) and African Union (AU), similarly have a role to play. These African institutions have an opportunity for more effective participation now that there is space provided for greater participation by the NEPAD Agency and the AU Commission (rather than representation only through the rotating political heads of the organisations).
The G-20 has stated that Africa’s development remains a priority for them. An analysis of the G-20 agenda indicates key issues are included that are of relevance to Africa such as infrastructure, food security and human resource development. Initiatives that have been introduced include the G-20 Energy Access Action Plan in Sub-Saharan Africa (Antalya Summit), Support for Industrialisation (Hangzhou Summit) and the G-20 Africa Partnership (Hamburg Summit).
Bearing in mind that Africa’s economic development is also a priority for African states and the AU. The AU has developed its own Agenda 2063 – a strategic framework for Africa’s sustainable socio-economic transformation and integration to be implemented over a five-decade period. The agenda is summarised in six aspirations and still needs to be fleshed out to identify a concrete set of objectives. A comparative analysis of the AU Agenda and the UN 2030 Agenda shows there are significant overlaps between the two agreements. These overlaps include the objectives of poverty alleviation, achieving food security, full access to education, sustainable development, achieving sound health and wellbeing, and achieving gender equality in all spheres of life.
As the UN SDGs and the AU Agenda are aligned, it becomes easier to incorporate developmental issues in the G-20 agenda. The G-20 has indicated a commitment to the UN SDGs and some goals have been explicitly incorporated into the agenda. For example, the goal to alleviate poverty has seen support from initiatives such as the G-20 and Low Income Developing Countries Framework (Antalya Summit), Good Practices on Family Farming and Smallholder Agriculture (Hangzhou Summit) and the G-20 Initiative for Rural Youth Employment (Hamburg Summit).
Through the work of the G-20 Development Working Group (DWG) , a level of continuity in terms of African objectives is ensured. The main objective of the group is ensuring the consistency with the G-20 framework, engaging developing countries, and focusing on tangible outcomes for low-income countries to mention just a few. The original agenda for the DWG was agreed in the Seoul Declaration and included infrastructure, trade, human resource development, food security, financial inclusion, private investment and job creation, growth with resilience, domestic resource mobilisation, and knowledge sharing.
There are many benefits that can be gleaned from the G-20 by developing and least developed countries alike. A number of analysts and researchers have made useful suggestions of how Africa can benefit from the G-20 process. These include the following from the Think-20:
- Ensuring that the representative agencies at the G-20 are fully resourced and supported.
- A close cooperation by all the different countries to implement the SDGs to ensure that no one is left behind.
- Prioritising areas where there is a significant overlap between the G-20 initiatives, DWG and the UN SDGs.
- Implementing G-20 commitments that support the SDGs and African development.
- Bridging the gap between existing initiatives and to build linkages across different initiatives by the different summits.
- Encouraging international finance institutions to embed the SDGs in their work.
- Promoting capital flows from surplus countries to profitable opportunities in sustainable infrastructure and climate finance.
These are just some of the recommendations made to fully reap the benefits of the G-20. South Africa as a permanent member could also identify some focus areas that it could prioritise and seek to obtain tangible results. In addition to that, South Africa could continue with a balanced approach to the three dimensions of sustainable development (economic, social and environmental) and specify contributions towards both the environment and the social dimension.
Our most recent paper on the G-20 explores these issues in more detail and makes additional recommendations for the engagement of African policymakers with the G-20.
Photo credit: GovernmentZA on Visualhunt / CC BY-ND
by Catherine Grant Makokera | Oct 24, 2017 | Blog, News, Publications
Exports have to come to the country’s rescue, in the face of persistent slow economic growth and government’s small room to manoeuvre on the domestic front.
When Finance Minister Malusi Gigaba presents his first budget speech this week, he will have to reckon with managing debt and tax levels. He has little in his armoury in the Medium-Term Budget Policy Statement (MTBPS) to spur the economy, set to grow at only half a percent this year, or boost business confidence, at its weakest in 30 years according to the South African Chamber of Commerce and Industry’s index in August 2017.
Earlier this year the Industrial Development Corporation (IDC) advised that “the South African economy will most likely have to rely on exports for a positive performance”. Signs of an export boost are encouraging. Demand in the markets of our key trading partners is looking up.
For example, the European Union (EU) – our biggest trading partner as a region – is expected to achieve ‘above-potential’ growth levels this year and in coming years on the back of much stronger performance in the first part of 2017. The IDC predicts that economic activity will continue to expand in the US, Eurozone and China at least over the shorter term. A relatively competitive exchange rate helps.
Firms which can take advantage of global market opportunities will be in a stronger position to weather the challenges in the domestic market in South Africa. These firms can continue to employ people and contribute to the broader economy through linkages with other firms, payment of taxes and consumption of infrastructure services at ports etc. Exporters engaged with developed country markets have been shown to have high levels of productivity, produce high-quality products, employ highly skilled workers and pay high wages. South Africa needs to encourage these kinds of firms to contribute during grey days for the economy as a whole.
One way to provide such encouragement that does not put a further strain on limited government resources is to negotiate favourable market access conditions for South African exporters with key trading partners. The government did this when it signed a comprehensive free trade agreement with the EU in 2016. The Southern African Development Community (SADC) Economic Partnership Agreement (EPA) with the EU entered into force just over one year ago and there are already signs of increased exports from South Africa to Europe for an expanding range of products.
The IDC confirmed that there is strong existing trade in motor vehicles and machinery between EU countries and South Africa. Possible export development opportunities exist across a much wider range of industries, including in agriculture, electrical equipment, processed fish, jewellery and footwear.
More could be done to take advantage of the SADC-EU EPA and to ensure that trade with Europe continues to make a positive contribution to the South African economy. Raising awareness of the opportunities and providing information to potential exporters is an important first step. Ensuring access to the necessary testing facilities and quality assurance infrastructure is another area where the government can work closely with the private sector to maximise exports. Assistance with access to trade finance and supporting participation in marketing activities also requires a new momentum and emphasis.
Gigaba faces the pull of many competing forces, and it will be interesting to see if the MTBPS spares any thought for the exporting community. These firms continue to provide employment and some relief in difficult times.
This article was originally published by Business Report, on 23 October 2017, and is available here.
Photo credit: Renate Dodell via VisualHunt / CC BY-ND
by Peter Draper | Sep 22, 2017 | Blog, Publications
Sustainable development is increasingly becoming mainstream in trade agreements. The past few years have seen a significant upsurge in the inclusion of sustainable development provisions (SDPs) in regional trade agreements (RTAs), particularly in deep-integration RTAs – i.e. those seeking commitments beyond WTO obligations. There has been interest in using RTAs as building blocks towards the multilateralisation of SDPs.
Trends in sustainability provisions across RTAs
A plethora of RTAs we reviewed, concluded by Canada, Australia, Canada, Chile, the European Free Trade Association (EFTA), the EU, Japan and the US, have included SDPs. However, the levels of incorporation of SDPs differ, with some RTAs containing more comprehensive measures than others. Some RTAs just pay homage to sustainable development with no real commitments undertaken.
On balance, incorporation tools have over time undergone a substantive transformation away from mere dialogue provisions towards comprehensive SDPs in preambles, general exceptions clauses, dedicated chapters, incorporation in other chapters, side letters, and side agreements.
Despite this trend of incorporating comprehensive provisions into deep-integration RTAs, there is still no consensus to create binding provisions subject to dispute settlement in RTAs, with the partial exception of the Trans-Pacific Partnership (TPP). Of course, there are some exceptions that always create binding obligations, notably in US RTAs since the North American Free Trade Agreement (NAFTA). Nonetheless, the absence of binding commitments subject to dispute settlement may indicate that most states prefer a soft law approach to sustainable development issues. These soft law provisions take the form of cooperation mechanisms, consultation requirements, enforcement mechanisms, and reaffirmation of international standards.
Some RTAs have gone beyond soft law provisions to incorporate investor-state dispute settlement (ISDS) which creates another platform to resolve disputes, notwithstanding the controversy surrounding them. Most prominently, a new Investment Court System for dispute settlements is being established under the Comprehensive Economic and Trade Agreement (CETA), partly with a view to enhance the enforceability of SDPs.
Another trend concerns the provisions addressed in RTAs, where provisions broadly address similar social and environmental issues. The main social issues addressed include labour, transparency, and political participation. The main environmental issues include protection of the marine environment, ozone layer, and fisheries. The EU goes a step further to include a specific provision on human rights; but this still remains a challenge for other countries, most of which shy away from explicit human rights provisions. As a result, human rights provisions are only incorporated under other chapters, such as the labour chapter.
Furthermore, the standards in relation to labour and the environment are similar across RTAs. RTAs refer to similar international instruments such as the International Labour Organization (ILO) Declaration and the Montreal Protocol.
Overall, the incorporation of sustainable development into RTAs is far from complete, with many obstacles remaining. Against this backdrop, what are the prospects for multilateralising RTA SDPs?
Multilateralisation of sustainability provisions
Some SDPs are amenable to a multilateralisation process. The degree of similarity in the channel of incorporation, issues addressed (social and environmental), and enforcement mechanisms among some RTAs, notably those concluded by Canada, the EU, and the US attests to this.
While a critical mass of developed countries has adopted and continues to adopt SDPs, there has been unwillingness by developing countries to include SDPs in RTAs, though there are exceptions such as Chile. Many developing countries are wary of taking on SDP commitments that could impose rigorous obligations on them, or obligations they are not prepared to accept. Given the broader challenges with negotiating multilateral deals in the WTO, this does not bode well for multilateralising SDPs.
Despite these challenges, the quest for multilateralisation continues to grow. Possible avenues include:
- the extension of existing RTAs to willing non-parties to the overall package, thus widening the circle;
- regional consolidation, creating one larger RTA by combining two or more existing RTAs, for example the Tripartite Free Trade Agreement (TFTA) in Africa;
- a convergence of key SDPs through plurilateral agreements negotiated amongst a critical mass of countries in the WTO; and
- the WTO gradually adopting new substantive provisions or negotiating a new agreement like the Trade Facilitation Agreement (TFA) and ratifying it progressively.
In considering all these options, the WTO’s work programme on trade and sustainable development could be used as a basis to promote the extension of deep RTAs containing sustainability provisions.
Looking ahead
While important building blocks have been erected at the regional level, the multilateralisation of SDPs in RTAs is critical. It would ensure, among other things, uniform application of the provisions, which would facilitate the advancement of the UN Sustainable Development Goals. Work already done at the RTA level gives us ground for cautious optimism. With political will, more RTAs could be persuaded to join the bandwagon leading to greater acceptance and eventual multilateralisation of sustainable development provisions.
This article is derived from the paper Sustainability Provisions in Regional Trade Agreements: Can they be Multilateralised?
Peter Draper, Nkululeko Khumalo, and Faith Tigere are respectively Managing Director, Senior Associate, and Researcher, Tutwa Consulting Group.
In March 2017, ICTSD and the Inter-American Development Bank (IDB) organised a dialogue on sustainability provisions as part of the RTA Exchange project.
by Peter Draper | Aug 25, 2017 | Blog, Publications
Closer economic integration is a prescription frequently advocated for the African continent, and enthusiastically endorsed by politicians and business alike. Accordingly, the continent does not lack integration schemes, generally dubbed ‘Regional Economic Communities’ (RECs) – 14 all told. Frequently countries are members of two RECs, occasionally three (Swaziland comes to mind). If enthusiasm was a guide, all should be well on the regional economic integration front in Africa.
Yet all is not well. Compared to other regions of the world, intra-Africa exports, at approximately 18 percent of total exports, lag considerably. By contrast, intra-European Union exports are around two thirds of total exports, whereas East Asian and North American levels hover around the 50 percent mark. Why is this the case? Should we be concerned about it? And will the Continental Free Trade Agreement fix the ‘problem’?
Why is intra-African trade relatively low?
The short answer is, because African economies typically do not produce much beyond commodities, and those commodities are typically exported out of the continent to the developed world, China, and a few other dynamic emerging economies such as South Korea.
Contrast this pattern of trade with that centered on China; the ‘workshop of the world’. This is where final assembly of mostly labour-intensive, low wage manufactured goods takes place, typically for export to third markets and particularly developed countries. At the top end of manufacturing value chains developed countries such as Japan, Germany, and the US, are dominant, with their firms being the ‘bosses’ of value chain governance across the spectrum of goods production. Those value chains are spread out across the world, incorporating China and select production centres, with coordination taking place at corporate headquarters.
In this broad picture, African economies do feature, but mostly at the origin of many value chains, in other words supply of the raw materials – agriculture and minerals – that are transformed into intermediate products in the more technologically-advanced economies and subsequently shipped around the world to feed production of parts and components, for final assembly in China or other select locations. Exports of commodities consequently dominate African trade statistics, and so we should not be surprised to find that recorded levels of intra-African trade are low.
There are three mitigating factors in this structural dynamic, neither of which is captured adequately by official statistics. First, a substantial amount of unrecorded, informal, trade takes place across some African borders. Since the trade is informal – mirroring the central role that informal commerce plays within many African economies – it is not amenable to capture in official statistics. However, it is unlikely that African production drives this informal trade; rather, much of it is based on imported products, or products manufactured in the regional production hubs: South Africa, Kenya, Egypt, and Nigeria.
The existence of these hubs, or gateways, points to the second factor, which is the emergence of regional value chains centered on select economies. South Africa, with its comparatively diversified economic base, looms particularly large in this story, which explains the dominance of South African companies in the intra-African investment story. But regional ‘champions’, to use the Boston Consulting Group’s terminology, from the other hubs are increasingly part of the picture. As intra-African investments grow, so regional value chains will spread, and trade will commensurately increase.
The third point is that a number of African economies are specialising in various niches of the services sector. South African telecommunications companies, Kenyan information technology startups, and Nigerian banks come to mind, for example. Rebasing the Nigerian GDP level relied substantially on measuring this sector, and largely explains why that economy was briefly considered the largest in Africa. However, services trade is notoriously difficult to measure. Who knows, for example, how much digital trade Kenyan IT companies are responsible for? Nonetheless, there is considerable intra-African services trade, and as regional value chains extend their reach so the services on which many of them depend will also grow and cross borders.
Should we be concerned?
From the foregoing, we do not need to be unduly concerned. The main reason intra-African trade levels are low is because African economies are structurally linked into the global economy as providers of raw materials. The positive developing stories are not being properly told, and are difficult to measure.
However, there is no room for complacency. Governments, working with the private sector, can and should do much more to promote intra-African trade and investment. Report after report highlights the generally dismal environments for conducting business, relative to emerging market peers. Poor governance more generally remains a major obstacle in the path of building knowledge-intensive industries that would move countries up the value chain. And individual markets remain small and fragmented, considering which enlarging the market would allow for economies of scale to justify larger investments in productive capacity.
Will the Continental Free Trade Agreement fix the ‘problem’?
The CFTA is a logical part of the solution to the ‘problem’. All countries on the African economy are engaged in the process to establish it. However, a free trade agreement on this scale (in terms of number of countries involved) was always going to be politically challenging. And so, it has proved to be.
At the heart of the issue is differing visions regarding the role that free trade and investment should play in development strategy. Some countries subscribe to a ‘facilitative view’ of cross-border value chains, whereby trade and investment access should be liberalized and regulatory environments strengthened, to allow companies to move goods, services, and people across borders while ensuring their investments are protected. Others subscribe to a ‘restrictive view’, and advocate limited openings to protect domestic firms and workers, while obliging foreign companies to make more commitments to their markets using devices such as local content policies or looser intellectual property rights (IPR) protections.
Consequently, negotiations are on the ‘modalities’ governing import tariff liberalization, or level of ambition, that should govern the CFTA, are ongoing. At the time of writing it is not clear how services liberalization would be managed, owing to the same ideological differences visible in the goods negotiations, and so how ambitious the ensuing agreement would be. Nor does it seem likely that ‘behind the border’ regulations such as IPR will form part of the final mix.
Overall it is possible to conclude the CFTA although it may take much longer than the timelines announced by politicians. But given the differing perspectives on the place of trade liberalization in development strategy, it is likely that the agreement will not be ambitious. Therefore, and taking account of the structural factors that inhibit formal African trade integration, its impact on recorded trade levels is likely to be felt at the margin.
This article was first published in the NEPAD Yearbook 2017, available here.
Photo credit: World Bank Photo Collection via VisualHunt.com / CC BY-NC-ND
by Catherine Grant Makokera | Mar 2, 2016 | Blog, Publications
It is time for the government and private sector to identify a common vision and strategy for improving South Africa’s participation in the global economy so as to maximise the contribution to growth and development. To do this, however, requires supportive state-business relations, which have not yet been fully realised in South Africa. This ISS Paper outlines concrete steps that could be taken to strengthen South Africa’s economic diplomacy through greater links between government, business and parastatals.
There is no doubt that South Africa is pursuing economic diplomacy initiatives on a regular basis. However, these currently take place in the context of broader state-business relations that are fraught with challenges. Government has shown an on-going mistrust of the business community in South Africa, especially those firms who are active in other parts of the continent where there is a perceived clash between profit-seeking activities and the South African government’s broader developmental goals. This is demonstrated by attempts to put in place some kind of code of conduct or ‘guidelines’ to govern investment in neighbouring economies. The result of this dysfunctional relationship is a series of ad hoc engagements that do little to deepen commonly held development objectives between the state and private sector.
Organised business in South Africa is in disarray with tensions having re-emerged along racial lines with the reformation of the Black Business Council and the failure to have one coordinated voice on key policy issues through Business Unity South Africa. Without structures in place for firms to collectively engage on policy matters, including economic diplomacy, there is little follow through on any of the discussions that take place. The risk also increases of vested interests being able to dominate the engagements with government. Frustration has developed on both sides with the current processes available to discuss policy issues, such as the Presidential Business Working Group meetings.
South Africa has made economic diplomacy a priority but does it implement it effectively? Economic diplomacy has been defined in the South African context as ‘policies and activities that promote trade, FDI [foreign direct investment], tourism, and technology transfers to South Africa, and positively position the country in the world through imaging, branding, marketing and public diplomacy (domestic and international)’.[i] In today’s globalised economy, it is important to ensure that there are effective engagements at the international level that support the development objectives of a nation. This includes actively participating in setting the ‘rules of the game’ through regional and multilateral processes, like at the World Trade Organisation.
Like much of the development and implementation of foreign policy, economic diplomacy remains the mysterious domain of a few government officials and some researchers. This needs to change as there are many non-government stakeholders driving economic activity. The Department of International Relations and Cooperation (DIRCO) has recognised that an effective economic-diplomacy policy requires cooperation between the government and the private sector.[ii]
There is no escaping the reality that economic activities, like trade and investment, remain largely driven by business. For example, the television broadcasting activities of Naspers are a primary contributor to the sharing of information on South Africa with neighbouring countries. South African retailers, banks and telecommunication firms are increasingly visible presences across the continent. Governments can pursue policies that support the private sector and can negotiate the ‘rules of the game’ that enable such activities to flourish. Without both groups working in tandem and towards common goals, there will remain unfulfilled potential and, in the worst case, competing objectives that lead to tension both at home and abroad.
South Africa is clear that it will continue to play an active role on the continent to promote Africa’s development and growth both through economic diplomacy and other foreign policy tools. This includes continued leadership of peacebuilding activities in post-conflict states and fragile economies. This is one area where a more focused strategy for engaging South African business could show real dividends not only in development terms but also in commercial gains. Parastatals that have the capacity to engage outside of the domestic space (such as Transnet) could be used to anchor economic diplomacy initiatives that complement the peacebuilding work underway in countries like the DRC, Burundi and South Sudan.
Economic diplomacy is not just a fancy term found in foreign policy documents and then forgotten. It is a set of tools that can unlock contributions to improve the livelihoods of South Africans and those in neighbouring countries through increased levels of trade and investment. The government, private sector and parastatals are all active participants in our country’s economic diplomacy. It is important that they start pulling in the same direction so as to take advantage of the strengths and resources that they all bring to the table.
The paper was posted on 28th January 2015 and is available at the Institute for Security Studies website.
[i] Brendan Vickers and Rok Ajulu, South Africa’s Economic Diplomacy: Trade and Investment Promotion, report prepared for the Presidency’s Fifteen Year Review by the Institute for Global Dialogue, Pretoria, March 2008, 5.
[ii] Department of International Relations and Cooperation, Building a Better World: The Diplomacy of Ubuntu, White Paper on South Africa’s Foreign Policy, Pretoria: DIRCO, 2011, 28.
by Peter Draper | Mar 2, 2016 | Blog, Publications
Bonn: German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)
The number of preferential trade agreements has increased sharply over the past decade as a response to stagnant multilateral trade negotiations. Political economy features centrally in these negotiations, for instance in the context of the Continental Free Trade Agreement (CFTA). In this paper, we discuss the challenges of rule-of origin harmonisation in this process, which is a critical element for any further integration initiative in the continent. In particular, we review different approaches to the formulation of rules of origin, determining which firms qualify to take advantage of negotiated concessions.
We focus on the experiences of the three African regional economic communities (COMESA, EAC and SADC) that are busy merging into the Tripartite Free Trade Agreement (TFTA), and assess the potential for rules of origin harmonisation, drawing also on the examples of similar efforts being made around the globe, such as for the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP).
Strict rules of origin – as implemented by the European Union and the United States – require strong state institutional capacities to implement them. Firms incur high compliance costs if they wish to take advantage of them. South Africa insists on strict rules of origin, yet most African countries have weak state capacities, and the private sectors are weak and cash-strapped. Therefore, in order to maximise African countries benefits we caution against adopting rules of origin using the South African model in the CFTA.
Authors: Peter Draper, Cynthia Chikura and Heinrich Krogman. The paper is available on the German Development Institute website.
