Tag Archives: Economics

General

After $300bn promise, what next for Africa’s exports to China?

Trade between Africa and China looks set to reach the targets offered in 2021; but what will it take to shift it toward value addition on the continent?

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August 15th, 2024 Opinion by Rosie Wigmore Image : FADEL SENNA/AFP

In 2021, at the eighth Forum on China-Africa Cooperation (FOCAC), China pledged to import total African products worth $300bn over three years. This was not an overly ambitious target given that, based on Chinese import figures, Africa exported $275bn worth of goods to China between 2019 and 2021. Indeed, China has been Africa’s largest bilateral export destination since 2009. Nevertheless, it was still an important target because it was not only the first import target that China had set for Africa, it was also the first import target that had been set for Africa by any development partner.

A key reason for the target was to respond to African demands to reduce growing trade imbalances between Africa and China. To help reach the target, China also announced a range of supportive trade initiatives at FOCAC including $10bn worth of trade financing to boost African exports to China, “green lanes” to fast-track African agricultural exports to China, online shopping festivals to promote and sell African products in China and further increase the scope of African products enjoying zero-tariff treatment.

The good news for Africa is that this target is very likely to be met. Between January 2022 and June 2024, and again based on Chinese import figures, African countries have exported a total of $286bn worth of goods, meaning China has to import just an additional $14bn worth from Africa over the coming months to reach the target. From this perspective, the target has worked: it’s been a success.

The bad news is that over the same period Africa’s trade deficit with China actually widened. For example, in 2021 the trade deficit was $39bn and by 2023 it was $63bn. Furthermore, while there was some diversification, in 2023 just nine African countries, all resource-rich countries, accounted for 83% of exports with China and this trend has continued into 2024.
How to build on trade success

So what can be done in the next iteration of FOCAC to build on the success while also recognising the shortcomings of the target? Continue reading After $300bn promise, what next for Africa’s exports to China? →

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General

IMF projects improved growth for Africa but debt and limited taxes still prompt concern

he International Monetary Fund (IMF) projects that the continent’s economic growth will reach 3.5% in 2024 and 4% in 2025.

Some of the factors fuelling this optimism include the fact that inflation has almost halved, public debt ratios have broadly stabilised, and several countries have issued Eurobonds this year, ending a two-year hiatus from international markets.

“After peaking at almost 10% in late 2022, inflation has nearly halved to around 6% in the early part of the year thanks to decisive action by central banks,” Abebe Aemro Selassie, the director of the African department at the IMF, told reporters during the Fund’s spring meetings this April.

He emphasised that lower inflation has translated to slower food price increases, terming this as a “positive development” for a region where the cost-of-living crisis has been acute in recent years. “In addition, fiscal consolidation efforts are starting to pay off, with the median public debt stabilising at around 60% of GDP, halting a 10-year upward trend,” he observed.

Not out of the woods yet

“These are encouraging signs. But the region is not out of the woods yet,” cautions Selassie, citing concerns around high borrowing costs amid a crippling funding squeeze facing several countries on the continent. “Far too many countries still face a funding squeeze. Their borrowing costs are high, and funding sources curtailed. Government interest payments now account for about 12% of revenues, more than double the level a decade ago. And official development assistance has become scarcer.”

The impact of these challenges on Africa is significant. Rather than increasing investment in critical areas such as health, education, agriculture, and infrastructure – sectors that can drive development and lift millions out of poverty – governments are allocating essential funds toward debt servicing. This has implications for the region’s growth prospects and its ability to withstand future shocks, argues Selassie, who oversees the IMF’s operations and engagement with 45 countries across sub-Saharan Africa.

He believes that in the face of these challenges, governments in the region should prioritise domestic resource mobilisation, laying emphasis on tax policies that help governments cut their deficits. Specifically, he called for African countries to “cut back tax expenditures” that undermine equity. Tax expenditures are special provisions in the tax code – such as exclusions, deductions, deferrals, credits, and preferential tax rates – that benefit specific activities or groups of taxpayers. He also called for continued digitization of tax procedures to boost efficiency and transparency.

Getting African countries to pay more tax, while ensuring that the burden is equitably shared and economic stability and growth are not compromised in the process, will be key in bolstering Africa’s efforts to reduce its unhealthy reliance on international debt markets.

Many African countries receive a much lower proportion of their GDP in tax than do countries on other continents, according to a report by the Organisation for Co-operation and Economic Development (OECD). The report, which covers tax revenue data for 30 African countries between 1990 and 2018, shows that the average tax-to-GDP ratio for the 30 African countries was 16.5% in 2018. This compared with an average of 34.3% in the 38 OECD member states; and 23.1% for the Latin American and Caribbean nations.

Calls for global financial architecture reform grow louder

Africa’s challenge in collecting sufficient taxes partly stems from international firms exploiting loopholes in the global taxation system to evade paying taxes on the continent, leading African countries to an unhealthy reliance on international debt markets.

“A new global tax system attentive to the needs of the global south is a key priority,” notes Brahima Coulibaly, vice president and director of global economy and development, Brookings Institution. There are positive signs that the global taxation system is moving toward greater equity. Last year, an Africa-backed resolution at the United Nations (UN) paved the way for transferring control of international tax rules from the OECD – comprising 38 wealthy countries – to the UN. This shift ensures that all 193 member states are on a more equal footing, giving African countries a fairer chance at shaping outcomes on negotiations relating to international taxation.

Continue reading IMF projects improved growth for Africa but debt and limited taxes still prompt concern →

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General

ECA executive secretary Claver Gatete: Only a regional approach can deliver fast development

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Rwanda’s former minister of finance Claver Gatete takes over as the executive secretary of the UN Economic Commission of Africa at a time of great change for the continent.

Claver Gatete takes over the leadership of the United Nations’ Economic Commission for Africa (ECA) at a pivotal juncture, as we approach the halfway stage of the UN Sustainable Development Goals (SDGs) and as Africa enters the second decade of its development blueprint Agenda 2063.

The long shadow of Covid-19 still hangs over the global economy with countries around the world, but especially in Africa, trying to recover from the supply chain shocks, sky-high inflation and the subsequent interest rate hikes. Adding to the current instability is the war in Ukraine – arguably a symptom of a re-ordering in the 70-year old rules-based, neoliberal order that had, seemingly, been entrenched in the wake of the last major disruption, the Second World War.

Into the mix comes the latest, harrowing manifestation of the long running conflict in the Middle East and its potential to spill over with incalculable consequences for the world. The need for finance Also on the table is the stark fact what while Western countries, especially in America and Europe, have been able to run large deficits and inject large amounts of cash to kick-start growth, those in Africa and the wider developing world continue to be bogged down by a lack of concessional or affordable financing.

To add to their woes they also face existential threats from climate-related events, hence the urgent demand for a greater say in the global economic and political structures that do not serve them fairly. This is the maelstrom that Gatete steps into as executive secretary of the UN agency, which wasspecifically set up to “promote the economic and social development of its member states, foster intraregional integration, and promote international cooperation for Africa’s development”.

In pursuit of this mandate, the Commission offers advice to member states, helps to strengthen macroeconomic policy and supports efforts towards regional and sub-regional integration. Perhaps the best summary of what the ECA has been responsible for was provided by the late Professor Adebayo Adedeji, the celebrated former head of the organisation, in his presentation – History and Prospects for Regional Integration in Africa” in 2002. He said that the ECA had been involved in “the establishment of virtually all the major existing African regional integration arrangements (ARIA) namely, the Economic Community of West African States (ECOWAS, 1975), the Preferential Trade Area for Eastern and Southern Africa (PTA, 1981) which was subsequently transformed into COMESA, the Central African Economic Community (CAEC, 1983) and the African Economic Community (AEC, 1991)”.

When we met Gatete in Victoria Falls, Zimbabwe, he offered a practical assessment of what the ECA’s role should be during this dramatic moment in the history of the continent. Its more routine task is to support macroeconomic management, which he explains includes fiscal management, supporting the real productive sectors and fostering a balance between payments and monetary policy.

“Everything you do has an implication on the monetary side. Whatever decision you take definitely has an implication because if you have to accumulate more debt or more deficit, it has implications. So we help countries to manage their own macroeconomic situation, because that’s what is going to actually stabilise the country,” he says.
Continue reading ECA executive secretary Claver Gatete: Only a regional approach can deliver fast development →

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Nigeria

Nigeria set for two aggressive interest rate hikes in Q1 – Reuters poll

By Vuyani Ndaba
February 23, 20245:37 PM GMT+1Updated 20 hours ago

JOHANNESBURG, Feb 23 (Reuters) – Nigeria is set for two aggressive interest rate hikes within a little over a month to subdue inflation and boost the naira after a couple of missed monetary policy meetings, a Reuters poll found on Friday.
A survey taken in the past week suggests that Nigeria’s monetary policy rate will be hiked 225 basis points to 21.00% on Feb. 27, in Governor Olayemi Cardoso’s first monetary policy meeting since he took office a couple of months ago.

There was no clear majority in the sample of 15 analysts, with one expecting a 50 bps hike to 19.25% and one a 1,000 bps increase to 28.75%.
That sets the stage for Cardoso to possibly act aggressively, though some doubt authorities have the appetite.
“We expect significant policy tightening and the announcement of de facto system-wide tightening measures,” wrote Razia Khan at Standard Chartered.
“We think both steps are needed to attract greater foreign portfolio investment and anchor inflation expectations,” she added.

A 175 bps jump to 22.75% is expected in March.
Consumer inflation in Africa’s biggest economy quickened for the 13th straight month in January to 29.90%, raising the cost of living to unbearable levels for many in the continent’s most populous nation.
The Central Bank of Nigeria (CBN) has not had a policy meeting since July, putting it out of kilter with the rest of the continent’s key central banks that hold meetings almost every second month.

“Reassuringly, the CBN has announced that it will hold its first two MPC meetings of the year in quick succession, on February 27 and March 26,” wrote analysts at Barclays.
“This suggests to us that it is aware it is well behind the policy curve, and will need to deliver at least two strong doses of policy tightening.”
The naira fell to its weakest level at 1,680.5 per dollar on Wednesday in the official spot market amidst a chronic shortage of the U.S. currency.

David Omojomolo, Africa economist at Capital Economics, wrote that the latest devaluation may be enough to put the balance of payments on a stable footing, though as things stand the currency has continued to weaken on the parallel market.
A poll last month suggested economic growth in Nigeria would be 3.0% this year and 3.7% next.
“Nigeria needs to take a leaf out of Kenya or Zambia’s book – and ‘tighten’ monetary policy with rate hikes,” said Charlie Robertson, head of macro strategy at FIM Partners.
Stabilising the naira is probably the most pro-growth move the CBN could make, so interest rate hikes would benefit Nigeria more than harm it, he added.

Reporting by Vuyani Ndaba; Editing by Jan Harvey

Source: Reuters, 23rd February 2024

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Nigeria

Africa’s largest economy is battling a currency crisis and a crumbling economy

PUBLISHED: Wed, 21 Feb 2024 08:13:09 GMT
Elliot Smith
CNBC

With inflation nearing 30% and its currency hitting an all-time low, Nigeria is facing one of its worst economic crises in years.
The latest data from the National Bureau of Statistics on Thursday showed that the headline consumer price index (CPI) rose to 29.9% year-on-year in January, its highest level since 1996.
The surging cost of living and economic hardship sparked protests across the country over the weekend.

With annual inflation nearing 30% and a currency in freefall, Nigeria is facing one of its worst economic crises in years, provoking nationwide outrage and protests.

The Nigerian naira hit a new all-time low against the U.S. dollar on both the official and parallel foreign exchange markets on Monday, sliding to almost 1,600 against the greenback on the official market from around 900 at the start of the year.

President Bola Tinubu announced Tuesday that the federal government plans to raise at least $10 billion to boost foreign exchange liquidity and stabilize the naira, according to multiple local media reports.

The currency is down around 70% since May 2023 when Tinubu took office, inheriting a struggling economy and promising a raft of reforms aimed at steadying the ship.

In a bid to fix the beleaguered economy and attract international investment, Tinubu unified Nigeria’s multiple exchange rates and enabled market forces to set the exchange rate, sending the currency plunging. In January, the market regulator also changed how it calculates the currency’s closing rate, resulting in another de facto devaluation.

Years of foreign exchange controls have also generated enormous pent-up demand for U.S. dollars at a time when overseas investment and crude oil exports have declined.

“The weakened exchange rate should increase imported inflation, which will exacerbate price pressures in Nigeria,” Pieter Scribante, senior political economist at Oxford Economics, said in a note Friday.

The country is Africa’s largest economy and has a population of more than 210 million people, but relies heavily on imports to meet the needs of its rapidly growing population.

“Shrinking disposable incomes and worsening cost-of-living pressures should remain concerns throughout 2024, further stifling consumer spending and private sector growth,” Scribante added.

Inflation, meanwhile, continues to soar, with the headline consumer price index hitting 29.9% year-on-year in January, its highest level since 1996. The increase is being driven by a persistent rise in food prices which jumped by 35.4% last month compared to the year before.

The surging cost of living and economic hardship prompted protests across the country over the weekend. The plummeting currency has added to the negative impact of government reforms such as the removal of gas subsidies, which tripled gas prices.

President Tinubu said in late July that the government had already saved more than 1 trillion naira ($666.4 million) from removing the subsidies, which it will redirect into infrastructure investment.

Alongside soaring inflation and a plunging currency, Nigeria is also battling record levels of government debt, high unemployment, power shortages and declining oil production — its main export. These economic pressures are compounded by violence and insecurity in many rural areas.

“Excess market liquidity, exchange rate pressures, and food and fuel shortages threaten price stability, while inflation risks rising out of the government’s control,” Oxford Economics’ Scribante added.

“Robust import demand could force the Central Bank of Nigeria (CBN) to reimpose import bans and FX restrictions to lessen the burden on the balance of payments. This could exacerbate domestic product shortages and increase inflation further.”

Inflation is expected to peak at nearly 33% year-on-year in the second quarter of 2024, according to Oxford Economics, and could stay higher for longer given the plethora of economic risks ahead.

“Furthermore, rising inflation and increased hawkishness by the CBN indicate that the policy rate could be raised this quarter,” Scribante said. The policy rate currently sits at 18.75%.

“We expect a combined 200 bps in rate hikes at the next two MPC meetings, scheduled for end-February and end-March this year; however, we think that more hikes are needed to stem rising inflation,” Scribante added.

Jason Tuvey, deputy chief emerging markets economist at Capital Economics, sees the CBN opting for a bigger interest rate bazooka when policymakers meet on Feb. 26 and 27.

“The meeting will be a key test of whether the policy shift under President Tinubu is truly regaining some momentum,” Tuvey said in a note Thursday.

“We expect that the MPC will try to restore some of its inflation-fighting credibility by delivering a large interest rate of 400bp, to 22.75%.”

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