ANALYTICAL BRIEF: Natural Resources and Economic Growth in East Africa

SOURCE: USAID Economic Analysis and Data Services (EADS)

East Africa offers unique opportunities and challenges for the management of natural resources in sub-Saharan Afri- ca. Although energy production and trade have lagged behind the rest of sub-Saharan Africa, East African countries hold considerable oil reserves and great potential for renewable energy including geothermal, hydro, solar, and wind. Many East Africans—particularly those residing in rural areas—lack access to electricity, but strengthened regulatory frameworks and the potential for increased intra-regional energy trade hold promise for expanded access in the future. In addition to energy, East Africa’s abundant biodiversity contributes to the economy through  sheries in the region’s lakes and coastal waters and through wildlife tourism. However, East Africa’s natural resources face partic- ular vulnerabilities with the threat of climate change, given the region’s high population growth, reliance on rain-fed agriculture, and recent history of extreme weather events.

This paper will examine the current state of natural resources in East Africa—with an analysis of energy, water, biodi- versity, and climate change—and investments that U.S. foreign assistance has made in these areas. For the purposes of this analysis, East Africa includes Burundi, Djibouti, Kenya, Ethiopia, Rwanda, South Sudan,Tanzania, and Uganda.

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Is the United States Prepared for China to be Africa’s Main Business Partner?

SOURCE: Center for Strategic & International Studies (CSIS)

Our competitors prioritize commercial diplomacy and offer upfront financing, speed, and intense intergovernmental facilitation and coordination, and we better draw a page from our economic competitors’ playbooks. The United States must leverage all the tools at its disposal in order to compete with its rivals on the continent.

Since 2012, bilateral assistance to sub-Saharan Africa has represented over 30 percent of the United States’ total official development assistance (ODA) every year. U.S. agencies, both those focused on commercial and economic issues and those focused on development, must better coordinate with each other on the ground in Africa and help U.S. businesses compete more effectively with Chinese ones. READ MORE HERE

FROM REGIONAL ECONOMIC COMMUNITIES TO A CONTINENTAL FREE TRADE AREA: Strategic tools to assist negotiators and agricultural policy design in Africa

Source: United Nations Conference on Trade and Development (UNCTAD)

The ultimate purpose of this work is to inform African policy-makers with strategic tools to assist trade negotiations and agricultural policy design. Its focus is on the eight Regional Economic Communities that exist in Africa, as they do not only constitute key building blocks for economic integration, but are also important actors working in collaboration with the AU in ensuring peace and stability in their regions.

Around 80 per cent of all intra-African trade  ows through Regional Economic Communities (RECs) and 20 per cent  ows outside trade agreements. Based on trade volumes,  ve countries play central roles in mobilizing the intra-African trade – Algeria, Côte d’Ivoire, Egypt, Nigeria, and South Africa – being responsible for 67 per cent of all intra-African traded volumes in 2015. However, the network analysis indicated that four countries in Africa represent central players in trade networks in the continent, namely South Africa, Côte d’Ivoire, Kenya and Morocco. As a result, these countries bene t from more diversi ed trade  ows and higher proportion of intermediate and value-added products than their neighbors. As a result, their experience could serve as pathways to development outcomes due to their pivotal role on connecting trade channels among SADC, CEN-SAD, COMESA, EAC, IGAD, UMA and ECOWAS. Among them, South Africa is a central player on establishing the CFTA because the country is not only responsible for the largest traded volumes in Africa (i.e. about 45 per cent of all intra-Africa exports) but also is a major commercial hub. South Africa has direct trade with 96 per cent of the intra-African network (53 countries out of 54 AU ́s member states).

Many producers based in African countries fall short to compete in domestic and regional markets due to many challenges such as the lack of infrastructure and supporting processes that leads to high unit cost (e.g. fresh poultry produce in Mozambique versus frozen poultry from Brazil). In addition, there is substantial and thriving informal trade in the region, which means that intra-African trade is in fact likely to be signi cantly higher than of cial statistics suggest, having direct implications for  scal revenue of governments in the region

READ MORE HERE

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It’s Much Ado About Nothing as Tanzania Frets Over Credit Rating

via Bloomberg

Tanzania may be less than enamored with its first credit rating, but there’s little to suggest the gas-rich East African nation would be blocked from the Eurobond market that it’s long been tempted to tap.

After discussing plans to get a rating for at least a decade, Tanzania obtained one of B1, four steps into junk territory, from Moody’s Investors Service on Friday. Government officials weren’t impressed. Dotto James, the permanent secretary in the finance ministry, told Dar es Salaam-based The Citizen newspaper that the assessment was premature and unrealistic.

Moody’s said while annual growth would probably average 6.7 percent until 2020, the outlook was negative because of Tanzania’s “very low institutional strength” and “moderately effective monetary policy.”

Tanzania already has $333 million of floating rate notes outstanding, which mature in March 2020 and pay Libor plus 600 basis points. The price has fallen since late January to 103.6 cents on the dollar, around the lowest in more than a year.

Still, that fall is more or less in line with the selloff of other African securities in that period. And the new rating itself shouldn’t be too much of a barrier if Tanzania decides to sell a Eurobond: Moody’s has placed it one level higher than regional neighbors Kenya, Rwanda and Uganda.

Kenya’s ability to attract $14 billion of orders for a $2 billion deal last month suggests yield-hungry bond investors are more than happy to buy the debt of junk-rated African sovereigns.

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Tax and Development: Beyond the Big Numbers

SOURCE: Center for Global Development

In New York, on Valentine’s Day, 450 tax professionals will gather for a major conference on tax and development. The Platform for Collaboration on Tax, a joint effort of the IMF, OECD, World Bank, and the UN, will bring together finance ministers and senior tax officials, development agencies, foundations, International NGO leaders, academics, researchers, and tax professionals from the private sector, around the role of tax in advancing progress towards the Sustainable Development Goals.

This gathering—perhaps the largest and most diverse of forum on tax and development—reflects the increasing attention on tax for development, and the critical role that international civil society have played in pushing it up the agenda. It is clear that countries’ own resources are fundamental to development, providing the largest share of financing, even in the poorest countries. There is both potential and need for governments to collect more tax and to do it more effectively, as economies grow. To support this, the Addis Tax Initiative was launched in 2015: 19 donor countries, plus the European Commission pledged to collectively double their technical cooperation for domestic revenue mobilisation by 2020. Partner countries—including Ethiopia, Ghana, Indonesia, Kenya, Liberia, Malawi, Philippines, and Uganda—pledged to step up domestic revenue mobilisation. And all players committed to promoting “Policy Coherence for Development.” Around the same time the G20/OECD Base Erosion and Profit Shifting programme launched into action, and now involves 111 countries, including many emerging and developing economies.

But discussion on tax and development can be pretty incoherent, both within and between different sectors. Debates between those seeking to invest and grow businesses and to improve investment environments, and those seeking to secure public revenues and accountability through domestic resource mobilisation have often been fractious, disconnected or antagonistic. A symptom of this is the tendency for inflated expectations about the scale of revenues at stake in relation to multinational corporations and misunderstandings and contested definitions on the issue of illicit financial flows.

Towards policy coherence

My new CGD paper seeks to get beyond the debates and misunderstandings about the “big numbers” to explore what real policy coherence for development over tax could mean. It highlights underexplored opportunities for improving domestic resource mobilisation if we “do tax differently” thinking of taxpayers not only as sources of incremental revenue but also as players in the economy, and stakeholders for state capability (see Eight Ideas).

Getting a sense of relative proportion about international and domestic tax issues is a critical starting point. It is often suggested by both international actors and domestic politicians that international tax issues are the most important factor holding back domestic resource mobilisation. The paper looks at broad estimates of potential additional tax in the three areas, illustrated below: (A) the domestic tax base, (B) the “overlapping tax base” between countries (such as where taxes on the profits of multinational corporations are determined using transfer pricing and tax treaties) and (C) the “hidden tax base,” where high net worth individuals use opaque offshore structures to evade taxation.

 

It finds that while estimates of the potential gain from improving international tax rules and administration across B and C could approach 1 percent of GDP for low and lower middle-income countries, potential additional tax from domestic policies across the broad tax base could be around 9 percent of GDP. As Mick Moore and Wilson Prichard at the International Centre for Tax and Development outline, there are significant opportunities to collect more tax as the economies of low-income countries grow, mainly through domestic policy action areas such as reviewing tax expenditures and incentives, improving VAT systems, collecting personal income taxes, property taxes, and enhancing the design of extractive sector fiscal systems. Many potential gains are achievable over time with modest financial expenditure and accessible levels of technical expertise, although care also needs to be taken that taxes do not increase poverty. The main enabler of change is political commitment strong enough to overcome vested interests among taxpayers, politicians, and tax administrators themselves. Ultimately the development benefit depends on taxes being spent well to provide valued public services.

This leaves donor countries, international organisations, foundation funders, and international NGOs with a dilemma: many of the most internationally accessible and salient levers of policy and influence relate to the 1 percent of cross-border rules rather than the other 9 percent of domestic tax policy and spending. Technical advice and capacity building in areas such as property tax and reducing tax exemptions can be “pushing on a string” if there is no political will to tax local elites more, or to give up the direct political tool of discretionary tax exemptions. There is a real danger that an intense public focus on the accessible and morally appealing (and often inflated) prospect of collecting incremental tax revenues through international tax action will distract government and civil society from a clear focus on how tax revenues, overall are collected and spent, and undermine investment. It can already be seen, particularly in the extractive industries, that inflated expectations can lead to vicious circles of policy and administration uncertainty and mistrustbetween taxpayers and governments, and to fiscal indiscipline and economic underperformance.

Fundamentally, what should prick the bubble of inflated expectations is remembering that for any government to collect a large proportion of its country’s GDP as tax revenue, it requires a large proportion of people in the economy to bear the burden of tax. The ability to use international mechanisms (or the push of technical advice) to compel people to pay more tax than has been secured through a social contract with their government is (thankfully) limited.

This is not just an inconvenient truth about the limits of development cooperation, but a fundamental one about the process of development. National development involves a shift from being a low productivity, low-tax country where voters do not expect fair treatment from revenue authorities or decent services from government, to being a prosperous country where public goods are secured by a government held accountable for tax and spending. It requires sustained economic growth and development of accountable institutions. And it is something that is done by people, not to people.

A path forward on taxation and development

This recognition that “tax is political” tends not to come up so much in the technically focused session of international tax conferences—focused on global tax rules, cooperation mechanisms, and capacity building programmes—but does in the late-night conversations.

Policymakers, tax experts, tax payers, tax professionals, and advocacy organisations need to find new ways to test ideas, share knowledge, collaborate, and learn together. This requires new narrative about tax and development, which is not defined by the promise of unfeasibly large revenues from taxing a narrow tax base multinationals, or solely focused on the incremental adoption of “best practice” tax policy and administration. Keeping the triple goals of revenue mobilisation, sustained economic growth and development of accountable institutions front and centre may provide a route towards common ground.

One useful way to think about the politics of taxation in practice, is in terms of the shift “from deals to rules” as described by Lant Prichett,  Kunal Sen, and Eric Werker. They view development as a linked process through which fair and enforced rules co-evolve with increasingly productive economies. The linkage is that most efficient firms tend to do better in investment environments where more of the transfers to and from the business (including taxation) are through official, predictable “rules” based channels, whereas less efficient ones can out-compete them where rents can be informally negotiated through “deals.” Taxation is essentially a rules-based form of extraction. What international businesses say they hate about tax is not so much the prospect of paying it, but facing uncertainty about it.

Prichett, Sen, and Werker argue that we should stop thinking of the private sector as a homogenous group, but look instead at the microclimates for different kinds of firms, based on the relationship between local elites and international market players, and how these can give rise to constituencies for reform. This opens up opportunities to think about how internationally accessible policy and influence levers might support the political economy of efficient, rule-based business in key sectors, leveraging the interest of taxpayers as advocates and supporters of reform.

While there is certainly need for long-term thinking on global tax reform and potential redesign of the tax system, as well as immediate action to close loopholes in the international tax system, and build capacity within revenue authorities, it is worth exploring the potential to develop targeted and practical approaches which view taxpayers not simply as potential sources of additional revenue, but as potential constituencies for reform in a shift from deals to rules.

Eight ideas

The paper raises eight ideas for win-win approaches:

  1. An “MLI for Development.” The Multilateral Instrument (MLI) has shown how tax treaties can be changed multilaterally. Could an MLI for Development be developed based on a set of minimum treaty provisions to support the needs of developing countries to balance investment certainty and simple revenue collection?
  2. Peer review mechanism for responsible tax practice. Multinational corporations are increasingly publishing tax principles and policies. Could businesses and others develop a peer review or broader assurance process on their practice and performance as responsible tax payers?
  3. Dispute resolution for development. Dispute resolution and mandatory arbitration are being promoted as part of the BEPS Action Plan as a means of securing tax certainty. What steps should be taken to make dispute resolution mechanisms accessible and useful for low-income countries?
  4. Improving the effectiveness of the UN Tax Committee. The UN Tax Committee plays an important role as a forum for developed and developing countries to address tax issues, in complement to the OECD processes, but it is constrained by lack of resources and some of its own procedures. How should the UN Tax Committee evolve to make it a more effective forum to serve the needs of developing countries?
  5. Business tax roadmaps. The Global Platform is promoting Medium Term Revenue Strategies as a coordination mechanism for policy, administration and legal development. Beyond being a bureaucratic mechanism linked to international funding, could governments engage with business stakeholders and develop business tax roadmaps to certainty to enable long-term investments?
  6. Technology solutions for identity assurance. The ability to identify the ultimate beneficial owners of accounts and corporations is crucial to detecting, tracking, and preventing illicit financial flows, and for tax administration, but, it does not necessarily follow that all ownership details should be required to be publicly searchable. Could a blockchain or other technology solution be used to provide a solution for compliant confidentiality, and secure identity and beneficial ownership certification?
  7. Investment grade tax policy for project finance. Tax uncertainty is a key barrier in developing multi-country investments such as power and infrastructure projects with bespoke deals often negotiated to overcome underlying complexity in the tax system. Could a simplified system for taxation of project finance be developed through a multisector collaboration involving governments, private sector, and development finance institutions?
  8. A “race to the top” of international financial centres. International Financial Centres are decried as ‘tax havens’, but at the same time they provide useful access to internationally trusted legal systems and modern, simple administration. Can the characteristics of a responsibly competitive international financial centre be identified, measured and developed into an index of responsible competitiveness of financial centres demonstrating integrity and ability to mediate and support investment?

I will continue to point out misunderstandings and inflated expectations around the tax “big numbers,” if they continue to be produced. The aim is not to turn people away from focusing on the international aspects of tax and development but to see if we can find a common ground to explore and test ideas which could gain the support of policymakers, taxpayers, civil society, international organisations, and tax professionals.

New Study: Grid Electricity and Off-Grid Solutions Alone Are Not Meeting Many Africans’ Energy Demands

SOURCE: Centre for Global Development

On-Grid Customers Still Rely Heavily on Off-Grid Energy Technologies, and Off-Grid Customers Want On-Grid Electricity

Washington – A new study released today by the Center for Global Development found that either grid electricity or off-grid solutions alone are currently inadequate to meet many African consumers’ modern energy demands. The survey of consumers in twelve African countries found that on-grid customers still rely heavily on off-grid solutions like generators for their daily lives, and that off-grid customers want access to on-grid electricity.

The researchers analyzed data from mobile phone-based surveys to assess energy service quality and demand in in twelve African countries: Benin, the Democratic Republic of the Congo (DR Congo), Ethiopia, Ghana, Kenya, Mozambique, Nigeria, Rwanda, Senegal, Tanzania, Uganda, and Zambia. The surveys were conducted between July 2015 and December 2016, and received responses from 39,000 consumers in 28 languages.

“Making electricity more accessible, reliable, and responsive to African demand across the continent should be a priority,” said Todd Moss, a co-author of the report and a senior fellow at the Center for Global Development. “While many policymakers debate whether grid or off-grid solutions are most appropriate, African consumers don’t view these options as an either-or question. Customers who are on the grid want to be able to use off-grid electricity too. And customers who have off-grid power want access to grid electricity to meet growing demand.”

“Off-grid customers may appreciate the lights and basic appliances like phone chargers that off-grid systems can power, but want to move up the energy ladder toward higher power appliances like refrigerators enabled by a grid connection. At the same time, on-grid customers face a host of reliability issues and thus see off-grid options as an important backup.”

Key findings from the survey include:

  • Daily outages are a norm almost everywhere. Among those with access to grid electricity, at least half cited electricity outages at least once a day across almost all surveyed countries. Respondents in Mozambique, Ghana, and Zambia reported the highest prevalence of daily outages. The country with the lowest prevalence of frequent outages was Rwanda, where only 18 percent of respondents experienced multiple outages per day. In all countries, the vast majority reported at least one outage per week.
  • On-grid customers still rely heavily on generators, especially in Nigeria. Almost half of on-grid respondents in Nigeria relied on a generator during power outages – the highest of any other country.
  • Off-grid customers still desire grid electricity. In most countries, off-grid respondents are not completely satisfied by off-grid electricity solutions and retain a high demand for grid electricity.
  • Off-grid, non-generator electricity is inadequate for most respondents’ energy needs. A significant proportion of respondents across the surveyed countries reported that their off-grid electricity solution did not fulfill any of their power needs. This includes almost two thirds (65 percent) of Rwandans with off-grid, non-generator electricity.
  • In all countries, the majority desire a grid connection. Demand for the grid was highest in Zambia and Ghana, where over 50 percent said that they wanted an electrical connection very much. In all other countries except Senegal and Benin, demand appears to be high but less passionate; over two-thirds of respondents without an electric connection indicated that they wanted an electrical connection to the national grid either a little or very much.
  • Satisfaction with service from the grid varies widely. Reported satisfaction with grid electricity ran from Mozambique (74 percent satisfied) and Rwanda (71) at the high end to Ghana (19) and Zambia (27).
  • Connection costs and distance from the grid are the most common obstacles to grid electricity. When asked about the greatest obstacle to gaining access to the national grid, most respondents cited either the cost of electricity, the cost of connection, or the lack of proximity to the grid.
  • Demand is high for energy-intensive appliances, especially TVs. Off-grid households indicate a high demand for energy-intensive appliances, particularly televisions and refrigerators. The survey also asked respondents what appliance they would like to purchase if they gained a grid connection (refrigerator, television, hot plate, radio, or iron). Televisions are the most common aspirational purchase across most surveyed countries.

You can read the full study at https://www.cgdev.org/publication/what-can-we-learn-about-energy-access-and-demand-mobile-phone-surveys.

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Strengthening Media and Civil Society in Tanzania

SOURCE: Voice of America

The U.S. Government, through the United States Agency for International Development, or USAID, launched a civil society and media strengthening project in Dar es Salaam, Tanzania, in mid-January. It is called Boresha Habari, or “Better News”.

Implemented in coordination with non-profit organizations Internews and FHI 360, the Boresha Habari project will collaborate with Tanzanian partners, including: the Media Council of Tanzania, Tanzania Bora Initiative, and Jamii Media; to improve professional capacity among journalists and support an open media environment.

Over the next five years, the Boresha Habari project aims to work with media houses and radio stations in Dar es Salaam, Zanzibar, Iringa, Mbeya, Morogoro, Arusha, Manyara, Dodoma, Tanga, Mtwara, Mwanza, and Kigoma to improve their professional capacities.

Specifically, Boresha Habari will provide media outlets with training and technical assistance, help them adopt new digital technologies, and strengthen their management and financial viability. The project will also train civil society organizations to effectively partner with the media.

“The U.S. Government is committed to supporting the professionalization of the Tanzanian media and civil society – particularly empowering women and youth – to raise their voices and concerns effectively as both producers and consumers of information,” remarked USAID Mission Director Andy Karas during the launch event.

The United States is proud to work with its partner Tanzania help build a strong and vibrant civil society supported by a free and independent media.

Escaping China’s Shadow

Finding America’s Competitive Edge in Africa

SOURCE: Atlantic Council Africa Center

Over the past decade, Africa has been cast as a new battleground for influence between the United States and China.

China’s economy has experienced meteoric growth since the 1980s, and China has looked to Africa’s natural resources to help fuel this rise. In the process, China has rapidly increased its trade and commercial relationships with African nations.

Chinese business people and migrants have swept across the continent as part of China’s broader “going out” strategy and its new Belt and Road Initiative.

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Leveraging a Large Capital Investment to Develop Local Value Chains

‘Local Content’ in the Construc on of Tanzania’s LNG Facility

SOURCE: World Bank Group

The discovery of large, deep-sea, natural gas reserves in Southern Tanzania and plans for their development have sparked a national discussion about how “local content” can be maximized in a way that benefits the economy as a whole.

Energy production is not foreign to the country. Gas has been  owing from the on-shore and shallow water reserves of Songo Songo and Mnazi Bay since the mid-2000s, but the scale of those fields is limited.

In contrast, the off-shore reserves discovered in 2012 by a consortium of international oil companies (IOCs)3 are major  finds that raised projections of total reserves to over 57 tcf4 and carry with them the potential to transform the country into an emerging, global, energy hot-spot.

So it is in keeping with that good news that government and business leaders now want to know how those assets can be fully leveraged to strengthen and diversify Tanzania’s domestic economy and generate local employment.publications.

Free and open debate is not only vital for Tanzania’s faltering democracy, it’s also indispensable for good macroeconomic governance.

READ MORE HERE: 122053-WP-p147012-PUBLIC-LeveragingaLargeCapitalInvestmenttoDevelopLocalValueChains

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