Business News of 2014-07-04

Africa must have coherent approach to trade negotiations

Economic Development Report in Africa says African governments should have coherent approach to trade negotiations and agreement, to ensure the outcomes are mutually supportive of economic transformation and development.
The report which was launched in Accra on Thursday by Third World Network on behalf of the United Nations Trade and Development (UNTAD), noted that African countries could also boost investment through fostering international trade.
On the theme, “Catalysing Investment for Transformative Growth in Africa,” the report looked at the key determinants of investment in Africa; similarities and differences in the composition and characteristics of investment across African countries; and how productive investment had been over the past two decades.
It also considered how investment could be directed to strategic sectors of African economies, to ensure that growth was accompanied by diversification and structural transformation; how to strengthen linkages between investment by local and foreign firms, and what policy measures were needed to catalyze investment for transformation.
The report underscored the need for the international community to grant African countries more market access, particularly in areas such as Agriculture, where they had a comparative advantage.
It, however, said enhanced market access would be of benefit to African countries only if they had the productive capacity to take advantage of the opportunities arising from such market access, and stressed the need to build productive capacities in Africa and also for better information-sharing on available market access opportunities for Entrepreneurs to take advantage of.
“Access to a larger market through trade will allow African countries to exploit economies of scales, associated with producing for a larger market, thereby enhancing their competitiveness and stimulating investment,” it added.
It said high international trade costs had a negative impact on trade and investment in Africa and recommends that the international community provided financial and technical support to African countries to enable them implement the agreement on trade facilitation adopted by the World Trade Organization in Bali in December, 2013.
On using aid to stimulate investment, the Report underscored the need for more aid to be channeled to the productive sectors to build capacities on the continent.
It further argued that aid could have a more positive impact on development in Africa, if it was geared towards stimulating through using it as a guarantee mechanism to reduce the risks faced by lenders and investors.
It, therefore, encouraged development partners to use more aid to lift infrastructure constraints, particularly in energy and transport, as was recently done by the United States through the Power Africa Initiative.
In strengthening linkages between local and foreign enterprises, the Report noted that although African counties experienced a significance increase in Foreign Direct Investment (FDI) flows to the continent over the past decades, there were concerns that the developmental impact had been limited due in part to weak linkages between foreign and local enterprises.
It argued that inadequate infrastructure and skilled labour, low absorptive capacity, policy incoherence, and the lack of a vibrant domestic private sector were some factors responsible for the weak linkages between local and foreign enterprises in Africa.
The report, therefore, recommended that African governments should create and strengthen linkages through developing and improving workforce skills, as well as raise the absorptive capacity of local firms through the imposition of technology transfer requirements on FDI.
It also stressed on the need to promote joint ventures between local and foreign enterprises and to make FDI policy consistent with the promotion of domestic entrepreneurship and not to promote FDI in a manner that discriminated against local investors.
“Furthermore, if incentives are to be used to promote FDI, they should be used mainly for attracting new investments in activities where a country cannot attract investors without such incentives,” the report suggested.