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Trade and Industry

South Africa mulls $35b investment to revive ailing economy

Embattled South Africa has unveiled investment commitment of $35 billion to revive the sagging economy.
 
The country;s investment plan falls within the platform of President Cyril Ramaphosa, to attract $100 billion over the next five years to revive the country’s economy.
Ramaphosa has appointed a team of investment envoys – bankers, former ministers, business people as well as economist Trudi Makhaya, his economic adviser – to search for world’s financial capitals for new investors.

 

 
The South African government hopes to raise more money from companies and governments at an investment summit in Johannesburg on October 26, part of efforts to fulfil Ramaphosa’s promise to create jobs.
 
“You’re also going to have a stream of announcements at the investment conference,” Makhaya said.
 
She said the summit would connect investors with projects, and also be an opportunity to convince investors the country was on a stable policy path.
 
“We need to keep doing the work of raising investments leading up to next year’s election to show investors policy isn’t going to change (even if the ruling ANC party lost the vote),” she told Reuters in an interview.
 
The polls are due to be held in the middle of the next year and the African National Congress is battling to increase its majority. Ramaphosa faces an uphill battle to secure public and investor support after a decade of scandals under Jacob Zuma.
 
Makhaya said over the past decade, the government had borrowed heavily to fund spending on poorly executed infrastructure projects and pay public sector wages, but tighter controls were needed to ensure returns on investments.
 
“Significant fiscal spending in the last ten years did keep us away from the brink, but it didn’t alter the economy fundamentally,” she said, adding that spending to try and boost the economy would not work in the long run.
 
“We’ve seen that it doesn’t work,” Makhaya said.
 
Pretoria’s debt burden has doubled to nearly 60 percent of gross domestic product in the past decade, while growth in the same period averaged around 2 percent, well short of government’s target of 5 percent annual expansion.
 
“The president has articulated his economic vision very clearly. It’s investments, job creation and fixing up governance,” Makhaya said from a meeting room, near Ramaphosa’s office in Pretoria.

FDI will manifest in Nigeria in two years

Nigerians may have to wait for another two years before reaping the benefits of foreign direct investments (IFDI) in the country.
 
Budget and National Planning minister Udoma Udo Udoma said in Bali, Indonesia at the launch of the Sub Sahara Africa Regional Economic Outlook.
 
It would take at least two years for the full manifestation of the investment potentials of the Economic Recovery and Growth Plan (EPRG) of the Federal Government, he said also.
 
“I think it will take one or two years before they actually come to fruition.
 
“However, government has set up a crack team of four experts who were recruited to work with stakeholders in the private sector on ways to actually have the expected investors come in under the economic plan.
 
“The Nigerian government expects to attract private sector investments worth 22 billion dollars through the ERGP’s ‘Focused Laboratories’ within this period also,” he said.
 
The minister also said that the government, through the ERGP, hoped to create about 15 million jobs by 2020.
 
“Our aim is to make Nigeria a more investment-friendly place, a more attractive place for people to do business.
 
“We have conducted sector specific labs, which we referred to as the ERGP Focus Labs, to bring potential investors and government officials together to seek to remove the bottlenecks and impediments impeding investment projects.
 
“We identified over 22 billion dollars of potential investments which could be unlocked, if we can remove some of these impediments,” he said.
 
Udoma said that in Nigeria, the government was forced to cut down its growth projections for 2018 from three per cent to 2.1 per cent due to oil production challenges in the second quarter of 2018.
 
He said also that the flooding in some states affected the agriculture sector as did the herdsmen clashes in certain areas.
 
With regard to foreign investmens, Udoma agreed with the policy advice of the IMF that Nigeria needed to put in place sound macroeconomic policy management to mitigate risks associated with volatile capital flows.
 
Also, Mr Abebe Selassie, Director of the IMF’s African Department, while presenting the regional outlook, said Sub-Saharan Africa’s economic recovery was expected to continue growing.
 
He said that growth was projected to increase from 2.7 per cent in 2017 to 3.1 per cent in 2018 and 3.8 percent in 2019.
 
“”Growth is set to improve most notably for oil exporters, while non-resource intensive countries continue to grow strongly, with quite a few growing at six per cent or more.”
 
“While there has been progress in narrowing fiscal deficits, more focus is needed to raise revenues to support continued development spending and to service debt,” he said.
 
According to the 2018 Sub-Sahara Africa Regional Economic Outlook, to grow, the region must create at least 20 million jobs per year to absorb new entrants into the labor market.
 
The  IMF in the report advised the region to take policy actions to encourage deepening of trade and financial integration, in the context of the African Continental Free Trade.
 
It also advised the region to  remove market distortions, improve the efficiency of public spending, promoting digital connectivity and a flexible education system and fostering an environment that is conducive to private investment and risk taking.

China hits trade surplus despite tariff war with US

China’s trade surplus with the United States ballooned to a record $34.1 billion in September, despite a raft of US tariffs, official data showed Friday, adding fuel to the fire of a worsening trade war.
 
Relations between the world’s two largest economies have soured sharply this year, with US President Donald Trump vowing on Thursday to inflict economic pain on China if it does not blink.
 
The two countries imposed new tariffs on a massive amount of each other’s goods mid-September, with the US targeting $200 billion in Chinese imports and Beijing firing back at $60 billion worth of US goods.
 
“China-US trade friction has caused trouble and pounded our foreign trade development,” customs spokesman Li Kuiwen told reporters Friday.
 
But China’s trade surplus with the US grew 10 percent in September from a record $31 billion in August, according to China’s customs administration. It was a 22 percent jump from the same month last year.
 
China’s exports to the US rose to $46.7 billion while imports slumped to $12.6 billion.
 
China’s overall trade — what it buys and sells with all countries including the US — logged a $31.7 billion surplus, as exports rose faster than imports.
 
Exports jumped 14.5 percent for September on-year, beating forecasts from analysts polled by Bloomberg News, while imports rose 14.3 percent on-year.
 
While the data showed China’s trade remained strong for the month, analysts forecast the trade war will start to hurt in coming months.
 
China’s export jump for the month suggests exporters were shipping goods early to beat the latest tariffs, said ANZ’s China economist Betty Wang, citing the bounce in electrical machinery exports, much of which faced the looming duties.
 
“We will watch for downside risks to China’s exports” in the fourth quarter, Wang said.
 
Analysts say a sharp depreciation of the yuan has also helped China weather the tariffs by making its exports cheaper.
 
“The big picture is the Chinese exports have so far held up well in the face of escalating trade tensions and cooling global growth, most likely thanks to the competitiveness boost provided by a weaker renminbi (yuan),” said Julian Evans-Pritchard, China economist at Capital Economics.
 
“With global growth likely to cool further in the coming quarters and US tariffs set to become more punishing, the recent resilience of exports is unlikely to be sustained,” he said.
 
Trump accused China of thinking Americans are “stupid” and boasted that his tariffs had already “had a big impact” on China’s stumbling economy in a Thursday interview on Fox News.
 
“I have a lot more to do if I want to do it. I don’t want to do it but they have to come to the table,” he warned.
 
The yuan has fallen for weeks against the US dollar, dropping nine percent in the past six months, which mitigates the rise in the price of Chinese goods caused by punitive US tariffs.
 
US Treasury Secretary Steven Mnuchin — in comments published in the Financial Times this week — warned China against engaging in competitive currency devaluations.
 
China has steadfastly denied that it has manipulated the yuan to cope with the tariffs. The US dollar has strengthened against a range of currencies this year as American interest rates have risen.
 
China’s stock market has plunged this year but the trade war has also started to erode Trump’s oft-touted US stock gains, with the Dow Jones Industrial Average down more than five percent for the week.
 
The International Monetary Fund this week cited the trade war as it lowered its 2019 growth forecast for China, which is set to see its slowest expansion since 1990.
 
The IMF also lowered estimates for the United States and the global economy as a whole.

Consultant appraises strategies for successful free zones

by Chris Ndibe

Nigerian Consultant on Free Zones, Mr Chris Ndibe, has identified that location and management of free zones could be more successful if they were operated on a cost-recovery basis.
Ndibe, who drew from the operations of free zones in Nigeria, identified that the benefits of the zones depended on the extent to which the zones were integrated with their host economies.
In his book, “Understanding Free Zones Scheme: Nigeria Perspective’’, the author carried out an expose on the guidelines on zones development, policy framework, incentive framework, regulatory and institutional framework and highlighted why private sector driven free zones are better.
With more than 35 years of experience in free zone sector, Ndibe also shared, drawing from benefit of hindsight, the links between the free zones and local economies.
He therefore advised that free zones should not be viewed as a substitute for a country’s larger trade and investment efforts but a “tool in a portfolio of mechanisms employed to create jobs, generate exports and attract foreign investment – through the provision of
incentives’’,
Ndibe has decided to serialise the book every Thursday beginning from today touching on the guidelines for free zones development, policy and incentive frame works.
GUIDELINE FOR FREE ZONES DEVELOPMENT
Introduction
The way Zones are located, developed and managed has links with its success.
It has already been argued that management of Zones is enhanced
when they are operated on a cost-recovery rather than subsidised basis,
and are market-oriented and customer focused. This is best done when
Zone operation is undertaken by private sector
groups on a commercial basis, rather than by government organisations
which frequently are subjected to political pressures and funding
constraints.
One
of the clearest lessons learned from decades of Free Zones, particularly
EPZ development, is that Zones cannot and should not be viewed as a
substitute for a country’s larger trade and investment efforts.
They are one tool in a portfolio of mechanisms employed to create
jobs, generate exports and attract foreign investment – through the
provision of incentives, streamlined procedures and custom-built
infrastructure.
But maximising the benefits of Zones depends on the extent to which they are integrated with their host economies.
The
benefits of Zone development are suppressed when they are operated as
enclaves, but multiplied when they are accompanied by countrywide
economic policy and structural reforms that enhance the competitiveness
of domestic enterprise and facilitate the development of backward and
forward linkages (JP. Gauthier, 2004).
Guidelines for Zone Development
  1. Implement
    land use planning and zoning efforts in core Zone areas for industrial
    and commercial development to guide the actions of private developers.
  2. Develop
    Zone designation criteria in Free Zone law and implementing regulations
    to ensure that private Free Zones have the best topography, are well
    located (near population centres and transportation hubs),
    and minimise offsite infrastructure development expenditures by
    government.
  3. Establish
    a land use planning and infrastructure development unit in Zone
    regulatory authorities to ensure adequate planning and support of
    offsite infrastructure provision.
    Gauthier
    maintained that all types of Zones should be permitted, offering
    customised infrastructure, facilities and services tailored to the
    specific needs of target industries.
    But as far as possible, all Zones should have a common set of
    incentives and privileges, rather than duplicating and overlapping
    regimes which result in revenue loss.
    There
    is the final and unique case of Special Economic Zones (SEZs) or
    so-called ‘Large Format’ Free Zones which can have significant economic
    impact particularly in terms of exports and foreign investment. SEZs
    can also be very effective in promoting the diffusion of new policies,
    procedures and governance structures.
    Experience has shown that administering and regulating an SEZ
    regime is extremely demanding on governments, so SEZ development efforts
    should only be undertaken by those countries that have the
    institutional capabilities, expertise and commitment to
    make them succeed. EPZs and FTZs are less demanding.

     

    Policy Framework

     

    International
    experience suggests that the best policy and incentive framework needs
    to be streamlined, encouraging Zones to compete on the basis of
    facilitation, facilities and services rather than incentives.
    The key elements of a best practice policy framework include the following:

     

  • Concept
    of extra-territoriality – as defined in the Revised Kyoto Convention.
    Free Zones should be treated as outside the domestic Customs territory,
    but should be eligible for national certificates of origin
    and participate in trade and market access agreements.
  • Private
    Zone development – clear definition of private in terms of benefits,
    obligations, rights and public – private partnerships for Zone
    development.
  • Zone designation criteria – physical development standards and clear criteria for the designation of new Zones.
    The main issue is to guide but preserve the flexibility of
    individual Zone development proposals while optimising the impact on
    government funding for off-site infrastructure connections.
  • Eligibility
    criteria – the openness of a Free Zone regime is defined in terms of
    minimum export requirements and the types of activities and ownership
    forms permitted.
  • Labour
    regime – International experience strongly suggests that the long-term
    competitiveness of a Free Zone depends on the quality and productivity
    of its workers.
    To achieve this, it is important that labour regimes are fully
    consistent with ILO standards and obligations, but they should be
    defined within a flexible and liberal labour market regulatory
    framework.
Incentive Framework
Countries
are under pressure to offer a generous package of tax and duty
exemptions to provide a level playing field between competitors.
The package of fiscal incentives has become almost standardised among Zones internationally.
There is considerable evidence to suggest that some of these
fiscal incentives are ineffective and a drain on public resources, in
particular the use of tax holidays and other differentiated corporate
income tax regimes have been widely abused.
The
Free Zone Concept is been dynamic—always changing. In all countries that
are successful in operating the scheme, it will be that it is not
static; it changes to meet the needs, and changes with the economy.
Many zones have trimmed back their incentive benefits over time.
  • The following guidelines can be proposed for the design of a Free Zone incentive framework:
  • Introduction or reform of Free Zones’ regimes should be taken as an opportunity to rationalise corporate tax incentives.
    Best practice approach now is to have performance-based
    incentives in a country’s tax code rather than through special
    legislation such as the Free Zone Acts/regimes.
  • Incentive framework should be WTO compliant.
    This is best done by removing any export obligation and allowing
    Zone enterprise full access to the domestic market on a duty paid basis.

 

  • Zone
    regimes should be used to advance de-monopolisation and deregulation of
    telecommunications and other utilities where applicable.
    Countries like Jamaica and others have used their Free Zone regime to accomplish this.

Qatar joins free zone community

Qatar is setting up Umm Al Houl, the country’s first Free Zone, to fast track investment to boost its economy.
 
It is located next to Hamad International Port, designed to receive local and foreign investors during the first quarter of 2019.
 
Qatar’s Minister of State and Chairman of the Free Zones Authority H E Ahmed bin Mohammed Al Sayed, said at a session held in the framework of the second day of the International Product Exhibition and Conference (IPEC 2018).
 
He said the foreign investor will not be a rival to the local private sector, but will be a starting point for communication between Qatar and the global market.
 
It would provide more opportunities for the local investor and the Qatari private sector.
 
He noted that the second Free Zone, Abu
Fontas, which is located next to Hamad International Airport and has a
gate on the airport to facilitate cargo operations and associated
matters, will also be launched next year and will
be advanced in terms of the technology used.
 
He said that the Cabinet added some areas
to the Free Zones law, including Musheireb which will be very important
because of its location and advanced infrastructure.
 
He revealed that the Free Zones Authority
is engaged in early negotiations with some major international
companies to reach joint ventures in those areas, stressing that some of
these companies will be operating from Qatar.
 
The Chairman of the Free Zones Authority
explained that the economic zones aim at providing a level of an
economic security in terms of free flow of goods to the state and the
local market, in addition to supporting the process
of economic diversification by strengthening the GDP and attracting
investors from around the world to add to the process of economic
diversification.
 
He noted that the country is interested
in certain sectors in these free zones, especially logistics, because of
their location near the port and the airport, adding that there will be
sites to store gold, jewelry and expensive
antiques, as well as food storage and re-export of food through the
port or airport.
 
He added that spare parts are also an
important sector targeted in those areas, which will benefit the local
sector, in addition to the pharmaceutical industries, where the
Authority plans to make Qatar a headquarters for this
vital industry, especially in the presence of Qatar Airways which
provides fast and specialized transport lines for the industry, noting
that Qatar ranked first in the field of drug transfer.
 
The Minister said that the Authority is
also interested in another strategy related to the gas and petroleum
derivatives. He noted that there is an opportunity to engage in many
industries, such as petrochemicals, plastics and
others, in these Zones.
 
He noted that the Free Zones Authority is
engaged in talks with many bodies in the State, including Qatar
Petroleum, in order to encourage the Qatari private sector or the
foreign companies to invest in this field, and to make
these zones a base for exports in the future.
 
The idea of the free zone was part of Qatar’s economic development plans.
 
He explained that the process of the economic construction and economic development in Qatar passed through several phases.
 
In the 1990s, the focus was on the oil
and gas sector, where many state institutions have been built,
benefiting from oil and gas revenues.
 
The development of gas revenues have also been invested.
 
Meanwhile, the beginning of this century
witnessed the planning of many infrastructure projects, especially in
the education sector and service institutions such as the airport and
the port.
 
This was reflected on the country’s economy to grow from $8 billion in 1996 to $200 billion this year.
 
He believed that there are three
advantages that make Qatar attractive to invest in free zones, at the
forefront the availability of natural resources, including energy.
 
The second advantage is the availability
of strong financial efficiency, which has enabled Qatar to overcome the
unjust siege, and affirmed its ability to support any large-scale
projects. Thirdly, Qatar enjoys significant infrastructure
leverages that make it an attractive platform for local and
international investments.
 
In addition, the strong economic
fundamentals pushed Qatar towards a knowledge-based economy, and despite
the difficult challenges, the wise leadership of the state is able to
achieve this goal, he underlined, noting that Qatar
occupies many advanced ranks in many international economic
classifications.
 
He highlighted the importance of Qatar’s
geographical location, noting that the world’s longest point takes only
about 18 days by ships, making Qatar a strategic location in the world.
 
He invited foreign investors to invest in
the Free Zones in Qatar, because it will an investment with the State
of Qatar represented by government companies and institutions, as well
as the Qatari private sector.
 
He reviewed the privileges that investors
will enjoy if they invest in the free zones, including full ownership
of companies, freedom of capital, entry and direct contact with the port
and the airport, and the existence of a special
system of employment and large facilities, in addition to the absence
of fees in the property and no taxes on income, whether for persons or
companies for a period of twenty years renewable.
 
Referring to another advantage, HE Ahmed
bin Mohammed Al Sayed said that the State has also set up a development
fund to support some small companies, whether local or international, to
invest in the free zone.
 
He noted that the free zones have a high
regulatory environment as they will be subject to Qatar International
Court, and that the registration system will be far from bureaucracy and
will follow the best international standards
in this regard.
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