Africa could soon be largest free-trade area

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Africa could soon be the largest free-trade area in the world. This is if the African Union’s Continental Free Trade Area (CTFA) stays on track to be operational by the end of this year. Once up and running, the continent-wide free trade zone could lead to a 52 percent ($35 billion) increase in intra-African trade within the next 5 years, according to the United Nations Economic Commission for Africa (UNECA).

The UNECA’s Stephen Karingi, who heads their Regional Integration and Trade Division, says “boosting intra-African trade is the most effective way to speed up Africa’s economic transformation.” Speaking at the recent Africa Session of the Aid for Trade Global Review 2017, Karingi added that “trade contributes towards industrialization and structural transformation.”

Increasing intra-African trade —which reportedly stands at 13 percent — will require the removal of certain barriers in order to improve connectivity, including improvement of custom procedures, reduction of transit and other trade costs, and, importantly, development of reliable transport infrastructure.

Here’s a look at some of the inroads that have already been made in the expansion of Africa’s rail, road, and port networks to connect the fragmented African market:

This year saw the launch of the first fully electric cross-border railway in Africa. Linking Ethiopia’s capital Addis Ababa with Djibouti City — a stretch of more than 750 kilometres — the new line will incredibly cut travel time between the two countries. Running at 120km per hour, the rail journey, which lasts about three to four days by road, now only takes 12 hours. Each freight train reportedly transports the same cargo as 200 trucks, with the cost reduced by a third.

The line, which cost $4,2 billion, is a significant step towards elevating the poor levels of trade between African countries. Ethiopia plans to construct another 5,000 km-long network of rail by 2020, linking to Kenya, Sudan and South Sudan.

Envisaged more than 40 years ago by the United Nations Economic Commission for Africa (UNECA), the Trans-African Highway is an ongoing network of highways intended to connect all corners of Africa from north to south, east and west. The ambitious plan, first proposed in 1971, is aimed at boosting internal trade on the continent by building nine roads linking major cities across Africa. Those networks would collectively measure nearly 60 000km.

While progress has been slow, the completion of this project will mark a new day for intra-African trade. One of the nine planned roads is already complete — the 4 400km Trans-Sahelian Highway which runs through seven countries, connecting Dakar, Senegal to Ndjamena, Chad. While more than half of the network has been paved, maintenance remains an issue. Conflicts in countries such as the Democratic Republic of Congo, Sierra Leone, Liberia, and Angola have led to both the destruction of some highways and hampering of construction.

Djibouti recently opened its new 690-hectare Doraleh Multipurpose Port after two years of construction. The $590 million project, one of the most advanced ports on the continent in terms of facilities, can handle almost nine million tonnes of cargo per year.

Despite its small size, Djibouti is one of the important trading hubs on the continent, thanks to its convenient geographic location of connecting Africa to Asia and Europe by sea. Ports in the tiny East African country of less than a million people receive the bulk of cargo from Asia, followed by Europe, and then Africa.

A group of West African countries and mines have poured significant investment into an ongoing extensive rail project which will boost trade in the region. When completed, the track will be 3 000 km long and connect Niger, Benin, Burkina Faso, Côte d’Ivoire, Ghana, Nigeria and Togo.

The network will add newly built tracks to existing ones which will be upgraded. This project will greatly benefit landlocked countries like Niger, which face constant transport problems. The country largely relies on its neighbours’ seaports and road infrastructure to carry its imports and exports.

The West African Regional Rail Integration project is a response to the need for better infrastructure and reliable transport to move minerals from one West African country to another, and from the mines to major ports.

With its Port of Dar es Salaam, Tanzania is among the major trading hubs in Africa. Now the East African country is aiming to take things up a notch with the development of Bagamoyo Port, which is set to cost $11 billion.

While the new Tanzanian government has paused construction to focus on revamping other ports, Bagamoyo is set to be the biggest port in East Africa when completed. It will handle 20 million containers a year, more than double the capacity of the Port of Dar es Salaam. If everything goes as planned, Bagamoyo will boost Tanzania’s reputation as a trading centre for its landlocked neighbours such as Zambia, Rwanda, Malawi, Burundi, Uganda and the Democratic Republic of the Congo.

Billed as Kenya’s largest infrastructure project since independence, the first section of the $13,8 billion railway officially opened in June 2017, connecting the capital Nairobi with the port city of Mombasa. The train will shorten travel time between the two cities from 12 hours to four, with freight trains set to carry 25 million tonnes a year.

The East African Masterplan will eventually extend to Uganda, Rwanda, South Sudan, and Ethiopia — a move that will further strengthen trade relations between the East African neighbours.

Global economy looks set for a year of faster, firmer growth

The world economy looks well on its way to a year of faster, firmer growth after rising at its most rapid pace in 21/2 years in the second quarter.

The expansion is broad based as long-time laggards Japan and the euro area perk up. Even more encouraging: The gains look sustainable because they’re not generating much in the way of inflation or other excesses that frequently presage a downturn, economists said.

“The global economy is in better shape than it has been in several years,” said Torsten Slok, chief international economist at Deutsche Bank AG in New York. “We just don’t see what would be a trigger for a recession.”

He called it a “Goldilocks” scenario for stock market investors, with the economic recovery solid enough to generate higher corporate profits but not so fast as to lead to a rapid pickup in inflation and interest rates. The MSCI ACWI Index of stocks from emerging and advanced economies has risen in the past five quarters, its longest stretch of gains since the 2007-08 financial crisis.

Global gross domestic product is projected to increase by 3,4 percent in 2017 and 3,5 percent in 2018, according to the median forecast of economists surveyed by Bloomberg. While that would be a come down from an estimated 4 percent plus pace in the second quarter, it would still represent a clear acceleration from last year’s 3,1 percent advance.

“Recent data point to the broadest synchronised upswing the world economy has experienced in the last decade,” International Monetary Fund chief economist Maurice Obstfeld wrote in a recent blog post. “World trade growth has also picked up, with volumes projected to grow faster than global output in the next two years.”

The pick-up has been paced by budding rebounds in Europe and Japan, two economies that until now had been seen as drags on the global economy.

After years of lacklustre growth, the euro-area economy is starting to build momentum. The expansion accelerated to 0,6 percent in the second quarter, and it’s more evenly spread across the 19-nation region than in the past. The Netherlands posted the strongest data in a decade and Italy, long an slouch in the region, may see the best performance since 2010 this year.

That’s good news for European Central Bank president Mario Draghi, who wants to make sure the recovery is well established before reining in stimulus. Inflation is still undershooting the ECB’s goal and there’s little sign of significant wage gains as yet. That’s allowing Draghi to take his time in scaling back support for the region’s economy.

A 4 percent annualised surge in Japanese GDP in the second quarter put the nation in an unexpected spot: at the top of the growth table among the Group of Seven industrial economies.

The strongest domestic demand in years helped drive Japanese GDP to a sixth consecutive quarter of expansion, elevating hopes for a sustainable recovery in an economy that’s been better known in recent years for tepid inflation and a declining population than beating forecasts.

“We have just begun to see more convincing evidence that domestic demand is finally picking up,” Kathy Matsui, chief Japan strategist at Goldman Sachs Group Inc, said on Bloomberg Television.

While the unexpected strength in Europe and Japan is providing fuel for the global upswing, the expansion’s fate ultimately rests on the performance of the world’s two biggest economies, the US and China. And there the omens are favourable.

JPMorgan Chase & Co this week raised its forecast for US growth in the third quarter to an annualised 2,25 percent from 1,75 percent. The move followed news of an unexpectedly strong rise in retail sales in July. GDP rose 2,6 percent in the second quarter.

Shoppers splurged at Internet retailers, department stores, restaurants and auto dealerships last month, boosting sales by 0,6 percent, the most this year.

“For the first time during this eight-year expansion there are no serious impediments to growth,” Mark Zandi, chief economist for Moody’s Analytics, wrote in his monthly economic report.

Consumers are benefiting from a strong jobs market and healthy balance sheets while companies are enjoying a revival in profits and rock-bottom borrowing costs, he said. At the same time, the risks to the US from abroad have diminished as world growth has strengthened.

Low inflation — it’s fallen short of forecasts for five straight months —  means there’s little pressure on the Federal Reserve to act forcefully to rein in the recovery, even with unemployment at a 16-year low.

“The Fed has no reason in my view to act aggressively to tighten monetary policy,” William Dudley, president of the Federal Reserve Bank of New York, told the Associated Press in an interview.

In China, a multi-year slowdown has stabilised, with economists forecasting an expansion of 6,7 percent this year. The IMF increased its estimate for the nation’s average annual growth rate through 2020 — to 6,4 percent from 6 percent — while warning that it would come at the cost of rising debt that increases medium-term risks to growth.

Of course, there’s always the chance that something could happen to upset the worldwide expansion, from an outbreak of hostilities between North Korea and the US to a sudden swoon in financial markets as central banks scale back their support.

Yet for now at least, the global economy is on a “positive trajectory,” said Bloomberg Intelligence Chief Economist Michael McDonough. “There’s a pretty good foundation to build on for the next year or so.”

Trump says Amazon does ‘Great damage’ to retailers

United States president Donald Trump once again unloaded on Amazon.com Inc, tweeting that the company is hurting other retailers and implying that it’s killing industry jobs across the US.

Amazon is causing “great damage to tax paying retailers,” Trump said in a Twitter post on Wednesday, causing shares in the online retailer to fall.

“Towns, cities and states throughout the US are being hurt — many jobs being lost!” Trump said in the tweet.

Trump’s reference to “great damage” echoes chatter in Washington and academic circles that Amazon and other technology companies may have become too big and powerful. Apple Inc, Alphabet Inc, Microsoft Corp, Facebook Inc and Amazon are the biggest companies in the world by market cap and dominate many facets of everyday life. Some critics have even suggested that they should be broken up.

During the presidential campaign, Trump claimed Amazon was a monopoly that he would go after for antitrust violations if he were elected.

Amazon takes about 70 percent of all e-book sales and 30 percent of all US e-commerce. “Believe me, if I become president, do they have problems. They’re going to have such problems,” Trump said in February 2016. In the US it isn’t illegal to have a large market share.

In June, Amazon agreed to buy Whole Foods Market Inc Experts and analysts have largely dismissed antitrust threats for the world’s largest online retailer, though a US lawmaker has called for hearings on the proposed deal to consider its ramifications for shoppers and workers.

While it’s unclear what prompted Trump’s tweet, The Washington Post ran a scathing editorial about Trump in the paper on Wednesday, and there were also pro-tax reform advertisements that ran on early morning talk shows. Amazon’s shares fell less than 1 percent to $975,19 at 10:18am in New York.

 

China’s debt binge could crash entire world economy

Surging debt in China could cripple the world economy unless its leaders take action now, the International Monetary Fund has warned.

Consumer, business and government debt has surged to around 240 percent of the country’s economy — sparking fears of a high-risk bubble which could burst at any moment.

The new Chinese middle class is a vital driver of global growth, and a financial crisis in the country could plunge the planet into a fresh recession, it is claimed.

Unchecked borrowing growth on the scale experienced in China has often led to a sudden collapse, the IMF said.

“International experience suggests that China’s credit growth is on a dangerous trajectory, with increasing risks of a disruptive adjustment and a marked growth slowdown,” researchers argued. “Decisive policy action is needed to deflate the credit boom smoothly.”

The organisation claimed that annual growth has been propped up by free-and-easy lending to firms and families.

It said that without this debt-fuelled spending, the Chinese economy would have grown an average 5,3 percent per year from 2012 to 2016. Instead, it typically grew by 7,3 percent.

In a chilling echo of the West’s own crisis a decade ago, which created space for the Chinese economy to become increasingly important, analysts have argued that banks were behind the problem by coming up with more creative ways to make money. — Bloomberg.

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