Harnessing investment in Tanzania s agricultural sector for inclusive growth

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2 ASMITA PARSHOTAM 29 September 2016 Geneva, Switzerland Harnessing investment in Tanzania s agricultural sector for inclusive growth Asmita Parshotam, Researcher in the Economic Diplomacy Programme, South African Institute of International Affairs

3 Presentation outline 1. Socio-economic conditions in Tanzania what do we know thus far? 2. Overview of Tanzania s agriculture sector and challenges faced by smallholding farmers 3. Government led initiatives investment policies and programmes in the agricultural sector 4. Donor initiative: the SAGCOT project 5. Preliminary conclusions and persistent problems

4 Socio-economic conditions amongst farmers- what do we know thus far? - Tanzania is a LIC with an annual growth rate of 7% - the fastest in Eastern Africa - Agricultural hugely important to the economy - 31% of country s GDP - Employing 66 % of the country s workforce - Agricultural labour sector = 55% women workforce - Agricultural growth at 4.3% has fallen short of the government s 6% CAADP targets hugely fertile land of which only 25% is being used (FAO) and only 3% growth rate in land usage - Tanzania unable to meet its MDG target of 10.8% required to reduce income poverty by 2015

5 Why is Tanzania s rural farmer at a disadvantage? - Rural areas lack access to roads - Without electricity only very limited agro-processing can take place - Poor irrigation (compounded by climate change) - Traders set prices and not market factors = no competition - Poor agricultural feed and inputs = volatilities in yield outputs - Marginal access to markets - Quantity and quality restrictions = farmers cannot meet international standards

6 Unstable investment trends in Tanzania FDI net inflows as a percentage of Tanzania's GDP Source: World Bank database FDI flow and stocks as measured in USD for years 2009 to 2013 Year Flows in USD Stocks in USD million million million million million million million million million million Source: Tanzania Investment Report, 2014

7 Government-driven investment and initiatives - Business Linkages Programme (in partnership with UNCTAD) - linking MNCs to SMEs - Tanzania Investment Centre (TIC) provides training to farmers on issues relating to quality of produce - Training of more than 200 SMEs - Innovative ways to get information to farmers: in 2015 TCCIA partnered with AirTel to provide information about markets (selling price, etc) to farmers via their mobile phones - Technology skills transfers via local cooperatives and local investors - Mandatory CSR requirements in investment agreements

8 Donor-led initiative: the World Bank SAGCOT project - Linking smallholding producers with commercial agriculture expanding smallholding farmers access to larger markets and infrastructure - Characterised by three key components: - Attracting investment into the area - Build capacity with TIC - SAGCOT Catalytic Trust fund

9 Smaller agri-processing initiatives show that it is possible to better link rural smallholding farmers to larger value chains. Cetawico (Central Tanzania Wine Company): wine production Self sufficient locally managed cooperative that cultivates grapes Wine produced in Tanzania Mount Meru millers: sunflower oil Strategic investors have provided training and machinery to sunflower cultivating farmers Constructing primary schools in communities where processing plants are located Tanga Fresh: dairy products Provide training to more than 60 small holding farmers on improved dairy production Selling milk from small-holding farmers Kilomero rice and sugar

10 Preliminary conclusions and persistent challenges - Even at the farmgate level some farmers are uncompetitive - Insufficient / underdeveloped agri-processing initiatives underway because of lack of infrastructure - Tanzanian policies should look to first expand locally - Bodies such as the Tanzanian Horticulture Association need to spearhead changes - What happens when donors pull out? - Lack of financing options for farmers to access credit at affordable interest rates

11 Thank you

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13 SHERRY STEPHENSON 29 September 2016 Geneva, Switzerland The potential of GVCs to contribute to inclusive growth through trade policies Sherry Stephenson, Senior Fellow, ICTSD

14 GVCs are complex : numerous policies are involved Domestic policies contribute to enabling environment Trade policies - influence competitiveness of domestic markets & ability of firms to participate in global production networks Overlap policies those that have a trade interface and also influence the enabling environment

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16 Many factors determine the ability of firms to participate in value chains ONLY POINT IN COMMON: All can be directly influenced and shaped by government policy i) Logistics performance and efficiency ii) Competitiveness of services iii) Quality of infrastructure: connectivity to the global market iv) Trade policy v) Investment policy vi) Human resource skills vii) Strength of institutions (enforceability of contract and IP laws, among others, predictability), etc, etc, etc.

17 Trade policy in a GVC context Trade Policy is only one of many factors that influence participation in GVCs. Trade policies themselves are not different in a GVC context but the way they affect trade should be viewed differently. Trade policies are important because they influence both the competitiveness of the domestic market as well as the ability of firms to be participants in global production networks. Protectionist policies do not protect in a GVC world they only penalize domestic and foreign producers.

18 Five areas where trade policy can make a difference in a GVC context Tariffs / Non-tariff measures Logistics / border procedures Services policies RTA participation And.Investment regime

19 Reflections on Tariffs and GVCs IN A GVC WORLD, A TAX ON IMPORTS IS ALSO A TAX ON EXPORTS - As part of global production chains, products at different stages of value added are often imported & re-exported multiple times Tariffs on inputs result in negative protection for downstream industries as they raise the production cost of the users of imported inputs, thus resulting in higher rates of effective protection than of nominal protection. The cost of tariff protection in a GVC world is generally higher than understood, especially for smaller economies with a large share of intermediate imports in their exports

20 Reflections on Non-tariff Measures & GVCs NTMs can be quantified into their tariff equivalents, with a similar negative impact on the ability of firms to integrate into supply chains NTMs cover a vast potential array of impediments to trade (TBTs, TRIMs, price controls, licensing, subsidies, AD/ CVDs, etc. NTMs show higher levels of restrictiveness on trade than tariffs When NTMs adversely affect intermediate products, they also create high rates of effective protection & handicap domestic producers trying to participate in GVCs.

21 Average level of restrictiveness imposed on imports by NTMs is higher than that of tariffs

22 Reflections on Logistics, Border Procedures & GVCs In a world of GVCs, inefficiency in logistics can also be viewed as a type of trade barrier. Logistics costs can have a large impact on the ability of countries firms to participate in GVCs, especially for intermediate imports that may depreciate quickly or have high inventory cost. Improvements in logistics performance, including customs procedures, can bring about much higher gains to world GDP and trade than removing tariffs (WEF-World Bank study)

23 Potential Increase in GDP to be derived from Improvement in Logistics is six times greater than removing ALL Tariffs globally Source: WEF-World Bank-Bain Report (2012) Enabling Trade: Valuing Growth Opportunities

24 Reflections on Services & GVCs Services act as the glue or the links between the various elements of production networks. Services are now embodied in all economic activity, including trade and account for 50% of world trade on a value-added basis Services used in GVCs have grown the fastest in world services trade, namely other commercial services, (such as communications, insurance, finance, computer and IT services & business services) Restrictions on services trade negatively impact the competitiveness of services and their ability to play a facilitating role in GVCs

25 The Services Sector is driving Global GDP Growth Source: Saez, S. (2011), World Bank

26 Negotiating RTAs and GVC participation Most GVCs are concentrated in North America, Europe and East Asia, leaving many developing countries outside of these hubs. Some economists believe that RTAs have influenced investment flows and production sharing (how? ROOs, cumulation, deep provisions) OECD: Positive correlation between increase in RTAs and operation of GVCs, especially those with deep services and investment provisions. RTAs negotiated with major trading entities may have pulled some developing countries into GVC patterns choice for trade policy?

27 Reflections on Investment & GVCs Global investment & trade intertwined through the networks of firms carrying out FDI worldwide & patterning their trade around these investment locations Investment policy is a key trade determinant in a GVC world Investment regime (openness & quality) is one of the important factors determining the quantity & type of FDI a country receives Countries able to attract larger shares of FDI are also able to participate more intensively in GVCs see correlation in graphs

28 Positive correlation between levels of foreign direct investment and GVC participation

29 Participating in GVCs is a choice : Can it help to achieve SDGs and inclusive growth? UNCTAD 2013 report shows that GVC participation can help developing countries achieve higher economic growth (graph). But can it achieve sustainable development goals? There is an active debate ongoing in this area and several doubts. Let s look at some of the issues.

30 Positive relationship between GVC participation and higher GDP/ per capita growth for Developed countries (on left) and Developing countries (on right) Source: UNCTAD (2013) Global Value Chains and Development

31 Development Doubts around GVC Participation Who gets the value in the GVC? Answer to this will vary, depending upon where the task / input provided by the developing country firm will fall along the chain upstream or downstream and what type of value chain it is (natural resource vs. manufacturing or services) Is upgrading possible along the GVC? Answer to this will again depend upon the type of value chain in question and the quality of skills and technology the supplier can bring to the process Will participating in GVCs create beneficial jobs? Answer to this will depend upon the sector in which the value chain operates and how embedded it is in the domestic economy.

32 Development Doubts around GVC Participation Will there be a transfer of skills to the local economy? Answer to this will depend upon how embedded the GVC is in the domestic economy and on the behavior of the lead firm. Will the value chain activity be sustainable in time? There is no guarantee in a globalized world that countries will be able to retain tasks supplied to GVCs in a world of footloose investors. Will the value chain participation be inclusive to women? Female employment is particularly prominent in jobs in services, especially in offshoring services tasks but less so in assembly processes that provide intermediates into value chains.

33 There are no definitive answers to these important questions Answers to the sustainable development questions must be placed in specific national contexts and examined with empirical case studies not many of those have been carried out so far from this perspective. Trade policy alone will neither provide nor guarantee sustainable development outcomes, but it can and will impact on GVC participation, and thus the ability to derive potential benefits.

34 See new ICTSD study: Trade Policies and Sustainable Development in the Context of Global Value Chains THANK YOU! Visit our webpage on ICTSD website Follow us on Contact : Sstephenson@ictsd.ch

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36 LILY SOMMER 29 September 2016 Geneva, Switzerland GVCs and poverty reduction Lily Sommer, Trade Policy Fellow, UNECA

37 Outline 1. Poverty reduction: performance to date 2. Poverty-reducing trade 3. GVCs and poverty reduction 4. Conclusion

38 Poverty reduction: performance to date The MDG goal of halving extreme poverty between 1990 and 2015 was met five-years ahead of the deadline More than 1 billion people have been lifted out of extreme poverty since 1990 Progress has however been uneven

39 Poverty reduction: performance to date Progress in poverty reduction has been concentrated in Asia and especially East Asia where the extreme poverty rate dropped from 61 percent in 1990 to only 4 percent in Sub-Saharan Africa is the only developing region that failed to meet the MDG goal of halving extreme poverty between 1990 and All other developing regions met the goal by percent of the population in sub-saharan Africa still lives in extreme poverty in 2015, compared to 57 percent in The number of extremely poor Africans increased by more than 100 million between 1990 and 2012.

40 Poverty reduction: performance to date 70 Proportion of people living on less than $1.25 a day, 1990, 2011 and 2015 (percentage) % % -73% -84% -69% -57% % -66% -77% -46% -81% Projection Source: The Millennium Development Goals Report 2015, UN New York

41 Poverty reduction: performance to date Projections indicate that the world s extreme poor will be increasingly concentrated in Africa in the post-mdg era (World Bank Group, 2016). Persistent levels of high poverty in Africa are not a result of a lack of growth the continent grew at an average of at least 5 percent above the global average of 3 percent over the MDG period. The problem was that this growth was not well-distributed and so failed to lift more people out of poverty. Fresh thinking is needed on how to meet the challenge of inclusive growth and achieve the poverty-related SDGs on the continent. Trade has a key role to play

42 Poverty reducing trade Trade can play a strong role in driving growth and poverty reduction through employment, efficient resource allocation and improved consumer choice. Intra-regional trade has particular potential to facilitate successful economies of scale, diversification and structural transformation in Africa. In 2013, intra-african trade made up only 16.3 percent of total African trade and about two-thirds of this trade was in manufactured products (ECA, 2015). To date, trade performance in Africa has been sup-optimal due to high trade costs, weak productive capacities and a global trade regime centred on the WTO that is not sufficiently development friendly.

43 Poverty reducing trade New development agendas provide new momentum for progress on poverty reducing trade. The African Union Agenda 2063 the Future We Want for Africa: Prioritises the boosting of intra-african trade through the establishment of the Continental Free Trade Area (CFTA), improved regional infrastructure and the reduction in non-tariff barriers to trade. The United Nations Agenda 2030: Trade has greater prominence in the SDGs than the MDGs. References to trade-related targets feature in at least six of the seventeen SDGs (Goals 2, 8, 9, 10, 14 and 17). Supply side constraints to trade expansion such as infrastructure, energy and productive capacity are also covered extensively (Goals 4,7,8,9 and 11). The United Nations Addis Ababa Action Agenda: Addresses several other trade issues such as trade finance, investment agreements and the need for coherence between regional and multilateral trade agreements..

44 Poverty reducing trade Why has Africa failed to use trade as an effective tool for poverty reduction? The answer is that a robust policy response is required to meet the following challenges of inclusive, diversified and transformative trade: 1. Trade costs and services restrictions remain high 2. Average tariffs for intra-african exports are higher than for exports to the rest of the world 3. Limited productive capacities have contributed to export dependence on primary commodities 4. A global trade regime that falls short of what is needed for Africa Mega-regional trade agreements (MRTAs) and increased reciprocity in trade agreements (EPAs and AGOA) are expected to create additional challenges for Africa s structural transformation. The current slowdown in global trade and growth will make poverty-reducing trade even more difficult.

45 GVCs and poverty reduction Inclusive GVCs can be used to overcome some of these challenges and drive poverty-reducing trade. The emergence of GVCs and trade in tasks has created a wide range of industrial products and services that are now tradeable. This offers significant opportunities to foster inclusion in international trade. The expansion of GVCs however does not automatically result in the achievement of inclusion. What does it take to make sure that GVCs contribute to poverty reduction and achievement of Agenda 2030?

46 GVCs and poverty reduction Priority 1: Enhancing regional integration Trade-integrated regions are more attractive to lead firms in GVCs and hence intraregional trade in intermediates and processed goods via RVCs is important (Asia vs. Africa). RVCs and GVCs are not mutually exclusive: strong RVCs are needed to drive industrialisation and regional integration and are not purely for absorption by multinationals through GVCs. Strategic regional policy imperatives to harness the potential of intra-african trade: 1. Timely implementation of an inclusive CFTA agreement 2. Supportive non-tariff policy initiatives to enable firms to take advantage of the CFTA The share of Aid for Trade that is directed towards regional projects and initiatives should be increased it currently stands at only 5.5 percent of total AfT (Lammersen, 2015).

47 GVCs and poverty reduction Priority 2: Investing in productive capacities LDCs will find it difficult to harness the opportunities provided by GVCs without investments in human capital and technological capabilities. A poorly skilled and educated labour force is the top supply bottleneck underscored by global executives when considering manufacturing investments in Africa (ACET, 2014) and contributes a barrier to investments in skills-intensive sectors. Improving the equality in access to education and skills training can provide a more level playing field for participation in GVCs and is key to addressing multidimensional poverty. Using flexibilities provided by the global IP system can be helpful in facilitating technological transfer and building the competitiveness needed to integrate into GVCs.

48 GVCs and poverty reduction Priority 3: Ensuring effective participation of SMEs in GVCs SMEs are key to channeling trade and growth into jobs for poor people. LDCs must develop capacities to enable SMEs to become internationally competitive, innovative and resilient through; 1. Creating incentives for FDI that partners with SMEs 2. Enhancing access to credit for SMEs 3. Ensuring connectivity to markets (ICT, NTBs, trade facilitation, infrastructure etc.) 4. Human resource development for SMEs (educational, entrepreneurship and business skills etc.) 5. SME participation in e-commerce 6. Inter-firm networking and clustering

49 GVCs and poverty reduction Priority 4: Ensuring consistency between trade and industrial frameworks Structural transformation is key to creating decent jobs, improving productivity, increasing incomes, reducing vulnerability and overcoming poverty. Strategic policy actions needed to drive industrialisation through trade and GVCs: 1. Stronger links among national development strategies, industrial policy and trade policy 2. Tariff reforms to lower protection for imported intermediates and capital inputs not produced locally 3. Appropriately manage tariff reductions contained in reciprocal-type trade agreements

50 GVCs and poverty reduction Priority 5: Making the global trade regime more development friendly Very little has been achieved under the multilateral Doha Development Agenda trade negotiations and outcomes of the 2015 WTO 10 th Ministerial Conference were suboptimal. International actions needed to ensure international trade frameworks and agreements are supportive of LDCs development and integration into GVCs : 1. More generous rules of origin that address LDC s development needs 2. Support full utilisation of the 2014 WTO Trade Facilitation Agreement Facility 3. Address the impact of emerging RTAs and MRTAs on third parties in global policy discussions

51 Conclusion Extreme poverty is unlikely to be eliminated by 2030 but serious strides can be made in this direction. Trade has a transformative role to play in LDCs but is currently constrained due to high trade costs, obstacles faced by the poor to participate in trade and international frameworks and agreements that are not sufficiently development friendly. GVCs offer opportunities to change this and achieve poverty-reducing trade. To ensure inclusive GVCs, efforts are needed to enhance regional integration and grow RVCs, develop productive capacities and business skills, support SME growth, ensure consistency between trade and industrial frameworks and make the global trade regime more development friendly

52 Thank you for listening!

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