DAR ES SALAAM, TANZANIA – The second round of Challenge Fund support for innovators and entrepreneurs working in the logistics and transport sector was officially announced last week in Dar es Salaam.
The Logistics Innovation for Trade (LIFT) Challenge Fund is a $16 million (Tsh.35.2 billion) grant-based financial mechanism that supports innovators with good ideas for products or services that can reduce the costs of transport and logistics in East Africa.
According to TradeMark East Africa (TMEA) which is a not-for-profit organisation funded by a range of development agencies with the aim of growing prosperity in East Africa through trade, LIFT will provide grants ranging from $ 150,000 to $ 1,000,000 (Tsh.330 million to Tsh.2.2billion respectively) to winning proposals from innovators from across the world whose project ideas will be implemented in the East African Community (EAC).
It was further revealed that the launch follows a successful inaugural round that saw 9 awards to projects that are touted deliver a significant reduction in time and transport costs in their area of operations
LIFT is a TMEA initiative managed by Nathan Associates through a Fund Management Team based in Nairobi with funding support from the UK Government’s Department for International Development (DFID). LIFT seeks to trigger and introduce innovative approaches to tackling freight and transport costs in the East Africa region.
East Africa is reported to have the highest freight and transport costs in the world; over 50% higher than the USA and Europe per kilometre. Indeed, transport costs for landlocked countries in the region can be as high as 75% of the value of exports.
Transit times have the most significant effect on exports and also result in firms having to carry higher levels of stocks making them less efficient.
Successful LIFT projects will contribute to TMEA’s objective of reducing transport time along the main East Africa transport corridors by 15% by the end of 2016.
Speaking at a side interview session after the launch, Dr. Josephat Kweka, Country Director Tanzania, TMEA said that it was their hope that the entrepreneurs and innovators of the EAC in partnership with their counterparts internationally will drive forward development through the adoption or introduction of ‘best practice’ technologies in the transport and logistics sector, enabling local businesses to compete favorably in the increasingly global economy.
“LIFT is a valuable financial instrument that supports private sector ‘can-do’ to develop and test new ideas that should reduce the cost and time of transport and logistics in the EAC and TMEA is essentially co-investing with the private sector in projects that are seen as being too risky to undertake without external sponsorship or support,” Dr. Kweka said.
LIFT Challenge Fund Manager Mr. David Mitchell emphasized the impact of the challenge fund to local entrepreneurs saying that the Challenge Fund instruments fill a significant gap in the financial support needs of private businesses and the innovators that drive business activity to greater results and efficiencies.
“This is achieved while mitigating the risks of high-return projects that mainstream banking and financial institutions tend to avoid supporting due to the uncertainties of the business proposition or a bank’s own lack of experience in the sector,” Mitchell said.
The LIFT Challenge Fund is open to businesses and individuals throughout the world that are either presently operating or intend to be based in the EAC. Businesses in the transport and logistics sector, or those that provide services to actors within it, are now being invited to submit their innovative concepts to LIFT for possible funding.
Recognising the initial promise and success of Round 1 LIFT Award winners, David added, “We have 9 Round 1 projects that confidently predict they will deliver a significant reduction in time and transport costs in their area of operations, but with a wider extrapolation of the best practices proven, it is entirely logical that trade levels and the competitiveness of regional enterprises will be enhanced”.
He said a reduction of a single day in transit times between Dar es Salaam and Kigali for example should offer a potential for a 7% increase in export volumes, thus reductions in transit costs and times will present real potential for a resulting increase in trade attached to the wider benefits of a reduction in the cost of living and a more rapid growth in the creation of new jobs across the EAC.
TMEA works closely with EAC institutions, national governments, the private sector and civil society organisations. TMEA is funded by a range of investors in development that include: Belgium, Denmark, Finland, Netherlands, Sweden and the United Kingdom.
An important paradigm shift is underway. Over the course of last century, global trade was growing faster than global GDP (read: income). However, post-2008, this trend is reversing. Presently, world trade is growing more slowly than world GDP. Recent estimates by OECD in 2015 indicate trade figures for the G-7 group of countries fell by 7.1 per cent while trade figures for major emerging economies including Brazil, China, India, Indonesia, Russia, and South Africa slumped by 9.5 per cent.
This trend is worrisome. The beneficial effect of trade in increasing productivity and income growth is well known. Economies such as South Korea, Taiwan, and much of the South East Asian nations catapulted to a higher growth trajectory through trade. In fact, as evidence from China suggests trade has been instrumental in lifting millions out of poverty.
Economists argue four important reasons as to why growth in global trade is slowing down. First, the financial crisis in the US, and more recently in Europe has slowed down world trade. These two regions account for more than half of world trade volumes, and a slowdown in these regions will naturally have an impact on global trade. Second, with an economic slowdown there will be a concomitant fall in investment across national boundaries, which means lower trade.
Third, a slower intra-industry trade, particularly, those associated with the international fragmentation of production. A fall in investment flow negatively affects trade in similar in commodities such as cars, computers, air conditioners, and refrigerators. Finally, in event of slower trade growth, individual countries turns protectionist. Protectionism is becoming evident in terms of an increase in applied tariffs (although, keeping them below the rates countries bound at WTO) and non-tariff barriers (NTBs), mainly in the form of anti-dumping measures, sanitary and phytosanitary sanctions, and even through the provisions granting subsidies to domestic producers.
In the event of this global scenario, India has a lot to worry about. Recent trade data for India (April-February 2015-16) suggests, in dollar terms, cumulative value of exports were at $238.4 billion as against $286.3 billion during corresponding period a year earlier, registering a negative growth of 16.7 per cent.
Apparently, Prime Minister Narendra Modi’s aim to almost double goods and services exports to $900 billion in the next four years, and grabbing a 5 per cent share of global trade by 2020 (up from 1.7 per cent global exports share at present) seems overly ambitious. India’s largest export item, namely, refined petroleum products has fallen by 15 per cent, lowest in nine years. Interestingly, this fall is not only due to a fall in international crude price (as some experts would argue) but also because of declining export volumes. Growth of other important export items such as metal, electronics and machinery are also falling.
Interestingly, despite the Chinese economy slowing down, the export figures for China in 2014 was recorded at $2,342.3 billion in comparison to India’s $317.5 billion. If one takes into consideration items such as iron and steel, chemicals, machines and telecommunication equipment, textiles and clothing, where China and India compete with each other in international market, the former’s share in the world market is much higher.
Indian businesses are losing competitiveness due to high borrowing costs and because of country’s long-standing weaknesses such as bad infrastructure, red tape and corruption.
In this regard there are important lessons to be learnt from China. The relative success of China lies in its ability to provide better physical infrastructure and easy availability of cheap credit. Within infrastructure funding, the contribution of India’s private sector is only 36 per cent in comparison to China’s 48 per cent. This is notwithstanding the fact that China’s GDP is almost four times the size of India’s GDP.
In many instances, Indian exporters of edible items like rice, tea etc., find it difficult to ship their product from the nearest port of exit. For example, exporters in eastern India are forced to transport edible items by road to Kakinada – a port in Andhra Pradesh which offers mid water loading facilities – to avoid contamination. The congested Kolkata port handles export of iron ore and other metals scraps, items which cause pollution (read dust particles) and thereby expose edible items to the risk of contamination.
The Chinese government offers other goodies as well. On top of cheaper credit, Chinese manufacturing units also avail cheaper power, water and land. Besides providing these indirect subsidies, the government also gave differential subsidy. For example, production of staple fibres, meant for domestic consumption, attract lesser subsidy as compared to when it is used as an input for making exportables, like, polyester yarn. The special economic zones (attracting zero tariffs) were built with the idea of making China the assembly hub of the world – where inputs were imported from neighbouring Asia, assembled in China and thereafter exported to the rest of the world. Coupled with these, a much larger scale of operation by lowering per unit cost of production, explains China’s much higher share of world exports.
Lower transaction costs have also given Chinese exports a much-needed competitive edge. For example, it takes around 40 days to book a container for exports in India as compared to just one day in China. On the contrary, logistics costs in India are among the highest in the world at 13 percent of GDP. For instance, trucks in India have to pass through multiple checkpoints and stop at state borders to pay toll taxes and octroi, for inspections, etc. An estimate of the time taken at checkpoints shows that for a journey of 2,150 kilometres between Kolkata and Mumbai a truck had to stop at 26 checkpoints for as much as 32 hours. This torturous journey is likely to continue unless the government implements GST. With respect to ‘Trading Across Borders’, in 2013, India ranked 132 out of 189 countries, while Bangladesh, Nepal, Pakistan and Sri Lanka ranked 130, 177, 91, and 51, respectively.
Inadequate infrastructure is responsible for holding back GDP growth by roughly 2 per cent, or an annual hit of approximately $20 billion to economic progress. The government, on its part, has set a huge target of doubling investment in infrastructure from Rs. 20.5 trillion ($0.33 trillion) to Rs. 40.9 trillion ($0.65 trillion) during the twelfth five year plan period (2012-2017). To achieve this target, the government will require investment from the private sector.
Ease of doing business
Although reforms in India are taking place, they are far from complete. Companies face a maze of government orders, regulations, rules and procedures, which raise the cost of doing business in India. In its Doing Business Report-2015, the World Bank placed India in the 142nd position out of a sample of 189 countries, with a ranking that is worse than China, Sri Lanka, Bangladesh, and Pakistan when it comes to the convenience of doing business. The Doing Business Report-2016, saw India’s performance improved, moving up by 12 places to 130th position, mainly because Central government specifically stepped in to improve the ease of doing business in Delhi and Mumbai (as opposed to the rest of India) – the two cities where World Bank observers undertake surveys to examine the ease of doing business.
Even in terms of productivity and efficiency, India needs to improve. According to the APO Productivity Database 2014, average Total Factor Productivity (TFP) growth in India rose from 2.0 per cent in 2000-05 to 4.7 per cent during 2005-10, but fell to 0.9 per cent in the following two years. However, for China average TFP growth was 3.9 per cent during 2000-05, rising to 4.2 per cent during 2005-10, and falling to 2.1 per cent over the next two years. During 2010-12, while TFP contributed 11 per cent to GDP growth in India, its share in China’s GDP growth was 26 per cent. Average TFP growth over the last four decades in India has been 1.4 per cent as compared to 3.1 per cent in China.
Equally important is to undertake a more effective stance at regional trading forums. The South Asian Free Trade Area (SAFTA) has met with limited success. Negotiators from ASEAN regions accuse Indian policymakers of not willing to give them market access to items originating from ASEAN countries. Most of the tradable items are under negative lists (outside the purview of basic zero custom tariffs). India-Japan CEPA has resulted in limited gain for services involving movement of professionals such as nurse and yoga teachers, and trade in Indian generic pharmaceutical products. India policymakers need to indulge in more effective negotiation to sell our Mode 1 and Mode 4 services, areas where we have a comparative advantage.
The Ethiopian government plans to increase coffee exports by 45 percent in 2016 through incentives and increased support to farmers as the population suffers food shortages in one of the worst droughts in 50 years.
Coffee made up almost half of Ethiopia’s gross domestic product in 2014, according to the World Bank, BusinessWeek reported.
The crop was responsible 84 percent of exports and 80 percent of total employment in Ethiopia.
The U.N. estimates that 15 percent of Ethiopians will face food shortages in 2016. That’s 15 million people, ABC reports.
Crop production has failed completely in some areas of Ethiopia and is down 50-to-90 percent in others, according to the U.N.’s Food and Agriculture Organisation.
Aid groups are calling Ethiopia’s food shortages a “code red emergency” and questioning the international response, according to ABC.
Ethiopian coffee makes up 18 percent of the German market and 16 percent of Saudi Arabian demand, BusinessWeek reported.
The country has become a favorite source of coffee for major specialty coffee blenders — especially from the U.S. These include Starbucks, which operates 23,450 locations worldwide, including 12,937 in the U.S.
In recent years, the U.S. Agency for International Development (USAID) has helped the Ethiopian government and coffee cooperatives improve production, processing and marketing of Ethiopian coffee.
The program has mapped the country’s coffee washing and hulling stations and installed technology to trace coffee purchased through the Ethiopian Commodity Exchange.
Ethiopian coffee exports will increase 45 percent to over 260,000 tons in 2016, the government said in statement early this month.
Incentives will include loans for coffee exporters and processors, links to marketing, and promoting Arabica coffee at trade shows abroad, said a trade ministry spokesman.
Ethiopia earned $780 million exporting 184,000 tons of coffee in 2014 and it also has a strong domestic market, BusinessWeek reported.
The current El Niño, the strongest on record, has caused severe drought in parts of Ethiopia, triggering a decline in food security and massive drop in pastoral and agricultural production, IBTimes reported.
Ethiopia’s livestock population is the largest in Africa. Its cattle, sheep, goats, horses, camels and chickens outnumber the country’s human population, according to the U.N. Food and Agriculture Organization, UNFAO.
Farmers are running out of available grazing land and water as urbanization expands into rural areas. Some of the land that pastoralists once relied on for herding is overgrazed or has been turned into ranches, private farms, game parks and urban centers, IBTimes reported.
As many as 150 people died and many were arrested by Ethiopian security forces during recent protests against government plans to expand development of Addis Ababa to surrounding towns in the Oromia region. Protesters opposed a plan that would displace farmers and herders from fertile, ancestral lands.
ABB has grabbed a $50 million supply contract from Bombardier Transportation to support the freight locomotives that will help form the backbone of the electric rail fleet in South Africa.
ABB will provide traction transformers and other related equipment for 240 freight locomotives operating under this railway network.
The order was received in the fourth quarter of 2014.
The traction units will be installed in Bombardier’s TRAXX locomotives which will be manufactured in South Africa.
These transformers will supply electricity for trains running on the dual 3kV direct-current and 25kV alternating-current overhead voltage network.
Since 1998, ABB has been supplying traction transformers for various electrical locomotives projects involved with Bombardier.
In addition, ABB traction transformers are designed to support heavy freight loads over distances of more than 1,000 kilometers.
These transformers are engineered for demanding environments and help power trains that operate on tracks under challenging conditions like multiple power systems, steep inclines, tight curves, excessive wear, voltage drops in long sections and extreme temperatures.
Already, more than half the world’s electric locomotives and train sets are powered by ABB.
A leading transformer manufacturer throughout the world, ABB offers both liquid-filled and dry-type transformers inclusive of lifetime services such as replacement of parts and components.
South Africa plans to invest nearly $5 billion to expand the rail fleet for increasing the passenger travel and also to enhance its efficiency to transport iron ore as part of the global exporting.
South Africa aims to boost the share of freight shipped by rail significantly over the next decade.
Source: GreenTech Lead
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