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How a no-deal Brexit would affect Africa

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By HANNAH TIMMIS
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The British Parliament on Tuesday January 29 gave Prime Minister Teresa May the authority to freshly negotiate a Withdrawal Agreement with the EU just one week after it rejected by a resounding 432 votes to 202, making the odds of a no-deal Brexit greater than ever.

Having survived a motion of no-confidence, PM May had less than 70 days to devise an alternative exit plan that MPs could support. Without such an alternative, the UK would then under Article 50, leave the EU without an agreement on March 29.

A no-deal Brexit would deprive some developing countries — the majority of them in Africa — of tariff-free access to the UK market.

Under the worst-case scenario, developing countries could suffer a $1.6 billion or five per cent decline in their UK exports, with low-income economies among the worst affected. To minimise the damage, the UK government must prioritise legislation that would maintain preferential market access for developing countries.

Even in a best-case scenario, developing countries would lose. The most immediate and direct impact of a no-deal Brexit on developing countries would be the loss of trade preferences that allow their exports to enter the UK with low or no customs duties.

Currently, all low- and lower-middle-income countries benefit from preferential access to British markets, either under the EU’s Generalised Scheme of Preferences (GSP) or under an EU Free Trade Agreement (FTA).

In the event of no-deal, these arrangements would cease to apply in the UK. While the government intends to “replicate” trade preferences “as soon as possible,” it seems highly unlikely that it will finalise any bilateral FTAs by the March 29 deadline.

Therefore, any no-deal outcome will involve some reduction in market access for developing countries — the extent depends on which of two possible scenarios occurs.

Preferences
The best-case scenario is that the UK replicates the EU’s GSP before Brexit. Beneficiaries of the EU scheme would maintain their existing trade preferences.

Only developing countries with FTAs would incur tariff increases on some British exports, since they would transition to the relatively less generous GSP arrangement. Still, they would benefit from preferential market access relative to advanced countries, which would face the UK’s highest applied tariffs, so-called Most Favoured Nation (MFN) rates.

Fortunately, this best-case scenario is also the most likely. The government already has the power to introduce a trade preference scheme under the Taxation (Cross-border Trade) Act 2018. It need only pass secondary legislation to implement a replica GSP, legislation that (we are told) is ready to go.

Still, given the unprecedented levels of political uncertainty, there’s a risk that Parliament will not approve a UK preference scheme by end of March.

To enter into force, the secondary legislation must first be laid before the House of Commons for 21 days under the negative procedure.

If, for example, MPs vote to hold a general election, or Brexit congests the parliamentary business schedule severely, then this procedure may not complete in time. Under this worst-case scenario, following no-deal, developing countries would lose all preferential access to the UK and face much higher MFN tariff rates.

Higher tariffs would increase the landed price of developing countries’ UK exports, lowering demand for these products in UK markets — an impact known as the trade destruction effect.

Higher tariffs could also have a trade diversion effect, whereby the increase in the relative price of developing countries’ exports would cause British consumers to substitute them for cheaper alternatives. This would occur if the rates applied to developing countries’ UK trade rose by more than those applied to advanced countries’ trade.

Focus here is on the trade destruction effect of a no-deal Brexit on developing countries, calculated for the best- and worst-case scenarios to quantify and compare the impact of each on developing countries’ UK exports.

While trade destruction is clearly only part of the story, it nevertheless captures which country’s exports would suffer the greatest direct decrease in UK demand due to the imposition of higher tariffs following no-deal.

For a given country-export, the trade destruction effect is calculated as the product of (1) the extra duty it incurs following no-deal and (2) its UK import demand elasticity. The effects are calculated at the six-digit level of the Harmonised System (HS) 2012 and summed to generate an overall country estimate.

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Developing countries’ UK trade is eligible for six types of preferential arrangement, of which three are unilateral schemes under the EU’s GSP and three are reciprocal EU FTAs.

The schemes under the GSP include a Standard GSP scheme for lower-middle-income countries (LMICs), an enhanced GSP+ scheme for LMICs that meet certain vulnerability criteria, and an Everything But Arms (EBA) scheme for low-income countries (LICs).

The types of FTAs that the EU has agreed with developing countries include Association Agreements (AA), Deep and Comprehensive Free Trade Areas (DCFTA), and Economic Partnership Agreements (EPA).

For each of these preferential arrangements, Table 1 presents the number of beneficiary developing countries, the value of their UK exports, the average trade-weighted UK tariff rate, and the total duty levied annually. Overall, developing countries export $30.9 billion to the UK per year. This trade incurs an average tariff of 1.8 per cent, generating $558 million in customs duties annually.


Table 2 presents the extra duties developing countries’ UK exports would incur following no-deal and the impact on demand.

The trade destruction effect under the worst-case scenario is almost eight times greater than under the best-case scenario. If the UK replicates the GSP before leaving the EU, LMICs that currently benefit from FTAs would pay $181 million in additional duties after transitioning to the Standard GSP scheme.

(Low-income countries benefiting from FTAs would transition to the EBA scheme and continue to receive duty-free access). This would result in a reduction in UK demand for their exports of $203 million or 0.7 per cent. But if the government fails to maintain any preferential access for developing countries, then UK demand for their trade would fall by $1.6 billion or 5.1 per cent.

The worst-affected countries would also be the poorest. Low-income countries trading under the EBA scheme would face the highest trade-weighted UK MFN tariffs of 10.7 per cent, resulting in a $635 million decline in UK demand for their products.

The trade diversion effect would likely reinforce these results. Under the best-case scenario, developing countries would mostly benefit from a positive trade diversion effect, since advanced countries would all incur much higher (MFN) tariffs. In contrast, under the worst-case scenario, developing countries would suffer a negative trade diversion effect due to the elimination of their relative price advantage.

These general results mask a wide dispersion of effects across individual economies.

Under the best-case outcome, the total trade destruction effect of $203 million is fairly evenly distributed across LMIC FTA beneficiaries. The individual effects are small as a proportion of countries’ global exports (< 0.5 per cent), reflecting both their low magnitude and the declining importance of the UK market for many of these LMICs. (Of those listed, only Kenya sends more than four per cent of its total exports to the UK.)

Under the worst-case outcome, Bangladesh, Cambodia, Pakistan, and Sri Lanka emerge as the biggest losers. Because the UK remains a major trading partner for these big economies, accounting for around one-tenth of their global exports, the elimination of UK preferences would drive large absolute and proportional declines in their trade.

Moreover, these trade destruction effects would be concentrated in a handful of key UK exporting sectors that would face large tariff increases under MFN terms.

The UK should keep its promise to protect and improve developing countries’ access to UK markets.

The UK government has pledged to improve access to the UK’s markets for the poorest countries after Brexit. As well as causing significant damage to the UK economy, even the best-case no-deal scenario would break that commitment.

Minimising the damage will require passing legislation to replicate the EU’s GSP in the UK before March 29. This would be by far the least destructive no-deal outcome for developing countries’ trade, particularly for the poorest countries. It would also help ensure that trade isn’t diverted away from developing countries’ in favour of more advanced economies.

Once unilateral preferences are in place, the UK should prioritise extending those preferences in terms of products and countries. My colleague Ian Mitchell has argued that this would be good for the UK and good for development.

Centre for Global Development

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Sordid tale of the bank ‘that would bribe God’

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Bank of Credit and Commerce International. August 1991. [File, Standard]

“This bank would bribe God.” These words of a former employee of the disgraced Bank of Credit and Commerce International (BCCI) sum up one of the most rotten global financial institutions.
BCCI pitched itself as a top bank for the Third World, but its spectacular collapse would reveal a web of transnational corruption and a playground for dictators, drug lords and terrorists.
It was one of the largest banks cutting across 69 countries and its aftermath would cause despair to innocent depositors, including Kenyans.
BCCI, which had $20 billion (Sh2.1 trillion in today’s exchange rate) assets globally, was revealed to have lost more than its entire capital.
The bank was founded in 1972 by the crafty Pakistani banker Agha Hasan Abedi.
He was loved in his homeland for his charitable acts but would go on to break every rule known to God and man.
In 1991, the Bank of England (BoE) froze its assets, citing large-scale fraud running for several years. This would see the bank cease operations in multiple countries. The Luxembourg-based BCCI was 77 per cent owned by the Gulf Emirate of Abu Dhabi.  
BoE investigations had unearthed laundering of drugs money, terrorism financing and the bank boasted of having high-profile customers such as Panama’s former strongman Manual Noriega as customers.
The Standard, quoting “highly placed” sources reported that Abu Dhabi ruler Sheikh Zayed Sultan would act as guarantor to protect the savings of Kenyan depositors.
The bank had five branches countrywide and panic had gripped depositors on the state of their money.
Central Bank of Kenya (CBK) would then move to appoint a manager to oversee the operations of the BCCI operations in Kenya.
It sent statements assuring depositors that their money was safe.
The Standard reported that the Sheikh would be approaching the Kenyan and other regional subsidiaries of the bank to urge them to maintain operations and assure them of his personal support.
It was said that contact between CBK and Abu Dhabi was “likely.”
This came as the British Ambassador to the UAE Graham Burton implored the gulf state to help compensate Britons, and the Indian government also took similar steps.
The collapse of BCCI was, however, not expect to badly hit the Kenyan banking system. This was during the sleazy 1990s when Kenya’s banking system was badly tested. It was the era of high graft and “political banks,” where the institutions fraudulently lent to firms belonging or connected to politicians, who were sometimes also shareholders.
And even though the impact was expected to be minimal, it was projected that a significant number of depositors would transfer funds from Asian and Arab banks to other local institutions.
“Confidence in Arab banking has taken a serious knock,” the “highly placed” source told The Standard.
BCCI didn’t go down without a fight. It accused the British government of a conspiracy to bring down the Pakistani-run bank.  The Sheikh was said to be furious and would later engage in a protracted legal battle with the British.
“It looks to us like a Western plot to eliminate a successful Muslim-run Third World Bank. We know that it often acted unethically. But that is no excuse for putting it out of business, especially as the Sultan of Abu Dhabi had agreed to a restructuring plan,” said a spokesperson for British Asians.
A CBK statement signed by then-Deputy Governor Wanjohi Murithi said it was keenly monitoring affairs of the mother bank and would go to lengths to protect Kenyan depositors.
“In this respect, the CBK has sought and obtained the assurance of the branch’s management that the interests of depositors are not put at risk by the difficulties facing the parent company and that the bank will meet any withdrawal instructions by depositors in the normal course of business,” said Mr Murithi.
CBK added that it had maintained surveillance of the local branch and was satisfied with its solvency and liquidity.
This was meant to stop Kenyans from making panic withdrawals.
For instance, armed policemen would be deployed at the bank’s Nairobi branch on Koinange Street after the bank had announced it would shut its Kenyan operations.
In Britain, thousands of businesses owned by British Asians were on the verge of financial ruin following the closure of BCCI.
Their firms held almost half of the 120,000 bank accounts registered with BCCI in Britain. 
The African Development Bank was also not spared from this mess, with the bulk of its funds deposited and BCCI and stood to lose every coin.
Criminal culture
In Britain, local authorities from Scotland to the Channel Islands are said to have lost over £100 million (Sh15.2 billion in today’s exchange rate).
The biggest puzzle remained how BCCI was allowed by BoE and other monetary regulation authorities globally to reach such levels of fraudulence.
This was despite the bank being under tight watch owing to the conviction of some of its executives on narcotics laundering charges in the US.
Coast politician, the late Shariff Nassir, would claim that five primary schools in Mombasa lost nearly Sh1 million and appealed to then Education Minister George Saitoti to help recover the savings. Then BoE Governor Robin Leigh-Pemberton condemned it as so deeply immersed in fraud that rescue or recovery – at least in Britain – was out of the question.
“The culture of the bank is criminal,” he said. The bank was revealed to have targeted the Third World and had created several “institutional devices” to promote its operations in developing countries.
These included the Third World Foundation for Social and Economic Studies, a British-registered charity.
“It allowed it to cultivate high-level contacts among international statesmen,” reported The Observer, a British newspaper.
BCCI also arranged an annual Third World lecture and a Third World prize endowment fund of about $10 million (Sh1 billion in today’s exchange rate).
Winners of the annual prize had included Nelson Mandela (1985), sir Bob Geldof (1986) and Archbishop Desmond Tutu (1989).
[email protected]    

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Tracking and monitoring motor vehicles is not new to Kenyans. Competition to install affordable tracking devices is fierce but essential for fleet managers who receive reports online and track vehicles from the comfort of their desk.

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Agricultural Development Corporation Chief Accountant Gerald Karuga on the Spot Over Fraud –

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Gerald Karuga, the acting chief accountant at the Agricultural Development Corporation (ADC), is on the spot over fraud in land dealings.

ADC was established in 1965 through an Act of Parliament Cap 346 to facilitate the land transfer programme from European settlers to locals after Kenya gained independence.

Karuga is under fire for allegedly aiding a former powerful permanent secretary in the KANU era Benjamin Kipkulei to deprive ADC beneficiaries of their land in Naivasha.

Kahawa Tungu understands that the aggrieved parties continue to protest the injustice and are now asking the Ethics and Anti-corruption Commission (EACC) and the Directorate of Criminal Investigations (DCI) to probe Karuga.

A source who spoke to Weekly Citizen publication revealed that Managing Director Mohammed Dulle is also involved in the mess at ADC.

Read: Ministry of Agriculture Apologizes After Sending Out Tweets Portraying the President in bad light

Dulle is accused of sidelining a section of staffers in the parastatal.

The sources at ADC intimated that Karuga has been placed strategically at ADC to safeguard interests of many people who acquired the corporations’ land as “donations” from former President Daniel Arap Moi.

Despite working at ADC for many years Karuga has never been transferred, a trend that has raised eyebrows.

“Karuga has worked here for more than 30 years and unlike other senior officers in other parastatals who are transferred after promotion or moved to different ministries, for him, he has stuck here for all these years and we highly suspect that he is aiding people who were dished out with big chunks of land belonging to the corporation in different parts of the country,” said the source.

In the case of Karuga safeguarding Kipkulei’s interests, workers at the parastatals and the victims who claim to have lost their land in Naivasha revealed that during the Moi regime some senior officials used dubious means to register people as beneficiaries of land without their knowledge and later on colluded with rogue land officials at the Ministry of Lands to acquire title deeds in their names instead of those of the benefactors.

Read Also: Galana Kulalu Irrigation Scheme To Undergo Viability Test Before Being Privatised

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“We have information that Karuga has benefitted much from Kipkulei through helping him and this can be proved by the fact that since the matter of the Naivasha land began, he has been seen changing and buying high-end vehicles that many people of his rank in government can’t afford to buy or maintain,” the source added.

“He is even building a big apartment for rent in Ruiru town.”

The wealthy officer is valued at over Sh1.5 billion in prime properties and real estate.

Last month, more than 100 squatters caused scenes in Naivasha after raiding a private firm owned by Kipkulei.

The squatters, who claimed to have lived on the land for more than 40 years, were protesting take over of the land by a private developer who had allegedly bought the land from the former PS.

They pulled down a three-kilometre fence that the private developed had erected.

The squatters claimed that the former PS had not informed them that he had sold the land and that the developer was spraying harmful chemicals on the grass affecting their livestock and homes built on a section of the land.

Read Also: DP Ruto Wants NCPB And Other Agricultural Bodies Merged For Efficiency

Naivasha Deputy County Commissioner Kisilu Mutua later issued a statement warning the squatters against encroaching on Kipkuleir’s land.

“They are illegally invading private land. We shall not allow the rule of the jungle to take root,” warned Mutua.

Meanwhile, a parliamentary committee recently demanded to know identities of 10 faceless people who grabbed 30,350 acres of land belonging to the parastatal, exposing the rot at the corporation.

ADC Chairman Nick Salat, who doubles up as the KANU party Secretary-General, denied knowledge of the individuals and has asked DCI to probe the matter.

Email your news TIPS to [email protected] or WhatsApp +254708677607. You can also find us on Telegram through www.t.me/kahawatungu

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William Ruto eyes Raila Odinga Nyanza backyard

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Deputy President William Ruto will next month take his ‘hustler nation’ campaigns to his main rival, ODM leader Raila Odinga’s Nyanza backyard, in an escalation of the 2022 General Election competition.

Acrimonious fall-out

Development agenda

Won’t bear fruit

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