Global Trade March 2018 issue

Global Trade

Global Trade
While in many parts of the world, protectionism is fast becoming popular, Germany is trying to turn the tide towards a world that embraces free trade. Alongside championing the cause of free trade in EU, German Chancellor Angela Merkel has also expressed “hope” for a possible trade agreement between EU and the Gulf Cooperation Council (GCC) nations. Merkel expressed the intent during a recent visit to Saudi Arabia and UAE. Talks between the two blocs for a potential trade agreement have been in progress since 1990, but like in most cases, progress has been painfully slow.

Bilateral trade between the two blocs witnessed a 12.7% y-o-y drop in 2016 and this should be an ideal time to finalise a deal and boost trade. With Merkel (who seems to have taken on the mantle as a champion of free trade) pushing the deal, there is hope that the FTA might soon see the light of day.


Oil exports

An unkept promise?

Despite promising to abide by the Organisation of Petroleum Exporting Countries’ (OPEC) decision to slash oil production in order to stabilise crude oil prices, Iraq’s exports of the commodity has been going through the roof. In the first half of May 2017, 62 million barrels of crude oil was exported from Iraq. And if this rate is sustained, it will be the highest monthly volume Iraq has exported in the recent past.

In March 2016, Iraq had pledged to slash its crude production by 210,000 barrels per day. The export numbers though suggest that Iraq has exceeded its quota in the last couple of months. Experts are wary that Iraq may be actually producing more than what it has promised and that Iraq’s compliance with the OPEC curbs is a ‘moving target’. Iraq’s economy depends significantly on petroleum oil exports and the turmoil in the country’s economy may force Iraq to exceed its quota.



A new lease of life

Is the Trans-Pacific Partnership (TPP) getting a makeover? A two-day meeting comprising senior officials from TPP nations, which was recently held in Canada, appears to be pointing in this direction. The objective of the meet was to discuss possible recommendations on TPP that could be presented during the Asian Trade Ministers meeting, which will be held in Vietnam soon. During the meeting, officials discussed various alternatives towards developing free trade in the region. Earlier this year, US had dropped out of TPP leaving the ambitious multi-nation free trade deal almost paralysed. But over the last few months, various countries have expressed interest towards saving the pact. While the intentions are right, the big question is that without US will the trade bloc have enough muscle and relevance to change the world of trade?


Sugar Imports

Not so sweet

Kenyans are known to have a sweet tooth. And the recent drought, that was declared by President Uhuru to be a national disaster, has hit it where it hurts. Kenya is facing a severe shortage of sugar that has increased the price of the commodity. Kenya has an annual consumption of 870,000 metric tonne (MT) of sugar against a production of 600,000 MT. The deficiency is met through strictly controlled imports from Common Market for East and South Africa (COMESA) countries. In a move to meet the shortage, the government has lifted the existing restrictions on imports of sugar. Kenya has already imported 40,000 MT of sugar from the COMESA and is expected to import another 60,000 MT soon.

Global Trade

Air freight

Up in the air

Global Trade

Amidst talks of a sluggish global economy, International Air Transport Association (IATA) has revealed that the global demand for air freight has been rising for quite some time now. IATA data for February 2017 reported a 8.4% y-o-y increase in demand measured in freight tonne kilometers (FTKs). In fact, a 14% y-o-y increase in March 2017 was the fastest increase in air freight demand since October 2010. The report also highlighted that the demand for air freight was governed by an ‘increase in semiconductor material shipment’.

Even Directorate General of Civil Aviation (DGCA) India revealed that in FY2016 the domestic air cargo increased 5.5% y-o-y to 6.94 lakh metric tonne (LMT), while international air cargo witnessed an increase of 2.63% y-o-y from 13.88 LMT to 14.04 LMT. According to IATA Director General Alexandre de Juniac, despite this increase there remain a lot of ground to be covered. This substantial increase in airfreight may signify that the tide is turning towards increased global trade.




A reason to cheer

Global Trade

Ever since Donald Trump came to power, the relationship between Canada and US has been lukewarm. [You just cannot ignore how Trump feels about the NAFTA being a badly negotiated deal for his nation!] There have been fears that Canada’s foreign trade will become a victim of this rather tepid relationship. However, the latest estimates from Export Development Canada (EDC) predict that Canada’s merchandise exports (by value) will see a 6% y-o-y increase in CY2017, bolstered partly by a weak Canadian currency.

This comes as a sign of relief for Canada which saw a 5.4% y-o-y decrease in exports in CY2016. According to EDC, with an 18% increase, export of energy will be a major contributor to Canada’s improved trade performance.

Despite this, Canadians remain wary because Trump has repeatedly threatened to pull out from or modify the North American Free Trade Agreement (NAFTA). With US being Canada’s largest export destination, this could mean bad news. NAFTA, according to Trump, works against the interest of American workers and is, in his words, ‘unfair’. In fact, recently, the US government hasintroduced tariffs on lumber exports from Canada to US. China, EU, Japan and Mexico are Canada’s other major export destinations and the country has lately been on an overdrive to build stronger trade relations beyond the US. The country has signed a CETA with EU and talks are on for FTAs with India and China.


Fish exports

Nothing fishy

Egyptians were forced to go without their favourite grilled fish (Samak) in the last few months. Reason? The devaluation of the Egyptian currency had made it more profitable to export fish than to sell it in the domestic market, in the process driving the price of fish in Egypt beyond the reach of the common Egyptian. To counter the shortage of fish and curb the rise in prices, Egypt’s President Abdel Fattah Al-Sisi has recently announced restrictions on export of fish from Egypt. According to Sisi, Egypt had exported about four times its usual annual exports in the first three months of CY2017. Egypt’s Trade Ministry, in late April imposed a tariff on exports of fresh and frozen fish of 12,000 Egyptian pounds per tonne for four months.

Egypt is trying hard to control prices after it abandoned it peg of 8.8 pounds per US dollar. The Egyptian pound now trades at 18 per dollar.