M
arkets play a critical role in the sustainability and economic growth of private sector enterprises. Poor market access can stifle the growth prospects of any commercial enterprise. In the past, many African countries tried to protect local products from competition from externally produced products through tariffs and a variety of non-tariff barriers. Such protection tendencies have been generally associated with inefficiency in the global allocation of productive resources.The global trend today is to eliminate or reduce tariff and non-tariff barriers to trade and, as such, many countries in the sub-region have ratified the World Trade Organization (WTO) protocols to eliminate all barriers to world trade. Other international agreements, of which many Southern African countries are members, include the Cotonou Agreement with the EU and the General System of Preferences (GSP). However, developing coun-tries carry little influence in WTO negotiations, partly because of lack of knowledge and technical capacity.
Some of the WTO international trade policies have also worked against the develop-ing countries. There are still many quotas, tariffs and subsidies that obstruct developdevelop-ing country access to northern markets, and even though quality-related standards are being applied to imports from developing countries, these standards are not treated as barriers to trade. In addition to this, corporate intellectual property rights block developing country access to cheap technology.
International trade has never been a game of charity: it has always favoured stronger econ-omies. International trade agreements involve complex issues and require sophisticated skills to negotiate. One of the weaknesses for Africa is the lack of specialized skills in trade negotiations. Among the recent interventions by African Capacity Building Foundation has been to assist ECOWAS and COMESA to build capacity for trade negotiations. The ECA has established an Africa Trade Policy Centre (ATPC) with the main aim of building the capacity of member States to participate effectively in WTO negotiations.
SADC is moving towards establishing a Free Trade Area amongst its member States and COMESA is also developing a broad regional market from which individual countries can develop their production possibilities and build more capacity for effective entry into the more competitive global market. However, these regional approaches are not consis-tent with WTO principles of global openness but are sound propositions for small econo-mies in Southern Africa that need some form of protection before entering a globalized market.
Current policies in COMESA and SADC are also aimed at attracting FDI that can take advantage of lower transportation costs to meet sub-regional demand. This sub-regional approach is the surest way of attracting FDI to service sub-regional markets adequately.
However, factors constraining sub-regional trade include difficulties in settlement arrange-ments because financial and monetary systems are not integrated and the strength of the US dollar against other regional currencies. Another constraint includes poor information on export markets. Even though many countries in the sub-region have developed some policies to improve information technology, IT policies need to specifically target export trade to empower potential exporters with essential basic information.
One major cause of weakness in Africa’s domestic market is that local production initia-tives are not able to meet new, mainly foreign-oriented, consumption habits and demands.
The consumption of wheat-based products, such as bread, is now common. However, many African countries have not developed the local capacity to produce wheat, or to use locally available flour to produce bread. This mismatch in consumption and production patterns tends to leave local markets unduly exposed to foreign product competition, and the inability to adapt indigenous products (such as sorghum flour) to emerging demand has stifled demand for indigenous products.
Depressed demand usually reflects several factors including low productivity, low incomes, and severe inequalities in income distribution. Most salary structures in African countries reflect a colonial legacy of large differentials based on racial discrimination. Large dis-parities in income continues today and as such the average wage of general workers and agricultural workers in Southern Africa is small, which oftentimes reduces productivity.
Similarly, smallholders suffer the same fate of low prices for their crops, on one hand, and harsh terms of trade to obtain manufactured goods, on the other. Hence, rural areas in Southern Africa are generally characterized by severe poverty, except for small pockets of large modern farms.
Figures for income distribution for Southern African economies are shown in Table 6.1.
In post-apartheid South Africa during 1986-1997, the richest 20% of the population had 64.8% of the national income; the share of the richest 10% was 46%, whilst the poorest 20% survived on only 3%. As can be seen from the table, the former socialist countries such as Mozambique and Zambia have similar patterns of income distribution, largely due to the significant salary differentials of the parastatals.
The heavy concentration of income amongst a small minority, and the geographical dis-tance from the urban areas for the rural population, have tended to further depress de-mand for products and limit consumption to the few with income. Improved equity in income distribution needs to aim at broadening and increasing domestic demand.
More equal income distribution will assist Africa to reinvigorate domestic and sub-re-gional markets. South Africa is an example of a country’s efforts to redress the economic inequalities of apartheid by improving employment and income opportunities of those previously disadvantaged. The post-apartheid period has shown some increase in employ-ment without a decline in wages, which has meant that more people have been employed at higher wages.
Table 6.1: Income Distribution in Southern Africa
Share of Income held by Population Groups
Country Richest
10% 1986-97
Richest 20%
1986-97
Poorest 10 % 1986-97
Poorest 20%
1986-97
Angola - - - - - -
-Botswana - - - - - -
-Lesotho 43.4 60.1 0.9 2.8
Malawi - - - - - -
-Mauritius - - - - - -
-Mozambique 31.7 46.5 2.5 6.5
Namibia - - - - - -
-South Africa 45.9 64.8 1.1 2.9
Swaziland 50.2 64.4 1.0 2.7
Zambia 39.2 54.8 1.6 4.2
Zimbabwe 46.9 62.3 1.8 4.0
Source:World Bank “African Development Indicators 2002”, Washington, D.C.
While the challenges in South Africa today are racially contextualized, poor income dis-tribution is a problem experienced for the most part in every country in the sub-region.
The primary challenge for governments is to address income distribution through a review of wage structures that can positively affect local markets, and strengthen the regulatory framework for the sustainability of private sector-led economic growth.