Trade and Regional Integration

Despite various initiatives, intra-Southern African trade is still low mainly due to trade barri-ers, the unstable macro-economic environment and also the vicious cycle of indebtedness. In order to remove the barriers and increase integration, countries that are members of COME-SA have adopted a programme aimed at consolidating a Free Trade Area (FTA)¹. The short-and medium-term objective of the FTA is to form a Customs Union. In that context, there is need, for convergent bilateral and multilateral trading arrangements among the participating countries, in order to avoid trade deflection and diversion as well as to ensure ease of admin-istration of the Custom Union. There is also a need to arrive at an appropriate institutional framework to ensure effective and efficient implementation of the trade protocol.

3.4.1 Southern African trade policies

Southern African trade policies are mainly a series of reciprocal arrangements signed by members of COMESA, SADC and Southern African Customs Union (SACU) regional economic groupings. Trade exchanges are made among contracting parties based on a most favoured nation basis and those that are not part of the FTA are usually granted trade preferences by the FTA member States on the basis of the tariff reduction they have agreed upon. However, despite these reciprocal arrangements, sub-regional total trade in terms of both volume and value is very low in Southern Africa.

From 1990 to 2000, Angola experienced a 4.9 per cent average annual growth for imports and exports causing net barter terms of trade to reach an index of 214.9 in 2000. South Africa re-corded an average increase of 2.5 per cent average annual growth for exports between 1990 and 2000 and a 5.8 % per cent average annual growth for imports for the same period maintaining a net barter index of terms of trade at 99.5 in 2000. Zambia and Zimbabwe, on the other hand, have faced a considerable regression in their export and imports activities since 1980.

Source:UNCTAD, Handbook of Statistics, 2003

Graph I: SA countries exports for 2002

Zimbabwe

Zimbabwe Zambia

Namibia

Mozambique

Mauritius

Malawi Lesotho Botswana Angola

Source: UNCTAD Handbook of Statistics, 2003

As shown in graphs I and II, Angola, Botswana, Mauritius and South Africa enjoy a disproportionate share of total trade within Southern Africa. In the 2001, South Africa accounted for 61 per cent of all Southern Africa exports and South Africa and Angola combined accounted for 80.5 per cent of all imports. In 2002 this figure declined to 74.6%. The trade concentration among a few countries in Southern Africa may in part be attributed to trade liberalization policies and lack of production capacity.²

It may be concluded that there has been no tangible increase in Southern African trade as a result of integration, and trade amongst Southern African countries remains low and concentrated among a few countries. There are a number of factors that work against trade creation in Southern Africa. One is the dependence on primary commodities for generating the foreign exchange.

As shown in Table 1.11, Zambia depends on copper exports for 98% of its export earn-ings and Angola and Botswana depend on petroleum and diamond for 85% of their export earnings. Similarly, in Namibia, 95 % of its export earnings are from commodities of which diamonds and uranium represent 40.0% and 24.0% respectively, per year. Apart from creating balance of payments problems if production of a single commodity is dis-rupted, any slump in world commodity prices erodes the ability of the Southern African economies to maintain investment in basic infrastructure, which also has negative effects on regional integration efforts.

Graph II: SA countries imports for 2002

Table 1.11: Commodity Dependency of Selected African Countries, 2001

Primary commodities as a % of Total Export

Earnings

Country Individual Commodities as a % of Total Export Earnings

Source:National Statistical Offices ¹=Figures for Zimbabwe for 2000

Furthermore, many Southern African economies still depend on Organization of Eco-nomic Cooperation Development (OECD) countries for imports and exports of raw materials and manufactured products, even if products of comparable quality are avail-able from other countries in the sub-region. Angola, for example, imports 29.7% of its produce from Portugal, USA and France, and these same countries in turn absorb more than 65% of Angola’s exports³.

The continued dependence on external developed markets is partly due to the need for foreign currency. Further, many imports from the OECD countries are partly tied to aid programmes regardless of the suitability of the products for local conditions. The existing trade patterns in Southern Africa, not only serve as a vehicle for the systematic transfer of resources to OECD countries, but are also driving many Southern African economies further into debt.

According to studies undertaken for the United Nations Conference on Trade and Develop-ment (UNCTAD), the adverse impact of transport costs on trade efficiency are real and of serious concern. In Africa, 11.5 per cent of the total value of imports relates to transport costs.

In North America, the equivalent percentage is 6.7 per cent and in Asia 7.2 per cent. Within Africa, the percentage for Eastern Africa is 23.6 per cent, while for Southern Africa the figure is 12.7 per cent. On the export side, many of the countries of Southern Africa spend 20 per cent of their earnings on transportation and related expenses, with Malawi spending as much as 55.5 per cent. It is clear that reductions in transport costs can significantly improve the sub-region’s competitiveness. This is emphasized by the increasing trend of globalization enabling buyers to seek electronically the lowest prices internationally which, over time, puts downward pressure on commodity prices and forces competitors to look at ways to reduce the costs in their value claims. Reducing transport costs is an important component of this process.⁴

As a result of the regional focus of NEPAD, many Southern African countries have be-gun to re-emphasize the important role that infrastructure plays as a factor in develop-ment. Not only is this renewed emphasis helping to open the way for substantial gains from multinational cooperation, but also infrastructure development will help Southern African countries to offset some of the disadvantages of economic and geographical iso-lation and provide a foundation for future regional cooperation under the umbrella of COMESA and SADC.

As shown in Table 1.12, the Southern African countries are also experiencing mounting external indebtedness and as a result, for some countries, a significant portion of export earnings are being diverted from development programmes (including those that are spe-cifically integration-related) to debt servicing. Of the nine countries in the world whose debt is unsustainable, two are in the Southern Africa sub-region.

The slow trade growth in Southern African countries over the last few years seems to sug-gest that tariff reduction and general trade liberalization are not sufficient to positively influence intra-regional trade flows, particularly amongst those economies with a capac-ity to compete in regional markets. A critical challenge facing the sub-region is the need to attract both domestic and foreign investment to raise export competitiveness and to establish a credible trade integration process. In order for the trade integration process to be perceived as credible by investors, the following needs to occur:

• A move towards some form of trade policy harmonization and convergence, underpinned by institutional strengths;

• Political stability;

• Greater co-ordination; and

• Stability and predictability of macroeconomic policies.

Table 1.12: Total External Debt of SA Countries 1999-2003 ($US Billions)

Country 1999 2000 2001 2002 2003

South Africa 23.90 24.90 24.00 24.40 25.70

Swaziland 0.30 0.30 0.31 0.32 0.32

Zambia 5.90 5.70 5.70 5.90 5.30

Zimbabwe 4.60 4.00 3.80 3.50 3.40

Total 63.34 73.67 58.75 54.09 50.40

Source: EIU Country Reports 2003… = Data not available

Graph III: Total External Debt of SA Countries 1999-2003($US Billion)

The bulk of manufacturing in most Southern African countries derives from the mining and agricultural sectors. With the exception of few countries such as Mauritius and South Africa, the manufacturing sector mainly comprises firms that are involved in the produc-tion of food and beverages, clothing and textiles, timber, pulp and paper, plastics and chemicals. Following the introduction of privatization programmes in the early 1990s and better incentives, the manufacturing sector is becoming more and more attractive to investors and the overall trend is that of increased investment in most countries in the Southern African sub-region. Between 1999 and 2000, the manufacturing sector’s contri-bution to GDP has been, on average, at 15 per cent as shown in Table 1.13.

Table 1.13: Contribution of Manufacturing to GDP (%) 1998-2002

Country 1998 1999 2000 2001 2002

South Africa 19.3 19.9 19.8 20.0 20.2

Swaziland 34.4 35.9 35.7 35.6 N/A

Zambia 13.0 10.0 12.0 10.5 10.4

Zimbabwe 16.6 18.0 14.0 14.0 N/A

Sources: EIU Country Reports 2003, World Bank Development Indicators 2002;SADC Review Website (www.

sadcreview.com), Central Bank of Swaziland Annual Report 2000–2001 N/A = Not available * = Includes mining