Author: Alfred Sayila
AFRICA


Regional trading groups are struggling to boost intra-regional trade flows in sub-Saharan Africa.


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Illicit trade continues to flourish in Southern Africa, with smuggled goods totaling an estimated $50 billion a year.
Fears of a global recession and a clear decline in demand for raw materials and commodities have cast a harsh spotlight on the economies of the sub-Saharan Africa region. With its heavy reliance on exports of primary goods, the region is disproportionately exposed to the global slowdown. In other regions around the world, intra-regional trade is expected to take up some of the export slack, but in Southern Africa that trade is woefully slow.

The existence of three substantial regional trading blocs—the Southern African Development Community (SADC), East African Community (EAC) and Common Market for Eastern and Southern Africa (Comesa)—does not seem to be helping. According to the SADC, trade between its member states and Western countries grew by over 6% a year to $120 billion during the decade to 2005. Intra-regional trade reached just $40 billion over the same time period.

Part of the problem is that many of the countries in Southern Africa are landlocked and suffer from poor domestic transportation infrastructure, which makes trade across the region particularly difficult. Despite these problems, international trade is growing, partly because many of the region’s countries are attempting to diversify both their economies and the range of goods they manufacture. As a result, some Southern African countries have weaned themselves off their exclusive dependence on export of non-value-added raw materials by beginning to export finished industrial goods.

To help boost intra-regional trade, the EAC and SADC are trying to develop customs structures that will encourage cross-border goods flow. And early this year EAC, SADC and Comesa met in Gaborone, Botswana, to draw up a trade harmonization framework for the region. The trade troika discussed how to ease trade among member countries and unify customs operations across a region that has a population of more than 500 million people and a combined GDP of over $600 billion.

A lack of cooperation and coordination among the member countries is hindering the trade groups’ efforts to promote intra-regional business, however. Now 14 countries strong, the SADC in 2000 started implementing trade protocols meant to deepen its members’ economic and trade integration, but so far little has been achieved. The Democratic Republic of Congo and Angola, for example, have not yet signed on to a plan to reduce tariffs on several products.

The lack of progress does not appear to be deterring proponents of the region-wide free trade area (FTA) who, at the last SADC heads-of-state summit in Johannesburg in August, reaffirmed their determination to liberalize and expand trade within the region. In late October the SADC, EAC and Comesa finally nailed down an agreement to create the much-vaunted FTA. Its supporters hope the trade agreement will act as the starting point for a future regional customs union, a common market and monetary union in the years 2010, 2015 and 2018, respectively.

Despite achieving a ground-breaking agreement, those promoting free trade still face an uphill battle. Intra-regional trade in Southern Africa is restrained by a number of factors, including political instability, economic disparity, policy inconsistencies, a plethora of foreign trade pacts and structural problems that have precluded the free flow of trade in the region. Zimbabwe’s economic meltdown, for example, is estimated to have wiped $50 billion off annual intra-regional trade flows. South Africa’s recent economic and political turmoil is also worrying trade advocates, as the country is the economic engine of the entire region, accounting for almost two-thirds of Southern Africa’s GDP.

South Africa’s dominance is also a cause for concern among its trading partners, many of whom worry that their own fledgling industries will be threatened if they allow free trade with South Africa. Ironically, though, it is not South African goods that local companies should fear. According to a recent survey, of imported goods on supermarket shelves across Southern Africa just 25% are from South Africa while 50% are from European Union countries, 20% from the United States and the remainder from Asia.

Aid Clouds the Picture
Further complicating efforts to build intra-regional trade is the fact that many—if not most—of the nations in Southern Africa already have existing trade agreements with countries outside the region. Many of these came about as part of aid deals, and in many cases they tend to prevent the African nations from exporting anything other than non-value-added raw materials. Even economically powerful South Africa still has independent trade deals with countries outside SADC, which some critics claim greatly undermines the potential effectiveness of a regional FTA agreement.

But Southern African countries are extremely unlikely to scrap their trade pacts with powerful trade blocs such as the EU, given that to do so would be to risk losing millions—or possibly billions—of dollars in investment support. However, proponents of free trade in Southern Africa believe the region will one day reduce its dependence on foreign trade. “It is not true that the free trade area agreement will flood markets in the region with foreign goods,” an economist at the South African Institute of International Affairs says.

According to Nkululeko Khumalo of the Witwatersrand University in Johannesburg, outsiders are technically precluded from benefiting from the FTA, adding that these rules effectively translate into tariffs on products coming in from outside the region. Nevertheless, Khumalo says, SADC countries spent eight years implementing the provisions of the trade protocol that led to the establishment of the FTA. “Everything is on course insofar as liberalizing trade in the region is concerned,” he says.

Mozambique’s minister of industry and trade, Antonio Fernando, is optimistic about the prospects for intra-regional trade, saying liberalization of trade in Southern Africa will lead to greater competitiveness and also afford a wider choice of goods to consumers.

While its international trade focuses on primary goods and commodities, the makeup of Southern Africa’s intra-regional trade is quite different. The region’s internal trade is heavily skewed toward intangibles such as tourism, electricity and telecommunications and to agricultural produce. Countries such as Zambia, Zimbabwe, Mozambique and South Africa export huge amounts of electricity annually—totaling almost 2,000 megawatts—to various states in the region. Telecom providers Vodacom and MTN of South Africa are some of the leading mobile phone service providers in the region. Electricity and telecommunications services together account for more than 35% of the total intra-regional trade.

Agricultural trade focuses on cash crops such as maize, wheat, sorghum, groundnuts and soybeans as well as packaged goods like tea, coffee, sugar, seeds and fertilizer. Crops and packaged agro-based goods make up almost one-third of the total intra-regional trade, although accurate figures are hard to come by, as much of the trade between countries in the region is informal. Analysts estimate that the value of smuggled goods and undocumented trade may be as much as $50 billion a year.

Saddled with what the International Monetary Fund (IMF) characterizes as an unstable macro-economic situation, an anti-export bias, a cascading tariff structure, an unfavorable business environment and a lack of competitiveness, Southern Africa is unlikely to see its intra-regional trade levels grow significantly in the near future. But as the world emerges from the current economic crisis, demand from industrial powerhouses such as China will almost certainly drive a resurgence in international trade.



Alfred Sayila