Low trade hampers Sadc integration

via Low trade hampers Sadc integration – The Zimbabwe Independent August 29, 2014 by Herbert Moyo

SOUTH Africa and Namibia’s refusal to sign a trade protocol last week during the Sadc summit in Victoria Falls clearly underlined the regional grouping is still far from achieving its main goals of economic and political integration, which were the major reasons for its transformation from a conference into a community of nations 22 years ago.

The protocol is aimed at improving trade and infrastructure development among member states.

Initially established as the Southern African Co-ordination Conference (Sadcc) in 1980 to foster greater economic co-operation among member states and reduce dependence on the-then apartheid regime of South Africa, as well as to assist liberation movements in that country and Namibia, Sadcc was transformed into the Southern African Development Community (Sadc) whose major focus is achieving political and economic integration.
However, like previous summits, the 34th heads of state meeting in Zimbabwe’s Victoria Falls, which was held under the theme Strategy for Economic Transformation: Leveraging the Region’s Diverse Resources for Sustainable Economic and Social Development through Value Addition and Beneficiation, did not move any closer towards economic integration after the two countries requested more time to study the protocol before appending their signatures.
Zimbabwean President Robert Mugabe, who is the new Sadc chairperson, was justifiably peeved when he told journalists after officially closing the summit that South Africa should help in the industrialisation of the region rather than turn other countries into mere consumers of its products.
“We appealed to South Africa, which is highly industrialised, to lead us in this (industrialisation) and work with us, and co-operate with us and not just regard the whole continent as an open market for products from South Africa,” Mugabe said.
“We want a reciprocal relationship where we sell to each other and not just receiving products from one source.”
It is this kind of talk from Mugabe, well-known for his anti-imperialist rhetoric, suggesting that South Africa might actually be pursuing a neo-colonial agenda, which highlights that despite the solidarity borne from the struggle for independence for member states, Sadc is still a long way off from fostering overall integration.
As pointed out by analysts, while Sadc was successful in achieving the initial quest to liberate the region from colonialism, its aim of economic and political integration will remain a “pie in the sky” if member states continue along the path of self-interest rather than advancing a common agenda.
“The best that we saw in terms of regional integration has been in the change of name from the conference (Sadcc) to the community (Sadc),” said University of Zimbabwe political scientist Eldred Masunungure.

“Not much has been achieved in terms of economic integration, especially because the countries are at different levels of development. While countries like Zimbabwe are in urgent need of financial injections to spur economic recovery, the more developed ones like South Africa find it prudent to pool their resources with the Brics (Brazil, Russia, India, China and South Africa) countries outside the regional grouping which serves their interests better. This is what shapes their economic policies rather than regional solidarity.”

In fact, there are advanced plans to establish a US$100 billion bank in the Chinese capital Beijing for Brics in which South Africa is the only country from Africa.

South Africa also has a Trade, Development and Co-operation Agreement with the European Union (EU).

Another political analyst, Alexander Rusero, concurred with Masunungure saying South Africa’s behaviour, while frustrating some of its Sadc counterparts, is hardly surprising as the economic giant already has other arrangements which are serving its interests very well.

“South Africa has its own arrangements in Brics and with the EU for economic co-operation and its presence in these arrangements is meant to serve its own interests,” said Rusero.

He said he did not expect South Africa to push for a monetary union along the lines of the euro for EU member states because it is already benefiting from the use of the rand in the South African Customs Union (Sacu, which includes Namibia, Lesotho, Swaziland and Botswana) that it has dominated since its inception in 1910, making it the oldest customs union in the world.
Botswana’s pula is not pegged against the rand like currencies of other Sacu members.

The long talked-about uni-visa meant to enable citizens in the region to travel more freely across borders remains a pipedream as are one-stop borders to facilitate faster clearance of travellers and goods across countries.

By contrast, East Africans in countries such as Kenya, Tanzania and Uganda can travel across their borders without passports as identity documents suffice.

All of this is in stark contrast to the EU which, having been established in 1993, has made significant strides in economic integration through a common currency, among other initiatives.

To date the EU, which replaced the European Economic Community (EEC), has developed a high level of economic integration which has created a single market of 500 million people and a common currency (euro) which according to the website http://www.eumatters, is “now used by 320 million Europeans”.

Moreover, the EU succeeded in creating a parliament which sits in Strasbourg, France, as part of efforts at political integration. These were significant steps although it should be noted that they continue to face challenges especially in member states like the United Kingdom where the government is still fretting over adopting the euro and staying in the union.

Like its West African counterpart, Sadc has largely failed in its quest to achieve economic integration, but has however scored notable successes in ending or mitigating some intra-state conflicts, notably in Angola, Zimbabwe and the Democratic Republic of Congo (DRC).

Studies show African countries, including those in Sadc, have less trade among themselves compared to the business they do with countries in other continents.

World Trade Organisation deputy director-general Valentine Sendanyoye Rugwabiza in 2012 presented a paper at the University of Witwatersrand in Johannesburg, South Africa, indicating that trade among African countries, including within Sadc, is still very low, showing low levels of integration among the continent’s economies.

“Africa remains the most fragmented continent in the world with 54 countries with numerous border crossings. Intra-trade among African countries is very low. Last year, it stood at 10%,” she said.

“The level of intra-trade among African countries compares unfavourably with other regions of the world. Intra-trade among the EU’s 27 member states is around 70%, 52% for Asian countries, 50% for North American countries and 26% for South American countries.”

Rugwabiza said this was further worsened by the fact that Africa’s share in world trade is also very small.

“It was less than 3% last year. This is hardly surprising considering that the most integrated regions in the world are also the most competitive at the global level,” she said.

“The rising share of Asian countries in world trade underscores this point. Whereas Africa’s trade with external partners, in particular with emerging economies is growing very fast, trade among African countries is stagnant. Last year, the top trading partner regions for Africa were the European Union, Asia and the United States.”

Africa’s trade is overly dependent on a narrow range of primary products. In 2010, fuels and mining products constituted 66% of Africa’s total merchandise exports, she said.

Rugwabiza said some of the causes of the problem were historical.
“During the colonial period, the economies of most African countries were designed to supply cheap raw materials to firms based in the former colonial powers.

As an example, Ghana and Cote d’Ivoire produced cocoa, Zimbabwe and Malawi produced tobacco, Kenya and Tanzania produced coffee and tea,” she said.
“A rigid division of labour was a central part of the colonial system with no specialisation, value-addition or development of a chain production system between African countries.

After attaining independence, African countries failed to address this problem. Very little diversification in terms of export products and markets has taken place. Political independence was not followed by commercial and economic independence and the trade structure inherited from the colonial times remained largely unchanged.”

Rugwabiza also said poor infrastructure was also hampering economic integration.

“The infrastructure built during the colonial era was outward-oriented with almost no internal networks to allow trade between African countries.

The good news is that spending on infrastructure began to pick up pace in the last two decades, but actual spending does not match identified needs. According to the African Development Bank, African countries need to spend around US$93 billion a year to upgrade their infrastructure, but only spend about half of this amount.”

Rugwabiza said sub-Saharan African countries also impose more non-tariff barriers on trade between themselves than on trade with third countries. Efforts at harmonising technical regulations and standards, sanitary and phytosanitary measures as well as rules of origin have been slow adding to the costs of doing business.

According to the World Bank report entitled De-fragmenting Africa, South African supermarket chain Shoprite spends US$20 000 a week on securing import permits to distribute meat, milk and plant-based goods to its stores in Zambia alone. There could be up to 1 600 documents accompanying each truck Shoprite sends with a load that crosses a Sadc border.

Africa is almost the most expensive continent in which to do business: whereas it costs around US$900 to ship a container from South-East Asia, it costs almost US$2 000 to ship the same container from Africa. Likewise, whereas it costs US$935 to import a container from South-East Asia, it costs almost US$2 500 to import the same container from Africa.

This has had serious consequences on investment in Africa.

“Given the low level of intra-African trade and the high cost of doing business on the African continent, foreign investors have bypassed Africa even though there are several studies which suggest that returns on investment in Africa are far greater than returns on investment in Asia and Latin America. Last year, Africa attracted less than 5% of global FDI (foreign direct investment) flows. Whereas China attracted US$124 billion in FDI flows, African countries only attracted US$52 billion,” Rugwabiza said.

“With its high dependence on trade with the outside world, Africa is very vulnerable to external shocks. The over-exposure to European markets and those of the United States and Japan meant that with the recession in those countries, there was reduced demand for Africa’s exports which negatively impacted on its growth.

“The low-level of intra-African trade is a missed growth and development opportunity for African countries.

Several studies have indicated that if African countries were to increase their share in global trade by only 1%, this would represent an additional annual income of over US$200 billion which is approximately five times more than the amount the continent receives as Official Development Assistance. A steady source of income would help underpin the transformation of African economies and enable them to compete globally, as well as enable them to deal effectively with crippling poverty.”

The other consequence of this is limited participation in global value chains.

“Another impact of the lack of integration of African economies is the limited participation of African firms in global value chains. The geographical fragmentation of production has created a new reality in global trade.

Currently, trade in intermediate products accounts for more than 60% of non-fuel merchandise trade and it is the most dynamic sector of international trade. The trade in parts encourages specialisation in ‘trade in tasks’ by different countries which add value to a product in the production chain.

Specialisation is now based on the comparative advantage of specific tasks completed by countries at specific steps along the global value chain. This new trend in global trade brings new opportunities as well as challenges. The high fragmentation of markets in Africa and high transaction costs are not conducive to the integration of African firms into regional and global value chains.”

Rugwabiza said political will is needed to ensure integration and increase intra-African trade.

“The world economy has undergone substantial transformation in recent times and it is imperative for African countries to be fully integrated into it, otherwise it would be difficult for them to alleviate poverty and attain sustainable growth and improved living standards for their people. First and foremost, what is needed is strong and lasting political resolve to remove barriers to intra-African trade,” she said.

“The priority should be to accelerate implementation of the agreed reforms at the national and regional level. What was desirable a few years back is now imperative in view of the current global context.”