Southern Africa under spotlight to thrash out region’s trade policies
The Namibian, Namibia
Southern Africa under spotlight to thrash out region’s trade policies
12 December 2008
Southern Africa is at a crossroads. While the rest of the world is heaving and buckling under the weight of the financial crisis, the subcontinent is battling to overcome centuries of colonial and other boundaries through adopting agreements about a free trade area.
This has not been smooth and it has been exacerbated by existing partnerships that individual states have entered into between themselves and the European Union.
At a conference organised by the Centre for Training and Project Development, which was attended by the government and business, speakers said the implementation of a free trade area and the establishment of a SADC Customs Union by 2010 depended on a range of factors.
The Namibian’s Nangula Shejavali attended the conference and compiled the following reports.
SADC opts for a single trade zone
The success the Southern African Development Community’s regional integration objectives will rely on the elimination of non-tariff barriers, and the readiness to compete with regional businesses.
In addition to the Customs Union and free trade area, the 15 SADC member states hope to establish a Common Market by 2015, a monetary Union by 2016 and a single currency by 2018.
With the Free Trade Area, which was launched in August this year, 85 per cent of goods traded in the region can now enter regional markets duty free, with the remaining 15 per cent - described as sensitive products - expected to have duty free status by 2012.
The SADC region comprises 247 million people, with a combined gross domestic product of US$350 billion. Angola and Democratic Republic of Congo, with a combined population of 77 million, are yet to ratify the SADC free trade area, but are able to access SADC markets, although they do not reciprocate.
These figures are significant for any business person hoping to tap into the SADC market, whether from within or from outside the region, and present a substantial market alternative for Namibian businesses that often complain of being unable to effectively maximise on economies of scale due to Namibia’s small market.
The envisaged initiatives outlined above, are expected not only to present the region with enhanced modes of intra-regional business, but also with greater bargaining power in working as an economic block.
However, for these initiatives to come into being, a number of factors need to be addressed - the elimination of non-tariff barriers; the overlapping membership of SADC countries in various regional customs unions; bilateral agreements with the Euriopean Union in forming economic partnership agreements (EPAs); and businesses’ ability to compete against regional actors.
Dropping non-tariff barriers key to integration
“If we do things right, in 10 years, we could increase intra-SADC trade significantly. But with the current set-up, this would be impossible, and we will only be able to trade with South Africa, where the need is for us to look to other SADC countries beyond our southern neighbour.”
These were the words of the CEO of Namibia’s Chamber of Commerce and Industry, Tarah Shaanika, who emphasised that the successful long-term implementation of the SADC free trade area, the Customs Union, and other integration initiatives would rely heavily on the elimination of non-tariff barriers.
High on this list was the challenge of poor infrastructure. “With poor infrastructure, particularly in terms of telecommunications, road networks, and power shortages, the turnaround time becomes too lengthy. This is a serious problem “because it deters businesses from conducting trade, and unnecessarily increases the cost of doing business” Shaanika said.
Infrastructural deficiencies and transport costs on the continent remain exorbitant. “It is cheaper to ship one container of goods to Amsterdam, than it is to ship that same container to Dar es Salaam,” he noted.
He noted that the bureaucratic nature of customs regulations is a deterrent to regional trade, and called for the simplification in the regulations. “Because of the bureaucracy involved in the process, one ends up paying a company simply to fill out the necessary forms, thereby further increasing the cost of doing business.”
Shaanika explained that this, together with corrupt activity at border posts, was a serious impediment to making gains in implementing and receiving the benefits of the free trade area.
The poor perception of goods from other African countries was a limiting factor in promoting regional integration, and Shaanika proposed the establishment of a consumer education campaign to promote the goods and services of member states in other SADC countries as a means to overcoming this problem. “We need something similar to Team Namibia, which promotes Namibian products to the Namibian market, to educate consumers in the region about the goods produced in member states,” he said.
Shaanika further encouraged businesses in the region to explore opportunities to improve the frequency and intensity of their engagements with one another. He called on the media to report on investment opportunities existing in the regionand urged governments to resolve the issue of double membership in regional economic communities.
Shaanika cautioned against the EPAs with the EU; and highlighted the need for businesses to invest in opportunities to “produce products that we currently import from outside the SADC region”, in order to take advantage of the business opportunities presented by the free trade area.
Taking competition on the chin
The creation of a free trade area brings with it the liberalisation of markets, and with this can be expected an influx of competition.
The prospect of competition can be scary, especially when faced with company giants from South Africa and from other countries that may have comparative and competitive advantages in the production of goods.
Deputy Minister of Finance Tjekero Tweya said if Namibian businesses wanted to benefit from regional integration, they would need to work harder, smarter, and more creatively “to create opportunities rather than waiting for opportunities to come”.
He explained that while the Government is doing a lot to help businesses make most of the opportunities presented by regional integration, it can only do so much in ensuring that the private sector takes charge of these.
“Developing products that the market wants and delivering them in a cost-effective way that makes them competitive, is a matter for the private sector,” Tweya said, adding that diversification of products among the small number of suppliers in Namibia was perhaps the greatest challenge that businesses would have to face.
Namibia would have to emerge as an attractive investment location, Tweya said.
“Without internal tariff barriers, foreign direct investment and Namibian investment capital will naturally migrate to the country that provides the best workforce and infrastructure to compete with the rest of the region, rather than being concentrated on where the market is greatest. I want to see Namibia rise to the challenge of being the natural preferred destination for investment capital for those involved in regional trade,” Tweya said.
Under the Southern African Customs Union (SACU), of which Namibia is a part, infant industries are protected under the Infant Protection Clause, which allows young industries 10 years to grow before being exposed to competition in cheaper products and dumping from other countries in the union. SADC’s own Trade Protocol also makes provisions for infant industries, with specific address on dumping and counterfeit goods.
The need for the establishment of a competition commission was underscored by Robin Sherbourne, group economist for the Old Mutual Group, and Jacob Nyambe, senior researcher at the Namibian Economic Policy Research Unit.
“There is a need for a competition commission to assess the issue of how regional integration will affect economies,” Sherbourne said. “We have to ask the political and economic question of whether we can bring down barriers to trade, and we need to still get to grips with the political effects of what regional integration would mean, particularly regarding South Africa’s position as the dominant economic power in Southern Africa.”
Nyambe reiterated the need for a competition commission, going further to also call for a standards institution, that would maintain the trade of high quality goods across the region.
“There is a need to lobby SADC in terms of coming up with an overseeing arrangement for standards across the member states, in order to participate well in a broad-based free trade area,” he advised.
Global crisis and its effects on Namibia and free trade
Regional and economic integration cannot be implemented without taking into account the global financial crisis that has hit the United States and Europe, which form major export destinations for African products.
While the effect on southern African banks has been minimal, with the Namibian and South African banks remaining stable, the SADC free trade area comes at a time where there is a decreased demand for minerals. Job losses due to downscaling on mining activities have already occurred.
Robin Sherbourne, group economist for the Old Mutual Group provides a positive outlook for the Namibian economy in the long term. “Our investment performance is expected to hold up, we have been relatively robust to world events, there is potential for government and fiscal policy, and we can expect a 3-4% growth going forward if the right policies can be followed.”
Sherbourne stated that Namibia should conduct more trade within the region, stating that “Angolan markets should naturally be linked to Namibia, and vice versa”.
But while Sherbourne painted a positive picture, Tarah Shaanika, CEO of the Namibia Chamber for Commerce and Industry, cautioned that a lesson from the effects of the crisis pointed to the need to avoid relying too heavily on minerals.
“These crises should raise questions - we need to think about how we can diversify, how we respond to falls in global economic growth, and so on. The current situation presents an opportunity for Africa to emerge as the major food supplier in the world, and we need to look at opportunities where food shortages exist, and to invest in opportunities to produce products currently being imported from outside the SADC region,” Shaanika said.
Mupelwa Sichilima, programme officer for Trade, Industry, Finance and Investments at the SADC Secretariat in Botswana, explained that the objectives of SADC are “to promote sustainable and equitable economic growth and socio-economic development, to promote self-sustaining development, and to eradicate poverty”, and in this line, member states would need to work together as a trading bloc to have a more formidable impact on the international trading scene.
Controversial EPAs and overlapping memberships
Scepticism regarding the EU’s economic partnership agreements (EPAs) was rife at the conference, with SADC Secretariat’s Mupelwa Sichilima going as far as describing EU’s strategy to deal with the region in three different groups and to create bilateral agreements with individual countries, as a “divide and rule” strategy.
The EU began embarking on the EPA strategy with individual countries or smaller Customs Unions in 2004 after the Cotonou Agreement had come to an end, with many African, Caribbean and Pacific (ACP) countries opting out of an extension in the agreement,.
In the SADC region, there are currently three groups with which the EU is working to negotiate the agreements, causing fragmentation within the region. These include the SADC-EPA, of which eight of the 15 SADC member states are a part, the East African Community-EPA, of which Tanzania, a SADC member, is a part, and the Eastern and Southern African (ESA) countries, which include the remaining states.
According to Annascy Mwanyangapo, Director of International Trade at the Ministry of Trade and Industry, this arrangement is problematic because it undermines SADC’s long-term efforts for economic integration, and sets member states against one another.
In 2007, the EU set up an interim partnership agreement with SACU members (with the exception of South Africa) and with some of the SADC countries under the SADC-EPA Configuration, initialed in January 2008. The EU is now pressuring these countries to sign a reciprocal agreement by January next year, whereby Europe would also have preferential trade access to these countries’ markets. But several serious reservations on the part of Namibia, Angola and South Africa have prevented this, with one of the arguments being that there is no sense in signing the interim EPA, while the completion of regional initiatives is still ongoing.
There have already been fallouts within SACU on the issue of the EPAs, with Botswana’s Trade and Industry Minister, Neo Moroka, criticising South Africa’s objections by accusing South Africa of “behaving like Big Brother in SACU”. Speculations on a SACU breakup on the grounds of the EPAs have been doing the rounds.
Sichilima, Mwanyangapo, Shaanika, Nyambe and Calle Schlettwein (Permanent Secretary in the Ministry of Finance) all cautioned against the EPAs, highlighting the regional integration efforts as the more important priority for regional development at the moment, and prescribing policy implementation that would specify conditional preference for a SADC-EU EPA as opposed to EPAs that cut across SADC membership or seek bilateral links.
“Belonging to an EPA has its own obligations. This problem has delayed the progress of SADC protocols, and the speed at which changes towards regional integration can be made,” said Nyambe, who, along with Schlettwein, also pointed to overlapping membership in SACU, Comesa and SADC as a factor needing redress.
“SADC members will have to choose between SADC membership and membership of other agreements,” said Schlettwein, who warned that multiple customs unions with differing objectives would only add difficulty to the process of creating the SADC Customs Union intended for 2010.
