Regional trade key to Africa’s growth

Africa’s share of global flows of foreign direct investment (FDI) also fell, from 1.8 percent in 1986-90 to 0.8 percent in 1999-2000.

Can regional economic groupings, such as the Common Market for Eastern and Southern Africa (Comesa) and the Southern African Development Community (SADC), help increase trade and bolster growth?

Overall trade flows in Southern Africa fell from US$131.1 billion in 2002 to US$112.3 billion in 2003, with South Africa ‘ one of only three countries in the region that recorded surpluses ‘ accounting for 65 percent of the total. Whereas South Africa’s foreign trade almost doubled between 1994 and 2002, exports from, say, Malawi to Tanzania or from Mozambique to Zambia remained negligible, despite their geographic proximity.

Infant economy

The low level of intra-regional trade, despite the SADC and Comesa, reflects several factors, including a range of non-tariff barriers ‘ mainly communication and transport problems, customs procedures and charges, and a lack of market information. Moreover, in the past, Southern African countries put their faith in protectionism and import substitution policies. Relying on “infant economy” arguments, major exports were restricted and legal obstacles were erected against foreign participation in the development of natural resources, as well as financial and other services, further impeding regional integration.

Nowadays, Southern African countries are committed to reinforcing their regional integration through economic harmonisation. A regional plan approved in August 2003 in Dar es Salaam by the SADC focuses on promoting trade, economic liberalisation, and development as a means of enhancing creation of a SADC common market. This requires completing the formation of a free-trade area, with 85 percent of SADC trade to be liberalised in 2008, and 100 percent in 2012.

A common market will enhance competitiveness, industrial development, and productivity. However, protocols and political treaties are not sufficient to boost integration. The major barrier is the region’s great diversity in economic and institutional development.

Macro-economic policy harmonisation is needed to ensure that changes in one SADC member country do not adversely affect economic activity elsewhere. The new initiative calls for all member states to harmonise their economic, fiscal, and monetary policies completely, beginning with currency convertibility and followed by exchange-rate unification and, finally, a common currency.

Several currencies have attained some measure of regional convertibility, which should encourage monetary harmonisation and promote intra-regional trade.

A form of monetary harmonisation in Southern Africa already exists between South Africa and Lesotho, Namibia, and Swaziland, whose currencies are traded at par with the South African rand. The Reserve Bank of South Africa implements monetary policy after consultation with the other countries’ central banks. Despite tight monetary policy and foreign exchange regulations, the scheme has boosted trade and investment while reducing intra-regional indebtedness.

For Southern Africa, indeed, for the continent as a whole, global competitiveness requires diversification to higher value-added and manufactured exports. In order to attract the FDI needed to achieve this, Southern African countries have enacted laws aimed at encouraging greater private sector participation, with special emphasis on foreign investment.

But, despite these efforts, FDI inflows in the region (excluding South Africa) remain too low to have a significant economic impact.

This reflects the real and perceived risks associated with investment in the region. Africa must, therefore, make every effort to promote regional integration. Removing all trade barriers would enable them to take full advantage of the region’s abundant natural resources and point the way toward deeper global integration for all of Africa. ‘ The Nation (Nairobi).

August 2006
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