Time Out – SADC must re-think approaches to trade integration

Windhoek ‑ Southern Africa’s trade integration agenda is falling short of expectations with low level intra-regional trade reflecting limited progress the 15-member bloc has made towards implementation of the SADC Protocol on Trade.

Trade analysts say SADC’s ambitions to exploit economies of scale and boost competitiveness through increased levels of intra-regional trade have been hampered by lack of complementarity among member states.

Other factors – such as poor transport infrastructure, high trading costs, and bureaucratic border crossing procedures – are also contributing to the slow pace at which SADC is moving towards real integration.

Trade analysts at the African Development Bank (AfDB) suggest that the failure to transform SADC from an organisation established for political cohesion into a flourishing trading bloc uninhibited by geographical boundaries signals the need to rethink current approaches.

SADC member states’ failure to facilitate trade has stonewalled well-intended efforts to increase commerce within Southern Africa.

The region could, therefore, consider focusing more on regional co-operation on joint infrastructure, trade facilitation projects and policy harmonisation. This would entail creating economic space, which allows investors to produce for the regional market.

Such measures should be implemented lock-in-step with dismantling of restrictive trade practices, which inhibit poor countries from diversifying their export baskets.

“The low level of intra-regional trade warrants examining some underlying assumptions. Is the record disappointing because no preconditions were established to make regional trade arrangements (RTAs) of benefit, dooming them to failure before they even began? Or is this record the result of poor design and/or implementation?” AfDB trade analyst, Kennedy Mbekeani, muses.

Given the limited intra-regional trade, the AfDB analyst argues that trade arrangements “were not set up for successes”.

“Their design is generally poor, particularly in external tariffs, non-tariff barriers (NTBs) and trade facilitation, while implementation has been weak and often delayed-partly due to overlapping memberships,” Mbekeani argues.

To improve on the little gains made thus far in improving intra-regional trade will require tackling the design and implementation problems, and creating conditions for successful integration.

There is also need for member states to realise that even though regional integration still offers substantial potential from competition and economies of scale effects, gains are not automatic and not all member states will benefit equally.

“Careful design and sustained implementation are necessary but the more fundamental determinants of RTA performance seem to be policies and conditions which shape the overall trade environment.

“This makes reduction in trading costs at the border critical,” the AfDB analyst says.

For SADC member states to exploit economies of scale and boost domestic competition through regional trade, there is need to reduce transport costs within the bloc.

This argument is supported by the fact that despite an extensive range of trade agreements, distant countries trade very little with each other.

“For historical reasons, infrastructure in the region (like most parts of Africa) is oriented toward facilitating trade with former colonial powers in Europe.

“To facilitate regional integration, Southern Africa needs to commit resources to regional infrastructure. Investment is also necessary to enhance domestic competition,” the AfDB says.

While the need for infrastructure investment is high, the AfDB says that trade facilitation is also much more important than infrastructure.

“Possibly the most demanding part of creating a customs union are the substantial administrative changes needed to improve trade facilitation and deepen regional integration. These would be enhanced by the eradication of rules or origin that would be no longer necessary in a common SADC customs area.

“In addition, a concerted programme of action to simplify and harmonise border rules and procedures across the region is key. Without this, many economic gains from the customs union will not materialise,” the AfDB says.

The analysts cite the example of Beitbridge border post ‑ a key gateway facilitating trade and movement between South Africa, Angola, the DRC, Malawi, Tanzania, Zambia and Zimbabwe.

Improving Beitbridge’s facilities would significantly reduce waiting time for transit goods and lower transport costs.

Establishing a one-stop-border post at Beitbridge would require the co-operation of governments of South Africa and Zimbabwe.

SADC’s plans to launch a customs union, initially slated for 2010, have stalled and indications are that a major obstacle has been failure to agree on a low and uniform external tariff.

“Customs union typically requires greater political commitment. 

This is because countries have to agree a common external policy and set up mechanisms to distribute tariff revenue among themselves.

“A customs union’s advantage is that, because members have a common external tariff, it is simple to have much simpler internal border formalities.”

Unlike a customs union, the free trade area (FTA) could be exploited by outside countries, which can exploit tariff differentials by redirecting imports through the FTA member with the lowest external tariff, analysts say.

Analysts also say that currently there is no alignment between national and regional programmes and decisions taken at SADC level “scarcely feed into national policy and plans”.

“National priorities often take precedence over regional ones in both programme planning and budgetary allocations.”

August 2013
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