Institute for World Economics and International Management - IWIM The Progress of Economic Regionalisation in Southern Africa – Challenges for SADC and COMESA Conference Paper prepared for the Namibian Economic Policy Research Unit (NEPRU): “Monitoring Regional Integration in Southern Africa”, Windhoek, June 11-12, 2005 Mareike Meyn Research Fellow Institute for World Economics and International Management (IWIM), University of Bremen

Institute for World Economics and International Management - IWIM 1.Introduction 2.Economic regionalisation in southern Africa Forms of economic regionalisation in southern Africa: SADC and COMESA in comparison Gains and losses of economic regionalisation in southern Africa 3.Integration plans, instruments and intra-regional trade of SADC and COMESA 4.Obstacles to intra-regional trade expansion and to deeper economic integration in SADC and COMESA 5.The Challenges EPAs pose for SADC and COMESA 6.Conclusions: Can EPAs help SADC and COMESA to move towards deeper economic integration Table of Contents

Institute for World Economics and International Management - IWIM Problems of economic regionalisation in SADC and COMESA (1)Non-complementary trade structure and low industrialisation degree  The main products traded are primary or simple manufactured products. Lack of industrial development and product complementarities indicate only limited potential for expanded intra-regional trade. The OECD diversification index for southern African countries

Institute for World Economics and International Management - IWIM Problems of economic regionalisation in SADC and COMESA (2)Low purchasing power and low macroeconomic convergence of member countries  South Africa and Egypt account for 77% of SADC’s and 53% of COMESA’s GDP respectively  In addition to different income levels, the countries also highly differ with respect to their macroeconomic indicators and policies. (3)Supply-side constraints  An unfavourable macroeconomic environment (e.g. insufficient capital supply and limited convertible currencies), lack public infrastructure, a low labour productivity, poor health and housing provision, missing export market information, and missing backward- and forward linkages in production process

Institute for World Economics and International Management - IWIM Problems of economic regionalisation in SADC and COMESA (3)Protectionist trade regimes and high dependency on trade taxes  Many SADC and COMESA countries have established a regime of high import tariffs to protect their domestic industries and to secure income sources.  Openness to trade varies greatly among single member countries.  Tariffs as source of revenue account for around 10% of total revenue in Tanzania, Uganda and Zimbabwe, for around 30% in Comoros, Mauritius, Namibia and Zambia, and for more than 50% of revenue in Lesotho and Swaziland.  Neither the economic powers South Africa and Egypt, nor the comparably better developed countries, Kenya and Zimbabwe, are classified as open.

Institute for World Economics and International Management - IWIM Problems of economic regionalisation in SADC and COMESA (4)Increasing trade-imbalances, polarised development and lack of political commitment  High intra-regional trade surpluses of South Africa and Egypt vis- à-vis the region.  This has resulted in addition to the lack complementary trade structure in trade divertive effects that benefit the higher developed economies on the expense of the less developed ones.  Neither South Africa nor Egypt have taken on active roles to promote regional integration in SADC and COMESA respectively. This raises in addition to the slow implementation process of the envisaged integration agenda, concern on the political commitment of both organisations.

Institute for World Economics and International Management - IWIM Problems of economic regionalisation in SADC and COMESA (5)Remaining non-tariff barriers  Customs procedures have not been harmonised, import bans and road blocks do still exist and transport corridors were only limited successful to tackle administrative delays effectively.  NTBs contribute to high business costs in SADC and COMESA and have created a climate of uncertainty for exporters and importers. (6)Overlapping membership and inconsistency of regional integration strategy  Increase member countries’ financial burden and stretch scarce human, administrative and technical capacities.  Only deeper regional integration will force double members to decide for SADC or COMESA.

Institute for World Economics and International Management - IWIM ? Can a North-South free trade agreement in form of Economic Partnership Agreements (EPAs) help SADC and COMESA to overcome their supply-side constraints, to reduce the inconsistency of member countries’ regional integration strategies and to promote intra- regional trade ?

Institute for World Economics and International Management - IWIM The Challenges EPA pose for regional integration in SADC and COMESA The EU is an important trading partner for all SADC and COMESA countries and accounts in average for 30% of countries’ total imports and absorbs 40% of their exports. With exception of South Africa and Egypt all SADC and COMESA countries are members of the Cotonou Agreement and supposed to enter into a WTO compatible FTA with the EU by the year 2008 Southern African countries decided to negotiate EPAs in two different blocks: the SADC EPA and the Eastern Southern African (ESA) EPA. Due to overlapping membership in regional integration frameworks and already existing bilateral FTAs with the EU, the EU has now a complex and in some way also contradictory trade regime with SADC and COMESA countries

Institute for World Economics and International Management - IWIM The Challenges EPA pose for regional integration in SADC and COMESA 1.The EU-South Africa FTA: liberalising around 90% of bilateral trade by The SADC EPA: comprises the BLNS countries and MAT BLNS are locked into the EU-South Africa FTA Due to imperfect supervision of rules of origin in the region, this implies that any EPA that comprises the BLNS countries has to follow the EU-South Africa FTA on the import-side 3.The ESA EPA: comprises all COMESA countries but Egypt, Angola, and Swaziland Egypt has a bilateral FTA with the EU The SADC and COMESA members DR Congo, Malawi, Mauritius, Zambia and Zimbabwe decided to negotiate in an ESA framework. EAC: Kenya and Uganda are negotiating an ESA EPA, while Tanzania negotiates in a SADC EPA framework

Institute for World Economics and International Management - IWIM Results of the EU’s complex and overlapping trading arrangements with southern African countries Risk of different CETs of the SADC EPA and the ESA EPA: Smuggling and trade diversion of indirect EU imports in the SADC and COMESA region. “Differential treatment” to LDCs is only a theoretical but not a workable alternative. Common external tariff of the SADC EPA and ESA EPA is unlikely because of different economic interests and because Egypt and South Africa have already “locked-in” a CET vis-à-vis the EU.  Recommendation to reduce the “regional Spaghetti”: (1) Angola and Swaziland drop out of COMESA, (2) DR Congo, Malawi, Mauritius, Zambia and Zimbabwe drop out of SADC, and (3) Tanzania, Kenya and Uganda negotiate in an EAC framework.

Institute for World Economics and International Management - IWIM Conclusions: Can EPAs help SADC and COMESA to move towards deeper economic integration? EPAs might help to increase intra-regional trade by lowering SADC and COMESA countries CET. However, “forced liberalisation” does not automatically work. A strong development component is necessary, such as financial and technical assistance to decrease countries’ dependency from trade revenue. Plus: EU commitment to improve southern African countries’ effective access to its market. To tackle the manifold supply-side constraints of SADC and COMESA countries is a long-term development goal; EPAs can only assist with directing funds into trade-related areas.

Institute for World Economics and International Management - IWIM Conclusions: Can EPAs help SADC and COMESA to move towards deeper economic integration? To date, EPAs have added confusion to regional integration and not reduced countries’ overlapping membership. The EU promotes an “open regionalism” that foresees that South- South integration and North-South integration go hand in hand Problem: to negotiate an EPA requires a certain level of integration, e.g. with respect to the external tariff and countries’ strategy on how to deal with trade-related aspects  Without according support for capacity building, more time to form common regional strategies and flexible approaches (e.g. for LDCs), EPAs will remain a political construct that does not sufficiently reflect southern African countries’ economic interests in the region.

Institute for World Economics and International Management - IWIM “Politics is not judged according to its intentions but according to its results.“ Tzvetan Todorov Thank you for your attention! Questions and comments are very welcome.