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The benefits of regional integration for smaller economies

Bank of Namibia
Annual Symposium 2005


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Preface

The Bank of Namibia held its 7th annual symposium titled ‘the benefits of regional integration for smaller economies” on the 1st September 2005 at the Windhoek Country Club Resort and Casino. One of the super trends in international relations is the growing regionalisation – the increasing number of regional integration arrangements and configurations. Indeed, regionalisation and globalisation have become two of the major trends in modern international relations. No country, whether developed or developing can escape them, otherwise, it will lag behind and fall into disadvantage in the international division of labour. The benefits often cited as stemming from regional integration are increasing market of the country’s products, increasing investment and productivity, improving competition, accelerating trade and reduction in transaction costs. However, integration might yield undesirable results such as revenue losses, industrial polarization, trade diversion and deterioration of the country’s terms of trade, to mention a few, if not properly designed and monitored. Based on the above, experts were invited to the symposium as an attempt to provide an understanding on the expected benefits from regional integration to the Namibian economy, and suggest what could be done to maximize such benefits.

Overview

In his opening remarks Honourable Immanuel Ngatjizeko, the Minister of Trade and Industry, alluded to the fact that many of the African countries are landlocked, and the relatively poor state of their infrastructures and services, contribute to the delay in the much needed economic and industrial development of the African continent. Regional integration is therefore, an essential vehicle for the harmonisation of macroeconomic and structural policies, for promoting large-scale investments, and for promoting economic efficiency by encouraging the free movement of capital and labour.

Mr Kalenga presented the first paper on the overview of Namibia’s participation in regional economic integration. This paper highlighted Namibia’s participation in regional integration arrangements such as the Southern African Customs Union (SACU), Common Monetary Area (CMA) and Southern African Development Community (SADC). Among other things, the paper recommended that Namibia should prioritize its participation in SACU. The paper further suggested that, the move of transforming the CMA arrangement into a fully-fledged monetary union may further enhance its importance as an instrument of fostering a common economic space. This is expected not only to strengthen the involvement of Lesotho, Namibia and Swaziland in the monetary policymaking process, but will also prepare them to effectively participate in broader monetary integration at the level of SADC and the African Union. It also argued that Namibia stands to benefit from the SADC integration in terms of infrastructure development, reduction of transaction costs as well as the facilitation of exports. However, the paper identified the key challenges which come along with Namibia’s membership in SACU such as the establishment of domestic policy and institutional capacity and the need to maintain the country’s macro-economic policy credibility.

Dr Di Mauro, presented the second paper titled, evaluating the impact of “asymmetric” regional integration which was based on a case study of the impressive regional integration experience of the Czech Republic, Hungary and Poland upon their succession to the European Union in 2004. The paper indicated that positive results were realized in terms of increased trade, capital mobility and foreign direct investments as well as improvement in the general standards of living and welfare of the populations of these countries. The paper also alluded to the fact that these countries had to undertake structural reforms that were aimed at ensuring rapid growth of the private sector. The paper, however, observed that regional integration may have fiscal repercussions and other adjustment costs. In this regard, the paper recommended a gradual process of eliminating tariff barriers. The paper also, echoed the suggestion of the International Monetary Fund (IMF) for Namibia to craft a privatization strategy and set up policies that will attract foreign direct investment.

Dr Kaire Mbuende, the former Executive Secretary General of SADC discussed the main issues rose from the paper by Dr Di Mauro. In his critique he cited issues such as predictability of policies, strong institutions as pre requisites in instilling confidence among domestic and foreign investors. Furthermore, he emphasized the fact that liberalization may result in temporal current account deficits that most SADC countries will not be able to finance from their own resources. On the cost related to restructuring he wanted to know as to how this was financed in the case of the European Union, among other things.

The last paper, titled the challenges and opportunities of regional integration for developing economies was presented by Prof Samuel Asante. The paper began with an analysis of the opportunities as well as challenges which regionalism poses for developing economies. Among other things, the paper pointed out the main benefits derived from regional integration such as trade, larger markets, competition and investment. However, the paper also brought out other challenges that might accompany regional integration.

These issues include the inappropriateness of market integration arrangements in developing countries, industrial polarization or skewed distribution of benefits often created by market integration, loss of revenue and the challenge of managing regional integration, which requires political, will. The paper concluded by giving a number of key recommendations for consideration by Namibian authorities, as well as urging the business community in Namibia to become competitive and diversify its exports.

The discussant of the paper by Prof Asante was Ms Annascy Mwanyangapo, from the Ministry of Trade and Industry. In her discussion she highlighted the issues that indeed integration enhance trade and increase welfare gains in a developing economy. Further, she noted that in developing countries, institutional infrastructures, lack of authority and powers of secretariats, as well as low caliber of professional and technical staff seems to be a key challenge as highlighted in the paper. She also touched on the issues of multiple memberships to regional integration as well as the differences in the levels of development of integrating countries as possible constraints to integration efforts of developing countries, among other things.



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