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Integrating Africa through an FTA between SACU/SADC-minus and COMESA - Speeding up the Regional Integration Process

Think piece by Helena McLeod - DFID SA Regional Integration Advisor1 2

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Executive Summary

Africa's share of world trade has fallen from 6% in 1990 to 2% in 2002. Africa also hardly trades with itself; 5% compared to 46% in NAFTA, 55% in East Asia and 62% in the EU15. Regional integration in Africa is essential both due to its small markets and high transport costs; transport costs in Southern Africa are on average 73% higher than in the USA or Europe. Also to ensure Africa is not left a distant fourth as Asia, the Americas and Europe step up their regional integration efforts and coalesce into three global power blocks.

How can Africa speed up its regional integration efforts? SADC and COMESA are both committed to become customs unions but a SADC customs union with all 14 current members will be difficult; because SACU has a common external tariff and trade agreements signed with other regions; and half the SADC members are negotiating Economic Partnership Agreements with the COMESA group of countries leaving a SADC-minus EPA group.

This paper explores the possibility of SACU becoming the focus of customs union efforts in SADC comprising the SADC-minus group of countries and COMESA forming a second customs union. As South Africa and SACU are increasing the number of free trade agreements (FTAs) they negotiate we look at the benefits of an FTA with COMESA compared to FTAs with China and India, emerging trading partners. By analysing trade flows the paper looks at the current trade relations between South Africa (as a proxy for SACU) and COMESA. In summary;

  • In terms of South Africa's exports COMESA was a more important partner by far than India or China. In 2003 exports to COMESA were three times more than exports to China and six times more than exports to India. In 2005 exports to COMESA comprised 8.1% of total South Africa exports.
  • In terms of imports from COMESA they were greater than imports from India but less than imports from China. South Africa has a large net trade surplus with COMESA.
  • Both exports and imports from India and China are growing significantly faster than between South Africa and COMESA.
  • Some of the countries in COMESA are also members of the SADC Trade Protocol. If we exclude these SADC countries then the value of trade with COMESA is much smaller. Imports from all COMESA (2005) are Rand 7444 million but for only non-SADC COMESA were Rands 456.5 million. Exports to all COMESA (2005) were R 25,835.7 m but only R 4,735.6 m to non-SADC COMESA. This reflects the competitive advantage of trading with countries who are geographically closer. It could also reflect some trade diversion taking place as the proportion of South Africa's trade with non-SADC COMESA over the past 10 years has slumped.
  • Trade between South Africa and COMESA is characterised by low levels of intra-industry trade suggesting a free trade agreement would result in some structural adjustment although less than between South Africa and India or China.
  • COMESA exports reveal a strong comparative advantage in primary commodities such as coffee, tobacco, and mineral oils. South Africa exports reveal a comparative advantage in categories of precious stones, precious base metals, fruit and vegetables.
In terms of South Africa's external trade policy as SACU reduces its trade barriers to countries outside of Africa this disadvantages African countries relative to other regions and is inconsistent with the Nepad agenda of prioritising African growth.

A practical way forward in terms of speeding up regional integration and prioritising African trade partners would be for the SADC customs union to adopt a slightly modified SACU common external tariff with the SACU/SADC-minus group of countries forming the rump of the customs union. Then a free trade agreement could be negotiated between SACU/SADC-minus and COMESA. This would allow the emergence of two customs union; SACU/SADC-minus and COMESA. Efforts to reduce non-tariff barriers would also need to be strengthened along side complementary policies such as functioning regional competition policy. A natural result of this process would be for the trade capacity in SACU and SADC to merge. This would leave strengthened capacity in SADC to continue its lead on key regional integration initiatives in energy, water and peace and security.

In terms of benefits of a free trade agreement between SACU/SADC-minus and COMESA, market access gains for SACU into COMESA would be in the region of US$874,984,000 per year at current trade volumes. However given SADC currently has a free trade agreement, gains from a trade relationship with additional countries currently members of COMESA but not members of SADC would be much lower and in the region of up to US$68,458,476. Market access gains for COMESA into SACU would be around US$121,076,000.

This is only one possible way forward in terms of speeding up regional integration in Africa. Whichever process member states decide is best, if Africa is not to be marginalised further fast and real regional integration must be undertaken.


Footnotes:
  1. I would particularly like to thank Owen Willcox from TIPS for peer input and data provision, the methodological framework has been taken from a series of papers by Owen Willcox and Dirk Van Seventer, TIPS. I would also like to thank Themba Munalula from COMESA for data provision.
  2. The views expressed in this piece do not reflect those of DFID. The author writes in her personal and not official capacity with the purpose of contributing to regional discussion.


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