Thursday, January 22, 2009

Exporting Inside Africa As Expensive As Exporting to Asia

By Moses Magadza in Windhoek

Despite the new free trade agreement linking southern African states, it still costs as much to move goods between African states as it costs to move goods from Asia to Africa, according to an economist.

In August 2008, the Southern African Development Community (SADC) launched a free trade area (FTA). This means that goods entering any part of SADC from within the region will no longer attract import tax.

While the SADC FTA is an important milestone, economists who spoke to IPS pointed to various hurdles that still litter the road to regional integration and increased trade among SADC countries.

“It was a good start but reducing tariffs is just one aspect of regional integration,” economist Klaus Schade, acting director at the think tank called the Namibian Economic Policy Research Unit (NEPRU), told IPS.

He argued that, for the SADC FTA to achieve its objectives, non-tariff barriers need to be removed. These include cumbersome customs procedures, lack of transport infrastructure and delays at border crossing points. “If these issues are not addressed we won’t see strong growth in intra-regional trade.”

Schade recalled an observation he made while on a recent trip to Tanzania: “The cost of moving a container from Tanzania to Uganda or Rwanda is the same as that of transporting a container from China to Tanzania because of the high transport costs.”

Working towards common customs documents and harmonising other systems may draw the region closer to its integration objectives.

He also pointed out that “SACU (Southern African Customs Union) had already removed tariffs for SADC imports about three years ago. Therefore, imports to Namibia from SADC countries are not going to become cheaper because SADC has launched a FTA.”

While admitting that the SADC FTA could increase access to the wider SADC market for SACU member states like Namibia, Schade said the relatively low purchasing power of SADC citizens leads to low demand for goods in the region.

Save for South Africa, Botswana and Mauritius, the rest of the 15 SADC countries is classified as either poor or developing.

“We produce almost the same products and raw materials. There is no trade in manufacturing products, hence the scope for increased intra-regional trade currently is very limited,” he explained.

He is optimistic that the launch of the SADC FTA would create awareness of the SADC market and its potential. But, while “that might provide momentum for addressing non-tariff barrier issues, the SADC FTA alone will not solve all our problems.”

These problems are not new. Towards the end of 2007 a meeting was held as part of efforts to develop the Walvis Bay-Ndola-Lubumbashi trade corridor to link Namibia, Zambia and the Democratic Republic of Congo (DRC).

There businesspeople from DRC expressed concern over the lack of return trip loads, should they use the corridor. They said driving back empty trucks doubled their transport costs.

Another perennial concern has been SADC states’ multiple memberships to different trade blocs, according to University of Namibia economist Dr Joel Eita.

“Consider this: Zambia is a member of the Common Market for East and Southern Africa (COMESA) and also hosts the COMESA secretariat. At the same time it is a member of SADC.

“Now we have a SADC FTA. South Africa is a chairing member of SADC but is not a member of COMESA. By virtue of being a member of SADC, Zambia should not impose tariffs on goods entering it from South Africa.

“Yet as a member of COMESA, Zambia must charge tariffs on goods coming from outside COMESA. How does Zambia deal with South Africa? This presents a policy headache,” Eita expounded.

Other trade blocs to which some SADC members are affiliated to include the East African Community and the Economic Community for West African States.

Turning to attempts by African states to launch an Africa-wide FTA early this year before the success or otherwise of the SADC FTA has been ascertained, Eita said such moves are “over-ambitious”.

“My view is that we should start integrating regional trading blocs before we can hope to integrate the whole continent,” he argued.

Eita also said there was need for SADC economies to diversify, saying only South Africa was sufficiently diversified to benefit meaningfully from a SADC FTA. “Zimbabwe also has a very strong industrial base. It is actually a sleeping giant because of the things happening there.

“Other SADC countries must develop their manufacturing sectors and add value to their products. Botswana, for instance, cannot sell diamonds to Namibia or Angola,” he said.

He warned that unless SADC economies diversified, the direction of trade would remain as it was before the SADC FTA: from South Africa to smaller SADC economies while raw materials would continue to flow to the West and Asia.