Wednesday, March 11, 2009

Towards a stronger COMESA

It takes more than resources and goodwill to make an economic bloc influential, Sherine Nasr reports in Al-Ahram Weekly

Is it possible to see 400 million Africans united in one economic bloc? Theoretically, this has been the case since the inception of the Common Market for Eastern and Southern Africa (COMESA) in 1994. However in reality, the lack of political will and commitment has been one of the major obstacles that kept COMESA from coming together as an economic entity with any real weight.

Stretching over an area of 12 million square kilometres, COMESA's 19 member states, including Egypt, Sudan, Ethiopia, Uganda, Zambia and Congo, are located on the world's most vital trade routes. Between them, they seem to have it all: geographical diversity, fertile lands, natural resources and reportedly the fastest growing economies in Africa, with average growth rates of 7.8 per cent in 2008. Significantly, 13 of the COMESA member states have become net metal and mineral exporters thanks to a wealth of cobalt, uranium, gold, iron, phosphates to mention but a few. The bloc's annual import bill was estimated at around $32 billion in 2007 while exports exceeded $82 billion for the same year.

Nevertheless, the volume of foreign direct investment (FDI) into COMESA countries, estimated at $25 billion in 2007, is no match to the region's actual potentials. "If COMESA countries are to maintain the same annual growth rate of seven per cent, COMESA countries should attract investment at not less than 25 per cent of their GDP," said Mahmoud Mohieldin, Egypt's minister of investment, during the second COMESA investor conference held recently in Cairo. But that is not an easy task to perform, especially for a number of COMESA countries that have been struck by drought, famine or political strife and civil wars.

Practically speaking, doing business in many of the COMESA countries is still a high risk experience. According to Cyprian Sakubu, vice-chairman of the African Trade Insurance Agency (ATIA), there are many logistical difficulties represented in fewer trade transactions, unsustainable high transaction costs, currency depreciation or devaluation and market gap in risk mitigating tools, to say the least. And when it comes to repossession of privatised assets, cancellation of concessions or defaults on government obligations, foreign investors must think twice.

"Nevertheless, it has been proven that overturns for investments in Africa can be as high as 30 per cent compared to 15 percent in the United States and 10 per cent in European Union countries," said Sakubu, who added that many mediums have been established to cover for political violence or sabotage such as the AITA and the Multilateral Investment Guarantee Agency (MIGA), which have been active in securing foreign investment in the continent.

But an exceptionally high return is not the only asset COMESA has in order to lure more FDIs into its countries. "The region represents a large market that is constantly growing. Opportunities in the infrastructure, construction and services sectors are without limits," said Assem Ragab, chairman of the General Authority for Investment and Free Zones (GAFI). Ragab added that COMESA countries have more than resource-based economies to offer.

At present, COMESA countries are trying to join forces to encourage more investment into the region. "There is no way we can escape from poverty, secure jobs and enjoy macroeconomic stability except by sustaining growth through investment," said Mohieldin. The minister further underlined that COMESA countries are welcome to join promotion missions conducted by GAFI so that Egypt and other COMESA states can move collectively towards one end, namely attracting more FDIs into the region.

Similarly, a joint promotional mission to Singapore was conducted last week by Egypt, Uganda, Rwanda and Swaziland. "Collective promotional tours to other Asian and European markets are on the agenda," said Mohieldin.

In the meantime, Egypt is scheduled to host the second Africa-China summit later this year. The event will provide an opportunity to put on display the various investment opportunities in COMESA countries. In November 2006, 40 African heads of state gathered in Beijing to discuss the means to promote trade and investment. According to Mohieldin, during the previous summit, it was agreed to establish five Chinese investment zones in Africa.

More attention is also being given to stimulate trade and investment within the COMESA countries. According to Heba Salama, manager of COMESA regional investment agency, a Free Trade Area (FTA) between the 14 COMESA member states has been launched since 2000. In 2007, intra-COMESA imports to Egypt were estimated at $312 million while Egyptian exports to COMESA countries reached $494 million.

"Moreover, a customs union will be launched this year among member states. This will help facilitate trade through common custom procedures and legislation," said Salama who added that many COMESA countries are working seriously on improving their ease of doing business which has raised their competitiveness.

"At present, we are working on creating a positive regional image because we believe there has never been a better time to invest in COMESA," concluded Salama, adding that the "Invest in COMESA" online campaign has been launched to correct many misperceptions about the region, to provide more practical information about the procedures required to open a business, investment opportunities available in addition to other investor-friendly data.