Topics publications: African regional integration
Trade Briefs
International regulatory cooperation in the SADC tourism services sector
The tourism sector makes a significant contribution to the Gross Domestic Product of all Member States in the Southern African Development Community. It is an important provider of employment and offers endless opportunities to especially small, medium and micro enterprises. If governments could remove existing blockages and inefficiencies hampering competitiveness of the tourism sector, it can become an even stronger driver of economic growth and development.
In a combined effort to promote and market the SADC region as a single destination, the Members adopted the SADC Protocol on the Development of Tourism. The Protocol aims to address some of the issues negatively affecting the sector through a mix of best endeavour provisions and legally binding obligations. On the one hand, it encourages Members to harmonise training programmes and develop exchange programmes; and, to abolish visa requirements and implement a UNIVISA. On the other hand, it obliges Members to develop common standards for service providers and tourism facilities; collect and share tourism statistical data in line with international guidelines to facilitate the upgrade and development of tourism products and services in the tourism value chain; and, to improve the quality of tourism transport through the implementation of the provisions of the SADC Protocol on Transport, Communications and Meteorology.
This paper explores ways in which SADC Members can achieve the objectives of the Protocol on the Development of Tourism by increasing regulatory cooperation amongst them. It also highlights shortcomings in existing SADC legal frameworks that are hampering the implementation of shared tourism objectives and makes recommendations on how it could be addressed in the ongoing negotiations under the Protocol on Trade in Services.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
The crystal ball analysis for future African trade
The main feature of global trade since at least 2000 has been the relentless rise of exports from the BRIC countries (Brazil, Russia, India and China) and, in particular, China. Much of this increase has been at the expense of the European Union (EU) and to a lesser extent the United States of America (US), while Africa has slowly increased its share of global exports and imports. This BRIC growth has been most clearly seen in manufacturing exports and natural resource imports.
Are these trends going to continue? In this paper we use a computer model to assess likely trade trends through to the year 2025. Our economies of interest are Africa as a whole, South Africa, Kenya, Nigeria and Egypt, as we believe that this selection provides a solid base to forecast the 2025 trading patterns for Africa. These trends are firmly anchored in the trade patterns of recent years and rely on the most recently accepted global macroeconomic trends through to at least 2020 from the World Bank, the International Monetary Fund (IMF) and others. Using a computer model of the global economy ensures that we force consistency in these forecasts; meaning that changes in one area will force commensurate changes elsewhere in the global system. They are not therefore mere estimates presented in isolation from other developments in the global economy. We present our (IMF and others) macroeconomic assumptions of the immediate future for the world so that the reader may be able to see what is driving these changes, and indeed see how these macroeconomic changes are at the same time driving global trade flows in a simultaneous relationship.
Over the period to 2025 the global growth in BRIC dominance is likely to continue but at a slightly modified rate, with China driving these BRIC results. We can also expect similar increases in the shares for the rest of the world as we have defined it in this paper, with a commensurate decline in the trade performance from the EU and to a lesser extent the US. Africa is projected to continue its modest rise in the global importance of both exports and imports.
At the more detailed level intra-African trade is likely to increase faster than African global trade, both in aggregate and for many of the individual trade commodity sectors (and in our aggregate services sector). Of special interest to Africa is that its natural resources exports to the world are likely to grow at a slower rate than overall exports, while the Chinese domination of the TCF (textile, clothing and footwear) sectors is set to decline. There are also some bright glimmers of hope for many of the African manufacturing sectors, although much of this trade is off low bases.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Briefs
State of South Africa’s import trade in textiles and clothing
Despite increased global competition, the textile and clothing (T&C) industry is a very strategic sector for Southern Africa that has significant forward and backward linkages and huge employment creating capacity in both the formal and informal sectors. For South Africa, the T&C sector’s importance cannot be overemphasised, given the sector’s extensive employment of low-skilled labour. Trade liberalisation between 1995 and 2002, the entry of China into the World Trade Organisation in 2001, and the volatility of the exchange rate from 2003 onwards, however, has left the South African clothing and textiles industries particularly vulnerable. This has seen a substantial portion of the textiles and clothing sold in South Africa being imported and employment levels correspondingly have suffered. Illegal import practices which are now common have exacerbated the industry’s demise.
Government’s response to the influx of imports mainly from China through the imposition of quotas over the period 2007 to 2008 proved largely ineffective against the surge of low-cost substitutes. This tells us that the present clothing manufacturing business model does not match the capabilities required by fast fashion retailers. As a result, South African manufacturers have not been able to compete for a bigger share of the domestic market, despite the long lead-times on products coming from countries such as China and India.
For Southern African countries, the South African market provides an opportunity for trade given South Africa’s economic significance in the region both in terms of market size and as a source of foreign direct investment, with the latter being a limiting factor in most countries in the region. The continued efforts towards establishing an expanded market amongst countries in east and Southern Africa through the establishment of the Tripartite FTA provides opportunities and constraints for the T&C industry in Southern Africa. This is mainly because the shifting of market boundaries and the improvement of market access is going to have a significant impact on the size, structure and competitiveness of industries in TFTA (COMESA, SADC and EAC) member states due to the variable geometry within industries.
The objectives of this paper are, therefore, to determine the extent to which South Africa is importing T&C products from SADC and other TFTA members, and to consider factors that may be impeding imports from these countries (including tariff analysis and rules of origin, among others). Finally, a review of South Africa’s imports from China, compared with other imports, is presented.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Briefs
Transport costs reforms in SADC: where are we and where are we going?
Logistics is important, both in its own right and as a factor that facilitates trade and development. The most recent South African Logistics Survey (CSIR, 2014) found that the industry was worth some R277 billion in 2013, comprising 12.8 percent of South Africa’s GDP. There does not appear to be a similar calculation for SADC as a whole.
It is possible to see the competitive development of SADC ports and corridors outside the established Durban-Gauteng axis as simply competing for a slice of this logistics market. The potential benefits delivered by such developments are much broader. Ports and corridors are part of the enabling environment. Once they are established and competitive they will facilitate economic activities that cannot even be imagined at this point. They are essential to the region’s integration project.
At the centre of this discussion must be the role of the Port of Durban and, behind it, the corridor running to SADC’s dominant economic region, Gauteng. Durban accounts for some 65% of South Africa’s container traffic, according to Transnet National Ports Authority (TNPA) and planning is being done to deal with a projected increase in volumes from 74 million tonnes to 175 million tonnes over 30 years. In the immediate future, container capacity is expected to increase from 3.2 million/year (2014) to 4.6 million in 2018.
It is well-known that Durban has a congestion problem especially in the back-of-port area. This congestion has been a factor in driving the development of rivals, especially the Port of Maputo in Mozambique. Maputo is geographically well-positioned to capture a portion of Gauteng’s traffic with the support of SADC’s flagship development corridor (the Maputo Development Corridor). However, Maputo has one major disadvantage: between it and the Gauteng market lies an international border compliance cost implications. Walvis Bay has an even bigger problem, being separated from Gauteng by two international borders and another country (Botswana).
Beyond Gauteng however lies the southern African region with its burgeoning markets and trade potential. Durban is not better positioned to service this market than rival SADC ports. To get goods from Durban, via Gauteng’s inland ports, into the African hinterland, it is necessary to navigate one of Africa’s most notorious border posts, Beit Bridge, between South Africa and Zimbabwe. This suggests that alternative logistics routes, terminating at ports like Walvis Bay, Lobito and Luanda, on southern Africa’s West coast, and Maputo, Beira, Nacala and Dar es Salaam (and possibly the Bagamoyo container port) on the east, have a window of opportunity. Some of the factors that affect costs – especially regulatory factors that increase costs, hassle and delays – on these corridors lie within the control of the national governments of SADC.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
Towards a Continental Free Trade Area: Analysis of the status of the regional trade regimes
In June 2015, the African Union (AU) Summit adopted the negotiating guidelines and roadmap for the creation of the African Continental Free Trade Area (CFTA) by 2017. The move towards a CFTA demonstrates how regional integration has remained a prominent policy objective for Africa, despite the challenges towards achieving such an ambitious goal in the wake of missed deadlines and lack of implementation of commitments within the existing regional integration communities in Africa. Weak institutions and failure of governments to meet their financial obligations to regional organisations, poor preparation before meetings, and lack of follow-up by sectoral ministries on decisions taken at regional meetings by Heads of State exacerbate the problem. Furthermore revenue loss concerns remain a major reason for the reluctance by African countries to liberalise fast enough.
The paper aims to identify the status of the regional economic communities and bilateral trade agreements. We then analyse the current applied tariffs and trade between RECs in order to highlight to what extent are goods i) being traded duty free; ii) attracting low/nuisance tariffs; and iii) high tariffs within the 8 RECs recognised by the African Union. We also explore the percentage of goods receiving preferential vs most favoured nation treatment amongst the 8 RECs. In the analysis, we also highlight (where possible) any anomalies in terms of for example tariff reduction reversals (as compared with liberalization commitments, or lack of implementation). Furthermore, although not a core focus of the study, salient reference to other taxes such as surtaxes and levies that may have been introduced and their impact thereof are also discussed.
We note that in Africa despite the Abuja Treaty aspiring for the attainment of a CFTA by 2017, regional integration has transpired albeit in different directions and at a different pace. As a result, the RECs are at different stages and levels of integration. The TFTA negotiations offered some hope as a model to be followed and become the building blocks of the CFTA. However, the TFTA has not lived up to expectations and it has not delivered on its objective of establishing a single integrated Free Trade Area comprising the Members of three recognised regional African Union (i.e. COMESA-EAC-SADC). What were originally intended to be building blocks for the creation of an integrated African market have now turned into stumbling blocks. However, regional integration remains part of the integration agenda, and therefore new approaches and ways of doing business are required.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
Export trends in Africa – an analysis of South Africa’s manufactured exports to Africa
As the process of regional integration continues with countries in Africa now committed to establish a continental free trade area (CFTA), it is in South Africa’s interest to ensure that it remains one of the major players within this envisaged expanded market.
The objective of this paper is to look at South Africa’s export profile with Africa. More specifically, we would like to analyse the performance of South Africa’s manufactured exports in this market and determine whether South Africa has been gaining or losing market share.
South African companies have made great strides in mining, retail, construction / manufacturing, financial services, information and telecommunication services, and the tourism sector. These successes demonstrate the ability of Africa to offer significant opportunities to investors and, more specifically, investors from the continent.
Can we expect South Africa’s role as a major investor and trading player to continue? We note that other players have come to the fore. These include Nigeria which recently became the largest economy in Africa in terms of Gross Domestic Product (GDP), surpassing South Africa in 2014. Other emerging players such as Kenya in the east are offering investment opportunities and a favourable trading environment for interested and potential investors and traders.
South Africa finds itself in a unique position to benefit significantly from a larger and integrated African community. However, a number of factors are necessary for such an integration to happen. These include elimination on non-tariff barriers among African countries; reduction in transport costs; minimal delays at border control posts; and less red tape or bureaucratic procedure that heighten the cost of doing business in Africa.
Africa provides an opportunity for South Africa and other African countries to increase their trade and it is up to Africa to ensure that this becomes a reality. With the appropriate political will, an integrated Africa is possible.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
Pro-competitive services sector regulation: a possible direction for the AU CFTA Agreement?
The African Economic Community (AEC) was established by the Abuja Treaty (1991) as an integral part of the African Union (AU). One of its objectives is to promote economic, social and cultural development and the integration of African economies in order to increase economic self-reliance and promote endogenous and self-sustained development. The Treaty sets a six-stage transitional period to achieve its objectives which include the gradual removal of obstacles to the free movement of persons, goods, services and capital and the right of residence and establishment.
The Free Trade Area (FTA) was to be established within 10 years but it was only in January 2012 that the AU Summit of Heads of States/Government endorsed the action plan for the establishment of the Continental FTA (CFTA) by 2017. The Summit in June 2015 subsequently launched the negotiations. The negotiations will be phased, covering trade in goods and services in the first phase and investment, intellectual property rights and competition policy in the second phase. Currently, the AU Commission (AUC) is undertaking preparations for phase 1 negotiations including defining the negotiating modalities and training member states’ officials.
A practical question is what should be the starting point and ambition for the CFTA services chapter. Clearly, Article 6 of the Abuja Treaty embeds the acquis principle i.e. CFTA agreement will build on the achievements so far in the eight African Regional Economic Communities (RECs). However, learning from the World Trade Organization (WTO) General Agreement on Trade in Services (GATS), the Trade in Services Agreement (TISA) currently under negotiation, and other non-African FTAs, the value of the agreement will depend on its response to business challenges and sector development.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Briefs
Revised RISDP: A New Growth Path for SADC’s Industrial Development?
In April 2015, the Extra-Ordinary Summit of the Heads of State and Government from the Southern Africa Development Community (SADC) adopted the Revised Regional Indicative Strategic Development Plan (RISDP) 2015-2020. The RISDP was adopted by SADC Member States in 2003 as a 15-year plan to facilitate regional integration and development. The priorities of the initial RISDP were trade/economic liberalisation and development, infrastructure in support of regional integration, peace and security cooperation, special programmes with a regional dimension. Evidently, the initial plan had no clearly laid down plan to industrialise the region.
The mid-review of the RISDP considered the progress that had been made with respect to the implementation of, for example, the SADC Trade Protocol, and the specific targets that were adopted in the RISDP, including the deadlines for the implementation of the linear integration model. The review was not merely an exercise to adopt new target dates for implementation, but a more fundamental reflection and enquiry to ensure that regional and global realities were taken into account in the design of SADC implementation strategy. It is noteworthy that the adoption of the Revised RISDP coincided with the adoption of the SADC Industrialisation Strategy. This SADC Industrialisation Strategy 2015-2063 was adopted by the same Summit of Heads of State and Government. More importantly, one might want to understand what are the synergies, contradictions, new provisions in the RISDP, and which one is the leading document?
Developments in the world economy will have a direct or indirect impact on the efficacy of both the Revised RISDP and the SADC Industrialisation Strategy. It is therefore imperative on the part of policy makers to be conscious of these developments when evaluating these regional programmes and projects. In 2015, sub-Saharan Africa experienced its slowest economic growth rate since the 1998 global financial crisis. According to the IMF, the region’s real GDP growth fell from 5.0 percent in 2014 to 3.75 percent in 2015 and will rebound to 4.3 percent in 2016. Given recent global and regional trends, it is likely that the IMF will revise its 2016 sub-Saharan Africa growth forecast downward. This situation calls for strong macroeconomic policies to help the region bounce back. Not all is lost, though: global changes like these create opportunities for appropriate and timely policy measures that can make a difference and help sub-Saharan African economies regain their growth momentum both in the short and long terms.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
Critical Issues in the Negotiations of the Continental Free Trade Area
On 15 June 2015, the African Union Assembly launched the negotiations to establish the Continental Free Trade Area (CFTA) by 2017. Experience of existing Free Trade Areas (FTAs) in the regional economic communities (RECs) in Africa; and from the ongoing Tripartite FTA (TFTA) negotiations comprising members of the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Community (SADC) are relevant to fostering our understanding of the political economy dynamics of negotiating, designing and implementing FTAs in Africa. These dynamics can offer vital lessons for the continental trade policy making process in Africa.
In addition, the process by which trade policy is negotiated has become more dynamic and complex, and should take cognizance of the rapidly changing regional and global economic environment, particularly the rising prominence of global trade and production networks. Across Africa, traders and investors are confronted with similar challenges when doing business across borders, such as tariffs, complying with differing standards and regulations for the same goods and services, dealing with hurdles due to non-transparent, uncoordinated and unpredictable government regulations, etc. Negotiating trade policy is only meaningful if it is addressing these challenges.
As such, the substance of trade agreements has to adapt to this new reality. This requires a paradigm shift in the way FTAs are designed and implemented in Africa. Apart from the need to eliminate intra-African tariffs on goods (which are still relatively high), a meaningful CFTA will need to improve regulatory practices aimed at facilitating trade and investment flows across borders. This requires policy ambition to address behind-the-border trade-related issues such as services, competition, intellectual property rights, and public procurement.
To set the stage, this paper raises the question as to whether the envisaged CFTA will result in a single trading arrangement for Africa or add another layer of overlapping trade regimes in the continent. In this regard, lessons from the Tripartite FTA negotiations are highlighted. Subsequent sections deal with some negotiation, design and implementation issues in the context of new global trade and production realities.
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.
Trade Reports
Trade diversion and trade creation effects of economic integration: Illustration of an Excel based tariff simulation of Zambia entering a hypothetical Free Trade Agreement (FTA) with South Africa
The aim of this paper is to illustrate an Excel spreadsheet* simulation that can be used to determine the trade creation and trade diversion effects of a Free Trade Agreement (FTA). As a case study it is assumed that Zambia is entering into an FTA with South Africa. The impact is evaluated in terms of trade creation, trade diversion, the price effect, the tariff revenue loss and the welfare gains if Zambia reduces tariffs on selected products imported from South Africa. The 2014 applied Most Favoured Nation (MFN) tariffs are used as base tariffs.
The calculations are based on the partial equilibrium model developed by World Integrated Trade Solution (WITS) (2011), called the SMART model. The WITS SMART model is a useful internet based simulation model that allows users to run various tariff reduction simulations. One of the benefits of the SMART model (compared to the Excel spreadsheet simulation) is that it shows the impact on all countries that export to the selected country, and not only the partner countries. The drawback is that it only allows for consistent cuts in tariffs across all products within the selected product groups. The aim of the Excel spreadsheet simulations is therefore primarily to allow for flexibility with regard to product specific tariff reductions.
For the advanced Excel user, the added benefit of the Excel spreadsheet simulation is that sensitivity analysis with regard to parameters can potentially be quicker and easier than with the internet based simulations. For the novice Excel user, the disadvantage could be potential errors in formula or data inclusion, which could return wrong estimates. It is therefore advised that if users are not particularly interested in product specific tariff cuts, they should use the internet based WITS SMART model rather than the Excel spreadsheet simulation.
* An Excel spreadsheet accompanying this Working Paper is available on request. Please email Trudi Hartzenberg (This email address is being protected from spambots. You need JavaScript enabled to view it.) to request a copy
Readers are encouraged to quote and reproduce this material for educational, non-profit purposes, provided the source is acknowledged. All views and opinions expressed remain solely those of the authors and do not purport to reflect the views of tralac.