Winners and losers in the
new SADC free trade area
|Southern Africas long-conceived free trade
area was launched in September amid high expectations from many including industry and
commerce. As borders gradually open up, critical issues relating to the impact of the free
trade area on the consumer, industry and the public sector are slowly becoming imperative,
writes Munetsi Madakufamba.
Under the SADC Trade Protocol, 47 percent of goods manufactured in the region
will immediately trade at zero tariffs. These goods will be mainly from countries
categorised as developed, and would therefore be required to phase down tariffs faster
than others. Such countries include South Africa, and the rest of the Southern African
Customs Union (SACU) members Botswana, Lesotho, Namibia and Swaziland. These would
be followed by Mauritius and Zimbabwe, classified in the middle category. Last to
liberalise will be the least developed countries Malawi, Mozambique, Tanzania and
Zambia. Angola, the Democratic Republic of Congo and Seychelles have not yet acceded to
the Trade Protocol.
| As member countries lift import duties, one
immediate effect would be lower prices of goods imported from countries that have a
comparative advantage. But this is only assuming the importers are going to pass on the
lower cost to the consumer.
The second fundamental impact will arise from increased
competition once member states remove tariffs and subsidies. All firms in the same sector
will be competing on an equal footing, regardless of their size. The stiff competition
will manifest itself in both negative and positive employment effects.
Weaker firms, or those previously overprotected, will
likely downsize, if not shutdown completely, resulting in job losses. The more productive
firms with cheaper products will find it easier to penetrate new markets, resulting in
expan-sion and thus create new jobs. In the end, countries will be forced to concentrate
on producing products in which they have a competitive advantage, benefiting the consumer.
Employment effects are, however, likely to be felt in the
short to medium term. In the long run, as countries specialise in areas where they have a
comparative advantage, they will absorb the reserve army of labour previously offloaded by
downsizing industries. The incidence of unemployment will also fade as previ-ously less
competitive firms acquire new technology and become more produc-tive.
But a more direct impact will be felt by governments
through loss of revenue as tariffs are removed. The fiscal implications will vary
depending on each coun-trys reliance on customs revenue.
Available data shows that customs revenue constitutes less
than 10 percent of total government revenue in South Africa and Zambia. South Africa (less
than two percent) has a wide domestic revenue base while Zambia (eight percent) owes it to
extensive liberalisation under its structural adjustment programmes.
On the other extreme, customs revenue constitutes close to
50 percent of government revenue in Lesotho and Swaziland due to the revenue sharing
ar-rangement under SACU. The other countries range between 15 percent (Botswa-na) to 30
The net impact will, however, depend on the proportion of
imports that actually originate from fellow SADC countries since the quoted statistics
include revenue from products outside SADC, which will continue to attract import duty.
Others can argue that the impact will be much lower than
generally anticipated since products that have high import duty are those already
classified as sensi-tive products, and will not be immediately phased down, or have
completely been excluded from the Trade Protocol. These include several agricultural
products, textiles and motor vehicles.
The overall impact of the free trade area will also be
determined by even more complex factors such as existing bilateral and international trade
agreements that SADC countries are members of. These include the trade agreement between
South Africa and the European Union (EU) and the SADC-EU trade agreement under Suva I, a
successor to the Lomé Convention.
The Trade Protocol will be implemented over an eight-year
period up to 2008.
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