CURRENT ISSUES trade
Winners and losers in the new SADC free trade area
Southern Africa’s 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-try’s 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 percent (Mauritius).       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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