by Munetsi Madakufamba – SANF 08 No 51
Southern African leaders will launch the regional free trade area this month, signalling the creation of one of the largest free trade zones on the African continent with some 250 million people.
The official launch is expected during the 28th Southern African Development Community (SADC) Summit in South Africa, a historic event that will usher in a new era of economic integration and rapid industrialisation of the sub-region through expanded trading opportunities.
Premised on the gradual removal of barriers to trade, the Free Trade Area (FTA) is a culmination of an eight-year process that started with the signing of the SADC Trade Protocol in 1996, which came into force in 2000.
In addition to the Trade Protocol, SADC Member States have adopted the Regional Indicative Strategic Development Plan (RISDP), which outlines the roadmap for further regional economic integration.
The RISDP outlines economic integration targets that include the establishment of an FTA in 2008, a Customs Union by 2010, Common Market by 2015 and creation of a Monetary Union by 2016, while a regional central bank and common currency are expected by 2018.
Thus the creation of an FTA this August signifies the achievement of a major milestone towards the quest for deeper economic integration in SADC.
The FTA is rooted in the classical economics principle of comparative advantage. The crude argument is that Member States will produce for export only those goods for which they have a comparative advantage while importing from regional neighbours goods that they cannot produce more efficiently at home.
Industrialists will enjoy enhanced market access as well as benefit from economies of scale as they produce for a bigger regional, as opposed to a national market.
On the other hand, consumers will have access to a cheaper and wider product range on supermarket shelves as goods would now enter national boundaries free of customs duties.
An FTA provides an ideal environment for rapid industrialisation and modernisation as firms up productivity levels to maintain a competitive edge over others.
These assumptions are of course burdened by many complexities in the everyday conduct of international trade and realities at the national level.
For example, with a few exceptions, SADC Member State exports are not only similar but mostly primary and unfinished goods while imports are mainly capital and intermediate goods.
Furthermore, the majority of SADC economies are less developed, supported by nascent industries which still require some nurturing before they are exposed to the chill winds of international trade.
The lingering fears that goods from large economies such as South Africa may swamp weaker economies leading to collapse of their industries have tended to slow progress towards set targets.
In an attempt to address these fears, SADC has adopted the principle of variable geometry, which allows for asymmetrical trade liberalisation based on the level of economic development in each country.
This approach has allowed South Africa, which is the most developed economy, along with its fellow members in the Southern African Customs Union (SACU) – Botswana, Lesotho, Namibia and Swaziland – to liberalise faster than the rest.
Since 2000, Member States have been gradually removing tariff and non-tariff barriers to trade with the aim of achieving an 85 percent threshold of intra-regional trade at zero tariffs by 2008.
The remaining 15 percent constitutes mainly sensitive products such as textiles, clothing and motor vehicles, which are to be liberalised by 2012. Few products such as precious and strategic metals (gold, silver and platinum) and second hand goods have been excluded from liberalisation.
Principally, the FTA will allow goods originating from SADC Member States to enter neighbouring country economies free of customs duties. To qualify for duty-free, goods have to meet certain criteria as spelt out in the agreed rules of origin.
While growing, intra-SADC trade is still low at around 25 percent. Much of that trade is concentrated in the SACU region while most international trade is still taking place under bilateral agreements among fellow SADC Member States or with former colonial powers with limited utilization of the Trade Protocol.
Intra-SADC trade is also constrained by lack of infrastructure. It therefore comes as no surprise that SADC leaders have placed high priority on the development of regional infrastructure.
In light of the FTA and the Customs Union, the need for more efficient and seamless transport corridors that better connect the region has become more important than ever before.
New corridors are expected to complement traditional surface routes, which were historically designed to ferry goods to and from the rest of the world via the regional seaports. These are currently not sufficient to facilitate inter-state movement of goods.
