Regional and continental integration won’t swallow small economies

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Timo Shihepo

Windhoek - The African Union (AU) has said that the introduction of the African Continental Free Trade Area (AfCFTA) will benefit the small economies more, rather than hurting them.

In equal measure, the Southern African Development Community (SADC) Free Trade Area should also be seen as an agreement that is aimed at helping the small economies to be on par with the developing economies, according to Namibia’s Minister of International Relations and Cooperation, Netumbo Nandi-Ndaitwah.

The AfCFTA brings together 55 African countries with a combined population of more than one billion people and a combined Gross Domestic Product (GDP) of more than US$3.4 trillion.

The AfCFTA is a trading bloc aimed at creating a single continental market for goods and services, with free movement of business persons and investments, and thus pave the way for accelerating the establishment of the continental customs union and the African customs union.

Fears have been rife that with the introduction of the AfCFTA, industries in small countries would be swallowed by industries in bigger countries.

“The smaller economies will benefit more from the AfCFTA. Why? Because products from their smaller industries would be exposed to a much bigger market comprising of 54 other African countries. For these small economies, they would find it easier to penetrate not just the African market but international markets too because the idea is for Africa to be trading as one bloc rather than as individual countries,” AU’s trade and industry commissioner, Albert Muchanga, told The Southern Times.

Trading within the AfCFTA is expected to start on 1 July 2020.

Nandi-Ndaitwah, who is also Namibia’s Deputy Prime Minister, said that unless Africa integrates, it will not be possible to grow its economies and to bring about sustainable development.

Likewise, Nandi-Ndaitwah said that the SADC FTA, which was launched in 2010, has an aim of creating bigger market competitiveness in trade and to attract investment locally, continentally and globally.

Twelve out of 15 members states have ratified and implemented the SADC protocols on trade, thus making them members states of the FTA.

“It has to be accepted that FTA are valuable for industrialisation and economic transformation, particularly by reducing the tariffs and non-tariff barriers to trade,” said Nandi-Ndaitwah.

She said that regional and continental integration is also important in the expansion of the market, a factor in the areas of economic growth as it creates space for investment.

She gave an example of how the large and faster growing economies of the world were all characterised by the size of the population and land mass.

“The 50 states that make up the United States of America, the 15 republics that made up the Union of Soviet Socialist Republics, are a good example. If those areas were treated as separate countries, those countries could not be the superpowers during the Cold War era. Today, China’s 34 provinces, if they were separate countries, China could not become an emerging economic power supported by its own market of 1.386 billion people. Similarly, European countries had to establish the European Union with a common market and currency, except the UK that kept the pound. All these examples are underlining the influence of regional and continental integration in the economic growth,” she said.

In line with the Abuja Treaty, SADC member states have signed the protocol on trade in goods, protocol on trade in services and adopted the SADC industrialisation programme. All those instruments are aimed at the economic integration of the region with the aim of realising regional economic growth and to attract investments into the countries.

In implementing those SADC trade protocols, due to different levels of development of member states, countries are grouped into three categories namely, developed countries (Southern African Customs Unions members), developing countries (Mauritius and Zimbabwe) and the rest are classified as least developed countries.

Nandi-Ndaitwah said that expectations are clear and that participating member states into FTA are to phase down trade tariffs between and among one another, but are free to levy their own external tariffs on imports from non-member countries.

The implementation strategies are also clear with targets and time lines for each of the categories, though due to some challenges faced in the implementation of those protocols, (for example the deferent levels of development) some targets were not realised. However, it is important to note that a level of tariff reduction has been achieved.

“The challenges faced by SADC FTA are not impediments on Africa’s resolve to the regional and continental integration. It is equally important to recognise that small economies such as that of Namibia have much to gain from regional and continental integration. The case in point is Namibia’s members to the SACU,” she said.

Firstly, SACU presents a duty-free market size of about 61 million people and a combined GDP of about R4.384 trillion by 2015. Thus, SACU offers unlimited access to a wider market for the export of their goods and to some degree services within which traders and investors can take advantage of economies of scale. Secondly, the SACU Agreement affords some policy space to several economies for domestic industrial development.

Thirdly, the growth opportunities presented by SACU are further reinforced by financial and price stability benefits accruing from Namibia’s membership in the Common Monetary Area (CMA). The currency peg to the South African Rand (ZAR) does not only offer price stability, but also facilitates capital mobility within the CMA.

Fourthly, duty free and a tariff-free market access within the customs area allows for domestic participation in value chains, an important stepping stone for regional integration beyond SACU.

“In every situation, there are always challenges and those challenges can become a great concern if no efforts are made to address them. For that reason, to enable SACU to meet balanced economic benefits to its member states, SACU is to look into the best way to address the uneven common external tariff that does not take into consideration the different levels of development across member states,” said Nandi-Ndaitwah. 

 

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