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Missing Ingredients

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Missing Ingredients

17th June 2011

By: Terence Creamer
Creamer Media Editor

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It is unsurprising, yet still worrying, to learn that Southern Africa is not only lagging the rest of the world in its intraregional trade levels, which remain between 10% and 12%, but that regional intra-industry trade in parts and components is also all but absent, lowering prospects for competitiveness-bolstering manufacturing synergies.

A new Word Bank study, entitled ‘Harnessing Regional Integration for Trade and Growth in Southern Africa’, asserts that the Southern African “factory” is yet to appear, as has been the case over the past 50 years in fast-growing Asia, where advanced regional production networks have helped underpin spectacular global export growth.

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In Asia, multinationals have helped develop multilocational production chains, but have tended to pursue monolocated production centres, with distribution networks, in Southern Africa.

The report argues that there is potential to boost both the intraregional goods trade and intra-industry trade in parts and components. But in outlining the study’s findings recently, trade economist Ian Gillson said that progress was being hampered by nontariff barriers (NTBs).

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He highlights that, while 85% of intra-Southern African Development Community (intra-SADC) and intra-Common Market for Eastern and Southern Africa (intra-Comesa) trade is free of duty, NTBs are affecting at least one-fifth, or $3-billion, worth of recorded regional trade.

The main barriers relate to inefficient transport, logistics and customs systems; cumbersome fiscal arrangements; restrictive rules of origin (ROOs) criteria; poorly designed standards; and other restrictions, such as export taxes, or infant-industry protection schemes.

These restrictions were limiting the development of not only cross-border supply chains, but also all other trade in goods and services.

This reality has left the region lagging the rest of the world, with intra- regional trade in Europe having reached 60% of its total trade, while accounting for 40% in North America and 30% in Asia.

The bank also notes that, while Southern African countries have succeeded in more than tripling trade with the rest of the world between 2000 and 2008, from $50-billion to $153-billion, intraregional trade has failed to keep pace.

For example, the SADC’s exports to the world as a proportion of its gross domestic product (GDP) have increased from 20% to over 30% during the last decade, but the share of its exports to the region have grown much more slowly and account for just 3% of regional GDP.

Gillson acknowledges that mechanisms are in place to deal with NTBs, but argues that far more urgency is needed around efforts to remove them.

He argues that countries should be asked to either justify the restrictions, or reform them, while key categories of NTBs should be prioritised for review. These areas should include: a simplification of those ROOs that restrict trade in manufactures and agroprocessing; a disciplining of import bans, quotas and permits; and a streamlining of border management procedures.

Similarly, in the area of professional and business services, trade specialist Nora Carina Dihel asserts that accelerated reform is required.

She argues that there is significant potential to increase trade in legal, accounting and engineering services, as well as business services, but that a range of national and regional regulatory restrictions is undermining progress.

At national level, she proposes a relaxation of entry requirements, as well as eliminating restrictions and reducing access costs. Regionally, there is a need to remove trade barriers, increase regulatory cooperation and to create regional education and training hubs.

There is little question that, until these missing ingredients are taken more seriously, the full benefits of integration will not be realised. Hope-fully, moves to build a “grand” free trade area involving 26 Eastern and Southern African countries will add new impetus. But, as ever, it will require diligent and collective action – ingredients all too often missing from the African leadership mix.

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