CAEE 5124: INTERNATIONAL TRADE

TERM PAPER

SADC FTA: ORIGIN, ACHIEVEMENTS, CHALLENGES AND

WAYFOWARD

BIKARA INNOCENT 14157293

DEPARTMENT OF AGRICULTURAL ECONOMICS, EXTENSION AND RURAL DEVELOPMENT

BY

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TABLE OF CONTENTS

1.0 INTRODUCTION ............................................................................................................................. 1

2.0 ECONOMIC STRUCTURE OF SADC COUNTRIES ....................................................................... 1

3.0 OVERVIEW OF THE SADC TRADE PROTOCOL (TP) ................................................................. 2

4.0 REGIONAL TRADE LIBERALIZATION BENEFICIAL OR NOT? ................................................ 3

5.0 ACHIEVEMENTS ............................................................................................................................ 5

6.0 CHALLENGES……………………………………………………………………………….6

6.1 Non-tariff Measures (NTMs) ......................................................................................................... 6

6.2 FOOD SECURITY ........................................................................................................................ 9

6.3 OVERLAPPING MEMBERSHIP ................................................................................................ 10

6.4 TRADE POLARISATION........................................................................................................... 11

6.5 REVENUE LOSS ........................................................................................................................ 11

6.6 CONCENTRATED EXPORTS ................................................................................................... 12

6.7 RULES OF ORIGIN .................................................................................................................... 13

6.8 TRADE DIVERSION .................................................................................................................. 13

6.9 INFRASTRUCTURAL BOTTLENECKS ................................................................................... 13

6.10 OTHER CHALLENGES ........................................................................................................... 15

7.0 CONCLUSION AND RECOMMENDATIONS .............................................................................. 15

REFERENCES...................................................................................................................................... 17

Appendix 1: Fugure Showing NTM coverage of agricultural products by country .................................. 21

Appendix 2: Figure Showing Share of NTMs Per Product...................................................................... 22

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LIST OF TABLES

Table 1: Heterogeneity of SADC countries .............................................................................................. 2

Table 2: Product Categorization for SADC Tariff Phase-down ................................................................. 3

Table 3: Applied Most Favored Nation (MFN) Tariff (percent)…………………………………… 7

Table 4: Key Export and Import Commodities of SADC Member States ................................................ 12

Table 5: Time Delays and Trade Costs................................................................................................... 14

LIST OF FIGURES

Figure 1: Intra-SADC trade in agricultural products and average tariffs applied on agricultural products .. 8

Figure 2: Application of NTMs by Type .................................................................................................. 9

Figure 3: Illustration of overlapping trade blocs ..................................................................................... 10

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1.0 INTRODUCTION Southern African Development Community (SADC) is one of the more than 500 Regional Trade

Areas (RTAs) and Preferential Trade Agreements (PTAs) that have emerged around the world

(Kalaba and Kirsten, ND). It emerged from Southern African Development Coordination

Conference (SADCC)1 and the milestone Trade Protocol (TP) was signed in Maseru in 1996 by

twelve member states and came into effect at the beginning of 2000. To date, it comprises of

fifteen countries2, namely:- Angola, Botswana, Democratic Republic of Congo (DRC), Lesotho,

Malawi, Madagascar, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland,

Tanzania, Zambia and Zimbabwe. Together, the member countries cover 9.7 million square

kilometers3, have a population of approximately 249 million and had a combined GDP of $378

billion in 2006 (UNCTD, 2009).

The stated objectives of SADC are to promote economic development and growth in the region;

initially through the elimination of customs tariffs and non-tariffs barriers to trade within the

region (that is, establishing a Free Trade Area (FTA)), gradually establish a Customs Union,

Common Market, create a Monetary Union and ultimately establish a regional central bank and

adopt a common currency by the year 2018.

Botswana, Lesotho, Namibia and Swaziland, collectively known as the BLNS countries, together

with South Africa, had been cooperating under the Southern African Custom Union (SACU)4, so

SACU lies within the larger SADC region and throughout this paper, reference will be made to

SACU and non-SACU countries. The economic structure of SADC countries and an overview of

the SADC TP are presented in section 2 and 3 respectively; arguments on whether regional trade

is beneficial are presented in section 4; achievements and challenges are presented in sections 5

and 6 respectively and section 7 on conclusion and recommendations lace the paper.

2.0 ECONOMIC STRUCTURE OF SADC COUNTRIES SADC countries are heterogeneous in terms of the contribution of different sectors of the

economy to GDP and per capita incomes (Table 1). These two are generally regarded as

indicators of a country’s level of development. Conventionally, countries where agriculture

contributes significantly to total GDP are regarded to be less developed than those countries

1 That was in existence since 1980. 2 DRC, Madagascar and Seychelles came on board later and membership of Madagascar currently suspended after the coup d'état in 2009 3 the equivalent of the United States or China (UNCTD, 2009) though with a much smaller total GDP 4 Which had been in existence since 1910

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where agriculture contributes less to GDP. In the same vein, countries with low per capita

income have high poverty rates and less developed than those with high per capita income.

Table 1: Heterogeneity of SADC countries

Source: World Bank development indicators

Agriculture dominates the GDP of Malawi, Mozambique and Tanzania which means that their

economies have not yet undergone structural transformation and are characteristically Least

Developed Countries (LDCs). The economy of Mauritius is dominated by the services sector due

to a booming tourism sector. The South African, Namibian and Zimbabwean economies are

dominated by services sectors and then followed by industry (mining) sectors, while the

economies of Botswana and Angola are largely dependent on industry (mining).

By 2006 almost all the SACU member states except Lesotho had 4-digit per capita income;

Botswana with the highest, followed by South Africa, Namibia and then Swaziland. Angola had

the highest GDP among the non-SACU states and at the tail end was DRC with a meager $130

per capita (which is just 2.3% of the Botswana per capita GDP). This shows the heterogeneity of

SADC member countries and it is strikingly evident that countries with a dominant agricultural

sector have the lowest GDP per capita.

3.0 OVERVIEW OF THE SADC TRADE PROTOCOL (TP) The cornerstone of trade liberalization in SADC has been the elimination of both tariff and non-

tariff barriers to trade among member nations. The tariffs were supposed to be gradually phased

down and the principle of variable geometry was adopted. The principle of variable geometry

Country Agriculture Services Manufacturing Industry GDP per capita (2006)

2000 2006 2000 2006 2000 2006 2000 2006

Angola 5.66 …. 22.21 … 2.89 … 72.12 … 1,970 Botswana 2.41 1.97 38.64 44.52 4.38 3.75 58.95 53.51 5,570 DRC 49.97 45.67 29.73 26.60 4.82 6.49 20.30 27.73 130 Lesotho 17.92 17.17 40.69 41.85 16.96 18.07 41.38 40.98 980 Madagascar 29.21 27.54 56.56 57.21 12.24 13.40 14.23 15.25 280 Malawi 39.54 35.52 42.54 44.71 12.88 12.84 17.92 19.77 230 Mauritius 5.95 5.56 62.85 67.57 23.71 19.13 31.20 26.87 5,430 Mozambique 26.06 21.74 47.33 49.28 13.29 13.37 26.61 28.98 310 Namibia 10.96 11.26 60.69 57.73 11.09 12.88 28.35 31.01 3,210 South Africa 3.27 2.52 64.94 67.03 18.98 18.19 31.78 30.45 5,390 Swaziland 15.51 10.94 39.73 43.47 35.84 36.77 44.76 45.59 2,400 Tanzania 45.04 45.30 39.22 37.33 7.45 6.91 15.74 17.37 350 Zambia 22.31 16.05 52.40 59.20 11.42 11.54 25.29 24.75 630 Zimbabwe 18.49 21.91 56.52 50.69 15.80 15.49 24.98 27.40 340

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allowed for asymmetrical trade liberalization and was borne out of the realization that member

countries were not at the same level of development. This principle allowed SACU countries5 to

liberalize faster than the other less developed members. The tariff phase down was rolled out in

categories A, B, C, D and E as shown in table 2. Member countries were also categorized into (i)

Developed Countries (SACU countries); (ii) Developing Countries (Mauritius and Zimbabwe);

and (iii) Least Developed Countries (Angola, DRC, Madagascar, Malawi, Mozambique,

Tanzania and Zambia). Developed/SACU countries were required to front-load their tariff

reductions to achieve the “substantially all trade” threshold (of 85% off all merchandise) within 5

years; developing countries were required to mid-load their tariff reductions to achieve the same

threshold utmost 8 years from the coming into force of the protocol and the LDCs were required

to backload their tariff reductions to between 8 and 12 years from the coming into force of the

trade protocol (SADC, 2008).

Table 2: Product Categorization for SADC Tariff Phase-down Product Category

Schedule Description/Remark

A Products whose tariffs would be completely removed or were non-existent at the start of the phase-down process in 2000.

In line with the World Trade Organization (WTO) requirement which stipulates that substantially all trade should be free in an FTA.

A & B Constitute 85% of all intra-SADC trade B Products subject to tariff phase-

down to 0% over an 8-year period

Goods that constitute significant sources of customs revenue

C Tariff phase-down over a period of 12-years

Sensitive products such as textiles, clothing and motor vehicles

Limited to a maximum of 15% of each Member’s intra-SADC merchandise trade.

E Products excluded from preferential trade

Include firearms, munitions, precious and strategic metals (gold, silver and platinum) and second hand goods

Constitute a small fraction of intra- SADC trade.

Source: Modified using information from SADC (2008) and Negasi (2009)

4.0 REGIONAL TRADE LIBERALIZATION BENEFICIAL OR NOT? In theory trade liberalization is expected to enhance efficiency in production, international

competitiveness and the volume of trade (Ebrill et. al., 1999). Even when complete liberalization

5 South Africa, Botswana, Lesotho, Namibia and Swaziland

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is not achieved, the emergence of regional trade schemes is an attempt to harness these benefits

by minimizing distortions to trade flows (termed “second best” theory). The benefits can be

dichotomized into: (i) static or (ii) dynamic effects; though most of the literature places emphasis

on the static effects (Negasi, 2009).

Static effects are based on the changes in equilibrium market prices and quantities before and

after the creation of the economic bloc and entails the traditional (i) trade creation and (ii) trade

diversion; and the non-traditional (iii) labor opportunity effect; (iv) economies of scale effect;

and (v) foreign exchange saving effect (Cline, 1978). Trade creation occurs when high cost

production is substituted by low cost production as a result of regional integration while trade

diversion occurs when low cost production from non-member nation(s) is substituted by high

cost production from member nation(s)6. Labor opportunity effect occurs when an increase of

output made possible by regional trade integration allows for the employment of extra labor at a

wage below the minimum wage rate. Economies of scale effect occur when firms become able to

produce at their capacity as a result of the increase of the market size. Foreign exchange saving

effect occurs when there is an increase in imports from within the regional bloc resulting in

reduced imports from the rest of the world (ROW) thus savings in foreign exchange (Negasi,

2009).

Dynamic effects of regional integration include: (i) the competition effect through larger

volumes of exports and imports that increase the pressure on the exporting industries and

competing import sectors to keep costs low; (ii) the investment effect as a result of new foreign

and domestic investments that are more efficient; (iii) creation of a larger market that provides

greater possibilities for the exploitation of economies of scale; (iv) better terms of trade as a

result of collective negotiations; (v) structural transformation effect, which is a shift from

traditional primary-products export to new industrial-products export; and (vi) capital formation

effect such as enhanced labor and capital productivity, possibly through (a) reduction on barriers

to technological diffusion and transfer; (b) spillover effects due to externalities generated by

export and import growth; (c) rising marginal product of capital among others. Unlike static

effects, dynamic effects are presumed to continue generating annual benefits even after the

withdrawal of a nation from the regional bloc7(Negasi, 2009).

6 If trade creation outweighs trade diversion, then regional trade liberalization is welfare enhancing (Chauvin and Gaullier, 2002) 7 For example, increased growth rate made possible by integration will have continued effects provided that it is sustained.

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Whether these RTAs and PTAs, based on the second-best theory, actually result in welfare gains

cannot be determined a priori (Mutambatsere, 2006; Hoekman and Schiff, 2002) and has been a

subject of various empirical work (Simwaka, 2011; Chauvin and Gaullier, 2002; Cassim, 2001;

Evans, 1997; Clausing, 2001; Frankel and Romer, 1999; Elbadawi, 1997; and ADB, 1993).

Simwaka (2011), Evans (1997) and ADB (1993) reported the existence of a high potential of

beneficial trade within SADC countries, Chauvin and Gaullier (2002) and Cassim (2001) found

the trade potential to be small while Elbadawi (1997) found no significant trade potential among

SADC members. Chauvin and Gaullier (2002) and Laubscher (1997) pointed to the

heterogeneity of SADC economies as an indicator of the existence of potential complementarity

in trade if the economies exploit production of goods and services in which they have a

comparative advantage. They highlight the possibility of South Africa, Zimbabwe and Mauritius

specializing in the industry sector in order to meet SADC’s import demands since they have a

comparative advantage in a greater number of industrial-based sectors. Chauvin and Gaullier

(2002) also emphasize the importance of SADC member countries keeping their external tariffs

low in order to forestall potential trade diversion.

Lewis et. al. (2002) used a computable general equilibrium (CGE) model to simulate the SADC

FTA and found trade creation to dominate trade diversion. Mutambatsere (2006) identified

potential positive welfare gains for net-exporters to the SADC region and the opposite for net-

importers since he expected producer surplus responses from a given price change to exceed the

consumer surplus response from an equivalent price change. Van Rooyen & Esterhuizen (2001)

found potential for integration and cooperation of Zimbabwean and South African agri-food

supply chains and consequently larger production.

5.0 ACHIEVEMENTS SADC is one of the largest free trade zones on the African continent with a population of 250

million people (Maringwa, 2009; SADC, 2008). Institutional mechanisms such as tariff reduction

schedules, rules on the origin of goods and services, harmonized customs and trade documents

and dispute settlement mechanisms were put in place and are operational.

To address the infrastructural constraint to trade, Zambia and Zimbabwe developed Chirundu

into a one-stop border post (OSBP)8. The initiative increased trade by 20% and reduced delays in

8 The only one in Africa to date. At Chirundu, those travelling fom Zambia to Zimbabwe complete all their formalities on the Zimbabwean side; and those travelling from Zimbabwe to Zambia complete all their formalities on the Zambian side.

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movement of goods (Negasi, 2009). In addition, infrastructural corridors such as Dar-es-Salaam

Corridor, Mtwara Development Corridor, Nacala Development Corridor, Shire- Zambezi

Waterway, Beira Corridor, Limpopo Corridor, Maputo Corridor, Libombo Development

Corridor, Lesotho Railway, Trans-Kalahari Corridor, Walvis Bay Corridor, Trans-Caprivi

Corridor, North-South Corridor, Trans-Kunene Corridor, Lobito Corridor, and the Malanje

Corridor and Kazungula Bridge are either complete of are being developed as a result of

concerted efforts between SADC and member countries (SADC, 2008).

SADC countries trade more products with each other than they do with the ROW (Behar and

Edwards, 2011). Negasi (2009) reported that intra-SADC had grown (from 14% to 37%)

especially in the minerals, fuel and manufacturing sectors but cautions of possible trade diversion

due to the increasing extra-SADC trade bias. Maringwa (2009) found that trade was created for

sugar and wheat products, though he attributed it to bilateral trade agreements between member

countries and not necessarily to the SADC framework.

6.0 CHALLENGES

The challenges to SADC integration include the high levels of Non-tariff measures,

infrastructural bottlenecks, trade diversion, stringent rules of origin, lack of diversity in exports,

loss of customs revenue, trade polarization, overlapping membership, food security concerns

among others. These are discussed in the sequel.

6.1 Non-tariff Measures (NTMs)9 NTMs are institutional, infrastructural and regulatory burdens that impede the movement of

goods across borders. These include certification procedures, quantity control measures,

technical regulations, market regulations, government procurement and investment restrictions,

insufficient intellectual property rights protection and policies affecting cost of entry (Njinkeu et.

al., 2008; Johnson et. al., 2007; Wilson et. al., 2005; Teravanithorn and Raballand; 2008; Limão

and Venables, 2001). The persistence of NTMs even among Free Trade Areas (FTAs) is self-

defeating in that it impedes the trade that the member nations ‘intend’ to promote. For example,

Behar and Edwards (2011) found that intra-SADC trade has not changed significantly while

Kalaba and Kirsten (ND) found that the trade has actually declined during the phase down of

9 NTMs include all interventions that distort trade. Non-tariff Barriers (NTBs) are a subset of NTMs had have

protectionist intent. Examples of NTBs include tariff-rate quotas, quotas, licensing regimes and price bands.

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tariffs. But most importantly, they both attribute this to an increase in non-tariff measure with in

the region during the tariff phase-down period (as shown by the trends in table 3 and figure 1).

Table 3: Applied Most Favored Nation (MFN) Tariff (percent) 1997 2001 2007 Percentage change

(1997 to 2007) Angola … 8.81 7.2 -1.48 Malawi 25.3 13.1 13.3 -9.58 Mauritius 28.7 18.4 3.15 -19.85 Mozambique 15.7 13.8 10.3 -4.67 Seychelles … 28.3 7.12 -16.51 SACU 11.3 8 7.74 -3.20 Tanzania 24.3 16.3 12.6 -9.41 Zambia 14.1 12.6 13.7 -0.35 Zimbabwe 23.8 19.6 14.1 -7.84 Pooled simple average 18.8 14.4 10.2 -7.24 Pooled import-weighted 8.42 6.95 6.45 -2.0 Tariffs by user Consumption goods 31.3 26.3 19.7 -8.9 Intermediate inputs 15.2 11.0 8.7 -5.7 Capital goods 12.4 8.1 6.2 -5.5 Source: Behar and Edwards (2011)

Table 3 shows that tariffs reduced significantly in SADC countries between 1997 and 2007; and

figure 1 shows that while the average agricultural tariffs declined from about 16% in 2000 to

below 5% in 2008, the share of agricultural trade declined from 21% to about 13%.

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Figure 1: Intra-SADC trade in agricultural products and average tariffs applied on agricultural products Source: Kalaba and Kirsten (ND)

Natural resource based industries, such as agriculture and food, textiles and mining are most

strongly affected by NTMs (Deardoff, 2012). According to the findings of Kalaba and Kirsten

(ND), each agricultural product traded in SADC was affected by about 10 NTMs on average and

Sanitary and Phytosanitary Measures (SPS) were the most widely used, followed by licensing

and quantitative controls as well as export measures (figure 2). Mozambique had the highest

incidence of NTMs, and the lowest was Malawi (see appendix 1). On a product level, fruits were

the most affected products with more than 40% of all NTMs applied (see appendix 2). After

quantifying the NTMs into their ad-valorem tariff equivalents, Kalaba and Kirsten (ND) found

that the NTMs applied to meat and milk were as high as 400% and 200% respectively. This is

evidence of high levels of protection by SADC countries and could explain the decline in

(agricultural) trade over the tariff phase down period. The infant industry argument is has

perpetuated the use of NTMs in many countries since the rules of WTO do give room for their

use but others such as quantitative restricts are used by governments in complete disregard of

WTO rules (Flatters, 2001; Kalaba and Kirsten, ND).

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Figure 2: Application of NTMs by Type Source: Kalaba and Kirsten (ND)

According to Negasi (2009), SADC member states continue to introduce periodic bans on

imports, impose additional import levies and other forms of import controls; often as

protectionist devices. NTBs are real obstacle to intra-regional trade expansion and undermine the

credibility of the Trade Protocol in the eyes of traders, investors and consumers. Behar and

Edwards (2011) try to allay the fears about the high NTMs used in SADC by arguing that they

are comparable to those used by countries at similar levels of development. However, these

NTMs need to be reduced if the fruits of regional integration to be realized.

6.2 FOOD SECURITY It is envisaged that reduction in tariffs reduce the price of food therefore increase both physical

and economic assess to food. However, the continued use of NTBs such as SPS and the lack of a

regional policy on the production important food staples such as maize (for example, on the

production of GMO maize) jeopardizes food security in SADC and may lead to reoccurrence of

famine in vulnerable countries such as Malawi and Namibia (Mutambatsere, 2006).

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6.3 OVERLAPPING MEMBERSHIP Competing interests and uncoordinated policies have resulted in overlapping regional trade blocs

(Tavaresa and Tang, 2011). As shown in figure 3, overlaps exist in SADC, Common Markets for

Eastern and Southern Africa (COMESA) and East African Community (EAC). All members of

SACU belong to SADC. Seven SADC countries (Angola, DRC, Malawi, Mauritius, Swaziland,

Zambia and Zimbabwe) are also members of COMESA. Tanzania is a member of both SADC

and EAC.

Overlapping membership presents challenges, particularly when trading blocs move towards

deeper levels of economic integration (SADC, 2008). For example, Zambia belongs to both

SADC and COMESA. Under the SADC TP, Zambia is to extend duty-free treatment to South

African products. However, because of its COMESA membership, Zambia is to implement a

common external tariff in line with the COMESA Customs Union, which excludes South Africa.

Which means that Zambia has agreed to simultaneously promote free trade with South Africa

and maintain COMESA tariffs against that same country (SADC, 2008). In recognition of such

dilemmas, Piazolo (2002) cautions South Africa against joining COMESA.

Figure 3: Illustration of overlapping trade blocs Source: SADC (2008)

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Within SADC alone there has been competition for FDI and divisions during negotiations for

Economic Partnership Agreements (EPAs) with other trade blocs and nations as some members

opt to negotiate unilaterally. As Mlambo (2005) notes, competition for FDI between SADC

countries is both wasteful and costly and may weaken regional co-operation and integration. In a

related study, Sandery (2006) found unilateral trade liberalization policies of South Africa

(involving EU, Mercosur, China, US and India) to have cost the BLNS countries about 15% of

their total government revenue.

6.4 TRADE POLARISATION As much as it is widely accepted that increased trade among nations promotes economic growth,

Krugman (2007) notes that for this to happen, it requires that the economic activities be well

distributed among and within the nations. In the SADC context, polarization of trade towards

South Africa is a major concern of other member states (Behar and Edwards, 2011; Kilolo-

Malambwe, 2011; Pallotti, 2004; Chauvin and Gaullier, 2002; Cassim, 2001). Negasi (2009),

Kalaba and Tsedu (2008) and Mlambo (2005) found that most of the total trade in SADC is with

South Africa and the flow of FDI is concentrated in few countries and sectors. According to

Kilolo-Malambwe (2011), Swaziland and Namibia export 45% and 29% respectively of their

products to South Africa. Botswana imports 83.5% and Swaziland imports 92.9% of their

commodities from South Africa. This shows the high dependence of SADC countries on trade

with South Africa (the dependence being higher for imports than exports). The trade orientation

in SADC seems to conform to the prediction of “New Economic Geography (NEG)” that posits

that FTAs are detrimental to poor economies as industrial activity relocates to middle income

economies (Deichmann and Gill, 2008; Coulibaly and Fontagné, 2006). Even within South

Africa, investment is highly concentrated in sectors that are capital intensive such as mineral and

energy exploitation, telecommunications and manufacturing that have very few backward and

forward linkages with the rest of the economy hence minimal job creation. Hess (2004) however

dispels the concerns of continued trade polarization. He argues that if trade costs reduce, wage

disparities and trade concessions extended to smaller economies by developed economies

continue, these small economies will become attractive locations for export orientated firms and

polarization will no longer be a concern.

6.5 REVENUE LOSS The effect of trade liberalization on revenue depends to a large extent on the share of tariff

revenue in total revenue (Matlanyane and Harmse, 2002). Matlanyane and Harmse (2002) found

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trade liberalization did not significantly reduce South Africa’s trade tax revenue. On the other

hand, Sandrey et. al., (2006) predicted an 11% decline in revenue accruing to Lesotho from the

SACU revenue pool as a result of trade liberalization. This raises concern among government as

it may result in fiscal deficits and macroeconomic instability. Flatters (2001) however addresses

this concern by noting that revenue losses are not an economic costs and that such losses can

easily be made up through normal economic growth.

6.6 CONCENTRATED EXPORTS The lack of diversity in regional commodities implies that the potential for trade is low among

SADC countries and increases the possibility of the bloc’s reliance on imports from ROW. As

shown in table 4, SADC member countries mainly export primary and unfinished goods while

imports are mainly capital and intermediate goods (with a few exceptions).

Table 4: Key Export and Import Commodities of SADC Member States Member State

Major Exports Major Imports

Angola Crude oil, diamonds, refined petroleum products, gas, coffee, sisal, fish and fish products, timber, cotton.

Machinery and electrical equipment, vehicles and spare parts; medicines, food, textiles, military goods.

Botswana Diamonds, copper, nickel, soda ash, meat. Foodstuffs, machinery, electrical goods, transport equipment, textiles, fuel and petroleum products, wood and paper products, metal and metal products.

DRC Diamonds, copper, crude oil, coffee, cobalt. Foodstuffs, mining and other machinery, transport equipment, fuels.

Lesotho Manufactures 75% (clothing, footwear), wool and mohair, food and live animals

Food; building materials, vehicles, machinery, medicines, petroleum products.

Madagascar Coffee, vanilla, cloves, shellfish, sugar, cotton cloth, chromite, petroleum products.

Capital goods, petroleum, consumer goods, food.

Malawi Tobacco 60%, tea, sugar, cotton, coffee, peanuts, wood products, apparel.

Food, petroleum products, semi-manufactured consumer goods, transportation equipment.

Mauritius Clothing and textiles, sugar, cut flowers, molasses.

Manufactured goods, capital equipment, foodstuffs, petroleum products, chemicals.

Mozambique Aluminium, prawns, cashews, cotton, sugar, citrus, timber, bulk electricity.

Machinery and equipment, vehicles, fuel, chemicals, metal products, foodstuffs, textiles.

Namibia Diamonds, copper, gold, zinc, lead, uranium; cattle, processed fish, karakul skins.

Foodstuffs, petroleum products and fuel, machinery and equipment, chemicals.

South Africa Gold, diamonds, platinum, other metals and minerals, machinery and equipment.

Machinery and equipment, chemicals, petroleum products, scientific instruments, foodstuffs.

Swaziland Soft drink concentrates, sugar, wood pulp, cotton yarn, refrigerators, citrus and canned fruit.

Motor vehicles, machinery, transport equipment, foodstuffs, petroleum products, chemicals.

Tanzania Gold, coffee, cashew nuts, manufactured cotton.

Consumer goods, machinery and transportation equipment, industrial raw materials, crude oil.

Zambia; Copper/cobalt 64%, electricity, tobacco, flowers, cotton.

Machinery, transportation equipment, petroleum products, electricity, fertilizer; foodstuffs, clothing.

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Member State

Major Exports Major Imports

Zimbabwe Cotton, tobacco, gold, ferroalloys, textiles/clothing.

Machinery and transport equipment, other manufactures, chemicals, fuels.

Source: SADC (2008)

6.7 RULES OF ORIGIN Conventionally, rules of origin are used in a regional bloc to authenticate that the goods claiming

preferential treatment are the product of significant economic activity in a member state. This

was the case in the originally agreed rules in the SADC TP but they were later revised so as to

serve another purpose; to encourage the development of linkages between upstream and

downstream industries (Flatters and Kirk, 2004). Rules of origin designed for the later have been

tested before but have failed due to their conflict with realities of international trade. Today a

large part of internationally traded commodities are intermediate products due to production

fragmentation that is aimed at taking advantage of different economic circumstances in different

locations such as availability of cheap labor or capital. Such regulations therefore increase the

cost of production and ultimately deem SADC an unsuitable place for such a production model

(Brenton et. al., 2005).

6.8 TRADE DIVERSION Besides trade polarization, peripheral economies in a regional bloc also bear the cost of trade

diversion, by importing relatively expensive goods from the growing industrial centers rather

than more efficient global producers, making them even poorer (Kilolo-Malambwe, 2011).

Sandery (2006) found that poor consumers in BLNS countries were making transfers to richer

producers as a result of the SACU trade liberalization and the benefits that are accrue to

consumers are all concentrated in South Africa which has a high consumer population.

6.9 INFRASTRUCTURAL BOTTLENECKS Intra-SADC trade is also constrained by lack of infrastructure and multiplicity of and

bureaucracy at customs crossings that require a lot of documentation, are time wasting and

costly. This is because the traditional infrastructure was built to bring in goods from sea ports

rather than facilitating intra-trade. As shown in table 5, the number of documents required to

export in Angola, Namibia, Malawi and Swaziland are way too many compared to those required

in East Asia and Pacific, Eastern Europe, Central Asia, Latin America and the Caribbean, Middle

East and North Africa, Organisation for Economic Co-operation and Development (OECD)

countries, South Asia and the average for Sub-Saharan Africa. The number of documents

required to import are also more in SADC than all the regions except South Asia. It takes about

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35.1 days to export good in the SADC region, the highest number 65 days in Angola and lowest

in Mauritius (14 days). However the number of days required to export in Mauritius (which is

the lowest in SADC) is still higher than in OECD but lower than for the rest of the regions. The

cost of exporting is $1,903.7 in SADC which is way higher than all the regions except sub-

Saharan Africa. The number of days it takes to import are actually highest in SADC and the cost

to import a container are more than for the rest of the regions except sub-Saharan Africa of

which SADC is part.

Another infrastructural bottleneck is inadequate power generation which makes power expensive

and increases the costs of production in the region.

Table 5: Time Delays and Trade Costs Region or Economy

Documents to export (number)

Time to export (days)

Cost to export (US$ per container)

Documents to import (number)

Time to import (days)

Cost to import (US$ per container)

East Asia & Pacific

6.7 23.1 909.3 7.1 24.3 952.8

Eastern Europe & Central Asia

6.5 26.8 1581.8 7.8 28.4 1773.5

Latin America & Caribbean

6.8 18.6 1243.6 7.3 20.9 1481

Middle East & North Africa

6.4 22.5 1034.8 7.4 25.9 1221.7

OECD 4.3 10.5 1089.7 4.9 11 1145.9 South Asia 8.5 32.4 1364.1 9 32.2 1509.1 Sub-Saharan Africa

7.8 33.6 1941.8 8.8 39.4 2365.4

SADC 7.4 35.1 1903.7 8.8 42.4 2348.3 Angola 11 65 2250 8 59 3240 Botswana 6 30 2810 9 41 3264 DRC 8 44 2607 9 63 2483 Lesotho 6 44 1549 8 49 1715 Madagascar 4 21 1279 9 26 1660 Malawi 11 41 1713 10 51 2570 Mauritius 5 14 737 6 14 689 Mozambique 7 23 1100 10 30 1475 Namibia 11 29 1686 9 24 1813 South Africa 8 30 1531 9 35 1807 Swaziland 9 21 2184 11 33 2249 Tanzania 5 24 1262 7 31 1475 Zambia 6 53 2664 9 64 3335 Zimbabwe 7 53 3280 9 73 5101 Source: World Bank Doing Business survey (2010) quoted by Behar and Edwards (2011)

15

6.10 OTHER CHALLENGES • Civil strife in SADC countries are a setback to socio-economic development. It is no

coincidence that DRC had the lowest GDP per capita in SADC in 2006 (table 1). The

civil war in the resource-rich eastern part of DRC does not only deny the country the

chance to exploit the natural resources but also skews fiscal allocations towards wars and

peace initiatives instead of sectors directly contribute to macroeconomic development.

• The SADC secretariat lacks binding authority and member countries are not willing to

cede power to a centralized authority. This results in uncoordinated interventions and

may undermine the long-term success of the SADC FTA and other deeper forms of

integration agreed upon.

7.0 CONCLUSION AND RECOMMENDATIONS After the eminent success of the EU, regional FTAs will continue to emerge and offer hope for

the much hyped global free trade. SADC is a step in the right direction. But from the literature

reviewed, it is eminent that challenges that SADC faces far outweigh the achievements this far.

Some recommendations are warranted thence:

• To address the issue of trade polarization, SADC members should agree on a method of

compensating disadvantaged economies as is done in SACU and West African Economic

and Monetary Union (WAEMU).

• Member countries should place emphasis on reforms that reduce their dependence on

import duties for revenue; such as growing domestic revenue sources (for example value

added tax (VAT), exercise tax, income tax among others).

• Policy harmonization is key to the success of SADC. Member countries should cede

some power to the SADC secretariat to enable it make binding decisions on the policies

of member countries to avoid lacunas of regional economic integration as was seen in the

recent EU financial crisis that culminated into painful austerity measures and the

intervention of European power houses.

• The regional secretariat should also be given powers to make interventions aimed at

deepening democratic governance and bringing peace and security to member countries

to ensure that all member countries develop in tandem.

16

• Strategic investment in infrastructural development such as roads, far-reaching rail

network, renewable energy, information technology among others will reduce transaction

costs and make SADC a competitive investment destination.

• The private sector should not only be consulted but should fully participate in SADC

trade initiatives to make sure that the priorities of regional government are in congruence

with the ideals and needs of the private sector.

• SADC should embrace outward looking approach to regional integration described by

Flatters (2001) as “open regionalism.” This will enable the integration of SADC with the

global economy, improve competitiveness and reduce the forestall trade diversion.

• On the food security front, SADC should make deliberate efforts to reduce NTMs on

agricultural products, enhance availability of rural finance, harmonize food security

policies (including and GMOs) before-hand to avoid interventionist measures in times of

crises.

• SADC should adopt less stringent rules of origin in order to stimulate regional integration

and facilitate the growth of companies that are able to compete effectively on global

markets.

• SADC member countries should be steadfast in implementing existing and future

commitments or else all the well thought plans of regional economic integration will

remain on paper.

It is important to note that liberalized free trade is no panacea for maximizing the welfare of the

citizens, selective and coordinated state intervention10 is will always be necessary for the

achievement calculated national and regional development objectives, especially in the

developing world (Tsie, 1996).

10 Whether national or regional

17

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Appendix 1: Fugure Showing NTM coverage of agricultural products by country

Source: Kalaba and Kirsten (ND)

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Appendix 2: Figure Showing Share of NTMs Per Product

Source: Kalaba and Kirsten (ND)