Free trade on the horizon
Southern African News Features
Free trade on the horizon
by Munetsi Madakufamba
26 June 2008
The launch of a SADC Free Trade Area in August this year will usher in a new era of economic integration with an enlarged market of more than 200 million people.
The Free Trade Area will be officially launched in August during the SADC Summit to be hosted by South Africa, which takes over the rotating SADC chair.
When SADC leaders signed the Trade Protocol in 1996, they signalled their intention to bring down tariff and non-tariff barriers to trade in the region. That process would begin in September 2000 when two-thirds of Member States had ratified the protocol.
Thus over the last eight years, Member States have been implementing the Trade Protocol with a 2008 target to ensure 85 percent of all product lines are trading at zero tariffs. The process involved, among other issues, agreeing on rules of origin and removal of tariff and non-tariff barriers.
The rules of origin are now in place and the SADC Certificate of Origin now increasingly getting recognition in Member States.
At the start of 2008, some Member States were reportedly lagging behind with regard to removal of tariffs and non-tariff barriers to trade although the SADC Secretariat remains confident that come August, all parties to the Trade Protocol would have complied.
However, not all of the 14 SADC Member States are parties to the Free Trade Area as Angola and the Democratic Republic of Congo are currently not applying the Trade Protocol, and have asked for more time.
For SADC Member States, the Free Trade Area brings both opportunities and challenges.
Many SADC economies are too small to support a large range of viable productive investments and as such, the Free Trade Area will provide the opportunity for an enlarged domestic market that can foster economic growth through the economies of scale and improved efficiency.
At 25 percent, intra-SADC trade is still low and is largely concentrated in the Southern African Customs Union (SACU) countries - Botswana, Lesotho, Namibia, South Africa and Swaziland.
Official statistics further show that SADC countries are attracting only 1 percent of global foreign direct investment, a performance that is greater than most sub-regions in Africa, but still low.
Against this background, SADC’s move towards a Free Trade Area becomes an attractive option insofar as it will increase the region’s competitive advantage and trade performance as well as enhance chances to attract foreign direct investment.
The opportunities are not limited to the Free Trade Area. SADC’s strategic plan envisages deeper economic integration and cooperation through the creation a Customs Union in 2010, a Common Market by 2015, a Monetary Union by 2016 and a Single Currency by 2018.
However, progress towards deeper economic integration is hampered by lingering fears among many countries. These include the need to protect infant industries and fears that goods from large exporting countries such as South Africa may swamp markets of smaller economies leading to collapse of their industries.
Beyond these fears, some Member States are facing constraints and challenges in their quest to liberalise trade, which in circumstance where they relied heavily on tariff revenue. In such cases, a direct compensation mechanism may be necessary to caution national budgets and prevent Member States from plunging into a debt trap.
Other constraints hindering intra-regional trade include high transaction costs owing, for instance, to inadequate transport, information, communications and energy infrastructure as well as restrictive customs and immigration procedures.
It therefore comes as no surprise that SADC has accorded high priority to the implementation of infrastructure projects to support deeper economic integration as was the case at the 2007 SADC Summit in Lusaka where leaders discussed such issues.
Once fully functional, there is no doubt that the Free Trade Area will lead to continual innovation, better products, increased savings and investment, better paying jobs as well as enable more goods to reach SADC consumers at lower prices.
