Mozambique and Regional Integration in Southern Africa

Sherman Robinson Institute of Development Studies University of Sussex November 2007

Outline

• Evolution of trade blocs: 1960s-1990s • Composition of trade • Regional Trade Agreements – Shallow and deep integration • SADC/SACU and Mozambique • Policy support for SADC regional integration 2

Trade Blocs: 1960s

3

Trade Blocs: 1970s

6

Trade Blocs: 1980s

7

Trade Blocs: 1990s

8

Export Shares: 1990s

EU+ NAFTA+ E&SE Asia Mercosur SACU+ ROW EU+ 73.5

NAFTA+ E&SE Asia Mercosur SACU+ ROW 9.3

10.8

1.2

0.6

4.5

Total 100.0

19.3

49.4

24.1

2.5

0.4

4.2

100.0

17.9

27.5

41.5

32.1

25.0

20.9

11.9

21.2

51.2

16.3

26.8

35.5

0.9

22.7

2.0

2.2

0.5

4.4

0.9 11.7

100.0

100.0

8.1

0.9

9.7

100.0

8.0

100.0

9

Shares of Global Trade: 1990s

EU+ NAFTA+ E&SE Asia EU+ 33.6

NAFTA+ 4.2

E&SE Asia Mercosur SACU+ ROW 4.9

0.6

0.3

2.1

3.8

4.9

9.8

6.8

4.8

13.9

0.5

0.3

0.1

0.1

0.8

1.2

Mercosur SACU+ ROW Total 0.4

0.2

1.6

44.6

0.3

0.1

1.1

22.3

0.3

0.2

1.8

25.9

0.4

0.0

0.1

1.8

0.0

0.0

0.0

0.6

0.2

0.1

0.4

4.8

Total 45.8

19.9

27.2

1.6

0.6

5.1

10 100.0

Composition of Trade

• Increased trade as share of GDP – Largest increase in trade among OECD countries • Increased trade in intermediate inputs – Import content of exports increased – International segmentation of production • Increased trade in new products • Trends challenge standard trade theory and analysis of gains from trade 11

Intra-regional trade/GDP, 2002

30 25 20 15 10 5 0

Source: World Bank, Global Economic Prospects 2005, p. 43

East Asia Pacific Latin America and Carribean South Asia Sub-Saharan Africa

12

Implications of Trends

• The formation of blocs pre-dated any explicit regional trade agreement (RTA) • Three kinds of RTA: – Bloc creation: EU, NAFTA, Mercosur – Bloc expansion: EU expansion, CAFTA – Market access: EPAs, AGOA, FTAA, bilateral agreements 14

Shallow and Deep Integration

• Early RTAs and GATT/WTO rounds facilitated shallow (or negative) integration: – Reduction of border trade barriers • New RTAs all involve elements of “deep” or “positive” integration – Policies and institution “behind the border” that facilitate increased trade 15

Gains From RTAs

• Many studies of actual and potential RTAs of various kinds – Virtually all benefit the members (trade creating) – Better if there is at least one large and/or rich country to “anchor” the RTA – Small countries gain proportionately more • Bilateral agreements are less beneficial – Fallacy of composition: hub-spoke system is not good for the spokes 18

Productivity gains and market integration

• Integration in global value-chains – Fragmentation of production and scale economies • Trade in intermediates and new products – Inter-firm and intra-firm coordination • Quality and SPSS standards – High profitability from niche products • Trade-productivity links – Technology transfer – Role of FDI in market integration 19

SADC: Regional Integration

• Is the SADC region forming a trade bloc?

– Yes. Still early stage, with differing degrees of integration across the region • Is South Africa large enough and linked enough to anchor the bloc?

– Yes, given past decade of growth • Is Mozambique ready for integration?

– Yes, with supportive policies 20

GDP for SADC Countries

T anzania Swaziland Zimbabwe Zambia

SADC: Real GDP

Angola Botswana Democratic Republic of Congo Lesotho Madagascar Malawi Mauritius Mozambique Namibia Seychelles Angola Botswana Democratic Republic of Congo Lesotho Madagascar Malawi Mauritius Mozambique Namibia Seychelles South Africa Swaziland T anzania Zambia Zimbabwe South Africa 21

80 70 60 50 40 30 20 10 0

Sectoral Value Added

Sectoral Value Added Agriculture Industry Services

22

Shares of Intra-SADC Imports

Average Contributions to Intra SADC Imports (%)

Mozambique T anzania South Africa Sawizland Botswana Botswana Lethoto Malawi Mauritius Namibia Sawizland South Africa Tanzania Mozambique Namibia Mauritius Malawi Lethoto 23

Shares of Intra-SADC Exports

Average Contributions to Intra SADC Exports (%)

M ozambique Tanzania Botswana Lethoto M alawi Namibia Sawizland Botswana Lethoto Malawi Mauritius Namibia Sawizland South Africa Tanzania Mozambique South Africa 24

SADC FTA/Customs Union

• SADC FTA: much still to be negotiated • SADC customs union or SACU expansion – Proceed in stages: E.g., first, include Mozambique, Malawi, and Zambia – Whether it is SADC or SACU depends as much on politics as on economics • Elements of deep integration are required – Monetary union is much more remote 25

Southern Africa: Regional Organizations

• • • •

SADCC: SADC: CBI:

Southern African Development Coordination Conference Southern African Development Community Cross-Border Initiative

COMESA:

Common Marker for Eastern and Southern Africa •

RIFF:

Regional Integration Facility Forum for Eastern and Southern Africa • •

SACU:

Southern Africa Customs Union

CMA:

Common Monetary Area • •

IOC:

Indian Ocean Commission

EAC:

East African Community • Plus AGOA (US), EPAs (EU), and South Africa/EU FTA 26

Membership in RTAs

Country

Angola Botswana DRC Lesotho Madagascar Malawi Mauritius Mozambique Namibia Seychelles South Africa Swaziland Tanzania Zambia Zimbabwe

SADCC

X X X X X X X X X

SADC

X X X X X X X X X * X X X X X

CBI

X X X X X X X X X X

COMESA

X X X X X * X X * X X

RIFF

X X X X X X X

SACU

X X

CMA

X X X X X X

IOC

X X X

EAC

X 27

Policy Commitment

• Supportive policy environment is crucial – Reduce or eliminate policies that inhibit trade • Tariffs, quantitative controls, distorting taxes – Institute polices and create institutions that facilitate trade, especially exports • Standards/certification • Infrastructure/investment • Regional policy coordination • Trade negotiations • Business environment 28

Tax and Tariff System

• Supportive business environment requires a tax system that is: – Transparent – Predictable – Consistent – Uniform with minimal distortions • Efficient administration is crucial – Responsive bureaucracy 29

Trade Negotiations

• RTA/Customs Union – Phasing: sensitive sectors – Rules of origin – Dispute resolution mechanisms • Regional trade administration – SACU and/or SADC • Capacity for continuing negotiations – Integration is an ongoing process 30

Trade Negotiations

• Negotiating institution needs to manage tradeoffs between competing interests – Industry/agriculture/labor ministries tend to favor existing industries, and hence to be protectionist – Need to reflect interests of potential exporters and public (e.g., consumers) • Need for analytic support and organized advice from stakeholders 31

Coordination of Agreements

• Need to revise agreements as regional integration proceeds – E.g., EPAs and EU-South Africa agreements • Regional institutions – Coordinate macro and monetary policy – Establish and enforce standards/norms – Dispute resolution and legal systems 32

Mozambique and Integration

• Problems and needs – Business environment issues – Need for infrastructure and finance – Regional institutions • Government and private sector collaboration as process unfolds – Ready to start. Cannot learn to swim if you will not go into the water. 33

Success Indicators

• Process: – Establishment and evolution of regional institutions that facilitate trade – Tax/tariff policy reform and administration – Business environment • Results – Increased trade and growth – Stable macro policy environment 34