Mozambique and Regional Integration in Southern Africa

1
Mozambique and Regional Integration in Southern
Africa

• Sherman Robinson
• Institute of Development Studies
• University of Sussex
• November 2007

2
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

3
Trade Blocs 1960s
4
Export Shares 1960s
Europe
N America
Asia-UK
Asia-US
Total
Europe
75.4
14.2
8.2
2.3
100
N America
37.5
44.5
8.3
9.7
100
Asia-UK
48.8
12.7
20.6
18.0
100
Asia-US
23.0
37.3
19.5
20.2
100
5
Shares of World Trade 1960s
Europe
N America
Asia-UK
Asia-US
Total
Europe
39.7
7.5
4.3
1.2
52.7
N America
11.2
13.3
2.5
2.9
29.9
Asia-UK
5.0
1.3
2.1
1.9
10.3
Asia-US
1.6
2.6
1.4
1.4
7.1
Total
57.6
24.7
10.3
7.4
100
6
Trade Blocs 1970s
7
Trade Blocs 1980s
8
Trade Blocs 1990s
9
Export Shares 1990s
EU NAFTA ESE Asia Mercosur SACU ROW Total
EU 73.5 9.3 10.8 1.2 0.6 4.5 100.0
NAFTA 19.3 49.4 24.1 2.5 0.4 4.2 100.0
ESE Asia 17.9 25.0 51.2 0.9 0.5 4.4 100.0
Mercosur 27.5 20.9 16.3 22.7 0.9 11.7 100.0
SACU 41.5 11.9 26.8 2.0 8.1 9.7 100.0
ROW 32.1 21.2 35.5 2.2 0.9 8.0 100.0
10
Shares of Global Trade 1990s
EU NAFTA ESE Asia Mercosur SACU ROW Total
EU 33.6 4.2 4.9 0.6 0.3 2.1 45.8
NAFTA 3.8 9.8 4.8 0.5 0.1 0.8 19.9
ESE Asia 4.9 6.8 13.9 0.3 0.1 1.2 27.2
Mercosur 0.4 0.3 0.3 0.4 0.0 0.2 1.6
SACU 0.2 0.1 0.2 0.0 0.0 0.1 0.6
ROW 1.6 1.1 1.8 0.1 0.0 0.4 5.1
Total 44.6 22.3 25.9 1.8 0.6 4.8 100.0
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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

12
Intra-regional trade/GDP, 2002
Source World Bank, Global Economic Prospects
2005, p. 43
13
Regional Trade Agreements

• RTA a group of countries liberalize trade among
  themselves, but not with the rest of the world.
• Stages of regional integration agreements
• Preferential trade areas (PTA)
• Free Trade Areas (FTA)
• Customs Unions (CU)
• Common Market
• Monetary Union
• Economic Union

14
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

15
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

16
Regionalism 1990s

• Dramatic increase in RTAs in the 1990s
• NAFTA, Mercosur, SADC, ASEAN, CAFTA, FTAA, EPAs
• Characteristics of new RTAs
• Motivation to use regional integration as a means
  of insertion into the world economy
• Elements of deep integration
• Agreements tend to be both South-South, and
  North-South

17
RTA formation
Source World Trade Organization
18
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

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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

20
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

21
GDP for SADC Countries
22
Sectoral Value Added
23
Shares of Intra-SADC Imports
24
Shares of Intra-SADC Exports
25
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

26
Southern Africa Regional Organizations

• SADCC Southern African Development Coordination
  Conference
• SADC Southern African Development Community
• CBI 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

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Membership in RTAs
Country SADCC SADC CBI COMESA RIFF SACU CMA IOC EAC
Angola X X X
Botswana X X X
DRC X X
Lesotho X X X X
Madagascar X X X X
Malawi X X X X
Mauritius X X X X X
Mozambique X X X
Namibia X X X X
Seychelles X X X X
South Africa X X X
Swaziland X X X X X X X
Tanzania X X X X X
Zambia X X X X X
Zimbabwe X X X X X
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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

29
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

30
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

31
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

32
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

33
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.

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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

35
Readings

• IDS Asian Drivers Team (2006). The Impact of
  Asian Drivers on the Developing World. IDS
  Bulletin, Vol. 37, No. 1 (January), pp. 3-11.
• Evans, David, Raphael Kaplinsky, and Sherman
  Robinson (2006). Deep and Shallow Integration in
  Asia Towards a Holistic Account. IDS Bulletin,
  Vol. 37, No. 1 (January), pp. 12-22.
• Evans, D. et al. (2006). Assessing Regional Trade
  Agreements with Developing Countries Shallow and
  Deep Integration, Trade, Productivity and
  Economic Performance. Report to DFID under DFID
  Project No. 04 5881, University of Sussex, April.
  
• Rodrik, Dani (1999) The New Global Economy and
  Developing Countries Making Openness Work,
  Overseas Development Council, Washington.
• World Bank. 2004. Global Economic Prospects,
  2005 Trade, Regionalism, and Development.
  Washington World Bank.