Mozambique and Regional Integration in Southern Africa

Sherman Robinson

Institute of Development StudiesUniversity of Sussex

November 2007

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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

Trade Blocs: 1960s

3

Trade Blocs: 1970s

6

Trade Blocs: 1980s

7

Trade Blocs: 1990s

8

Export Shares: 1990s

9

EU+ NAFTA+ E&SE 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

E&SE 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

Shares of Global Trade: 1990s

10

EU+ NAFTA+ E&SE 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

E&SE 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

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Intra-regional trade/GDP, 2002

0

5

10

15

20

25

30

Per c

ent

East Asia Pacific

Latin America andCarribeanSouth Asia

Sub-Saharan Africa

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

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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

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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

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 spokes18

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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

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

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SADC: Real GDP

Angola

Botswana

Democratic Republic of Congo

Lesotho

Madagascar

Malawi

Mauritius

Mozambique

Namibia

Seychelles

South Africa

Swaziland

Tanzania

Zambia

Zimbabwe

Angola

Botswana

Democratic Republic of Congo

Lesotho

Madagascar

Malawi

Mauritius

Mozambique

Namibia

Seychelles

South Africa

Swaziland

Tanzania

Zambia

Zimbabwe

GDP for SADC Countries

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0

10

20

30

40

50

60

70

80

Angola

Botsw

ana

Dem

ocratic Republic of C

ongo

Lesotho

Madagascar

Malaw

i

Mauritius

Mozam

bique

Nam

ibia

Seychelles

South Africa

Swaziland

Tanzania

Zambia

Zimbabw

e

Sectoral Value Added

AgricultureIndustryServices

Sectoral Value Added

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Average Contributions to Intra SADC Imports (%)

Botswana

Lethoto

MalawiMauritius

Namibia

Sawizland

South Africa

Tanzania

Mozambique

Botswana

LethotoMalawi

Mauritius

Namibia

Sawizland

South Africa

Tanzania

Mozambique

Shares of Intra-SADC Imports

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Shares of Intra-SADC ExportsAverage Contributions to Intra SADC Exports (%)

BotswanaLethoto

MalawiMauritius

Namibia

Sawizland

South Africa

Tanzania

Mozambique

BotswanaLethotoMalawiMauritiusNamibiaSawizlandSouth AfricaTanzaniaMozambique

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

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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 RTAsCountry 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

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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

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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

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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 stakeholders31

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

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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

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