1 IMPLICATIONS OF OVERLAPPING MEMBERSHIP ON THE EXPECTED GAINS FROM ACCELERATED PROGRAM FOR ECONOMIC INTEGRATION (APEI)
2 ABSTRACT In September 2012, five like-minded and reform oriented countries namely Malawi, Mauritius, Mozambique, Seychelles and Zambia decided to launch the Accelerated Program for economic Integration (APEI) in order to speed up integration based on the principles of variable geometry and variable speed. They agreed to accelerate their economic integration process by enhancing trade in goods and services, harnessing foreign investment, creating greater employment opportunities and fostering higher economic growth, including the sharpening of their competitive edge. To that end, a five pillar action matrix identifying priority constraints and a set of specific actions is set for implementation over a 3-year time frame, starting in May At the same time the APEI is under implementation, these five participating countries are also under a number of regional, multilateral or bilateral trade agreements requiring their full commitment. Additionally, among the five, there are subsets of countries that are within the same trade agreements outside the APEI. It is also worth noting that some of the goals of APEI are even covered in those other trade agreements such as Southern Africa Development Community (SADC) and Common Market for Eastern and Southern Africa (COMESA) Trade Agreements. Under a bilateral trade agreement, most of the issues in APEI are also heavily targeted. What value then is APEI adding? What are the expected gains that these five countries are to reap from APEI in light of their membership to other trade agreements with similar goals? This paper attempts to answer these questions by analyzing the gains reaped from existing membership in other trade agreements and if at all a gap exists that APEI will successfully fill and be recognized as value-adding.
3 Table of Contents INTRODUCTION... 4 OBJECTIVES... 7 ANALYSIS OF GAINS FROM SADC TRADE AGREEMENT... 8 ANALYSIS OF GAINS FROM COMESA TRADE AGREEMENT HOW CAN COUNTRIES IN APEI ENHANCE THEIR GAINS FROM THE PROGRAM? CONCLUSION FURTHER IMPROVEMENTS THE AUTHOR WILL MAKE ON THE PAPER... 13
4 INTRODUCTION APEI is under the Intra-African Talent Mobility Partnership (TMP) implemented in July 2013 to facilitate the execution of Pan African Parliament's mandate to enact laws which would allow the movement of people, goods and services across borders to accelerate economic integration and trade. The TMP is a voluntary undertaking by some African countries spearheaded by Mauritius in the Eastern and Southern Africa; and Ghana in the West Africa sub-region. The partnership seeks to establish "Schengen" and or related type mechanisms from other regions on Talent mobility and skills development to accelerate economic integration, open borders, common policies or laws in Africa. The Partnership will support participating countries to address constraints on intra-african labor mobility and skills development gaps that seriously reduce Africa's attractiveness as an investment destination and related overall economic growth performance. The development objectives are to boost growth and competitiveness of companies with actions to fill needed skills development gaps; and enhance intra-african Talent or Labor mobility to address skills mismatch across borders. This will involve (a) stocktaking and country assessments of constraints, critical skills gaps, likely impact on reforms and mitigating measures; (b) elaboration of the building blocks and the design of Framework Agreement; (c) conducting series of multi-stakeholder dialogues and exchanges, and (d) preparation, signing and implementation of Framework Agreement by participating countries. The objectives of APEI are handled at National level currently using the Matrix of Agreed Priority Areas for Reforms. Table 1 below summarizes the five main building blocks, priority constraints to address and objectives of APEI at national level which will later be escalated to regional level. Table 1: Matrix of Agreed Priority Areas for Reforms Building Blocks Building Block 1. Improvement of business regulatory environment Priority Constraints to Address Challenges related to register business Challenges related to license business Access to finance is limited and expensive Objectives Further ease business registration Streamline licensing system Lower costs and increase access to finance for firms, including SMEs, through improved coverage of credit information / reference system
5 Building block 2: Elimination of barriers to trade in goods Building Block 3.Promoting trade in services Procedures for paying taxes and non-tax charges are opaque, cumbersome and incoherent Difficulty to register property NTM/NTBs hinder imports and exports in the region Transport and transit costs are too high and unpredictable Differences in standards, equipment and accreditation of laboratories, and institutional constraints, including application/ enforcement hampers regional trade Difficulty to obtain business visas, business/work permits Problems in acquisition of immovable property Countries do not automatically accept official documentations related to opening a business from other countries Increase transparency and simplify procedures Reduce the number of days, costs and procedures for registering property Identify, review and streamline/ eliminate NTM/NTBs to minimize impact on trade while ensuring policy objectives are achieved Harmonize transport standards and ensure effective functioning of transit arrangements Ensure that standards do not negatively impact trade Facilitate getting business visas, and ease procedures for getting business/work permits for different categories of services providers. Increase transparency and ease conditions related to the acquisition of immovable property Ease administrative requirements for doing business by recognizing the official docs from other countries
6 High Communication costs and limited connectivity Limited business to business (B2B) interaction Reduce costs and improve connectivity through reforms and market opening in the following priority sectors: - Transport - Telecommunication - Financial services - Tourism - Education services - Professional services Facilitate B2B linkages Building block 4. Improvement in trade facilitation Buildings block 5. Capacity building and peer to peer learning Cross-border traffic incurs significant delays at borders due to lack of coordination among agencies and lack of transparency High physical inspection rates at borders and ports increase delays and costs to operators Enquiry points on regulations and procedures are not functioning well in capitals and at border crossings Reduce border crossing times and facilitate movement of goods by improving collaboration among border agencies and increase transparency of regulations and procedures Introduce risk management systems to reduce the share of consignments that are physically inspected, including with scanners, while ensuring legitimate policy objectives are achieved. Improve the functioning of enquiry points to permit information on policies and regulations to flow to economic operators, and information/queries/complaints from operators to flow towards political decision makers Structure and strengthen public private dialogue process and build capacity within both public and private sector and make it more results oriented
7 While the TMP is designed to involve all interested African countries, the start-up implementation support would be provided in the context of APEI and other sub-regional initiatives such as (a) sub-regional hub initiatives in Eastern and Southern Africa (covering Rwanda, Kenya, Tanzania and South Africa); and (b) sub regional initiative spearheaded by Ghana in West Africa (initially targeting countries within the Abidjan-Lagos trade development corridor, and other interested countries in the sub region). Much as the members in APEI are expected to gain from the program, they are also engaged in other regional bodies which they joined in expectation of much more gains in trade. The two big regional bodies considered in this paper are SADC and COMESA as shown in Figure 1. Will APEI bring any unique contribution to the participating countries? Figure 1: Overlapping membership of SADC and COMESA member states COMESA Other countries not in APEI Malawi Zambia Mauritius Seychelles Mozambique SADC OBJECTIVES The main objective of the paper is to examine the expected gain from APEI amidst the existing trade agreements among the five countries in the program. Alongside this main objective, specific objectives will be examined and these are: Investigate the extent to which some of the five participating countries have benefited from SADC trade agreement and how this affects the expected gains from APEI Examine the magnitude of benefits obtained from COMESA trade agreement by the participating countries and implications for expected gains from APEI
8 ANALYSIS OF GAINS FROM SADC TRADE AGREEMENT The establishment of SADC 17 August 1992 in Windhoek, Namibia came along with it the shift in focus from coordination of developmental projects to a more complex task of integrating economies of member states. Currently SADC is comprised of 15 member states. The member states include the following:- Botswana, Tanzania, Zambia, Angola, Mozambique, Malawi, Swaziland, Lesotho, Zimbabwe, Mauritius, South Africa, Madagascar, Seychelles, Democratic Republic of Congo and Namibia. It can be noted that all the member states of APEI fall under SADC. It the interest of this paper to find out how their membership to SADC has benefitted them and the value that APEI may add. First, we explore the contribution of SADC to world trade and intra-regional trade. From Table 2, it can be noted that SADC contributes 16.4% in the recent period 2007 to 2011 which is a decline from the previous period 2001 to 2006 by about 0.3%. The decline was sharper compared to the period 1996 to 2000 which registered 34.2% of total trade. The share of SADC in total African trade has been on the decline for the whole period 1996 to Overlapping membership of regional economic communities could partly account for this trend. However, SADC is the highest contributor to trade in the continent compared to other regional bodies for all the periods. As of 2007 to 2011, the share of SADC was 78.4%. Table 2: Share of Africa in total trade Share of REC in African trade SHARE OF AFRICA IN TOTAL TRADE SHARE OF REC IN AFRICAN TRADE RECS CEN-SAD COMESA EAC ECCAS ECOWAS IGAD SADC AMU Source: UNCTAD, 2013
9 Migrating from the broader picture, we now focus on the five participating members of APEI. As already stated, all these countries belong to SADC and we look at the trade patterns among the five countries. Which among the five are frequent trade partners? Table 3 provides the main exporting countries for each of the APEI members. Table 3: Intra-African exports, five main destinations by country, 2011 Country Five main export destinations in order of importance Share in total exports Malawi Zimbabwe, South Africa, Egypt, Kenya, Zambia 78.1 Mauritius South Africa, Madagascar, Seychelles, Kenya, Rwanda 91.8 Mozambique South Africa, Zimbabwe, Malawi, Mauritius, Botswana 95.7 Seychelles Madagascar, Uganda, Mauritius, Zimbabwe, Zambia 95.4 Zambia South Africa, Dem.Rep. of the Congo, Egypt, Zimbabwe, Malawi 87.6 Source: UNCTAD, 2013 Of interest in the table is the number of countries in SADC already trading and it is evident that most of the exporting countries are in SADC. However, only few are in APEI. For instance, each of the countries Malawi, Mauritius, Zambia has only one APEI member among the main export destinations. While among main export destinations for Seychelles and Mozambique are two APEI countries. Turning to the main import destinations, the SADC region also accounts for most of the imports by each of the countries in APEI. It is also interesting to note that two members of APEI are among the main import destinations for countries Malawi and Mauritius. However, the other three APEI participating countries do not import mainly from other APEI members.
10 Table 4: Intra-African imports, five main destinations by country, 2011 Country Five main import destinations in order of importance Share in total imports 90.3 Malawi South Africa, Zambia, United Rep. of Tanzania, Kenya, Mozambique Mauritius South Africa, Kenya, Egypt, Zambia, Mozambique 84.9 Mozambique South Africa, United Rep. of Tanzania, Swaziland, 97.4 Namibia, Tunisia Seychelles South Africa, Mauritius, Kenya, Swaziland, 98.9 Madagascar Zambia South Africa, Dem. Rep. of the Congo, Kenya, 97.3 Zimbabwe, United Rep. of Tanzania Source: UNCTAD, 2013 The impact of SADC membership on the expected gains from APEI Despite SADC contributing mainly to the large volume of trade in Africa, it can be noted that there are gaps in the intraregional trade among most neighboring countries in SADC especially those in APEI. From Table 3, which shows main export destinations, it can be noted that very little trade in terms of exports to APEI countries is currently taking place. Thus, once APEI achieves its main aim of boosting trade between the five participating countries, there should be substantial shakeup in the export destinations. APEI countries, having enhanced trade within them, will end up trading large volumes thereby replacing some of the major exporting destinations given in Table 3. In Table 5, expected gains in the main export destinations are shown. From the export perspective, Malawi, Mauritius and Zambia stand to gain more from APEI than the other two member states who are already exporting to the more APEI participating countries. Table 5: Expected gains in the main export countries APEI COUNTRIES Malawi Zambia Mozambique Seychelles Mauritius MALAWI MAURITIUS MOZAMBIQUE SEYCHELLES ZAMBIA
11 From the import perspective, Table 6 summarizes the likely gains from APEI based on the information presented in Table 4. Table 6: Expected gains in the main import countries APEI COUNTRIES Malawi Zambia Mozambique Seychelles Mauritius MALAWI MAURITIUS MOZAMBIQUE SEYCHELLES ZAMBIA ANALYSIS OF GAINS FROM COMESA TRADE AGREEMENT COMESA originated as a preferential trade area (PTA) for East and Southern Africa in It has 19 members, of which seven (DRC, Madagascar, Malawi, Mauritius, Seychelles, Swaziland, Zambia, and Zimbabwe) are also members of SADC. The remaining members are: Burundi, Comoros, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Rwanda, Sudan and Uganda. Thus, except for Mozambique, the rest of the countries in APEI are also COMESA member states. Thus, from the COMESA perspective, the APEI member states will benefit from the inclusion of Mozambique in the group of countries to trade with. HOW CAN COUNTRIES IN APEI ENHANCE THEIR GAINS FROM THE PROGRAM? First, APEI Countries should include Tanzania in the agreement. If not, they should at least make efforts to hold talks with Tanzania and gain easy transit access through it. Figure 2 shows a map of APEI countries and how inclusion of Tanzania would enhance trade. The red circle shows the APEI countries and with Tanzania in the circle, trade between Zambia and Seychelles would be greatly facilitated.
12 Figure 2: Map of APEI countries and possibility of including Tanzania Secondly, the members in APEI would reap more gains through the harmonization and converging of COMESA and SADC that they eventually merge into one organization as opposed to remaining separate organizations between which member states with overlapping membership are compelled to choose. This suggestion is conformity with the ultimate objective by the African Union (AU) to achieve the African Economic Community (AEC) using regional economic communities as the building blocks. Thirdly, if APEI could establish a secretariat where all concerns would be addressed rather than rotating the position of chairperson at annual meetings. Also, the current arrangement where countries meet independently at national APEI forums would not yield much gain and would foster self-interest in reaping from APEI. A secretariat would show more commitment by APEI participating countries to jointly achieve their sub-regional goals.
13 CONCLUSION The paper has discussed how membership of APEI countries in SADC and COMESA would impact gains from the program. Further, it has suggested how APEI countries can benefit more from their participation. In line with the main aims of the TMP, the Accelerated Program for Economic Integration is very promising in as far as easy labour mobility, trade in services and investment and private sector growth are concerned. The participating countries need to carry out an analysis of the expected benefits from the program in light of other regional bodies they participate in as well as how they can increase their gains through the program. FURTHER IMPROVEMENTS THE AUTHOR WILL MAKE ON THE PAPER The author learnt just last week (August 19 th, 2013) about the Conference and had to quickly come up with something to submit. However, further improvements can be made to the paper and the author, given time and a go ahead, can do the following to the paper: o Expand the discussion on the impact of SADC and COMESA on gains from APEI. o Include other regional bodies that some of the five countries belong to such as IOC (Mauritius and Seychelles), Bilateral Trade agreements (Malawi and Mozambique). o Include a panel regression analysis of the five APEI countries and regress GDP growth on exports to APEI and other explanatory variables using available data and from the analysis, explain the impact of an increase in exports to APEI countries on each country s GDP Growth.