PESA
Trade and Regional Integration in SADC

Trade and Regional Integration in SADC

The 39th Summit of the Southern Africa Development Community (SADC) was held in Dar es Salaam during August 2019. The theme for the 39th Summit was, “A Conducive Environment of Inclusive and Sustainable Industrial Development, Increased Intra-Regional Trade and Job Creation”, and the central focus was how SADC would take its regional industrialisation agenda forward[1]. This was an apt theme given that the region has seen rising levels of unemployment, declining food production due recent droughts, and slow growth in intra-SADC trade due to poor implementation of the SADC Industrialisation Strategy[2]. Amongst the commitments made by SADC member states at the 39th Summit, the addition of kiSwahili as a fourth official language alongside English, French and Portuguese is a critical enabler to deepen regional integration in SADC and expanding regional integration neighbouring regional economic communities such as the East African Community[3].

At a continental level, African countries reached the required number of ratifications for the Africa Continental Free Trade Agreement (AfCFTA) to enter into force in May 2019[4]. The AfCFTA is objectives can be summed up as taking African regional integration to the next level. The AfCFTA aims to create a single market for goods and services, enable free movement of people and investment, prepare for the establishment of the African Customs Union, harmonise administration of trade and investment incentive regimes, resolve the challenge of multiple memberships in different regional economic communities, and expedite continental regional integration[5]. The objectives of the AfCFTA might seem quite ambitious but it is necessary in order to enable sustainable growth and development given the low positioning of SADC countries in global value chains which can only be resolved through industrialisation. SADC countries are under addition pressure to increase intra-regional trade and develop regional value-chains given the current geopolitical challenges such as the trade war between the United States and China, or Brexit and threats to the European Union (EU), which affect the traditional and emerging markets for SADC exports.

Regional integration is increasingly becoming a necessary factor in any country’s economic development. At an ideological level, the discourse of African and SADC regional integration is progressing towards economic integration which a welcomed change. The foundation of African and SADC integration has largely been driven by political cooperation for mutual benefit unlike economic cooperation which has been the foundation of integration in other regions like the EU and the Association of Southeast Asian Nations (ASEAN)[6]. The central difference in these approaches is that in SADC and Africa more broadly, the approach to regional integration has been based on political agreements at the African Union (AU) which were intended to translate to various stages of integration with set deadlines for specific milestones such as the transition from economic cooperation, to fiscal cooperation, and finally political cooperation[7]. Hence, the development of institutions has been directed by roadmaps and deadlines rather than economic expedience, which has been the fundamental basis of regional integration in the EU and ASEAN. Therefore, the SADC emphasis on regional industrialisation illustrates the progression in terms of how the regional integration agenda needs to be pursued from an economic basis which is clearly laid out in the SADC Industrialisation Strategy and Roadmap, 2015-2063[8].

However, progress has been slow with intraregional trade slowly declining since 2015. SADC intraregional trade has increased in nominal terms despite reducing in terms of total merchandise trade. SADC intraregional exports increased from USD 37.0 billion (approx. 19.8% of total merchandise exports) in 2018 from an annual average of USD 32.8 billion (approx. 20.8% of total merchandise exports) for 2015 to 2017[9]. Similarly, intraregional imports to USD 35.5 billion (approx. 20.3% of total merchandise imports) in 2018 from an annual average of USD 33.0 billion (approx. 20.7% of total merchandise imports) for 2015 to 2017[10]. Intuitively, these figures should not differ given that the same goods exported amongst SADC countries are the same goods imported amongst SADC countries. In practice these figures differ for a number of reasons such as: different times of recording, different treatment of transit trade, underreporting, measurement errors and mis-pricing or mis-invoicing[11]. In comparison to other African regional economic communities, the SADC region seems to be performing relatively well even though it remains far below the comparative levels in the EU and slightly less than the ASEAN regional economic communities.

Table 1: Intra-regional Exports by Region (2015-2018)

Source: UNCTAD 2019a. UNCTADStat Database, ibid. Note: (*) Figures for Economic and Monetary Community of Central Africa (CEMAC) are in USD millions.

At a continental level, African intraregional exports increased to USD 77.3 billion in 2018 which is equivalent to 15.9% of total merchandise exports, from an annual average of USD 66.4 billion (17.2% of total merchandise exports)[12]. African intraregional imports increased to USD 73.6 billion in 2018 which is equivalent to 13.3% of total merchandise imports, from an annual average of USD 65.7 billion (13.0% of total merchandise imports)[13]. In comparison, EU intraregional exports increased to USD 4.1 trillion in 2018 which is equivalent to 63.6% of total merchandise exports, from an annual average of USD 3.5 trillion (63.0% of total merchandise exports); whilst EU intraregional imports increased to USD 3.7 trillion (approx. 58.8% of total merchandise imports) in 2018 from an annual average of USD 3.2 trillion (59.1% of total merchandise imports)[14]. ASEAN intraregional exports increased to USD 341.0 billion in 2018 which is equivalent to 23.6% of total merchandise exports, from an annual average of USD 285.3 billion (23.6% of total merchandise exports); meanwhile ASEAN intraregional imports increased to USD 316.7 billion (approx. 22.2% of total merchandise imports) in 2018 from an annual average of USD 259.2 billion (22.5% of total merchandise imports)[15]. Therefore, SADC and African countries have significant room to increase intraregional trade hence the strong commitments of the AfCFTA.

Table 2: Intra-regional Imports by Region (2015-2018)

Source: UNCTAD 2019a. UNCTADStat Database, ibid. Note: (*) Figures for CEMAC are in USD millions.

In comparison to other African regional economic communities, SADC performance in terms intraregional trade is relatively high. Other SADC regions such as the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Economic Community of West African States (ECOWAS) have much lower levels of intraregional trade in both nominal and relative terms. In 2018 intraregional exports in COMESA (USD 12.4 billion; 10.5%), EAC (USD 2.9 billion; 20.4%) and ECOWAS (USD 9.1 billion; 8.2%) were all below USD 15.0 billion or 15.0% of total merchandise exports[16]. Similarly, intraregional imports in COMESA (USD 11.5 billion; 5.9%), EAC (USD 2.8 billion; 7.9%) and ECOWAS (USD 8.7 billion; 8.7%) were all below USD 15.0 billion or 10.0% of total merchandise imports[17]. The only competitor in terms of regional integration levels to SADC is the EAC which also seems to have the most harmonised trade administration given that has the least difference between its intraregional exports and imports figures. The difference between the relative measures is pure a function of differences in the regional import and export basket. Nevertheless, SADC still has room to increase intraregional trade and taking the next step in terms of the transition from a free trade area to a common monetary without achieving regional industrialisation may not result in higher intraregional trade.

Intraregional trade levels in the three more advanced regional economic communities are much lower than the SADC intraregional trade levels. The intraregional trade levels in CEMAC and the West African Economic and Monetary Union (WAEMU) illustrate the limits of extending intraregional trade through a common currency. In 2018 intraregional exports in CEMAC increased to USD 818.3 million or 2.8% of total merchandise exports (2015-’17: USD 789.0 million; 3.7%) and in the WAEMU intraregional exports increased to USD 3.4 billion or 12.0% of total merchandise exports (2015-’17: USD 3.2 billion; 13.3%)[18]. Meanwhile intraregional imports in CEMAC increased to USD 828.5 million or 4.8% of total merchandise exports (2015-’17: USD 1.1 billion; 6.0%) and in the WAEMU intraregional imports increased to USD 3.7 billion or 9.9% of total merchandise imports (2015-’17: USD 2.9 billion; 9.7%)[19]. Similarly, the challenges of deepening regional integration in the Southern African Customs Union (SACU) also illustrates the limits of increasing intraregional trade by simply removing intraregional tariffs without dealing with non-tariff barriers to trade and structural inequalities amongst member states. In 2018 intraregional exports in SACU remained at the medium-term average of USD 14.1 billion or 13.0% of total merchandise exports (2015-’17: USD 14.1 billion; 15.0%); and intraregional imports increased slightly to USD 15.2 billion or 13.7% of total merchandise imports (2015-’17: USD 15.1 billion; 15.4%)[20]. Therefore, simply deepening regional integration through a monetary or customs union does not guarantee greater intraregional trade in spite of the many benefits of decreasing transaction costs through a common currency or reducing tariffs.

Thus, SADC countries have significant room to increase intraregional trade because it’s been declining in relative terms in spite of the increase in nominal terms. The more important metric for evaluating intraregional trade is the relative measure a share of total merchandise imports or exports. Nevertheless, SADC is still performing amongst the top African regional economic communities with its only competitor being the EAC which has similar levels of intraregional imports. In addition, simply setting goals for regional integration such as milestones in the transition process and the establishment of institutions has its limits. In fact, all the “more advanced” regional economic communities that have achieved monetary and economic integration are still performing poorly in terms of regional integration. Therefore, the shift towards a dual focus emphasising the importance of greater intraregional trade and regional industrialisation is a welcome change that should set the SADC region apart in the process of African regional integration. Dealing with non-tariff barriers to trade and structural inequalities through regional industrialisation and the establishment of regional and continental value-chains is the only sustainable way to support SADC and African regional integration.

By Ken Kalala Ndalamba and Ross Oliver Douglas


[1] SADC 2019a. Communique of the 39th SADC Summit of Heads of State and Government Julius Nyerere International Convention Centre Dar Es Salaam, United Republic of Tanzania, Southern African Development Community: Gaborone. Available At: https://www.sadc.int/ [Last Accessed: 31 October 2019].
[2] SADC 2019a. Communique of the 39th SADC Summit of Heads of State and Government Julius Nyerere International Convention Centre Dar Es Salaam, United Republic of Tanzania, ibid.
[3] SADC 2019a. Communique of the 39th SADC Summit of Heads of State and Government Julius Nyerere International Convention Centre Dar Es Salaam, United Republic of Tanzania, ibid.
[4] AU 2019a. List of Countries Which Have Signed, Ratified/Acceded to the Agreement Establishing the African Continental Free Trade Area, African Union: Addis Ababa. Available At: https://au.int/ [Last Accessed: 31 October 2019].
[5] AU 2019b. CFTA – Continental Free Trade Area, on the African Union Website, viewed on 31 October 2019, from https://au.int/.
[6] ECB 1998. The Stability-Oriented Monetary Policy Strategy of the European System of Central Banks and the International Role of the Euro, on the European Central Bank Website, viewed on 31 October 2019, from https://www.ecb.europa.eu/.
[7] UNCTAD 2016. African Continental Free Trade Area: Policy and Negotiation Options for Trade in Goods, United Nations Conference on Trade and Development: Geneva. Available At: https://unctadstat.unctad.org/ [Last Accessed: 31 October 2019].
[8] SADC 2014. SADC Industrialisation Strategy Roadmap: 2015-2063, South African Development Community: Gaborone. Available At: https://www.sadc.int/ [Last Accessed: 20 October 2019].
[9] UNCTAD 2019a. UNCTADStat Database, United Nations Conference on Trade and Development: Geneva. Available At: https://unctadstat.unctad.org/ [Last Accessed: 31 October 2019].
[10] UNCTAD 2019a. UNCTADStat Database, ibid.
[11] UNCTAD 2019a. UNCTADStat Database, ibid. For the individual the performance of SADC and other African countries in terms of regional integration, see https://politicaleconomy.org.za/.
[12] UNCTAD 2019a. UNCTADStat Database, ibid.
[13] UNCTAD 2019a. UNCTADStat Database, ibid.
[14] UNCTAD 2019a. UNCTADStat Database, ibid.
[15] UNCTAD 2019a. UNCTADStat Database, ibid.
[16] UNCTAD 2019a. UNCTADStat Database, ibid.
[17] UNCTAD 2019a. UNCTADStat Database, ibid.
[18] UNCTAD 2019a. UNCTADStat Database, ibid.
[19] UNCTAD 2019a. UNCTADStat Database, ibid.
[20] UNCTAD 2019a. UNCTADStat Database, ibid.

Ken Kalala Ndalamba

Ken is a Senior Analyst at PESA.

Serge Basingene Hadisi

Serge is a Senior Analyst at PESA.

Tšepiso Augustinus Rantšo

Ross Oliver Douglas

Charl Swart

Charl is the Editor-in-Chief at PESA.

Thabo Thandokuhle Sacolo

Ken Kalala Ndalamba

Serge Basingene Hadisi

Tšepiso Augustinus Rantšo

Ross Oliver Douglas

Charl Swart

Thabo Thandokuhle Sacolo

Advertisement

Advertisement

Advertisement

Popular Regional Integration

Advertisement

Popular Policy Dialogues

Advertisement

Follow PESA Online

Advertisement

Follow PESA Online

Follow us on some of your favourite social media.

Contact Us

Please complete the General Enquiry form and submit it to us for a response. Please use the subject “Media” for all media-related requests.

 

    By continuing to use the site, you agree to the use of cookies. Click here for more information.

    The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.

    Close