Challenges to the SADC free trade area

Following the Maseru trade protocol in 1996, the SADC trade protocol was implemented in 2000 with the aim of creating a free trade area in 2008.

SADC managed to achieve this important milestone for the region by launching, at its summit held recently in Sandton, Johannesburg, the SADC free trade area (SADC FTA). President Thabo Mbeki, as chairperson of SADC, on that momentous occasion said:

“… it seems unavoidable that we must reaffirm the importance of regional integration for at least two reasons. Firstly, none of us will be able to assure political and social stability, security and economic development in our countries if the region as a whole continues to grapple with underdevelopment, instability, poverty and marginalisation.

“Regional economic cooperation and integration offer us the opportunity to pool our limited resources and build an economic base to address the challenges of economic growth and development.

“Secondly, regional economic integration can create the basis for regional markets and industries to overcome the limits of small national markets, to achieve economies of scale, and enhance competitiveness as a platform to participate more effectively in the world economy.”

Trade liberalisation in SADC is important for regional economic integration. In its simplistic term, trade liberalisation should lead to sustainable economic growth in the region, but there are important preconditions for such economic growth to take shape. For example, the success of any free trade depends on the maturity of individual economies, fiscal and monetary discipline, financial sector stability and the level of employment, among other things. We cannot ascribe all of these to most of the 14 SADC countries.

The launching of the SADC FTA is an important development for the region, particularly given the inability of SADC countries to expand their imports to other developed markets, as these markets are heavily protected in their areas of competitive advantage, such as agriculture and textiles.

The World Trade Organisation (WTO) — which is dominated by the world’s most powerful countries and trading blocs, the United States, the European Union, Japan, Canada and Australia — has done little to help developing countries gain access to the protected and restricted markets of these countries. Brazil, India, China and South Africa have in the past few years become key players in the WTO negotiations.

Developing countries are still being screwed though these multinational organisations. Even institutions such as the International Monetary Fund (IMF) and the World Bank play a crucial role in advancing the interests of developed countries, particularly those of the US. These institutions do not hesitate to impose draconian conditions for loans advanced to developed countries, some of those being the scrapping of tariffs and the opening up of local markets to foreign players.

The result has always been local markets turned into a dumping ground of reject goods from developed countries; in the process, smaller producers have been unable to compete against these cheaper goods flooding the markets. Trade liberalisation in the global context poses significant risks for African countries, given their high inflation and unemployment and often dysfunctional markets.

Free trade in one way or the other does result in some job losses; in countries where markets are not working well, such job losses in one sector are not necessarily offset by job creation in another. This could be problematic for countries with an already high rate of unemployment.

These issues still pose challenges for the SADC FTA, but on a much lower and manageable scale. The greatest challenge of the SADC FTA is the level of industrialisation in member countries, which is a prerequisite for healthy trade flows between member states and sustainable regional economic growth.

The possibility of trade imbalances between South African and the rest of SADC remains. Mbeki also admitted to these challenges when he said: “Undoubtedly, the most serious constraint to growing and more balanced trade flows in the region remains undeveloped production structures and supply capacity constraints.”

The success of the SADC FTA depends on the region building productive capacity, especially within those countries whose economies have been the most devastated.

The question of bilateral agreements that are already in place between individual member countries and the EU needs to be addressed to avoid unintended consequences of regional integration being compromised by punitive conditions to which member countries may have bound themselves. A stable and prosperous economic region should in the long run be a magnet of foreign direct investment.

An interesting development has been talk of a regional central bank to be established for the countries in the common monetary area (CMA), comprising South Africa, Namibia, Swaziland and Lesotho, and possibly Botswana. The aim is to have a single currency as currencies of the CMA countries are already pegged to the rand on a one-to-one basis.

The aim is the creation of an African central bank, which was first mooted in 1963; this can be seen as a move towards the realisation of Kwame Nkrumah’s vision of a unified Africa.

In 1961, Nkrumah said: “Divided we are weak; united, Africa could become one of the greatest forces for good in the world. I believe strongly and sincerely that with the deep-rooted wisdom and dignity, the innate respect for human lives, the intense humanity that is our heritage, the African race, united under one federal government, will emerge not as just another world bloc to flaunt its wealth and strength, but as a great power whose greatness is indestructible because it is built not on fear, envy and suspicion, nor won at the expense of others, but founded on hope, trust, friendship and directed to the good of all mankind.”

Mindless civil conflicts, corruption and mismanagement, unless immediately rooted out, will continue to be the stumbling block in the realisation of Nkrumah’s vision of Africa.

Africa unite!