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. Trade Blocs: 1970s

5. Trade Blocs: 1980s

6. Trade Blocs: 1990s

7. Export Shares: 1990s

8. Shares of Global Trade: 1990s

9. 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

10. Intra-regional trade/GDP, 2002 Source: World Bank, Global Economic Prospects 2005, p. 43

11. 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

12. 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

13. 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

14. 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

15. 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

16. GDP for SADC Countries

17. Sectoral Value Added

18. Shares of Intra-SADC Imports

19. Shares of Intra-SADC Exports

20. 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

21. 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

22. Membership in RTAs

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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.

29. 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