Mozambique and Regional Integration in Southern Africa Sherman Robinson Institute of Development Studies University of Sussex November 2007

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

Export Shares: 1960s Europe + N America + Asia-UK Asia-US Total 75.4 14.2 8.2 2.3 100 N America + 37.5 44.5 8.3 9.7 100 Asia-UK 48.8 12.7 20.6 18.0 100 Asia-US 23.0 37.3 19.5 20.2 100

Shares of World Trade: 1960s Europe + N America + Asia-UK Asia-US Total Europe + 39.7 7.5 4.3 1.2 52.7 N America + 11.2 13.3 2.5 2.9 29.9 Asia-UK 5.0 1.3 2.1 1.9 10.3 Asia-US 1.6 2.6 1.4 1.4 7.1 Total 57.6 24.7 10.3 7.4 100

Trade Blocs: 1970s

Trade Blocs: 1980s

Trade Blocs: 1990s

Export Shares: 1990s EU+ NAFTA+ E&SE Asia Mercosur SACU+ ROW Total 73.5 9.3 10.8 1.2 0.6 4.5 100.0 19.3 49.4 24.1 2.5 0.4 4.2 17.9 25.0 51.2 0.9 0.5 4.4 27.5 20.9 16.3 22.7 11.7 41.5 11.9 26.8 2.0 8.1 9.7 32.1 21.2 35.5 2.2 8.0

Shares of Global Trade: 1990s EU+ NAFTA+ E&SE Asia Mercosur SACU+ ROW Total 33.6 4.2 4.9 0.6 0.3 2.1 45.8 3.8 9.8 4.8 0.5 0.1 0.8 19.9 6.8 13.9 1.2 27.2 0.4 0.0 0.2 1.6 1.1 1.8 5.1 44.6 22.3 25.9 100.0

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

Intra-regional trade/GDP, 2002 SR [JH’S NOTES FROM PREVIOUS PRESENTATION] East Asia. There is clearly a high level of intra-regional trade, compared to other regions. Source: World Bank, Global Economic Prospects 2005, p. 43

Regional Trade Agreements RTA: a group of countries liberalize trade among themselves, but not with the rest of the world. Stages of regional integration agreements: Preferential trade areas (PTA) Free Trade Areas (FTA) Customs Unions (CU) Common Market Monetary Union Economic Union

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

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

Regionalism: 1990s Dramatic increase in RTAs in the 1990s NAFTA, Mercosur, SADC, ASEAN, CAFTA, FTAA, EPAs Characteristics of new RTAs: Motivation to use regional integration as a means of insertion into the world economy Elements of deep integration Agreements tend to be both South-South, and North-South U.S. Special Trade Representative Zoellick has described the U.S. pursuit of regionalism as a strategy to achieve short-term economic goals, help break the logjam in multilateral negotiations. The EU has pursued regionalism aggressively as a means of encouraging investment and competition.

RTA formation Source: World Trade Organization

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

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

GDP for SADC Countries

Sectoral Value Added

Shares of Intra-SADC Imports

Shares of Intra-SADC Exports

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

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

Membership in RTAs Country SADCC SADC CBI COMESA RIFF SACU CMA IOC EAC Angola X Botswana DRC Lesotho Madagascar Malawi Mauritius Mozambique Namibia * Seychelles South Africa Swaziland Tanzania Zambia Zimbabwe 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

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

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

Trade Negotiations RTA/Customs Union Regional trade administration 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

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

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

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.

Success Indicators Process: Results 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

Readings IDS Asian Drivers Team (2006). “The Impact of Asian Drivers on the Developing World.” IDS Bulletin, Vol. 37, No. 1 (January), pp. 3-11. Evans, David, Raphael Kaplinsky, and Sherman Robinson (2006). “Deep and Shallow Integration in Asia: Towards a Holistic Account.” IDS Bulletin, Vol. 37, No. 1 (January), pp. 12-22. Evans, D. et al. (2006). Assessing Regional Trade Agreements with Developing Countries: Shallow and Deep Integration, Trade, Productivity and Economic Performance. Report to DFID under DFID Project No. 04 5881, University of Sussex, April. Rodrik, Dani (1999) The New Global Economy and Developing Countries: Making Openness Work, Overseas Development Council, Washington. World Bank. 2004. Global Economic Prospects, 2005: Trade, Regionalism, and Development. Washington: World Bank.