The Grand Tripartite FTA: Is Namibia Ready to Engage? Paul Kalenga Senior Trade Adviser, SADC Secretariat 20th April 2011, Windhoek, Namibia

Introduction Policy consensus that trade matters for growth and development There is increasing policy consensus that regional trade openness (in the form of widening the economic spaces of fragmented small economies) matters for economic growth Hence, the merging of national markets (through the establishment of FTAs ) as a growth and development strategy ( a rationale behind regional integration arrangements) This partly explain why most countries in Eastern and Southern Africa have sought to belong to a number of trade regimes (see the famous spaghetti bowl-effect) However, this has increasingly become a problem for implementation and for deepening regional integration (such as moving from FTAs to customs unions)

Problem of overlapping memberships

But intra-regional trade in Africa not yet a powerful engine for growth – why? Production and export structures geared to primary commodities Inadequate industrial capacity for diversified manufactured goods Inadequate policy attention on trade in services as a catalyst for growth and investment Inadequate infrastructure (transport & communications network, energy, IT, finance, skills, etc) Persistent trade barriers (tariffs and non-tariff – design and implementation deficiencies of trade regimes) etc., etc., etc., Caveat: intra-regional trade (SADC) is low in proportional terms – but it is still important for most SADC countries

What is then the rationale for another wider FTA? Addressing constraints posed by small fragmented domestic markets through export-growth strategies (this is not automatic but largely depends what a country does at the domestic level?) Consolidating and improving existing trade regimes (SADC FTA, COMESA FTA, EAC FTA) Addressing the high cost of trading / doing business (national actions and regional cooperation – infrastructure, trade & investment facilitation, NTBs, rules of origin, trade in services liberalisation, etc.) Trade potential exists : intra-regional trade in manufactures (regional market integration could be a stepping stone to export manufactures)and there is a potential to raise it: available statistics ( 2007/8) – South Africa accounted for 10% of Botswana’s merchandise exports, 18% of Lesotho’s; 30% of Namibia’s and 75% of Swaziland’s.) Zimbabwe, Mozambique, Zambia and Malawi each export between 10% and 34% of their total exports to South Africa (IMF Direction of Statistics) Intra-regional trade in agriculture – why so low?

The Tripartite framework – a brief background SADC and COMESA interactions on the need to harmonize their programmes (especially in trade and customs since 2001) In 2005, EAC became a Customs Union and joined what became known as the Tripartite Framework led by the Tripartite Task Force First Tripartite Summit, Kampala, October 2008 decided to establish the Tripartite FTA Technical work by the Secretariats on the design of the Tripartite FTA, since 2009 and now completed and to be used as a basis for negotiations Second Tripartite Summit, scheduled for June / July 2011, South Africa, to launch the Tripartite FTA negotiations

What can the grand tripartite FTA do? Overcoming the problem of overlapping membership Consolidating existing FTAs in COMESA, SADC and EAC into a single FTA by building on positive elements (acquis) and addressing their design and implementation shortcomings Pursue sector-wide negotiations: avoid sensitive products and exclusions, include agricultural goods Adopt simple and liberal rules of origin Address non-tariff barriers (NTBs) and trade facilitation problems A complementary strand on infrastructure, especially transport infrastructure (roads, rail, ports) and communication lin

What are the potential economic effects Trade creation? - specialization – has been a major source of trade growth in other regions such ASEAN - comparative advantage (manufactured clothing exports to RSA from Mauritius and Madagascar) Increased efficiency and productivity? Regional competition Regional economies of scale Foreign investment Trade diversion? (may be at the cost of trade with more efficient third countries) - External tariffs are reasonably high – must lower them to avoid trade diversion The cost of intra-regional transport, communication, doing business

Is Namibia ready to engage? Namibia’s sustained economic growth cannot depend on its small domestic market – there is no policy choice but to be export-oriented For Namibia the FTA presents an opportunity( a market of 26 countries, with a combined GDP $264 billion and over 600 million people – more so if Angola and DRC can participate) Namibia should have an offensive rather than a defensive strategy that goes beyond tariff liberalisation to addressing issues related to the high cost of doing business - trade infrastructure for trade facilitation, border measures Namibia should strategically position itself as a transport hub within the Tripartite FTA (Walvisbay corridor, transport connection with Angola, DRC, Zambia, Zimbabwe, etc.)

Is Namibia ready to engage? (cont.) Developing a coherent national strategy on services sectors – outward looking rather than protectionist – services, growth and competitiveness of economies – a high potential for regional trade Improving policy strategies to tackle constraints to manufacturing An active engagement with the private sector (public-private partnership) for trade development and promotion – market analysis of opportunities and threats in the tripartite markets (both goods and services) Governments do not trade – the FTA is for traders, investors, consumers Build on success stories- exploit opportunities for which firms have a comparative advantage in regional markets / seek improved market access in goods and services markets

Conclusions Trade policy choice for Namibia: Domestic strategy for economic diversification (goods and services) to take advantage of the opportunities arising from the consolidation of the SADC FTA and the Tripartite FTA Public/ private partnership to exploit opportunities (areas for which Namibia has a comparative advantage in neighboring markets (e.g. trade development and promotion activities, market research, etc.) Positioning Namibia as a services hub, especially transport infrastructure / potential for making Walvisbay corridor a transport hub – leading to the cost of trading in the region The need for a tripartite FTA regime to be a trade, transport and infrastructure facilitation rather a mere tariff liberalization strategy THANK YOU!