Financial Gazette (Harare)
Hama Saburi
22 August 2008
Harare — ZIMBABWE, whose economy has been reduced to a basket case owing to years of mismanagement, is among the 12 southern African states that committed themselves to setting up a free trade area (FTA) at the weekend, but concern mounted this week that the country may not get a fair deal from integrating its sickly economy with the rest of the region.
Analysts said while the Southern African Dev-elopment Community (SADC) FTA launched in South Africa on Sunday was a noble initiative for countries seeking to expand their share of the market, the nine-year-long recession has severely weakened Zimbabwe's economy to an extent where local industries might buckle in the face of the resultant cutthroat competition.
Zimbabwe is among the 12 southern African states comprising the FTA whose roots can be traced back to 1996 when the SADC Trade Protocol was signed.
Analysts expect the SADC FTA to bolster regional exchange of goods and economic integration for a market of about 247 million people and a vast economy worth more than US$430 billion.
The FTA will also do away with the rigid customs rules and facilitate the smooth movement of goods across the borders.
The SADC FTA bloc also includes Angola, Botswana, Zambia, Malawi, Lesotho, Madagascar, Mauritius, Mozambique, Namibia, Seychelles, Swaziland, Tanzania, the Democratic Republic of Congo (DRC) and South Africa - the continent's economic powerhouse.
Angola, Seychelles and the DRC have yet to sign the agreement.
A FTA is created when a group of countries eliminate tariffs and non-tariff barriers on substantially all trade among them.
It had been envisaged that producers and consumers would pay no import tariffs on an estimated 85 percent of all trade on goods in the initial 12 countries by the end of this month.
It remains to be seen whether the 12 countries will meet the August 31 deadline.
Economic analysts said Zimbabwe remained the weak link in efforts to boost regional trade due to a festering socio-economic crisis threatening to destabilise the entire southern region.
The manufacturing industry, which together with the agricultural industry form the backbone of the Zimbabwean economy, shrunk by about 28 percent last year, according to results of a survey conducted by the Confederation of Zimbabwe Industries.
Nine years of a rapid recession have reduced a once robust Zimbabwean economy into a basket case ravaged by the highest inflation in the world conservatively put at 11,2 million percent.
The eight-digit inflation figures and the associated cost increases emerge against the backdrop of a massive reduction in disposable incomes, combining to destroy the real sector with thriving informal traders taking its place.
Recent figures released by the central bank also give some insights into the impact of the crisis on exports.
In the six months to June this year total export shipments of goods declined by 14 percent from US$882,7 million in the comparative period last year to US$758,97 million.
Industry has had to contend with serious shortages of foreign currency and electricity not to mention the Soviet Union-style price controls that have forced manufacturers to scale down on production or close their factories altogether.
This has created a boon for imports. Foreign products have flooded the domestic market, raising fears that the country could be turned into a dumping ground for cheap imports.
An economist with a local commercial bank warned this week that the country might hasten its economic collapse by joining the FTA headlong.
"I think the timing for Zimbabwe's participation in the FTA is wrong given the quantum of problems facing the country. We might have a situation where other countries benefit at our expense. We may be used as a dumping ground," said the economist.
He said Zimbabwean companies no longer enjoy the critical mass to produce at competitive prices, adding that the small to medium size enterprises were also in danger of losing ground to companies from vibrant economies in the FTA.
"The only way out for us (Zimbabwe) is to put our house in order, politically and economically, so that we can compete at the same level with other SADC states," added the bank economist.
South African President Thabo Mbeki, who is the new SADC chairperson, said the FTA was a collective milestone in the region's ongoing integration programme.
Said Mbeki: "Today we can say with pride that our collective efforts have borne fruits, and that we have successfully met the objective we set ourselves.
"Indeed it required hard work, dedication, resolve and an unswerving commitment to mobilise our limited resources so as to meet our objective."
But even as Mbeki was upbeat about the SADC FTA, his former economic adviser had a different take, warning Zimbabwe posed a serious challenge to regional integration.
The SADC FTA programme includes establishing a Customs Union by 2010, a Common Market by 2015, a monetary Union by 2016 and a single currency by 2018.
The liberalisation of tariffs has taken place at different rates with South Africa, Botswana and Namibia reducing tariffs at a faster rate.
Wiseman Nkuhlu, a former economic adviser to Mbeki said the idea of a common currency for the region by 2018, should be put on hold.
"We cannot move ahead with the question of having a single monetary system where we have our currency aligned," he said.
Nkulu said having a single currency requires the inflation levels and government deficit levels to be aligned, a requirement that might be beyond Zimbabwe.
David Govere, senior vice-president for the Employers Confede-ration of Zimbabwe believes the country had warmed up to the FTA by virtue of its membership to the Common Market for Eastern and Southern Africa and other bilateral arrangements it has with Mozambique, Zambia and Botswana among other states.
"The only challenge is that our companies have to gear themselves up to produce quality products at reasonable unit costs," said Govere.
Bulawayo based chartered accountant Eric Bloch said the benefits of the SADC FTA far exceed the disadvantages.
He said the inter-party dialogue between the Movement for Democratic Change and ZANU-PF should produce an outcome paving the way for the eagerly awaited economic turnaround ahead of the Common Market in 2015.
"Our biggest challenge is that we have to repair our relationship with the international community, because we cannot go it alone.
"We must stop insulting the world and create a genuine democracy and respect property rights," said Bloch.
The implementation of the FTA has been a long deliberate process that formally started in 1996 with the signing of the Protocol on Trade, which then entered into force in January 2000.
It was implemented from September the same year following arduous negotiations on the tariff reduction schedules and rules of origin governing that Protocol.
Since then, the liberalisation of tariffs has taken place at different rates.
In general, the developed countries have reduced tariffs at a faster rate with middle-income countries such as Mau-ritius gradually reducing their tariffs each year between 2000 and 2008.
For least developed countries such as Mozambique and Zambia, tariff reductions have generally been introduced during 2007-2008.
SADC executive secretary Tomaz Salomao said the FTA "required a lot of compromise to be made on a number of sensitive issues," including requiring member states to relinquish some of their sovereignty.
"We need to recognise that regional economic integration is not only about the removal of tariff barriers," South African Trade Minister Mandisi Mpahlwa said in Pretoria last week.
"We need to embark on to build both our productive and trade capacity. We need to focus on expanding our agriculture and industrial base to promote intra-regional trade."
SADC's intention to create a customs union by 2010 has been complicated by its member states signing separate trade deals with the European Union, known as economic partnership agreements, or EPAs having different tariff liberalisation obligations to the EU."
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