Trade bloc merger firms up SA’s gateway status

2011-05-07 14:05

The business community and economists have given next month’s planned merger between three of the continent’s major trading blocs the thumbs up.

But they warn that the road ahead for the merger is bumpy, as some countries linked to the trading blocs have under-developed infrastructure and there appears to be a lack of political will to remove border tariffs in general.

It was announced during the World Economic Forum on Africa in Cape Town this week that the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa, and the East African Community would merge next month.

Jerry Vilakazi, the outgoing chief executive of Business Unity South Africa (Busa), welcomed the merger as a milestone.

Vilakazi, who leaves Busa at the end of this month, said: “It is a major development because one of the key issues driving investments is the size of the markets.”

He said the merger would largely benefit South Africa because it has been encouraging foreign companies to use the country as a gateway to Africa.

On paper, the merger means that the countries linked to the trading blocs would enjoy free trade and movement of goods.

Vilakazi said: “In practice, we are going to see people being allowed to trade broadly as existing trade barriers are going to be removed.”

But, as in any relationship, the merger will pose challenges.

He said: “One of the major challenges for doing business in Africa is the lack of infrastructure. You find that the roads leading to or coming from the borders are not well developed.

“Most of the infrastructure is directed towards the sea because in the past people were focused on producing and transporting goods by sea.

But now we are seeing billions being spent to develop roads. This is expected to make doing business in Africa much easier.”

Vilakazi said that local retailers were going to be major beneficiaries, and added: “SA might also benefit from energy supply as Tanzania and Kenya have the potential to turn gas into electricity, and Mozambique and Congo have resources to produce hydropower.”

He said the merger would not be beneficial if government administrators did not take it seriously.

According to Vilakazi, the merger would be more meaningful if businesspeople and consumers could freely travel to the participating countries without visas, as in the eurozone.

Home affairs spokesperson Ronnie Mamoepa said: “Should the merger go ahead, a protocol of free movement of persons and goods will have to be developed and ratified by member states before such a decision could be made.”

Economist Tony Twine said the merger’s success depended on whether it would produce a combined market or become a loosely structured organisation similar to the SADC.

“If it operates like the SADC, nothing much will change but if we move towards a common market system this will be extremely powerful for the region,” said Twine, who criticised the SADC as nothing more than a “political and diplomatic club”.

Using the European Union as an example, he said that for a country to move to a common market status, without having transport tariffs, posed long-term challenges such as finding a harmonised tariff structure that benefited each country.

“For instance, Angola might require import duties for crude oil, while SA might try to keep the duties very low,” he said.

Economist Lumkile Mondi said the merger was a welcome progression.

He noted that some of the countries were already members of two or even all of the merging trading blocs.

Mondi said: “The biggest challenge was political rather than commercial, as we have South African companies already operating in some of those countries.

“There should be political will to open trade as you find that at Beitbridge border, for example, tariffs are still being charged for importing goods, despite the fact that Zimbabwe and South Africa are members of the SADC.”

He said African countries should improve their infrastructure and build flawless road networks that will make transporting goods easier.

Mondi said the merger would allow South Africa to be used as a conduit for those trading blocs into Brics – Brazil, Russia, India, China and South Africa – and vice-versa.

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