Trade on the march in Southern Africa

Interesting news that might have slipped under the radar: this past weekend, the Southern African Development Community (SADC) officially launched a free trade area (FTA), as outlined in its Regional Indicative Strategic Development Plan (RISDP). The free trade zone encompasses 12 countries and nearly 250 million Africans, and they don’t plan to stop there. The plan calls for a customs union by 2010 (free trade with a common external tariff), a single market by 2015 (customs union plus free movement of goods, labor, services, capital), monetary union by 2016 (all currencies fixed to one another with the goal of creating a single currency and monetary policy), and a single currency and central bank by 2018.

The idea behind the SADC’s FTA is to promote regional economic integration, create trade, enhance collective bargaining power, and encourage the development of economies of scale. This is pretty standard stuff for an FTA. It could make the SADC a more attractive place to do business because of the expanded tariff-free zone. But corruption, regional political instability, and violent risks are still rife. I do also wonder about the trade creation claims (how much intra-SADC non-commodities trade goes on right now?) I’d be curious to see some figures on export penetration from China and other countries to see if trade diversion is a real concern. Once the member nations progress to a customs union, one indicator would be if the tariff schedule for basic manufactures and agricultural products in the common external tariff framework is suspiciously high.

Nonetheless, I see this as largely a positive development. With the exception of South Africa, many of these countries are poorly integrated into the multilateral trading system and are indifferent traders. Perhaps regional economic integration will be a shot in the arm. Yes, I realize that this leaves me open to criticism given my position on regional trade agreements, but we shouldn’t let the perfect be the enemy of the good in such situations. (I promise I’ll write that post detailing my thoughts about economic regionalism very soon.)

I’m most concerned about the ambitious timeline for further regional integration. A customs union should be doable, but after that further integration becomes enormously difficult. We’re talking about liberalizing capital flows, immigration policies, and investment regulations, among other things. These are difficult technical issues which require sustained (and highly competent) government commitments to successfully execute. And a monetary union? Is the SADC an optimal currency area? And do the member states have the monetary discipline (or, for that matter, capacity) to fix their respective currencies and establish a convincing peg?

We should remember that the world’s preeminent economic and monetary union took more than 40 years to progress from the Treaty of Rome to the introduction of the euro. And this was put together by some of the world’s most advanced countries. Considering that the perfect can be the enemy of the good, I do hope that the SADC’s over-ambitious plans don’t cause an otherwise encouraging project to fall apart.