COMESA, SADC FREE TRADE AREAS :– Opportunities for Zimbabweans in The Diaspora

By Vonesai Hovehvonesai@yahoo.com

vhove@trademarksa.org www.trademarksa.orgwww.tradebarriers.org

PART I- ECONOMY

Short Term Economic Recovery Programme (STERP)

Overview on performance of the Economy

Sectoral Perfomamances- GAPS

PART II- ZIMBABWE’S TRADE PERFOMANCE

Major Regional Trading partners

Trade Potential in the region

PART III-REGIONAL INTEGRATION

COMESA & SADC Free Trade Areas- Facilitating Zimbabwe’s economic recovery &growth through trade, Infrastructure development

Opportunities in the FTAs

SUMMARY PRESENTATION

In February 2009, Government put in place phase 1 of the Short term Economic Recover Programme (STERP) to address the economic woes and challenges facing the economy and work towards revival of the economy. Key goals of the short term stabilisation programme which would run from February – December 2009 were:

To stabilise the macro and micro-economy, recover the levels of savings, investment and growth, and lay the basis of a more transformative mid term to long term economic

programme that will turn Zimbabwe into a progressive developmental State

Major Challenges facing the economy included : Unprecedented levels of hyper-inflation, massive devaluation of the currency, There had been an unsustainable period of negative growth Serious unemployment and loss of jobs, Massive de-industrialisation Low productive capacity and food shortages and Poor service delivery,

STERP

STERP unveiled Against the backdrop of the worst economic recession in the world economy. The recession which started as world financial crisis slowed down growth in most major economies, leading to a revision of world growth in 2009 in which it was expected to decline to its lowest levels in 60 years.

Therefore, in developing STERP, Government was cautious to put realistic and pragmatic targets as it anticipated low international support as well as the pace of the turnaround in relations to the magnitude of the challenges .

Overview

Stabilisation

i. Implementation of a growth oriented recovery programme

ii. Restoring the value of the local currency and guaranteeing its stability

iii. Increasing capacity utilisation in all sectors of the economy and, hence, creation of jobs

iv. Ensuring adequate availability of essential commodities such as food, fuel and electricity

v. Rehabilitation of collapsed social, health and education sectors

vi. Ensuring Adequate Water Supply

STERP Priority Areas- Economic Stabilisation

The Key Priority Areas outlined to stabilise the economy set out in STERP are:

i. Implementation of a growth oriented recovery programme

ii. Restoring the value of the local currency and guaranteeing its stability

iii. Increasing capacity utilisation in all sectors of the economy and, hence, creation of jobs

iv. Ensuring adequate availability of essential commodities such as food, fuel and electricity

v. Rehabilitation of collapsed social, health and education sectors

vi. Ensuring Adequate Water Supply

vii. STERP seeks to ensure household food security, targeting of women in their production and reproductive roles in order to eradicate poverty.

viii. STERP seeks to ensure the de-marginalisation of women in Zimbabwe through specific and concrete gender mainstreaming policies and programmes in every sector covered by STERP.

viii. These measures would be anchored on promoting production and increase capacity in key areas of the economy in particular agriculture, mining, manufacturing and tourism. In short STERP is a Capacity building Recovery programme that seeks to stabilise all the macro and micro-economic fundamentals.

ix. A follow up programme is being implemented towards achievement of the set goals

STERP DELIVERABLES

Objectives of Short Term Economic Recovery Plan (STERP II) are on course:

Macro Economic reforms creating economic stability Inflation dropped from hyper inflation levels to single digit

levels consistent with SADC and COMESA macro economic convergence targets .

Growth in real GDP increased from -14.8% in 2008 to 5.7% in 2009 and is estimated to increase to 8.1% in 2010

There is improved overall capacity utilisation thereby addressing supply of goods & services in the formal sector

The financial Sector has been resuscitatedThere has been some improvement in Public sector deliveryHowever, export performance continues to lag behind in

response to the low capacity utilisation. The country has recorded negative trade balances with its major regional partners (

Overview of Economic Performance 2008-2010

Measures being taken to improve production capacity

Government embarked on Fiscal consolidation through introduction of

Cash Budgets Multiple currencies Resource based Budgeting Public Finance management Acts and Tax reforms

Government strengthening Public Institutions through capacity building and enforcing accountability measures

Government also putting measures to strengthen social protection programmes

Measures for Sustaining Macro –Economic Stabilisation

PART TWO- ECONOMIC PERFOMANCE

Real GDP Growth (2008-2011)

Real GDP Growth by Sector (%) 2008

2009

2010 Est.

2011 Proj.

Real GDP -14.8 5.7 8.1 9.3

Agriculture, Hunting & Fishing -39.3 14.9 33.9 19.3

Mining and Quarrying -33.4 8.5 47 44

Manufacturing -17.1 10.2 2.7 5.7

Electricity and Water -13.6 1.9 1.5 2.5

Construction -8.5 2.1 1.5 1

Finance and Insurance -27.9 4.5 0.5 2

Real Estate -36.4 2 0.9 1

Distribution, Hotels & Restaurants 2.8 6.5 0.5 6

Transport & Communications 2.2 0.1 5.5

Source: CSO; MoF

Real GDP growth from -14.8 in 2008 to 5.7 in 2009

All sectors recorded positive growth in 2009

Sub sector Capacity utilisation increasing though at modest levels

Zimbabwe’s GDP growth at 4.7% in 2009 compares favourably with regional countries

Zimbabwe’s Trade balance remains in the negative in the last three years (2007-2009) as she loses her leverage in exports to regional markets.

Zimbabwe’s trade balances with once her major export destinations ( Malawi, Mozambique, Zambia etc. in the negative

INDICATORS

Industry % Contribution

Agriculture 15.5%

Transport & Communications 15.2

Manufacturing 14.7

Tourism 11.0

Mining 4.9

Construction 0.6

Real estate 2.0

Finance & Insurance 3.9

Other services 4.3

Domestic Services 1.8

Selected Sectors Contribution to GDP (2009)

Sector 2009 Actual

2010 est. 2011Proj.

Foodstuffs 39% 42 45

Drinks, Tobacco & Beverages 50 59 62

Textiles & Ginning 20 21 21

Clothing & Footwear 58 55 51

Wood & Furniture 82 83 85

Paper, Printing & Publishing 41 43 43

Chemical & Petroleum Products

31 31 32

Non Metallic Mineral products 21 21 23

Metals & Metal Products 11 10 9

Transport Equipment 16 14 14

Other manufactured goods 13 14 16

Overall Growth 10.2 2.7 5.7

Sub sector Capacity Utilisation

Country GDP (US$b) GDP Growth Inflation Rate

Zimbabwe 5.179 4.7 -1.1

Angola 70.53 -0.6 13.1

Botswana 10.94 -5.2 7.3

DRC 11.23 2.7 16.7

Lesotho 1.643 -2.0 8.5

Malawi 4.97 5.9 8.5

Mauritius 9.26 2.1 3.4%

Mozambique 9.7 4.3 3.5%

Namibia 9.1 0.7 8.8%

Swaziland 2.96 -0.4 8.5%

Tanzania 22.4 4.9 11.6%

Zambia 12.44 4.5 13.5

South Africa 280.6 -1.8 7.2%

Source: Zimbabwe Budget Statement 2010

Economic Indicators for selected SADC Countries (2009)

Year Total Exports

No. Of Exported products

Trade Balance

2005 1 393 464 1 131 -678 134

2006 6 427 251 1 374 3 851 522

2007 3 308 285 1 367 - 132 652

2008 1693801 -1 137 323

2009 2 268 873 1 076 -1 257 217

Zimbabwe's Exports 2005-2009

Country 2007 2008 2009

*Botswana -207961 -57821 -161689

Lesotho 4596 1175 25032

*Malawi -113845 48361 23258

Mauritius -6837 -3414 -41717

*Mozambique -105046 -73198 -124055

Namibia 11203 3889 239

South Africa -295135 -1047669 -940012

Swaziland 5254 2786 7177

Zambia 14633 8191 -8677

* Zimbabwe recorded surplus trade before 1995

Table Zimbabwe Exports to Region (Trade Balances- Major Trading partners)

1. Agriculture

Contract Farming to support Agro processing

Irrigation Rehabilitation

Livestock Development and farming ( Small-scale dairy farming; rearing small animal stock, including poultry and piggery)

2. Manufacturing

Targeted sectors for small – medium investment include: food processing, beverages, clothing and footwear, leather & Leather products , packaging, paper

printing and publishing, Tourism, construction , services sector and huge investments in textile and ginning, fertiliser, pharmaceuticals,

motor industries, chemical and petroleum products, non metallic mineral products, among others.

3. IT and Technology4. Micro Financing to provide working capital to micro and small business

ventures and manufacturing entities

Potential Areas for Investment - Zimbabwe

Government to Create concessionary and attractive opportunities for DIASPORA participation in the development of the economy.

Targeted engagement with Diaspora to maximise on potential and harness productive human and financial resources

Engage agency to draw up strategic engagement policy directing remittances to developmental areas ( Investment in productive sectors) instead of just remittance.

WAY FOWARD

PART THREE – REGIONAL INTEGRATION

Zimbabwe has entered into Bilateral Preferential Trading Arrangements with Botswana, Malawi, Namibia, South Africa

Under these agreements, Nationals can trade in goods meeting rules of origin free of customs duties.

Zimbabwe is a Member of the Southern African Development Community (SADC) and Common Market for Eastern and Southern African States (COMESA) Regional Economic Groupings

Southern African Development (SADC)- 15 Countries and Common Market for Eastern & Southern African States

(COMESA) has 19 Member statesZimbabwe is also a Member of the Proposed Tripartite

Free Trade Area of COMESA, EAC and SADC regional groupings

Regional Integration

A free Trade Area is established when countries wish to bring together their economies but do not wish to integrate them

Tariffs on originating goods are eliminated

Unnecessary non- tariff barriers to trade are removed and eliminated between Member States

Goods are admitted in each other’s territory upon compliance of agreed rules of origin

Each Country maintains its own external tariff

There is greater degree of movement of capital among FTA Member to take advantage of economies of scale as the FTA is one market and supplier of goods meting the rules of origin

There are 4 FTAs in the Southern & Eastern African Region (COMESA, EAC, SADC, SACU)

What is a Free Trade Area

1.Further liberalization of intra-regional trade in goods and services on the basis of fair, mutually equitable and beneficial trade arrangements, complemented by Protocols in other areas.

2. To ensure efficient production within the region reflecting the current and dynamic comparative advantages of its Members.

3. Contributing towards the improvement of the climate for domestic, cross-border and foreign investment.

4 Enhancement of economic development, diversification and industrialization of the Region.

Key Objectives of FTA

Four Regional Groupings have attained their FTAs/Customs Unions :

1.Common Market for Eastern & Southern Africa (COMESA) (19 Member states)

2.Southern African Development Community (SADC ) FTA has 12 countries, namely, Botswana, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe.

3.Southern African Customs- (SACU)- 5 countries Botswana, Lesotho Namibia South Africa, Swaziland

4.East African Community (EAC) – 5 countries : Burundi, Kenya, Rwanda, Uganda and Tanzania

5.Proposed Tripartite Free Trade Area encompassing COMESA, EAC and SADC regional groupings

Regional Groupings - FTAs

1.Further liberalization of intra-regional trade in goods and services on the basis of fair, mutually equitable and beneficial trade arrangements, complemented by Protocols in other areas.

2. To ensure efficient production within the region reflecting the current and dynamic comparative advantages of its Members.

3. Contributing towards the improvement of the climate for domestic, cross-border and foreign investment.

4 Enhancement of economic development, diversification and industrialization of the Region.

SADC FREE TRADE AREA

Twenty six Member States of COMESA, (19) SADC, (15) EAC, (5)and SACU (5) are cooperating under the framework of their FTAs, and Customs Unions with the aim of integrating their economies through development of infrastructure, liberalisation of trade in goods ands services to improve the welfare of their people particularly women and youth

Under the proposed Tripartite arrangement of COMESA, EAC and SADC, Member States undertake to achieve ‘ An Integrated prosperous, and peaceful Africa by its own citizens and representing a dynamic force in the global Arena’

REGIONAL INTEGRATION – Tripartite FTA

Proposed Tripartite FTA

The Tripartite FTA refers to three Regional Economic Communities – COMESA, EAC & SADCTripartite FTA Membership Structures

COMESA FTA has 14 Member States; 8 also in SADC; 1 in SACU, and 4 also in EAC

SADC FTA has 12 Member States; 8 also in COMESA, 5 in SACU , 1 in EAC

SACU has 5 Member States, which are also Members of SADC; and 1 also in COMESA

EAC has 5 Member States ; 4 are also members of COMESA

The Tripartite Free Trade Area

A recent growth trend in intra-REC trade has been witnessed

Sub-Saharan Africa has registered a considerably higher rate of growth in its intra-regional exports share over the period 1960 – 1962 (4.08%) and 2004 – 2006 (11.41%), representing growth of 179.94%

Expanded market of over

Potential for increasing intra-African trade in agricultural goods remains untapped , therefore, opportunities for investment in agro-industries

Opportunities from Tripartite FTA

SADC has 12 Participating FTA countries

1.Botswana 7.Seychelles

2.Lesotho 8.South Africa

3.Malawi 9. Swaziland

4.Mauritius 10. Tanzania

5.Mozambique11.Zambia

6.Namibia 12. Zimbabwe

COMESA has 14 FTA participating Countries

1.Burundi 8. Malawi

2Comoros 9.Mauritius

3. Djibouti, 10. Rwanda

4 Egypt,11.Seychelles

5. Kenya, 12 Sudan

6Libya, 13. Zambia

7.Madagascar14.Zimbabwe

,

Comesa and SADC FTA countries

PRODUCERS/EXPORTERS EXPORTERS/IMPORTERS

• Wider source of products for trading

• Expanded market for goods & Services

• Cross border activities increased from various trade facilitation instruments

• Non Tariff Barriers to trade eliminated

• Movement of persons facilitated

• Zero/reduced duties for inputs

• Identified NTBs removed

• Source cheaper raw materials qualifying under Rules of origin

• Source intermediate goods for further processing

• Reduced costs of production

• Wider market for qualifying goods and Services

• Trade Facilitation instruments

FTA benefits to Business

Non Tariff Barriers to trade being eliminated (Online NTBs Monitoring Mechanism being implemented at Tripartite level www.tradebarriers.org

Harmonisation & Simplification of Rules of Origin

Enlarged market and supply of production inputs

Bilateral Trading Arrangements within the FTA provides more preferences e.g.

Access duty free raw materials goods (intermediate, finished) for production

Opportunities From FTA

These are a set of agreed criteria used to establish degree of processing,

and origin of goods produced within SADC Member States and are therefore entitled to tariff preference

Common Rules applicable to COMESA and SADC FTAs

Wholly produced products made from materials obtained from within the region. •Cumulating rule – Goods produced using raw materials originating in the region are deemed originating from the Member State where final processing/Manufacturing took place•Sufficiently worked/processed-Must meet the following:-Regional value content test (import content or value addition criteriaChange of tariff heading (HS Tariff classification)Produced within the region and classifiable after processing.

What Are Rules of Origin (RoO)

Women and Trade in the FTA?

Gender inequality is still a challenge in SADC; (Inequalities transcend trade sector)

Inequality manifests in Lack and Loss of economic and Development Opportunities

Women generally un aware of initiatives towards Regional Integration and benefits thereof due to unfavourable education levels, widening technological and digital divide etc.

Policy and regulatory frameworks established in COMESA, SADC and EAC treaties, protocol provisions on gender mainstreaming and Trade.

Trade facilitation instruments developed to benefit women e.g. simplified trade documentations, awareness campaigns

Specific targets to improve standard of living by women and youths embedded in Trade development programmes

Regional Integration- Gender Mainstreaming

TRIPARTITE – 42OMILLION GDP=

COMESA

SADC

SACU

EAC

MARKET POTENTIAL

Goods must meet Rules of origin

Wholly Originating goods ( Agricultural products , minerals, wood, live animals, Fresh water fish, Matemba; cotton based products;

Semi processed- Leather & leather products, cotton based, ginned wool, clothing (Safari, children's

Change of Tariff Heading- Manufactured products

Qualifying Criteria for Preferential Treatment Tradable Goods under FTAs

Anchor in Zimbabwean economy Utilise existing capacity in manufacturing, services and

agricultural processing, farming Bring in capital into sectors with regional trading

potential ( Processed foods, drink and beverages; manufactured tobacco; leather & leather products, cotton based textiles & clothing; wood & furniture)

Trade in services ( Finance, real estate, construction; Commercial transport & logistics; tourism)

Micro financing to complement formal banking Joint Ventures ( refer to ZIA for potential sector:

www.zia.co.zw Regional base – Setup base in FTA countries and produce for local market manufacture for export into and outside region; trade in services e.g. consultancy; transport; tourism;

construction

ENTRY POINTS FOR DIASPORA

Government Commitment to

Support agriculture sector

Rehabilitation and maintenance of run down infrastructure for utilities ( Power, water, roads

Improving access to basic social services by the poor population including women and youths (education, health and social protection)

Favourable investment policies

Private /Public sector partnerships policy

Legal and regulatory framework at national level

Enabling Environment

Agricultural Mechanisation Finance New farming technologies Refurbish Agricultural equipment and supply regional

markets- (Zambia, Mozambique; South Africa ) Manufacture of agricultural implements for small farmers in

the region

Manufacturing and processing- (leather products, steel fabrication, furniture, cotton based textiles & clothing, food processing , engineering; irrigation equipment, motor vehicle spares,

Value addition- agricultural produce and commodities, mining ,

Agricultural products imported into region traded duty free include: tea, coffee, spices,cereals,fruit, seed, vegetables, tobacco

Invest in What?

TRIPARTITE FREE TRADE AREA

Websiteswww.comesa.int

www.eac.org

www.sadc.int

www.sacu

www.trademarksa.org

www.tradebarriers.org