|History of COMESA|
|The Future Outlook|
|Culture and Strategy|
Evolution of PTA/COMESA
The Common Market for Eastern and Southern Africa traces its genesis to the mid 1960s. The idea of regional economic co-operation received considerable impetus from the buoyant and optimistic mood that characterised the post-independence period in most of Africa. The mood then was one of pan-African solidarity and collective self-reliance born of a shared destiny. It was under these circumstances that, in 1965, the United Nations Economic Commission for Africa (ECA) convened a ministerial meeting of the then newly independent states of Eastern and Southern Africa to consider proposals for the establishment of a mechanism for the promotion of sub-regional economic integration. The meeting, which was held in Lusaka, Zambia, recommended the creation of an Economic Community of Eastern and Central African states.
An Interim Council of Ministers, assisted by an Interim Economic Committee of officials, was subsequently set up to negotiate the treaty and initiate programmes on economic co-operation, pending the completion of negotiations on the treaty.
In 1978, at a meeting of Ministers of Trade, Finance and Planning in Lusaka, the creation of a sub-regional economic community was recommended, beginning with a sub-regional preferential trade area which would be gradually upgraded over a ten-year period to a common market until the community had been established. To this end, the meeting adopted the "Lusaka Declaration of Intent and Commitment to the Establishment of a Preferential Trade Area for Eastern and Southern Africa" (PTA) and created an Inter-governmental Negotiating Team on the Treaty for the establishment of the PTA. The meeting also agreed on an indicative time-table for the work of the Intergovernmental Negotiating Team.
After the preparatory work had been completed a meeting of Heads of State and Government was convened in Lusaka on 21st December 1981 at which the Treaty establishing the PTA was signed. The Treaty came into force on 30th September 1982 after it had been ratified by more than seven signatory states as provided for in Article 50 of the Treaty.
The PTA was established to take advantage of a larger market size, to share the region's common heritage and destiny and to allow greater social and economic co-operation, with the ultimate objective being to create an economic community. The PTA Treaty envisaged its transformation into a Common Market and, in conformity with this, the Treaty establishing the Common Market for Eastern and Southern Africa, COMESA, was signed on 5th November 1993 in Kampala, Uganda and was ratified a year later in Lilongwe, Malawi on 8th December 1994.
It is important to underline the fact that the establishment of PTA, and its transformation into COMESA, was in conformity with the objectives of the Lagos Plan of Action (LPA) and the Final Act of Lagos (FAL) of the Organisation of African Unity (Organisation of African unity). Both the LPA and the FAL envisaged an evolutionary process in the economic integration of the continent in which regional economic communities would constitute building blocks upon which the creation of an African Economic Community (AEC) would ultimately be erected.
Changes in the Regional Economy
Up until the late 1980s and early 1990s most COMESA countries followed an economic system which involved the state in nearly all aspects of production, distribution and marketing, leaving the private sector to play a minor economic role. This system promoted import substitution and subsidised consumption.
The inefficiencies inherent in this system contributed significantly to the economic decline of the PTA/COMESA region. For example, by the mid 1990s:
- Gross domestic investment had fallen consistently for 20 years to a level below a minimum investment ratio of the required 20% of GDP needed to cover depreciation and repair costs; foreign direct investment (FDI) in Africa was negligible, at approximately 1 per cent of GDP, representing 0.8 per cent of all FDI and 2.1 per cent of FDI going into all developing countries.
- The share of exports from sub-Saharan Africa in world exports declined from 2.5% in 1970 to 1% in 1990, while its share in developing country exports declined from 13.2% to 4.9% in the same period.
- External debt of the COMESA region had, by the early 1990s, increased twenty-fold since 1970. Debt service ratios, which in 1970 were insignificant, averaged 45 per cent of export earnings in 1989-90, making the region one of the most heavily indebted in the world. The aggregate external debt owed by sub-Saharan Africa, including South Africa, was US$318 billion in 1994, compared to external financing to all African countries of about US$15 billion in 1996.
- Although industrial output grew in the 1960s and 1970s, this was followed by a sharp decline as a result of entrenched structural rigidities, weak inter-industry and inter-sectoral linkages, lack of access to advanced technologies and poor institutional and physical infrastructure. The African continent's share of world manufacturing value added (MVA) rose from 0.7 per cent in 1970 to 1 per cent in 1982 and fell to 0.8 per cent in 1994.
Thus from 1960 up until the mid-1990s, the economic growth of the COMESA region averaged 3.2 per cent a year, a figure marginally above the level of the region's population growth. By 1993, this region of about 280 million people then (excluding Egypt), which had more than doubled its population since independence, had a total GDP of around US$90 billion, and included fifteen of the twenty-three States classified as Least Developed Countries (LDC's) by the United Nations.
|Box 1: Some Fundamental Principles Enshrined in the COMESA Treaty|
Key Challenges in the Global Economy
The last decade of the 1990s has been dubbed by some as the globalisation decade. Although globalisation per se is not a new phenomenon, especially viewed against a historical perspective, the current form of globalisation, particularly in the context of economics and finance, draws its motive force from two mutually reinforcing sources: the unrelenting revolution in information and communication technology (ICT); and the 'triumph' of market principles over command economics. The revolution in ICT has led to the redefinition of the concept of time and distance, but more significantly, it has given new meaning to the term "comparative advantage". Information is now decisively a new factor of production, conferring advantage to those who know how to access and use it.
The adoption of the market economy as the economic model of choice by many nations across the globe has resulted in greater liberalisation of trade and finance. Through the new enabling liberal environment and the agency of ICT, the world has witnessed movements of capital at unprecedented speeds and volumes. This phenomenon, dubbed financial globalisation, poses a new threat to emerging economies because of its high elasticity to huge 'mood swings' which can leave economies in ruin as the crisis that affected Asian 'Tiger' Economies in 1997/98 can attest.
At the level of micro-economics, globalisation is spawning a new corporate dynamic in which the most evident form is a growing wave of mergers/acquisitions. There is also an ever increasing inter-firm strategic alliances as firms seek to: exploit economies of scale or synergy, take advantage of differences in comparative advantage, spread the risks of high fixed costs, and gain access to new technologies and new markets. Every year has witnessed record corporate consolidations. Clearly, these waves of mergers and acquisitions point to a fundamental shift in the way the concept of competition and co-operation in the post-modern era is viewed. The message here appears to be "small may be beautiful but big and larger is better". In 1997, the UN (Department of Economic and Social Affairs) estimated that the largest 100 transitional corporations accounted for about one third of global foreign direct investment.
These global challenges pose special challenges to Africa in general, and the COMESA region in particular.
The Global Trading System (GATT and WTO)
The General Agreement on Tariffs and Trade (GATT) was created over 50 years ago. It was transformed into the World Trade Organisation (WTO) in 1995, after eight negotiating "rounds" which produced accords that slashed tariffs on goods, established open markets and set rules on fair trading for all members. The huge expansion of global trade which has taken place since the Second World War has been attributed largely to GATT. The last GATT round, the Uruguay Round, amounted to a massive global tax cut and in the four years following its full implementation, 1995 - 1999, world trade increased by 25 per cent.
COMESA was notified to WTO under the Enabling Clause on 29th June 1995. It is currently (March 2000) the only regional trade arrangement in Africa notified to WTO. Sixteen COMESA members are members of WTO, while three are observers (two of them are seeking accession), leaving two COMESA member States who are not members of WTO.
The WTO is an organisation driven by its members. Consultations and subsequent decisions, are those of direct representatives of WTO member States, or at least those member States that have permanent representations in Geneva. At present countries in Eastern and Southern Africa, in general, do not participate in WTO as actively as they should and the level of awareness of WTO in the region is very limited. This has the effect of countries of the region having to conform to the rules and regulations of WTO without being part of the negotiating and decision-making processes. Full participation in WTO by COMESA member States is of paramount importance as COMESA is operating within the multilateral trading system environment and not in isolation. COMESA complements the multilateral trading system by enhancing competitiveness of enterprises in the regional market. Unless the countries of the region find ways in which they can more effectively become part of the WTO decision-making process they will not be able to address the issues of concern to most developing and LDCs.
The challenge which faces the countries of the region is how to become more involved in the decision-making of WTO and the implications of implementing existing WTO rules and regulations on the economies of the region. The challenge for COMESA is to ensure full preparedness and adequate technical negotiating and implementation capacity among member States, and also to forge and maintain a common stand during the negotiations.
Post-Lomé EU-ACP Relationship
The Fourth Lome Convention, which ran from 1990 - 2000, came to an end on 29th February, 2000. The Lomé Convention, has been in operation since 1975. The Convention provided grant aid to the African Caribbean Pacific (ACP) group of countries through a series of European Development Funds (EDFs) which includes such facilities as STABEX (export earnings stabilisation scheme), SYSMIN (assistance to the mining sector and/or for diversification from heavy dependence on mining) and the Structural Adjustment Facility. The Convention also offered ACP countries non-reciprocal preferential access into the European Union market.
Annexed to the Convention, but separate from the Convention, were the Banana, Sugar, Rum and Beef Protocols. The protocols provided quotas of the stated commodities into the European Union at fixed prices which were above the World market prices. The Banana Protocol was contested by USA and four South American States and WTO ruled in favour of USA. And so the Banana Protocol has been terminated. The fate of the other two Protocols is uncertain.
Following protracted negotiations that had been going on since the EU issued its Green paper in 1997, ACP and EU have agreed on a new arrangement (to be signed in Fiji) to run over a period of 15 years but which will allow for a preparatory period of 8 years (from 2002) before a reciprocal free trade relationship takes effect. COMESA sees the benefits of entering into a FTA with the EU in that this should or could:
- protect ACP access to EU markets from further deterioration;
- help COMESA to lock in gains made in trade liberalisation;
- be used as a vehicle for assistance from the EU for regional integration;
- assist COMESA to gain investor confidence; and
- act as a platform for co-operation with the EU at WTO fora.
However, from the point of view of COMESA, there are a number of issues which remain to be resolved, including:-
- an examination of the possible adverse effects of EU-FTA arrangements on the COMESA FTA;
- a study which will assess the potential impact of the arrangement on individual COMESA countries and economic sectors;
- market access for non-LDCs into the EU;
- the status of the commodity protocols;
- structural adjustment assistance to be extended to countries joining the arrangement; and
- reciprocity being introduced in a phased and back-loaded manner.
Globalisation in the sense of an open world trading system is seen by most economists as enhancing global welfare because of the possibilities of increasing efficiency gains through, among others, greater international specialisation and competition.
But regional integration in the context of a multilateral trading arrangement within a global economy is often seen as either being good if it is 'trade-creating' i.e. if it reinforces globalisation by lowering policy impediments to trade within a region making it possible for more efficient production, or bad if it is 'trade-diverting' i.e. if it works against globalisation by favouring trade within a region at the expense of trade outside the region. The challenge for COMESA is to ensure that it remains outward orientated in its trade and investment regime so as to reinforce globalisation in a positive way.
COMESA recognises that globalisation has winners and losers. Because globalisation gives free rein to competitive market forces, those nations that do not compete for foreign investment and export earnings on the world market will lose out. Small economies such as many in the COMESA sub-region with their small domestic markets, non-diversified production bases, underdeveloped infrastructure, inadequate skilled human capital, stand little chance of competing globally. The challenge for COMESA is to ensure that, through its regional integration arrangement, domestic growth and competitiveness of small economies are strengthened, powers of domestically entrenched special-interest groups and rent-seekers weakened, and policy stability and credibility enhanced thus making it easier to attract investment.
In addition to expanding the effective size of markets and improving access to export markets and providing incentives for foreign direct investment (FDI), the main challenge facing COMESA, is how to spur economic growth and investment through increased productivity. Increased productivity will require a restructuring and diversification of the productive base. Also, COMESA countries cannot compete in global markets in terms of high productivity and high quality on the basis of low labour wages alone. Access to technology and technical know-how are critical. Through greater regional co-operation and networking between domestic, regional and international partners, COMESA will strive to improve access to technology and other resources, and thus enhance productivity and competitiveness in the global marketplace.
An important implication of the new EU-ACP relationship on COMESA economies is that the erosion of Lomé Convention privileges and elimination of Multi-Fibre Agreement quotas, is likely to lead to the displacement of COMESA exports to Europe by other non-ACP, particularly Asian, competitors. To make up for this, COMESA economies would need to, among others, expand agricultural exports to take advantage of the anticipated increased Asian import demand for cereals, non-grain crops, forestry and fish products, etc. due to reduced trade barriers, higher incomes and structural transformation in Asia.
Key Challenges in the Regional Economy
Opportunities In The Challenges
The Future Outlook
Integration through Co-operation
Implementing the Strategy
Culture and Strategy