Why Comesa must court business community as Customs Union takes off

Regional integration is the business of governments — that remains the dominant mind set of many in Africa despite the glaring attributes of integrated markets in the face of globalisation and liberalisation initiatives.

Governments and political classes need to appreciate this fact as they pursue their dreams of ensuring regional economic cooperation and integration that would contribute to consolidating economic and social development.

In June, Africa’s latest Customs Union (CU) under the Common Market for Eastern and Southern Africa (Comesa) was launched under growing debate on its viability, coming in the face of the biting effects of the global financial downturn that had thinned trade.

As expected, it was the political leadership and governments that were at the centre of the Comesa CU launch with the masses choosing “to watch from a safe distance” even when the gains from such initiatives were certain to reverberate to the lowest points of the respective economies of the 19-member bloc.

For instance, in the run up to the launch of the CU, statistics showed that intra Comesa trade had increased five-fold from $3 billion in 1997 to about $15 billion in 2008 with projections that the trade would increase further under the customs union.

“It is unfortunate that the region’s politicians and bureaucrats developed this noble vision earlier than their business counterparts; it will take a while for the business class in the individual member countries to wake up to the reality of the advantages of an expanded market,” Mr James Shikwati, the director at the Inter Region Economic Network (IREN), says.

The UN Centre for Trade and Development (UNCTAD) observes that such cold reception towards regional initiatives in Africa could be attributed to false starts in the past by some economic communities such as the Economic and Monetary Community of Central Africa (CEMAC).

“Regional initiatives in Africa, however, did not deliver much to uplift the economic conditions of its members nor ensure sustainable growth and liberalisation. Intra-regional trade as a proportion of total trade remains much lower in African regional integration arrangements compared to those of the Asian and Latin American regions,” it says in its Economic Development in Africa 2009 report.

Luckily for Comesa, the performance as a free trade area (FTA) has been impressive with the hope that this would carry on into the next level of integration — the CU.

UNCTAD further points out that the historical foundations of regional integration, in which the commitment to regionalism was part of the broader aspiration of continental integration — which takes its roots from the Pan-African movement of shared values, collective self-reliance in development and political independence — could also be linked to the reluctance by the business community because of its “vagueness” with regard to economic issues.

This latter school of thought by UNCTAD is duly confirmed when one engages sections of members of the business community who are targeted by the Comesa CU.
Mr Rajiv Minesh, a trader in downturn Nairobi, says the political class and governments have failed to sufficiently involve all parties in integration initiatives hence the lukewarm reception.

“Many a times we only hear about Comesa integration initiatives but are not involved so that we get to know the finer operational details that may help us seize opportunities. That has made us to believe it is all about the government and technocrats or some lobbyists who sit in offices that coordinate such initiatives,” he says.

Interestingly, for more than 15 months up to June, Kenya held the chairmanship of Comesa meaning that parties such as Mr Minesh should have become more cognizant of Comesa operations owing to the proximity of Kenya to the leadership of the bloc.

Integration efforts
Statistics also show that the main exporter within Comesa is Kenya, with over a third of total regional exports. With this huge role in the Comesa trade, the assumption would be that most Kenyan businessmen and women are privy of its operations, but this isn’t the case.

This form of disjointedness, as shown in Mr Minesh’s case, is played out in several other member countries of Comesa, raising questions on the prospects of the numerous economic integration initiatives being launched in the continent including the latest Comesa CU when the targeted groups stay ignorant.

Others, however, argue that though individual traders could be ignorant of Comesa operations, their lobby groups were fully represented in the integration efforts.

“The business lobbies are incorporated in the discussions even though the representation may not be sufficient but they are within and have a huge role in the process. Perhaps the challenge is to reach to more people within the business community,” an official at the Trade ministry in Kenya says.

“We have received calls for better representation and sensitisation campaigns are under way both by government and lobby groups.”

Nonetheless, analysts observe that the Comesa leadership would have to redesign its political and operational strategies and give greater leverage to the business community if the viability of the newly launched CU is to be realised, taking into consideration the fact that other regional economic communities (RECs) are also competing for opportunities that come with the union.

“At the moment, multinational surrogates in the region will take advantage and enjoy the benefits. I think enhanced free travel in the region, easier mechanisms to register business and protection of the same, is what will ensure that the Comesa customs union takes off by getting it transferred from the political podium to the business community,” Mr Shikwati notes.

The official says the launch of the Comesa CU would be good news only if the policy makers behind it adopted a new all-inclusive economic model.

“If the plan is to simply transform tiny markets of economic spectators into a giant 400 million strong prison of poverty, then Africans ought to be very cautious.

“The current economic model supervised by international finance institutions has turned the majority of Africans to squatters in their own land; illegal traders in their own city streets and ‘enemies’ of the market,” he said in a recent opinion article.

Leadership of Comesa
The leadership of Comesa is alive to this fact and concurs that the business community would have to be accorded a more frontal role if the fruits of the newly launched customs union were to be realised.

So far the bloc has made major strides and incorporated round-table business fora to drive key issues such as harmonisation of standards.

Comesa chairman, President Robert Mugabe of Zimbabwe, tactfully tried wooing the support of the business community when the Comesa CU was launched:
“I am advised that they have been meeting for the past two days to reflect on how best to do business in our region, and will now be presenting their recommendation to this summit. This is indeed the kind of partnership and ownership that we have been looking for and I can assure them that we totally support their efforts and will do everything possible to assist them in implementing their recommendations” he said.

The Comesa chairman further said: “It would be a most admirable achievement if our region becomes one single market where production and marketing decisions at the shop level are based on commercial reasons and not on country boundaries. The single market will set an example in regional integration. I hope that the realisation of this vision of the African Economic Community is not far off.”

The Comesa secretariat too seems to have registered the need to revamp the political operations of its leadership bureau to ensure the success of its customs union.

“The economic objectives notwithstanding, political coordination is cardinal in ensuring that a customs union is economically viable. But first a side point on gestation of the entire process,” the market’s secretariat says noting that this could take up to three years before the wheels of its newly launched customs union could begin to roll soundly.

“When we look at the history of the European Union, we note that the time line of this process was from the signing of the Paris Treaty in 1951 to the Maastricht Treaty in 1993 which was the basis of the present day EU, 42 years elapsed. The point ought not to be lost that achievement of coordination is a function of time as national constituents are brought on board to endorse regional integration and indeed deeper integration processes,” it says.

Comesa secretary-general Dr Sindiso Ngwenya concurred that the success of the newly launched customs union would be driven by an all-inclusive strategy between governments and the private sector.

“We need to package and market our region not only more aggressively, but also more smartly so that we generate the right investment. This requires not only governments working with the private sector, but also the private sector working more smartly together along the entire value chain, so as to benefit small, medium and large business,” he said when he addressed a delegation from the business community in the run up to the launch of the customs union.

And even as Comesa works towards keeping its house in order, UNCTAD says such integration would be critical in enhancing trade in the continent especially in the wake of the current global economic downturn and urged leaders to revamp intra-Africa trade strategies.

“Despite the long history of regional integration on the continent, the level of intra-African trade remains low in comparison with intra-regional trade in other regions, both developed and developing,” the agency says in its Economic Development in Africa 2009 report.

For instance its says between 2004–2006, intra-African exports represented 8.7 per cent of the region’s total exports while intra-African imports, on the other hand, represented 9.6 per cent of total imports.

“Looking back over the period 1960–2006, it appears that Africa has consistently had a considerably lower proportion of intra-regional trade than other regions. Indeed, it is the only region in which the proportion of intra-regional exports was lower than 10 per cent in 1960,” it says.

UNCTAD says this was largely a consequence of the pattern of trade favoured by colonial rulers, which was extractive and outward-oriented, and did not encourage African countries to develop strong trade linkages among themselves.

It however points out that though the proportion of Africa’s intra-regional trade remains low in comparison, it has increased considerably over the years, albeit from a very low level.

“This proportion has gone through several distinct phases. It was initially stable through to the early 1970s before plunging during that decade to a low point reached in 1978, with intra-African exports worth only 2.9 per cent of total African exports. From there, it recovered slowly until the mid-1980s, then increased sharply in the second half of the 1980s and the first half of the 1990s,” UNCTAD says.

Trade links
The low initial level could be explained by the fact that at independence, African countries inherited trade links which were almost exclusively oriented towards Europe. The reason was that African colonies were used to produce commodities feeding colonial powers’ industries.

This pattern also reflected the continent’s relative endowment in natural resources, particularly at a time when Africa’s industrial sector was rudimentary.

This did not particularly encourage trade with other African countries, which explains the very low level on intra-African trade in the 1960s and 1970s.

To some extent, UNCTAD says, African trade is still influenced by this colonial legacy. Moreover, the import-substitution policies pursued in the 1960s and 1970s were not encouraging trade among African countries.

They were centred on self-sufficiency but had difficulty achieving this objective, as illustrated by widespread rationing in several countries, particularly in the late 1970s and early 1980s.

The positive trend starting in the early 1980s can be explained by three important events. First, the adoption of structural adjustment programmes in many countries opened up African economies, creating a new environment following the import-substitution era. More trade opportunities among African countries were created, even if African countries were unable to fully benefit from this environment.

The intensification of regional trade agreements (RTAs) has also helped spur growth with the foundation of Arab Maghreb Union (UMA) in 1989, Sadc in 1992, and Comesa in 1994.

“Since the early 2000s, the proportion of intra-African merchandise trade has stabilised at about 10 per cent, with a slight decline towards the end of the period. This does not, however, mean that the absolute value of intra-African trade has stagnated or declined. The stagnation of the proportion is due to the fact that Africa’s trade with the rest of the world increased much faster than intra- African trade,” UNCTAD says.