HomeOpinionZim's economic woes dampen regional integration plans

Zim’s economic woes dampen regional integration plans

Shame Makoshori

THE philosophy of economic integration has for long been the ultimate goal of the Southern African Development Community (Sadc).

And like other economic blocs such as the Common M

arket for Eastern and Southern Africa (Comesa), it has been driven by the desire to become a strong player in the global economy.

Sadc is striving for similar achievements as the European Union (EU) in the establishment of a eurozone in 1992.

But economic commentators say in the case of the EU, the ideal was successful because the 25-member grouping had stable economies and the political will to support the integration process that took decades to accomplish.

Sadc appears sapped by a plethora of problems as member countries are at various stages of economic growth.

Zimbabwe, a key member of the economic grouping, has also suffered six years of instability caused by rampant economic mismanagement, corruption and political abuses among the ruling elite.

Those impediments need to be removed before any significant headway can be made towards hanging together as a regional trading bloc.

There are several stages that Sadc has to achieve before establishing a free trade area (FTA), which analysts say could be delayed by the situation in Zimbabwe. These include the establishment of a customs union, a common currency and harmonising exchange rates.

If these plans are rolled out by 2008 when Sadc’s 14 members are expected to form a FTA, the plan will turn the bloc into one big economic family similar to the EU.

Such moves would do away with many barriers to inter-state trade such as visa requirements and tariffs.

But with economic and political refugees stampeding into neighbouring countries from Zimbabwe, the hosts might feel opening their borders as part of FTA could open the floodgates and degrade the quality of life of their citizens.

Countries making up Sadc are Zimbabwe, Mozambique, South Africa, Botswana, Namibia, Angola, Zambia, Mauritius, Tanzania, Malawi, Madagascar, the DRC, Swaziland and Lesotho.

Analysts say a lot of work has to be done for the 14 countries to achieve an FTA in the next two years. These countries have to adhere to strict deadlines that they set for themselves.

The deadlines include the establishment of an FTA by 2008, a customs union by 2010, a common market by 2015 and a common currency by 2018.

Last week, Sadc leaders met at an extraordinary summit in South Africa to review progress towards the establishment of the FTA as the countries move towards streamlining their investment policies.

Zimbabwe, Botswana and Swaziland signed the protocol on trade and foreign investment at the summit, bringing the signatories to 10.

While the treaties have been signed and progress appears to be on the horizon, the economic crisis in Zimbabwe has provided an obstacle as some member countries still feel that the country’s economic indicators will make integration impossible.

Commentators say integration can only be smooth if the economies’ budget deficits are not higher than 5% of gross domestic product. The central banks of integrating countries’ financing of budgets must not exceed 10% of the previous year’s budget.

“There are so many requirements for integration into the FTA. But looking at the situation, Zimbabwe’s ability to meet the requirements will be elusive,” said Isaac Kwesu, lecturer in the Graduate School of Management at the University of Zimbabwe.

He said it would be difficult, for instance, for Zimbabwe to achieve single digit inflation by 2008 given the deepening crisis.

Inflation must be in single digit figures and to allow for smooth integration, member countries’ gross foreign currency earnings must secure three months’ import cover while central banks must be autonomous.

Zimbabwe has failed to stock enough foreign currency.

The country hardly manages foreign currency reserves to keep it running for a month.

Unlike most Sadc countries, Zimbabwe’s central bank is facing mammoth challenges in controlling foreign currency inflows, speculation in banks and in capping interest rates.

It is also forced to finance annual subsidies for the country’s corruption-ridden parastatals, bloating budget deficits.

Zimbabwe’s financial services sector is coming out of a two-year crisis, a position analysts say could militate against the swift convergence of banking regulations across Sadc as the regional grouping moves towards a common currency scheduled for 2018.

Kwesu said the Sadc integration project would face similar barriers as encountered by Comesa, whose integration into an FTA might start materilising at the end of 2007.

Business leader and president of the Zimbabwe National Chamber of Commerce Mara Hativagone this week said industry was pinning hopes on the FTA, which is seen as a solution to the resentment local companies are facing in neighbouring markets, especially in Zambia, Malawi and Botswana.

In 2002 Zambian companies campaigned to block cheap commodities like sugar, tea and cement from Zimbabwe that threatened the survival of their industries.

In 2003, Malawi made frantic efforts to halt Zimbabwean exports into that country, raising excise duties from 15% to 20%.

Mineral-rich Botswana has been hostile to cross border trade with Zimbabwe.

These are signals that Zimbabwe’s isolation, which started with the European Union and the United States, is silently spreading into Southern Africa.

“Barriers are there but remember there are bilateral trade agreements between Zimbabwe and other countries in the region,” Hativagone said. “Sadc is not yet an FTA but we are moving towards the FTA. So we will benefit from the relaxation of trade controls.”

Although there were attempts to gloss over these shortcomings in South Africa last week, Zimbabwe’s six-year economic crisis is wreaking havoc on the region’s stability.

Sadc is worried that plans to boost economies would be hurt by negative sentiments towards Zimbabwe, but Sadc chairman Pakalitha Mosisili dismissed the concerns.

He said Sadc would develop programmes to offset any contagion from Zimbabwe’s economic crisis.

“We are saying we need to be seen in total as a region, instead of the outside world singling out the one member and saying because of member X we will not invest in Sadc,” he said.

Southern African economies are at various stages of economic development with Zimbabwe battling with negative economic indicators.

Inflation is hovering at 1 023%, the budget deficit at 56%, interest rates of around 400% and crippling shortages of fuel, food and other key requirements.

The International Monetary Fund predicts Zimbabwe’s inflation could hit 4 000% by the end of 2007.

So, as President Robert Mugabe put pen to paper in South Africa last week, his advisors should have reminded him of the implications of his signature — that Zimbabwe’s economic indicators are out of sync with the others.

Across the region, inflation is between 3% and 17% while Zimbabwe’s figure stands at over 1 000% — an unsustainable discrepancy.

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