HomeBusiness DigestZim Woes Could Hamper Sadc-FTA

Zim Woes Could Hamper Sadc-FTA

STRUCTURAL issues associated with power and water shortages, foreign currency challenges and high inflation need to be addressed urgently so that producers in Zimbabwe remain competitive and relevant in the face of enormous pressure from regional competitors following the signing of the launch of the Free Trade Area (FTA) in the region.

 

Zimbabwe had over the past two years adopted a more protectionist approach to trade, which has seen the government charging imports such as clothing and passenger vehicles in foreign currency, taxing cross-border traders and charging duty on newspapers.

The signing of the FTA means most goods produced in the region can now enter member countries free of customs duties, which means all the charges should fall away.

As of January next year, 85% of goods in the region will be exempted from tax with an aim of being fully liberalised by 2012.

The Free Trade Area precedes a Customs Union planned by 2010, a Common Market by 2015, Monetary Union by 2016, and a single currency by 2018.

This will help to facilitate smooth operation of business among Sadc member states and reach out to an estimated 230 million consumers in the sub-region.

Economic analysts said Zimbabwe could prove to be the region’s Achilles’ heel as Sadc embark on an ambitious path to open up national economies and improve trade.

“It remains to be seen how the region will bring Zimbabwe’s tariff regimes in line with the rest of Sadc or meet the objectives,” a local banker said.

With all economic indicators pointing against Zimbabwe it’s likely that Sadc will in the long term adopt a more serious approach to assist Zimbabwe because they would not want any member state to be the stumbling block along the path to the envisaged customs union.

The Sadc Secretariat was last April tasked to come up with an economic rescue package for Zimbabwe but has so far remained mum on the contents of its plan.

The regional economic targets include single-digit inflation and budget deficit for all member states by the end of 2008, a proposition that has proved to be a tall order for Zimbabwe whose inflation is 11 200 000%.

“We are going to interfere with agreed regional tariffs as long as things remain the way they are,”independent economist John Robertson said.

The Trade Law Centre of Southern Africa (Tralac) said high transport costs, multiple affiliations and conflicting interests over proposed tariff reforms among Sadc member states could affect any advantages the FTA might bring to the region.

Genesis Bank group economist Brains Muchemwa said the exogenous risks associated with rising global food and oil prices have exerted enormous pressure on inflation around the world, and the Sadc region has not been spared, putting a lot of pressure on monetary policy. The pressure build up has pushed inflation above single digit, and Botswana has been hit the hardest.

“With Zimbabwe’s productive sector operating at 10% capacity, there is huge scope on the upside,” said Muchemwa.

“However the structural issues associated with power shortages, foreign currency challenges and high inflation need to be addressed urgently so that the producers in Zimbabwe remain competitive and relevant in the face of enormous pressure from regional competitors,” he said.

Muchemwa said Sadc countries margins will narrow significantly, and only those with efficient production processes will see more benefits accruing onto their balance sheets.

The launch of the Sadc Free Trade Area could therefore prove to be the nudge that has been lacking in the region’s approach to Zimbabwe’s economic and political crisis.

Regional leaders could now be forced to take resolute action to resolve the crisis or risk being labelled as the people who failed to launch the first steps towards regional economic prosperity.

Analysts said South Africa’s import tariffs are instruments of industrial policy to be used selectively to protect selected local industries like clothing, textiles and automotive.

For the rest of Sadc member states, import tariffs are an important source of revenue and tariff reduction poses challenges for their fiscal policies.

There were fears that Zimbabwe might increase Value Added Tax (VAT) under the new set up to increase its revenue.
Multiple affiliations to intra-regional bodies by member states also compounds the situation.

The free trade area “required a lot of compromise to be made on a number of sensitive issues,” including requiring member states to relinquish some of their sovereignty, said Tomás Salomão, executive secretary of Sadc.

By Paul Nyakazeya

 

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