- Arvind Subramanian
- Published Date:
- September 2000
Since the early 1990s, many countries in sub-Saharan Africa have made significant progress in opening their economies to external competition through trade and exchange liberalization, often in the context of IMF and World Bank-supported programs. African liberalization took place during a period of increasing globalization of trade and investment, the conclusion of the Uruguay Round of trade negotiations, and the creation or expansion of a number of important regional trade arrangements in other parts of the world. These initiatives contributed to a revival of interest among African policymakers in regional integration, resulting in the establishment or renewal of regional organizations, such as the West African Economic and Monetary Union (WAEMU), the Cross-Border Initiative (CBI), the Southern African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA), the Commission for East African Cooperation (EAC), and the Indian Ocean Commission (IOC) (Table 1.1).
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This paper analyzes trade and trade policy developments for a number of countries in the eastern and southern African region (referred to here as ESA) during the 1990s.1 It consists of three main parts: a descriptive one (Sections II-V), an analytical one (Section VI), and a normative one (Section VII). Section II provides a brief description of the region, while Sections III and IV elaborate on the domestic liberalization efforts of these countries: the former focuses on non-preferential liberalization and the latter focuses on preferential/regional liberalization. Section V deals with the external trade policy environment facing ESA countries and the changes in openness and export performance witnessed in recent years. Drawing from the experience of individual countries in the region. Section VI contains an analysis of the macroeconomic aspects of trade reforms, including the factors that have influenced trade liberalization efforts and the impact of these reforms on economic growth. Finally, Section VII addresses the main trade policy issues that these countries will face in the future and suggests possible actions they and their trading partners could follow.
Why focus on eastern and southern Africa? The answer is twofold. First, countries in ESA appear to have a number of common characteristics—most notably administrative and legal institutions and language—stemming in part from a shared colonial history. Second, an increasing number of ESA countries are coming together—in various configurations and at varying speeds—to forge stronger trading links among themselves. Thus, the region as a whole is becoming a natural unit of analysis from a trade perspective.
The following conclusions emerge from the study. First, a number of countries in ESA made significant progress toward opening up their economies during the 1990s. Between 1990 and 1998, low levels of trade restrictiveness (covering both trade taxes and nontariff trade barriers) were established in 10 of the 22 countries considered. The remaining countries, however, still maintain restrictive or moderately restrictive trade regimes. Trade reforms aimed at, and broadly achieved, a substantial reduction in nontariff barriers, import tariffs, and export taxes, alongside complementary liberalization measures in other areas, including the relaxation of foreign exchange controls. As a result, many countries narrowed, but still did not eliminate, the gap in terms of trade restrictiveness between their regimes and those of other regions of the world.
Second, in the area of services, notably in the banking and telecommunications sectors, ESA countries have more restrictive regimes than other countries. Moreover, in the area of trade in goods and services, they have not really used the World Trade Organization (WTO) to further their liberalization efforts or lock in their current reforms, thereby forgoing some of the benefits that arise from ensuring against future policy reversals.
Third, there was an improvement in the trade performance of ESA countries during the 1990s, owing in part to the trade liberalization measures adopted. Exports, in particular manufactured exports, posted gains during the 1990s. This trend was accompanied by only a modest increase in the diversity of exports. Thus, substantial progress is still required to increase the range and sophistication of products exported, as reflected in ESA’s low share of intraindustry trade.
Fourth, links within the region are intensifying, as evidenced both by the magnitude of intraregional trade and the policy initiatives taken to reduce intraregional trade barriers. Progress in implementing these initiatives, however, remains mixed.
Fifth, adverse initial macroeconomic conditions in many ESA countries did not appear to hamper their trade liberalization efforts. Trade liberalization was associated with faster economic growth, especially when accompanied by comprehensive macroeconomic reforms. Trade liberalization also led to a significant reduction in the reliance on trade taxes as a source of revenue without compromising overall fiscal performance, owing to concomitant reforms to the tax system.
Sixth, a number of policy issues will confront ESA countries in the years ahead, especially in light of the likely changes in their trading environment:
- There is a considerable unfinished agenda on trade liberalization, especially for the nine countries that continue to maintain restrictive trade regimes.
- In proceeding with preferential integration. ESA countries need to rationalize the multiplicity of regional initiatives and pursue simultaneous multilateral liberalization in order to maximize the potential benefits of globalization and mitigate the trade diversion effects of their regional integration schemes.
- In the future, ESA countries will need to reassess their role in the WTO, with a view to increasing the benefits that they can derive from it. For instance, they could use the WTO as an anchor to lock in their liberalization of trade in goods and services. ESA countries will also need to respond to reductions in their trade-related revenues and in preferential access to industrial country markets. These are likely to arise as a result of future regional and multilateral liberalization initiatives.
- Lastly, industrial countries could help facilitate ESA countries’ integration into the world economy by either entering into reciprocal free trade agreements with ESA countries or eliminating tariffs on ESA’s export products. Industrial countries could also forgo the right to use safeguards or antidumping actions against these exports.