Displaying items by tag: Regional Integration

This paper evaluates the impact of globalisation on income distribution in South Africa. There are broadly two ways in which it can affect income distribution and help to address poverty. On a macro level it can stimulate economic growth, create jobs and provide salary income to people previously not employed. In a more direct way it can impact on wages. If unskilled wages increase relative to skilled wages, it should lead to a more equal distribution. Evidence for the period 1993 - 2001 indicates that South Africa experienced highly volatile capital flows, in the form of portfolio flows, with disruptive effects on the exchange rate and interest rates. On a micro level, the opening up of trade led to considerable job losses, especially semi- and unskilled workers. These were brought about mainly by the increasing importance of technology. Job losses because of import penetration were not as significant as could have been expected. On the other hand, exports did help to create jobs, but not enough to offset the negative impact of the previous-mentioned two factors. No evidence could be found that salaries of unskilled workers increased relative to highly skilled workers. Globalisation can only lead to a more equal distribution of income in South Africa if it succeeds in creating jobs and this can only happen if the skills level of our workforce meets the conditions of the market.

A close look at the specific causes of domestic and foreign private investment in the SADC countries is needed. This paper has the aim to look especially at those factors that are under direct control of governments like infrastructure and regional integration and where decisions have to be made in the coming years. In the existing literature on the determinants of investment these aspects haven't been investigated in detail. Therefore this paper focuses on the effects of deepening regional integration and improvement of infrastructure. It covers domestic as well as foreign investment and identifies policy measures for improving the attraction of investment by focusing on investment determinants that are under control of the SADC governments. Only if effects of FDI under specific circumstances are well understood investment policies can be designed that will attract investment in those sectors that can bring the highest benefits to the country and increase the potential for sustainable growth.

To increase investment both foreign and domestic is one of the aims of the South African Development Community (SADC). Although investment in SADC is still lower than in industrial countries or emerging markets it is higher than for the rest of sub-Saharan Africa. Whereas the main determinants of investment like macroeconomic and political stability, availability of natural resources and low production costs are well investigated the role of regional integration for attracting investment is still not very well established. Regional integration could enhance investment through various channels like larger markets and improved cross-border infrastructure. The results of a panel regression analysis show that the regulatory quality in the economy in general as well as independent regulation of the telecom sector can help to attract FDI. However for domestic investment the level of industrialisation the financial development and GDP p.c. growth seem to play a bigger role. Membership in SADC only plays a role for FDI, but no effect of the market size of regional groupings could be found.

The major objective of this study is to evaluate the role of exchange rate policy in determining trade flows with respect to Southern African economies. The study provides a structural analysis to the empirical strength of the influence of exchange rate movements on trade flows for small low-income countries on the basis of the prevalence of export demand pessimism, import demand pessimism and export supply pessimism. Through an empirical estimation of real exchange rate and output elasticities of import and exports of eight SADC economies, namely Zimbabwe, Zambia, Botswana, Malawi, Lesotho, Swaziland, South Africa, Mauritius, the main findings of the study indicate that exchange rate policy has not played an active role as a trade facilitation tool in regional economies. Moreover, the tendency of the pervasive effects of distorted macroeconomic and structural macroeconomic fundamentals is reflected in some inconsistent results as well as the statistical insignificance of some of the elasticities.

Overall, the analysis shows that output elasticities are generally large and well-determined. By contrast, the real exchange rate elasticities are less-well determined and generally quite low. Hence although there is considerable evidence that the real exchange rates do affect trade volumes in the expected directions, the results are in most cases quite pessimistic as regards the size and effectiveness of the underlying elasticities. Thus the main conclusions of the study point towards the general overview that trade and exchange rate policy implementation in regional economies is highly constrained by the underlying structural features of the economies which make import substitution difficult while exhibiting inelastic export response both on the demand and supply side.

High degrees of import compression, excessive dependence on a few traditional export products while importing manufactured goods and machinery that are critical inputs in the production process has perpetuated the low responsiveness of imports and exports to changes in the real exchange rates in SADC economies. Thus in light of the findings, sustained exchange rate policy implementation which hinges on extensive institutional and technological capacity as well as maintaining comprehensive coherent macroeconomic packages remains a critical factor in ensuring that exchange rate policy performs its central role as a trade facilitation tool.

Intra-SADC trade remains very low despite the shift in the focus of the regional body from being driven mainly by political objectives to a position where economic imperatives are accorded greater weight. By calculating the revealed comparative advantage indices for the regional countries, results from this paper suggest that relative competitiveness, to a larger extent, explains the pattern of trade within the region. The revealed structure of trade also shows that for the majority of the countries in the region, there is limited scope to move into the production of high value-added products by way of vertically diversifying their exports. Export supply capacities constraints are a major limiting factor for the smaller countries to exploit possible niche markets. The very fact that pockets of opportunities cannot be taken advantage of, due to supply constraints, the capacity of the smaller regional countries to generate foreign currency required to increase trade is also limited. Therefore increasing intra-SADC trade requires more than just eliminating trade barriers but also an improvement in the investment climate that will in turn boost production activities. However, greater efforts at liberalisation and the harmonisation of trade policies may result in a more efficient allocation of investment and better prospects for increased trade.

The reform of the financial sector has been an important component of the structural adjustment programmes pursued by developing countries, whereby reform entails reducing government involvement, freeing up financial markets, and strengthening
financial institutions. In Southern Africa, however, the financial systems of most countries remain relatively underdeveloped, in spite of these reforms. The Southern African Development Community (SADC) is currently in the process of drafting a protocol on finance and investment, which should address the issue of financial sector development. The questions that arise from this are, firstly, what kind of role can SADC play in promoting financial sector development, and secondly, what are the possibilities for financial integration within SADC?

One of the stated aims of SADC is monetary integration; however, no timetable for monetary integration has been drawn up, nor has there been any in-depth discussion of the issue at SADC level. It seems that, while monetary integration may be a long-term goal of the organisation, it is not considered achievable at present. To complement monetary integration, the establishment of a wider internal market for financial services would be required, as well as the convergence of a number of financial variables. Financial integration encompasses all of these goals, including a common currency. Some SADC leaders have spoken of the need for financial integration within the region, but the use of the term has not been clearly defined. Indeed, Linah Mohohlo, the governor of the Bank of Botswana, recently said that, “financial integration should not require any surrender of sovereignty” (Business Week, 18/9/2000), which raises the question of what exactly is meant by the term “financial integration.” The question of whether SADC should aim to follow an EU-style approach to financial integration, or whether it should continue with its current ad hoc approach, has therefore not been addressed.

A related issue is the questionable political will with regard to economic integration, as demonstrated by SADC’s leaders. The 14 countries of SADC are at differing levels of economic development, with South Africa accounting for about 78% of the region’s total GDP. Some countries, such as Angola, the DRC, and (increasingly) Zimbabwe, are facing economic crises, due to internal instability. Other countries, like Botswana and Mauritius, are stable and have reasonable growth rates, but face the problem of diversifying their economies. The countries of the Common Monetary Area1 are still heavily dependent on South Africa. Others, such as Tanzania, Mozambique and Zambia, are dealing with the transition from a heavily state-dominated economy to one that relies on market forces. Each nation has its own development strategy that has been tailored to the specific needs of their own economy. However, economic integration by its very nature requires some sacrifice of national sovereignty, in order to reap the benefits of a single market. While the rationale for economic integration in Southern Africa is wellunderstood, there appears to be an unwillingness on the part of member states (perhaps understandably) to substitute regional priorities for national ones, making the decisionmaking process slow and difficult. The result is that little progress has been made towards economic integration thus far.

Given this rather discouraging background, this paper looks at the role that SADC can realistically play in developing the financial systems of the countries of Southern Africa. Section I reviews some of the literature and theory around financial sector reform, particularly in the context of Southern Africa. Section II offers an overview of the financial systems of the various SADC countries. Section III considers regional integration, looking at SADC as an organisation, as well as highlighting some of the possible barriers to integration. Section IV explores the issue of SADC’s role in financial sector reform, and makes some suggestions that could perhaps be considered in the drafting of the Finance and Investment Protocol. Finally, Section V contains some concluding comments as well as suggestions for further research.

A major policy issue for many developing countries is to foster further integration into the world economy. This note discusses the role competition policy can play in the context of efforts to promote the restructuring the economy, focusing in particular on the relationship with industrial and trade policy and on the potential role of international agreements and cooperation (both multilateral and regional).

The paper is structured as follows. Section I defines terms and discusses the relationship between trade, competition and industrial policies. Section II provides an overview of the “basics” of competition policy, drawing some implications for “best practice” from cross - country experience. Section III discusses the role a competition authority can play in the process of economic transformation, emphasizing its potential as an instrument to promote transparency and assist policymakers and civil society in assessing the effects of government policy. Section IV discusses one particularly important dimension of the interface between trade and competition policy¾ensuring that the competitive effects of instruments of contingent protection of the type allowed by the WTO are considered by policymakers. Section V briefly reviews options for international cooperation in the area of competition policy. Section VI concludes. An appendix provides a illustration of the types of indicators that might be compiled to monitor developments in the “state of competition” in the economy, using data for Slovakia for concreteness.