…A full account of why the agreement should be embraced
By Hilary Mare
THE historic signing of the EU-SADC Economic Partnership Agreement (EPA) earlier in the year against the backdrop of a comprehensive and protracted negotiation process brings Namibia closer to the biggest global market and makes a case for the development of the local manufacturing and production sectors.
Crucially, EPA takes account of the different levels of development of each partner as it guarantees Botswana, Lesotho, Mozambique, Namibia, and Swaziland duty-free, quota-free access to the European market. Furthermore, the agreement increases the flexibility of Southern African producers to put together products from components from various countries, without the risk of losing their free access to the EU market.
What we need to realise however is that for Namibia to harvest optimum returns from this deal, the country needs to address domestic supply side constraints, expand the manufacturing base and increasing local share in domestic, regional, continental and global value chains through implementation of the industrial development policy strategies, continuously invest in skills, innovation and research and development to serve the needs of the economy and enhance national competitiveness, implement targeted policies to promote domestic value-addition and the development of infant industries in areas of competitive and comparative advantages, implement interventions to strengthen national food production and enhance food security and promoting regional trade and export promotion, leverage on the preferential market access and intra Africa-trade.
Essentially according to the European Commission the economic impact of the EPA was assessed using a dynamic general equilibrium model, tailor-made for trade policy analysis and adjusted to the specific characteristics which apply to the southern African countries. In a conservative manner, only the impact of the tariff reductions was assessed, i.e. what is easily quantifiable from the agreement. Essential provisions of the EPA (rules of origin, trade facilitation, cooperation on norms, and development assistance) were not considered in the model even though they weigh in favour of SADC EPA countries. The results presented in this study are therefore expected to be exceeded over time.
Based on the simulation results, SADC EPA countries’ GDP will be positively affected by the agreement, albeit to a small extent: Individual countries see their GDP grow by between 0.01 percent and 1.18 percent, whereas the weighted average GDP increase, which is strongly dominated by South Africa, is about 0.03 percent (importantly, all results refer to the situation in 2035 compared to a situation without the EPA).
The variation between countries reflects the extent to which the EPA and the baseline differ: in countries such as Namibia, the EPA provides duty-free quota-free access while the country, in the absence of EPA, would not benefit from a preferential treatment (hence the higher impact). In Botswana, the main export items (e.g. diamonds) would still benefit from low duties without the EPA (hence the lower impact). For a least-developed country like Mozambique, which would still benefit from duty-free quota-free in the absence of EPA, the main benefits to be expected rather come from the flexible rules of origin, regional integration as well as cooperation on norms and standards to boost its exports (all factors which could not be quantified and therefore were not included in the model).
Total exports from the SADC EPA Group to the world are positively affected by the EPA as are total imports. SADC EPA exports are expected to increase on average by 0.13 percent and imports by 0.14 percent. In particular, SADC EPA exports to the EU are expected to increase by 0.91 percent. The agreement has no measureable impact on the EU’s overall trade with the world. Exports to the SADC EPA countries are anticipated to increase by 0.73 percent against a scenario where there would be no EPA.
The sectors with the highest expected increases in exports from SADC EPA countries are red meat (15.3 percent) and sugar (13.7 percent). Other sectors where an increase in exports is expected are beverage and tobacco, dairy products, fisheries, motor vehicles, other food, textile, utilities, vegetable oil, vegetables and fruit, and white meat. While several of the increases are sizeable, decreases are usually below 0.1 percent, with the exception of wearing apparel (-1.2 percent), cattle (-0.8 percent) and electronics (-0.4 percent).
The increase and decrease reflect the comparative treatment of each sector under the EPA by comparison to the baseline: in many sectors, EU customs duties are already low in the baseline scenario (especially when it comes to inputs into the production or primary products), while EU customs duties on finished goods and agricultural goods are much higher in the baseline than in the EPA, hence the higher positive impact in those sectors.
The remuneration of the factors of production is generally positively affected by the EPA even if only to a small extent. Remuneration of labour and land is generally expected to increase, while other factors such as capital and natural resources offer a more mixed picture. The SADC EPA is expected to modestly reduce the poverty headcount in the two countries observed (South Africa and Namibia). As a result of tariff reduction, SADC EPA countries will collect less import duties, but the decrease is on average not higher than 0.59 percent of total import duty collection at the end of the liberalisation period. Revenue loss is therefore expected to be limited.
With very little doubt, the EPA paves the way for a stable and long-term bi-regional trade relationship between southern Africa and the EU. The outcome of the negotiations is a WTO-compatible agreement that offers asymmetry in market access. The duty-free access to the European market for the Botswana, Lesotho, Mozambique, Namibia and Swaziland (BLMNS) countries will no longer be at the discretion of the EU but will be anchored in a treaty between the parties.
The EPA, including through its development cooperation pillar, is expected to facilitate intra-regional trade as well as the region’s trade with the world. The SADC EPA will also re-establish the common external tariff of the Southern African Customs Union (SACU) and thereby renew the proper functioning of the oldest existing customs union in the world. The EPA creates a joint council and a joint committee in charge of the implementation of the agreement. It will be the task of those institutions to ensure that the EPA is properly implemented, as well as to make proposals for the review of priorities set out in the agreement. For that purpose, constant monitoring of implementation is paramount.
Locally, Government needs to foster a conducive investment climate through structural reforms to promote competitiveness of the domestic economy, mobilise domestic resources as a sustainable means to finance development and leveraging international cooperation in this regard, and promote the role of the service sectors in the economy, especially in respect of tourism, financial services, transport and logistics.
Indeed the deal has wider benefits that will benefit not only Namibia but the rest of the region. The Southern African markets will open gradually and partially to EU exports, in an asymmetric way. The import duties on many intermediary goods will be significantly reduced, making the products more easily accessible to Southern African entrepreneurs.
Conclusively, the envisaged coming into force of the Economic Partnership Agreement presents immense opportunities for improved demand and export-led growth for Namibia and the ACP region as a result of increased market access into the EU. The duty-free and quota free access into the EU market is an important catalyst for improved productive capacity for the ACP region, Namibia inclusive thus it needs to be fully embraced.
Confidente. Lifting the Lid. Copyright © 2015