Common Market of Eastern and Southern Africa... file:///home/student/Downloads/SSSSSSSSSSS...

Common Market of Eastern and Southern

Africa, COMESA
COMESA Centre                                                 
Ben Bella Road                                       
10101 Lusaka                                         
Zambia   
Postal Add: P.O. Box 30051 
Telephone: +260 - 1 - 22 - 9725 to 32
Facsimile: +260 - 1 - 22 - 5107
E-Mail:       comesa@comesa.int
Internet:     www.comesa.int

Establishment and member countries

History
Priorities and Objectives
The free trade area and common tariff structure

A Free Trade Area

Common External Tariff

Institutions
Achievements
Economic situation

Establishment and member countries

The Treaty establishing

COMESA was signed on 5th
November 1993 in Kampala,
Uganda and was ratified a year
later in Lilongwe, Malawi on
8th December 1994. Member
countries are Angola, Burundi
comoros, D.R. Congo, Eritrea,
Ethiopia, Kenya, Madagascar,
Malawi, Mauritius, Namibia,
Rwanda, Seycelles, Sudan,
Swaziland, Tanzania, Uganda,
Zambia and Zimbabwe.

COMESA replaced the former

Preferential Trade Area (PTA)
which had existed from the
earlier days of 1981. COMESA
was established 'as an

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organisation of free
independent sovereign states
which have agreed to co-operate in developing their natural and human
resources for the good of all their people.'

Its main focus is on the formation of a large economic and trading unit that
is capable of overcoming some of the barriers that are faced by individual
states. By the year 2000, all internal trade tariffs and barriers will be
removed. Within 4 years after that COMESA will have introduced a common
external tariff structure to deal with all third party trade and will have
considerably simplified all procedures. It has a wide-ranging series of other
objectives which necessarily include in its priorities the promotion of peace
and security in the region.

History of COMESA

At the first and second conferences of independent African States, held in

Accra, Ghana, in April 1958 and in Addis Ababa, Ethiopia in June 1960,
respectively, economic problems to be faced by independent Africa were
discussed. There was a consensus that the smallness and fragmentation of
post-colonial African national markets would constitute a major obstacle to
the diversification of economic activity, away from a concentration on
production of a narrow range of primary exports, to the creation of modern
and internationally competitive enterprises, which would satisfy domestic
needs and meet export requirements. It was, therefore, agreed that African
countries which had gained political independence, should promote
economic co-operation among themselves.

Two options were advocated for the implementation of the integration

strategy in Africa: a) the Pan-African, all-embracing regional approach,
which envisaged the immediate creation of a regional continental economic
arrangement; and b) the geographically narrower approach that would
have its roots at the sub-regional levels and build on sub-regional co-
operation arrangements to achieve geographically wider forms of co-
operation arrangements.

The majority of the countries favoured the narrower sub-regional approach.

Based on this, the United Nations Economic Commission for Africa (ECA)
proposed the division of the continent into four sub-regions: Eastern and
Southern, Central, West and North Africa. The Commission’s proposals
were adopted by the OAU Conference of Heads of State and Government.
All independent African Sates were enjoined to take, during the 1980’s, all
necessary steps to strengthen existing sub-regional economic co-operative
groupings and, as necessary, establish new ones so as to cover the whole
continent sub-region by sub-region and promote co-ordination and
harmonization among the groupings for the gradual establishment of an
African Economic Community by the end of the century.

The origins of the COMESA can be traced as far back as the mid-sixties.
Before the Lagos Plan of Action and the Final Act of Lagos were adopted,

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the countries of Eastern and Southern Africa had already initiated the
process towards creating an Eastern and Southern African co-operation
arrangement.

In October 1965, the ECA convened a ministerial meeting of the then

politically independent states of eastern and southern Africa to consider
proposals for the establishment of a mechanism for the promotion of sub-
regional economic integration. The meeting, which was held in Lusaka,
Zambia, recommended the creation of an Economic Community of Eastern
and Southern African states. To achieve this objective, the meeting also
recommended that an Interim Council of Ministers, assisted by an Interim
Economic Committee of officials, should be set up to negotiate the treaty
and initiate programmes on economic co-operation, pending the completion
of negotiations on the treaty.

At the first meeting of the interim Ministerial Council held in Addis Ababa,
in May 1966, the Terms of Association to govern the interim arrangements
before the signing of the formal Treaty were adopted and signed by
Burundi, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Rwanda,
Somalia, Tanzania, and Zambia. In November 1967, a meeting of the
Interim Economic Committee of officials recommended an interim
programme of action for implementation which would be integrated into
the Treaty when approved. Parallel with these developments, two other
organizations were established, the Pan-African Freedom Movement in
East, Central and Southern Africa (PAFMECSA), and the conference of East
and Central African states. Although these were mainly political in their
orientation, their membership extended beyond the sub-region and they
included in their activities programmes on economic co-operation.

In the 1970’s, the need for a sub-regional economic arrangements became

more urgent as a result of three major developments. First, the collapse of
the federations in Eastern and Central Africa reduced political co-operation
amongst States of the region and this needed to be addressed. Second, the
destabilization of the economies of the southern African States by apartheid
South Africa made it necessary to create, as a matter urgency, a sub-
regional organization which would be an economic counterweight to South
Africa. Third, despite the failure of earlier efforts to establish a sub-regional
economic co-operation arrangement, the countries of Eastern and Southern
Africa recognised that there was no alternative to reducing their traditional
economic dependence on the industrialized countries of the north and that
this could only be done through the adoption of self-sustaining development
measures in all sectors.

In March 1978 the First Extra-ordinary meeting of Ministers of Trade,

Finance and Planning met in Lusaka. The meeting recommended the
creation of a sub-regional economic community, beginning with a sub-
regional trade area which would be gradually upgraded over a ten-year
period to a common market until the community had been established. To
this end, the meeting adopted the “Lusaka Declaration of Intent and
Commitment to the Establishment of a Preferential Trade Area for Eastern
and Southern Africa” and created an Inter-governmental Negotiating Team

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on the Treaty for the establishment of the PTA. The meeting also agreed on
an indicative time-table for the work of the Intergovernmental Negotiating
Team.

After the preparatory work had been completed a meeting of Heads of State
and Government was convened in Lusaka on 21st December 1981 at which
the Treaty establishing the PTA was signed. The Treaty came into force on
30th September 1982 after it had been ratified by more than seven
signatory states as provided for in Article 50 of the Treaty.

The PTA Treaty envisaged its transformation into a Common Market and, as
such, the Treaty establishing COMESA was signed on 5th November 1993
in Kampala, Uganda and was ratified a year later in Lilongwe, Malawi on
8th December 1994.

The process of economic integration in Eastern and Southern Africa has,

therefore, not been episodic, but rather systematic, following a logical
progression on a step by step basis. Firstly, a Preferential Trade Area was
established and operated for over a decade, which was then transformed
into a common market. The third phase will involve the eventual
establishment of an Economic Community.

Priorities and Objectives according to the Treaty

The Treaty establishing COMESA binds together free independent
sovereign States which have agreed to co-operate in exploiting their natural
and human re- sources for the common good of all their peoples. In
attaining that goal, COMESA recognises that peace, security and stability
are basic factors in providing investment, development, trade and regional
economic integration. Experience has shown that civil strives, political
instabilities and cross-border disputes in the region have seriously Affected
the ability of the countries to develop their individual economies as well as
their capacity to participate and take full advantage of the regional
integration arrangement under COMESA. It has now been fully accepted
that without peace, security and stability there cannot be a satisfactory
level of investment even by local entrepreneurs.

Therefore, in pursuit of the aims and objectives stated in Article 3 of the

COMESA Treaty, and in conformity with the Treaty for the Establishment of
the African Economic Community signed at Abuja, Nigeria on 3rd June
1991, the member States of COMESA have agreed to adhere to the
following principles:

(a) equality and inter-independence of the member States;

(b) solidarity and collective self-reliance among the member States;

(c) inter-State co-operation, harmonisation of policies and integration of

programmes among the member States;

(d) non-aggression between the member States;

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(e) recognition, promotion and protection of human and people's rights in

accordance with the provisions of the African Charter on Human and
People's Rights;

(f) accountability, economic justice and popular participation in

development;

(g) the recognition and observance of the rule of law;

(h) the promotion and sustenance of a democratic system of governance in

each member State;

(i) the maintenance of regional peace and stability through the promotion
and strengthening of good neighbourliness; and

j) the peaceful settlement of disputes among the member States, the active
co-operation between neighbouring countries and the promotion of a
peaceful environment as a pre-requisite for their economic development.

COMESA is an all-embracing development organisation involving co-

operation in all economic and social Sectors. However, due to resources
Constraints, the implemen- tation of activities and programmes will be
prioritised to areas where the greatest impacts can be made. To that end,
the first COMESA Authority of Heads of State and Government, at its
meeting held in Lilongwe, Malawi from 8th to 9th December 1994, adopted
the following five priorities to be the basis of COMESA's focus for the next
five to ten years.'

significant and sustained increases in productivity in industry,

manufacturing, processing and agro-industries to provide competitive
goods as the basis for cross-border trade and to create more wealth,
more jobs and more incomes for the people of the region;
increase agricultural production, with special emphasis on the joint
development of lake and river basins so as to reduce dependence on
rain-fed agriculture and new programmes on food security at the
provincial or district levels, national and regional levels;
development of transport and communications infrastructures and
services with special emphasis on linking the rural areas with the rest
of the economy in each country as well as linking the member States
new programmes for trade promotion, trade expansion and trade
facilitation especially geared to the private sector, so as to enable the
business community to take maximum advantage of the Common
Market, and
development of comprehensive, reliable and up to date information
data bases covering all sectors of the economy including industry,
energy, environment, agriculture transport, communications,
mvestment and ftnance, trade, health and human resources to form
the basis for sound investment decisions and macro-econoinic policy
formulation and programming.

The aims and objectives of COMESA have been designed so as to remove

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the structural and institutional weaknesses in the member States by

pooling their resources together in order to sustain their development
efforts either individually or collectively. These are as follows:

to attain sustainable growth and development of the member States by

promoting a more balanced and harmonious development of its
production and marketing structures;
to promote joint development in all fields of economic activity and the
joint adoption of macro -economic policies and programmes; to raise
the standard of living of its peoples, and to foster closer relations
among its member States;
to co-operate in the creation of an enabling environment for foreign,
cross-border and domestic investment, including the joint promotion of
research and adaptation of science and technology for development;
to co-operate in the promotion of peace, security and stability among
the member States in order to enhance economic development in the
region;
to co-operate in strengthening the relations between the Common
Market and the rest of the world and the adoption of common positions
in international fora; and
to contribute towards the establishment, progress and the realisation
of the objectives of the African Economic Community.

The COMESA agenda is to deepen and broaden the integration process

among member States through the adoption of more comprehensive trade
liberation measures such as the complete elimination of tariff and non-tariff
barriers to trade and elimination of customs duties; through the free
movement of capital, labour, goods and the right of establishment; by
promoting standardised technical specifications, standardisation and
quality control; through the elimination of controls on the movement of
goods and individuals; by standardising taxation rates (including value
added tax and excise duties), and conditions regarding industrial co-
operation, particularly on company laws, intellectual property rights and
investment laws; through the promotion of the adoption of a single
currency and the establishment of a Monetary Union; and through the
adoption of a Common External Tariff (CET).

By agreeing to the above, member States have agreed on the need to create
and maintain:

a full free trade area guaranteeing the free movement of goods and
services produced within COMESA and the removal of all tariffs and
non-tariff barriers;
a customs union under which goods and services imported from non-
COMESA countries will attract an agreed single tariff all COMESA
States;
free movement of capital and investment supported by the adoption of
common investment practices 50 as to create a more favourable
investment climate for the entire COMESA region:
a gradual establishment of a payments union based on the COMESA
Cleaning House and the eventual establishment of a common monetary

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union with a common currency;

the adoption of a common visa arrangement, including the right of
establishment leading eventually to free movement of bona fide
persons.

The free trade area and common tariff structure

A Free Trade Area

COMESA is to establish a Free Trade Area (FTA) by the year 2000 and all
countries are supposed to have reduced tariffs by 80% as at October 1996.
In fact, only 5 countries (Comoros, Eritrea, Sudan, Uganda and Zimbabwe)
have reached this level, with Kenya, Malawi and Mauritius on 70% and
processing the 80% level. Tanzania is also currently processing the 80%
tariff reduction, which is now before parliament. All other countries, except
Angola, Ethiopia and Zaire (which have yet to reduced tariffs by the 60%
reduction rate), and those countries which still enjoy a derogation from
publishing these tariffs (Lesotho, Swaziland and Namibia) have reduced
tariffs by either 60% or 70%.

The problems some countries face are that they are applying tariff
reduction rates to already low national rates, leading to inequitable revenue
losses and making exports to countries with higher national rates less
competitive. There is also a problem with application of the tariff reduction
programme at different stages by different countries. Although these
problems are seen as temporary, if the FTA is achieved by 2000, and can
also be addressed through the principle of reciprocity, the COMESA
Secretariat needs to continue to assess the revenue implications the
application of the tariff reduction programme is having on individual
COMESA countries and, where possible, suggest ways in which reduced
revenues from reduced tariff rates can be compensated for, if only in the
short-term and in this area the Secretariat may require the assistance of
short-term technical assistance inputs.

A further problem to be addressed is the inherent inconsistencies in the

implementation of the FTA of COMESA, the proposed SADC FTA and the
CBI tariff reduction programme, although this may not constitute a
problem, de facto, as if all COMESA countries abide by the agreed
timetable of implementing a COMESA FTA only two countries in SADC
(South Africa and Botswana) will not have implemented a FTA. However,
this is an area in which the COMESA Secretariat will need to work closely
with the SADC Secretariat to ensure that implementation of the respective
free trade protocols are not contradictory and again this is an area in which
the COMESA and SADC Secretariats may need to request the support of
short-term technical assistance inputs.

One of the principle mechanisms through which COMESA member States

will fulfil the provisions of the COMESA Treaty to simplify and harmonise
their customs procedures and documents, to standardise the collection of
reliable, accurate and up-to-date trade statistics, to facilitate trade in the
region is through the implementation of the Automated System for Customs

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Data and Management (ASYCUDA) and EuroTrace.

The objective of ASYCUDA/EuroTrace is to assist the business community

to clear goods faster from customs areas, make available up-to-date and
accurate international trade statistics, modernise customs administrations
and, through improved efficiencies, increase the revenues of COMESA
member States.

ASYCUDA is being implemented in 13 COMESA countries (Burundi,

Comoros, DR Congo, Madagascar, Mauritius, Rwanda, Sudan and
Zimbabwe), with formal requests for the system having been received from
Malawi, Swaziland and Zambia and projects underway in Eritrea, Ethiopia,
Namibia, Tanzania and Uganda.

The assistance of the donor community, at the level of installing

ASYCUDA/EuroTrace at the national level (involving supply of computer
hardware and initial technical assistance) and at the regional level (through
the provision of regional support to the national systems from the COMESA
Secretariat) is welcome.

Related to the establishment of a Free Trade Area is the elimination of Non-

Tariff Barriers (NTBs) and the simplification of COMESA Rules of Origin
and Value Added Criteria.

Steady progress has been made in elimination of non-tariff barriers (NTBs)

such as in liberalisation of import licensing, removal of foreign exchange
restrictions and taxes on foreign exchange, removal of import and export
quotas, removal of road blocks, easing of Customs formalities, extending
times border posts are open, etc. There are, however, still a number of
improvements which should be made, which should make intra-regional
trade easier, such as improving the transport and communications
structures, ease visa requirements, improve information, and access to
information on trade opportunities, further reduce customs and
bureaucratic procedures at border crossings etc. Many of these (such as
improving the transport and communications infrastructure) will require
significant investment and will only be achieved over a medium to long
term time scale and is an area in which donor support and foreign private
sector investment will be needed for some time to come.

One specific NTB is the amount of documentation required to move goods

between COMESA countries. To assist with the removal of this NTB, by
reducing the multiplicity of customs documents, COMESA has designed the
COMESA Customs Document, or COMESA-CD, which was scheduled for
introduction by all COMESA member States by 1st July 1997.

The Secretariat is currently working on the identification of other

remaining non-tariff barriers and drawing up measures on ways in which
these NTBs can be resolved and the assistance of the private sector and the
donor community in identifying NTBs, recommending ways in which they
can be reduced or removed and collaboration with COMESA on the process
of their removal would be of benefit to the process of economic growth in

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the region.

COMESA has been working on levels of value-added content and COMESA

Rules of Origin for some time now. Crown Agents carried out a study on
these issues in 1994 and recommended introducing a 40% value added on
ex-factory price basis and deleting the provision for 25% value added for
goods of particular importance to economic development. Although these
recommendations were accepted by COMESA, the Secretariat is in the
process of undertaking a new study on value added and rules of origin
because there are some member States which are not comfortable with the
current rules of origin which give undue emphasis on value added content.

The view of the Secretariat is that rules of origin should not be based on an
added value criterion alone. In fact firms will try to reduce added value,
through reducing costs and becoming more efficient and so rules of origin
based on just added value may be counter-productive in promoting intra-
regional trade. Added value rules are also arbitrary in nature, complex to
apply and introduce a high risk of fraud. Given these drawbacks the rules of
origin study proposed by the COMESA Secretariat is not be limited to
added value criteria only and will address other issues of regional trade.

The COMESA Secretariat would welcome donor assistance in the

implementation of the study on value added content, rules of origin and
related topics.

Common External Tariff

COMESA has reached an agreement to implement a Common External

Tariff by the year 2004 and as this currently stands the CET will be 0%, 5%,
15% and 30% on capital goods, raw materials, intermediate goods and final
goods respectively.

There are still a number of obstacles to be faced regarding the CET, not
least on the levels, on compliance, on identifying alternative sources of
revenue where revenue loss could result from adopting the CET, on defining
the modalities of administering the CET and the categorisation of goods
into the proposed CET structure.

The COMESA Secretariat would welcome the support of donors, and the
involvement of the private sector, in preparing studies which come up with
solutions to these obstacles in the implementation of a COMESA CET.

COMESA institutions

There are four organs of COMESA which have the power to take decisions
on behalf of COMESA, these being: the Authority of Heads of State and
Government; the Council of Ministers; the Court of Justice; and the
Committee of Governors of Central Banks. The Intergovernmental
Committee, the Technical Committees, the Secretariat and the Consultative
Committee make recommendations to the Council of Ministers, which in

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turn make recommendations to the Authority.

The Authority, made up of Heads of State and Government is the

supreme Policy Organ of the Common Market and is responsible for
the general policy, direction and control of the performance of the
executive functions of the Common Market and the achievement of its
aims and objectives. The decisions and directives of the Authority are
by consensus and are binding on all subordinate institutions, other
than the Court of Justice, on matters within its jurisdiction, as well as
on the member States.
The Council of Ministers (Council) is the second highest Policy
Organ of COMESA. It is composed of Ministers designated by the
member States. The Council is responsible for ensuring the proper
functioning of COMESA in accordance with the provisions of the
Treaty. The Council takes policy decisions on the programmes and
activities of the COMESA, including the monitoring and reviewing of
its financial and administrative management. As provided for in the
Treaty, Council decisions are made by consensus, failing which, by a
two-thirds majority of the members of the Council.

The COMESA Court of Justice is the judicial organ of COMESA,

having jurisdiction to adjudicate upon all matters which may be
referred to it pursuant to the COMESA Treaty. Specifically, it ensures
the proper interpretation and application of the provisions of the
Treaty; and it adjudicates any disputes that may arise among the
member States regarding the interpretation and application of the
provisions of the Treaty. The decisions of the Court are binding and
final. Decisions of the Court on the interpretation of the provisions of
the COMESA Treaty have precedence over decisions of national
courts. The Court, when acting within it jurisdiction, is independent of
the Authority and the Council. It is headed by a President and consists
of six additional judges appointed by the Authority. Consideration is
being given to establishing the Court of Justice in the not too distant
future.
The Committee of Governors of Central Banks is empowered
under the Treaty to determine the maximum debt and credit limits to
the COMESA Clearing House, the daily interest rate for outstanding
debt balances and the Staff Rules for Clearing House staff. It also
monitors, and ensures the proper implementation of the Monetary and
Financial Co-operation programmes..

The Inter-governmental Committee is a multi-disciplinary body

composed of permanent secretaries from the member States in the
fields of trade and customs, agriculture, industry, transport and
communications, administrative and budgetary matters and legal
affairs. Decisions of the Committee are by a simple majority. Its main
functions include:
the development of programmes and action plans in all the
sectors of co-operation, except in the finance and monetary
sector;
the monitoring and keeping under constant review and ensuring

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proper functioning and development of the Common Market; and

overseeing the implementation of the provisions of the Treaty
and, for that purpose, requesting a technical committee to
investigate any particular matter.
There are 12 Technical Committees, namely, on Administrative and
Budgetary Matters; on Agriculture; on Comprehensive Information
Systems; on Energy; on Finance and Monetary Affairs; on Industry; on
Labour, Human Resources and Social Affairs; on Legal Affairs; on
Natural Resources and Environment; on Tourism and Wildlife; on
Trade and Customs; and on Transport and Communications. The
Technical Committees are responsible for the preparation of
comprehensive implementation programs and monitoring their
implementation and then making recommendations to the Council.
The Consultative Committee of the Business Community and
other Interest Groups is responsible for providing a link and
facilitating dialogue between the business community and other
interest groups and other organs of COMESA
The Secretariat is headed by a Secretary General who is appointed
by the Authority for a term of five years and is eligible for re-
appointment for a further term of five years. The basic function of the
Secretariat is to provide technical support and advisory services to the
member States in the implementation of the Treaty. To this end, it
undertakes research and studies as a basis for implementing the
decisions adopted by the Policy Organs. The various activities of the
Secretariat encompass: Agriculture; Transport and Communications:
Industry and Energy; Trade and Customs; Monetary Co-operation; and
Administration. The Office of the Secretary General includes the Legal
Office, Technical Co-operation, Women in Development and an Audit
Unit.

An important COMESA innovation is that the Common Market Treaty

establishes a Court of Justice to oversee the legal relations within COMESA.
Persons resident in the Common Market may contest the legality of acts of
Common Market institutions as well as that of member States. In effect, the
Treaty establishes a "legal community", being whereby entrepreneurs will
be guaranteed that business decisions and transactions are not unduly
frustrated by unnecessaty bureaucratic interventions.

The COMESA Court of Justice will inter alia: (a) have jurisdiction to
adjudicate upon all matters which may be referred to it pursuant to the
COMESA Treaty; and (b) have jurisdiction to hear disputes between
COMESA and its employees that arise out of the application and
interpretation of the Staff Rules and Regulations of the Secretariat or the
terms and conditions of employment of the employees of COMESA, and to
determine claims by any person against COMESA or its institutions for acts
of their servants or employees in the performance of their duties.

Several institutions have been created to promote sub-regional co-operation

and development. These include:

The COMESA Trade and Development Bank in Nairobi, Kenya;

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The COMESA Clearing House in Harare, Zimbabwe

The COMESA Association of Commercial Banks in Harare, Zimbabwe
The COMESA Leather Institute in Ethiopia
The COMESA Re-Insurance Company (ZEP-RE) in Nairobi, Kenya

Further initiatives exist to promote cross border investment, form a

common industrial policy and introduce a monetary harmonisation
programme.

COMESA Achievements

COMESA, as well as is predecessor the PTA, has achieved a lot in the

area of trade, customs, transport, development finance and technical
co-operation. Impressive progress has also been made in the
productive sectors of industry and agriculture.
Trade facilitation and trade liberalization measures are bearing fruit.
Intra-COMESA trade has grown from US$834 million in 1985 to US$
1.7 billion in 1994, an annual growth rate of 14%, and studies indicate
that this can increase to about US$4 billion annually. The challenge
facing COMESA is to exploit this potential further.
As a result of COMESA traffic facilitation measures, transport costs
have been reduced by a factor of about 25% and efforts are underway
to reduce them further.
In the sector of telecommunications, special emphasis has been placed
on network development to enable direct telecommunication links
through more reliable infrastructure in order to avoid third country
transit systems, which prove to be very costly.
COMESA has established several important institutions including the
PTA Trade and Development Bank, the COMESA Clearing House, the
COMESA Re-insurance Company and the COMESA Leather and
Leather Products Institute.
The PTA Bank has, over the years, been very active in promoting
investments and providing trade financing facilities. The Bank's
cumulative project approvals, 1995-1996, stand at USS$148 million
and cumulative trade finance activities, 1992 - 1996 totalled US$345
million.
A number of decisions have been taken to make the COMESA Clearing
House more responsive to the current needs of member States,
especially the private sector, including the introduction of the
COMESA Dollar to replace the UAPTA as the new Unit of Account of
the Clearing House.
The Re-Insurance Company (ZEP-RE) has, since its etablishment in
1992, been able to carve out a reasonable share of the regional
insurance business and is now transacting business in some nineteen
(19) countries. The share capital has risen to US$6.07 million. By the
end of 1995, the premium income realized had increased to US$7.5
million. Two additional member States acceded to the ZEP-RE
Agreement in August 1996. This shows the great business potential of
the COMESA region in terms of re-insurance.
COMESA now recognizes that in order to increase levels of intra-

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regional trade, there is a need to address the regulatory and policy

aspects of transport and communications to make the movement of
goods, services and people between countries in the region easier and
cheaper; to create a legal framework and enabling environment within
which private sector business can operate effectively in the region, and
to harmonize macro- economic and monetary policies.
COMESA also recognizes the need to promote investment in the region
and addresses this issue through facilitation of bilateral agreements;
promoting export drives by individual member States, and identifying
specific projects which have the potential to act as grnwth poles
between two or more member States.

Economic situation
Africa as a whole will enter the next millennium facing huge economic,
social and political challenges. Paramount among these are a hostile
external trade environment, a large debt burden and reducing levels of
Official Development Aid (ODA).

Up until the late 1980s and early 1990s most COMESA countries followed
an economic system which involved the state in all aspects of production,
distribution and marketing, thus denying the private sector an economic
role to play, except as shopkeepers, and promoted import substitution and
subsidised consumption. The theory was that successful emerging
industries could be identified by the state and nurtured, through a system
of subsidies, grants and protection from foreign competition behind a high
tariff wall, and that these industries could then grow to a size from which
they could compete against foreign firms. This did not actually happen as
the domestic markets were too small, in terms of purchasing power, for
industries to realise economies of scale; lack of competition resulted in poor
quality goods being produced; foreign direct investment was actively
discouraged, resulting in insufficient levels of investment taking place in
both capital and labour and in low levels of technology transfer; and a lack
of complementarity between domestic industries.

Initially, import substitution programmes were financed from domestic

earnings, such as revenues realised from sale of primary agricultural
commodities and minerals. As levels of revenue from these sources
declined, owing to declining terms of trade and reduced efficiencies in
production systems, these countries started borrowing on western capital
markets, and from the World Bank and IMF, to maintain previous levels of
consumption. As many of the countries concerned where at this stage
considered to be middle-income countries, they borrowed at commercial
rates. The borrowed money was usually not used to improve production so
real levels of GDP continued to decline while expenditure levels, which had
by then risen significantly, as a result of higher debt servicing payments,
continued to increase.

Governments of COMESA countries faced these economic crises by

continuing to borrow on international markets; placing heavy restrictions
on foreign currency transactions to try to reduce capital flight; pegging the

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value of the local currency against freely convertible foreign currencies

artificially high to reduce costs of essential imports (such as fuel which in
itself caused crises in the early 1970s); using revenues from parastatal
industries to finance the public sector recurrent budget, leaving little
revenue for re-investment in these strategic industries, resulting in further
declines in production; reducing the import bill by restricting by statute
items which could be imported; and heavily subsidising all aspects of
domestic agricultural production to promote self-sufficiency in food
production, which only served to make agriculture sectors even more
inefficient than they already were.

This package of economic policies has contributed significantly to the

economic decline of the region and to Africa’s gross domestic investment
having fallen consistently for the last 20 years, being currently recorded at
17 per cent of GDP. Assuming that a minimum investment ratio of 20 per
cent of GDP is needed to cover depreciation and repair costs, current levels
of gross domestic investment leave no room to finance production
expansion, productivity improvement or diversification. The net result is
decreasing competitiveness on the world market and loss of market share.

Foreign direct investment (FDI) in Africa is negligible, at approximately 1

per cent of GDP. This represents 0.8 per cent of all FDI and 2.1 per cent of
FDI going into all developing countries. The low levels of FDI being
attracted by Africa confirms, among other things, the region’s exclusion
from the intra-firm network, which accounts for the largest contribution to
growth of world trade, with intra-firm trade being, to a large extent, fuelled
by FDI.

The COMESA region (excluding South Africa) is not yet in a position to

attract FDI and portfolio funds at a level which would result in a significant
economic impact, because of the real and perceived risks associated with
investment in the region, and because of the perception that returns on
investment in Africa are low. Risk-related aspects of investment are affected
by both political and commercial factors which may threaten invested
capital and/or dividend returns. Profitability of investment relates primarily
to market size and the cost of doing business, the latter largely influenced
by productivity and effectiveness of infrastructure.

As regards market size, Africa has many of the world’s smaller states, with
7 countries with a population of less than one million, and 36 with a
population of less than 10 million. Only 4 sub-Saharan countries have a
population of more than 30 million. Southern Africa, without South Africa,
has a total GDP of around US$30 billion (1993), about a quarter of South
Africa’s present GDP of US$120 billion and less than half of Israel’s GDP of
US$69.7 billion (1993). Similarly, the current total GDP of the COMESA
region of 23 countries is only around US$90 billion, less than that of South
Africa and less than half of Belgium’s.

Net external financing to all African countries including South Africa, is not
expected to exceed US$20 billion in 1997, which is in stark contrast to the
situation in other developing regions, where FDI has become the dominant

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vehicle for the transfer of resources from the rich to the poorer countries.

The above problems are further compounded by the region’s terms of trade
which have declined by over 15 per cent since. The share of the region’s
trade in the world markets has also fallen by half since 1970 and accounts
for less than 1.5 per cent of all world trade, placing sub-Saharan Africa at
the very margins of the global economy.

In terms of African trade, there has been little structural transformation,

with trade being dominated by exports of primary commodities. In 1993, 86
per cent of Africa’s foreign exchange earnings were derived from primary
commodities, including crude petroleum, whereas 73 per cent of the total
value of imports was accounted for by manufactured goods.

Africa (including South Africa) contributes no more than 3 per cent to

globally traded goods and its share of world trade has been declining
steadily since 1980. Between 1980 and 1993, when world trade doubled in
value, Africa’s external trade remained at about the same level in absolute
terms. The share of sub-Saharan Africa in world exports declined from 2.5%
in 1970 to 1% in 1990, while its share in developing country exports
declined from 13.2% to 4.9% in the same period. Since then the share of
the continent in global trade has fallen to just over 2%.

The magnitude of COMESA’s external indebtedness is also a source of

serious concern. The external debt of the COMESA region has increased
twenty-fold since 1970 and debt service ratios which, in 1970, were
insignificant, averaged 45 per cent of export earnings in 1989-90, making
the region one of the most heavily indebted in the world. While member
States borrowed heavily to maintain incomes and investments, the collapse
of their export earnings undermined attempts to reduce their debts. Debt
relief to the COMESA region, and sub-Saharan Africa as a whole, has been
limited in relation to the magnitude of the problem and inflows of Official
Development Assistance (ODA) continue to decline. The aggregate external
debt owed by sub-Saharan Africa, including South Africa, was US$318
billion in 1994, compared to external financing to all African countries of
about US$15 billion in 1996.

On the production side, both the agricultural and industrial sectors have
been in decline. For many COMESA countries, agriculture constitutes
between 50 and 76 per cent of GDP but the growth of agricultural output,
at an average of 2 per cent per year over the last three decades, has barely
matched that of population growth, so has not contributed effectively to
sustainable growth and development. Agricultural exports have declined,
budgetary allocations to agriculture have remained small and inadequate
and an anti-poor bias in agricultural policy across much of the region,
notably through over-taxation of crops, inadequate spending on market
infrastructure for small-holder producers, and insufficient investment in
research of local foods have combined to adversely affected the region’s
trade share of exports in the world market, which has dropped by 50 per
cent since 1970. Food imports are increasing at about 8 per cent a year and
COMESA’s current bill for cereals is over US$2 billion. This heavy and

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chronic dependence on food imports is particularly dangerous for COMESA,

not only because it’s debt and trade problems impose serious limits on it’s
ability to purchase food in world markets, but also because there is no
guarantee that food aid and/or commercial imports will be available when
needed in the required quantities and quality.

Although industry grew roughly three times as fast as agriculture in the

first decade of independence, the past few years have seen an alarming
reversal in many States where de-industrialisation, as a short-term effect of
structural adjustment, has set in. Progress in the manufacturing sector has
fallen far short of the target growth rate of 8 per cent per annum projected
in the second Industrial Development Decade for Africa (IDDA II) as a result
of entrenched structural rigidities, weak inter-industry and inter-sectoral
linkages, lack of access to advanced technologies and poor institutional and
physical infrastructure. The African continent’s share of world
manufacturing value added (MVA) rose from 0.7 per cent in 1970 to 1 per
cent in 1982 and fell to 0.8 per cent in 1994. Most African industries have a
very low capacity utilisation rate and current structural adjustment
programmes have as yet to have a positive impact on the industrial sector.

Population is expanding at a rate of around 3.2 per cent, outstripping

agricultural and food production and COMESA now has twice the
population it had in 1965 and more than five times the population it had at
the beginning of the century.

The region has also experienced, over the last few years, unprecedented
droughts, leading to widespread food shortages and famine. There is
growing and widespread poverty in the COMESA region, especially among
the rural communities, aggravated by the decline in expenditures on social
services, including health, education and public utilities, nutrition has
worsened and mortality continues to increase.

There is a major crisis in employment in all countries, especially among the

youth in cities and towns. Unemployment in most countries is as much as
30 per cent or more of the active labour force and under-employment is just
as serious. The majority of the region’s population still dwell in the villages
and earn their living cultivating between one and fifteen hectares.

The COMESA region has also had to contend with civil strife, ethnic wars
and political instability which have also contributed to the decline in
economic growth.

In summary, the economic performance of the COMESA region has been

rather disappointing over the last two to three decades, with overall
economic growth of the COMESA region having averaged 3.2 per cent a
year since 1960 and only marginally above the level of the region’s
population growth. By 1993, this region of over 280 million people, which
has more than doubled its population since independence, had a total GDP
of around US$90 billion, and included fifteen of the twenty-three States
classified as Least Developed Countries (LDC’s) by the United Nations.

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Economic and social forecasts for the region suggest that the outlook for
the future is promising provided member States adopt and implement
strategies which will further outward-orientated regionalism in the process
of becoming fully integrated into the global economy. Most COMESA
countries are individually too small to achieve economies of scale in the
production and marketing of their products and need to work together as a
region if they are to achieve significant levels of economic growth and
compete in a world market which is becoming increasingly dominated by
large trading blocs.

The 1990s have seen the progressive globalisation of economic activity and
an increased economic interdependence between countries. This
globalisation has, in many instances, been achieved first through a process
of regional economic integration. The developed world, for instance, has
created regional groupings such as NAFTA, the European Union and APEC
and these groupings are now poised to take full advantage of the
opportunities offered by the further globalisation of the economy, under
WTO rules and regulations.

If sub-Saharan Africa is to benefit from sustainable economic growth it will

need to do this through trade liberalisation and regional integration.
Countries and regions unable or unwilling to integrate themselves into the
global economy will not benefit from growth-enhancing features of this
larger integration and will be further marginalised in the world goods and
capital markets. Integration tends to promote higher growth through such
channels as improved resource allocation, greater competition, technology
transfers and learning and improved access to foreign capital. Trade and
investment tend to increase in countries which have opened themselves up
to the world economies and growth itself tends to promote integration.

Intra-regional trade will therefore be an essential vehicle for the promotion

of diversification and establishment of linkages between production units in
different African countries. Not only will it contribute to improved
productivity and greater competitiveness for African products, it will also
provide a stronger basis for the effective participation of the African region
in the global economy.

The consensus on the need for closer regional co-operation and integration
in Africa; the view that effective co-operation and integration would assist
African countries to overcome the difficulties linked to the economic
fragmentation of the continent; and the disappointment in the results
achieved by previous attempts to create closer regional ties is also shared
by Africa’s co-operating partners.

It is in this context that COMESA is promoting regional integration and,

through this, regional economic growth, by emphasising measures which
reduce the costs of moving factors of production, goods and services across
national boundaries in the Eastern and Southern African region, with
relatively low tariff barriers against third parties.

Almost all COMESA member States are implementing structural adjustment

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programmes, most with the support of the Bretton Woods institutions. The
process of structural adjustment and economic reform at the national level
make it more likely that regional integration measures will succeed, in that
countries are now no longer operating under the constraints of import-
substitution, industrialisation strategies. Countries which have removed
exchange control restrictions, reduced tariff barriers to trade, reduced the
bureaucratic obstacles to doing business (including obstacles to cross-
border investment and movement of factors of production), allowed interest
rates to be set by the market and implemented other fiscal, financial and
structural reforms are now better placed to achieve economic integration
with each other. In addition, with a few notable exceptions, countries of the
region do not have the strong political differences, which existed in
particular in the 1970's, and so do not restrict economic interaction with
their neighbours purely on political and security grounds.

However, although these measures alleviate some of constraints on intra-

regional economic activity, there have occasionally been cases where the
programmes have been detrimental to regional integration. By placing
trade liberalisation and deregulation measures in a regional context,
COMESA is able to build upon the progress made under national structural
adjustment programmes while at the same time addressing the regional
dimensions of adjustment.

By taking full account of the general move away from state controlled
economies in favour of more liberalised, market-determined economies and
by recognising the vital role the private sector has to play in the social and
economic development of the region, COMESA is uniquely positioned to
assist with the process of regional integration. The priority role of the
COMESA Secretariat, within the framework of the COMESA Treaty, is to
take the lead in assisting its member States, through promotion of regional
integration, to make the adjustments necessary for them to become part of
the global economy within the framework of WTO regulations.

By taking, as its focal areas, issues of trade promotion and economic

integration, COMESA is concentrating its activities on trade liberalisation
and customs cooperation; administrative aspects of transport and
communications to make the movement of goods, services and people
between countries in the region administratively easier; promoting the
adoption of a common set of industry standards; promoting the
establishment of a stable and secure investment climate; creating a legal
framework within which businesses can operate within the region; and
playing a role in harmonising macro-economic and monetary policies.

COMESA is now poised to achieve a free trade area by the year 2000 and
recent studies indicate that this process will result in intra-COMESA trade
increasing from its present 8 per cent to nearly 20 per cent.

Expanded intra-COMESA trade would help overcome feast and famine

surges and shortages in food supplies. It would also give industries in
member States, which have been too long protected in markets that are too
small, expanded markets in which to compete and enable them to expand

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production and exports within COMESA and with third countries.

The role of the private sector in this process of economic growth and
regional integration can not be over-stressed and the economic future of
the COMESA region is almost totally dependent on the performance of this
sector.

The role FDI will play in the economic future of the region is also of major
importance. Although COMESA can offer an attractively-sized and
harmonized market of over 300 million people and although the region has
large mineral and agricultural wealth in which there are exciting
investment opportunities, the member States need to continue to offer a
stable and attractive political and economic environment for them to attract
FDI so that the region’s potential can be realised in full.

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