The Tripartite Free Trade Area (T-FTA) encompassing the 26 member countries of the East African Community (EAC), the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA) is currently under negotiation with the aim of widening and consolidating existing cross-cutting regional integration processes. To gauge the likely trade effects of the proposed T-FTA, this policy note analyses the development of intra-regional trade flows within the EAC and SADC regions during the 2000-2010 period.
To discuss the potential influences of the Economic Partnership Agreement (EPA) negotiations between the European Union and these regions on their participations in the T-FTA, this note also presents development of the two regions’ trade flows with the EU in relation to their existing and possible future trade arrangements with the EU. For comparison purposes, the two regions trade with other key external trade partners are also mentioned.
- General trends of intra-regional trade
Intra-regional trade in the EAC and SADC regions have been on rapid relative growth in the past decade. In the EAC, total intra-regional exports increased from around US$500 million in 2000 to more than US$2.36 billion in 2010, an increase of almost four folds (see Figure 1).
During the same period, EAC’s total exports to the world grew at a slightly slower pace, increasing from US$2.67 billion to 11.35 billion. As a result, the share of intra-EAC exports in the region’s total exports actually increased from 18.7% in 2000 to 20.8% in 2010 (see Figure 2), possibly suggesting that regional integration in the EAC has had a positive effect on intra-EAC exports. On the import side, the EAC countries generally maintained large trade deficits as its total imports were more than twice as much as its total exports in value terms during the 2000-2010 period.2 As a result, share of intra-EAC imports in the region’s total imports remained quite small (only about 6.4% in 2009).
Similarly, total exports from the SADC countries to the world increased from around US$38.4 billion to nearly 96.9 billion in 2010, with the peak reaching over 100 billion in 2008 (see Figure 3).3 During the period, between 4% and 5.7% of these exports went to South Africa, the region’s largest economy. The share of total intra-SADC exports in the region’s total exports, however, remained quite stable between 2000 (15.3%) and 2010 (18%), although it peaked at 18% in 2006 (Figure 4).
SADC’s total imports from the world exceeded its total exports by a relatively smaller margin, as compared to the situation for EAC. In 2000, SADC imported roughly the same amount from the world as it exported to the world. By 2010, however, its total imports exceeded its total exports by about 25%. In terms of import sources, South Africa had been an important source of imports into the other SADC countries but its share had been gradually declining from the peak of 19.5% in 2002 to 11.6% in 2010. Still, South Africa remains a more important source of imports for other SADC countries, as compared to its role as an export destination (with an export share of only 4.2% in 2010). Furthermore, share of total intra-SADC imports in total SADC imports remained quite stable at around 17%, again suggesting that growth of intra-SADC trade flows by and large tracked that of total SADC trade flows.
Intra-regional trade in the EAC and SADC have grown rapidly during 2000-2010, keeping pace with the growth of these two regions’ total trade flows. This suggests that there are indeed potentials for increasing intra-regional trade via regional integrations. There is also some evidence of product diversification and upgrading in intra-regional exports in these regions. In relative terms, EAC’s intra-regional trade grew more rapidly than that of SADC’s, possibly due to deeper regional integration achieved in the former region. These results attest to potential benefits of further regional integration in Africa such as the T-FTA.
The EU remains the largest trade partner of the two regions but its importance has diminished, especially as an export market and particularly for the EAC. In contrast, the BRIC countries, especially China, have become important trade partners (as both an import source and an export destination) for both regions. In addition, other African countries have become a dynamic growth region for EAC’s exports although its role as a source of imports remains limited.
The EPA negotiations, initiated by the EAC and SADC regions’ largest trading partner EU, are still to be finalized at a time when countries in the two regions are aiming at achieving deeper and wider integration through negotiating the T-FTA. Different member countries in the two regions, however, may have different interests in the EPA negotiations due to their current trade positions and differential current trade arrangements with the EU. The EPA negotiations – despite its potential benefits – may have triggered complications for the EAC and SADC countries to maintain their current regional integration arrangements and to effectively participate in more ambitious new regional integration processes such as the T-FTA.
Therefore, it is important for the EU to provide much needed assistance to the indigenous regional integration processes in the EAC and SADC regions as well as in the wider T-FTA area, not the least in making the relevant potential final EPA agreements more flexible and enabling for the T-FTA process.
- Extracts from: Trends of trade flows of countries in the EAC and SADC regions and perspectives for the Tripartite Free Trade Area, a policy brief written by Wusheng Yu (firstname.lastname@example.org), University of Copenhagen, dated June 2012.
- Readers can request a copy of the report from the author.