It is also important to stress that COMESA is fully cognizant of the fact that large scale mineral resources exploitation often results in serious environmental degradation, ecological imbalances as well as excessive depletion of natural resources. COMESA promotes co-operation in the following areas: (i) adoption of common strategies for the preservation of the environment against industrial, agricultural and mining effluents that pollute rivers, dams, the atmosphere and the ecology; (ii) development of common policies and collaboration in the management of shared natural resources; (iii) adoption of common standards in industrial production and co-operation in limiting the dumping of toxic waste in the sub-region; (iv) co-operation in the management and preservation of eco-systems biological diversity.
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More harmonized monetary, banking and financial policies
The COMESA framework fully recognizes that financial and monetary constraints have always inhibited cooperation and integration. Under COMESA, member States will benefit from co-operation in monetary and financial areas by creating a zone of monetary stability. To this end, the new unit of account will be the Eastern and Southern Africa Currency Unit (ESACU) to replace the UAPTA. The establishment of a monetary and financial infrastructure will create the necessary macro-economic environment that facilitates the economic integration process.
More specifically, a Payments Union will eventually be established and the ESACU Travellers Cheques will be significantly improved. Furthermore, the adoption of market exchange rates and monetary and fiscal policy coordination will facilitate services, capital and labour, and eliminate illegal foreign exchange markets and currency smuggling. The overall advantage will be to improve domestic monetary management, thereby promoting increased external capital inflows.
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More reliable transport and communications infrastructure
One of the biggest obstacles to regional economic Co-operation and integration in this region is the inadequacy of a cheap and reliable transport and communications sector. COMESA will provide the business community with a more efficient transport and communications system so as to facilitate the free movement of goods, persons, labour, capital and services. The envisaged expanded volume of COMESA trade will fully justify new and increased investments in infrastructures, including railways.
The goals of COMESA in the transport and communications sector will be to provide better services through, inter alia, the following policy options: (i) the elimination of conditions which obstruct the operations of the common transit arrangements; (ii) the elimination of conditions which could obstruct efficient delivery of telecommunications, satellites, postal, radio and television services; (iii) the integration of the Common Market transport; and (iv) the elimination of factors likely to distort competition in the sectors of transport and communications.
The Advanced Cargo Information System (ACIS) will: (i) enable the integrated operations of transport and communications systems so as to increase accessibility to points of production and consumption; (ii) lower unit costs for services so as to enhance the competitiveness of goods and services and stimulate economic activities; and (iii) harmonize transport and communications equipment and accessories so as to facilitate the establishment of viable manufacturing, maintenance and repairs of enterprises.
Disadvantages:
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).
2. 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.
3. 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.
4. 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 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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 vehicle for the transfer of resources from the rich to the poorer countries.
10. 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.
11. 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.
12. 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%.
13. 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.
14. 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 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.
15. 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.
16. 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.
17. 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.
18. 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.
19. 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.
20. 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.
