Intra-regional trade key to Africa's industrial growth, competitiveness
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Sandra Uwera is the chief executive officer of the Common Market for Eastern and Southern Africa (COMESA) Business Council. COMESA is made up of 26 member states. The council is the apex business member organisation, and a private sector institution of COMESA.
It represents private sector interests at the highest levels of decision making in the region and provides key market driven services to its membership, like business advocacy, business support services- linkages, partnerships and market intelligence.
Uwera, who is also the secretary general of the Tripartite Private Sector platform, spoke to Business Times’ Peterson Tumwebaze on what member countries should do to bolster regional trade and spark industrial growth on the continent.
Why has it taken member states so long to harmonise rules of origin?
We must first understand that this has been an ambitious agenda to bring together all the 26 member states under one preferential trade agreement that allows free movement of goods across the region. Rules of origin is our backbone and works against trade deflection, while allowing various principles of free movement of products to be exported into other countries. It is, therefore, a challenge to try to increase trade partnerships among ourselves because of the fear factor arising from some member states.
Some countries still feel their domestic industries could be endangered by allowing exports from other countries.
This should however change, and member states need to understand that it is better to open up and trade with neighbouring countries in preferential trade area. That’s why we need uniform rules of origin to ease market access for members. We need to have a positive conversation and start looking at creating a bigger market as an advantage rather than a threat.
Why are the rules of origin policy important?
We have no choice but to harmonise our rules of origin to make the African private sector more competitive, and accelerate intra-regional trade on the continent.
We cannot underestimate the fact that the tripartite countries account for half of the membership of the African Union, with an estimated GDP of $1.2 trillion and has a market population of 625 million consumers. We need to harmonise rules of origin for the private sector to enjoy economies of scale, besides boosting intra-regional trade.
Also, we need to effectively enhance the connectivity and linkages among member states for the tripartite Free Trade Area (FTA) to maximise its potential. This requires, not just the elimination of trade barriers, but also facilitating trade through physical and institutional infrastructures.
Most private sector members do not know what the rules of origin is about. What is the council doing about this problem?
The rules of origin in preferential trading arrangements set out the conditions according to which the origin of a product is determined. These policies are instrumental to facilitate trade.
Products are often made up of both locally-sourced and imported raw materials, and require rules that define how much transformation of imported materials must take place before even considering the origin. Therefore, the preferential rules of origin are essential to help avoid trade deflection.
Stakeholders need to understand that the effectiveness of the tripartite free trade area will largely depend on the rules of origin adopted. The way the rules of origin are designed and implemented also has big implications on trade flows, and the extent of regional integration in Africa.
The rules of origin have become increasingly important with the rise of regional and global value chains because they can advance, or stifle trade preferences.
The fragmentation of manufacturing processes and technology advancement means that goods are no longer produced in one country. This has made it hard to determine the rules of origin, which forces companies to forego trade preferences granted by preferential agreements on a substantial scale.
So the Kigali meeting was crucial as we wanted to collect views of the private sector in the COMESA trade bloc on the rules of origin regime to ensure a balanced framework.
We have so far made head way on a number of issues, including agreeing to put in place simple and predictable rules that will facilitate intra-regional trade. We have agreed that rules of origin should be administered in a consistent, uniform, impartial, transparent and reasonable manner to promote industrialisation in the region.
We are also aware of the fact that when rules of origin are not flexible, the cost of compliance exceeds benefits accruing from market access, a reason why some exporters do not comply with the rules. As a result, exporters will trade with companies in countries with favoured rules, this means low intra-regional trade, and slow pace of industrial growth in the region.
Member states still don’t understand the benefits of creating a more harmonised regional market. We need to look at the bigger picture of creating more than $1 trillion in GDP simply because we decided to trade among ourselves.
Today, regional intra-trade is about 12 per cent compared to what we are trading with the rest of the world. This has to change.
The region still faces the challenges of poor standards and quality. What are you doing to address these problems?
We have embarked on an ambitious project, where we are sensitising industrialists to help boost their capacity to make products that meet standards and quality.
The council also supports companies to meet standards and quality criteria through product certification which creates confidence among buyers of commodities produced in the region. We are so far working with the food supplier and other agricultural products.
This, we believe, will boost consumer confidence and translate into more trade, and eventually improve morale among farmers to increase productivity. Producers have realised that standards are a must for them to penetrate more markets, in the COMESA region and elsewhere, including Europe and the US.