COMESA at twenty: Of the successes, challenges and promises

Sindiso Ndema Ngwenya is the fifth Secretary-General of the Common Market for Eastern and Southern Africa (COMESA) since it was transformed from the PTA in 1994. Before his appointment as Secretary General, Ngwenya was the Assistant Secretary General of COMESA in charge of Programs a position he held for ten years. In this position, he was responsible for overseeing the development and implementation of COMESA programs. In addition, he oversaw and supervised the operations of COMESA established institutions such as the Leather and Leather Product Institute (LLPI), the Clearing House and the Regional Investment Agency. In this exclusive interview with Addis Standard in connection with the 20th year anniversary of the birth of COMESA, Ngwenya describes the journey so far, the challenges and opportunities. Excerpts:

 

Addis Standard – It’s been 20 years since the establishment of COMESA as a regional bloc that incorporates member states from two regions in Africa. After 20 years, what do you think describes COMESA the best?

 
Sindiso Ngwenya- COMESA was established on 8th December 2004 to replace the Preferential Trade Area for Eastern and Southern African States (PTA). In these two decades COMESA has made a giant leap in strengthening and deepening regional integration through institutions that existed when it was established and the creation of new ones as well as robust policy reforms.
On trade integration, COMESA in 2000 launched Africa’s first Free Trade Area (FTA). At the launching of the FTA, intra- COMESA trade stood at US$2.3 billion and by 2014 it had dramatically grown to US$22.3 billion. The interesting feature of this trade is that it comprises of value added manufactured products. The region has also witnessed increased cross border investments in manufacturing, infrastructure and services.
In June 2009, COMESA launched the Customs Union which is in process of being implemented. The period has also seen COMESA launching new trade facilitation instruments that are creating a borderless economy resulting in drastic reduction in the cost of doing business. Among others these are the COMESA Virtual Trade Facilitation System (CVFTS) and the on-line trading system, known as the COMESA Electronic Market Exchange System (CEMES). The latter brings buyers and sellers in a virtual market in real time.

 
COMESA is executing many ambitious regional programs such as the CVTFS and has many institutions such as PTA Bank, PTA Re- Insurance Company (ZEP-RE) ,Africa Trade Insurance Agency (ATI) etc. If I can ask you to tell me where you think the COMESA is doing well and where it is faring behind. Why?

 
I would say confidently that all COMESA Institutions are doing very well within their specific areas of expertise and contributing in a big way to social and economic development. As you said we have PTA Bank, ZEP-RE, ATI PTA Bank, ZEP-RE, ATI, COMESA Clearing House, COMESA Monetary Institute, COMESA Infrastructure Fund, COMESA Federation of Women In Business (FEMCOM), COMESA Leather and Leather Product Institute (LLPI), COMESA Regional Investment Agency (RIA), COMESA Business Council (CBC) and COMESA Competition Commission and the Alliance for Commodity Trade in Eastern and Southern Africa (ACTESSA). We have the COMESA Court of Justice which is now sitting in Sudan that has made landmark decision in interpreting the COMESA Treaty and reinforcing the rule of law thus giving investors the confidence to put their money into this region.

 

 
The financial institutions, for example provide financing to the public and private sector. Most of them have credit ratings from International Credit Rating Agencies and are thus able to raise funds from the international capital markets. In addition, the shareholding of these institutions has been opened up to non-COMESA Member States. For example the People’s Republic of China is a member of the PTA Bank. Cumulatively, the PTA Bank has lent billions to the private sector in the form of trade and project financing. Annually, the trade financing averages US$2 billion. To further demonstrate the effectiveness and contribution of these institutions one can cite the impact of the COMESA Competition Commission (CCC) which handled and approved within twelve months of its existence US$13 billion of cross border mergers and acquisitions that resulted in more jobs being created and new technology transfers. By 2014, Competition Commission had facilitated mergers with transaction value of over US$45 billion. In the case of ATI, the 15 member States of ECOWAS have now joined the Agency which is now a Pan African Organization. This demonstrates the confidence that the African continent and the world at large have with COMESA institutions.

 
In 2012 COMESA launched a pilot System of Virtual Trade Facilitation System (CVTFS) on the Djibouti-Addis Abeba -Khartoum and Juba Corridors. What was the outcome of this system so far?

 

COMESA Virtual Trade Facilitation System (CVTFS) is a software application that integrates all trade facilitation instruments, including the Yellow Card and the COMESA Regional Customs Guarantee (RCTG) Scheme, otherwise known as the CARNET, under one online platform. The system provides real time information on the location of goods and means of transport and integrates all customs and trade related documentation under a single sign-on. It also allows customs authorities to pre-clear cargo and the freight forwarders and transport operators to efficiently manage the logistic supply chain thus reducing the cost of doing business and enhancing competitiveness. The CVFTS has been highly successful in the Northern Corridor linking the Port of Mombasa in Kenya to Uganda, Rwanda and Eastern D R Congo. The launch of the CVTFS on the Djibouti-Addis Abeba-Khartoum- Juba Corridors will be done after successful implementation of the system on the Djibouti – Addis Abeba corridor.

 
Critics say that the COMESA Yellow Card motor vehicle insurance scheme, which is valid in all the member states, has a far fledged ambition of covering “third-party liabilities and medical expenses for the driver of the vehicle and his passengers should they suffer any bodily injury as a result of an accident to an insured vehicle.” Has the implementation been as ambitious as the initiative?

 

 
The Yellow Card Scheme, which is a regional third party motor insurance cover is, another success story of the COMESA Trade Facilitation Instruments in the region. So far 13 countries including non-COMESA member States are using the Yellow Card. Soon we are expecting additional non-COMESA countries, including Angola and South Sudan to join the scheme. Currently over 200 Insurance Companies are involved in its operations and annually over 200,000 inter-state motorists use the Yellow Card. For example; between Ethiopia and Djibouti over 500 to 700 motor vehicles cross the border of the two countries using Yellow cards and over $3million claims compensations (including medical expenses) have been paid to road accident victims in Djibouti caused by motorists from Ethiopia during the last five to seven years . In Short the implementation of the Yellow Card Scheme has indeed exceeded our expectations.

 
There is a recent move to establish a grand Free Trade Area that also includes SADC and EAC member states as well as those of COMESA. But many people question whether that was not a bold move given the fact that the well-established regional blocs such as SADC will have a huge advantage over the others. Can you please tell us the advantages and disadvantages (if any) in this?

 
The COMESA-EAC- SADC Tripartite Free Trade Area (TFTA) will be launched in June this year during the Heads of State and Governments Summit in Egypt. There are a number of advantages that will come with the launch of the TFTA. Firstly, it will address one of the major challenges facing regional integration in Africa, and that is overlapping membership. A number of African countries belong to more than one regional economic community, which poses a hindrance to deeper economic integration. The TFTA will harmonize the trading regimes of the three RECs, thus eliminating the challenges of overlapping membership. Further, TFTA will broaden the market of the 26 Member States and enhance intra-regional trade. Currently, intra-COMESA trade is at 12 percent and with the TFTA it is projected that upon launch, intra-Tripartite trade will be at 18 percent. The rate is set to grow to 23 percent in 2-3 years after the launch. It will result in increased employment, government revenue and savings on foreign exchange.
The TFTA is not only focusing on market integration, but it is also anchored on two other critical pillars: infrastructure development and industrial development. The infrastructure development pillar addresses regional infrastructure gaps in roads, ports, rail, communication, energy, air transport, among others. Industrial development will deal with the supply side constraints faced by many African countries. This pillar will focus on the development of value chains within the tripartite region. Some sectors have already been identified which member/partner States are working on.

 
A few difficulties are however expected with the launch of the TFTA but these will be effectively managed and mitigated. They include the initial loss of revenue by some countries. But let me hasten to say this would be a short term phenomenon. The long term effect would be increased welfare for the citizens of the tripartite region. The other disadvantage would be the collapse of inefficient and uncompetitive industries. But this will compel Tripartite member/partner States to exploit their comparative and competitive advantages.

 
In 2014 the COMESA has signed an agreement with the government of Australia to help Member States develop mining industry. What are the particular areas that the COMESA wants to help member states in this sector?

 
COMESA and the Government of the State of Western Australia signed a Memorandum of Understanding (MoU) in January 2014. It is on cooperation in mining and related fields of development. The MoU established a framework for cooperation covering mineral and petroleum resources, agriculture, vocational training and capacity building. In the agreement, six focus areas are identified in the minerals sector. They include fiscal frameworks and mineral policy, strengthening human and institutional capacities, collection and management of geo-scientific information, research and development, environmental and social issues; and linkages, diversification and cluster development.

 
A Joint Working Group of experts drawn from COMESA and WA developed the draft work program for operationalizing the MoU. The key priority areas identified include strengthening the legal and institutional framework of COMESA Member States, capacity building, and taxation and fiscal frameworks. This was a crucial prerequisite for unlocking the value of minerals in the Value Chain thus contributing to regional economic transformation.

 
The collaboration with WA was borne of the fact that despite the often spectacular performance of mining in many African economies, the region continues to be the least developed in the world and its people remain the poorest. Further, resource rich countries experience high levels of conflict and strife a situation that is described as the “Resource Curse”. It is a proven fact that successful resource driven economies have to employ six core elements to benefit from minerals resources. These are; building the institutions and governance of the resources sector, developing infrastructure, ensuring robust fiscal policy and competitiveness, supporting local content, deciding how to spend a resources windfall wisely and transforming resource wealth into broader economic development.

 
The agreement with WA thus acknowledges that institutions that support mineral development in Africa are generally weak due to human skills deficiency and financial constraints and therefore inappropriate to effectively facilitate the role of minerals in development. There is also need for research and development capacity in the COMESA region to support beneficiation and value addition to mineral products and the development of linkages and clusters in the sector. This is a key pre-requisite for industrialization and the evolution of new products from mineral commodities.

 
That brings us to discuss the funding issue for COMESA. According to some figures, about 70% of the operational budget for COMESA comes from development partners. Why is that?

 
At inception of the Preferential Trade Area in 1981 and later its transformation to COMESA in 1994, the portfolio of programs was low and hence their financial requirements. Over the years, the programs have grown in leaps and bounds outpacing the growth of the budget available from the assessed contributions from Member States. With more programs, additional staff was required to implement them. The development partners therefore came on board to supplement the enlarged portfolio which accounts for about 70% now. Of late, the donor contributions to the COMESA region have decreased and the terms and conditions of these funds are changing. This means that partly, COMESA member States do not always have full control of the allocation and use of these funds. However COMESA has come up with innovative methods of resource mobilization.

 
The COMESA Treaty also provides for the implementation of the Common Market Levy that will ultimately lead to self-sustenance and reduction in donor dependency. Our colleagues in ECOWAS agreed on a community levy of 1.5% of the customs duty, and this raises over $630 million per year for financing their integration programs. We too, can take this small but vitally important step and agree on a sustainable mechanism for funding our regional integration programs.

 
COMESA already has a legal basis to implement a Common Market Levy in Chapter 30, Article 168 of the Treaty. Under this framework, selected imports from non-COMESA countries used for consumption would be levied based on the United Nation’s Broad Economic Categories. A levy of 1% on a very limited range of consumer goods (finished products) would constitute a small start by COMESA to finance the region’s economic development from its own resources. The COMESA Common Market Levy is expected to contribute to improving the COMESA region’s infrastructure to spur economic development and contribute to improved Trade Facilitation measures that reduce the costs of cross-border trade. This will make the COMESA region more competitive.

 

Despite the COMESA being around for 20 years, free movement of people within member states remains challenging, if not impossible. Why are members states unwilling, or too slow, to ratify the protocols which are already there to allow the free movement of people, which will in turn boost intra COMESA trade activities?

 
So far four countries (Burundi, Kenya, Rwanda and Zimbabwe) out of the 19 have signed the protocol of free movement of persons. Only Burundi has fully ratified it. Kenya and Rwanda are already fully complying with the COMESA Protocol on the Gradual Relaxation of visas and are applying most of the provisions of the Protocol on Free Movement of Persons, Services, Labor and Right of Establishment which has not yet entered into force. The two countries have promised to ratify the Protocol.

 
Very recently, three countries namely: Mauritius, Rwanda and Seychelles waived visas to all COMESA citizens while Zambia has issued a circular waiving Visas and visa fees for all COMESA nationals on official business.

 
There are a number of challenges raised by Member States in implementing the Visa Protocol. The level of awareness on the COMESA legal instruments has not been effectively cascaded to the general public. There is lack of inter-ministerial consultation channels coupled with lack of follow-up progress that hinders the implementation process of the visa protocol. Then there is the issue of reciprocity – where a country relaxes visas but their nationals do not enjoy similar treatment in the corresponding member States. This slows down the implementation of the Visa protocol.

 
There is an observation that for successful implementation, the Visa Protocol needs to be extensively negotiated from the grassroots up to the highest level. There is need to understand whether such an approach was used in the process of adopting the Visa Protocol.

 
With regard to challenges raised by member States in signing and ratifying the Protocol, several factors affect the Member States pace towards signing and ratification; Most of the Members States seemed to have adopted a” wait- and- see” attitude. This may be attributed to the fact that for the last five years no additional signatures and ratifications of the Protocol on Free Movement have been recorded. Now that more States are relaxing the visa rules we are optimistic that the signing and ratification of the Protocol will pick pace.

 

But the same holds true for the realization of Customs Union within member states, which didn’t take off. How much of it is political and what would it take for countries to act quick and effective?

 
When COMESA Free Trade Area was established in 2000, it was anticipated that the Customs Union would be in place after addressing the various administrative, legal, institutional and logistical issues. The overlaps of membership to regional economic communities such as COMESA and the East African Community (EAC) or Southern African Development Community (SADC) by countries however posed a challenge given that it is not possible to belong to two customs territories. However, with regard to the EAC Customs Management Act and the COMESA Customs Management Regulations, not much difference exists. Only a few overlaps exist in tariff lines and these are being addressed towards harmonization. The goal towards a Customs Union has also received new impetus following the successful negotiation for the launching of the Tripartite COMESA-EAC-SADC Free Trade Area.

 
And finally, as COMESA celebrates its 20th year founding anniversary, what are the next big plans up in its sleeve?

 
The people of the COMESA region can qualitatively anticipate the following in terms of economic growth, regional integration and industrialization in the next decade:
First, the COMESA, EAC and SADC Tripartite Free Trade Area will create a large market with a population of 625 million people and a combined Gross Domestic Product of US $1.3 trillion. With 65 percent of the population below the age of 30 years this will be a market with a large reservoir of labor and consumers of which a significant part is middle class. Given the resource endowment of the COMESA region, average annual growth rates of 6.5 % are likely to be the norm, rather than the exception.

 
Secondly, the huge investments in infrastructure and energy will not only enhance social and economic integration through improved inter connectivity but substantially improve the quality of life of citizens. Infrastructure will be a key driver of economic growth and transformation of the COMESA economies.

 
Third, the implementation of natural resource based industrialization, including labor intensive industries will contribute to structural changes in the COMESA economy that will witness backwards and forward linkages and participation in the regional and global value chains. The COMESA region in particular and Africa in general will become the locomotive for the growth of the global economy. Hence, our theme for this year “Inclusive and Sustainable Industrialization”is intended to drive us there.

 
A critical factor for social and economic transformation will depend on the overhaul of existing educational curriculum to produce educated and skilled manpower for the economy which can create jobs instead of being job seekers. Smart investment in human capital will be the basis for the qualitative and quantitative leap of the COMESA through regional integration.