The impact of economic integration on the economy of Namibia

Smith, Francois (2005-12)

Thesis (MBA)--Stellenbosch University, 2005.

Thesis

ENGLISH ABSTRACT: Theory states that if a country opens its markets to free trade that it facilitates the better utilization of resources for all the parties participating in the agreement resulting to a relative lowering of production cost, the increase in export earnings, larger markets to benefit from economies of scale and subsequent investment in production facilities will increase employment and general welfare. Namibia has three major free trade agreements or economic integration arrangements namely the Southem Africa Customs Union (SACU), the Cotonou agreement defining its export regime to the European Union and the South Africa European Union Trade Development and Co-operation Agreement defining its import regime via the Southem African Customs Union and the African Growth and Opportunities Act defining its relationship with the United States of America. These agreements are at varying levels of integration with the Southem African Customs Union in place already in 1920. Namibia uses taxes on international trade as a primary source of state income (28% to 32 %). As part of its membership to the SACU's Common External Pool revenue distribution, Namibia is compensated for not being able to charge import taxes on South African imports. South Africa has determined trade policy for SACU since its exception and used tariffs more as a form of protection of its own industries, rather than a source of state income. The lowering of tariffs on EU imports by means of the SA EU TDCA as well as WTO obligations will see the reduction of state income of Namibia of an estimated amount of N$ 480 million [Schade 20051. This will have dire consequence for the Namibian economy as the deficit of the state budget is already 4.7 % as compared to a norm of 3%. In this study the growth in export earnings as well as the investment response of the various free trade agreements have been analysed. Contrary to theory, economic integration has not led to the desired growth in export earnings as well as significant investment responses due to preferential access provided by these agreements. Significant growth in exports is limited to specific sectors, notably fish to the European Union and apparel to the USA. Investments were also limited to these sectors. Free trade and preferential access did not lead to the diversification of the Namibian economy and has on the contrary inflicted severe blows to the critical beef industry in the near past and over the long term has led to trade diversion towards South Africa as well as the European Union. Investments and increases in export earnings are too little to offset the reduction of state income by the liberalization of tariffs and will result in Namibia becoming more marginalised if it does not counter the situation by better trade policies that are to be formulated along with the other SACU members. These policies will take time to be concluded as of yet none of the institutions of SACU has become operational.

AFRIKAANSE OPSOMMING: Die teorie van vryhandel bepaal as 'n land sy mark oopmaak vir vryhandel dat dit sal lei tot die verbeterde benutting van hulpbronne vir al die partye tot 'n vryhandelsooreenskoms deur middel van die verlaging van produksiekoste, die verhoging van uitvoerinkomste, die vergroting van markte wat kan voordeel trek uit skaal van, ekonomieë asook die verhoging van gepaardgaande belegging wat werkskepping en die algemene welsyn sal verhoog. Namibie is deel van drie vryhandelsooreenkomste of ekonomiese integrasie samewerking naamlik die Suider Afrikaanse Doane Unie (SADU), die Cotonou verdrag wat sy uitvoer na die Europese Unie bepaal, die Suid Afrika Europese Unie Handel, Ontwikkeling en Samewerkingsooreenkoms (SA EU TOCA) wat sy invoere vanaf Suid Afrika via die SADU bepaal en die African Growth and Opportunffies Act wat sy uitvoere na die VSA bepaal. Hierdie ooreenkomste is op verskillende vlakke van ekonomiese integrasie met SADU wat alreeds sedert 1920 bestaan. Namibie gebruik belasting op intemasionale handel as 'n primere bron van staatsinkomste (28% tot 32 %). Namibia word as lid van SADU gekompenseer deur middel van die Gemeenskaplike Eksteme Inkomste Poel vir die gebrek om invoerbelasting op Suid Afrikaanse produkte te hef. Suid-Afrika het sedert die ontstaan van SADU die handelsbeleid daarvan bepaal en het tariewe gebruik om sy eie industrieë te beskerm in plaas van 'n bron van staatsinkomste. Die verlaging van tariewe deur middel van die SA EU TOCA asook verpligtinge van die Wereldhandelsorganisasie sal tot gevolg hê die vermindering van Namibiese staatsinkomste van N$ 480 miljoen, Dit sal geweldige negatiewe gevolge inhou vir Namibie wat alreeds met 'n tekort op die begroting van 4.7% sit in vergelyking met 'n aanvaarde norm van 3%. In hierdie werkstuk is die groei in uitvoerverdienste asook die beleggingsreaksie van die verskillende ooreenskomste ondersoek. Daar is gevind dat desnieteenstaande die teorie, ekonomiese integrasie nie gelei het tot die verlangde groei in uitvoere of beleggings nie. Uitsondenike groei in uitvoere is beperk tot spesifieke sektore naamlik vis na die Europese Unie en klerasie na die VSA. Beleggings is ook beperk tot hierdie sektore. Vryhandel en voorkeurtoegang het nie gelei tot die diversifikasie van Namibie se ekonomie nie en het dit op die keper beskou gelei tot kritiese terugslae op die kritiese beesvleisindustrie in die nabye verlede en het dit oor die langtermyn gelei tot die wegleiding van handel na Suid - Afrika en die Europese Unie. Beleggings en toename in uitvoer is te min om die vermindering van staatsinkomste deur middel van die liberalisering van handel teen te werk. Dit sal tot gevolg hê dat Namibia al meer gemarginaliseerd gaan raak indien dit nie die situasie kan teenwerk deur middel van beter handelsbeleid wat bepaal moet word deur onderhandeling met ander SADU lede nie. Hierdie beleidsrigtings sal lank neem voordat dit van krag sal kom aangesien nie een van die SADU instellings al in volle bedryf is nie.

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