The gains made by countries in the eastern and southern Africa, through free trade are under threat.
Industry Opinions

How COMESA States Can Mitigate Negative Effects of Covid-19 Pandemic on Trade

The gains made by countries in the eastern and southern Africa, through free trade are under threat.

In the Common Market for Eastern and Southern Africa - COMESA, with 21 countries, internal trade has grown steadily from $1.5 billion to over $10.3 billion since the regional bloc’s FTA was launched in 2000.

These gains will be eroded especially if regional States do not stand together and collectively respond to the Covid-19 pandemic.

The International Monetary Fund (2020), projects that the global economy will contract by 3 per cent in 2020, much worse than during the global financial crisis and grow by 5.8 per cent in 2021 if the pandemic fades in the second half of 2020 and containment measures are uplifted.

Sub Saharan Africa is projected to contract by 1.6 per cent in 2020 and grow by 4.1 per cent in 2021.

According to the World Trade Organisation (WTO), (2020) merchandise trade could fall by 13% and 32% in 2020 depending on the length and severity of the Covid-19 pandemic. In addition, world trade volume (goods and services) are projected to contract by 11 per cent in 2020 and rebound to 8.4 per cent in 2021.

According to research from Baker McKenzie and Oxford Economics, African imports (COMESA is a third of Africa) from outside the continent reveal that industrial machinery, manufacturing and transport equipment constitute over 50 per cent of Africa’s combined needs.

The most important suppliers being Europe (35 per cent) China (16 per cent) and the rest of Asia, including India (14 per cent). As such, disruptions due to the impact of Covid-19 will lead to a decrease in the availability of manufactured goods imported into Africa.

In 2018, 91% of COMESA exports were destined to outside markets. The top export destinations included European union (32%), South Africa (13%), Intra-COMESA (9%) China (6%), United Arab Emirates (6%), Switzerland (5%) and USA (4%) and the rest of the World (19%).

COMESA’s trade with the rest of Africa is dominated by its trade with South Africa which grew from US$10.96 billion in 2017 to US$14.4 billion in 2018. South Africa alone accounted for 46.76% of COMESA’s African bound exports.

COMESA exports mainly primary products accounting for about 60% of total exports. The leading exports by sectors in 2018 were manufactures, fuels, ores and metals, food and agricultural raw materials.

The major exports to the EU are crude petroleum, refined petroleum, electric conductors and natural gas, primarily exported by Libya, Egypt and Tunisia while exports to China have largely been metals and related primary products.

The top exports to the USA are mineral fuels, woven apparel, coffee, tea & spice (mostly coffee), knit apparel, and precious metal and stone (diamonds) while the top traded Intra-COMESA products include primary products and manufactures such as Portland cement, carbonates, refined copper, medicaments, articles for conveyance/packing of goods, babies garments and clothing accessories.

In 2018, COMESA countries exported pharmaceuticals amounting to US$ 442.53 million. The Intra-COMESA exports of pharmaceutical products constituted 32 % of the exports. This shows that pharmaceuticals are a major Intra-COMESA export hence the need to facilitate its cross-border trade during this pandemic period.

The region is likely to experience reduced exports due to the following: most of the export destination markets are among the countries highly impacted by Covid-19.

Projected slow growth in 2020 in some of these major trading partners, EU (-7.1%), S.A (5.8%), USA (-5.9), China (1.2%) and India (1.9%) may lead to a reduction in demand for COMESA exports; the advanced, emerging and developing economies are also projected to experience contraction in imports of goods and services by 11.5 per cent and 8.2 per cent respectively in 2020, and the disruption of supply chains due to closure of factories and businesses and other containment measures will result to reduced demand for raw materials and intermediate products which form the bulk of COMESA exports.

In 2018, COMESA top import origin markets were EU (32%), China (20%), USA (8%), intraCOMESA (7%), India (7%), SA (7%) and Rest of the World (31%). The imports from the rest of Africa was dominated by South Africa which rose in value terms from US$8.96 billion in 2017 to US$10.2 billion in 2018, a 14% rise which matched Intra COMESA’s imports in 2018.

The top imports by sector consisted of manufactures accounting for 62% of total imports in 2018, fuels, food, ores and metals and agricultural-raw materials. Imports from advanced and emerging market and developing economies are expected to contract by 12.8 per cent and 9.6 per cent respectively in 2020.

This coupled with the fact that some of these import origin markets are among the most hit by Covid-19 will lead to a reduction in COMESA’s import of industrial machinery, manufacturing and transport equipment which are key inputs in the manufacturing sector.

Countries in COMESA are net importer of pharmaceutical products. In 2018, its exports and imports were US$ 442.53 million and US$ 6,451.03 million respectively. The import origin markets namely EU (45%), India (19%), USA (6%), China (4%), UK (3%) are among the hardly hit by Covid-19.

Some of the countries, UK, US, China and India have imposed export restrictions in some pharmaceutical products which may affect their importation which is necessary for the fight against Covid-19 (ITC, 2020).

In the short to medium, disruption in supply chains (particularly in China and EU) could lead to filling the gap by regional producers hence the need to enhance implementation of COMESA trade integration programmes.

Trade has emerged as a remedy that could reduce this adversity through the flow of essential goods like food, medical supplies and other hygiene products. Pharmaceutical products are among the top Intra-COMESA traded products. The relaxation of the free movement of essential goods in the region will enhance their production and boost Intra-COMESA trade during this pandemic period.

The COVID-19 pandemic provides an opportunity to COMESA Member States to consolidate and strengthen regional economic integration towards meeting the aspirations of structural transformation, sustainable and inclusive growth.

Implementation of the Digital Trade Facilitation and other instruments remain core in mitigating vulnerability to shocks such as Covid-19 pandemic.

To address the negative effects of the pandemic on trade, regional States should adopt a regionally coordinated approach in mitigating the impact of the pandemic, allow free movement of both, essential and non-essential goods and enhance production capacity and regional value chains in the region to reduce over-reliance on external trade and vulnerability to global shocks/crisis.

Markets for COMESA imports and exports need to be diversified to reduce dependency on few countries and incentives provided to manufacturing companies with the capacity to produce Covid-19 essential products while facilitating their trade in the region.

In addition, implementation of the COMESA Digital Free Trade Area embracing e-commerce in trade should now be hastened as well as the creation of an online platform for sharing information on the availability of essential products during the Covid-19.

By Benedict Musengele & Jane Kibiru

The authors are Research Experts at the COMESA Secretariat

Contacts: [email protected]

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