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Publication Details

Reference
Nathan Associates Inc. (2003) Global Competiveness and Regional Market Integration Report. USAID Regional Center for Southern Africa: consultancy reports : 1-112.

Summary
The authors of this report concur that global integration with the world trading system is the appropriate emphasis for the Regional Center for Southern Africa's (RCSA's) economic strategic objective (SO). From the work of the World Economic Forum's Global Competitiveness Program, we know this strategy should be based on support for a balanced and stable macroeconomic policy framework, a "competitive" private sector (i.e. one that is at the forefront of innovation and use of technology for maximum productivity), and sound institutions to support private sector growth.

GLOBAL TRADE INTEGRATION

The broad literature on economic growth, poverty reduction, and global trade integration confirms that countries that are open to global trade grow - and thereby improve standards of living for their people - more rapidly than countries that remain closed or skeptical of integration. Developing country concerns about the risks of increased openness need to be assessed as comprehensively as possible, balancing the welfare gains to consumers from improved access to cheaper goods and services, increased allocative efficiency in the economy, and increased foreign assistance and debt relief for countries on the path to global integration, with the welfare losses to producers from reduced protection, the likelihood of increased inequality of per capita incomes, the possibility of increased social and political tensions, and the increased costs associated with managing the transition.

In other words, global integration is not instantaneous or smooth. It is facilitated by helping countries (and their private sector interests) develop the capacity to fully participate in global trade negotiations, by policy and regulatory reform, by infrastructure investments, and by private sector development assistance (see Global Competitiveness section to follow).

REGIONAL TRADE INTEGRATION

Regional trade integration is an important input into this global integration objective, not because small economies are somehow disadvantaged, but as a means to the ultimate end of global integration rather than as an end in itself. Regional integration should be viewed as a broader package than just free trade within the Southern African Development Community (SADC). It should ultimately involve cross-border integration of capital and labor markets, infrastructure, institutions and regulatory frameworks, inter-firm collaboration through joint ventures and outsourcing arrangements, and of course, flows of actual goods and services. The purpose of this integration is to allow goods and services to flow into and out of SADC member countries to/from the global market as efficiently as possible. Regional integration may also further the production of goods and services for the world market from within regionally integrated value-chains, if overall competitiveness is thereby enhanced.

Regional integration is also not instantaneous or smooth. It is facilitated by the same things as above, i.e. helping countries (and their private sector interests) develop the capacity to fully participate in regional trade negotiations, by policy and regulatory reform, by infrastructure investments, and by private sector development assistance.

GLOBAL COMPETITIVENESS

Global competitiveness is first and foremost a private sector concept, emphasizing productivity and technology. "Being competitive" also refers to a range of business relations in which firms (farms are considered within this broader term) are part of a strategic compact within a "cluster" or subsector. This strategic compact may encompass relations within the firm (between management and labor), between the firm and its clients, between the firm and suppliers, among firms, and between the firm and the government.

An open, competitive economy in Southern Africa (either viewed as consisting of fourteen individual countries or of one regionally integrated economy) will probably look different than it did when it was relatively closed to global competition. We know that, left unfettered, economic activity migrates in a geographic sense over time to cities, coasts, and areas of dynamic clusters. It is also reallocated over time across sectors in the economy. Since workforces in higher income countries are far more heavily concentrated in services and industry than in primary sectors, we would expect a shift of SADC employment out of agriculture over time.

Economic transitions in pursuit of global competitiveness are not instantaneous or smooth either. They can be facilitated by providing workers with portable skills of a technical, entrepreneurial, or managerial nature that are desired by dynamic, competitive clusters; supporting the growth and maturation of institutions, and assuring business development and financial services to promote enterprise growth.

IMPLEMENTATION PRIORITIES

What activities should RCSA consider to implement its economic SO? RCSA's latest thinking focuses on activities in regional competitiveness corridors, organized in three broad areas: policy, regional and global export relationships, and economic infrastructure. Further specification on these programmatic areas is provided below.

Policy

RCSA needs to consider policies both within the region as well as relative to international trade fora. Greater harmonization of macro and sectoral policies (e.g., fiscal balance, inflation, exchange rate, banking sector, capital controls, labor migration) is required to introduce greater economic stability and increase investor confidence in the region. Greater simplification of trade policy among imperfectly overlapping regional trade regimes is also needed.

Trade capacity building is critical, if SADC member countries are to be able to interpret the implications of regional and global trade commitments for their own stakeholders and play active roles in regional and global trade fora in the future. RCSA should encourage individual SADC member countries to maximize their participation in the World Trade Organization (WTO) and its myriad of agreements as individual countries. To the extent that SADC as a regional entity has any role to play at the WTO, it is most likely to be as a participant in the Africa bloc in the development of regional positions. SADC may play a role in negotiating preferential trade arrangements with other bi/multilateral partners, such as in pursuing a regional economic partnership agreement with the European Union (EU) or a free trade agreement (FTA) with the U.S.

SADC member countries also need support from USAID for coherent international trade policies. Of key importance is the need to ensure that developed countries provide meaningful market access to developing country exports and reduce the tariff escalation that penalizes value-added processing by developing countries.

Forging Global Competitiveness

A competitive cluster is one in which workers have the entrepreneurial, managerial, and technical skills required by global markets, in which firms produce goods and services according to the quality and other standards demanded by those markets, and in which institutions exist - e.g., legal, regulatory, policy, financial, research, education and training, market development, utilities, public safety, trade facilitation, social services - that allow firms to have confidence in the business environment and invest in the future. The public sector clearly has a role to play in assuring the existence and efficient functioning of these institutions.

RCSA should take a closer look at barriers to global competitiveness within specific regional sectors or clusters. To the extent that regional value-chain collaboration makes sense, as in the pursuit of efficient triangular or cross-border commercial collaboration possibilities to take advantage of the Africa Growth and Opportunity Act (AGOA) for instance, RCSA can help to foster commercial cross-border collaboration among private enterprises in the region. This will attract investment capital, both from within the region (e.g., South African capital) as well as from abroad, to productive regional investment opportunities.

Human capital infrastructure is required to accomplish this. RCSA's strategic plan should include recognition of the importance of understanding supply and demand forces in the region's labor markets, the need to balance those forces and thus create employment, the need to look at the wage effects of increased global integration, and the need to understand the likely trends in the region of future demands for labor. Finally, RCSA should initiate regional reflection on the implications of these labor market trends for education and training needs, which could perhaps be satisfied on a regional basis.

Support for global competitiveness in the region should also include an emphasis on the creation of sustainable markets for the delivery of "competitiveness-enhancing services," i.e. the development of private or public-private collaboration/transactions for R&D, productivity enhancement, information systems, market development assistance, etc. between firms and potential competitiveness service providers in the region (universities, technical colleges, training institutes, research centers, think tanks, consulting firms, etc.).

Improving Economic Infrastructure

RCSA's definition of economic infrastructure should include all aspects of physical infrastructure - e.g., getting transport, telecommunications, energy/water utilities, and waste treatment systems to work properly. This is not only a question of physical investments, but again of investments in human capital to ensure that operations personnel and regulators have the skills required to maintain these networks.

Thinking about HIV/AIDS and Competitiveness

As the effects of HIV/AIDS are beginning to be felt throughout the economies of SADC member countries, private firms will need assistance with long-range strategic planning in two areas. First, firms will need to learn how to cope with the effects of HIV/AIDS on workforce issues such as benefits policies regarding care, sick leave, and personal leave, as well as training policies to ensure adequate skills coverage either through multi-skilling of individual workers or planning for worker redundancies. More broadly, firms need to begin to think about the longer term consequences of HIV/AIDS-related morbidity and mortality on the local and regional markets they face for their goods and services. Diversification strategies may be required to examine alternative products or alternative markets in which to sell their traditional products.

Priorities under Gender

There is a need for greater regional dialogue on the gendered effects of trade liberalization issues. Donors should ensure greater consultations with and involvement by women in trade policy-making positions. SADC member countries also need to strengthen their public and private sector analytical capacity to assess the effects of trade liberalization policies on women's income, women's employment, and migration flows, and to explore options to mitigate the potentially negative social outcomes of trade liberalization policies on women. Finally, as part of a general focus on labor market issues as the region seeks to improve its global market competitiveness, attention should be paid to the promotion of labor legislation that ensures fair and equitable working conditions for women.

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