Performance of Intra-COMESA Trade Integration: A comparative Study with ASEAN’s Trade Integration

1. Performance of Intra-COMESA Trade Integration: A comparative Study with ASEAN’s Trade Integration Ebaidalla M. Ebaidalla and Abdelrahim. A. M. Yahia University of Kassala, Sudan African Economic Conference 2013 Regional Integration in Africa28- 30th October, 2013, Johannesburg, South Africa

2. Outline • Introduction • Motivations • Questions • Objectives • Importance • Methodology and Data • Empirical Results • Results Summary • Policy Implications

3. Introduction • Regional integration (RI) has been considered as one of the prominent strategies for development among countries and regions. • RI promotes economic growth and industrialization process through fostering intra-regional trade, infrastructure and investment. • Moreover, regional trade cooperation between countries is regarded as a key strategy to confront the challenges of globalization.

4. Motivations • The history of regional cooperation involves a number of successful regional trade schemes in developed and developing regions, e.g. the Association of Southeast Asian Nations (ASEAN). • The COMESA integration has launched many trade arrangements including (FTA in 2000, custom union in 2009 and further aspiration towards common market and economic community).

5. Research Questions • How much trade could be achieved among COMESA members if their trade elasticity with respect to economic and geographic variables (economic size, distance, common border, language, colony links) were similar to those achieved in intra-ASEAN trade? • What is the nature of gap between actual trade and potential regional trade of COMESA member states?

6. Objectives • Investigating the performance of intra-COMESA trade on the basis of success of ASEAN integration. • This would be useful to asses the prospect of COMESA for further trade integration and to uncover some policies that can help African policy makers to develop the process of the integration so as to achieve more economic cooperation.

7. Importance of the Study • Unlike the previous studies on measuring trade potential, this study use “out-of-sample” approach, which did not used before to analyze the potential intra-trade of COMESA. To our knowledge this method of projecting potential trade is only used by Patore et al. (2009) to compare the parallel integration process of EU with the Mediterranean countries and Central and Eastern European countries.

8. Methodology and Data The analysis proceeds via two steps • Estimate the coefficients of a gravity model of intra-ASEAN trade. • Apply them into equations of trade between the selected sample of COMESA members to calculate the potential trade relative to intra-ASEAN trade. * The success of intra-COMESA trade integration is measured by the ratio of potential to actual trade

9. Gravity Model Specification • i indicates the exporter countries, j are the trading partners and t is period under consideration, i.e. 1998-2010 • Xijis the trade variable between country i and country j; • POPi and POPjare the populations • GDPi andGDPj are gross domestic product of country i and j • Dij is the geographical distance in kilometers between the capital city of country i and of country j; • CL is a dummy variable to capture common language or colonial history, • CB is a dummy taking a value of one if the trade partners share a common land borders or sea borders, and zero otherwise; finally,

10. Data Sources • The trade data for ASEAN members are extracted from IMF’ Direction of International Trade statistics • The data for COMESA are collected from COMSTAT Database website • The data about GDP and population size are collected from World Bank’ Development Indicators. • Information about common language, ex-colony history and common border were sourced from the CIA World Fact-book. • Information about distance is sourced from • http://www.distancefromto.net/countries.php

11. Estimation Methodology • The gravity model is estimated via the panel data methods namely, pooled, fixed effects (FE) and random effects (RE) models. • Hausman test statistic is applied to check further whether the fixed effects model is more appropriate than the random effects model

12. Empirical ResultsResults of Gravity model estimation for intra-ASEAN trade (1998-2010)

13. Estimating Potential Trade of COMESA Integration • To project the potential trade we apply the coefficients of gravity model in column 6 to a sample of eight COMESA countries, over the period 2004-2011. • The ratios of potential to actual trade between each of eight COMESA members and other partner are presented in Figure 1 through 8 in Annex V.

14. Figure 1: Egypt-COMESA: Potential Trade/Actual Trade (2004-2011) Potential Trade /Actual Trade

15. Figure 2: Ethiopia- COMESA: Potential Trade/Actual Trade (2004-2011) Potential Trade /Actual Trade

16. Figure 3: Kenya-COMESA: Potential Trade/Actual Trade (2004-2011) Potential Trade /Actual Trade

17. Potential Trade /Actual Trade Figure 4: Malawi-COMESA: Potential Trade/Actual Trade (2004-2011)

18. Figure 5: Mauritius-COMESA: Potential Trade/Actual Trade (2004-2011) Potential Trade /Actual Trade

19. Figure 6: Uganda-COMESA: Potential Trade/Actual Trade (2004-2011) Potential Trade /Actual Trade

20. Figure 7: Zambia-COMESA: Potential Trade/Actual Trade (2004-2011) Potential Trade /Actual Trade

21. Figure 8: Zimbabwe-COMESA: Potential Trade/Actual Trade (2004-2011) Potential Trade /Actual Trade

22. Results Summary • Actual trade between most of the trading partners is far from the estimated potential trade level. • The ratio of potential to actual trade has a downward trend for most of country pairs, suggesting a decreasing gap between actual and potential trade over time. • Actual trade for some relatively developed courtiers, like Egypt and Kenya is close to its potential. • Kenya-Uganda pair is found as the most successful bilateral trade integration among the COMESA members.

23. Policy Implications • Policy makers in member countries should adopt effective trade promotion measures to achieve trade potential level. • The downward trend of potential/actual trade ratio means a progress toward full trade cooperation, which needs further actions to speed the economic and trade integration process. • Exports diversification should be at the top of policy agenda for COMESA countries.

24. Member countries need to pay special attention to industrialization so as to enhance trade integration, since intensive-industrialization is the major reason behind the success of ASEAN integration. • Promoting transport and communication infrastructure networks between the members. • Further efforts should be exerted to attract Foreign Direct Investment (FDI) as well as to promote the trade sectors. • Adoption of comprehensive trade liberalization measures ranging from removing tariff barriers to improve customs ports procedures at the borders.

25. Thank You For Your Attention