SADC Regional Integration

Muagerene, A. Windhoek, 11-12/06/05

SADC Regional Integration

The role of the Lusophone Countries, 2004


Contents

1. Introduction

2. The SADC Lusophone countries a. Similarities and differences

3. Economic Integration

4. Sectoral Cooperation

5. Political convergence

6. Conclusions


1. Introduction

• Angola and Mozambique are the SADC Lusophone countries (SLC).

• Regional Integration as a process of integration of small economies into the global economy (economies of scale).

• SLC integration process through the conditionalities of the Structural Adjustment Programs (SAPs).– The SLC differ in speed, intensity, and the outcomes.

• Why compare the variable of the SLC?


2. Angola and Mozambique: Similarities

• Former Portuguese colonies– Independence in 1975.

• Marxist-Leninist ideology and central planned economy in the post-independence.

• Long civil war: regional strategic role in the context of cold war and Apartheid.

• Frontline States.• Late 80s introduction of political and economic

reforms.– Changes in the constitution (1990).


2. Angola and Mozambique: Differences

• Colonial economy - different patterns.– Moz.: Closer to South Africa and landlocked neighbor countries.– Ang.: Colonial platform for exports to Brazil, Portugal.

• Political processes:– Moz.: the peace agreement in 1992 followed with regular

elections and national reconciliation.– Ang.: several failed peace agreements until the 2002. Still,

slowly reconciliation and replacement is taking place. • SAP’s implementation:

– Moz.: Implemented systematically.– Ang.: Trapped in a complex and difficult transition.

• Angola – huge resource endowment.• Mozambique – national initiative on PRSP; debt relief

(HIPIC).


SLC: Macro-economic IndicatorsIndicators Angola Mozambique

Population 14.3 mn (2003) 19.4 mn

GDP – ppp. $ bio. (2004e) 23.17 23.38

GDP – real growth rate (2004e) 11.7% 7.2%

Inflation rate (Consumer pr.) 43.8% 12.8%

Exchange rate (2004) Kz/US$ - 83.2 Mt/$ - 23,612

Current Bal. Ac. (2004) - 37.88 mn - 101.2 mn

Exports - $ Fob (2004) 12.76 mn 89.4 mn

Imports - $ Fob (2004) 4,896 bn 972.9 mn

Reserves forex - $ (2004e) 800 mn 1,206 bn

Debt external - $ (2004e) 10.45 bn 966 mn (2002e)Source: US, 2005; CIA – The World Fact Book, 2005.


3. SLC: Economic Integration

3.1. Country Openness and Climate for Investments

• The SAPs aimed at: Address economic decline, and slow down macroeconomic imbalances.

• Angola: during the 1990s introduced series of ineffective economic reforms ( civil war, external shocks).

• In 2003: Law on Bases for Private Investment – Law 3/03 (substitute the former 1994).– Create the National and Private Investment Agency (ANIP);– Oil, and mining investments require concession, or involvement

of parastatal;– Investment approval – include several steps:

• The “Doing Business” 2004: average of 164 days (regional 63);• The World Economic Forum, 2004, ranked Angola at 103/104

– Most time consuming county

• 2004 Gvt. response: One Stop Shop (Balcao Unico).


SLC: Economic Integration (Cont…)

3.1. Country Openness and Climate for Investments

• Angola:– Corruption: Angola’s economic setback.

• Angola ranked at 133/145 countries (Transparence International, 2004).

• Petty corruption in the Public Sector (Hodges 2004).

– Gvt. Response: – 2004 Anti-corruption Law – not yet inplemented.– Angola participant of NEPAD – peer review include good

governance.


SLC: Economic Integration (Cont)

3.1. Country Openness and Climate for InvestmentsMozambique: Under SAPs:• Law on Investments – Law 3/93:• Create the Investment Promotion Centre (CPI)

– The process of company registration regarded as time consuming.

• “Doing Business” 2004: average of opening business of 153 days.– Constraints: administrative, regulatory, and commercial-legal

barriers (SARPN, 2004)• Corruption: severe constraint:

– Bribery seeking behavior of public officials (US, 2005).– Transparence International ranked Moz, at 90/145 countries.

• Gvt. Response:– Anti-Corruption bill enacted in 2004, and established the Anti-

Corruption Unity: Still, Corruption is a “white elephant”.– Mozambique signed the International Convention against

Corruption.


Economic Integration3.1. Country Openness and Climate of

Investments

• Both, Angola and Mozambique, have made progress in creating legal and institutional conditions to attract investment.– Still, the processes remain burdensome

preventing market entry, and raising costs of doing business.


SLC: Economic Integration3.2. Trade Agreements of the SLC:

Agreement Angola Mozambique

SADC Trade Protocol 2003 1999

Bilateral Agreement for Investments

Portugal, RSA, UK, Italy, Germany (Not implemented)

Cape Verde.

RSA, Port, Zimb, Mauritius, Fra, Ita, Chi, Egy, Indon, Alg, Switz, Ger, Swed, Den, UK, Cuba, USA.

EU Cotonow Agrmt. Yes Yes

AGOA Yes Yes

Multilateral FMI, MIGA (WB), WTO

FMI, MIGA, WTO

Source: FMI, 2004; US, 2005.


SLC: Economic Integration3.3. Foreign Direct Investment flow

• Angola: Massive investment in oil industry.– World Bank estimates US$ 1.42 bio (2003),

and US$ 1.55 bio (9% GDP)(2004).– USA is the most important trade partner.

• Mozambique:– Investments slowed down in 2004:

• 143 projects: US$ 508 mio.

– RSA the most important trade partner in 2004.


SLC: Economic Integration3.3. FDI – Moz.: Regional Share, 2004

Countries No. Projects FDI US$ (mio.)

RSA 2 59

Malawi 4 5

Zimbabwe 22 4

Mauritius 2 3

Tanzania 2 2Source: CPI, 2004. In: US, 2005.


SLC: Economic Integration 3.4. Export structure, 2004

Angola Mozambique

Exports f.o.b (04e) $12.76 bn $689.4 mn

Export Partners US 48.1%, Chi 23.5%, Tai

8.1%, Fra 7.4% (2003) Bel 26.5%, RSA 14.6%, Ita 9.8% Spa 9.6%, Ger 8.5%, Zim

4.8% (2003)

Imports f.o.b (04e) $4.896 bn $972.9 mn

Import Partners Por. 18.1%, RSA 12.3%, US 12.1%, Net 11.5%, Fra 6.5%, Bra 6.2%, UK 4.1% (2003)

RSA 26.7%, Aus 9.3%, US

3.9% (2003)

Export merchandise 2004

91.92 Oil industry; 7.45 Diamonds; 0.63 Others

75% mega-project exports; 20% agriculture; 5% others

Sources: IMF, 2005: 7; SARPN, 2004: 32; CIA, 2004; Tralac, 2005.


SLC: Economic Integration3.4. Export structure (Cont.)

• Angola: export based on oil industry and diamonds :– Share 45% in the GDP. – High openness with the World economy.– Employing less than 0.5 % of the population. – No complementarities with other domestic

activities. • Angola has the economy of enclave.

• Need for export diversification.


SLC: Economic Integration3.4. Export structure (Cont.)

• Mozambique: export promotion through the Industrial Free Zones (IFZ) – Decree no. 61/99.– Areas covered with special exemptions.

• Since late 1990s Mozambique attracted capital-intensive investments in the “mega-projects”.– increase in exports and imports (+).– linking the economy to a global market (+). – However, mega-projects create a few jobs (-);– few linkages with the domestic economy (-). – Mozambique is in need for more labor-intensive

exports of goods and services, such as Agriculture, tourism.


4. SLC: Sector Integration4.1. Energy

• Electricity: Promising sector in the regional integration.

• Angola: – Agreed with Namibia, the construction of the Gove

Station, on the New Cunene river, in Feb 2003.– Western Corridor Power (WESTCOR) Project:

• Aim: pull of the hidro-potential of DRC, Angola and Namibia.• Capacity: 5.500 MW • MU signed Apr 2002. • Value: US$ 4.0 bn (funding under way – NEPAD projects).


4. SLC: Sector Integration4.1. Energy (Cont.)

• Mozambique:– The Cahora Bassa hydroelectric-dam in the

Zambezi river. Capacity of 2,075 MW.– Supply domestic needs, RSA, and Zimbabwe.– From 2004 agreement to supply to Malawi:

300 MW for the next 20 years.


4. SLC: Sector Integration4.1. Development Corridors

• Based on the concept of the Spatial Development Initiatives (SDI):

• Angola: had about 2,700 km of railways network,– The outlet to Luzaka (Zambia), and Lubumbashi

(Congo). – Only 850 km (1/3) is operational.

• Angola launched in 2004 the “AngoFerro” Project, evaluated US$ 4.0 bn to upgrade and rehabilitate the railways network.


4. SLC: Sector Integration4.1. Development Corridors (Cont…)

Mozambique: based on three “development corridors”: Nacala, Beira and Maputo.

1. Nacala Development Corridor: in the northern province o Nampula linking Mozambique, Malawi and part of Zambia, including the Nacala port, the road and railway.

- Privatized in 2000.

2. Beira Development Corridor: With 2 lines. 1. Maxipanda line: linking Beira to Zimbabwe. Include the Beira

port and 300 km of road, railway, and pipeline.2. Sena line: links Beira to coal Mine of Moatize, and Malawi,

about 600 km. Upgrading project is underway.


4. SLC: Sector Integration4.1. Development Corridors (Cont.)

• Maputo Development Corridor (MDC):– Links the Capital of Maputo to RSA province

of Mpumalanga.– Includes the Maputo port, the road, railway

and the Border post.• From 2004 also includes the pipeline.

– The MDC is located within the IFZ of Maputo.• Also the success story of MOZAL and SASOL.


5. Political Convergence

• SLC are young democracies.

• Assessment must consider the factors contributing to Democracy consolidation.– Regular democratic elections;– Respect of basic Human rights, and– The absence of political violence (Petters-

Barriers, Naidu, 2003: 11).


5. Political Convergence (Cont.)

Indicators Angola Mozambique

UNDP – HDI(2002)

Ranked 160/177 (0.381) Ranked 171/177 (0.354)

TI – CPI (2004) Position 133/145;

CPI Score (2.0)

Position 90/145

CPI Score (2.8)

Freedom House Political rights: 6;

Civil liberties: 5

“Not free” country

Political rights: 3;

Civil liberties: 4

“Partly free”

Sources: UNDP, 2004; Transparence International, 2004; Freedom House, 2004



• Angola: – War-torn society facing the legacy of the civil war.– Angola is among the low human development

countries, i.e., with lower longevity, lower education and low standard of living for the majority of the population.

– The oil revenues did not trickled down to alleviate the poverty.

– The country faces the corruption, which “robs its potential” to recover the effects of the long war.

– The undermined respect for the constitution, the human rights, and the rule of law, make the country to be ranked as “not free” country.



• Mozambique is a poor country:– As the case of Angola, is among the low human

development countries which result in low longevity, low educational attainment, and quality of life.

– The country faces the effects of corruption preventing the attainment of the goals express in the PRSP, as well as the MDG.

– Mozambique was ranked as “partly free”, which need to improve the human rights, and the civil liberties, s well as the rule of law, in general.


Conclusion

• Mozambique and Angola, form the SLC, given the fact that they have gone through parallel historic and political processes.

• Both countries have made progress toward regional integration at levels of economic integration, Sectoral cooperation and Political Convergence.

• However, both countries need to consider step further for effective regional convergence addressing the constraints identified.


• Thank you for the attention.

Documents

SADC Regional Integration