Regional Trade Integration, Economic Growth and Poverty Reduction in Southern Africa

5 The Delink Between SADC Trade Liberalisation and Poverty Reduction

5 TheDelinkBetweenSADCTradeLiberalisation andPovertyReduction Ronald Chifamba and Fanuel Hazvina Pro-poorconsumerandproductionbaskets By defining pro-poor consumption and production baskets across the SADC region, this chapter explores the link between free trade agreements (FTAs) and poverty eradication. It attempts to link the provisions in the SADC Trade Protocol (TP) and the incidence of reduced poverty through the changes that have occurred in the pattern of trade flows within SADC. To investigate the link between SADC (FTAs) and the incidence of reduced poverty focusing on the pro-poor basket, the study uses the following trade concentration indices in intra-SADC trade:„ Regional orientation (RO) trade index„ Trade intensity index„ Revealed comparative advantage (RCA)„ Inter-industry trade ratio These various approaches help to answer the question of whether or not the SADC FTA is appropriate for enhancing regional poverty eradication in southern Africa, and to quantify potential social costs and benefits. A consistent change in the trade pattern over the years towards reduced concentration and increased complementarity in trade would imply that there was an increase in trade as a result of the arrangements. An increase in trade would facilitate economic growth, and hence reduce poverty. The main assumption is that countries are trading using SADC arrangements, namely the origin certificate, given that, under the SADC FTA, by 2008 about 85 per cent of trade was liberalised. 108 REGIONAL TRADE INTEGRATION, ECONOMIC GROWTH AND POVERTY REDUCTION IN SOUTHERN AFRICA Pro-poorconsumptionbasket The pro-poor consumption basket has been defined as including maize, cooking oil, sugar, soap and clothes. The list is not exhaustive, merely indicative. These commodities are not in any way the only relevant ones in the pro-poor consumption bundle. They have, however, been selected here because they are the ones on which export and import data are readily available in the SADC trade database. Other commodities and services, such as health and water, do have trade implications because their impact on trade liberalisation is indirect. The demand response for the chosen commodities is measured by the level of imports and local demand for these commodities. The existence of poverty when there is a supply of the commodities implies that the affected groups in society do not have the adequate resources to access the commodities . Thus, the issue of reducing poverty becomes not only an issue of increasing access to the basic commodities directly through household production, but also an issue of having access to income from different sources, then using that income to purchase food and other basic items. Free trade in general widens the consumption possibilities of countries since they will have the opportunity to trade and obtain goods in which they have a comparative disadvantage in their production. A survey carried out by TRADES Centre shows that the prices of consumption goods had not decreased as a result of trade liberalisation. Demand for basic foodstuffs is generally expected to be inelastic. However, the demand for clothes and soap could be elastic. Pro-poorproductionbasket The pro-poor production basket consists of food, mainly maize. The rest, including clothing items, are usually manufactured then put on the market for sale to potential consumers. In order to assist the poor in the production of food and other basic necessities, there is a need to provide the poor with requisite finance or inputs. Microfinance provides one channel through which vulnerable groups could be empowered so that they can participate in trade, which enhances growth and subsequently reduces poverty. Production and trade at the micro level could be facilitated by formulating appropriate policies that increase economic development by improving income generating activities and employment creation. Mi- THE DELINK BETWEEN SADC TRADE LIBERALISATION AND POVERTY REDUCTION 109 crofinance institutions have the potential to stimulate the growth of the microenterprises and the small and medium enterprises (SME) sectors. These SMEs are generally regarded as the engine for economic growth in developing countries, and they also assist in the formalisation of the informal sector so that it becomes integrated into the mainstream economy. Dynamicsofpro-poorintra-SADCtrade In an attempt to link the provisions in the SADC (FTA) arrangements and the incidence of reduced poverty, this section examines the concentration in SADC exports, changes in the pattern of intra-industry trade, revealed comparative advantage (RCA), and the changes in the degree of complementarity in trade flows that was possibly facilitated by the arrangements. A change in the trade pattern over the years towards reduced concentration and...