By Lozindaba Mbvundula | Coordinator for Corporate Social Responsibility and Public Relations
Regional economic institutions are blocs in which various states come together to pursue mutual economic interests, development, and to advance regional unity and peace. They are a key player in regional integration. Regional integration follows varying patterns, the most dominant one being linear economic integration. This paper discusses the regional economic institutions Malawi is a party to. This is important as these institutions influence the trade policies governing Malawi. Before discussing the institutions, however, this paper also briefly discusses the linear economic integration, which is the trajectory of regional integration in Africa.
Linear economic integration is a step-ladder regional integration process. It occurs in five stages, namely free trade area, customs union, common market, monetary union, and finally, economic union. A free trade area (FTA) the first stage of economic integration. An FTA is a regional economic community in which trade barriers are removed for member states but members are free to set their own external barriers. The Common Market for East and Central Africa (COMESA) is an example of a free trade area. The second stage is that of a customs union, which is a free trade area in which parties agree on common external tariffs for products originating outside the customs union. The Southern African Customs Union (SACU), comprising of South Africa, Botswana, Lesotho, Swaziland and Namibia, is an example of a customs union in Africa. Regional economic institutions progress from a customs union to a common market. A common market is a customs union in which there is free movement of factors of production. In 2010, the East African Community (EAC) launched its common market.
When a common market adopts a unified monetary policy and a single currency, it becomes a monetary union. The Economic and Monetary Community of Central Africa, also known as Communauté Economique et Monétaire de l’Afrique Centrale (CEMAC), the West African Economic and Monetary Union, also known as Union Economique et Monétaire Ouest Africaine (UEMOA) are monetary unions. Finally, a monetary union becomes an economic union when its members explicitly adopt a unified fiscal policy. There is currently no African REC that has attained the status of an economic union. The Treaty establishing the African Economic Community (the Abuja Treaty), set the goal for Africa to be an economic union by 2028. However, the pace at which African regional economic institutions have been progressing along the five stages of integration makes it unlikely that this deadline will be met.
Malawi is a member of the Common Market for East and Southern Africa (COMESA) and the Southern African Development Community (SADC). COMESA was established in 1994, with the objective of pursuing closer economic integration than its predecessor, the Preferential Trade Area for Eastern and Southern Africa founded in 1981. It became an FTA in 2000, when nine of its members, including Malawi, eliminated their tariffs on products originating from the COMESA region. COMESA currently has 19 members. Pursuant to COMESA’s move towards becoming a customs union, Malawi has aligned its common external tariffs with COMESA requirements. The implication of Malawi being a member of COMESA is that products originating from COMESA countries have better market access as trade barriers are substantially eliminated for them. Similarly, Malawi’s products subjected to no substantial barriers when they are exported to COMESA countries.
SADC, to which Malawi is also a member, was established in 1992, succeeding its predecessor, Southern African Development Coordination Conference (SADCC). It currently has 16 members. Its FTA was established in 2008, pursuant to the SADC Protocol on Trade. Like with COMESA, Malawi has a preferential trade relationship with all SADC countries. SADC is set to advance into a customs union. This is challenging, however, because COMESA and SADC have many members in common and it is impossible for a country to belong to more than one customs union. To solve this, COMESA, SADC and the EAC resolved to form a Tripartite Customs Union on 10 June 2015. Once this is in force, Malawi will enjoy preferential trade with all countries in COMESA, SADC and the EAC, and will also align all its tariffs and customs with those of the countries in the region.
Malawi also submitted its instrument of ratification of the African Continental Free Trade Area (AfCFTA) on 15 January 2021, becoming the 35th member state to ratify the agreement. Once the AfCFTA is operation, Malawi will be part of the largest FTA in the world. Beyond Africa, Malawi also has other preferential trade arrangements, such as the African Growth and Opportunity Act, which grants Malawi’s textiles and apparel duty and quota-free market access to the United States of America, and the Everything-But-Arms Initiative, which grants all Malawian products, except ammunition, duty and quota free access into the European Union market. Malawi is thus well-positioned in terms of trade liberalisation and market access, attributable to its membership in regional economic institutions and its preferential trade arrangements.