The Zimbabwe Independent

The economic integratio­n theme

- Batanai Matsika Matsika is the head of research at Morgan & Co and founder of piggybanka­dvisor.com. batanai@morganzim.com / batanai@piggybanka­dvisor.com or mobile: +263 783 584 745.

Several economists contend that economic integratio­n can improve the welfare of individual countries. Piggy notes that the definition of economic integratio­n encompasse­s all the different agreements between countries that include the eliminatio­n of trade barriers and aligning monetary and fiscal policies which then leads to a more interconne­cted global economy.

In fact, another term to describe economic integratio­n is globalisat­ion, which simply refers to the interconne­ctedness of businesses and trading among countries. In the modern economy, all economies feature a form of a market system.

There are different stages of economic integratio­n that include (i) Preferenti­al Trading area, (ii) Free trade area, (iii) Customs union, (iv) Common market, (v) economic union, (vi) economic and monetary union and (vii) Full economic Integratio­n. Many countries move in and out of these stages with other partner countries. One of the best examples of complete economic integratio­n is with the european Union (eU).

according to Piggy’s research, there is evidence that economic integratio­n can improve the welfare of individual countries. For example, there is optimism that the african Continenta­l Free Trade area agreement (afCFTa) will impact positively on african economies.

Basically, the afCFTa initiative has seen the creation of the world’s second largest free trade bloc by area and third by population and is set to spur intra-african trade while increasing the appeal of direct investment in africa.

a free trade area is the form of economic integratio­n wherein all barriers are removed on trade among members, but each nation retains its own barriers to trade with nonmembers. economic integratio­n is beneficial in many ways, as it allows countries to specialise and trade without government interferen­ce. The following are some of the benefits:

Trade costs are reduced, and goods and services are more widely available, which leads to a more efficient economy. an efficient economy distribute­s capital, goods, and services into the areas that demand them the most;

The movement of employees is liberalise­d under economic integratio­n. Normally, employees would need to deal with visas and immigratio­n policies to work in another country;

Political cooperatio­n is encouraged, and there are fewer conflicts. a group of nations can have significan­tly greater political influence than each nation would have individual­ly. This integratio­n is an essential strategy to address the effects of conflicts and political instabilit­y that may affect the region;

Trade creation

Member countries have (i) wider selection of goods and services not previously available and (ii) acquire goods and services at a lower cost due to lowered tariffs or removal of tariffs;

Employment opportunit­ies

as economic integratio­n encourages trade liberation and lead to market expansion, more investment into the country and greater diffusion of technology, it creates more employment opportunit­ies for people to move from one country to another to find jobs or to earn higher pay;

Increased returns, competitio­n

Within a tiny market, there may be a trade-off between economies of scale and competitio­n.

Market enlargemen­t removes this trade-off and makes possible the existence of (i) larger firms with greater productive efficiency for any industry with economies of scale and (ii) increased competitio­n that induces firms to cut prices, expand sales and reduce internal inefficien­cies;

Investment

regional Trade agreements (rTas) may attract FDI both from within and outside the regional integratio­n arrangemen­t (rIa) because of (i) market enlargemen­t and (ii) production rationalis­ation (reduced distortion and lower marginal cost in production);

Insurance

regional Trade agreements (rTas) can also be seen as providing insurance to its members against future hazards (macroecono­mic instabilit­y, terms of trade shocks, trade war, resurgence of protection­ism in developed countries);

Coordinati­on and bargaining power: Within regional Trade agreements (rTas), coordinati­on may be easier than through multilater­al agreements since negotiatio­n rules accustom countries to a give-andtake approach, which makes trade-offs between different policy areas possible; and

Security: entering regional Trade agreements (rTas) may increase intra-regional trade and investment and link countries in a web of positive interactio­ns and interdepen­dency.

Overall, an important aspect about the afCFTa initiative has to do with the opportunit­y of trading services. While the level of trade in services remains low in africa, the service sector in africa is very important given that it can account for over 50% of GDP in many countries.

Categories include business services (including profession­al and ICT services) as well as communicat­ion services (including audio-visual services).

The World Bank Group recently published the Zimbabwe Country economic Memorandum titled “Boosting Productivi­ty and Quality Jobs”. In the report, it asserts that Zimbabwe can take advantage of afCTa through service areas such as business outsourcin­g. However, this will require significan­t investment­s in digital infrastruc­ture. That said, Piggy believes econet Wireless remains well positioned to ride on this theme given its market leadership (74% voice and c59% data market share).

The business is also anticipate­d to cement its position through a rebound in USD cash flows which will address the low capex spend and the settlement of FX denominate­d liabilitie­s. at a Fwd Per of 6.6x, the stock is a steal. BUY eCONeT! Get tidbits on the stock market by joining a PiggyBanka­dvisor Whatsapp Group (+263 78 358 4745).

— regional Trade agreements can also be seen as providing insurance to its members against future hazards.

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 ?? ?? A free trade area is the form of economic integratio­n.
A free trade area is the form of economic integratio­n.
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