Indian Ocean Rim economies urged to increase trade with each other

It is time to re-energise the Indian Ocean Rim Association (Iora), created by Nelson Mandela in 1997, and transform it into an active body that unlocks tangible business opportunities and helps negotiate the removal of disruptive nontariff barriers between the 22 member States.

This was the consensus reached on the first day of the Iora conference that is under way, in Durban.

Although the theme of the conference, co-hosted by the Department of Trade and Industry (DTI) and the Australian government, was modernisation of trade and exploring opportunities to boost trade and investment in the region, honest discussion shifted the focus to identifying challenges that had kept Iora from realising its full potential.

While welcoming delegates from 18 of the 22 member States to the event, DTI deputy director-general Sipho Zikode noted that global events such as the trade war between the US and China, Brexit and an escalation of protectionism and localisation made this a good time to discuss Iora’s response.  

“It is important for blocs like Iora to sit down and look at how we can respond to the antiglobalisation initiatives that are arising now. [We need to] share ideas and exchange views on how we can grow and develop our economies and look at the importance of economic cooperation between countries.

“Iora should really sit down and think carefully about how to promote services, goods, investment and technology within the Indian Ocean Rim [region],” he said.

Noting the need to realise Mandela’s vision of creating a single platform for socioeconomic development throughout the region, he said removing impediments to trade and barriers in order to allow a freer flow of goods was imperative.

Zikode, together with secretary general of Iora, Nomvuyo Nokwe, highlighted a number of statistics.

During 2018, two-way trade in goods and services in the region reached $4.8-billion. However, this represented just 2.5% of world trade.

Eighty per cent of Iora trade is dominated by three countries. South Africa is in eighth position with just 5.5% of Iora’s total trade.

Nokwe, Jose Paul Perales, deputy director of trade for the Centre for International Private Enterprise and Manish Singhai, deputy secretary general for the Federation of Indian Chambers of Commerce highlighted the fact that Iora’s contribution to global gross domestic product was disproportionately small at just 10.3%.

Its share of world exports was just 12.2%, despite the fact that its population of two-billion people represented 28% of the global population.

Nokwe, who noted past agreements within Iora, observed that “implementation is lacking” and said delegates needed to relook at navigating a slow trade environment where foreign fixed investment had remained low since the 2008 global economic crisis. 

DTI International Operations deputy director Chris Wood highlighted the fact that Iora was becoming a very important trading region in light of unravelling global trade trends, adding that it was time to completely review the trade and investment agenda.

He said Iora’s strengths were obvious. The region had a strong baseline of trade between members which included a number of rapidly growing countries with dynamic populations who were embracing rapid transformation of their economies through the Fourth Industrial Revolution, as well as countries that were accelerating their basic industrialisation and efforts to ensure they had tradable economies.

This created an even stronger basis for trade between members.

However, amid revelations that trade between member States remained low and that not one member country had a fellow Iora State as its primary or even secondary trade partner, both Wood and Singhai noted that a new approach to freight and logistics in the region was required.

Although sea traffic was high, most was simply passing through and transshipment opportunities were being lost.

Wood pointed out that Iora members needed to also exploit the strong links with the hinterland. Many landlocked countries used Iora countries as channels to global freight services. This was especially true in Africa and Iora was yet to fully leverage opportunities here.

Iora members also needed to explore opportunities to enter value chains offered by other regional trade bodies and agreements such as the Africa Continental Free Trade Agreement.

On the downside, he said, delegates needed to investigate the many structural incompatibilities between countries, including logistics and regulatory disconnects.

“Many of us also produce similar baskets of commodities – agricultural or mined commodities – and it is difficult to trade among ourselves if we have similar products. We need to look at how to diversify and promote industrialisation across the region,” he said.

He stated that the greatest challenge would be to dismantle nontrade barriers which often caused massive delays at customs and disparities in standards and regulations. Member countries were also not prepared to share trade data.

Perales also noted the challenge posed by disparate commercial infrastructure and called for greater regulatory cohesion. He noted that the region had multiple regulatory regimes, even within individual countries at a time when there should be “complementariness in [the] region”.

He said it was important to build an integrated region from the ground up through operations, beginning with the recognition of common standards, certificates and regulatory testing as had happened in central America.

The message to investors was that they were investing in a region rather than a single economy.