Economic integration

The theme of economic integration – The Zimbabwe Independent

Many economists argue that economic integration can improve the welfare of each country. Piggy notes that the definition of economic integration encompasses all the different agreements between countries that include the removal of trade barriers and the alignment of monetary and fiscal policies, which then leads to a more interconnected global economy.

In fact, another term to describe economic integration is globalization, which simply refers to the interdependence of businesses and trade between countries. In the modern economy, all economies exhibit some form of market system.

There are different stages of economic integration which include (i) preferential trade 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 enter and leave these stages with other partner countries. The European Union (EU) is one of the best examples of complete economic integration.

According to Piggy’s research, there is evidence that economic integration can improve the well-being of every country. For example, there is optimism about the positive impact of the African Continental Free Trade Area (AfCFTA) Agreement on African economies.

Fundamentally, the AfCFTA initiative has seen the creation of the world’s second largest free trade bloc by area and third largest by population and is expected to boost intra-African trade while increasing the attractiveness of direct investment in Africa.

A free trade area is the form of economic integration in which all barriers to trade between members are removed, but each nation retains its own barriers to trade with non-members. Economic integration is beneficial in many ways, as it allows countries to specialize and trade without government interference. Here are some of the benefits:

Trade costs are reduced and goods and services are more widely available, leading to a more efficient economy. An efficient economy allocates capital, goods and services to the areas that need them most;

The movement of employees is liberalized within the framework of economic integration. Normally, employees would have 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 much greater political influence than each nation would have individually. This integration is an essential strategy to deal with the effects of conflicts and political instability that can affect the region;

Business creation

Member countries have (i) a wider choice of goods and services that were not previously available and (ii) acquire goods and services at lower cost through reduced tariffs or the elimination of tariffs;

Job Opportunities

As economic integration encourages freer trade and leads to market expansion, more investment in the country and greater diffusion of technology, it creates more employment opportunities for people who move from one country to another to find a job or earn a higher salary;

Increased yields, competition

Within a small 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 which induces firms to lower prices , increase sales and reduce internal inefficiencies;

Investment

Regional Trade Agreements (RTAs) can attract FDI both inside and outside the Regional Integration Agreement (RIA) due to (i) market enlargement and (ii) rationalization of production (reduced distortion and lower marginal cost of production);

Insurance

Regional Trade Agreements (RTAs) can also be seen as providing insurance to its members against future risks (macroeconomic instability, terms of trade shocks, trade war, resurgence of protectionism in developed countries);

Coordination and bargaining power: Under regional trade agreements (RTAs), coordination can be easier than through multilateral agreements, as the rules of negotiation accustom countries to a give-and-take approach, allowing trade-offs between different policy areas; and

Security: The conclusion of regional trade agreements (RTAs) can increase intra-regional trade and investment and link countries in a web of positive interactions and interdependence.

Overall, an important aspect of the ZLECAf initiative concerns the opportunity to exchange services. While the level of trade in services remains low in Africa, the services 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) and communication services (including audiovisual services).

The World Bank Group recently released the Zimbabwe Country Economic Memorandum entitled “Boosting Productivity and Quality Jobs”. In the report, he asserts that Zimbabwe can benefit from the AfCTA in service areas such as business outsourcing. However, this will require significant investment in digital infrastructure. That said, Piggy believes Econet Wireless remains well positioned to ride this theme given its market leadership (74% voice market share and c59% data market share).

The company should also consolidate its position thanks to a rebound in USD cash flow which will solve weak capital expenditures and the settlement of foreign-denominated liabilities. At a Fwd PER of 6.6x, the stock is a bargain. BUY ECONET! Get stock market insights by joining a PiggyBankAdvisor WhatsApp group (+263 78 358 4745).

Matsika is head of research at Morgan & Co and founder of piggybankadvisor.com. — [email protected] / [email protected] or mobile: +263 783 584 745.

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