Professional Documents
Culture Documents
On
By
Yatin Pawa
Roll No: 59
MBA(IB) – 2008-10
IIFT, Kolkata
Appendix ....................................................................................................................................... 38
References: .................................................................................................................................... 49
Chapter 1: Introduction
Change in the perception began in the early 1990s, when most of the governments in this
region started realizing that many of the inherited economic problems were soluble. Hence,
they have taken up reform programmes both at the political and economic levels. Most of the
governments in the region instead of being hostile to foreign entrepreneurs now actively seek
foreign business involvement. The above initiatives taken by the governments indicate the
beginning of sub-Saharan Africa's transformation towards economic recovery and sustained
long-term development. In view of the above many observers view the region's trade and
economic prospects as more favourable now than at any time during the past two decades.
Of late, the states in this region are engaged in constructive dialogue to revamp the existing
regional groupings and trade blocs. The activation of trade blocs like Southern African
Development Community (SADC), Common Market for Eastern and Southern Africa
(COMESA), Southern African Customs Union (SACU), Indian Ocean Commission (IOC),
East African Cooperation (EAC) and Economic Community of West African States
(ECOWAS) has boosted expectations even further. Regional trade agreements can help
countries build on their comparative advantages, sharpen their industrial efficiency, and act
as a launch pad to integrate into the world economy.
A QUICK look at the World Bank figures will reveal that 13 sub-Sahara African nations
(SSA) experienced GDP growth rate of 5 percent or more in the five-year period closing the
20th century. Incidentally, when this figure is matched with the population growth rates, it
points towards an interesting phenomenon! The economic growth rates exceeded their
respective population growth rates for the first time in decades - an important development
indicator. Furthermore, markets in the developed world are getting saturated on the
perception that investment opportunities in developed nations are mature - hinting to the fact
that greatest risk-reward opportunities are to be found in newly emerging markets. There
were desperate hunts for new investment destinations. Naturally, Africa's vast, untapped
potential came in the picture frame. The United States and European Union (EU) started
taking interest in the African market. These have been reciprocated by more FDI and
international involvement in the economy.
The world experienced unprecedented social, economic and political turbulence in 2008 and the
COMESA economy was not entirely unscathed, but performed better than some regions and
economies.
2.1. COMESA Economic Performance
The economy of COMESA grew from US$233 billion in 2005 to US$345 billion in 2007.
The population grew from 389 million in 2005 to 416 million in 2007. The effect of these
changes in GDP and Population on standards of living of citizens of the region has been a
slight upward push as demonstrated by the rise in GDP per capita. Figure 14 below shows
GDP in billions of US Dollars, Population in millions and GDP per capita in US Dollars.
Overall economic performance has raised living standards as measured by GDP per capita
from US$600 in 2005 to over US$800 in 2007. This growth rate is a positive step in the
attainment of COMESA’s goal of “…an internationally competitive and prosperous
economic community with high standards of livings for its people. Growth was more
impressive among the 12 Least Developed Countries of COMESA.
In implementing its programmes and activities, COMESA works through its Secretariat for
technical and policy related work, and through its independent and semiautonomous
institutions for specialized sectoral work.
These include the Trade and Development Bank for Eastern and Southern Africa (popularly
known as the PTA Bank), the COMESA Re-Insurance Company (ZEPRe), African Trade
Insurance Agency (ATIA); the COMESA Clearing House; the COMESA Regional
Investment Agency (RIA); the COMESA Leather and Leather Product Institute (LLPI) and
the Council of Bureau of Insurance Associations and the newly created COMESA
Competition Commission. These institutions have the potential to become commonly owned
institutions not only for the regional organisations in eastern and southern Africa but for the
African continent as a whole as they already providing services to the private sector not only
in COMESA and Africa, but also in South East Asia.
To address those constraints with a view to make the region more attractive, the Twelfth
Summit of COMESA Authority of Heads of State and Government, held in Nairobi, Kenya,
on 22nd and 23rd May 2007 adopted the Investment Agreement for the COMESA Common
Investment Area (CCIA).
The CCIA Agreement is a useful investment tool whereby the COMESA Secretariat
contemplates to create a stable region and good investment environment, promote cross
border investments and protect investment, and thus enhance COMESA’s attractiveness and
competitiveness, as a destination for Foreign Direct Investment (FDI), and in which
domestic investments are encouraged.
The COMESA Secretariat has prepared Two-year Action Plan for the implementation of the
Investment Agreement for the COMESA Common Investment Area which was adopted by
the Co-ordinating Committee on Investment (CCI), during its meeting held in Lusaka,
Zambia, from 12th to 13th December 2007. Policy reform and COMESA investment
database are the first activities addressed in the line with the aforesaid Action Plan.
COMESA countries. At the end of the process, the COMESA Secretariat intends to start
publishing an annual investment report for the entire region whose positive effect will to
assure more visibility of the COMESA region.
Nevertheless, COMESA’s trade with the rest of the world remained below the desired
performance level in 2008. The total volume of COMESA imports and exports in the year
2008, was US$130 billion. The volume of COMESA trade as a proportion of global trade
demonstrates a high degree of openness of the COMESA economy. Intra-COMESA trade is
about 10% of global trade. This is a small percentage when compared to other regions in
Asia and Latin America. For example, the intra-regional trade for MERCUSOR, ASEAN
and ASEAN plus 3 are 22%, 28% and 39% respectively. A characteristic feature of this
intra-trade among these regional blocks is that, a substantial proportion is composed of
manufactured products and intra-industry trade as opposed to Intra-COMESA Trade. On the
contrary, the defining feature of COMESA trade with the rest of the world is the dominance
of primary commodities.
In most cases, our countries depend on one or two primary commodities for export earnings.
This is because COMESA countries have hardly modified the structures of their exports.
The main primary commodities exported in the year 2000, still accounted for half of all
exports, as was the case in 1960. Manufactured exports constitute only 5% of total exports.
In contrast, the region imports capital and finished goods from the rest of the world. The
number of countries participating in the FTA remained the same at 13, with Seychelles
making arrangements to the join the FTA. It was hoped that the legislative and procedural
measures that Seychelles was working on during the year would be completed within the
first half of 2009 and enable the country join the FTA.
The percentage of intra-COMESA trade to total COMESA trade has remained low on
average at 4 percent for the last 4 years. See table 2 below. This in part can be attributed to
the fact that third country trade consist of raw material exports some of which have had
significant price increases in recent years. Hence this surge in third country exports
potentially implies a lower intra COMESA trade to total trade ratio.
At country level, Zimbabwe increased her total merchandise imports by 97% in 2007, more
than four times the regional average of 24% in 2007. Total imports for Madagascar and
Kenya were also up by 43%. Most other countries in the region had their annual percentage
change for total imports around the regional average with the exception of Comoros, Eritrea,
Sudan and Seychelles which registered negative changes. On the export side, remarkable
increases in merchandise exports were registered for Eritrea, Zimbabwe and Burundi, with
values rising by 264%, 148% and 81% respectively. Comoros, Sudan and Seychelles
however registered negative changes in export values in 2007 over 2006 values. In 2007,
only Libya, Zambia and Swaziland registered favourable terms of trade (ToT) with the
world, having ratios of 3.79, 1.23 and 1.08 respectively.
EU were mainly petroleum oils, natural oils and gas from Libya and Egypt. Following the
EU export market was the USA with exports from COMESA worth US$5.2 billion in 2007,
registering a 6 percent increase from the previous year. Exports to the US market were also
topped by petroleum oils and natural gas from Libya and Egypt, and also non-industrial
diamonds exported from the D.R Congo.
Ranked fourth in the export market was Switzerland, after COMESA, with exports from
COMESA worth US$3.7 billion in 2007, mainly copper (US$1.5 billion) and petroleum oils
(US$1.2 billion) from Zambia and Libya respectively. Exports to South Africa amounting to
US$3.1 billion in 2007 were mainly Mixtures of odoriferous substances from Swaziland
(HS 330210), Nickel and gold from Zimbabwe and copper from Zambia. Exports to China
were topped by petroleum oils worth US$2 billion from Libya and Sudan followed by cobalt
and copper from Congo DR worth US$350 million.
On the import side, the key import source market for most COMESA countries was again
the EU, with the exception of Swaziland, Zambia and Zimbabwe which had South Africa as
their key import source market with proportions of 95%, 45% and 43% respectively. In the
COMESA region, Rwanda sourced the biggest proportion of her imports from the region,
with a proportion of 39%, mainly petroleum oils and cement from Kenya and Uganda
respectively. On the overall, 24% of COMESA’s total imports originated from the EU hence
making it the most import source market for COMESA imports.
COMESA’s imports from the rest of the world ROW accounted for 42% of total imports in
2007. Remarkably these were Saudi Arabia, United Arab Emirates and South Korea
In absolute figures, COMESA’s imports from the EU amounted to US$30 billion in 2007,
registering an increase of 20 percent over the 2006 figures and lucidly the largest import
market for the COMESA countries (Table 4 below).
Topping the list of imports from the EU market to the COMESA region were light oils and
preparations of petroleum (HS 271011) worth US$2.4 billion, unused postage, revenue or
similar stamps, including bank notes (HS 490700), medicaments consisting of mixed or
unmixed products (HS 300490) and parts of electrical apparatus for telephony (HS 851790).
Trailing EU as a major import market for COMESA was China, registering exports worth
US $ 7.8 billion to COMESA in 2007, a striking increase of 35 percent from the 2006
levels. Imports from China to COMESA were topped by line telephone sets (HS 851711)
followed by electrical apparatus for line telephony and parts of electrical apparatus for line
telephony, HS 851780 and HS 851790 respectively . South Africa ranked third with exports
to the COMESA market worth US$6.7 billion in 2007, followed by Saudi Arabia that
exported commodities worth US$5.3 billion in 2007.
COMESA’s imports from South Africa were mainly medium and light oils of petroleum
products, motor vehicles and flat-rolled products of iron and steel while imports from the
republic of Korea were mainly motor cars and line telephone sets (HS 8703 and HS
851711), respectively.
COMESA had participated in one of the preparatory meetings held in Addis Ababa,
Ethiopia in May, 2007, and participated in the April 2008 Summit. COMESA also actively
participated in the 2nd Conclave on India-Africa Project Partnership –Strengthening
Partnerships: that took place in New Delhi on 19 – 21 March, 2008. As part of the ongoing
collaboration, an Indian Industrial Development Expert was seconded by the Indian
government and joined the Secretariat in June,
2008. In the area of energy, three energy experts were proposed from which the Secretariat
selected one expert who was also deployed to COMESA. The expert will work with the
Secretariat and the East African Power Pool (EAPP) to facilitate development of the
regional electric power master plan.
As part of the ongoing irrigation development program, four member states (Burundi,
Eritrea, Rwanda and Zambia) were surveyed by irrigation experts from India. Plans are
underway for the experts to visit Seychelles, Uganda, and Zimbabwe.
In 2006, a decision was taken to upgrade the COMESA-India dialogue to ministerial level,
and a COMESA ministerial delegation visited New Delhi in October 2006 for the first
ministerial level meeting. The meeting decided an action plan primarily in the area of
capacity building including deputation of experts to Comesa Sectt. in the areas of industrial
development, Drugs and Pharmaceuticals, ICT and energy. The energy expert is already
under deputation in COMESA Secretariat since 1st July, 2008. The matter is being pursued
with regard to deputation of other experts. In bilateral interaction, the COMESA delegation
attended the CII’S Third Conclave on India – Africa Project Partnership from October 9 – 11,
2006 in New Delhi; CII Partnership Summit in Gurgaon in January, 2008 and in India-Africa
Forum Summit in April,2008.
The India Africa Forum summit has given a new thrust to India’s engagement with Africa
with increase in existing credit lines to Africa from US$ 2.15 billion to US$ 5.4 billion; duty
free access to 85% of India’s total tariff lines as well as preferential duty access to 9% of
India’s total tariff lines by Africa’s 34 LDCs; grant of US$ 500 million to Africa in next 5-6
years and; increase in ITEC training slots from 1100 to 1600 a year to African countries. We
hope COMESA countries shall be able to take advantage of these measures.
Under COMESA India cooperation Programme, India’s Water & Power Consultancy
Services (WAPCOS) experts to advise in the development of irrigation sector had visited
Zambia (September/October 2005), Eritrea (November 2005) and; Rwanda (October, 2006).
The experts are to further visit Zimbabwe, Uganda, Swaziland and Seychelles.
Following are figures of COMESA's Trade with India, for years 2001 to 2005 in US$
(Millions):
In Zambia TATA has set up a truck and bicycle assembly plant in Ndola, which will
gradually replace imports of some completely knocked down parts (CKD) with COMESA
produced components. Zambia Electric Supply Company (ZESCO) and TATA Africa
Holdings have formed a joint venture company called Itezhi Tezhi Power Corporation
limited (ITPC) to carry out Itezhi-Tezhi ($200 million) power project. The total investments
by Vedanta Resources in Zambia’s biggest copper mine KCM will touch almost US$ 2
billion by 2008. While Vedanta Resources is Indian-owned, they are registered in UK –
hence their investment figures are not reflected in Indian investment figures.
The Exim Bank has been providing credit lines to PTA Bank and these credit lines have been
utilised by the private sector in sourcing machinery and equipment from India in various
COMESA countries. A total of US$55 million (including $10 million extended during the
COMESA October 2006 visit to Delhi) has so far been provided.
It will become easier for the Indian companies to increase their exports to the COMESA
states if India and COMESA could enter into a Preferential Trade or a Free Trade
Arrangement. The deeper integration among the COMESA states will enable the Indian
companies to participate in infrastructure related projects being promoted by COMESA
and set up facilities to manufacture items such as agricultural equipment, textiles,
pharmaceuticals, telecom equipment, processed foods in these countries and export to the
COMESA and other Sub-Saharan African states.
Since USA, Canada and European Union are providing duty and quota free market access to
several COMESA states, the Indian companies will be able to export their goods from these
states to their markets too.
TCI is calculated as
𝛴(𝑀𝑖𝑘 𝑋𝑗𝑘 )
𝑇𝐶𝐼 =
2
𝛴𝑀𝑖𝑘 . 𝛴𝑋𝑗𝑘2
Where
𝑀𝑖𝑘 = Imports of k commodity of I country
𝑋𝑗𝑘 = Exports of k commodity of j country
The index measures the degree of trade complementarities between two countries. Notice that the
TCI value varies from 0 to 1. When the TCI equals zero, i.e., 𝑋𝑗𝑘 = 0 or 𝑀𝑖𝑘 = 0, it can be
considered that India and country i have the similar export shares, and India has a perfectly
competitive trade structure against country i. As the TCI becomes larger, trade structure of India
becomes more complementary against country i. When the TCI equals unity, i.e., 𝑋𝑗𝑘 =𝑀𝑖𝑘 , it
can be considered that India's export shares are identical to its partner's import shares, and India
has a perfectly complementary trade structure against country i. Since traded commodities could
reflect factor endowment differences between the two countries, the TCI also represents the
degree of factor endowment difference.
The TCI between India and COMESA shows and increasing trade complimentarity across the
four years from 2005 to 2008. Thus whatever products India exports, COMESA nations import
similar products.
Below table and graph depict the increasing trade complimentarity between India and COMESA.
The graph and table below shows the increasing trade between India and COMESA nations
6.000
5.000
4.000
3.000
2.000
1.000
0.000
2005 2006 2007 2008
Exports 2.119 3.301 4.163 5.465
Imports 0.419 1.878 3.470 3.848
Total 2.538 5.179 7.633 9.313
From an Indian point of view the analysis will also aim to give insight into the sectors and
products from where India can face possible competition from the COMESA nations. Thus it
could be important to consider the effects of trading in such products in the future.
The analysis will be carried out at the 4 digit HS level for all the products traded by India and
COMESA. The methodology for identifying sectors and products shall be through the indices of
Relative comparative advantage (RCA) and Relative comparative disadvantage (RCDA).
a. RCA
Here
𝑋𝑘𝑖 = Export of I product of k country
𝛴𝑋𝑘𝑖 =Total export of k country
𝑋𝑤𝑖 = Export of I product of the world
𝛴𝑋𝑤𝑖 = Total export of the world
If, RCA > 1 A country has a revealed comparative advantage if not actual advantage in
the exports of that product i.e. its exports of that product are higher than the world average
and a country can gain benefit to a higher extent by exporting that product as per the H-O
theory of trade. In a free trade environment a country would be better off exporting this
product.
RCA < 1 A country has a low comparative advantage in the exports of that product i.e. its
exports of that product are lower than the world average and the export of that product might
not give it a competitive advantage over others.
b. RCDA
Here
𝑀𝑘𝑖 = Import of I product of k country
𝛴𝑀𝑘𝑖 =Total imports of k country
𝑀𝑤𝑖 = Import of I product of the world
𝛴𝑀𝑤𝑖 = Total imports of the world
If, RCDA > 1 A country has a revealed comparative disadvantage in that product i.e. its
imports of that product are higher than the world average and a country has a threat of its
market to be flooded by exports from other countries. A country in order to save the domestic
producers for such products imposes tariffs.
RCDA < 1 A country has a low comparative disadvantage in the imports of that product
i.e. its imports of that product are lower than the world average and importing that product
might not give it a significant disadvantage
c. dRCA
Dynamic RCA is the change in the revealed comparative advantage of a product for a
country over a certain period.
It is given by
𝑑𝑅𝐶𝐴 = 𝑅𝐶𝐴𝑡 − 𝑅𝐶𝐴𝑡−1
Where
𝑅𝐶𝐴𝑡 = Revealed comparative advantage for period t.
𝑅𝐶𝐴𝑡−1 = Revealed comparative advantage for period t-1.
Note:
RCA, RCDA and dRCA give the respective interpretations of a products comparative
advantage / disadvantage in isolation, it is important to study these indices in relation to each
other.
For further analysis and interpretation we shall attach a suffix for India as “I” and “c” for
COMESA. Therefore
And so on.
These set of products are those for which India has a comparative advantage in its exports
thus an RCA of greater than 1, and a RCDA greater than 1 signifies the relative disadvantage
of the COMESA nations thereby an opportunity for India to export such products taking
advantage of the lack of competitiveness of COMESA nations in these products
At the 4 digit HS level a total of 162 products were found for which the RCA for India was
greater than 1 and RCDA for COMESA nations greater than 1.
The table clearly points out to India’s competitive advantage over COMESA nations majorly in
the textiles, chemicals, agricultural, metals and machinery.
The detailed list of the 162 products with their respective RCAi and RCDAc values is given in
the List-1 in appendix.
The table below shows the major products which can prove to be of importance from the Indian
exports point of view. For the below products the RCA value for India is very high indicating a
high export competence on the other had the RCDA values for COMESA nations is also very
high, showing their incompleteness in the same products.
Such products can therefore be targeted for exports from India.
It is also noted in the table below the products for which the RCDA for COMESA nations is very
high. However the RCA values for India though greater than 1 is not very high. Such products
hold a huge potential for trade considering that India increases its competence in the same or else
it would face competition from other trading partners of COMESA.
These set of products are those for which COMESA nations have a comparative advantage
in their exports thus an RCA of greater than 1, and a RCDA greater than 1 signifies the
relative disadvantage of the India thereby an opportunity for COMESA nation’s exports to
penetrate the Indian market owing to their lack of competitiveness.
Imports of such products can therefore affect the domestic market of India leading to a
further fall in competitiveness. It is thus advised to keep such items in a sensitive list
wherein the tariffs would be reduced slowly.
At the 4 digit HS level a total of 48 products were found for which the RCA for COMESA
nations was greater than 1 and RCDA for India greater than 1.
The table shows India relative competitive disadvantage over COMESA nations majorly in
the Minerals, vegetable products and chemical.
The detailed list of the 48 products with their respective RCAi and RCDAc values is given
in the List-2 in appendix.
The table below shows the major products for which India needs to be careful as for them
the RCA value of COMESA nations is high and the RCDA values for Indian products is
also high.
Such items need to be dealt with care as their imports can flood the Indian market and drive
out the competency of the local players.
It is also to be noted for the products in the table below where the RCDA for Indian
products is high but the RCA of COMESA nations is not high but still greater than one.
Such products can pose a threat to flood the domestic markets in the future as the COMESA
nations gain further advantage in them.
These set of products are those for which the dynamic relative competitive advantage for
India is increasing over a period of time indicating its increasing competitive advantage in
trade over the period of time. For the same products the RCDA of COMESA nations is also
greater than one signifying the potential to export the products to COMESA owing to their
lack of competitiveness and the increasing competitiveness of India in the same.
A list of 137 items at the HS 4digit level were found for which the dRCA of India was
increasing in at least 2 of the last three years and for which the RCDA of COMESA nations
was greater than one.
dRCA
Product Product Name RCDAc RCAi
2006 2007 2008
2714 Bitumen and asphalt, natural; bitum 21.84 -0.34 0.14 1.80 2.24
5303 Jute and other textile bast fibres 18.19 -1.27 1.65 13.59 15.93
5310 Woven fabrics of jute or of other t 14.58 -7.45 3.16 16.66 54.29
2824 Lead oxides; red lead and orange le 12.98 0.22 0.08 1.12 1.64
5401 Sewing thread of man-made filaments 10.60 0.16 0.47 -0.10 0.90
1701 Cane or beet sugar and chemically p 9.23 2.75 1.99 1.39 6.39
2403 Other manufactured tobacco and manu 8.45 0.62 0.63 -0.48 2.29
3602 Prepared explosives, other than pro 7.64 0.15 0.03 0.65 1.20
5512 Woven fabrics of synthetic staple f 7.58 0.60 3.09 1.19 7.90
1007 Grain sorghum. 7.25 -0.66 0.22 0.69 1.05
5212 Other woven fabrics of cotton. 6.99 0.28 1.93 1.00 6.93
0909 Seeds of anise, badian, fennel, cor 6.87 -0.23 1.66 19.29 38.23
5205 Cotton yarn (other than sewing thre 6.16 1.14 2.02 0.21 17.19
Of theses 137 items a total of 69 items were such that for which the RCA of India was
greater than one. This signifies the increasing competitiveness coupled with an already
existing competitive advantage. Such items can be on the priority list for exports for India.
The complete list of the 137 items is given in List-3 in the appendix.
Similar to the above list these are the products for which the COMESA nations have shown
an increasing competitiveness over the last few years whereas India has a relative
disadvantage in such products.
The items in this list are of importance to India as they indicate the potential products that
will be imported from COMESA nations.
A list of 77 items were found at the HS 4 digit level. Among these items majority are
minerals and chemical and allied products. Of the 77 items, 27 were the one for which the
RCA of COMESA nations was greater than 1.
dRCAc
Product Product Name RCAc
RCDAi 2006 2007 2008
2510 Natural calcium phosphates, natural 18.61 -0.01 0.00 7.43 7.46
2814 Ammonia, anhydrous or in aqueous so 11.35 -0.06 0.02 1.57 1.60
1301 Lac; natural gums, resins, gum-resi 5.84 -7.23 7.41 25.71 40.33
0909 Seeds of anise, badian, fennel, cor 5.59 -0.20 2.28 5.62 9.12
5310 Woven fabrics of jute or of other t 5.21 0.08 0.09 3.62 3.93
2824 Lead oxides; red lead and orange le 5.16 0.04 -0.05 5.21 5.21
1516 Animal or vegetable fats and oils a 4.97 1.55 5.84 -7.49 1.73
1703 Molasses resulting from the extract 4.49 -3.69 4.32 3.96 18.92
5303 Jute and other textile bast fibres 4.36 0.19 35.48 116.08 151.77
2603 Copper ores and concentrates. 4.09 4.56 -3.84 0.15 5.85
2709 Petroleum oils and oils obtained fr 4.08 0.00 0.00 3.35 3.35
To estimate the global trade potential for India and the pattern of trade we have used the
basic gravity model equation of world trade considering trade flows from all of India’s
trading partners.
The gravity model is used to first analyze the world trade flows and the coefficients thus
obtained are then used to predict trade potential for India. The trade potential gives an
indication of India’s trade with COMESA.
The gravity model has been estimated using the OLS technique with time series and cross -
section data. The dependent variable in all our tests is total trade (exports plus imports in US
dollars), in log form, between pairs of countries.
Our estimation results show that the gravity equation fits the data and delivers precise and
plausible income and distance elasticities. All of the traditional “gravity” effects are
intuitively reasonable, with statistically significant t-statistic.
The gravity equation is a simple empirical model for analyzing trade flows between
geographical entities. The gravity model for trade is analogous to the Newtonian physics
function that describes the force of gravity. The model explains the flow of trade between a
pair of countries as being proportional to their economic “mass” (national income) and
inversely proportional to the distance between them. The gravity Model can be
mathematically stated as:
Tradeij = a. GDPi.GDPj
Distanceij
Where,
Trade ij is the value of the trade between country i and j,
GDPi and GDPj are country i and j’s respective national incomes.
Distance ij is a measure of the distance between the two countries
A is a constant of proportionality.
Taking logarithms of the gravity model equation, we get the linear form of the model which
is as follows:
Log (Tradeij) = α + β1 log (GDPi.GDPj) + β2log(distanceij)
When we try to analyze this model by regression we use the equation with an extra variable
accounting for the shocks and fluctuations that deviate the estimated value from the true
value. The equation would be
Log (Tradeij) = α + β1 log (GDPi.GDPj) + β2 log(distanceij) + uij
Where α, β1 and β2 are coefficients to be estimated using regression. It is expected that the
value of β2 to be negative and 1 to be positive to support the assumptions of the gravity
model.
The results of the gravity model for taking into account 142 countries gave the following
results
SUMMARY
OUTPUT
Regression Statistics
Multiple R 0.4126
R Square 0.39
Adjusted R Square 0.3896
Standard Error 3.2095
Observations 142
ANOVA
df SS MS F Significance F
Regression 2 963.5351432 481.7676 198.8421 1.68E-41
Residual 139 336.7783103 2.422866
Total 141 1300.313454
Standard Upper
Coefficients Error t Stat P-value Lower 95% 95%
Intercept 15.77635 2.040653085 7.731032 1.94E-12 11.74162 19.81109
X Variable 1 0.59153 0.055510269 17.20613 2.97E-36 0.845363 1.06487
X Variable 2 -1.0634 0.21733431 -7.14622 4.6E-11 -1.98283 -1.12341
Using the above equation through gravity model we get the predicted value of export =
14.769
We thus see that as per the gravity model the actual trade between India and COMESA is
less than the predicted value of exports
Thus we can say that there lies more potential of trade between India and COMESA nations.
The share of exports from each of these countries is shown in the graph below
We now find the trade intensity index to measure the bilateral trading intensity between
COMESA nations and its trading partners
Trade intensity index is based on an actual observation of bilateral trade flow, and it measures
the intimacy of the trading relationship between any given two countries.
The TII for COMESA and its major trading partners is given in the table below
8.00 Chn
6.00
US
4.00
2.00 SA
0.00
2005 2006 2007
From the above table and graph we see that the TII for South Africa is the highest. While
India has the second highest TII but its TII has fallen from 2006 to 2007. The high TII for SA
can be owed to its closeness in terms of distance with COMESA nations.
COMESA being a FTA, it is also important to identify the amount of trade within the FTA
and products which are traded more often amongst the members of the agreement.
The Intra COMESA trade in percentage terms is given in the table below
It is also necessary to find out the products or sectors which are more often traded among the
countries. For that we use Regional orientation index (ROO)
Where:
• Xrj represent the value of exports of j (Commodity )in RTA’s intra trade
• Xtr reflect the total value of member countries’ exports within RTA
• Xto reflect the total value of member countries’ exports outside RTA
The major areas where the ROO identified has been higher are given in the table as below
Appendix
List-1: RCAi >1, RCDAc >1
dRCA
Product Product Name RCDAc 2005 2006 2007 2008 RCAi
2714 Bitumen and asphalt, natural; bitum 21.84 -0.08 -0.34 0.14 1.80 2.24
5303 Jute and other textile bast fibres 18.19 -0.25 -1.27 1.65 13.59 15.93
5310 Woven fabrics of jute or of other t 14.58 -5.44 -7.45 3.16 16.66 54.29
2824 Lead oxides; red lead and orange le 12.98 -0.20 0.22 0.08 1.12 1.64
5401 Sewing thread of man-made filaments 10.60 -0.07 0.16 0.47 -0.10 0.90
1701 Cane or beet sugar and chemically p 9.23 -0.29 2.75 1.99 1.39 6.39
2403 Other manufactured tobacco and manu 8.45 -0.01 0.62 0.63 -0.48 2.29
3602 Prepared explosives, other than pro 7.64 -0.18 0.15 0.03 0.65 1.20
5512 Woven fabrics of synthetic staple f 7.58 0.30 0.60 3.09 1.19 7.90
1007 Grain sorghum. 7.25 -0.19 -0.66 0.22 0.69 1.05
5212 Other woven fabrics of cotton. 6.99 -0.58 0.28 1.93 1.00 6.93
0909 Seeds of anise, badian, fennel, cor 6.87 -9.20 -0.23 1.66 19.29 38.23
5205 Cotton yarn (other than sewing thre 6.16 -0.64 1.14 2.02 0.21 17.19
5805 Hand-woven tapestries of the type G 5.87 -0.72 0.50 1.48 0.93 4.53
2503 Sulphur of all kinds, other than su 5.66 0.03 2.58 -2.59 1.05 1.14
5507 Artificial staple fibres, carded, c 5.62 -0.39 0.34 -0.34 1.93 2.25
1005 Maize (corn). 5.34 -1.13 0.08 0.61 1.30 2.61
8445 Machines for preparing textile fibr 5.27 0.34 -0.35 0.14 0.04 0.56
4907 Unused postage, revenue or similar 5.23 0.82 -0.78 0.06 0.20 0.31
8446 Weaving machines (looms). 5.16 -0.02 0.10 -0.09 0.14 0.32
dRCA
Product Product Name RCDAc 2005 2006 2007 2008 RCAi
3211 Prepared driers. 5.13 0.08 0.39 0.88 0.47 2.01
7614 Stranded wire, cables, plaited band 4.84 -0.79 2.02 2.12 5.24 13.74
5102 Fine or coarse animal hair, not car 4.47 -0.01 -0.08 0.05 0.17 0.24
3207 Prepared pigments, prepared opacifi 4.26 0.11 0.00 -0.13 0.12 0.26
5806 Narrow woven fabrics, other than go 4.22 0.01 0.08 -0.05 0.20 0.53
4407 Wood sawn or chipped lengthwise, sl 4.19 -0.01 0.00 0.00 0.03 0.05
7204 Ferrous waste and scrap; remelting 4.06 -0.01 0.00 0.03 0.00 0.05
8310 Sign-plates, name-plates, address-p 3.81 0.12 -0.02 0.45 0.19 0.94
5402 Synthetic filament yarn (other than 3.62 0.12 0.39 0.39 -0.03 2.39
8502 Electric generating sets and rotary 3.61 0.19 1.07 0.29 0.86 2.74
0405 Butter and other fats and oils deri 3.49 0.12 -0.04 0.06 0.43 0.78
8474 Machinery for sorting, screening, s 3.35 0.38 0.04 0.12 -0.19 0.59
9406 Prefabricated buildings. 3.27 0.00 0.01 0.05 0.02 0.10
2831 Dithionites and sulphoxylates. 3.27 -0.98 -0.31 1.83 0.74 6.90
2828 Hypochlorites; commercial calcium h 3.17 1.03 0.28 -0.70 0.24 3.08
1210 Hop cones, fresh or dried, whether 3.15 0.00 0.00 0.01 -0.01 0.01
8803 Parts of goods of heading 88.01 or 3.15 -0.01 -0.03 0.46 1.08 1.65
0906 Cinnamon and cinnamon-tree flowers. 3.14 -0.01 0.14 0.40 0.06 1.00
4804 Uncoated kraft paper and paperboard 3.04 0.02 -0.01 0.01 0.04 0.13
2929 Compounds with other nitrogen funct 3.01 -0.17 0.01 0.00 0.09 0.24
1107 Malt, whether or not roasted. 2.99 -0.01 0.02 0.00 0.00 0.02
5201 Cotton, not carded or combed. 2.99 1.42 5.79 5.92 -2.21 13.27
2507 Kaolin and other kaolinic clays, wh 2.96 0.11 0.06 -0.09 0.10 0.39
6901 Bricks, blocks, tiles and other cer 2.87 0.96 0.24 0.07 0.13 1.74
8430 Other moving, grading, levelling, s 2.85 0.85 -0.84 0.02 0.58 1.09
5504 Artificial staple fibres, not carde 2.82 0.26 0.10 1.00 0.56 3.47
5202 Cotton waste (including yarn waste 2.77 -0.52 1.87 -0.18 4.59 8.34
7407 Copper bars, rods and profiles. 2.73 0.14 0.38 -0.51 0.14 0.44
0106 Other live animals. 2.65 0.00 0.00 0.00 0.01 0.01
6902 Refractory bricks, blocks, tiles an 2.63 -0.05 -0.05 0.24 0.03 1.03
6906 Ceramic pipes, conduits, guttering 2.62 0.06 0.01 -0.07 0.70 0.83
2303 Residues of starch manufacture and 2.54 0.03 0.02 0.03 0.02 0.10
2401 Unmanufactured tobacco; tobacco ref 2.46 -0.09 0.19 0.01 0.99 4.31
0904 Pepper of the genus Piper; dried or 2.45 -2.05 2.70 5.66 -2.51 16.61
1209 Seeds, fruit and spores, of a kind 2.42 0.05 0.12 0.10 -0.26 0.43
2839 Silicates; commercial alkali metal 2.34 -0.06 0.07 -0.15 0.50 1.50
5604 Rubber thread and cord, textile cov 2.28 0.08 -0.08 0.06 0.03 0.13
8309 Stoppers, caps and lids (including 2.24 0.00 -0.05 0.02 0.10 1.02
8429 Self-propelled bulldozers, angledoz 2.24 -0.02 -0.02 0.03 0.04 0.11
2832 Sulphites; thiosulphates. 2.24 -0.96 -0.01 0.52 0.29 2.23
dRCA
Product Product Name RCDAc 2005 2006 2007 2008 RCAi
5807 Labels, badges and similar articles 2.21 -0.14 0.08 -0.02 0.08 0.58
1520 Glycerol, crude; glycerol waters an 2.21 0.02 0.03 0.04 0.25 0.36
2302 Bran, sharps and other residues, wh 2.05 0.12 1.09 0.26 -0.75 2.60
5107 Yarn of combed wool, not put up for 1.99 0.02 0.02 0.05 0.31 1.66
0508 Coral and similar materials, unwork 1.96 0.22 0.00 0.53 0.04 1.52
3603 Safety fuses; detonating fuses; per 1.96 -0.40 -0.11 0.02 0.64 1.44
8453 Machinery for preparing, tanning or 1.92 -0.01 0.01 0.14 0.11 0.42
2808 Nitric acid; sulphonitric acids. 1.91 0.09 0.18 0.02 -0.11 0.58
8441 Other machinery for making up paper 1.89 0.04 -0.05 0.07 0.06 0.31
5505 Waste (including noils, yarn waste 1.86 -0.09 0.92 0.46 2.12 4.70
9607 Slide fasteners and parts thereof. 1.79 -0.03 0.02 0.00 0.05 0.25
4805 Other uncoated paper and paperboard 1.72 -0.02 0.02 0.00 0.02 0.08
3206 Other colouring matter; preparation 1.72 0.09 0.01 0.19 0.07 0.57
3402 Organic surface-active agents (othe 1.72 0.06 0.04 0.02 0.28 0.53
3302 Mixtures of odoriferous substances 1.69 0.05 0.12 -0.14 0.04 0.32
3816 Refractory cements, mortars, concre 1.69 0.09 0.04 -0.02 0.04 0.31
8434 Milking machines and dairy machiner 1.68 -0.08 0.02 0.07 0.03 0.24
2710 Petroleum oils and oils obtained fr 1.66 -0.04 0.62 0.39 -0.26 3.52
9307 Swords, cutlasses, bayonets, lances 1.65 -0.11 0.23 0.36 1.11 1.75
4908 Transfers (decalcomanias). 1.60 -0.01 0.09 -0.02 0.03 0.11
7901 Unwrought zinc. 1.58 -0.20 2.58 -0.90 1.36 3.36
7305 Other tubes and pipes (for example, 1.57 2.24 0.54 1.36 0.66 8.60
7309 Reservoirs, tanks, vats and similar 1.57 -0.08 -0.02 0.09 0.17 0.39
1202 Ground-nuts, not roasted or otherwi 1.56 -4.56 4.88 1.20 -1.05 15.56
7311 Containers for compressed or liquef 1.55 0.00 0.46 -0.01 0.18 1.46
8451 Machinery (other than machines of h 1.47 0.02 -0.05 0.04 0.02 0.20
3204 Synthetic organic colouring matter, 1.46 0.26 0.37 0.62 0.54 7.49
2521 Limestone flux; limestone and other 1.45 0.22 -1.90 3.12 1.81 6.33
8710 Tanks and other armoured fighting v 1.43 -0.11 0.02 0.00 1.16 1.18
2513 Pumice stone; emery; natural corund 1.43 0.34 4.41 4.18 2.34 26.43
8504 Electrical transformers, static con 1.42 0.27 0.33 -0.09 0.08 1.12
1903 Tapioca and substitutes therefor pr 1.42 1.39 -0.78 0.21 1.85 4.95
4901 Printed books, brochures, leaflets 1.41 0.02 0.09 0.03 -0.03 0.71
9107 Time switches with clock or watch m 1.39 0.01 -0.01 0.01 0.01 0.04
4803 Toilet or facial tissue stock, towe 1.37 0.01 0.00 0.01 0.03 0.05
3912 Cellulose and its chemical derivati 1.36 0.08 0.04 0.02 -0.09 0.46
3811 Anti-knock preparations, oxidation 1.35 0.23 -0.05 0.05 0.11 0.50
2842 Other salts of inorganic acids or p 1.34 -0.01 0.03 0.06 0.23 0.42
2941 Antibiotics. 1.34 -0.27 0.28 1.12 -0.18 3.79
3814 Organic composite solvents and thin 1.34 -0.01 0.00 0.01 0.00 0.05
dRCA
Product Product Name RCDAc 2005 2006 2007 2008 RCAi
2823 Titanium oxides. 1.33 0.93 -0.38 0.46 0.37 3.90
7108 Gold (including gold plated with pl 1.32 0.00 0.00 0.00 -0.01 0.00
8463 Other machine-tools for working met 1.31 0.02 -0.12 0.03 0.12 0.40
8413 Pumps for liquids, whether or not f 1.31 0.01 0.08 0.00 0.01 0.54
8448 Auxiliary machinery for use with ma 1.31 0.18 -0.15 0.29 0.39 1.78
8422 Dish washing machines; machinery fo 1.29 0.02 0.02 0.00 0.02 0.27
2815 Sodium hydroxide (caustic soda); po 1.28 -0.19 -0.03 0.06 0.47 0.80
6809 Articles of plaster or of compositi 1.28 -0.01 0.00 0.01 0.02 0.05
7011 Glass envelopes (including bulbs an 1.26 -0.04 0.77 1.49 2.48 5.73
2301 Flours, meals and pellets, of meat 1.26 0.00 0.01 0.24 -0.21 0.05
1604 Prepared or preserved fish; caviar 1.24 0.13 -0.01 0.01 0.00 0.39
2901 Acyclic hydrocarbons. 1.22 0.22 0.13 -0.06 0.22 0.90
2915 Saturated acyclic monocarboxylic ac 1.22 -0.02 0.17 0.11 0.40 1.82
2911 Acetals and hemiacetals, whether or 1.21 0.96 -1.20 2.27 5.10 7.64
8468 Machinery and apparatus for solderi 1.21 0.04 0.52 0.22 -0.13 1.46
4408 Sheets for veneering (including tho 1.20 0.07 -0.02 0.16 0.13 0.72
3906 Acrylic polymers in primary forms. 1.20 -0.05 0.00 0.03 0.04 0.21
1901 Malt extract; food preparations of 1.18 0.02 0.02 0.01 0.06 0.38
6813 Friction material and articles ther 1.17 0.61 0.52 0.51 -0.09 3.10
9601 Worked ivory, bone, tortoise-shell, 1.13 -0.12 3.59 -4.13 2.78 7.72
9023 Instruments, apparatus and models, 1.11 -0.07 0.46 0.31 -0.26 0.73
2605 Cobalt ores and concentrates. 1.10 0.28 36.37 -36.75 3.84 3.84
2829 Chlorates and perchlorates; bromate 1.07 -0.03 0.57 0.20 0.20 1.21
9615 Combs, hair-slides and the like; ha 1.07 0.00 0.11 0.19 0.05 0.48
0104 Live sheep and goats. 1.06 -0.29 0.30 0.12 0.25 1.03
4811 Paper, paperboard, cellulose waddin 1.06 -0.04 -0.02 0.03 0.05 0.20
3503 Gelatin (including gelatin in recta 1.05 0.73 0.52 0.55 0.51 4.71
1203 Copra. 1.05 0.40 1.11 -0.89 25.51 26.99
8716 Trailers and semi-trailers; other v 1.04 -0.01 0.00 0.01 0.00 0.06
5105 Wool and fine or coarse animal hair 1.04 -0.09 0.25 0.08 0.20 1.43
8501 Electric motors and generators (exc 1.03 0.07 -0.13 0.01 0.09 0.47
2615 Niobium, tantalum, vanadium or zirc 1.03 0.03 -0.02 0.07 0.02 0.12
9010 Apparatus and equipment for photogr 1.02 0.00 0.01 0.10 1.01 1.12
8208 Knives and cutting blades, for mach 1.02 0.11 0.06 -0.19 0.03 0.34
4810 Paper and paperboard, coated on one 1.01 0.03 -0.03 0.01 0.01 0.21
5701 Carpets and other textile floor cov 1.00 1.45 2.49 6.81 -6.21 18.72
3824 Prepared binders for foundry moulds 1.00 0.05 0.00 0.00 0.02 0.20
dRCAc
Product Product Name RCDAi RCAc
2006 2007 2008
4705 Wood pulp obtained by a combination 1.08 -0.02 0.00 0.00 0.00
4906 Plans and drawings for architectura 6.27 -0.04 0.00 0.00 0.00
5002 Raw silk (not thrown). 41.16 -0.03 0.01 0.40 0.42
5004 Silk yarn (other than yarn spun fro 8.43 -1.14 0.10 0.27 0.37
5111 Woven fabrics of carded wool or of 1.37 0.03 -0.02 0.38 0.39
5303 Jute and other textile bast fibres 4.36 0.19 35.48 116.08 151.77
5310 Woven fabrics of jute or of other t 5.21 0.08 0.09 3.62 3.93
5403 Artificial filament yarn (other tha 1.93 0.01 0.01 0.01 0.03
5501 Synthetic filament tow. 1.72 0.17 -0.02 0.93 1.13
5506 Synthetic staple fibres, carded, co 1.48 0.06 -0.05 4.64 4.67
6310 Used or new rags, scrap twine, cord 7.67 0.01 0.81 -1.17 0.77
6812 Fabricated asbestos fibres; mixture 1.83 0.35 -0.20 0.16 0.36
6901 Bricks, blocks, tiles and other cer 2.15 3.57 7.03 -14.49 2.72
6902 Refractory bricks, blocks, tiles an 2.12 0.00 0.04 0.53 0.60
6903 Other refractory ceramic goods (for 1.10 0.00 0.03 0.00 0.03
7011 Glass envelopes (including bulbs an 1.13 -0.01 0.35 0.93 1.28
7207 Semi-finished products of iron or n 1.06 0.00 0.00 0.00 0.00
7208 Flat-rolled products of iron or non 2.35 -0.06 0.02 2.31 2.34
7225 Flat-rolled products of other alloy 1.49 0.01 0.00 0.00 0.01
7407 Copper bars, rods and profiles. 2.49 -0.02 0.01 0.54 0.56
7605 Aluminium wire. 1.24 0.06 0.14 2.29 2.62
8111 Manganese and articles thereof, inc 2.02 0.00 0.00 0.17 0.17
8416 Furnace burners for liquid fuel, fo 1.07 -0.04 0.00 0.22 0.27
8447 Knitting machines, stitch-bonding m 6.48 0.05 0.03 0.03 0.16
8461 Machine-tools for planing, shaping, 2.37 0.02 -0.01 0.03 0.04
8463 Other machine-tools for working met 1.06 0.03 -0.02 0.05 0.07
8475 Machines for assembling electric or 3.25 0.00 0.00 0.00 0.00
8482 Ball or roller bearings. 1.15 0.00 0.02 -0.02 0.01
8485 Machinery parts, not containing ele 1.17 0.03 -0.03 0.02 0.03
8517 Electrical apparatus for line telep 1.40 0.01 -0.02 0.01 0.04
8901 Cruise ships, excursion boats, ferr 1.40 0.00 0.01 -0.01 0.00
8904 Tugs and pusher craft. 12.04 0.03 -0.03 0.01 0.01
8905 Light-vessels, fire-floats, dredger 6.61 -0.08 0.01 0.05 0.06
8908 Vessels and other floating structur 73.30 -26.01 0.06 0.11 0.17
9012 Microscopes other than optical micr 1.24 0.01 0.01 -0.02 0.00
9016 Balances of a sensitivity of 5 cg o 2.47 -0.08 0.00 0.03 0.08
9111 Watch cases and parts thereof. 1.09 0.03 -0.03 0.00 0.00
9508 Roundabouts, swings, shooting galle 1.03 -0.01 0.02 0.03 0.05
References:
imf.org/external/pubs/ft/weo/2009/02/weodata/index.aspx
http://www.indo-african-society.org/pages/a_whale_of_opportunity.htm
http://www.bilaterals.org/article.php3?id_article=8285
http://www.bilaterals.org/article.php3?id_article=6877
http://www.thehindubusinessline.com/2008/11/18/stories/2008111851470700.htm
http://www.indiadaily.com/editorial/4262.asp
http://www.gov.mu/portal/goc/mfa/files/comesrep.pdf
http://about.comesa.int/attachments/165_comesa_annual_rep_08_web.pdf
http://www.expressindia.com/latest-news/Egypt-for-more-strategic-partnership-with-
India/386845/
http://en.wikipedia.org/wiki/Common_Market_for_Eastern_and_Southern_Africa
Report - HIGH COMMISSION OF INDIA – LUSAKA, INDIA COMESA RELATIONS
http://www.indexmundi.com/g/
WITS – COMTRADE
World trade atlas
Upenn.org