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International Journal of Afro-Asian Studies

Volume 3, Number 1: Spring 2012

Honorary Editor

Content

Dr. Tabitha W. Kiriti-Nganga 1. Economic Convergence In Common Market For East And Southern Africa

University of Nairobi, Kenya 1996-2007: Edna Kabala & Imogen Bonolo Mogotsi: 3-25

2. Southern African Development and Social Charter on Fundamental

Series Editor Rights: Problems and Challenges: Emmanuel K.B. Ntumy: 26-45

Dr. Siddhartha Sarkar 3. Effective Management of Students Crisis in Tertiary Institutions in Ondo

Asian School of Management and Technology, India State, Nigeria: T. O. Adeyemi & H. T. Ekundayo: 46-60

E-mail: [email protected] 4. Global Recession and Its Impact on Foreign Trade in India: Rajwant Kaur

& A.S. Sidhu: 61-75

Editorial Board Abdul Wadud, Rajshahi University, Bangladesh Joy M. Kiiru, University of Nairobi, Kenya Lucas Kamau Njoroge, University of Nairobi, Kenya Nelson H. W. Wawire, Kenyatta University, Kenya Philippe Doneys, Asian Institute of Technology, Thailand Rekha A. Kumar, University of Botswana, Botswana Rojid Sawkut, University of Mauritius, Mauritius Shalini Ramessur-Seenarain, University of Technology, Mauritius

Tom Kimani Mburu, Kenyatta University, Kenya B. Salawu, University of Ilorin, Nigeria Eu Chye Tan, University of Malaya, Malaysia Frank A. Salamone, Iona College, USA Johnson Samuel Adari, University of Nairobi, Kenya ISSN: 0974-3527 ISBN: 978-1-61233-608-4

Brown Walker Press 23331 Water Circle, Boca Raton, FL 33486-8540, USA

www.brownwalker.com/ASMT-journals.php Published by Director, Asian School of Management and Technology, India

Asian School of Management and Technology (All Rights Reserved)

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ECONOMIC CONVERGENCE IN COMMON MARKET FOR EAST AND SOUTHERN AFRICA 1996-2007

Edna Kabala

Lecturer, Economics Department, University of Zambia, Zambia

Imogen Bonolo Mogotsi

Senior Lecturer, Department of Economics, University of Botswana, Gaborone, Botswana E-mail: [email protected]

Abstract: This study employs fixed effects panel data analysis to examine the existence or not of economic conver-gence – measured as the narrowing of real per capita income gaps – in Common Market for East and Southern Afri-ca (COMESA) during the period 1996-2007. The aim was to examine whether there was a tendency for real per cap-ita income differences between richer and poorer countries in the region to narrow significantly and to establish the determinants of economic convergence over the study period. The model by Barro and Sala-i-Martin (1995) is modi-fied to test the absolute and conditional beta convergence hypotheses for 17 COMESA Regional Economic Com-munity (REC) and for a sub-group of 9 COMESA Free Trade Area (FTA) countries. The results of the absolute beta convergence test show that the per capita income gaps within the COMESA REC seemed to narrow during the study period. The study draws policy implications for enhancing convergence in the COMESA REC and FTA and rec-ommends that COMESA countries pursue and implement very similar policies that focus more effort towards mac-roeconomic policy co-ordination, monitoring and enforcement. INTRODUCTION The recent years have experienced considerable emphasis on understanding regional dimensions of economic growth. Regional Trade Arrangements (RTAs) and Regional Economic Communi-ties (RECs) have been important elements in this process.1 Consequently, empirical research in this area has motivated attempts to explain inter-country differences in economic growth. This has been through efforts to quantify the impact of factors such as human capital, economic poli-cies and institutions on cross country economic growth. In particular, significant attention has been drawn towards free trade and economic convergence implications of the neoclassical growth theory. Economic convergence is the tendency for real per capita income differences be-tween rich and poor countries to narrow significantly over the long run (Mallick and Carayannis, 1994). The basic assumption is that countries are equal in all aspects of government policies and technology. The theory is based on diminishing marginal returns to capital. In the interim, poorer countries are generally considered to have capital-labour ratios below their long-run optimum. This leads to higher marginal productivity of capital in poor countries compared to rich coun-tries. Consequently, there should be a systematic tendency for poorer countries to grow faster than richer countries, because of a higher rate of return on fixed investment in the poorer coun-tries. This is a continuous process until poor nations “catch-up” with the levels of income per head in the latter. Assuming diminishing returns to capital, any increase in capital would not in-crease economic growth at the same pace for all economies. Thus economies would reach a con-vergent point at which they would attain similarity in living standards, and economic growth (Barro and Sala-i-Martin, 1995).

1RTAs are trade agreements treated as preferential by the World Trade Organization. RECs are blocs in which individual coun-tries in sub regions come together for the purposes of achieving greater economic integration (see, http://en.wikipedia.org/wiki/Regional_Economic_Communities).

International Journal of Afro-Asian Studies 3(1): Spring 2012

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Understanding the issue of economic convergence or divergence within the context of regional integration2 is crucial from an economic policy perspective (Cavazos, 2001). The case of eco-nomic convergence translates into the existence of market forces in a regional grouping with the potential of inducing similar standards of living across participant economies. However, eco-nomic divergence may signal intra- regional inequality in reaping benefits of regional integration (Abadar, 2003). According to Chowdhury (2003), intra-regional inequality in any respect may result in explicit negative effects on growth and development, because of the potential to worsen economic, social, and political tension among regional members, leading to misallocation of re-sources. Subsequently, if persistently wide gaps exist between poor and rich countries in a REC, appropriate economic policy measures (domestic and international) need to be implemented. Usually, these policy measures induce a bridge of the gap through a catch up process of lagging economies in the region. Thus, it is in the interest of a member country to monitor its levels of economic growth vis-à-vis other members in RTAs and RECs. Generally, this makes the issue of economic convergence or divergence a serious concern to all stake holders in regional groups. This study attempts to investigate whether economic convergence has been a characteristic fea-ture of economic growth in 17 member states of COMESA in the period 1996- 2007. Panel growth regression analysis will be employed for this purpose.3 The paper focuses on the differ-ences in individual member state convergence by controlling for gross fixed capital formation as a share of GDP, total employment, export plus imports to GDP ratio and secondary school gross enrolment, among others. In this respect, the paper endeavours to highlight the importance of an even development process at regional level using the case of COMESA. A study by Martin et al. (2001) suggests that economic integration of European states has pro-duced substantial benefits for the European economies and the European Union as a whole. This admirable level of economic convergence within Europe motivates empirical research into con-vergence in African RECs. Njoroge (2010) examined the impact of economic integration on eco-nomic growth based on the level of regional cooperation for COMESA, EAC and SADC. These studies find that economic integration and trade, separately and jointly, can have a positive and significant impact on growth. This potentially leads to convergence of real incomes of poor and rich countries. Despite what economic theory postulates, there are still unexplained yet critically large differ-ences in per capita income levels of COMESA member states. These gaps are manifested in large differences in human and social indicators of rich and poor countries in the region. In reali-ty, convergence does not imply the total inexistence of differences in standards of living across countries. However, economic convergence should translate into smaller real income gaps be-tween the rich and poor nations of a regional group. COMESA countries are part of the United Nations Millennium Development Goals (MDGs) that promote global uniformity in social and human development. In particular, the countries have pledged to end extreme deprivation in so-cial and economic spheres by 2015. However, there is limited literature explaining actual differ-ences in economic and human development vis-à-vis economic growth in COMESA. This poses

2Frequently, regional integration refers to an arrangement for enhancing cooperation through rules and institutions entered into by states of the same region. This could also involve facilitating avenues for business initiative aimed at broader security and com-mercial purposes, among others. However, regional integration could have economic convergence as its regional political or eco-nomic goal (De Lombaerde and Van Langenhove, 2005). Hence, it could be anticipated that output performance, macroeconomic and economic development indicators would converge among member states of such a regional integration arrangement (RIA). 3The panel growth regression models can account for the differences in the individual effects Woodridge (2002). This can explain a part in the differences in the initial levels of real income across member states of COMESA.


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a challenge for attainment of the MDGs and sustainable balanced regional growth and develop-ment. It is asserted that free trade is an engine for economic growth and improved living standards. This should induce a catch-up effect for poor economies of COMESA that are aggressive partic-ipants in intra-regional and international trade. Yet, meaningful questions may be posed regard-ing the seemingly wide economic welfare disparities in the COMESA region: ‘Why do member states like Ethiopia and Burundi portray low levels of economic and human development as compared to the leaders like Libya and Seychelles?4 To what extent can the possibility of coun-try specific incidences of fast or slow economic growth explain economic convergence or diver-gence within COMESA?’ How can the COMESA region reap benefits of balanced economic growth through improved international trade potential with the rest of the world? How can policy aimed at strengthening economic convergence or redressing divergence complement regional efforts of poverty reduction and social inclusion? This identifies an information gap regarding the actual factors influencing economic growth and convergence in COMESA. Unlike Njoroge (2010), this paper directly models the effect of the COMESA Free Trade Area (FTA) (considered in the period 2000 - 2007) on regional economic convergence. It analyses the issue of convergence in the particular case of COMESA as a REC and FTA. Thus, this approach departs from Njoroge (2010) who focussed on economic convergence of three trade blocs, name-ly; SADC, COMESA and EAC. This study particularly analyses economic convergence by fo-cusing on COMESA as an individual trade bloc and not a subset of the trade blocs in Njoroge (2010). Therefore, this study offers a unique contribution in bridging the information gap in the area of economic convergence in African RECs. OBJECTIVES OF THE STUDY The objective of this paper is to investigate whether economic convergence has been a character-istic feature of economic growth in the 17 member states of COMESA in the period 1996 -2007. In particular, the paper aims to investigate how total employment, secondary education, invest-ment, infrastructure spending and trade openness of COMESA member countries explain per capita income convergence in the COMESA region. In addition, to find out the effect of FTA membership on real per capita income convergence of countries that joined the COMESA FTA in the period 2000- 2007. HISTORICAL BACKGROUND OF THE EVOLUTION OF COMESA The Common Market for Eastern and Southern Africa (COMESA) traces its origin to the mid-1960s. The post-independence period in most of Africa was characterized by the impetus of a buoyant and optimistic mood of the idea of regional economic co-operation. Specifically, pan-African solidarity and collective self-reliance born of a shared destiny was emphasized. In 1965, the United Nations Economic Commission for Africa (UNECA) convened a ministerial meeting of the then newly independent states of Eastern and Southern Africa, the objective of which was to consider proposals for the establishment of a mechanism for the promotion of sub-regional economic integration. The meeting, which was held in Lusaka, Zambia, strongly recommended the creation of an Economic Community of Eastern and Central African states. An Interim Council of Ministers, assisted by an Interim Economic Committee of officials, was subsequently set up. This group of delegates had a vital role of negotiating the Treaty and initiating pro-

4In 2009, Burundi and Ethiopia had among the lowest levels of GDP per capita corresponding to US$110 and US$176 compared to US$7,554 and US$8,350 for Libya and Seychelles respectively. The human development rank of the former countries stood at174 and 171 respectively compared to corresponding ranks of 55 and 57 for Libya and Seychelles.


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grammes on economic co-operation, pending the completion of negotiations on the Treaty (COMESA, 2010). Another meeting of Ministers of Trade, Finance and Planning was held in Lusaka, Zambia in 1978. The meeting recommended the creation of a sub-regional economic community, beginning with a sub-regional preferential trade area. The preferential trade area was to be gradually up-graded over a ten-year period to a common market. The meeting adopted the Lusaka Declaration of Intent and Commitment to the Establishment of a Preferential Trade Area for Eastern and Southern Africa (PTA). It was on 21st December 1981 that the Treaty establishing the PTA was finally signed. However, the Treaty only came into force on 30 September 1982, after ratification by more than seven signatory states as provided for in Article 50 of the Treaty (ibid). The PTA was established to take advantage of a larger market size and share the region's com-mon heritage and destiny. Allowing for greater social and economic cooperation was a primary goal of establishing the PTA. The ultimate objective of the PTA was to create an economic community. This was in line with the objectives of the Lagos Plan of Action (LPA) and the Final Act of Lagos (FAL) of the Organization of African Unity. Therefore, the PTA Treaty envisaged its transformation into a Common Market. By 1992, 22 states were members of the PTA, name-ly; Angola, Burundi, Comoros, Djibouti, Eritrea, Ethiopia, Kenya, Lesotho, Madagascar, Mala-wi, Mauritius, Mozambique, Namibia, Rwanda, Seychelles, Somalia, Sudan, Swaziland, Tanza-nia, Uganda, Zambia and Zimbabwe. The PTA was headquartered in Lusaka, Zambia. Most im-portantly, it was the first step towards higher forms of regional economic cooperation and inte-gration to bring about sustainable growth and development of member states.5 TRANSITION FROM PTA TO COMESA The LPA and FAL both envisaged an evolutionary process in the economic integration of the African continent. In this case, RECs constituted building blocks upon which the creation of an African Economic Community would ultimately be erected. In particular, PTA member states were more than determined to move forward with cooperation to bring about sustainable growth and development. Hence, an underlying strategy for the 1990s was to bring about full market integration beginning with the transformation of the PTA into the Common Market for Eastern and Southern African States (COMESA, 2010). Conforming to this, the Treaty establishing COMESA was signed on 5 November 1993 in Kam-pala, Uganda, and it was ratified a year later, on 8th December 1994 in Lilongwe, Malawi. Through this Treaty, COMESA replaced the PTA which had existed since the earlier days of 1981. COMESA was established ‘as an organisation of free independent sovereign states which agreed to co-operate in developing their natural and human resources for the good of all their people’ (ibid). In contrast to the PTA, the main focus of COMESA REC was the formation of a large economic and trading unit that was capable of overcoming some of the barriers that were faced by individual states. On 31st October 2000, COMESA FTA (previously just a PTA6) was formed making it the first FTA in Africa under the LPA. All tariffs on goods of member states of the FTA were gradually removed for participant countries. Furthermore, COMESA has a wide-

5 Also see: http://www.fao.org/docrep/W5973E/w5973e06.htm 6 Formation of a PTA through a trade pact can be considered as the first stage of regional integration. This involves a case in which a trading bloc gives preferential access to certain products from the participating countries. Member countries achieve this by reducing tariffs, but not abolishing them completely. However, an FTA like COMESA is a trade bloc whose member coun-tries have signed a free trade agreement, which eliminates tariffs, import quotas, and preferences on most (if not all) goods and services traded between them. It is a relatively advanced level of regional integration than the former (see http://en.wikipedia.org/wiki/Preferential_trading_area ).


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ranging series of other objectives which necessarily include in its priorities the promotion of peace and security in the region. The COMESA REC and FTA are grounded on the concept of multispeed regional economic de-velopment. This means that two or more member states can agree to accelerate the implementa-tion of specific provisions of the Treaty while allowing others to join in later on a reciprocal ba-sis. Under the PTA, emphasis was placed on decision by consensus, to the extent that programs were pegged on the slowest moving member states. However, COMESA focuses on a two thirds majority proposed to prevail where consensus cannot be reached. Member states are obligated to abide by common decisions. Sanctions may be imposed against any member state that "deliber-ately and persistently" fails to comply with agreed decisions. Errant states can be suspended and, eventually, expelled from membership to COMESA (COMESA, 1994). Today COMESA REC member states are 19 and include: Burundi, Comoros, Democratic Re-public of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauri-tius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe.7 Of the 19 mem-bers of COMESA REC, 13 members are part of the COMESA FTA. These include: Burundi, Comoros, Djibouti, Egypt, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Sudan, Zambia and Zimbabwe.8 COMESA’s vision is to be a “fully integrated, internationally competitive regional economic community with high standards of living for its people ready to merge into an African Economic Community” (COMESA, 2010). It follows that, the process of economic integration in Eastern and Southern Africa has been more systematic than episodic. Firstly, a PTA was established and operated for over a decade. The second milestone involved the establishment of COMESA in 1994. The third phase comprised the eventual formation COMESA FTA in 2010. The fourth phase is expected to involve the implementation of the COMESA Customs Union, and this was scheduled for June 2012. REGIONAL ECONOMIC AND SOCIAL INDICATORS IN COMESA Countries in the COMESA region have extreme diversity of socio–economic development. In 1995, the combined COMESA regional population stood at 312.1 million and grew to 399.1 mil-lion by 2005. Currently, population ranges from approximately 88,000 in the Seychelles to slightly over 80 million in each of Egypt and Ethiopia (World Bank, 2011). Correspondingly, regional gross domestic product (GDP) and GDP growth rate were US$152.6 billion and 4.1% in 1995. By 2005, the GDP of COMESA was US$244.billion giving a growth rate of 4.1% p.a. The COMESA agenda is to deepen and broaden the integration process among member states. This is through the adoption of more comprehensive trade liberalization and investment measures. The COMESA region was least open to trade with the rest of the world in 1995 with the lowest record corresponding to 66%. Openness to international trade in the COMESA bloc grew in 2005 giving the highest percentage of trade to GDP equivalent to 80%.9 The COMESA REC has also experienced some improvements in inflation rate over the years. While in 1995 the region experienced high inflation at 46.2% p.a. on average, by 2005 this had declined to an all- time low rate of 11.2%. This records an upgrade in average regional standards

7 The study notes that South Sudan is a recent member of COMESA. However, it is excluded from the COMESA countries ana-lysed here because as a late entrant into the regional group, South Sudan does not have data particular to the study period. 8Although COMESA is expected to have members from East and Southern Africa, North African countries; Egypt and Libya are part of COMESA as well (see COMESA 2010). 9Statistics presented illustrate cross country averages. However, at individual country level, 1995-2007 figures show that the most open country in COMESA region is Seychelles while the least is Eritrea with percentage shares of trade to GDP of 246.9% and 24.7% respectively, (UNDP, 2009).


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of living as a reduction in inflation denotes an improvement in purchasing power. Further, it cannot be overemphasized that low inflation rates are crucial to the fight against extreme poverty and attraction of investment in the region. The total debt service as a percentage of regional GDP has improved from the highest value of 10.3% in 2000 to a low value of 6.3 % in 2005. Implicit-ly, the COMESA region is spending less on debt service with potentially more retained regional savings and investments. Table 1 presents a summary of selected average economic indicators for the COMESA region for 1995, 2000 and 2005.

Table 1: Selected Indicators for COMESA Region. Indicator/year 1995 2000 2005 Population (million) 312.1 354.4 399.1 GDP (US$ billion) 152.6 203.5 244.1 GDP growth (%) 4.1 2 4.1 Trade (exports and imports) share of GDP(%) 66.0 68.5 80.0 Fiscal surplus/ deficit/GDP (%) 3.21 -5.3 -5.9 Inflation (CPI, %) 46.2 37.4 11.2 Total debt service (% of GDP) 9.7 10.3 6.3

Source: Authors’ construction based on World Bank African Development Indicators data, 2010 The UNDP Human Development Indicators (2009) asserts that, of the 19 COMESA member states, 3 and 8 countries are high and medium human development countries respectively. In par-ticular, Libya, Seychelles and Mauritius are high human development countries while Egypt, Swaziland, Comoros, Uganda, Madagascar, Kenya, Djibouti and Sudan are the middle human development countries. The rest of the 8 member states are low human development countries. The human poverty index in COMESA ranges from as low as 9.5% in Mauritius, to a high per-centage value of 50.9% in Ethiopia. LITERATURE REVIEW The Solow-Swan exogenous growth model was clearly the leading theory from 1956 until the mid-1980s (Varblane and Vahter, 2005). In this framework, the basic assumption is that coun-tries are equal in all aspects (including government policies, preferences and technology) except for their initial levels of capital per capita (physical and human). The neoclassical illustration of economic convergence is quite clear to understand: For instance, two countries with identical preferences but different initial human and physical capital stocks are observed. The relatively poor country is generally considered to have a capital-labour ratio below its long-run optimum compared to the richer country. By assumption, the poorer country is backward in adopting the available technology. Consequently, there is higher marginal produc-tivity of capital in the poor country compared to the richer one. This causes the rate of return on fixed investment to be higher in the poor country than in the richer one. Therefore, there should be a systematic tendency for the poor country to grow faster than the richer one. The poor nation grows faster than the richer nation until the former “catches-up” with the levels of income per head in the latter. Due to diminishing returns to capital, any continued increase in capital would gradually contribute less to economic growth for the richer, more capital-abundant economies, until the economies reach identical economic standards. In addition, growth will accelerate in the transition to a new equilibrium or steady state. According to Barro (1997), convergence means that asymptotically, growth rates will be identical for the two countries. Following the Solow-Swan model, different types of convergence have been conceptually identi-fied. In particular, Sigma-convergence refers to the decrease of the dispersion of real income across countries. The magnitude of sigma convergence is measured by the standard deviation of per capita income across states over time. On the other hand, convergence in terms of both growth rate and income level is called β (beta) convergence. Beta Convergence can be divided into two types of convergence: absolute and conditional (on a factor or a set of factors in addition


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to the initial level of per capita GDP). Absolute convergence is the idea that poor economies tend to grow faster per capita than richer ones. Since the poorer countries grow faster than richer ones, they tend to "catch up" or converge to the economic standards of richer countries. Conditional convergence is the notion that each economy converges to its own steady state (Quah, 1993). Empirical studies have demonstrated mixed results regarding convergence of real incomes and growth rates, given other factors. Most of the studies indicating the existence of convergence show that convergence holds more for richer rather than poorer countries (Baumol et al, 1994; Baumol, 1986; Venables, 1999). Baumol (1986) carried out research on economic convergence based on sample data of 16 OECD countries. He obtained a significant negative coefficient of the initial income variable indicating convergence in the bloc. The European Union (EU) had also displayed mixed evidence of economic convergence. Since 1972, less industrialized countries with low per capita income levels have joined the EU. Strong attention was paid to research on the impact of joining the EU on the economic growth and con-vergence of Spain, Portugal, Ireland and Greece (Martín and Velázquez, 2001; Martín and Sanz, 2003). This study finds evidence of convergence of real incomes in the peripheral economies after joining the EU. The study by Barro and Sala-i-Martin (1991) showed evidence of convergence within different states in the USA and among parts of Europe. The study observes that, prior to 1950, the USA outstripped Western Europe opening a large productivity and income gap between the regions. However, much of this gap was closed during the post war boom. According to Kalbasi (2010), in the recent past, there has been divergence with the US growing faster than the OECD average. Unfortunately, it is also observed that most developing countries have failed to narrow the gap in per capita income with the developed countries such as the USA (Romer, 1994). In Africa and much of the developing world, the issue of convergence has gained recognition in recent times. Njoroge (2010) provided empirical evidence concerning the impact of regional in-tegration on economic growth in COMESA, EAC and SADC trade blocs. The results the study failed to support economic convergence for EAC, SADC and COMESA blocs. However, the re-sults of the study supported the view that regional trade cooperation supports expansion of trade. In turn, this boosts economic growth for the countries of Eastern and Southern Africa. The study also noted that intra-regional trade within these trade blocs was overwhelmed by a host of obsta-cles. These impediments ranged from distortions in the trade regimes to inadequacies in the cus-toms, transport and communications infrastructure. This weakens the potential for even much stronger convergence. Bezuidenhout (2003) and Selelo (2004) each carried out research on the Southern African De-velopment (SADC) region with regard to economic convergence. The former concentrated on macroeconomic aspects of regional integration while the latter considered economic convergence as an aspect of economic growth. Both studies indicate existence of beta convergence. Further, the findings of Selelo (2004) support the convergence hypothesis with regard to development indicators such as GDP per capita. However, human indicators such as life expectancy and HDI showed divergence. The displayed divergence is attributed to catastrophic developments such as civil war and droughts, among others in some countries of SADC. METHODOLOGY This section presents the methodology that discusses appropriate tools to be employed in investi-gating economic convergence in COMESA. It provides an empirical model employed in order to


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achieve the objectives of the study. The theoretical framework is presented in the initial stage and subsequently, the empirical specification. Theoretical Framework For several years now, convergence studies have been via the Solow-Swan (1956) neoclassical framework (Varblane and Vahter, 2005). In order to explain economic convergence via the Solow growth model, a starting point is to assume a Cobb-Douglas type of production function;

Y(t) = K(t)α (A(t)L(t))

1-α…………………………………………(1) Where Y is Output; K is Capital, L is Labour, A is Exogenous Technology, α is some coefficient associated with Capital and (1- α) is some coefficient associated with Labour. The steady state level of per capita income (y*) is given by;

y* = A0egt[s/ n+g+δ]α/1-α………………………………(2)

Where s is investment rate, δ depreciation, while g and n are assumed to be the exponential growth rates of A(t) and L(t), respectively (Islam, 2003; Romer, 2006). The model further employs typical assumptions of diminishing returns to capital, exogenous technological progress, full employment, a fixed relation between the labour force and popula-tion and exogenous growth of population. Accordingly, from equation (2), a country’s steady-state income level depends on A0, s, g, n, δ and α. In this case, the idea of convergence is the hy-pothesis that poorer economies' per capita incomes will tend to grow at faster rates than richer economies. In the event of unconditional or absolute convergence, A0, s, g, n, δ and α should be the same for all countries in a regional group. Subsequently, the eventual catch-up effect arises because poor countries have a superior potential to grow at a faster rate than richer countries. This is because diminishing returns to capital are not as strong as those of capital endowed coun-tries. As such, the rate of return to capital tends to be higher in poor countries than rich countries (Barro and Sala-i-Martin, 1995). This results in more capital investments being channelled to-wards poor regions where capital is scarce and returns are relatively higher. Considerably, this leads to faster growth for poor countries than richer ones. Consequently, all economies should eventually converge in terms of per capita income levels. This is the theoretical basis for the methodology to be employed in this study. Accordingly, the theoretical underpinning that poor COMESA countries would experience convergence of income per capita, among others, is eval-uated. Model Specification The approach by Barro and Sala-i-Martin (ibid) is adopted for the purpose of modelling beta convergence in this study. However, the approach in this study differs from that of Barro and Sala-i-Martin (op.cit) in two respects. Firstly, except for the secondary education variable, the work of Barro and Sala-i-Martin (1995) uses different conditioning variables like life expectan-cy, public consumption to GDP ratio, political stability index, growth rate in terms of trade, the product of log of GDP and human capital and investment to GDP ratio. This study considers dif-ferent conditioning variables as presented in equation (4). The variables were chosen based on various empirical studies (Varblane and Vahter, 2005; Kalbasi, 2010 and Njoroge, 2010). Sec-ondly, the conditional convergence model used in this study directly incorporates the effect of the COMESA FTA. This is an aspect of international trade that this study motivates and presents differently from the approach by Barro and Sala- i- Martin (1995). Therefore, this study modifies the model of Barro and Sala-i- Martin (1995) with own motivation and largely that of Varblane and Vahter (2005) and Kalbasi (2010). Hence the model specification for this study is presented below, by equations 3 and 4. lnYi,t – lnY0i,t = β0 + β1lnY0i,t + µi,t………………………………………………….(3)


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lnYi,t–lnY0i, = β0 + β1lnY0i, + β2lnGKFGDPi,t + β3lnSECEDUi,t + β4lnEMPTOTi,t + β5lnFDIi,t + β6lnINFRASi,t + β7lnINTACSi,t + β8lnXMGDPi,t + β9 FTAMEBi,t + β10

Y0FTAi,t+ µit…………………………………(4) Where ln represents the natural logarithm of the variables, Yi,t is real per capita income for coun-try i, at time t; Y0i,t is real income per capita for country i, at the beginning of the study period; GKFGDPi,t is Gross Fixed Capital Formation as share of GDP for country i, at period t; SE-CEDUi,t is Secondary School Gross Enrolment for country i, at period t; EMPTOTi,t refers to To-tal Employment for country i, at period t; FDIi,t is the flow of inward FDI for country i, at period t; INFRASi,t is expenditure on infrastructure for country i, at period t; INTACSi,t is Internet Users per thousand population in each COMESA member country at period t; XMGDPi,t is the ratio of Exports plus Imports to GDP for country i, at period t; FTAMEBi,t is an intercept dummy varia-ble that takes 0 for countries that were not FTA members in the period 1996-2007 and 1 for FTA participants in the period 2000-2007;10 Y0FTAi,t is an interaction dummy that captures the effect of COMESA FTA membership on income convergence for all countries in the COMESA FTA and μit is the error term assumed to be white noise, normally and identically distributed. The convergence parameter (β1) in the panel regression model will be estimated on the basis of equation (3) which tries to capture absolute convergence i.e., whether or not poor countries grow faster than relatively richer ones in COMESA. Absolute convergence is measured on the as-sumption that countries are similar in most respects including government policies, preferences and technology. The β parameter also measures the speed of convergence if it is observed within the regional group of countries (Kalbasi, 2010). However, because COMESA countries have distinct country specific economic and social fea-tures, the convergence hypothesis is further evaluated on the basis of model (4). Equation (4) shows the model specification with all the variables to be considered in estimation of conditional convergence. This specification further allows us to establish whether for those countries that joined the FTA, their real incomes have converged vis-a-vis those that are not members of the FTA. This implies an assessment of whether there is a widening or narrowing real per capita in-come gap in the COMESA FTA region. Since the model is expressed in natural logs, the coeffi-cients are interpreted as elasticities. Thus, this model allows for the analysis of immediate impact of a change in the dependent variable in response to a unit change in any of the explanatory vari-ables, ceteris paribus. Expected Signs It is noteworthy that a set of economies displays conditional beta convergence if the partial cor-relation between real per capita GDP growth and initial real per capita income is negative. There-fore for beta convergence, we expect that β1<0. In other words, the lower the starting value of real per capita income, the greater and faster the subsequent growth and the greater possibility of the poor countries catching up with richer ones in a region. If on the other hand the partial corre-lation is found to be positive (β1>0), it implies divergence of real incomes in the group. Also if the coefficient on initial income is negative in a univariate regression (equation 3), then the data set displays absolute beta convergence. Thus β1 is expected to be negative or positive depending on whether convergence or divergence is observed.

10The year 2000 was when the COMESA FTA was formed and marks the inception of the convergence study for COMESA FTA members. While the COMESA FTA members are currently 13, the analysis of the study only captures the 9 members that joined in the FTA in 2000 (the rest of the FTA members joined later, almost towards the end of the study period, hence they were ex-cluded from the study).


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The coefficients of the variables Gross Fixed Capital Formation; Secondary School Gross En-rolment; Employment; Export plus Imports to GDP ratio; Internet Usage per thousand popula-tion; FDI; spending on infrastructure; and the FTA intercept dummy are expected to be positive. That is, β2>0; β 3>0; β4>0; β5>0; β6>0; β7>0; β8>0 and β9>0. The slope dummy, Y0FTAi,t, can either be negative or positive. This is because it represents a negative or positive change in the slope of the relationship between per capita GDP growth rate of the FTA group and initial per capita GDP. A negative slope is indicative of a stronger tenden-cy for convergence to occur for this group of FTA countries, while a positive slope indicates a stronger tendency for divergence in per capita incomes. To verify convergence or divergence for FTA members, the coefficient of the slope dummy and the coefficient of the initial per capita GDP are summed up. The effect of FTA membership on per capita GDP convergence depends on whether the sum of the slope dummy and initial per capita GDP coefficients is positive or negative. Given that convergence is observed (so that initial per capita GDP is negative), if the slope dummy is negative, overall, the sum of the two coefficients will be negative. This will in-dicate greater convergence for the FTA group of countries. Similarly, if convergence is observed but the slope dummy is positive, overall, there may still be per capita income convergence in the FTA, if the coefficient of initial per capita GDP outweighs the coefficient of the slope dummy (because we get a negative coefficient after the two coefficients are summed up). This would mean diminishing returns to capital and the poor countries are growing faster per capita until they catch up with the richer ones in the FTA. In the case of divergence, the sum of the slope dummy and the initial per capita GDP is positive. Therefore, this study expects that, β10<0 or β10>0. Speed of Convergence In the discussions about the regional economic convergence, an important question is always the length of the process of catching up for backward economies (Varblane and Vahter, 2005). In principle, to measure the length of the catch-up process, the speed of convergence is employed. This study estimates the speed of convergence based on the results of the model estimation in equation (3). It should be noted that, the speed of convergence is estimated only if convergence is found within COMESA. Further, the estimation procedures of the speed of convergence in this study follow approaches of Abadar (2003) and Kalbasi (2010). If convergence is revealed, then the speed of convergence shall explain how rapidly it would take for the real per capita income gaps to be closed by half or fully in COMESA. SAMPLE AND DATA SOURCES The study is based on secondary data sources and aims to examine the issue of convergence in real per capita income across the member states of COMESA for the period 1996 - 2007. Despite COMESA consisting of 19 member states, the study examines beta convergence for 17 member states. This is because Djibouti is omitted for completely lacking observations on the total em-ployment variable. Egypt, on the other hand, is chosen as a reference category because it is a large and economically stable member state in both the COMESA REC and FTA. The data source for GDP per capita growth rates (Yi,t – Y0i,t); GDP per capita for initial periods (Yi,0); Total Employment (EMPTOTi,t); Secondary School Gross Enrolment (SECDUi,t); Internet Accessibility and Usage figures (INTACSi,t); Exports plus Imports as a share of GDP (XMGDPi,t), Infrastructural Spending (INFRASi,t) and inflows of Foreign Direct Investment


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(FDIi,t) was the African Development Indicators (2010).11 However, for FTA membership (FTAMEBi,t) the data source was the COMSTAT data (2010).12 ESTIMATION AND ANALYSIS OF REGRESSION RESULTS This section presents the econometric estimation and analysis of results of the empirical specifi-cations developed thus far. First, a discussion of panel unit root tests is conducted to determine stationarity of variables. This is followed by panel cointegration tests to determine existence of long run equilibrium relationship among the variables in the model. Finally the parametric tests for convergence of per capita incomes and results are discussed for the COMESA countries. Panel Unit Root Tests The times series property of variables is of significant interest to economists. However, the sta-tistical properties of the time series estimates depend on whether the variables are stationary or not stationary (Hsiao, 1985). Panel unit root tests are carried out to test for stationarity of varia-bles in data that has time series characteristics. These tests are conducted in order to avoid spuri-ous regression results. Econometricians argue that the Im, Pesaran and Shin (IPS) (2003) test outperforms all the other unit root tests (Hall and Mairesse, 2002; Mainardi, 2005 and Narayan, 2003). While IPS may be deemed superior over the other tests, IPS only allows for balanced panel data in presenting stationarity results with precision.13 In principle, the IPS test can also be used in association with any parametric unit-root test, as long as the panel is balanced. This study focuses on two types of first generation panel unit root tests. In particular, the Levin, Lin and Chu (LLC) (2002) and the Fisher-type test based on the Augmented Dickey-Fuller (ADF) procedure (Maddala and Wu, 1999) are adopted. The rationale behind choosing the LLC and ADF tests over the IPS test was that this study employs unbalanced panel data. The LLC and ADF tests are both tailored to accommodate unbalanced panel data. Further, LLC generalizes the Quah model which allows for heterogeneity of individual effects. The LLC via the Quah model also provides for heterogeneous serial correlation structure of the error terms. This is as-suming homogenous first order autoregressive parameters. The ADF-Fisher test is closely related to the IPS test because both tests are based on the ADF procedure. Therefore, the ADF-Fisher test was employed in this study as a confirmatory and complimentary test to the findings of LLC. The LLC and the ADF Fisher Chi- square tests have the same hypothesis of “unit root present” against its alternative (Maddala and Wu, 1999). Table 2: Panel Unit root Test Results for all COMESA member states

LLC ADF- Fisher’s χ2 Variables Individual Intercept and Trend Individual Intercept and Trend Order of Integration lnYi,t – lnY0i,t

-12.9013 (0.0000)***

101.922 (0.0000)***

I(0)

lnY0i,t -10.7295

(0.0000)*** 93.7411

(0.0000)*** I(0)

lnGFKGDP -8.06899

(0.0000)*** 61.1662

(0.0055)*** I(0)

lnSECEDU -10.1657

(0.0000) *** 108.8020

(0.0000) *** I(0)

lnEMPTOT -18.0977

(0.0000)*** 74.0685

(0.0001)*** I(0)

lnFDI -16.5453

(0.0000)*** 67.2687

(0.0017)***

I(0)

11 http://data.worldbank.org/data-catalog/africa-development-indicators 12http://comstat.comesa.int 13Balanced data (as opposed to unbalanced data) is data that comprises all of the observations for all cross-sections and all time periods. It does not have any missing observations at all. Thus, the IPS technique provides convenient and precise results when balanced data is employed in a panel study. In the case of balanced panels, the IPS is more superior to other panel or pooled unit root tests. (Hoang and McNown, 2007)


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lnINFRAS -11.6993

(0.0000)*** 71.0031

(0.0002)*** I(0)

lnINTACS -14.8312

(0.0000)*** 69.8350

(0.0006)*** I(0)

lnXMGDP -6.56285

(0.0000)*** 61.7194

(0.0048)*** I(0)

Probabilities are computed assuming asymptotic normality. Critical values 1% ***, 5 % **and 10%*.

The results in Table 2 based on the LLC and ADF – Fisher Chi- square panel unit root test pro-cedures correspond to the 9 variables that were used in the study. The null hypothesis of “unit root present” was rejected if the associated probability was less than the conventional 5% statis-tical level of significance. For precise results, the decision rule was based on consistency of both the LLC and ADF Fisher statistics. It is evidenced that the stationarity results from the two test statistics employed present consistent results. Interestingly, the results illustrate that the model consisted of variables that were all sta-tionary at levels, I(0). These variables are; per capita GDP growth rate (lnYi,t – lnY0i,t), per capita GDP (lnY0i,t), Gross Fixed Capital Formation as a share of GDP (lnGFKGDP), Secondary School Gross Enrolment (lnSECEDU), Total Employment (lnEMPTOT), Foreign Direct Invest-ment (lnFDI), Infrastructural Spending (lnINFRAS), Internet usage per thousand population (lnINTACS) and Exports plus Imports divided by GDP (lnXMGDP).The stationarity tests under-taken enabled the study to rule out the possibility of obtaining results that have no economic meaning. Panel Cointegration Test Examining the existence of a long run relationship among variables is important in the context of purely time series and panel data. Panel cointegration tests aim to examine the long run econom-ic meaning of data that are not stationary at levels in order to avoid spurious regression results. In principle, cointegration tests are conducted for non-stationary dependent variables that are inte-grated of the same order as other non-stationary independent variables (Studenmund, 2011 and Greene, 2003). The results in Table 2 indicate that the dependent variable and independent varia-bles were all stationary at levels, I(0). Therefore, this was an indication that no cointegration among the variables existed. Hence, the implication is that the variables did not have a meaning-ful economic relationship in the long run. This justifies why the study does not estimate panel cointegration of any of the employed variables. The Hausman Test The Hausman test The Hausman test is employed by many researchers to see if there is correla-tion between individual specific effects and the regressors in a particular model. Essentially, the Hausman specification test examines whether the regression coefficients under the fixed effects and the random effects are statistically different from each other. If they are statistically different from each other, then the fixed effects is the appropriate model even though it uses up more de-grees of freedom. However, if the fixed and random effects are not statistically different from each other, then the random effects model is preferred. The results of the Hausman specification test are presented in Table 3. Hypothesis

H0: COV (Ui,Xit) = 0; random effects is correct model (REM) H1: COV (Ui,Xit) ≠ 0; fixed effects is correct model (FEM)

Table 3: Hausman Test – Correlated Random Effects Results

Test Summary Chi-Square Statistic Chi-Square degrees of free-dom. Probability.

Cross-section random 41.125214 8 0.0000*** ***Significant at 1%, **Significant at 5 % and * Significant at 10%*.


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The results displayed in Table 3 indicate that the null hypothesis was rejected using the conven-tional 5% level of statistical significance. This implies that the FEM was the appropriate and un-biased model for parametric estimation in this study. Corresponding to this result is the observa-tion that the FEM has been selected for various macro panel studies with finite cross sections (Kalbasi, 2010 and Abadar, 2003). The FEM is also useful for analysing the impact of the varia-bles that vary over time as is the case with the variables employed in this study. Therefore, the study justifiably estimates both absolute and conditional beta convergence using the FEM.

Estimation of Absolute Beta Convergence using the Fixed Effects Model The presumption that poor countries will grow faster per capita is the basis of the parametric es-timation undertaken in this study. It is worth noting that in order to account for heterogeneity, fixed effects are specified as per Hausman test results. Absolute convergence was tested and es-timated under the null hypothesis that poorer countries had lower growth rates and therefore there is no convergence, against the alternative hypothesis that the poorer the country, the higher the growth rate; so that poorer countries with lower initial per capita incomes would have higher growth rates. Hence poor countries would catch up with the richer ones because of diminishing returns to capital, thus causing economic convergence. The results of the absolute convergence estimation are presented in Table 4.

Absolute Beta Convergence Hypothesis H0: β1> 0; No absolute beta convergence in COMESA region

H1: β1< 0; Absolute beta convergence exists in COMESA region Table 4: Absolute Beta Convergence Results for COMESA

Dependent variable: Per Capita GDP Growth Rate (lnYi,2007 – lnYi,1996) Variable Coefficient t-Statistic Probability C 1.337 3.8472 0.0002***

lnY0i,1996 -0.3813 -5.0625 0.0000***

R- squared: 0.5737 Adjusted R- squared 0.5322 Durbin watson Stat 1.7115 F- statistic 5.4670 Prob (F- statistic) 0.0000 sample (adjusted) 1996 2007 observations included 12 after adjustments Cross- sections included 17 Total pool (unbalanced) observations 131 Estimation method Fixed Effects least squares

***Significant at 1%, **Significant at 5 % and * Significant at 10%*.

Table 4 displays results for absolute convergence of per capita GDP levels for 17 COMESA countries in the period 1996 - 2007. The adjusted R-squared shows that 53% of the variation in the growth rate of per capita GDP is well explained by the initial per capita GDP levels. Since the Durbin Watson (DW) statistic is 1.7, which is above 1.5 but less than 2, this verifies that the problem of autocorrelation does not significantly affect the estimated model. This result is rela-tively good considering that most panel and pooled data estimations are characterised by very low DW statistics. The F statistic is statistically significant at 1% revealing that estimated model is correctly specified. Therefore equation (5) presents the specific estimated absolute beta con-vergence model corresponding to the findings in Table 4.

lnYi,2007 – lnYi,1996 = 1.337 – 0.381lnYi,1996………………………(5)


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The coefficient of initial per capita GDP level is negative and approximately 0.38. The negative coefficient of initial per capita GDP is also statistically significant at 1%. Therefore the study rejects the null hypothesis of no absolute convergence in COMESA. This result strongly vali-dates the result of absolute beta convergence in the COMESA REC for the period 1996 – 2006. This means that the lower the initial per capita income, the higher the growth rate; this implies that the differences in per capita income levels within COMESA countries have been diminish-ing over time. This indicates that poor countries like Ethiopia and Eritrea grew faster and were catching up with richer ones (like Egypt) in the region. However, not all the countries of COMESA support the convergence towards the economic standard of Egypt; the exceptions are Seychelles, Mauritius and Libya.14 This could be due to the fact that these 3 countries have relatively higher per capita income levels than the rest of the COMESA countries (World Bank, 2011).15 The theoretical prediction of diminishing marginal returns to capital are that rich economies like Seychelles, Mauritius and Libya have higher capi-tal concentration than poor countries, therefore their potential to “catch up” is reduced. Accord-ingly, if capital exhibits diminishing returns, poor economies with lower capital-labour ratio will tend to exhibit higher marginal product of capital. Therefore, poor economies grow faster com-pared to richer economies with a higher capital-labour ratio and lower marginal product of capi-tal. Subsequently, this promotes a faster rate of per capita income growth in poor countries than richer ones. This causes a tendency for the differences between the per capita GDP levels across countries to diminish leading to mutual convergence over time. Ultimately, regional per capita GDP growth rates gradually converge toward an identical long-run threshold, in this case Egypt. Consequently, this explanation could justify why the three countries grew relatively less than the rest of the economies in the bloc. In particular, there were some unobservable effects in Libya, Mauritius and Seychelles that re-duced the per capita GDP growth rates by 0.31%, 0.39% and 0.52% respectively in the period 1996-2007.16 Moreover, as earlier mentioned, the same period was characterised by poor COMESA countries growing faster and catching up. This development possibly explains the nar-rowing per capita income gap between the poor and rich countries in the region.

Estimation of Conditional Beta Convergence using the Fixed Effects Model The absolute convergence theory has been criticized due to ignoring fundamental factors which differ among countries. Therefore, this study includes variables that have been generally used in many empirical studies to account for these variations (Kalbasi, 2010; Varblane and Vahter, 2005 and Abadar, 2003). The variables include: Foreign Direct Investment (FDI); Secondary School Gross Enrolment (SECEDU); Gross Fixed Capital Formation as a share of GDP (GFKGDP); Total Employment (EMPTOT); Exports plus Imports divided by GDP (XMGDP); Internet Access and Usage per thousand population (INTACS); Infrastructural Spending (INFRAS); FTAMEB (intercept dummy which takes 1 when member countries are part of COMESA FTA and 0 otherwise) and Y0i,tFTA, an interactive dummy that takes into account the actual effect of COMESA FTA membership on per capita income convergence of COMESA FTA countries. Conditional beta convergence is tested and estimated under the null hypothesis that poor coun-tries do not converge, against the alternative hypothesis was that poor countries converge to the per capita income of the richer countries, as observed by a negative coefficient of the initial in-

14 See Table A.1 in Appendix A 15 See World Bank (2011), List of Economies. 16 See Table A.1 in Appendix A for Eviews presentation of fixed effects interpreted here


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come. The implication of the alternative hypothesis was that poor countries with a lower level of initial per capita GDP would grow faster, and would catch up with the richer ones like Egypt in the bloc. A further implication is that based on a set of explaining factors, each country would converge to its own steady state. The results of the conditional beta convergence estimation are presented in Table 5.

Conditional Beta Convergence Hypothesis H0: β1> 0; No conditional beta convergence in COMESA region

H1: β1< 0; Conditional beta convergence exists in COMESA region Table 5: Conditional Beta Convergence Results

Dependent variable: Per Capita GDP Growth Rate (lnYi,2007 – lnYi,1996)

Variable Coefficient t-Statistic Probability C 0.0337 2.8078 0.0058*** lnY0i,1996 -0.3958 -5.9496 0.0000*** lnGFK 0.0341 2.8258 0.0055*** lnSECEDU 0.0499 2.7846 0.0064*** lnXMGDP 0.3660 2.1807 0.0352** lnFTAMEB 0.3744 1.9931 0.0491** lnY0FTA 0.3872 2.0709 0.0411** R- squared: 0.7212 Adjusted R- squared 0.6949 Durbin Watson Stat 1.9170 F- statistic 8.3567 Prob (F- statistic) 0.0000 sample (adjusted) 1996 2007 observations included 9 after adjustments Cross- sections included 17 Total pool (unbalanced) observations 111 Estimation method Fixed Effects Least Squares

***Significant at 1%, **Significant at 5 % and * Significant at 10%*.

The results in Table 5 correspond to the fixed effects estimation of conditional convergence of per capita GDP levels in 17 COMESA member states in the period 1996 - 2007. The adjusted R-squared reveals that 69% of the variation in the growth rate of per capita GDP is explained by initial per capita GDP and the conditioning variables in the model. The DW statistic is approxi-mately 1.92 and shows that the problem of autocorrelation did not affect the estimated model. The F statistic is also statistically significant at 1% illustrating that the estimated model is cor-rectly specified. It is worth noting that the results in Table 5 and the estimation of the conditional convergence model correspond to variables that were statistically significant at 5%. Therefore the estimated results in Table 5 exclude the variables that are not statistically significant 5 %. The variables that are not statistically significant at 5% include EMPTOT, INFRAS, FDI and INTACS (see appendix). However, the result of these variables not being statistically significant does not mean that they are irrelevant for conditional convergence of a regional grouping. Rather, the im-plication could be that the variables may not be applicable in explaining convergence in the case of COMESA countries. This could be explained by the fact that COMESA countries are still de-veloping in areas of infrastructure and internet accessibility. Therefore, this could suggest that their impact on economic growth in COMESA was not felt during the study period. The inflow of FDI is also influenced by infrastructural development and political stability, among other things. Countries like Zimbabwe and DRC have respectively faced political instability and civil wars in previous periods crucial to the study. This possibly deterred the process of capital accu-mulation, infrastructural development and adequate attraction of foreign investment. Conse-quently, this could have had a bearing on the result that infrastructure spending, internet access and FDI did not explain the model.


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The total employment in COMESA countries is rather difficult to capture. The majority of COMESA countries have large informal and agrarian sectors that employ a vast majority of their populations, and these are not likely to be captured by employment statistics, even though they contribute to GDP. The population employed in the entire informal sector of COMESA countries remains unknown with certainty. Consequently, this could be the reason why total employment does not explain convergence in COMESA within the context of regional integration. Equation (6) presents the specific estimated conditional beta convergence model corresponding to the re-sults in Table 5.

lnYi,2007–lnYi,1996 = 0.0337 – 0.3958lnYi,1996 + 0.0341lnGKFGDPi,1996 + 0.0499lnSECEDUi,1996 + 0.3660lnXMGDPi,1996 + 0.3745FTAMEBi,2000 + 0.3872lnYiFTAi,2000 …………………………………………………….(6)

The regression shows the relationship between per capita GDP growth rate and the significant conditioning variables. The negative and significant coefficient of per capita GDP in the initial period indicates that the null hypothesis of no conditional convergence in COMESA countries is rejected. This indicates that there was a reduction in the per capita GDP gap of poor and rich countries in the COMESA region. In other words, per capita GDP growth in COMESA REC seems to converge to the standard of Egypt. This is after accounting for differences in Gross Fixed Capital Formation as a share of GDP, Secondary School Gross Enrolment and Openness of COMESA economies. Furthermore, a country’s membership in the COMESA FTA seemed to increase its prospects of attaining positive economic growth. This means that a country joining the COMESA FTA seemingly converged faster than non FTA members of COMESA. This im-plication is drawn from the positive and statistically significant coefficient of the FTAMEB dummy. However, the positive and statistically significant slope dummy as shown in Table 5 re-veals that FTA membership reduces the potential for convergence of FTA members (since a pos-itive coefficient of the initial income indicates divergence). SUMMARY AND INTERPRETATION OF RESULTS The study expected, a priori, the ratio of Gross Fixed Capital Formation to GDP (GFKGDP) to be positively related to per capita GDP growth in COMESA countries. The results in Table 5 and equation (6) indicate that GFKGDP was found to be positive and statistically significant as 1% in accordance with expectation. This result is slightly contrary to the findings of Varblane and Vahter (2005). In their study, the duo found that this ratio was significant but negative. Howev-er, the implication of the finding in this study is that there is a strong positive relationship be-tween GFKGDP and the per capita GDP growth rate of COMESA countries. Holding other fac-tors constant, on average in the sample, the per capita GDP growth rate increased by 0.03% for every 1% increase in the Gross Fixed Capital Formation as a share of a country’s GDP. This may imply that increased capital accumulation levels in these countries could have led to higher real GDP per capita growth rate over time. A positive relationship between per capita GDP growth rate and Secondary School Gross Enrol-ment was expected. The results in Table 5 show that the coefficient of the Secondary School Gross Enrolment variable (SECEDU) is positive and statistically significant at 1%. This indi-cates a strong positive relationship between secondary school enrolment and per capita GDP growth rate. The result is also consistent with theoretical prediction and broadly in line with the findings of Kalbasi (2010) and Varblane and Vahter (2005). In particular, this study found that per capita GDP growth rate of a COMESA country increased by an average of about 0.05% for every 1% increase in the Secondary School Gross Enrolment, ceteris paribus. This finding could be explained by the rationale that higher schooling levels capacitate the build-up of knowledge.


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Knowledge building at higher levels of schooling may be more favourable for human capital de-velopment. Secondary education may have had some knowledge spill-overs effects across COMESA countries leading to economic growth. Furthermore, the result obtained could be attributed to the fact that COMESA countries may have been focusing more on investment in higher education during the study period. Conse-quently, higher level of education and gross enrolment could have improved the quality and effi-ciency of productive labour in the countries. Furthermore, the productive labour in the COMESA countries had potential to compliment the available physical and human capital and other factors of production. This could have led to more efficiency of productive factors. Ultimately, this could have prompted higher economic growth and convergence towards individual countries’ steady states and economic standard of Egypt. The study had apriori expectation that the openness index variable would be positively related to per capita GDP growth rate. The estimation of the conditional convergence model presented re-sults consistent with the anticipated result. In particular, the ratio of Exports and Imports to GDP (XMGDP) in COMESA was positive and statistically significant at 5%. This result is in line with the findings of Njoroge (2010). The implication is that, the larger the share of exports plus imports in a country’s GDP, the higher would be its per capita GDP growth rate. In particular, holding other factors constant, a COMESA country’s 1% increase in openness to international trade increased its per capita GDP growth rate by an average of 0.37% in the period 1996-2007. The result can conform to the proactive implementation of the World Trade Organization (WTO) policy reforms in the period 1996-2007. In particular, trade liberalization policies were recom-mended and implemented across COMESA countries. Implicitly, regional integration when ac-companied by WTO compatible trade reforms of greater openness to international trade increases economic interaction among countries. Ultimately, this leads to improved economic performance for the countries involved. Further, increased openness of COMESA countries creates possibility of absorbing and investing in new technologies vital for economic growth. Openness of econo-mies could have created opportunities for COMESA to attract international and intra-regional FDI. This could have led to some indirect positive impact on per capita GDP growth. Conse-quently, increased openness could have also promoted allocative efficiency of investment, by reorienting factors of production to sectors that have comparative advantages in trade. Therefore, this could have led to higher per capita GDP growth and convergence to individual country steady states in the COMESA region. Furthermore, the study hypothesized that the intercept dummy (FTAMEB) would be having a positive relationship with per capita GDP growth rate in the period 2000-2007.17 This seemed to be the case after the estimation of the conditional beta convergence model; The intercept dummy was not only positive as expected but statistically significant at 5%. This result shows that mem-bership in the COMESA FTA was very important to the economic growth of the FTA members as opposed to that of non-members. It follows that for this sample, the per capita GDP growth rate of FTA members was 0.37 higher than that of non-members, ceteris paribus. Possibly, the creation of an FTA may have led to newly enlarged markets that allowed better use of economies of scale. The economies of scale realised could have had a positive effect on per capita GDP growth of FTA members relative to non-members, because of removal of barriers to trade. This

17The year 2000 was when the COMESA FTA was formed and marks the inception of the convergence study for COMESA FTA members. While the COMESA FTA members are currently 13, the analysis of the study only captures the 9 members that joined in the FTA in 2000. Since Egypt is the reference cross-section, it was excluded in all estimations. Thus, the importance and effect of FTA membership on per capita income convergence covers the 8 countries and the period 2000-2007.


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could justify the result that FTA members experienced a relatively higher level of per capita GDP growth compared to non-FTA members in the period 2000-2007. The Y0FTA interactive dummy introduced to capture the per capita income catch-up effect across FTA member states was expected to be either positive or negative. This was because it showed the change in the slope of the relationship between per capita GDP growth rate and ini-tial per capita GDP. If negative, this would indicate that FTA membership caused greater con-vergence than non-members, and if positive, that it reduced potential for convergence, and FTA members could even had experienced divergence, if the coefficient of the interactive dummy is positive and outweighs the negative coefficient of the initial income coefficient. The interactive dummy was found to be positive and statistically significant at 5%. Nevertheless, the sign of the sum of the coefficients of the interaction term and the initial per capita GDP level is found to be negative (approximately -0.0087). This result is indicative of per capita GDP convergence among COMESA FTA countries in the period 2000-2007, although at a slower pace than that of non-FTA members. Implicitly, the FTA members were relatively richer than non-FTA mem-bers, therefore had lower potential for catch-up with Egypt than non-FTA members. This finding of per capita income convergence at a lower rate within the COMESA FTA was not surprising. The reason is that being an FTA member is found to be of significant importance to the growth of per capita GDP, as evidenced by some autonomous growth within the FTA equiva-lent to 0.40%, as seen by the sum of the intercept and the intercept dummy coefficients. Conse-quently, it would mean that these are the richer members of COMESA, for example Egypt, Lib-ya, Mauritius and others in the FTA; this could mean they had higher initial income. Therefore, per capita income convergence could have resulted but at a slower pace, for the COMESA FTA member states as compared to non-FTA members of COMESA. The Speed of Convergence in the COMESA REC and FTA The length of a convergence or catch- up process is often an interesting discussion for studies that demonstrate evidence of regional convergence. Therefore, this study attempts to establish the number of years required for the COMESA REC to experience half and complete catch-up of real per capita incomes relative to Egypt. It is acknowledged that there are various competing methods of calculating the speed of partial or complete catch-up in a regional area. However, this study adopts the method employed by Abadar (2003) and Kalbasi (2010). Following Kalbasi (2010), it is taken that the absolute value of the coefficient of initial per capita income, β1 = 0.381, is a measure of the speed of absolute beta convergence. This was used in the employed half-life methodology by Abadar (2003). Hence, the number of years it will take the COMESA REC to converge to at least half the income per capita level of Egypt was calculated as shown in equation 7:

Half-life = ln2/β1 = 0.693/ 0.381 = 1.819……………………………(7) This implies that, if COMESA REC maintains the speed of convergence at 0.381 per annum, then it would take approximately 2 years for the REC to catch up to at least half the per capita income level of Egypt. Implicitly, for complete catch up of the COMESA REC, if the speed of convergence is constant at 0.381, in approximately 4 years, the COMESA REC may fully exhibit economic standards of Egypt. The study found that the absolute value of the speed of convergence for the COMESA FTA countries was β1 + β10 = 0.0087. Therefore, the number of years it will take the COMESA FTA to converge by at least half the income per capita level of Egypt was calculated as shown in equa-tion 8:

Half-life = ln2/(β1+β10) = 0.693/ 0.0087 = 79.673……………………………(8)


21

The implication of this is that, if COMESA FTA maintains the speed of convergence at 0.0087 per annum, then it would take approximately 80 years for the FTA to catch up with at least half the per capita income level of Egypt. This means that, in order to completely close the per capita income gap in the COMESA FTA, if the speed of convergence is constant at 0.0087, it would take approximately 160 years. The longer period for FTA members is not surprising, given the slower pace of convergence for this group of countries, as noted above. Therefore, given the calculated speed of convergence, the COMESA REC will be more likely to attain equality in economic welfare faster than the COMESA FTA. Accordingly, from the com-parison between the COMESA REC and the COMESA FTA, it can be inferred that the COMESA REC is relatively poorer than the COMESA FTA. This is based on the finding that COMESA FTA membership was important and relatively beneficial to the growth of participant states by 0.37. Thus following the theoretical prediction of diminishing returns, the COMESA REC should converge faster than the COMESA FTA. However, this study maintains that such a result is may only be an academic forecast. Conse-quently, this finding may not be practical for actual economic forecast of partial or complete catch-up of real incomes in both the COMESA REC and FTA. This is because the speed of con-vergence may in fact not be constant over a period of years. The reason is that, in reality, both COMESA REC and FTA countries face country specific social, political and economic challeng-es that could affect the revealed rates of convergence in these groups. Further, maintaining the constant speed of convergence at regional level requires co-ordinated policy on democratic gov-ernance, peace and lack of corruption, among others. However, most COMESA countries are among the leading countries in failing to meet such conditions for sustained economic conver-gence. For example, Zimbabwe and countries like Libya, DRC, and Rwanda have had political crises and civil wars respectively in periods crucial to this study. Consequently, these challenges may affect the rate of convergence to the extent of either decreasing it, or increasing it over time. In this instance, the economic convergence prediction based on the calculations made in equation (7) and equation (8) may not be valid in reality, and should be interpreted with caution. CONCLUSION The study used the FEM to estimate absolute and conditional beta convergence. The results re-vealed a highly significant and negative coefficient of initial period per capita GDP. The conclu-sion of this study is therefore that conditional convergence existed for all the 17 member states of COMESA in the period 1996-2007. Implicitly, based on the significant explanatory factors, each country in COMESA converged toward its own steady state during the study period. The magnitude of capital formation as a share of GDP is found to be an important determinant of economic growth. Although the study concluded that FDI was not important in determining per capita GDP growth of COMESA countries, a higher level of capital formation is likely to influ-ence indirectly FDI inflows. A high level of capital formation ensures needed finance for the industries’ growth and development thus promoting economic growth. Accordingly, capital formation could translate into development of physical infrastructure such as roads and tele-communications. Development of physical infrastructure is vital for attracting foreign invest-ments in ICT and other infrastructure. This would increase efficiency of investment and encour-age FDI to compliment domestic investment. Subsequently, this could create comparative ad-vantage to the poor and capital scarce economies within COMESA. Therefore, a catch-up or convergence process with the richer economies in the long-run would be likely to be achieved in both the COMESA REC and FTA.


22

Secondary School Gross Enrolment was found to be statistically significant and positive in influ-encing per capita GDP growth. This result was found to be consistent with both theory and em-pirical findings of studies such as Varblane and Vahter (2005) and Kalbasi (2010). The study at-tributes this result to the fact that higher education level promotes production of quality labour and human capital. In turn, the labour and human capital complement other factors of production in COMESA economies. This leads to increased productivity of factors and per capita GDP lev-els of COMESA countries. The conclusion based on this finding is that education especially at relatively higher levels may produce positive economic growth and assist in poverty alleviation of COMESA countries. This is because high per capita GDP growth rate promotes opportunities for more employment, better health and infrastructure. Another finding of the study is that openness to trade is a vital determinant of economic growth and convergence of poor countries. The policy implication is that COMESA should rigorously monitor and evaluate the implemented trade reforms of more openness. A more open regional trade and investment policy framework should be formulated and implemented for the COMESA region. This could promote allocative efficiency of investment especially in poor countries like Burundi, Ethiopia and Eritrea. Further, this could tremendously redress the challenges that these and many other poor countries in the region face in striving to attract capital investments. This could be by reorienting factors of production to sectors that have comparative advantage in inter-national trade across the COMESA countries. Such a policy framework could augment economic growth and convergence efforts of COMESA nations. Moreover, a higher degree of economic openness could avail COMESA economies the potential to grow faster by absorbing new tech-nologies. This could provide further opportunity for the COMESA region to improve its interna-tional trade potential. Consequently, regional opportunities for employment creation, better edu-cation and infrastructure could be recognised as spill over effects. Accordingly, the COMESA region could potentially move towards balanced rather than unequal economic and human devel-opment. The conclusion that COMESA FTA members grew more than non-members reveals the im-portance of unilateral, multilateral and preferential trade reforms in regional integration. When pursued simultaneously these trade reforms support deeper integration and significantly impact on growth of poor countries. The policy implication is that pursuance of non-discriminatory lib-eralization policies alongside preferential liberalization enhances the level of economic interac-tions. Non-discriminatory liberalization in both goods and services could be a strategy for en-hancing economic performance among COMESA countries. Implicitly, regional trade coopera-tion can support the expansion of trade in the bloc if more countries joined the COMESA FTA. In turn, this would boost economic growth and eradicate poverty in the COMESA region at large. The study could draw some policy implications based on the analysis of the convergence process of per capita GDP in COMESA. COMESA countries have been individually pursuing very simi-lar policies of economic restructuring under the auspices of the IMF and the World Bank. Ac-cordingly, a policy implication is that COMESA countries should focus more effort towards re-gional macroeconomic policy co-ordination, monitoring and enforcement. In this case, per capita GDP convergence could be sustained for COMESA REC members. The study recommends that more proactive economic policy co-ordination be adopted to enhance the convergence process of COMESA REC and FTA members towards regionally desired levels. This may indirectly strengthen the individual country and regional specific efforts in implementing poverty eradica-tion and social inclusion strategies like MDGs.


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tion: the convergence hypothesis”, Paper presented at Economic Society of Southern Africa Seminar, South Afri-ca.

Cavazos, R.J. (2001) Metropolitan Income Growth and Convergence, London: Ash- gate Publishing Company. Chowdhury, K. (2003) “Empirics for World Income Distribution: What does the World Bank Data Reveal?” The

Journal of Development Areas 36 (2): 59-83. COMESA, (2010) “Common Market for East and Southern Africa”, IMTS Workshop 1-5 November 2010

Chaminuka, Lusaka, Zambia. Greene , W.H. (2003), Econometric Analysis, New Jersey: Prentice Hall. Hall, B. and J. Mairesse (2002) “Testing for Unit Roots in Panel Data: An Exploration Using Real and Simulated

Data”, Mimeo: Berkeley University. Hsiao, C. (1985) Analysis of Panel Data, Cambridge University Press. Im, K.S., M.H. Pesaran and Y. Shin (2003) “Testing for Unit Roots in heterogeneous Panels”, Journal of Econom-

ics, 115:53-74. Islam, N. (2003). “What have We Learnt from the Convergence Debate?” Journal of Economic Surveys, 17(3): 309–

362. Kalbasi, N. (2010) “Economic Growth Convergence among Middle East Countries”, Journal of Economics and In-

ternational Finance, 2(10): 231-236. Levin, A., C. Lin, and C.J. Chu (2002) “Unit Root Tests in Panel Data: Asymptotic and Finite-sample Properties”,

Journal of Econometrics 108:1–24. Maddala, G. S. and S. Wu (1999). “A Comparative Study of Unit Root Tests with Panel Data and New Simple

Test”, Oxford Bulletin of Economics and Statistics, 61: 631-652 Mainardi, S. (2005) “Earnings and work accident risk: a panel data analysis on mining”, Resources Policy 30 (2005)

156–167. Mallick, R. and E. Carayannis (1994) “Regional Economic Convergence in Mexico: An Analysis by Industry”

Growth and Change Journal of Urban and Regional policy, 25 (3): 325-334. Martin, C and I. Sanz (2003) “Consequences of Enlargement for European Regional Policy: The Spanish View-

point”, European Economy Group Working Paper No 27. Martín, C. and F.J. Velazquez (2001) “An Assessment of Real Convergence of Less Developed EU Members: Les-

sons for the CEEC Candidates”, Madrid: European Economy Group Working Paper No 5. Martin C., F.J. Velazquez and B. Funck (2001) “European Integration and Income Convergence: Lessons for Cen-

tral and Eastern European Countries”, Technical paper No. 514, Washington DC: World Bank. Narayan, P.K. (2003) “Will Investing in Health Stimulate Growth? Evidence from a Panel of OECD Countries”,

Griffith University: Department of Accounting, Finance and Economics. Njoroge, L.K. (2010) “The impact of regional integration on economic growth: empirical evidence from COMESA,

EAC and SADC trade blocs”, Nairobi: Central Bank of Kenya, Research Department. Romer, D. (2006) Advanced Macroeconomics, New York: McGraw-Hill Inc. Selelo, R.T. (2004) “Regional Economic Convergence in Southern African Development Community (1980-2001)”,

Master of Arts (Economics) Dissertation, Gaborone: University of Botswana. Studenmund, A., H. (2011), Using Econometrics- A Practical Guide, New York: Pearson. United Nations Development Programme (2009) Human Development Indicators -2009, New York.


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Varblane, U. and P. Vahter (2005) “An Analysis of The Economic Convergence Process in the Transition Coun-tries”, Tartu University Press, research No. 241:1-47.

Venables, A.J. (1999) “Regional Integration Agreements: A Force for Convergence or Divergence”, Policy Re-search Working paper No. 2260.

Wooldridge, J. (2002) Econometric Analysis of Cross Section and Panel Data, Cambridge: MIT Press World Bank, (2010) African Development Indicators, Washington DC: World Bank. APPENDIX Table A.1: Absolute convergence results Dependent Variable: lnYi,2007 –lnY0i,1996 Method: Pooled Least Squares Sample (adjusted): 1996 2007 Included observations: 12 after adjustments Cross-sections included: 17 Total pool (unbalanced) observations: 131

Variable Coefficient Std. Error t-Statistic Prob.

C 1.337389 0.347630 3.847161 0.0002lnY0i,1996 -0.381354 0.028569 -5.062489 0.0000

Fixed Effects (Cross) _BUR—C 0.192877 _COM—C 0.203972 _DRC—C 0.157827 _ERI—C 0.203730 _ETH—C 0.234497 _LIB—C -0.313156 _KEN—C 0.101605 _MAD—C 0.108601 _MAL—C 0.003113 _MAU—C -0.391587 _RWA—C 0.064518 _SEY—C -0.529495 _SUD—C 0.068843 _SWA—C 0.024811 _UGA—C 0.104342 _ZAM—C 0.102973 _ZIM—C 0.036426

Effects Specification

Cross-section fixed (dummy variables)

R-squared 0.573696 Mean dependent var 0.016089Adjusted R-squared 0.532150 S.D. dependent var 0.074170S.E. of regression 0.055242 Akaike info criterion -2.787932Sum squared resid 0.320430 Schwarz criterion -2.255874Log likelihood 203.4368 Hannan-Quinn criter. -2.571746F-statistic 5.466994 Durbin-Watson stat 1.711526Prob(F-statistic) 0.000000


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Table A.2: Conditional convergence results Dependent Variable: lnYi,2007 –lnY0i,1996 Method: Pooled Least Squares Included observations: 9 after adjustments Cross-sections included: 17 Total pool (unbalanced) observations: 111 Cross sections without valid observations dropped

Variable Coefficient Std. Error t-Statistic Prob.

C 0.033687 0.011998 2.807750 0.0058lnY0i,1996 -0.395805 0.155607 -5.949632 0.0000

FDI 0.006182 0.008858 0.697909 0.4866SECEDU 0.049906 0.017922 2.784605 0.0064EMPTOT 0.003911 0.008359 0.467879 0.6407

GFK 0.034052 0.012050 2.825797 0.0055OPENES 0.365959 0.167816 2.180721 0.0315INFRAS 0.002402 0.009019 0.266339 0.7906INTACS 0.381620 0.222174 1.717660 0.0895

FTA 0.374426 0.187854 1.993176 0.0491GDPFTA 0.387189 0.186964 2.070933 0.0411

Fixed Effects (Cross) _BUR—C 0.142617 _COM—C 0.027303 _DRC—C 0.192877 _ERI—C 0.189247 _ETH—C 0.109661 _LIB—C -0.442532 _KEN—C 0.017115 _MAD—C 0.062989 _MAL—C 0.145896 _MAU—C -0.362886 _RWA—C 0.079220 _SEY—C -0.463895 _SUD—C 0.044097 _SWA—C 0.208313 _UGA—C 0.105275 _ZAM—C 0.012727 _ZIM—C 0.031713

Effects Specification

Cross-section fixed (dummy variables)

R-squared 0.721184 Mean dependent var 0.020106Adjusted R-squared 0.694884 S.D. dependent var 0.075096S.E. of regression 0.045376 Akaike info criterion -3.139874Sum squared resid 0.172958 Schwarz criterion -2.480799Log likelihood 201.2630 Hannan-Quinn criter. -2.872507F-statistic 8.356696 Durbin-Watson stat 1.916975Prob(F-statistic) 0.000000

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SOUTHERN AFRICAN DEVELOPMENT AND SOCIAL CHARTER ON FUNDAMENTAL RIGHTS:

PROBLEMS AND CHALLENGES

Emmanuel K.B. Ntumy Senior Lecturer, Department of Law, University of Botswana, Gaborone, Botswana

E-mail: [email protected]

Abstract: The Southern African Development Charter (SADC) on Fundamental Rights forms part of the broad spectrum of the compendium of key human rights documents of the African Union. It is also part of the African Human Rights Law Reports18 and also emanates from the African Charter on Human and People’s Rights.19 Article 11 of the African Charter states that every individual shall have the right to assemble freely with others and the ex-ercise of this right shall be subject only to necessary restrictions provided for by law, in particular those enacted in the interest of national security, safety, health, ethics and the rights and freedoms of others. Furthermore, Article 12 provides a framework for freedom of movement and residence within the borders of a state provided the individual abides by the domestic law. It also makes reference to restrictions provided for by law for the protection of national security, law and order, public health and morality. In effect therefore, States appear to have been given the latitude to define national security, law and order and public morality, among others. This, it would appear, has put individu-al States beyond the reach of normal comprehension of law and human rights and, in the process, rendered these laudable objectives nugatory. Among these laudable objectives is the Social Charter of Fundamental Rights in the SADC, whose approval, adoption, signature, ratification and adherence have been problematic. The internal convul-sions in Member States bear testimony to this. The paper examines aspects of the Social Charter of Fundamental through various State examples in order to attest to how certain elements in the makeup of individual SADC Mem-ber States have militated and rendered otiose these laudable efforts such as the Social Charter. This, of course, may be debatable. The Social Charter incorporates through the Employment and Labour Sector of SADC core Interna-tional Labour Organization (ILO) Conventions including Abolition of Forced Labour (29, 105), Freedom of Associ-ation (87, 98), Discrimination in Employment (100, 111) and Minimum Age of Employment (138) among others.

INTRODUCTION The founding SADC Conference was held in Windhoek, Namibia from 26 February to March

2001. At this conference, the Social Charter of Fundamental Rights in the SADC region was adopted and recommended to the SADC Council for approval and subsequent submission for signing by the Heads of State.

The preamble includes among others; “evolution of common political values, systems and institutions ensuring to governments, em-

ployers and workers organizations promotion of labour policies, and practices and measures in member states which facilitate labour mobility, remove distortions in labour markets as well as enhancing industrial harmony. It also enjoins the provision of a framework for regional co-operation in the collection and dissemination of labour market information.”

In this regard, Article I was intended to promote freedom of association and collective bargain-ing as per ILO Convention 87, 98. In furtherance of this, organizational rights of representative unions shall include:

1. The right to access of employer premises for union purposes subject to agreed procedures

2. The right to a check-off system, election of trade union representatives, right to choose and appoint trade union officials

3. The right to have education and training leave 4. The right to disclosure of information

18 Compendium of Key Human Rights Documents of the African Union, Heyns & Killander (eds) 2nd edition (2006) PULP 19 Ibid p.23


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5. Appropriate and easily accessible machinery for quick resolution of dis-putes in essential services should be put in place by governments, employers and trade unions

6. All these shall apply to Export Processing Zones (EPZ) Under Article 2.,SADC Member States shall take appropriate action to ratify and implement rele-vant ILO instruments and as a priority, the aforementioned ILO Conventions.

Further, SADC Member States shall establish regional mechanisms to assist Member States in complying with the ILO reporting system. Article 3 deals with equality of treatment for men and women consistent with the relevant ILO conventions, among others, with regard to access to em-ployment, remuneration, working conditions, vocational training and career development. Article 8 deals with improvement of working conditions including paid leave, compensation for over-time and shift work among others.

Article 9 focuses on protection of health, safety and environment in line with ILO Convention 155 in tandem with the provision of social security benefits and protection under Article 7. These should be understood to imply access to information on workplace hazards, training, work stop-page in the face of risks and threats to life, compensation for illness and injury and rehabilitation.

Article 10 enjoins Member States to create an enabling environment for industrial and work-place democracy, information, consultation and participation by all parties in restructuring and organizational social responsibility. While Article 11 deals with decent standards of wages and living, Article 13 emphasises that the onus of the implementation of the SADC Social Char-ter lies with the national tripartite institutions and other existing regional structures. Most im-portantly, Member States shall bear responsibility for the adoption of social legislations prevent-ing non-implementation and regional equitable growth resulting in “social-dumping”. However, the Charter can only come into force upon the signature (ratification) by Member States.20

This paper adopts a “law in context” and process approach derived from the guiding principles of socio-legal studies. It posits that Nation-States with colonial antecedents often find themselves in a path-dependent trap. Path dependency is a system that makes it undesirable to shake off the effects of past events and the isolated lessons there from. These help to lend credence to certain conclusions along the historical continuum. Such conclusions may be seen as having resulted in predictable equilibrium and stability. The status quo ante, for whatever it is worth, assumes a prophetic dimension even though untested.21

In such a situation, precedent of any type, once unanimously recognised as a pointer, becomes a decision making instrument. For example, worker formations are perceived as congenitally troublesome and pathological “communists”.22and so should be closely controlled.

This paper uses two countries, Botswana and Swaziland, as case studies. It posits that culture, tradition and politics form an amalgam that creates a constellation of social groups that see their mutual survival as paramount and pitted against other social forces out to destroy their hegemo-ny. Having inherited positions of authority, power and largess, it is a duty to ensure that the cote-rie is not infiltrated, whether in the quest to assuage the thirst for democratic participation or a legitimate claim to a re-distribution of national resources.

Co-optation, reward and ultimately coercive authority become part of the arsenal to buttress entrenched positions or ward off potential interlopers. Notions of good governance, democracy,

20 Article 14 Social Charter of Fundamental Rights in the SADC 21 Mattei, U.A. et al, Comparative Law and Economics (1999) 0560 JEL p.521 22 Heiner, A. (1986) Imperfect Decisions and the Law: On the Evolution of Legal Precedent Rules 15 Journal of Legal Studies pp.227-262


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human rights or international norms are not allowed to mediate concretized attitudes and percep-tions.

Swaziland, as a case in point, has a constitution (2005) which has been systematically vandal-ized through royal decrees. With a semi-feudal tinkhundla system based on chiefly power, it cur-rently has a per capita income of $2,907.The Parliamentary system or libadla is bicameral. The King appoints 20 members of the Senate and the other 10 come via the House of Assembly. The House of Assembly has 55 members elected and the King appoints 10.

The labour law regime boasts of a codified Industrial Relations Act that comprises an Industri-al Court System, a Panel of Mediators and Arbitrators, Joint Industrial Councils and Collective Agreement Provisions, Compulsory Arbitration of Interest Disputes ,an Essential services by Commission, Codes and Guidelines, an active Department of Labour and a Tripartite Commis-sion on Conciliation, Mediation and Arbitration. These are standard features of any modern la-bour law regime. How they function is the issue.

Botswana, our second case study, has a multi-party democratic system which, given the dismal performance of the opposition parties over the years, can best be described as a de facto one par-ty state. It has a constitution crafted at independence in 1966 and which has remained largely un-touched till recently. Even then, this has been due mainly to the furore over the powers of the President who, among other things, is both the Head of State and Head of Government. It also has similar structures as in Swaziland.

The National Assembly comprises 57 directly elected members, 4 co-opted or specially elected members and 2 ex-officio members being the President and the Attorney general. The Botswana state presides over a free market economy with stark rural dependence on remittances from wage labour in the urban areas. The state, by default, is the largest employer and this, one might say, has precipitated a preoccupation with an interventionist labour legislation framework.

Needless to say, the labour agitations in 1972, 1974, 1975 and 1991 have made the state overly sensitive to grand neo-liberal labour legislation and internationalization of standards and so ex-hibits a cautiousness with ILO demands.

Botswana is a study in the constellation of peak social formations; political, traditional and the bureaucratic elite. This state manifests all the trappings of path-dependency and statism, an in-creasing institutionalization of privilege, socio-economic disparities and extreme poverty in the midst of pockets of affluence.

The political machinery of state may not perceive this, inured over time to this context of reali-ty as it may be. Legislation as a dominant activity of the state could thus become instrumental in further polarization and dislocation of social formations. It is recalled that there was a declaration in 1969 that labour legislation was intended to “provide for the control and regulation of trade unions, lay down procedures for settling labour disputes and for enquiries into trade disputes and industrial conditions and permit the regulation of wages and conditions of employment in the industry.”23

In passing the motion on “Legal Action Against Unjustified Strikes” the declared objective was “legislative action to prevent workers in both public and private sectors of the economy from the coming out on and remaining on sudden ill-considered and unjustified strikes”.24

The Botswana situation offers a study along the continuum of legislative rule making driven by a past redolent with repression and emasculated efforts at changing the status quo and therefore a

23 Hansard BNB 1737 p.39 National Archives per Sir Seretse Khama 24 Catchpole, F.C. (1960) Report on Labour Legislation in the Bechuanaland Protectorate to the Commonwealth Relations Office. Circular No. BBS 252/2.19/2/1960 BNB 622, National Archives, Botswana


29

perceived need to hasten slowly. While desirous of not courting the opprobrium of international opinion and therefore not as overtly repressive as the Swazi state, there appears an unintended commonality in results as the paper will demonstrate.

In the next section, the paper examines the Swazi state machinery in action in the terrain of la-bour legislation and policy. The question to answer finally is whether the Social Charter of SADC could ever become an instrument of regional integration.

UNDERSTANDING THE SWAZILAND FACTOR It would appear that certain states do not see the need for adhering to these lofty ideals and by

extension the need for regional integration. For example, the persecution of trade unionists is considered a normal state of affairs in Swaziland.

The genesis of the dominance of the state in all spheres of socio-economic life in Swaziland is traceable to the Proclamation of 12 April 1973 which repealed the 1968 Constitution. A survey of the rationale, scope and ramifications of this singular act provides a window into the Swazi state. In pursuit of the prerogative of statism, the 1973 decree (No. 6(a)) vested all land and rights in and to land in the King rather than the government. In effect, the state, the traditional elite and the accompanying cultural and ideological paraphernalia became the most potent oppo-nents of a functional acceptable labour law regime as envisaged by the Charter.

Statism per se is a multi-faceted construct in which the delineation between the state and a government becomes blurred. Statism thus connotes a coalition of peak social groups25, a domi-nance and centrality of the peak social groups in policy formulation, implementation, distribution of resources and the generation of the coercive social instruments needed to facilitate the realiza-tion of selective goals. This is done through order and stability.26

Statism is a process-oriented concept which also examines the state in action, its institutional mechanisms and failures. As a prime mover, the state defines and dictates socio-economic occur-rences and its relations with other social formations such as Labour.27 This statism implies pat-terns of institutionalization, structures of dominance, instruments of legal, administrative rule making, implementation and enforcement. Therefore, the interventionist role of the state in la-bour relations is motivated by self-preservation and maintenance of the status quo.

From the foregoing, it is natural for the Swazi state embodied by the King to assume supreme power and vest in himself all legislative and executive powers (S3). Since then, all laws except the Constitution may be re-enforced, subject to modifications, adaptations, qualifications and ex-ceptions not so as to conform with international standards but with ensuing decrees (S.3 (b)).

As per Decree No.2, the King-in-Council may, whenever it is deemed in the public interest, or-der the detention of any person for a period not exceeding sixty days in respect of any one order. Consecutive orders may be issued as necessary and no Court shall have the power too enquire into such an order or any detention. At this juncture, one can say that even that early, freedom of association and the right to organize were dealt a mortal blow.

Decrees No. 11 and 12 proceeded to curb processions, demonstrations and meetings unless po-lice permission is sought. The values enunciated in the Social Charter are by their very nature political. Along the continuum of the evolution of labour law in Swaziland, the Government ex-pressed its intention in 1994 to amend relevant legislation including the Industrial Relations Act

25 Ntumy E.K.B. (2004) The State, Labour Related Policy and The Worker: A Historical Perspective (1885-1985) Lesotho Law Journal 26 Chazan E. Et al (1992) Politics and Society In Contemporary Africa, Lynne Rainner Publishers Colorado p.21 27 Ntumy E.K.B (2005) Statism, Labour and Labour Policy in Southern Africa: (1984 – 2004), Lesotho Law Journal Vol. 15 No.1 p.35


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(1980), ostensibly to comply with the ILO Conventions. A tripartite forum including the Swazi-land Federation of Trade Unions (SFTU) provided a protocol to avoid the number of restrictions imposed in the proposed Bill. Though the bill ignored the 65 proposed amendments, it was rushed through and assented to in January 1996. Given the vociferous opposition of the SFTU, a new Act was passed in 1998.28

The individual observations of the Committee on Enforcement and Application of Conventions and Regulations noted that IRA No.8 (2000) modified Sections 29, 40 and 52 of the IRA (2000) and promulgated a Decree (No.2 Proclamation of 2001) and thus changed the provisions of Con-vention 87.To accede to these observations, Decree No.3 (2001) was promulgated to repeal No.2 in its entirety.

Despite these changes, the Committee noted the lengthy procedure and excessive balloting re-quirements for holding peaceful protest, under Section 40 (IRA 2000) and the withdrawal of immunity from civil liability to malicious, criminal and delictual acts by unions and federations of workers.29In addition, the Committee argued for prison services to be de-listed from defence forces and although this was done, they were immediately exempted under the definition of em-ployees in the employment Act (S.5 2001).This is similar to the situation in Botswana.

The sum total of all these protracted play was a clear demonstration of the reluctance of the Government to give meaning to the wording and the letter of the relevant ILO Conventions such as was clear from Sections 70, 82, 85 and 86 of IRA (2000).

The case of the Swaziland Government v the Swaziland Federation of Trade Unions (SFTU) is a clear pointer.30 The Swazi Government had filed an application seeking an order to:

1. declare the protest action called in Notices of 21/12/2002 as unlawful 2. interdict and restrain Respondents from embarking on, supporting or par-

ticipating in the aforesaid action on 23 and 24 January 2003 3. interdict and restrain the Respondents from calling their affiliates and

members to participate or otherwise be involved in the said protest action 4. interdict and restrain the Respondents from any conduct in furtherance of

the said protest action 5. declare than any person or organization or Federation which took part in

the protest action of 19th and 20th December 2002 and intended to take part in the pro-test action scheduled for 23rd and 24th January 2003 will not enjoy the protection con-ferred by the IRA (No.1) of 2000

In their answering affidavit, the Respondents raised the following points in limine: 1. that the Applicant was abusing the judicial process as the matter was sub-

stantially the same as the case No. 347/02 which was dismissed with costs. The appli-cation was therefore ipso injure, res judicata;

2. the Applicant’s attorney had no legal rights as they were not duly regis-tered as per Section 30 of the Legal Practitioners Act (No. 5 of 1954);

3. that the grounds for interdiction were not justified as contemplated by S. 40 of IRA (2000) which had been fully complied with;

4. that he who comes to equity must do so with clean hands, which was not the case in the instance.

In its ruling of 1st January 2003, the court held that (among others):

28 Case No. 1884 ILO Governing Body Interim Report 29 CEACR, ILOLEX Fe 7/2002 30 Case No. IC 349/02


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1. the Applicant was not in contempt of court in issuing a statement read by the Prime Minister

2. the social and economic relevance of the two matters held in contention fell within the ambit of Section 40 (of IRA 2001). These concerned the conscious as-sault on the Rule of Law by the State and the misuse of taxpayers’ money to purchase an extravagant jet in these lean times; there was thus no merit in an application for an interdict.

In other cases, the court was convened at 9.00 pm with only the court President in attendance even though there were not certificates of urgency. In fact, various parts of the IRA have been interpreted to favour the State.31 Between 1997 and April 2011, there have been several cases of intimidation and police brutality and repression.32

The question therefore is, given this psychological make-up and cultural orientation, can the Swaziland Government ratify the SADC Social Charter of Fundamental Rights in all its ramifi-cations? Assuming it does, would she adhere to the principles espoused?

It is recalled that the 1963 strikes were crushed by the Gordon Highlanders from Kenya. The state had been so rattled that it strategically ratified several ILO conventions thereafter. In tan-dem, it also then predictably set out to impose an indigenous form of industrial relations struc-tures rather than invite the ILO to assist. It established workers representatives or Ndunas and later Ndabazabantus. These were appointees of the Swazi National Council sent to major enter-prises as liaison officers on the payroll of these enterprises. The structures and the philosophy energising them failed. They were suspected as spies rather than advocates of good workplace relations.33

To a large extent therefore, the attitude of the state towards labour and labour relations has been antagonistic and at best paternalistic. The mediating institution of the Department of La-bour, being an agent of the state finds itself in the position of a dubious arbiter between the en-trenched positions of the employer and employee and the often politically motivated machina-tions of the state.

In December 2002, the Swaziland Federation of Trade Unions (SFTU) called a 48-hour general strike in protest at the anti-union and undemocratic policies f the government. This course of ac-tion was prompted by the worsening ruthlessness of the government, the serious unemployment problem and the refusal of the King’s palace to abide by two key Court of appeal rulings. This resulted in the resignation of six Appeal Court judges.

The ILO itself has criticized the regime for violating trade union rights including the incessant detentions of the SFTU General Secretary, Jan Sithole. It would appear that though the SFTU has over the years sought a platform for social dialogue, the government appears to prefer con-frontation, selective austerity and a generally unstable economic environment.34

It is observed however that the bureaucratic machinery, particularly the Department of Labour, is inured to the problems that militate against a salutary effect of labour legislation on the ground. While the state engages in its strategic emasculatory programme, the Department is aware that most employees are poorly informed while employers, given their background and 31 Swaziland Government v SFTU, SFL (Case No. 347/02); Swaziland Hotel and Catering Workers Union v Swazi-land SPA Holdings Ltd. (Case No. IC 1/90) 32 AR/55/003/1997, AFR 55/003/2002; IOR/42/001/2000, ACT 30/001/2011; AFR 55/005/2010, Africafocus (110325) 33 Akinnusi, D.M. (1996) Industrial Relations and the Development of Swaziland SAJLR Vol. 20/4 Summer 1996 pp.22-35, p.24 34 ICFU – [email protected]


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affinity with the state, are quite familiar with and also cocooned in the knowledge of their part-nership with the traditional political elite.35

Moreover, the area of legislation most problematic to workers and unions is the comprehension and interpretation of the real import of the law. However, while it seems workers generally feel that ILO standards are crucial for stability, the state appears not to think so. Similarly, the staff of the Department of Labour do not see separate pockets of legislative evolution in SADC as being in the long-term interest of the sub-region. To this extent, just like their counterparts in Botswa-na, approximation of domestic legislation to ILO Conventions is neither a difficult nor an expen-sive process.36

There is a strong agreement on the need to begin moving towards standardization of labour laws implied in regional integration though specific reasons have not been adduced.37 There is strong disagreement to the notion that domestic labour laws are tools for the state and employers to control and regulate employee’s potential for demonstrating his collective countervailing power.38

In view of recent developments in Swaziland, it is not surprising that there is an undeserved perception that the courts of law have been accomplices in creating the view that collective em-ployment law is a tool for the rigid control and regulation of workplace relations.

Amidst an atmosphere of poor communication, arrogance, indiscipline and mistrust, the De-partment of Labour has at least been able to observe objectively that “authorities in Swaziland still view trade unions as political organizations”.39 Thus, adversarialism and entrenched posi-tioning and posturing rather than negotiation and consensus building have created a disempower-ing environment within which labour law as envisaged by the ILO cannot flourish and perhaps may not be intended to flourish.

Regarding harmonization of the legal framework for labour law, the internal political economy and socio-economic conditions in Swaziland do not create a situation where a logical corollary such as cross-border migration could be permitted, assuming that there was a common legal framework. Given the tight control over social formations in Swaziland, Botswana, with its open, liberal economy and stable political system could prove too strong an attraction for Swazi skilled labour. Social dumping could become the inevitable outcome playing into the hands of agents of globalization, expropriation and exploitation.

The Botswana Situation The months of October and November 2002 saw an upsurge in labour agitation driven largely

by economistic demands over pay structures, unfulfilled promises and protracted implementation of policies. The amalgam of teachers unions and associations are undertaking intermittent demonstrations and industrial action. The Botswana Unified Local Government Service Associa-tion (BULGASA) and the public service at large have just embarked on another ten-day strike. The Academic and Senior Staff Union (UBASSU) of the University of Botswana was recently on strike over inflationary adjustment payment. A compromise solution has since been negotiat-ed. Though interdicted by an interim court order, they had earlier mounted a more co-ordinated, holistic assault on the management framework, least of all for its non-consultational and authori-tarian disposition.

35 Question 8 (Questionnaire for Officers) 36 Question 16 (Questionnaire for Officers) 37 Question 19 (Questionnaire for Officers) 38 Question 22 (Questionnaire for Officers) 39 Ibid. supra p.29


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The Nurses with the Public Health System are in a similar mood.40 Various members of Par-liament and Cabinet have supported and criticized these actions. One the one hand, they are seen as scaring away investors and on the other are reflections of governmental ineptitude, indiffer-ence and complacency.41 Both the Permanent Secretary in the Ministry of Labour and Home Af-fairs and the Minister of health have provided selective interpretation of the right to strike by es-sential services whose effect is to individualize the grievance, locate it at the level of the personal employment contract and thus accentuate the vulnerability of the workers.

It is recognised that management plays a critical role in labour relations. However, this study could not afford a large quantitative survey to ascertain this fact. The opinion of a few in strate-gic organizations crucial to the economic interest of the state were polled. The purpose was not to present a dominant statistical derivative but to reflect perceptions that help elucidate the sup-port the state expects and derives from key business interests. The twelve officers interviewed were Batswana with educational qualifications ranging from Ordinary School Leaving Certifi-cate to undergraduate studies. Their lengths of service were as fresh as 9 months and as long as 22 years. Some have stagnated at the same rank for 4, 5 and 6 years for no apparent reason.

Among them, it is generally agreed that workers and their unions demonstrate low familiarity with labour legislation with the employer doing virtually nothing to facilitate the acquisition of such knowledge. In fact, it is felt that employers rely more on lawyers who emphasise statutory rights and litigation rather than negotiation and the protection of employee interests.

On occasion, the employer ignores industrial court rulings and exhibits incapacity to interpret rules and provisions, knowing, it seems, that its economic clout would result in government pro-tection. As a result, labour legislation is viewed as supportive of the employer who uses the “management” clause to exclude employees from union membership. Moreover, the questiona-ble designation of “management” has been extended even to lowly placed support staff.

A former Secretary to a General Manager who had been excluded form union membership be-cause of her position was allegedly given an allowance and then instructed to attend union meet-ings so as to inform on them. in the event of disputes, she was usually instructed at night to type changes to policy so that when the union tendered its copy, there would be disparities. However, more importantly, it is alleged that given the general ignorance about ILO Conventions, employ-ers engage in victimization, often punishing employees with the “disclosure of information” clause.42

If the goal is labour peace, stability and economic development, then the state could not be said to be achieving this goal. A research report by Partnership Research Institute of Canada says di-amond revenue has been used to serve only the state coalition while most citizens live in poverty, illiteracy and are faced with dwindling life expectancy.43

The United Nations Development Programme (UNDP) in its annual Human Index Report commented;

“In pure economic terms, diamonds have resulted in Botswana having higher economic growth rates than any other country in the world over the past thirty years, however, in terms of social indicators, Botswana has performed relatively poorly. In 2000, Botswana’s adult literacy rate

40 Mmegi (2002) Vol 19 No.46 22-28 November p.1-2 41 Interaction with Botswana Diamond Valuers and Sorters Union Members 42 Interaction with Botswana Diamond Valuers and Sorters Union Members 43 The Botswana Gazette (2 April 2003) p.1


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was 72% compared to Zimbabwe’s 89%, life expectancy at birth was a lowly 40 compared to Sudan’s 56.”44

STATE INTERVENTION AND TRADE DISPUTES RESOLUTION LAW IN BOTSWANA

The purpose of this section is to examine the current legal regime. This will help in a better ap-preciation of the possible failure of private approaches and the almost uniform reference, albeit in passing, to labour legislation. This is also because analytically, it provides a window into the Swaziland situation given that both the Industrial Relations Act and the Employment Act origi-nate mainly for ILO advisory input.

This section will be restricted to the Employment Act only, because it provides a prescriptive cover under which employment relations generating disputes are actualized. The scope of the Act would suggest that, within the framework of formal employment, there is ample statutory protec-tion even if implementation and enforcement may be lacking. It would suggest then that the in-formal sector needs to be reined in somehow through direct central intervention. This then justi-fies the examination of some of the key aspects of the statute. It also explains why there are some references to the Workers compensation Act.45

The Employment Act This Act defines and employee as a person who enters into a contract of employment for the

hire of his labour. A casual employee is defined as an employee whose terms of contract are for a period of not more than twelve months and limiting work time to three days or twenty-two and a half hours a week.46 It follows then that, particularly in the informal construction sector, most people working on fixed period projects would only be referred to as casual employees.

Regarding work security and compensation, the word worker becomes important. It is defined as a person who “has entered into or works under a contract of employment” without reference to time.47 It follows then that casual and part time workers fall within the definitive ambit of exist-ing legislation. Moreover, they are also subject to minimum wage orders48 and the same statutory working time.49 Furthermore, any worker or employee in this context is prohibited from overtime work beyond the stipulated maximum of 14 hours per week.50

Furthermore, workers have employment cards and records are to be kept by their employers. Indeed, the Minister is empowered to establish a Casual Workers Committee and to cause to be opened and kept, a register of casual employees.51 It is therefore not correct to say workers in the informal sector cannot be or are not protected by law. Even regarding the issue of severance ben-efits after five years or 60 months of continuous service, this is not gratuity or a terminal benefit. Such entitlements, where they exist, could be variously calculated pro rata.52

To all intents and purposes therefore, a worker or employee is a provider of personal, legiti-mate service over a given period, at prescribed locations, under control whether there is a writ-ten, oral or express contract. Essentially, there must exist a work relationship rather than issues

44 Ibid 45 No.3 of 1998 46 Part 1 Preliminary Cap 47:01 47 Part 1 Preliminary Act No.23 of 1998 48 S.138 ss2,3 49 Ibid 50 S.95 ss5,7 51 S. 154 52 S.27 Employment Act [Cap 47:01]


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of legality or enforceability of a contract.53 The underlying contention is that, disputes do ema-nate from these and other seemingly innocuous issues.

Terms and Conditions of Contract Terms are usually voluntary, collective or statutory although in most cases they are character-

ised by a large element of predetermination or a compelling need for work. Contracts may be either express, oral or written. There is therefore no legal requirement that an employment con-tract be formal or in written form.54 There are accompanying reciprocal duties and obligations such as the provision of work,55 payment of wages, wage periods56 and liabilities for non-performance. For example, in the case of Kenosi v Westhynd Security, the Industrial Court con-cluded that the unilateral absence from work without official permit and refusal to comply with rules relating to such absences amounted to repudiation of the contract of employment. It there-fore withheld the termination of the contract by the employer.57

With regard to variation of terms, there must be a valid reason deriving from genuine commer-cial rationale, legality and consensus. There must be evidence of fair procedure implying non - abitrariness, opportunity to contest and bargaining to deadlock.

Sections 18 and 19 specifically deal with termination with notice or payment in lieu of notice. In the case of Moyo v Kgolagano College, the Industrial Court reiterated these conditions when Moyo sought to challenge the variation of the terms of his renewed contract. In the previous con-tract, it was agreed that either party could give a three month notice or payment of same in salary in lieu of notice. However, in the second contract, the employer retained the notice period but sought to reduce the payment in lieu period to a month which Moyo contested. The Industrial Court upheld Moyo’s contestation that such contestation was unlawful because a notice period cannot be different from the corresponding period of payment in lieu of notice.58

Wages are a fertile ground for disputes which may be based on both quantity and quality. The incidents occur more in the areas of small, medium and micro enterprises that abound in the in-formal sector. The construction industry is no exception. In the light of this, the following survey deals with minimum wages.

The fourth schedule of the employment Act provides the sections of industries for which a ministerial order regarding minimum wages may be made. The Minimum Wags Advisory Board (MWAB) makes recommendations which the Minister may accept.59 The Minister may, by no-tice in the Gazette, vary or revise such orders. Such orders are to be openly exhibited in business premises in a language that the workers understand.60

The Act provides that wages and conditions may be varied by mutual agreement but such vari-ation must not be prejudicial to the employee and in conflict with the contents of an order.61 In furtherance of this, partial work must be paid for as per work done.62 In the event of a judgement

53 S. 3 (4) workers Compensation Act Op Cit 54 S.31, 41, 43 55 S.16 56 S.74, 75, 76, 77, 78, 85 57 S.21, 22 Kenosi v Westhynd Security [IC 1994] 58 Moyo v Kgolagano College [IC 33/95] 59 SI 38(2) p.4-5 and SI 32 of 2001 p.18 60 SI 152 (2) 61 SI 38 2(1) (3) and SI 40(2) 62 S. 90 [Cap 47:01]


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debt, priority must be given to outstanding wages.63 A similar provision is made with regard to the employer becoming insolvent.64

Section 85 prohibits the payment of wages near liquor shops or other sales outlets. However, Section 86 permits the employer to open shops from which the employees may buy provided they are not coerced to do so. The question then is whether constant indebtedness through credit sales is not a form of exploitable dependency.

Termination of the employment contract is another potent source of disputes. Generally grounds for termination may include operational requirements which may result in retrench-ments. Specific procedures are prescribed for this event.65 The transfer of on-going businesses attract their statutory prescriptions in relation to employee rights.66 Liquidation and protected insolvency have been re-defined relative to the protection of wages.67

Employment contracts come to an end due to lapse of fixed terms or they may be based on pro-ject specifics.68 Long term contracts may come to an end due to retirement, resignation, mutual termination or breach of the terms and conditions of contract. In addition, termination may also result from completed performance, discharge, set-off or repudiation. Furthermore, termination could occur due to a merger, the death of a principal or termination of probation as under Section 20.

Section 106 of the Employment Act empowers the Minister to exclude any occupation forming part of an industrial or agricultural undertaking from the purview of the Act. It is possible there-fore that one might find workers labouring under various conditions on farms. It is noted that al-ready Section 43 requiring medical examination and certification is not applicable in agricultural undertakings. This exclusion also applies to Section 96 which sets the mandatory maximum hours of work at 48 hours in any 7-day week with 30 minutes rest after every 5 consecutive hours.

Section 99 deals with paid leave for workers in agricultural undertakings and provides that such a worker be granted 1 ½ working days leave after 1 month’s continuous employment. Sec-tion 100 regarding paid statutory holidays also does not apply to such undertakings. In the case of domestic servants also, Section 96 as above does not apply save a proviso that prohibits such work for more than 60 hours a week.69 The Assistant Commissioner of Labour (Industrial Rela-tions) is charge with oversight for working time. this in turn implies that all the Labour Offices in the country have direct responsibility for ensuring that working time regulations are adhered to.

The Employment (Miscellaneous Provisions) Regulations as per Section 175 of the Employ-ment Act enjoins all employers to keep records on employees in several areas including particu-lars of weekly rest period, paid public holidays, paid sick leave, weekly and daily hours of work and the number of working days leave with basic pay to which the worker is entitled.70 Under these regulations, it is the duty of the District Labour Officer to collect labour statistics and com-pile these by industrial, commercial and domestic sectors.71

63 S.91 64 S.92 A 65 S.25 66 S.29 67 S.92 A 68 S.17 69 Section 107(2) (b) 70 Regulation 14 71 Regulation 16


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Section 172 (b) prescribes penalties for non-compliance with the provisions of Part VIII of the Employment Act. It categorises this into rest periods, hours of work, holidays and other condi-tions of work. To this extent, it begins by differentiating between permanent and pensionable employees, fixed-term contract employees and casual employees. Section 96 provides, in respect of hours of work, that an employee shall not be required to work more than 5 consecutive hours without a rest stop of 30 minutes or more than 48 hours in any one week.

These carry the proviso that a worker could work for 8 consecutive hours where this is neces-sary with a rest period of at least 45 minutes in aggregate including the opportunity to have a meal. Where the working week is 5 days, the hours of each day may be increased to 9 hours with an aggregate rest period of 1 hour including meal time.

Section 94 provides that every employee shall be granted 24 hours consecutive rest period from work inclusive of or being Sunday. Where the employee is engaged in shift work, the rest period shall be any period of 30 consecutive hours. The commissioner of Labour may exempt an employer from these prescriptions under particular circumstances. Where rest periods include days other than Sundays, a monthly roster shall be prepared for the employee.

Payment for work during a mutually agreed rest period shall be double the hourly wages for normal work or at his option, the worker may be granted a day or days off as the case may be, in lieu thereof.

An employee may be required by his employer to exceed the limit of hours or to work during rest period if there is an accident or a threatened one, the work is essential for “the life of the community”, the work is essential for national defence or security, urgent work is to be done to machinery or plant, there has been an unforeseeable interruption of work, the Minister declares the work to be vital to the economy of Botswana or an essential service. This is on condition that another rest period is granted in lieu before the next normal period of rest is due.

The Employment Act further provides that where a contract of employment provides that wag-es be paid without regard to hours of work or overtime but such overtime is requested in excep-tional cases the worker shall not be paid for the overtime. However, no employee shall be re-quired to work overtime for more than 14 hours in any one week or for more than 12 hours in any one ordinary day except under the circumstances as covered above by Section 96.

The Act provides that while the Minister may prescribe the number of hours generally for over-time work, the Commissioner of Labour can permit the engagement of any worker for more than 14 hours overtime in a week orally or in writing. He may do the same with regard to normal working hours under the same Section 96.

Specific prescriptions deal with shift work. Under Section 98 and regardless of other provi-sions, employees engaged in regular shift work may be required to work more than 5 consecutive hours without rest and more than 8 hours a day or more than 48 hours a week with a monthly weekly average of 48 hours. An employee contracted for regular shift work shall be paid in re-spect of those hours worked in excess of the average 48 hour week. The same provision also ex-cludes from its scope, any agreement entered into for job specific remuneration without reference to time.

Regarding paid leave, the basic ground rule is that this shall be calculated at 1 ½ days a month of basic pay. In respect of leave accumulated prior to termination, this shall be paid after the mandatory leave days have been accounted for. Each public holiday shall be a paid holiday at-tracting double wages where these are forfeited in lieu of work as may be required.


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A child is defined as anyone below 15 years, the implication being that young persons may be employed and exploited.72 To determine therefore whether the Minimum Age Convention (No.138) regarding the effect abolition of child labour by raising the minimum age is flouted needs a re-look at the definition of child as per the Employment Act, the environmental dictates of households and international expectations.

However, the Employment Act as it stands also prohibits the engagement of children (below 15 years) or young persons (15-17 years) at night in any kind of work except in an emergency or if one is an apprentice. For this purpose, children’s night prohibition is between 10p.m. and 6a.m. and for young persons, 11p.m. to 6a.m. Generally these categories of persons, where employed, should not in the case of a child be for more than 3 consecutive hours without a rest period of 30 minutes. They are also not expected to work for more than 7 hours a day. A school-going child of 14 years on holiday may be employed on light work for 5 hours a day between 6a.m. and 4p.m. In any case, no child shall be employed for more than 6 hours a day or 30 hours a week.

This brief survey, as earlier stated, was intended to open up aspects of the statutory environ-ment of work and the myriad issues around which disputes could be generated, triggered and around which labour disputes could also coalesce. It is not industry specific as work relations, as demonstrated, are cross-sectoral. There is therefore a broad spectrum of labour disputes that are common to any work processes involving groups of people and tripartite interests with the law itself as one of the key causes.

It is critical to examine the role of the courts outside the precincts of the workplace in Botswa-na. A seminal case is that of Botswana Power Corporation Workers Union and Botswana Power Corporation(Civil Appeal No.42 of 1998, Industrial Court Case No.IC136 of 1996)

The question at issue was whether certain categories of employees of the Corporation could be excluded from unionization. Since the appeal was dismissed ,we focus attention on the ruling of the Industrial Court. The relief sought was as stated below:

1. that since those categories of workers declared as being part of as the management as de-fined in section 60 of the employment Act could not be members of the appellant union in em-ployer-employee matter and relations.

2. and that since such must join their own union of management staff, 3. therefore s.60 is contrary to Article 3 clause(b) and Article 13(1) of the constitution of Bot-

swana 4. that s.60 must be narrowly construed in terms of those actually engaged injobs that are

managerial in character 5. ipso facto, grades 8-17 be declared unionizable In its ruling, the court, in its obiter dicta said: 1. challenging the validity of an Act of Parliament under the constitution is a serious matter, 2. it challenges the collective wisdom of Parliament, 3. such challenge, if successful would unsettle and disrupt settled arrangements and processes

nationwide, It therefore ruled that:

1. since those excluded by the provisions have not complained, the union cannot do so on their behalf,

2. that though Article 12(1) of the constitution appears to grant absolute protection, such is derogated frombyArticle13(2), specifically(b)and (d)

72 Ibid


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3. that restriction of membership under (b) is necessary to safeguard the rights of the employer,

4. that collective bargaining involves two parties with different aims, objectives, goals and strategies and that their expectations from the bargaining process are therefore not necessarily the same,

5. that section 60(2) (a) and(b)should be read together and (c)separately, 6. furthermore, the relationship unions and employers, including the collective bar-

gaining process is governed not by a corporate law but by the Trade Unions and Employ-ers Organizations Act including BPC staff, therefore “management” is not determined by corporate structure but by legislative definition.

7. That the constitution intended that Parliament should have certain powers as in section 60 of the Act to impose certain restrictions,

8. Therefore Article 13 of the constitution in it totality is not inconsistent with s.60 of the Trade Unions and Employers Organizations Act

It is clear then that unlike ground realities in Swaziland, the courts in Botswana are not averse to ruling against employers in routine, mundane matters but are very determined not to be seen at loggerheads with the state machinery.

It is becoming evident that intra-industrial approaches do not significantly differ from main-stream statutory indicators particularly in terms of objectives. The inevitable question of differ-entiation for its sake or harmonisation of processes or even the imposition of a statutory frame-work then resurfaces. Ultimately, dispute resolution reforms in Botswana stand to benefit from global changes and the rich bank of models to select from.

This foregoing account was intended to provide a picture of the statutory environment relative to what is essentially the terrain of discord between one, the employer, and two, the employee. It provides evidence of the interventionist role of the state in an ostensibly private relationship be-tween two parties. On the whole and most importantly, it enables certain observations, deduc-tions and linkages to be made. This section has indicated the trajectory of labour legislation in Botswana over the years. It has also attempted to illustrate the socio-economic effects of legisla-tion on workers by intentionally shifting from abstract labour law polemics.

It is noted that there seems to be a strong agreement that the present system of separate collec-tive employment legislation in each SADC country is necessary for and because of their separate economic, manpower and historical development.73 By implication, the Government does not see regional integration in terms of urgent harmonisation of labour laws or by extension, free move-ment of labour.74 In 2006, Botswana became the eight SADC member to accede to the Protocol on free movement. In explaining the rationale for the decision, the Minister of Labour and Home Affairs indicated that Botswana would first have to align national statutes with the Protocol. He further explained that free movement is not the same as facilitation of free movement and that visa and other requirements would still be needed.75The relevance of this may be tangential but it is indicative of a reluctance to lead the way, a cautiousness about the potential of the “jewel of SADC” being swamped by predators. In fact, the former President expressed deep reservations about the advisability of free movement at this stage.

73 Question Number 14 (Response by Asst. Commissioner for (Industrial Relations) Department of Labour and So-cial Security. 74 Ibid Question 15 75 Botswana Guardian, 18 August 2006 BG News p.5


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The contention that approximation of domestic legislation to ILO Conventions is a difficult and expensive process requiring external specialist input has been dismissed as untenable.76 The question therefore is whether it is the absence of the political will rather than resources. It would appear that the issue is not one of competence but that of a collective will and how the techno-crat/bureaucrats evaluate their advisory roles. This may justify the advisability of marginal in-crementalism.

The answer to this might include our observation that the necessary competence is located at the Attorney General’s department and the externally funded ILO inputs that government would rather use than originate its own approximations. Realistically however, the lower level officers who interact on the street are inadequately trained and left to grapple with legal complexities. While they may possess on-the-job administrative experience, delegating of investigation and resolution of workplace disputes to them is a misplacement of trust. This also explains the per-ception of creeping corruption in their relations with employers.77

The Government itself appears torn between acquisition of an international image of symbolic value and a rapprochement with investors and local capital which may translate into either lesser interventionist policies or the rigidification of labour laws to emasculate unions while liberalising the labour market. We have also observed the tactical but covert penetration of union leaderships along party lines so as to de-radicalize labour. There is also the policy of wage leadership by the state.78 In effect, since government is unwilling to relinquish its central hold on the levers of eco-nomic activity, the alternative is to placate capital through manipulative labour legislation.

Private capital, both local and external, have entrenched Unitarian and monist values with an astute sensitivity to government policy directions. It utilises heavy handedness, dismissals, de-motions, transfers and retrenchments to intimidate and control the workforce. Unions only func-tion after work hours. Officers use up their unpaid leave to attend to union business and operate under the constant threat of ever changing rules for disciplinary action.79

Given this backdrop, it is doubtful whether one should be debating models of integration of le-gal regimes into a common framework. The reason is one of functionality rather than academic suitability. In another way, the question could be whether it is premature for a viable common framework to be mooted.

Regional Integration: The One Best Way? This part of the paper is premised on the intellectualization of issues which, normally, should

be experiencing actualization. Certain fundamentals need to be in place as a pre-condition for this intellectual discourse but precisely because they are not, this is mainly a theoretical and aca-demic engagement.

The societies under examination need fundamental transformation. The key areas are political, social, economic and institutional structures that have been superimposed on the contradictions that characterize them.

The absence of consensual and concerned enthusiasm for holistic modernization and interna-tionalization of labour laws detracts from the purposefulness of the attempt at previewing the Botswana and Swaziland societies as proto-types of a sub-region that accepts and enshrines a common Social Charter into their various constitutional frameworks. This, alongside a Bill of

76 Ibid Question 16 77 Ntumy, E.K.B. (2001) Supra p.37 78 Ntumy, E.K.B. (2000) The State and Industrial Relations in Botswana Op Cit p.104 79 Interview with members of the Botswana Mining Workers Union (BMWU) Jwaneng Mines (2002)


41

rights would have been the common subsets of legislation from which protective mechanisms may emanate.

Unfortunately, the make-up and raison d’etre of governance do not lend credence to a desire to formulate policies and enact legislation whose nodal thrust is the democratization of social de-bate and the concretization of good, meaningful and mutually beneficial industrial relations.

The questions to be answered now is how best can integration, rationalization and harmoniza-tion of the labour law regimes in these countries be effected beyond the perennial, repetitive hy-pothetical exercise. That there is a preliminary role for labour law in the ultimate integration of the SADC sub-region.is beyond debate A key corollary then is the methodology for the attain-ment of this objective.

Formulating and imposing a common framework law such as the Loi Cadre that applied in Francophone West Africa prior to decolonization presupposes a sub-region subject to the same or similar political, administrative and coercive apparatus of state or pseudo-states without ac-cess to sovereign jurisdiction and overriding nationalistic aspirations.

Given that the demonstrated trend is towards compliance with ILO provisions and given also the trajectory towards an ILO driven Social charter, the concern should now be the detailed ap-proximation of these legal frameworks to the principles so enshrined in the Charter. To this ex-tent, harmonization becomes compatible with the end result of commonality which is achievable through not only the adoption but the internalization, application and enforcement of the Charter. Harmonization implies approximation, co-ordination and equalization of content. It is not essen-tial however that all domestic or national labour laws become uniform in content or structure.

It is critical and desirable however, that in their overall effect and enhancement of social jus-tice, they be seen as more convergent than different. The argument of historical, ideological, po-litical and economic dissimilarities do not in themselves justify the adoption of common princi-ples that become more remarkable in their non-applicability than applicability. In fact, for us, approximation is more of regional strategic social partnering than a derogation from sovereignty or exposure to aggressive competitive and deleterious forces. Harmonization implies the rational-ization of social policies to attain a functional balance across the sub-region. This could ensure stabilization of social forces rather than imbalance and dislocation.

The adoption of the Social Charter of Fundamental Rights by the SADC in 2001 may not have been in recognition of an immediate need to harmonize divergent labour laws. Its functional im-portance as a tool for achieving closer affinity of the legal frameworks may therefore appear ac-cidental to some, episodal to others and a threat to some other members of the SADC. It is how-ever, a welcome development that could facilitate the engineering role of labour legislation.

This is because it suggests a functional approach to repositioning social policy at the centre of labour legislation and reprioritising it at the top of the growth and development policy ladder. By so doing, it also seeks to elevate social rights to the protective embrace of the Constitution within a Bill of Rights framework as part of the basket of entrenched rights. This presupposes the exist-ence of an enabling socio-political environment where rights are guaranteed within a constitu-tional framework that defines the ultimate source of legitimate authority.

Thus, were the Social Charter to be ratified, the next hurdle should desirably be to agree collec-tively to elevate it to and integrate it into the constitutional framework either by incorporating it in the Bill of Rights or by recognizing its pre-eminence as the singular embodiment of the peo-ple’s aspirations.

Ideally, this should not be a domestic issue but seen as the benchmark for good governance and peer review within SADC, once its primacy is established within the collegiality of nations at the


42

conclave of the Heads of State, having passed through the Ministerial level of the SADC struc-ture. One could say that local referenda should be held but the conclusions are obvious unless coerced from the society at large.

The next step would then be to determine how its various elements could be addressed either as domestic incorporation into the legal framework or as multi-sectoral and supranational Codes of Practice that are enforceable within the basket of rights available to citizens under a given Con-stitution. This would then obviate the issue of oversight structures such as a SADC Court of Jus-tice as the Charter becomes subsumed within the domestic legal system. In sum, super-structures are in themselves indicative of mutual distrust and do not carry either the emotive force of na-tional consensus or the semblance of inter-State amity.

In this regard, it should be noted that the Charter as currently structured is a compendium and embodiment of the ILO Constitution, principles, ideals and conventions. This lends legitimacy, standardization and internationalization to the Charter and any institutional derivatives there from. In the absence of the Charter, the International Labour Standards (ILS) themselves could, as the current trend depicts, become sufficient as a tool of harmonization. In effect, since history has shown the unwillingness in SADC to ratify and apply ILS even in Botswana and Swaziland, the voluntary adoption of the Social Charter carries the hope that being a SADC creation, it might therefore be more acceptable.

Unlike the perception that ILS are foreign impositions, the Social Charter is an indigenous cre-ation mooted largely by the Employment and Labour Sector of the SADC. It is expected there-fore that in realizing its principles, Protocols on HIV/AIDS, Free Movement and open ,access to labour markets and others will capture the hues and the dynamic realities of the SADC environ-ment.

There is therefore no one best way but an amalgam. Harmonization has different implications and carries varied connotations. Similarly, the tools for its attainment could be an admixture of approaches, blended to reflect the complexities of the SADC society and the interwoven tapestry that the Social Charter attempts to actualize.

CONCLUSION The form of harmonization proposed therefore is a functional synthesis of the following; the

adoption of a Social Charter, a bundle of Regional Codes of Practice, the assimilation of Interna-tional Labour Standards and ultimately a Regional Collective Bargaining Mechanism.

The import of this synthesis is to tap into the best qualities of these tools when it comes to ac-ceptance of a minimum floor of rights that constitute fair labour standards. In addition, it pro-vides a multi-pronged approach to confronting the challenges that will emanate from an objec-tive implementation of the myriad elements of the Charter. It would also equip the SADC with a keen appreciation of the core problems of uniform, acceptable interpretation, implementation and modalities for enforcement domestically or supra-nationally as the case may be.

What is beyond debate is that the evolution of the SADC Social Charter mirrors the direction of current sociology of work and workplace relations. It also seeks to make a statement regarding the necessity for institutional transformation to drive the Social Charter. This implies a new ethos of governance, social partnership, political accountability and a more responsive and inclusive state.

In the course of our discussions, reference has been made tangentially to the European Union and its Directives, Courts and the subordination of EU member domestic laws. To a large extent also, the debate has bee about ILO Conventions. In essence, comparativism has tended to suggest models and an appreciation of their evolution, difficulties, successes and the accompanying la-


43

bour law framework and jurisprudence. The conclusion is that Africa in general and the sub-region in particular has not produced any comparative models. In effect, Africa is simply open to the persuasive influences of external and foreign models.

This raises the question of whether there is the need for Africanizing or indigenizing regional integration through local ownership of the labour law framework. Globalization has not removed Americanization or Europeanization of Protocols. However, internationalization may suggest emphasis on functionality rather than symbolic ownership. This does not imply an abdication of responsibility for local analysis, strategies and the production of methods that reflect a sensitivity to an acculturation towards a consultative process as a result of which, foreign models may be accepted.

While local solutions to local problems may be desirable, the norms, precepts, institutions and ideology that energize the workplace as a socialized, bureaucratically organized process are in themselves foreign. The socialization of production, employment contracts and capitalization are in themselves at once foreign and also descriptive of the institutional mechanisms that define even developing and underdeveloped economies such as found in the SADC sub-region. What is required then is not an abnegation of these models but an adaptation, perhaps a transformation of the philosophy, institutions, structures and the raison d’etre of labour law in SADC in general and Botswana and Swaziland in particular.

In asking for an Africanized role for labour legislation, the concern is mainly one of identifying afresh, the objectives of juridification in relation to the particular environment. The preamble of the SADC Social Charter refers to the promotion of the formulation and harmonization of legal, economic, social and labour policies, measures and practices whose end is to facilitate labour mobility and social justice. As such, blanket importation of Conventions and norms per se is not anticipated. Rather, a selective array of inputs that have relevance and meaning to the local situa-tion is envisaged. For example, unlike the EU, even cross-border migration of labour is not of immediate concern to SADC and therefore labour legislation should not seek to cover that as a matter of urgency as opposed to freedom of association in all its ramifications. In this instance, the local labour law would seek to underscore the collective role of trade unions, given the low levels of education and market vulnerability of workers. It would therefore not adopt the individ-ualistic approach of the EU as a model but rather the collectivist model of the ILO.

In seeking to provide Guidelines, Protocols and Codes for example, the labour law framework would recognise the scourge of HIV/AIDS, poverty, the extended family system, economism and how these are affected by reward structures, levels and why wage-driven industrial action is prevalent. It would also recognise and deal with child labour, exploitation of women and prema-ture ageing among other demanding areas of social welfare and development.

Instead of laws aimed at rigid control of unions, labour legislation would seek to enhance the training of union leaders in recognition of the key role of informed bargaining in the arena of good industrial relations. It would also remove prescriptive qualifications on workers’ compensa-tion for work related disease and accidents and also claims on the estates of insolvent employers. In providing Guidelines and Procedures, the labour law regime would deal more with alternate dispute resolution rather than neo-liberal concepts of private contract. To this extent, it would also advocate less adversarialism, less criminalization of worker lapses and equally less quasi-judicial role for Politicians and Administrators in workplace affairs.

It is these sensitivities that would, while achieving international standards, characterize and de-fine the Africanness of the labour law regime in question. The key therefore lies in attitudinal transformation and a commitment to improving local living standards through the mechanisms of


44

the law rather than opening new frontiers for the more invidious forms of globalization as repre-sented by international finance capital and its multi-national conglomerates.

Equally important for the indigenisation and ultimate integration of the labour law framework is the need for a conscious enactment of laws that are unique in terms of their simplicity and di-rectness. These would be devoid of superfluous verbiage, with an emphasis on consultation, communality and good faith rather than legal obscurantism, obfuscation and obsession with con-trol, authority and prescription.

This paper did not set out to re-state labour law or provide profound conceptual paradigm shifts. Its purpose was to undertake an enquiry of an academic nature. The focus was the broad philosophical, juristic and socio-economic context within which labour law functions. This co-vers the organic instrumentality of the law in terms of social engineering on one hand. On the other, it also attempts to define, locate and relate labour law to the reflexive, reflective and col-lective aspirations of the society at large.

The paper is therefore both an investigative exercise and a learning experience that is intended to further underscore and question the function of legislation in general and labour legislation in particular in the search for a concrete determination of social justice and quality of life.

This paper is premised on the philosophy that fundamental freedoms include those of associa-tion and organisation which are therefore inalienable. This premise was rebutted by the plethora of actual legislative evidence that appears to seriously derogate from and qualify the freedoms to the extent of rendering them discretionary privileges accorded by the state. Realistically there-fore, the thrust of the enquiry is that, since legal positivism as evidenced in these societies is not necessarily socially sensitive, certain forms of intervention are required to attenuate the effects of this insensitivity and to mediate between the holders of power and the addressees of power.

The paper also recognises that in the context of the new global social and economic world or-der, certain forms of collaboration such as regional integration carry with them both opportuni-ties for enhancing the positive effects o labour legislation and significant threats to individual workers from the state in its quest for greater international interplay and domestic leverage.

Therefore, regarding Botswana and Swaziland, there may be the perception that their legal re-gimes reflect International Labour Standards. Reality however suggests that the state philosophy driving this perception, its actual depth, content and adequacy and thus the need for further effort become important and call for closer scrutiny. The results of this enquiry may then assist in indi-cating whether, given the domestic picture, regional integration using harmonization of labour legislation as one plank could result in greater emancipation of workers and actualization of their aspirations.

Implicit in this is the assumption that regional integration aims at improvement of social and economic standards of living. A necessary corollary is that freedom of association and protection of the right to organize are so basic and fundamental as to form the bedrock of any social frame-work and engineering intended to achieve the broad objectives of regional integration. Where these basic rights are not only differentiated but also selectively applied, using the mechanism of legislation to buttress policy and then induce compliance through coercion, this would militate against the fruits of cohesion and integrative development.

Within the SADC framework, labour legislation cannot play a conservative, reactionary role. Such orientation would steer it away from the essential harmonization and transformation of the basic floor of rights which ought to result into a viable, sustainable pillar of social policy legisla-tion as envisaged in the SADC Social Charter. In comparing the labour law regimes of Botswana and Swaziland, the paper had intended to examine, analyse, understand and appreciate the dy-


45

namics, differences and similarities engendered, nurtured or tolerated within these milieux. By so doing, while one ascertains the theoretical applicability of harmonization, one also becomes in-formed about the functions of labour law in these countries.

The exposure to labour law in its practical reality is easier to appreciate given the conceptual terrain in which it is derived. The etymology of the law and its organic structure thus define a nexus between labour legislation, forms of ownership of property, the socialization or fragmenta-tion of production and its impact on the socio-economic relational structures and arrangements. It is to this extent that law primarily is seen as a technique for the regulation of social power which manifests itself also within work relations. Both individual and collective labour law therefore reflect these conditions created at work and how they are reflected in socio-economic relations within the wider society.

The paper also demonstrates that the evolution from serfdom through a Master-Servant rela-tionship to a legally defined Employer-Employee relations has not succeeded in removing the defining characteristics of domination and subordination. To inject some balance and stability therefore, labour law becomes a contrived arbiter and mediator. However, given its origin and historical role, it has only been able to reflect the status quo and prescribe procedures and param-eters that have sought to induce stability through the formalization of existing norms and interna-tional best practices.

46

EFFECTIVE MANAGEMENT OF STUDENTS CRISIS IN TERTIARY INSTITUTIONS IN ONDO STATE, NIGERIA

T. O. Adeyemi

Department of Educational Foundations & Management, University of Ado Ekiti, Ado Ekiti, Nigeria E-mail: [email protected]

H. T. Ekundayo

Department of Educational Foundations & Management, University of Ado Ekiti, Ado Ekiti, Nigeria E-mail: [email protected]

Abstract: This paper examined the effective management of students’ crises in tertiary institutions in Ondo State, Nigeria. As a descriptive survey, the study population comprised all the 5 public tertiary institutions in Ondo State, Nigeria. Out of this population, a sample of 4 public tertiary institutions was taken and selected through the simple random sampling technique. The instrument used to collect data for the study was a questionnaire while the data collected were analyzed using frequency count, percentages and the z-test statistic. It was found that students’ crises were at a high rate in the universities and polytechnic whereas it was at a moderate rate in the college of education. The causes of students’ crises were found to be the same in the three types of institutions. Most of the management strategies used in curbing students’ crises in the institutions were not effective. It was therefore recommended that the management of tertiary institutions in the State should uphold the involvement of students in decision-making in the institutions. They should also imbibe the use of dialogue strategy by dialoging with students’ on mounting issues from time to time. They should enhance effective communication between students’ and staff and between students’ and the authorities of the institutions.

INTRODUCTION Education in Nigeria as an instrument for effecting national development as witnessed a steady

growth since independence in 1960. The national goals of Nigerian education include the build-ing of a free and democratic society, a just and egalitarian society and a united, strong and self-reliant nation. Others include a great and dynamic economy and a land full of bright opportuni-ties for all citizens (FGN, 2004).

Towards this end, the aim of tertiary education in Nigeria is to give a very sound and qualita-tive education which will enable individual to function effectively in the society. It involves the acquisition, development and inculcation of the proper value-orientation for the survival of the individual and the society. It also involves the development of the intellectual capacity of indi-viduals to understand and appreciate their environments. In like manner, it involves the acquisi-tion of both physical and intellectual skills which will enable individuals to develop into useful members of the community.

In pursuance of these goals, the objective of tertiary education in Nigeria is to generate knowledge through research and disseminate information through teaching and community ser-vices (Townsley, 1997). How effective tertiary institutions in the State achieve these objectives is subject to controversy! This is in the sense that many tertiary institutions in the country have witnessed students’ crises in one way or the other since the inception of higher education in Ni-geria in 1932 when the Yaba Higher College was established.

Experience has shown that students’ crises have become an issue of serious concern in tertiary institutions in Ondo State, Nigeria. The wanton destruction emanating from students’ crises is a case in point. Common observation shows that students’ crises in the institutions are always characterize with violence, protests, unrests and turmoil (Fisher, Rayner, & Belgard, 1995). The-se crises could be seen in different ways.


47

Sessa, (1996) reported that crisis is the art of violence resulting from dissatisfaction or a situa-tion of disagreement between two parties. It is the state of disharmony that is brought about by differences of impulses, desires or tendencies (Rayeshi & Bryant, 1994). It occurs when there is tension or when people intend to revolt against social ills or irregularities in an organization. Several reasons have been given for the high rate of students’ crises in tertiary institutions. These include the non-participation of students in decision-making processes, academic stress, welfare problems brought about by lack of basic amenities among others (Amason, 1996; Bens, 1999; Adeyemi, 2006). Thus in the school setting, students tend to show their displeasure through agi-tation, protest, demonstrations and destruction to lives and properties.

The incidence of students’ crises in tertiary institutions in Ondo State, Nigeria could be identi-fied in many instances. These include the 2002 students’ crises at the Federal University of Technology Akure, Nigeria and the 2007 students’ crises at Adeyemi College of Education, On-do, Nigeria. Others include 2008 students’ crises at Adekunle Ajasin University Akungba Ako-ko, Nigeria, the 2008 students’ crises at Rufus Giwa Polytechnic, Owo and the 2009 students’ crises at the Polytechnic.

The management of students’ crises in tertiary institutions demands the usage of an appropriate leadership style of the school administrator or chief executive (Adeyemi, 2006). His argument supported the contention made by Oyebade, (2000) who reported that there should be effective leadership among school authorities in order to stamp out crises from schools. In another vein, Capozzoli, (1995) listed various ways of crises resolution in tertiary institutions. These include problem –solving, prevention, expansion of opportunities and resources, use of authority and command, changing the behaviour of people involves in conflict through conscious appeal, be-haviour modification strategies, better communication, reduction of mistrust through dialogues and improved human relations. Supporting this view points, Aluede (2001) recommended greater involvement of students in decision-making processes as a way of reducing campus unrest.

In another situation, Bens, (1999) articulated three management strategies for resolving crises in organizations. These include mediation, arbitration and reconciliation. He argued that each of these strategies could be used by the authorities of tertiary institutions in resolving students’ cri-ses.

Notwithstanding the views of various researchers, the incidence of students’ crises in tertiary institutions is too much to be desired. The effects of these crises are always severe as the stu-dents’ crises often lead to the boycott of classes, disorderliness and disruption of institutions cal-endar. This implies that many of these institutions could not complete their schemes of work in the various courses offered within an academic year. The purpose of this study therefore, was to examine the management strategies put in place in resolving students’ crises in tertiary institu-tions in Ondo State, Nigeria in order to proffer possible suggestions.

STATEMENT OF THE PROBLEM The high incidence of students’ crises in tertiary institutions in Ondo State, Nigeria as being a

matter of concern to stake holders in education (Ondo State Government of Nigeria, 2009). The implications of these crises are always severe especially to the students, parents, the institution, government and other stake holders. It was a common occurrence that students’ could not gradu-ate at the specific time in the tertiary institutions. It was common observation shows that stu-dents’ spend extra years in the institutions before they could graduate as a result of students’ cri-ses. The problem of this study, was to determine what management strategies could be adopted in resolving students’ crises in tertiary institutions in Ondo State, Nigeria? In addressing this problem, the following research questions were raised.


48

1. What is the rate of occurrence of students’ crises in tertiary institutions in Ondo State, Nigeria between 2000/2010?

2. What are the causes of students’ crises in the tertiary institutions? 3. Is the rate of occurrence of students’ crises greater in the Universities than the

Polytechnic in Ondo State, Nigeria? 4. Is the rate of occurrence of students’ crises greater in the Universities than the

College of Education in Ondo State, Nigeria? 5. Is the rate of occurrence of students’ crises greater in the Polytechnic than the

College of Education in Ondo State, Nigeria? 6. What management strategies were put in place in resolving students’ crises in the

tertiary institutions? 7. How effective are the strategies used in resolving students’ crises in the institu-

tions? 8. What other management strategies could be used to curb students’ crises in the

tertiary institutions? METHOD This study was designed to follow the strategies of a descriptive research of the survey type. A

descriptive survey is a planned collection of data over a large area with the intension of making descriptive assertion about variables (Amason, 1996). In this regard, the study population com-prised all the 5 tertiary institutions in Ondo State, Nigeria. Out of this population, a sample of 4 institutions was taken and selected through the simple random sampling technique. The institu-tions selected were 2 universities, 1 polytechnic and 1 college of education.

Out of the 5,800 members of staff in the universities (3,600 academic, 2,200 non- academic), a sample of 3,600 members of staff (2,200 academic, 1,400 non- academic) was taken. Out of the 6,400 final year students’ in the universities, 3,400 final year students’ were selected for the study. The method of selection was by stratified random sampling technique. Out of the 3,500 members of staff in the polytechnic (1,900 academic, 1,600 non- academic), a sample of 2,400 members of staff (1,300 academic, 1,100 non-academic) was taken. Out of the 4,050 final year students’ in the polytechnic, 2,040 final year students’ were selected for the study. The method of selection was by stratified random sampling technique.

In the same vein, out of the 4,200 members of staff in the college of education (2,400 academ-ic, 1,800 non-academic), a sample of 2,200 members of staff (1,250 academic, 950 non-academic) was taken. Out of the 4,200 final year students’ in the college of education, 1,800 final year students’ were selected for the study. The method of selection was also by stratified random sampling technique. All the academic and non-academic staff including the management staff in the institutions as well as the sampled final year students’ was the respondents in the study.

The instrument used to collect data for the study was a questionnaire titled “managing students crises in tertiary institutions questionnaire.” The questionnaire was in two parts A and B. Part A was demographic. It sort information on the name of the institution, its location, number of man-agement staff, number of academic staff, number of non-academic staff and the number of stu-dents. Part B consisted of 5 sections. Section A sort information on the level of occurrence of students crises in the sampled universities, polytechnic and college of education in the State. Sec-tion B elicited information on the causes of students’ crises in the institution. Section C required information on whether or not students’ crises occurred at a higher rate in the universities than in the polytechnic. Section D requested information on whether or not students’ crises occurred at a higher rate in the universities than in the college of education. Section E elicited information


49

whether or not students’ crises occurred at a higher rate in the polytechnic than in the college of education. Section F required information on the management strategies used to curb students’ crises in the institutions. Section G elicited information on the effectiveness of the strategies.

The validity of the instrument was determined by experts in test and measurement who exam-ined each item of the instrument to determine whether or not the instrument measured the con-tent area of the study. Their observations were used to effect necessary correction of the instru-ment before they were administered to the respondents. The reliability was determined through the test-retest reliability technique. In doing this, the instruments were administered to 50 re-spondents in 2 tertiary institutions outside the study area. After a period of two weeks, the in-struments were re-administered to the same respondents. The data collected were analyzed using the Pearson Product Moment Correlation. A correlation coefficient of 0.85 was obtained indicat-ing that the instruments were reliable for the study.

The instruments were administered to the respondents by the researcher and research assistants. After a period of two weeks, the completed instruments were retrieved from the respondents through the research assistants. Out of the 3,600 copies of the questionnaires administered to staff of the universities, returns were received from 3,560 respondents. Out of these, returns from 40 respondents were badly completed and discarded leaving a balance of 3,520. Out of the 3,400 copies of the questionnaires administered to final year students’ of the universities, returns were received from 3,360 respondents. Out of these, returns from 10 respondents were badly complet-ed and discarded leaving a balance of 3,350.

Out of the 2,400 copies of the questionnaires administered to staff of the polytechnic, returns were received from 2,360 respondents. Out of these, returns from 20 respondents were badly completed and discarded leaving a balance of 2,340. In the same vein, out of the 2,040 copies of the questionnaires administered to final year students’ of the polytechnic, returns were received from 1,980 respondents. Out of these, returns from 30 respondents were badly completed and discarded leaving a balance of 1,950.

Out of the 2,200 copies of the questionnaires administered to staff of the college of education, returns were received from 2,170 respondents. Out of these, returns from 20 respondents were badly completed and discarded leaving a balance of 2,150. Out of the 1,800 copies of the ques-tionnaires administered to final year students’ of the college of education, returns were received from 1,790 respondents. Out of these, returns from 10 respondents were badly completed and discarded leaving a balance of 1,780.

On the overall, returns from 3,520 members of staff of universities and 3,350 final year stu-dents’, 2,340 members of staff of the polytechnic and 1,950 final year students’ as well as 2,150 members of staff of the college of education and 1,780 final year students’ all of which were du-ly completed were used for the study. The data collected were analyzed using frequency counts and percentages while the null-hypothesis formulated were tested for significance using the z-test statistic at 0.05 alpha level.

RESULTS Question 1: What is the rate of occurrence of students’ crises in tertiary institutions in

Ondo State, Nigeria between 2000/2010? In answering this question, data on the rate of occurrences of students’ crises in tertiary institu-

tions in Ondo State, Nigeria were collected from the responses of the respondents to items on the occurrences of students’ crises in tertiary institutions in the questionnaire. The data collected were collated and analyzed on the basis of each tertiary institution using frequency counts and percentages. The findings are presented in tables 1.1 to 1.6.


50

Table 1.1: Staff responses on rate of occurrence of students’ crises in universities in Ondo State, Nigeria 2000 to 2010

N High Moderate Low Items 6 Students’

Crises and above in 10 years

% 3-5 Stu-dents’ Crises in 10 years

% 1-2 Stu-dents’ Crises in 10 years

%

Crises arising from poor services

3,520 1,630 46.31 1,120 31.82 770 21.87

Crises resulting from hike in fees

3,520 1,580 44.89 1,240 35.23 700 19.89

Crises arising from high handed-ness.

3,520 1,280 36.36 1,460 41.48 780 22.16

Crises arising from inadequate facilities and equipment

3,520 1,720 48.86

1,593 45.26 207 5.88

Crises arising from inadequate accommoda-tion

3,520 1,365 38.78 1,245 35.37

910 25.85

Crises arising from inadequate classrooms and lecture theaters

3,520 1,670 47.44 1,440 40.91 410 11.65

Crises arising from sudden change in school’s policies

3,520 1,842 52.33 1,264 35.91 414 11.76

Crises on obsolete books in libraries

3,520 1,724 48.98

1,420 40.34 376 10.68

Crises arising from cultism activi-ties

3,520 1,580 44.89

1,356 38.52 584

16.59

Crises arising from disagreement on strict application of rules and regulations.

3,520 1,476 41.93 1,310 37.22

734 20.85

Average Total 3,520 1,587 45.09 1,345 38.21 588 16.70

Table 1.2: Students’ responses on rate of occurrence of students’ crises in universities in Ondo State, Nige-ria 2000 to 2010

N High Moderate Low Items 1 time in 5

years % 4 times and

above in 5 years

% 1 Students’ Crisis in 10 years

%


3,350 1,760 52.54 1,420 42.39 170

5.07


3,350 1,660 49.55 1,257 37.52 433 12.93

Crises arising from high handedness.

3,350 1,790 53.43 1,356 40.48 204

6.09

Crises arising from inade-quate facilities and equipment

3,350 1,530 45.67 1,165 34.78 655 19.55

Crises arising from inade-quate accommodation

3,350 1,474 44.00 1,386 41.37 490

14.63

Crises arising from inade-quate classrooms and lecture theaters

3,350 1,270 37.91 1,210 36.12 870

25.97

Crises arising from sud-den change in school’s poli-cies

3,350 1,612 48.12 1,284 38.33 454 13.55


3,350 250 7.46 1,210 36.12 1,890 56.42

Crises arising from cult-ism activities

3,350 1,425 42.54 1,315 39.25 610 18.21

Crises arising from disa-greement on strict application of rules and regulations.

3,350 1,580 47.16

478 14.27

1,292 38.57

Average Total 3,350 1,435 42.84 1,208 36.06 707 21.10

As indicated in tables 1.1 and 1.2, various findings were made by the staff and students’ of the universities. Although there were similarities in the response rate of staff and students. Differ-


51

ences occurred in the responses to certain items of students crises. For example, it was found that only 1,280 (36.4%) of the staff claimed that crises occurred as a result of high hand-edness by management. Contrary to this, 1,790 (53.4%) of the students reported that students’ crises occurred as a result of high handedness by management. On the av-erage, it was found that the level of students’ crises in the universities was high.

Table 1.3: Staff responses on rate of occurrence of students’ crises in polytechnic in Ondo State, Nigeria 2000 to 2010


years % 4 times and

above in 5 years


%


2,340 840 35.90 1,120 47.86 380 16.24


2,340 420 17.95 1,450 61.96 470

20.09

Crises arising from high handedness by management.

2,340 1,380 58.97 624 26.67 336

14.36


2,340 1,241 53.03

643 27.48

456 19.49


2,340 1,150 49.15 671 28.67

519

22.18


2,340 1,340 57.26 430 18.38

570 24.36


2,340 1,075 45.94 715 30.56

550 23.50


2,340 1,120 47.86 680 29.06 540 23.08

Crises arising from cultism activities

2,340 1,265 54.06 540 23.08 535

22.86


2,340 1,281 54.74

618 26.41

441 18.85

Average Total 2,340 1,111 47.48 749 32.01 480 20.51

Table 1.4: Students’ responses on rate of occurrence of students’ crises in polytechnic in Ondo State, Nige-ria 2000 to 2010


years % 4 times and

above in 5 years


%


1,950 970 49.74 620 31.79 360

18.46


1,950 965 49.49 580 29.74 405

20.77

Crises arising from high handedness by management.

1,950 850 43.59 721 36.97 379 19.44


1,950 792 40.62

634 32.51

524 26.87


1,950 940 48.21 618 31.69

392

20.10


1,950 854 43.79 746 38.26

350

17.95


1,950 912 46.77

780 40.00

258

13.23


1,950 878 45.03 720 36.92 352 18.05


52


1,950 910 46.67 670 34.36 370 18.97


1,950 850 43.59 747 38.31

353 18.10

Average Total 1,950 892 45.74 684 35.08 374 19.18

In tables 1.3 and 1.4, divergent findings were made by both staff and students of the polytech-nic. Variations however occurred in the responses between the staff of the polytechnic and the students. For instance, only 850 (35.9%) of the staff claimed that students crises occurred as a result of poor services. On the contrary, 970 (49.7%) of the students reported that students’ crises occurred as a result of poor services. In another vein, only 420 (17.9%) of the staff reported that students’ crises occurred as a result of hike in fees. Whereas as many as 965 (49.5%) of the students claimed that students’ crises occurred as a result of hike in fees. On the average, it was found that the level of students’ crises in the polytechnic was high.

Table 1.5: Staff responses on rate of occurrence of students’ crises in college of education in Ondo State, Nigeria 2000 to 2010


years % 4 times and

above in 5 years


%


2,150 624 29.02 970 45.12 556 25.86


2,150 573 26.65 1,158 53.86 419 19.49


2,150 670 31.16 852 39.63 628 29.21


2,150 790 36.74 778

36.19 582 27.07


2,150 713 33.16

742 34.51

695 32.33


2,150 743 34.56

887 41.25

520 24.19


2,150 924 42.98

552 25.67 674 31.35


2,150 712 33.12 820

38.14 618 28.74


2,150 645 30.00 929 43.21 576 26.79


2,150 784 36.46

743

34.56

623 28.98

Average Total 2,150 718 33.39 843 39.21 589 27.40

Table 1.6: Students’ responses on rate of occurrence of students’ crises in college of education in Ondo State, Nigeria 2000 to 2010

N High

Moderate Low

Items 1 time in 5 years

% 4 times and above in 5 years

% 1 Stu-dents’ Crisis in 10 years

%


1,780 578 32.47 740 41.57 462 25.96


1,780 618 34.72 710 39.89 452 25.39


1,780 635

35.67 658 36.97 487 27.36

Crises arising from inade-quate facilities and equipment

1,780 527 29.61 767

43.09

486 27.30

Crises arising from inade- 1,780 586 32.92 686 38.54 508 28.54


53

quate accommodation Crises arising from inade-

quate classrooms and lecture theaters

1,780 581 32.64

667

37.47

532 29.89

Crises arising from sud-den change in school’s pol-icies

1,780 634 35.62 675 37.92

471 26.46


1,780 524 29.44 750

42.13 506 28.43

Crises arising from cult-ism activities

1,780 537 30.17 742 41.68 501 28.15

Crises arising from disa-greement on strict application of rules and regulations.

1,780 565 31.74

741 41.63

474 26.63

Average Total 1,780 578 32.47 714 40.11 488 27.42

In tables 1.5 and 1.6, divergent findings were also made on the rate of students’ crises in the college of education. For instance only 573 (26.7%) of the staff claimed that students’ crises in the college of education were as a result of hike in fees. Contrarily, 618 (34.7%) of the students’ reported that the rate of students’ crises in the college was high as a result of hike in fees. Like-wise 624 (29.0%) of the staff claimed that the high level of students’ crises in the college of edu-cation was as a result of poor services. Contrary to this, 578 (32.5%) of the students’ reported that the rate of students’ crises was high as a result of poor services. On the average, the findings showed that the rate of students’ crises in the college of education was moderate.

Question 2: What are the causes of students’ crises in the tertiary institutions? Answering this question, data on the causes of students’ crises in tertiary institutions in Ondo

State, Nigeria were collected from the responses of the respondents to items on the causes of stu-dents’ crises in the questionnaire. The data collected were collated and analyzed using frequency counts and percentages. The findings are shown in tables 2.1 and 2.2.

Table 2.1 Staff responses on the causes of students’ crises in tertiary institutions in Ondo State, Nigeria Items N Agree % Disagree % Hike in school fees 8010 3,558 44.42 4,452 55.58 Poor campus transportation 8010 4,680 58.43 3,330 41.57 Inadequate class rooms and lecture theatres 8010 4,876 60.87 3,134 39.13 Dissatisfaction over National Issues 8010 3,690 46.07 4,320 53.93 Failure to guarantee security within campus 8010 5,154 64.34 2,856 35.66 Dissatisfaction over academic programmes 8010 3,480 43.45 4,530 56.55 Cultism 8010 5,112 63.82 2,898 36.18 Poor leadership 8010 3,758 46.92 4252 53.08 High handedness 8010 4,247 53.02 3,763 46.98 Failure of authority to listen to students’ complaints 8010 4,521 56.44 3,489 43.56 Average Total 8010 4,308 53.78 3702 46.22

Table 2.2: Students’ responses on the causes of students’ crises in tertiary institutions in Ondo State, Nigeria Items N Agree % Disagree % Hike in school fees 7080 4,720 66.67 2,360 33.33 Poor campus transportation 7080 5,034 71.10 2,046 28.89 Inadequate class rooms and lecture theatres 7080 5,160 72.88 1,920 27.12 Dissatisfaction over National Issues 7080 3,891 54.96 3,189 45.04 Failure to guarantee security within campus 7080 4,635 65.47 2,445 34.53 Dissatisfaction over academic programmes 7080 5,470 77.26 1,610 22.74 Cultism 7080 4,157 58.71 2,923 41.29 Poor leadership 7080 4,538 64.09 2,542 35.90 High handedness 7080 4,740 66.95 2,340 33.05 Failure of authority to listen to students’ complaints 7080 3,836 54.18 3,244 45.82 Average Total 708

0 4618 65.2

3 2462 34.77

In tables 2.1 and 2.2, the findings showed some differences in the response of staff and stu-dents’ to the causes of students’ crises in the tertiary institutions. The differences could be seen in the rate of response of the staff and students’ to the items as causes of students’ crises in the institutions. For instance, 5,154 (64.3%) of the staff claimed that one main cause of students’ crises in the tertiary institutions was the failure to guarantee security within campus. In


54

the same vein, 4,635 (64.5%) of the students’ reported that one major cause of students’ crises in the tertiary institutions was the failure to guarantee security within campus. One area of disa-greement between the staff and the students’ on the causes of students’ crises in the tertiary insti-tutions was dissatisfaction over academic programmes. While only 3,480 (43.5%) of the staff claimed that the cause of students’ crises was dissatisfaction over academic programmes, 5,470 (77.3%) of the students remarked that one major cause of students’ crises in tertiary institutions was dissatisfaction over academic programmes.

It seems however that the students’ are more objective in their responses to the causes of stu-dents’ crises in the tertiary institutions than the members of staff. This might not have been un-connected with the fact that students’ would always want to press their demand whereas staff as employees of the institutions might perhaps have been subjective to some extent in responding to issues on the causes of students’ crises in the institutions. Nevertheless, both the staff and the students’ agreed that the listed items in tables 2.1 and 2.2 respectively were causes of students’ crises in tertiary institutions in the State.

Question 3: Is the rate of occurrence of students’ crises greater in the Universities than the Polytechnic in Ondo State, Nigeria?

In answering this question, the following hypothesis was raised. Ho: There is no significant difference in the rate of occurrence of students’ crises between the

Universities and the Polytechnic in Ondo State, Nigeria. In testing the hypothesis, data on the rate of occurrences of students’ crises in the universities and polytechnic in Ondo State, Nigeria were collected from the responses of the respondents to items on the occurrence of students’ cri-ses in the questionnaire. The data collected were collated and analyzed using frequency counts and percentages while the hypothesis was tested using the z-test statistic. The findings are pre-sented in table 3.

Table 3: Z test output on the rate of occurrences of students’ crises in universities and polytechnic in Ondo State, Nigeria

Varia-bles

N Mean SD df z-calculated z-table

Univer-sity

6,870 257.61 24.86 11,158 1.78 1.96

Poly-technic

4,290 264.54 27.37

p>0.05 As indicated in table 3, the z-calculated (1.78) was less than the z-table (1.96) at 0.05 alpha

level. Hence, the null-hypothesis was accepted. This shows that there was no significant differ-ence in the rate of occurrence of students’ crises between the Universities and the Polytechnic in Ondo State, Nigeria.

Question 4: Is the rate of occurrence of students’ crises greater in the Universities than the College of Education in Ondo State, Nigeria?

In addressing this problem, the question was transformed to the following hypothesis. Ho: There is no significant difference in the rate of occurrence of students’ crises between the

Universities and the College of Education in Ondo State, Nigeria. In testing the hypothesis, data on the rate of occurrences of students’ crises in the universities and College of Education in On-do State, Nigeria were collected from the responses of the respondents to items on the occurrence of students’ crises in the questionnaire. The data collected were collated and analyzed using fre-quency counts and percentages while the hypothesis was tested using the z-test statistic. Table 4 shows that findings.


55

Table 4: Z test output on the rate of occurrences of students’ crises in universities and College of Education in Ondo State, Nigeria

Variables N Mean SD Df z-calculated z-table University 6,870 257.61 24.86 10,798 4.25 1.96 College of

Education 3,930 131.42 21.24

P>0.05 In table 4, the z-calculated (4.25) was greater than the z-table (1.96) at 0.05 alpha level. Hence,

the null-hypothesis was rejected. This indicates that there was a significant difference in the rate of occurrence of students’ crises between the Universities and the College of Education in Ondo State, Nigeria. The mean value (257.61) recorded for the level of occurrences of students’ crises in the universities was greater than the mean value (131.42) recorded for the rate of occurrence of students’ crises in the college of education. This finding suggests that students’ crises oc-curred at a higher rate in the universities than in the college of education.

Question 5: Is the rate of occurrence of students’ crises greater in the Polytechnic than the College of Education in Ondo State, Nigeria?

In addressing this problem, the question was transformed to the following hypothesis. Ho: There is no significant difference in the rate of occurrence of students’ crises between the

Polytechnic and the College of Education in Ondo State, Nigeria. In testing the hypothesis, data on the rate of occurrences of students’ crises in the Polytechnic and College of Education in On-do State, Nigeria were collected from the responses of the respondents to items on the occurrence of students’ crises in the questionnaire. The data collected were collated and analyzed using fre-quency counts and percentages while the hypothesis was tested using the z-test statistic. The findings are shown in table 5.

Table 5: Z test output on the rate of occurrences of students’ crises in Polytechnic and College of Education in Ondo State, Nigeria

Variables N Mean SD df z-calculated z-table Polytechnic 4,290 264.54 27.37 8,218 4.82 1.96 College of

Education 3,930 131.42 21.24

P>0.05 In table 5, the z-calculated (4.82) was greater than the z-table (1.96) at 0.05 alpha level. As

such, the null-hypothesis was rejected. This shows that there was a significant difference in the rate of occurrence of students’ crises between the Polytechnic and the College of Education in Ondo State, Nigeria. The mean value (264.54) recorded for the level of occurrences of students’ crises in the Polytechnic was greater than the mean value (131.42) recorded for the rate of occur-rence of students’ crises in the college of education. This finding suggests that students’ crises occurred at a higher rate in the Polytechnic than in the college of education.

Question 6: What management strategies were put in place in resolving students’ crises in the tertiary institutions?

In answering this question, data on the management strategies for resolving students’ crises in the tertiary institutions in Ondo State, Nigeria were collected from the responses of the respond-ents to items on management strategies in the questionnaire. The data collected were collated and analyzed using frequency counts and percentages. The findings are presented in tables 6.1 and 6.2.


56

Table 6.1 Staff responses on the management strategies used in curbing students’ crises in tertiary institu-tions in Ondo State, Nigeria

Items N Agree

% Disagree %

Imposition of authority 8010 2,900 36.20 5,110 63.80 Using emergency strategy such as inviting law en-

forcement agents 8010 5,265 65.73 2,745 34.27

Inviting parents teachers association to mediate 8010 5,860 73.16 2,150 26.84 Provision of necessary facilities and equipment 8010 4,318 53.91 3,692 46.09 Use of negligence strategy 8010 2,400 29.96 5,610 70.04 Use of effective leadership behaviour 8010 5,453 68.08 2,557 31.92 Preventive Strategy. 8010 4,259 53.17 3,751 46.83 Average Total 8010 4351 54.32 3659 45.68

Table 6.2: Students’ responses on the management strategies used in curbing students’ crises in tertiary in-stitutions in Ondo State, Nigeria

Items N Agree % Disagree % Imposition of authority 7080 1,663 23.49 5,417 76.51 Using emergency strategy such as inviting law

enforcement agents 7080 2,268 32.03 4,812 67.97

Inviting parents teachers association to mediate 7080 2,953 41.71 4,127 58.29 Provision of necessary facilities and equipment 7080 4,820 68.08 2,260 31.92 Use of dialogue with students 7080 5,150 72.74 1,930 27.26 Use of negligence strategy 7080 1,710 24.15 5,370 75.85 Preventive Strategy. 7080 5,484 77.46 1,596 22.54 Average Total 7080 3435 48.52 3645 51.48

In tables 6.1 and 6.2, there were similarities and differences in the management strategies used for resolving students’ crises in the tertiary institutions as indicated by the staff and students’ of the institutions. The similarities could be found in the list of items agreed by staff and students’ as management strategies for resolving students’ crises in the tertiary institutions.

The differences could be forged in the rate of response to the items on management strategies be-tween staff and students’ of the institutions. For example, the idea of inviting parents’ teachers as-sociation to mediate has claimed by the staff had the largest number of responses that is (73.16%), the use of preventive strategy has claimed by the students’ had the largest number of responses (77.46%). The use of negligence strategy had the least number of responses (24.15%) among the staff while the imposition of authority had the least number of responses (23.49%) among the stu-dents. This finding suggests that no matter the weakness or the strength of a strategy, the idea of imposing authority by management during students’ crises was an unwelcoming development. Question 7: How effective are the strategies used in resolving students’ crises in the institutions?

In addressing this problem, data on the effectiveness or otherwise of the strategies used in re-solving students’ crises in the institutions were collected from the responses of the respondents to items on management strategies in the questionnaire. The data collected were collated and ana-lyzed using frequency counts and percentages. The findings are shown in tables 7.1 and 7.2.

Table 7.1 Staff responses on the management strategies used in curbing students’ crises in tertiary institu-tions in Ondo State, Nigeria

Items N Effec-tive

% Not Ef-fective

%

Imposition of authority 8010 2,350 29.34 5,660 70.66 Using emergency strategy such as inviting law enforce-

ment agents 8010 2,594 32.38 5,416 67.62

Inviting parents teachers association to mediate 8010 3,268 40.80 4,742 59.20 Provision of necessary facilities and equipment 8010 5,280 65.92 2,730 34.08 Use of negligence strategy 8010 1,200 14.98 6,810 85.02 Use of good leadership behaviour 8010 5,100 63.67 2,910 36.33 Maintenance of cordial relationship between students and

authority. 8010 4,264 53.23 3,746 46.77

Average Total 8010 3,437 42.91 4,573 57.09


57

Table 7.2: Students’ responses on the management strategies used in curbing students’ crises in tertiary in-stitutions in Ondo State, Nigeria

Items N Effec-tive

% Not Ef-fective

%

Imposition of authority 7080 1,204 17.01 5,876 82.99 Using emergency strategy such as inviting law

enforcement agents 7080 1,300 18.36 5,780 81.64

Inviting parents teachers association to mediate 7080 2,136 30.17

4,944 69.83

Provision of necessary facilities and equipment 7080 5,178 73.14 1,902 26.86 Use of negligence strategy 7080 960 13.56 6,120 86.44 Use of good leadership behaviour 7080 4,217 59.56 2,863 40.44 Maintenance of cordial relationship between stu-

dents and authority. 7080 3,751 52.98 3,329 47.02

Average Total 7080 2,678 37.82 4402 62.18

In tables 7.1 and 7.2, the findings also showed some similarities and differences in the respons-es of staff and students’ to the effectiveness or otherwise of the strategies used in resolving stu-dents’ crises in the institutions. The similarities could be found in the list of items agreed by staff and students’ as being effective in resolving students’ crises in the tertiary institutions. For in-stance, there was similarity in the response of staff and students’ on the effectiveness of the strat-egy namely the provision of necessary facilities and equipment as both staff and students’ gave the highest rate of response 65.92% and 73.14% respectively on the effectiveness of this strategy.

The differences could be found in the rate of response to the effectiveness or otherwise of the strategies. For example, while the staff gave a higher response rate (63.67%) to the effectiveness of the use of good leadership behaviour, the students’ gave a lower response rate (59.56%) to the same strategy. On the whole, only three strategies were found to be effective by both staff and students’ for resolving students’ crises in tertiary institutions in the State. These strategies are provision of necessary facilities and equipment (65.92%; 73.14%), use of good leadership be-haviour (63.67%; 59.56%) as well as maintenance of cordial relationship between students and authority (53.23%; 52.98%). This finding suggests that the management of the institutions might not have been using other salient strategies for resolving students’ crises in their institutions.

Question 8: What other management strategies could be used to curb students’ crises in the tertiary institutions?

In answering this question, data on other management strategies that could be used to curb stu-dents’ crises in the tertiary institutions in the State were collected from the responses of the re-spondents to items on other management strategies in the questionnaire. The data collected were collated and analyzed using frequency counts and percentages. The findings are presented in ta-bles 8.1 and 8.2.

Table 8.1 Staff responses on other management strategies that could be used in curbing students’ crises in tertiary institutions in Ondo State, Nigeria

Items N Agree % Disagree % Use of effective communication 8010 6,040 75.41 1,970 24.59 Signing agreement with parents and students on the pro-

hibition of cultism 8010 4,920 61.42 3,090 38.58

Involving students in decision making. 8010 4,642 57.95 3,368 42.05 Use of dialogue strategy with students on Mounting Is-

sues 8010 5,847 73.00 2,163 27.00

Creating students counseling units in tertiary institutions. 8010 5,416 67.62 2,594 32.38 Average Total 8010 5,373 67.0

8 2,637 32.92


58

Table 8.2: Students’ responses on other management strategies that could be used in curbing students’ cri-ses in tertiary institutions in Ondo State, Nigeria

Items N Agree % Disagree % Use of effective communication 7080 5,783 81.68 1,297 18.32 Signing agreement with parents and students on the

prohibition of cultism 7080 1,600 22.60

5,480 77.40

Involving students in decision making 7080 6,020 85.03 1,060 14.97 Use of dialogue strategy with students on Mounting Is-

sues 7080 5,150 72.74 1,930 27.26

Creating students counseling units in tertiary institu-tions.

7080 3,870 54.66 3,210 45.34

Average Total 7080 4,485 63.35 2,595 36.65

As indicated in tables 8.1 and 8.2, there were similarities in the responses of staff and students’ on other management strategies that could curb student’s crises in tertiary institution in Ondo State, Nigeria. Differences however occurred in the rate of response to this other strategies by staff and students’. For example, while the strategy having the largest number of responses among the staff was the use of effective communication (75.41%), the strategy having the largest number of responses among the students’ was the idea of involving students in decision making (85.03%).

Notwithstanding, 6,040 (75.41%) of the staff of the institutions claimed that a good strategy for curbing students’ crises in the institutions was the use of effective communication. Supporting this point, 5,783 (81.67%) of the students’ of the institutions reported that the use of effective communication is a good strategy for curbing students’ crises in tertiary institutions in State. However, differences occurred in the response rate of staff and students’ of the tertiary in respect of signing agreement with parents and students on the prohibition of cultism. While 4,620 (61.42%) of staff suggested that there should be the signing agreement with parents and students on the prohibition of cultism in the institutions, 5,480 (77.40%) of the students’ disa-greed on the use of this strategy. This suggest that students’ views could not really be rely upon in its totality as many of them perhaps could not condone cultism in the institutions.

DISCUSSION In the forgoing analysis, it was found that students’ crises were at a high rate in the universities

and the polytechnic whereas in the college of education it was at the moderate level. This finding suggests that the college of education was not susceptible to students’ crises at a high rate unlike the universities and the polytechnic. It further suggests that, perhaps the demand often made by students’ of the polytechnic and the universities are too much for the authorities of the institu-tions to bear thereby leading to the frequent students’ crises in the institutions. This finding agreed with the findings made by Akinyemi (2002) who found that students’ crises in higher in-stitutions in Ekiti State, Nigeria were at a high rate.

The findings in relation to the causes in students’ crises in tertiary institutions shows that stu-dents’ are perhaps very objective in their demand on the authorities of the institutions. This might have possibly led to the numerous causes of students’ crises in the institutions. It seems however that the causes of students’ crises are common to all the institutions thereby supporting the findings of previous researchers (Townsley, 1997 ;Wagner , 1999).

The non-significant difference found in the rate of students’ crises in the universities and the polytechnic suggests that students’ demands on the authorities are almost at par in the two types of institutions. The significant difference found in the rate of students’ crises between the univer-sities and the college of education on the one hand and between the polytechnic and the college of education on the other hand confirmed that students’ crises was at a lower rate in the college of education than in the universities and the polytechnic. This finding was consistent in the find-ings of earlier researcher (Aluede, 2001; Falua, 2004).


59

Many of the management strategies found in this study to have been used by the authorities appeared not to have curbed in rate of students crises in the institutions. Typical examples are the imposition of authority and using emergency strategy such as inviting law enforcement agents. All these strategies were found to be ineffective in curbing students’ crises in the institutions.

This finding was in consonance with the findings made by previous researchers (Capozzoli, 1995; Adeyemi, 2009). The finding was however contrary to the findings made by other re-searchers (Eisenhardt, Kahwajy, & Bourgeois, 1997). Notwithstanding, the suggested strategies such as the use of dialogue strategies as well as involving students in decision making appeared to have been widely accepted by both staff and student of the institutions as good strategies for curbing students’ crises in tertiary institutions. This finding lent support to the findings of earlier researchers (Amason, Thompson, Hochwarter, & Harrison, 1995). The findings suggest that the idea of carrying students’ along in decision making could go a long way in resolving students’ crises in tertiary institutions.

CONCLUSION Considering the finding of this study, it was concluded that the resolution of students’ crises in

tertiary institutions in Ondo State, Nigeria is a function of effective management strategies. This is evident in the findings of this study which isolated good strategies as panacea to effective reso-lution of students’ crises in the institutions. The findings of the study, have therefore led the re-searcher to conclude that management strategies are critical variables in curbing students crises in tertiary institutions.

Based on the findings, it was recommended that the management of tertiary institutions in On-do State, Nigeria should uphold the involvement of students in decision-making in the institu-tions. They should also imbibe the use of dialogue strategy by dialoging with students’ on mounting issues from time to time. They should enhance effective communication between stu-dents’ and staff and between students’ and the authorities. They could as well allow the signing of agreement with parents and students on the prohibition of cultism. In addition, students’ coun-seling units could be created in tertiary institutions in the State with the aim of counseling stu-dents’ on their areas of needs in a bid to finding lasting solutions to such needs. REFERENCES Adeyemi, T. O (2009) “Causes, consequences and control of students’ crises in public and private universities in

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Usmanu Danfodio University, Sokoto Educational Review, 8 (2) 43-60. Akinyemi B.L. (2002): “Management of students’ crises in higher institutions in Ekiti State” Unpublished M.Ed

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Sessa, V. I. (1996). “Using perspective taking to manage conflict and affect in teams”. Journal of Applied Behavior-al Science, 32 (1), 101-115.

Townsley, C. A. (1997). Resolving conflict in work teams. [On-line]. Available: http://www.workteams.unt.edu:80/reports/Townsley.htlm.

Wagner-Johnson, Debbi, (1999) “Managing work team conflict: Assessment and preventative strategies CSWT Pa-pers” Center for the Study of Work Teams, University of North Texas http://www.workteams.unt.edu/reports/ acapaper.htm

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GLOBAL RECESSION AND ITS IMPACT ON FOREIGN TRADE IN INDIA

Rajwant Kaur Senior Research Fellow, Department of Commerce and Business Management, Guru Nanak Dev University, Amrit-

sar, India E-mail: [email protected]

A.S. Sidhu

Professor, Department of Commerce and Business Management, Guru Nanak Dev University, Amritsar, India E-mail: [email protected]

Abstract: Global Economic Crisis has affected all spheres of economic activity of the world economy. The current global recession of October 2008 has badly affected the global economy as compared to earlier recessions since 1930 onwards. It has also been noticed that United States’ financial crisis had affected majority of the countries of the world because it hold more than 30 percent of the world demand. The reasons of present global recession are varied and complex. The present slump can be attributed to a number of factors in both housing and credit markets, which come out over an extended period. The present study found that the worldwide global recession has led to the fall in demand in general and developed economies in particular. Furthermore, there will be a sharp decline in the volume of trade at the global level and emerging economies like India in particular. The available data on foreign trade reveals that the global trade is going to be severely affected. India is a emerging economy, which has succeed-ed to increase its share of exports in world export from 0.7 percent in 2001 to 1.0 percent in 2006 (January-August 2006) is going to suffer on account of decline in the share of exports. The study recommends that there is need for large scale public spending (China has already done it), and availability of cheaper finance to stop further deterio-ration in the global trade. However, much will depend upon the response of developed countries in regard to the use of protectionist measures, which had already been implemented by some advance countries led by USA.

INTRODUCTION ‘Global Economic Crisis’ has affected all spheres of economic activity of the world economy.

The current global recession of October 2008 has badly affected the global economy as com-pared to earlier recessions since 1930 onwards. According to the IMF’s World Economic Out-look, October 8, 2008, the world economy is “entering a major downturn” in the face of “the most dangerous shock” to rich-country financial markets since 1930s. IMF expects global growth (measured using purchasing-power parity), to come down to 3% in 2009, on the verge of what it considers to be a global recession.

The global recession has been occurred in the economy from time to time. It has provided se-vere effects on the global economy and put the global economy in a difficult situation many times. The world economy faces recession from the earlier period i.e. 18th century. The period of recession included from 1793-1800, 1807-1814, 1819-1824, 1837-1843, 1857-1860, 1873-1879, 1893-1896, 1907-1908, 1918-1921. The Great Depression time (of 120 months) of recession was 1929-1939 and this recession put too severe effects on the global economy. World is witness to repeated recession during the twentieth century also: from April 1947- October 1947, April 1953- April 1954, July 1957- April 1958, April 1973- April 1975 (Oil Crisis), April 1980- Octo-ber 1982, July 1990- April 1991, April 2000- October 2001. However, the Current recession of October 2008 is being considered the worst since the great depression of 1930 (U.S. Department of Commerce, BEA).

The world is moving towards for a major demand recession, largely triggered by the financial crisis in the US, which is now converting into a contraction in real demand for goods and ser-vices globally (The Economic Times, 12 December 2008). It has also been noticed that United


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State’s financial crisis had affected majority of the countries of the world because it hold more than 30 percent of the world demand.

CONCEPT AND CAUSES OF RECESSION To proceed further, an attempt has been made to explain the concept of recession and its causes

identified by different researchers. Generally the term ‘Recession’ is used when the growth rate of an economy i.e. Gross Domes-

tic Product (GDP) follow downtrend at least for two consecutive quarters of financial year. In economics, a recession is a general slowdown in economic activity over a sustained period of time, or a business cycle contraction. During recession period, Gross Domestic Product (GDP), Employment, Investment, Spending, Capacity Utilization, Household Incomes and Business Profits, all falls.

In 1975, Economic statistician Julius Shiskin suggested several rules of thumb for identifying a recession, one of which was “two down quarters of GDP” (New York Times, 1975). But now recession is defined a period when real economic growth (Gross Domestic Product) of the coun-try is moved from positive to negative side. Some economists prefer a definition of a 1.5 percent rise in unemployment within 12 months.

Economists at the International Monetary Fund (IMF) state that a global recession would take a slowdown in global growth to three percent or less. By this measure, four periods since 1985 qualify for recession: 1990–1993, 1998, 2001–2002 and 2008–2009.

In the United States, the Business Cycle Dating Committee of the National Bureau of Econom-ic Research (NBER) is generally seen as the authority for dating US recessions. The NBER de-fines an economic recession as: "a significant decline in the economic activity spread across the country, lasting more than a few months, normally visible in real GDP growth, real personal in-come, employment (non-farm payrolls), industrial production, and wholesale-retail sales" (Busi-ness Cycle Expansions and Contractions, NBER, 2008).

From the above definitions, we may conclude that a recession is a situation in which employ-ment, investment and corporate profits of a country turned towards downtrend. Usually, a reces-sion is when global growth is less than 3 percent. Sometimes recession takes different shapes, which is known as ‘Economic Depression’. These shapes include V-shaped, U-shaped, L-shaped and W-shaped. In the US, V-shaped, or short-and-sharp contractions followed by rapid and sus-tained recovery, occurred in 1954 and 1990-91; U-shaped (prolonged slump) in 1974-75, and W-shaped, or double-dip recessions in 1949 and 1980-82. Japan’s 1993-94 recessions was U-shaped and its 8-out-of-9 quarters of contraction in 1997-99 can be described as L-shaped. Korea, Hong Kong and South-east Asia experienced U-shaped recessions in 1997-98, although Thailand’s eight consecutive quarters of decline should be termed L-shaped (www.adb.org).

According to Stiglitz, the reasons of present global recession are varied and complex. The pre-sent slump can be attributed to a number of factors in both housing and credit markets, which come out over an extended period. According to Stiglitz, Some important causes of crisis include the inability of homeowner to make their mortgage payments, poor judgments by the borrower and /or lender, speculation and overbuilding during the boom period, risky mortgage products, high personal and corporate debt levels, financial innovation that distributed and concealed de-fault risks, central bank policies, and regulation (Adamu 2009).

The poor standards of lending, risky mortgage products, weak underwriting standards, unsound risk management practices, and lack ness in government regulation are considered other im-portant factors for the present global recession. Avgouleas (2008), enumerated the causes of the crisis as : breakdown in underwriting standards for subprime mortgages; flaws in credit rating


63

agencies’ assessments of sub prime Residential Mortgage Backed Securities (RMBS) and other complex structured credit products especially Collaterized Debt Obligations (CDOs) and other asset-backed securities (ABS); risk management weaknesses at some large at US and European financial institutions; and regulatory policies, including capital and disclosure requirements that failed to mitigate risk management weaknesses.

Some of the important causes of current recession of the economy given by different experts could be summarized, namely, Liberalization of global financial regulation; Boom and Bust in the Housing Market; Speculations; Inadequate credit rating; New Financial Architecture etc. Moreover, High Risk loans that are Liberal Credit period led rapid credit growth but accompa-nied by loosening lending standards. The financial institutions provided ‘Ninja Loans’ (It is a type of sub prime loans issued to borrowers with No Income, No Job and No Assets) without considering the risk and they gave home loans to immigrants without documentation. The term ‘Ninja Loans’ grew in usage during the 2008 financial crisis as the sub prime mortgage crisis was blamed on such loans (Wikipedia 2009).

The policies of government also contributed to the present global crisis because the US gov-ernment failed to regulate mortgage policies, which supported trends towards issuing of risky loans. For instance, Fannie Mae Corporation eases credit requirements on loans and this encour-ages banks to extend home mortgages to people that do not have good enough credit rating (Adamu 2009).

The trade deficits of the United States have grown steadily since the beginning of 1990 reach-ing about $ 450 billion in 2000 or 4.5 percent of gross domestic product and leading to growing concern among economists and policy maker’s views. However, experts are split on the causes and effects of the large deficits. According to Pingfan Hong in a discussion paper of United Na-tions, Department of Economic and Social Affairs (DESA) under the title, “Global Implications of the U.S. Trade Deficit Adjustment” in February 2001 concluded that large and constantly growing U.S. Trade and current account deficit of the 1990 indicate unbalance growth among the world economies. The deficits cannot be continued to grow forever, they will reverse sooner or later, and one way or another.

Can the deficit be automatically rebalanced through market forces alone? Yes, but there is no guarantee that the reversal will be smooth. According to Pingfan Hong study, risks exist for an abrupt reversal of the deficits associated with recession for the U.S. economy and for the other economies. The study also recommended that increasing financial transfer to developing coun-tries should be of long run benefits to U.S. exports. If economic growth and living standards in more developing countries rise steadily, the global demand for U.S. exports of technology-intensive and capital-intensive product will increase. If world economic growth becomes more balance across countries, the persistent large trade and current-account imbalance should be avoided.

So In the light of the predictions made by United Nation’s experts, it is very easy to understand that the financial recession which deepened in 2008 in the U.S. economy has its roots in the past. The financial recession, which later on spread worldwide, is not the product of failure of U.S.A. banking system only rather the persistent trade deficits. Trade deficit and current account imbal-ance in U.S.A economy could be the cause of the worst recession.

Dipankar Dey has endorsed the above prediction by presenting an alternative view that the fi-nancial crisis that began in America’s subprime mortgage market, later snowballed into a global recession is just one symptom of a long festering economic disease, while the root cause of this crisis was the rising wage-productivity gap. The researcher further argued that how the imminent


64

depression of 1990 was deferred by over a decade through appreciation of novel financial engi-neering techniques. The study concludes with observations that multi-polar world order with at least three different powers centers will replace with present Uni-Polar system primarily con-trolled by U.SA.

Similarly, Joseph E. Stiglitz, the recipient of Nobel Prize in Economics and chairperson of UN Commission of experts on reforms on monetary and financial system predicted that much of the acute pain of recession will be felt by developing countries and estimated that 30 million more people will be unemployed in 2009. As progress in reducing poverty is likely to be halted. It is feared that some 200 million people mostly in developing economies, could be pushed in the poverty if rapid action cannot taken to counter the impact of crisis. The economic downturn, which had begun in rich countries of the north, is hurting the millions of innocents of the devel-oping South (Dey 2009).

Different opinion has been emerged after the spread of financial recession to deal with severe recession in the different parts of the world. To deal with global recession, the policy makers should respond regressively across the country. The Federal Reserve (U.S) has increased its loans to the financial sector about $1.4 trillion, the extended large guarantees is in addition. It has been estimated that new fiscal stimulus programs of $800 billion amounts to about a 2.5% fiscal boost per year for two years. China has also adopted fiscal stimulus that amounts to about 6% of GDP annually for each of next two years. The IMF estimates that the total fiscal stimulus im-pulse in 2009 in G20 countries will amount to about 1.5% of GDP, not counting automatic stabi-lizer that will push the total increase in fiscal deficit to about 3% of GDP. The broad strategies need to be for both monetary and fiscal stimulus to counter global recession, with each country approach tailored to its situation.

Another dominates argument appeared is that free trade could shorten the period of present re-cession. This school of thought argues that countries should not go for protectionist measures to save their economies from the impact of global recession. They also argue that free trade estab-lishes global peace. It is a fact that more and more countries are going to raise the rate of tariffs, though everyone claims to recognized trade as the best way to reduce the impact of global reces-sion. Several developed and developing countries have already raised barriers on imports. In No-vember 2007, G20 leaders signed or pledged against protectionism. In second half of 2008, 17 out of G20 implemented 47 measures that restrict trade (Ayodele 2009).

Therefore, the argument of free trade/not to follow protectionism policies is away from reality. Of course, between 1986 and 2007 tariffs on goods fell worldwide from 26% to 8.8%, boosting the world economy with the global trade. It has also been argued that the gains of increased trade have become more inclusive: the developing countries nearly doubled their share of exports since 2000 to 37% in 2007 (Ayodele 2009). Therefore, the G20 countries will have to ensure the world community that they are not going to implement protectionist policies, which will further contribute to the global recession.

GLOBAL RECESSION AND FOREIGN TRADE ENVIRONMENT After the analysis of causes of global recession, we can analyze the impact on world economy

in general and global trade in particular. The year 2009 is witnessing one of the harshest global recessions in the post war period and this global recession has been affected countries (including India) across the world in varying degrees and all key economic parameters like Industrial Pro-duction, Consumption, Trade, Per Capita Income, Gross Domestic Product, Capital Flows, Un-employment, and Investment have taken a hit.


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According to Economic Survey of Government of India 2008-09, growth in the volume of global trade in goods and services, which had shown signs of weakness in 2007, decelerated fur-ther in 2008 and is projected to record a decline of 11% in 2009. The important indicators of global trade environment are presented in table 1.

Table 1 External Environment Scenario (Annual per cent change unless otherwise noted)

Sl. No.

Items 2006 2007 2008 2009 Projection

1 World Trade Volume (Goods & Services) 9.2 7.2 3.3 -11.0

2 Imports Advanced Economies Emerging and Developing Economies

7.6 13.2

4.7 14.0

0.4 10.9

-12.1 -8.8

3 Exports Advanced Economies Emerging Markets and Developing Econo-

mies

8.5 10.9

6.1 9.5

1.8 6.0

-13.5 -6.4

4 World Trade Prices Fuel (energy) Non Fuel

19.2 23.2

10.5 14.1

40.1 7.5

-94.4 -27.9

5 Capital Flows Emerging Market and Developing Coun-

tries - Private Capital Flows (Net) in US $ billion

202.8

617.5

109.3

-190.3

Source: Economic Survey, Government of India 2008-09

The analysis of data further reveals that both imports and exports volume growth rate deceler-ated in 2008, with the decline being sharper in advanced countries. The International Monetary Fund (IMF) projections indicate that fuel (energy) prices are expected to decline by 94.4 percent in 2009 while non-fuel prices are estimated to shows a decline of 27.9 percent.

Furthermore capital flows in emerging and developing economies declining from peak of US $ 617.5 billion in 2007 to US$ 109.3 billion in 2008. The situation is expected to deteriorate signif-icantly in 2009, as it is estimated that there would be a capital outflow of US$ 190.3 billion from emerging and developing economies.

The impact of financial crisis is so severe that real global output growth slowed to 1.7% in 2008 compared to 3.5% in 2007 and is likely to fall by between 1.7 and 2% in 2009. This is the first decline in total world production since the 1930s, and its impact is magnified in trade. As per forecast of WTO economists the collapse in global demand brought on by biggest economic downturn in decades which will drive exports down by roughly 9% in volume terms in 2009, the biggest such contraction since the second world war (AEPC 2009).

Weaker demand in developed economies brought about by falling in asset prices and increased economic uncertainties helped to pull world output growth to down to 1.7 % from 3.5% in earlier year. The growth in 2008 was the slowest since 2001 and well below 10 years average rate of 2.9%. The developed economies only managed a meager 0.8% growth during 2008 compared to 2.5% in 2007 and an average rate of 2.2 % between 2000 and 2008. The developing economies on the other hand expanded their output in 2008 by 5.6% down from 7.5% in 2007, but still equal to their average rate for the 2000-08 periods. It is also interesting to note that least devel-oped countries (LDCs) grew faster than any other group of countries at 6.6 % and above their 2000-08 average rate of 6.3%. The economic growth (GDP) in 2008 was only 2%, owing in large measured to negative growth -0.7% recognized by Japan. By contrast, developing Asia (ex-cluding Japan, Australia and New Zealand) grew by 5.7% led by China, which registered the fastest growth of any other major economy at 9.0% (AEPC 2009).


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The World Bank said in December 2008 that the global economy would enter a recession for the first time since 1982. It has also been predicted that International trade will decline from 2007 levels (Lazzaro 2008). The bank predicted that global Gross Domestic Product (GDP) growth to decline to 0.9% in 2009 from 2.5% in 2008. It is pertinent to mention that any global growth rate under 2.0% is tantamount to a recession. According to Economist David H. Wang, Global trade is expected to decline by 2.1% in 2009, the first decline since 1982, on reduced global demand and export credits (Lazzaro 2008). The current recession has severe effects on different economies of the world. The following are the points relating to effects of global reces-sion on different economies of the World.

Germany, Europe's largest economy, contracted by 0.5 percent in the third quarter of 2008, putting it in recession for the first time in five years (Fitzgibbons 2008). Japan's GDP contracted at an annual rate of 0.4 percent from July to September

2008, marking the second consecutive quarter of negative growth. Japan's previous reces-sion was in 2001, after the dot-com bubble burst in the United States (Harden 2008). The Euro zone economy made up of the 15 countries that use the euro contracted

by 0.2% in the third quarter of 2008 following a 0.2% fall in GDP in the second quarter (Wilson 2008). In USA, GDP dropped 0.5% in the third quarter of 2008. A number of economists

surveyed by Wall Street Journal expect gross domestic product to decline at an annual-ized rate of 3% in this year's fourth quarter and 1.5% in the following quarter (Evans 2008).

INDIAN FOREIGN TRADE SCENARIO UNDER GLOBAL RECESSION The foreign trade of India has also suffered on account of the contraction in demand during the

recession. The balance of payments position (BoPs) of Indian economy has been disturbed due to deterioration in the global economic environment as discussed above. After many years, India is entering into a period of BoPs strain due to global recession. In 2007-08, the trade deficit wid-ened very rapidly to $ 90 billion due to rising oil prices and other imports (The Economic Times, 16 December 2008). According to some estimates, the trade deficit could increase to $140 billion due to high oil prices and decline in export demand (The Economic Times, 16 December 2008). Therefore, the widening gap in exports and imports had contributed to the trade deficit of Indian economy.

The foreign trade policy, 2009-14 released on August 27, 2009 claimed that the performance of the Indian foreign trade sector seems to be quite satisfactory. The report records that, “In the last five years, our exports witnessed robust growth to reach a level of US $ 168 billion in 2008-09 from US $ 63 billion in 2003-04. Our share of global merchandise trade was 0.83% in 2003; it rose to 1.45% in 2008 as per WTO estimates. Our share of global commercial services export was 1.4% in 2003; it rose to 2.8% in 2008. India’s total share in goods and services trade was 0.92% in 2003; it increased to 1.64% in 2008. On the employment front, studies have suggested that nearly 14 million jobs were created directly or indirectly as a result of augmented exports in the last five years.”

However the developments which have taken place during the second half of 2008 till date has put a serious threat to the performance of exports of the emerging economies in general and Indi-an economy in particular. The international organization/some-independent agencies are predict-ing a very gloomy picture due to the worldwide recession, which has already turned from purely a financial recession to a serious recession since the great depression of 1930.


67

Now the question arise, how does the Indian foreign trade is going to perform under the situa-tion when external environment has deteriorated on account of slowdown in global demand, re-versal of capital flows and reduced excess to external sources of finance in the phase of adverse global credit market conditions.

The preliminary estimates regarding the impact of financial meltdown in U.S.A economy was quite optimistic that the emerging economies like India and China are not going to be affected much by the developments, which have taken place in the rest of the world. However with grad-ual deepening of the global financial crisis, its impact was transmitted from the financial sector to real economic activity in advance countries and then to emerging economies through the trade and financial channels.

PERFORMANCE OF EXTERNAL SECTOR In case of India, the initial effect of global financial crisis was positive, as India received huge

Foreign Institutional Investments (FIIs) inflows of US$ 22.5 billion during September 2007 to January 2008, as against US $ 11.8 billion during April-July 2007 (Economic Survey 2008-09).

This contributed to the debate on “decoupling”, where it was believed that the emerging econ-omies might remain largely insulated from the crisis and provide an alternative engine of growth to the world economy. The argument was proved unfounded as the global financial crisis intensi-fied and spread to emerging economies through capital and current account routes of the balance of payments. Later on global price began to impact emerging market economies through slow-ing down and reversal of capital flows. The portfolio flows to India (net) turned negative due to sale of equity stakes by Foreign Institutional Investments (FIIs) to replenish overseas balances. This had led to knock-on effect on the stock market and exchange rates through creating a sup-ply-demand imbalance in the foreign exchange market (Economic Survey 2008-09).

The notable feature during 2008-09 was a decline of 10.4 per cent in merchandise exports on BOPs basis in the third quarter of 2008-09 as against an increase of 33.0 per cent in Q3 of the year 2007-08. Hence, the shrinkage in international demand because of global economic slow-down has a negative impact on Indian exports; while a sharp fall in international prices of oil has a positive impact on Indian imports during the third quarter of 2008-09 (Economic Survey, 2008-09).

As per the information available for 2008-09, exports at US$ 168.7 billion recorded a rise of 3.4 per cent over that of US$ 163.1 billion during 2007-08 (Ministry of Commerce and Industry estimates). Imports are placed at US$ 287.8 billion during 2008-09 indicating an increase of 14.3 per cent over 2007-08. Trade deficit is estimated at US$ 119.0 billion during 2008-09 as against US$ 88.5 billion in 2007-08 (Economic Survey 2008-09, pp. 130-131).

Despite higher invisibles surplus, the trade deficit widened mainly on account of higher growth in imports coupled with slowdown in export growth in the third quarter of 2008-09. The current account deficit (CAD) therefore was higher at US$ 36.5 billion in April-December 2008 (135.1 per cent increase, over US$ 15.5 billion during April-December 2007). The ratio of CAD to GDP also increased from 1.8 per cent in 2007-08 (up to Q3) to 4.1 per cent in 2008-09 (up to Q3) (Economic Survey 2008-09, p. 132).

The net invisibles (receipts minus payments) rose marginally to US$ 21.7 billion in Q3 of 2008-09 as compared to US $ 21.5 billion during Q3 of 2007-08. At this level, net invisibles sur-plus financed 59.7 percent of trade deficit in Q3 of 2008-09 as compared to 82.6 per cent in Q3 of 2007-08. Accordingly, the current account deficit rose sharply to US $ 14.6 billion (5.1 per cent of GDP) during Q3 of 2008-09, as compared to US $ 4.5 billion (1.5 per cent of GDP) in Q3


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of 2007-08. This was mainly on account of large trade deficit and marginal increase in net invis-ibles during the third quarter of 2008-09 (Economic Survey 2008-09, p. 133).

India has been a top recipient of private transfers in recent years. As per the Reserve Bank of India estimate, the magnitude of such transfers was US$ 30.8 billion 2006-07 and US$ 43.5 bil-lion 2007-08. During 2008-09 (April-December), such transfers were US$ 36.9 billion. The third quarter of 2008-09 (October-December) however witnessed marginal deceleration in remittance flows to US $ 10.5 billion as against US$ 10.9 billion in the corresponding quarter last year due to global financial crisis (Economic Survey of India 2008-09). According to a World Bank study, remittances are likely to decline by 5-8 per cent in 2009, which may cause hardship in many poor countries. However, the decline in nominal dollar terms would be smaller relative to the project-ed fall in private capital flows or official aid (Economic Survey 2008-09, p.132).

Table 2 shows that the current account, which had recorded an annual average surplus of 1.4 per cent of GDP during 2001-02 to 2003-04, returned to an annual average deficit of 1.1 per cent during 2004-05 to 2007-08. However, the current account deficit widened to 4.1 percent of GDP during April-December 2008, following the slowdown in external demand and deceleration in capital flows.

On the other hand, table 2 further shows that Capital inflows, as a proportion of GDP, were on an uptrend during 2000-01 to 2007-08. Except 2000-01, they reached a high of 9.3 per cent of GDP in 2007-08 after a modest growth of 3.1 per cent in 2005-06 and 5.1 per cent in 2006-07. Capital inflows were lower at 1.8 per cent of GDP during 2008-09 (April-December) due to the global financial crisis. With capital inflows exceeding current account deficits, foreign exchange reserves increase, on BOPs basis (excluding valuation changes), was of the order of US$ 15.1 billion in 2005-06 (1.9 per cent of GDP), US$ 36.6 billion in 2006-07 (4.0 per cent of GDP) and US$ 92.2 billion (7.9 per cent of GDP) in 2007-08. However, during 2008-09 (April-December), foreign exchange reserves decline of US$ 20.4 billion (2.3 per cent of GDP) has been recorded.

Table 2

Selected Indicators of the External Sector

Items\Years 1990-91 00-01 01-02 02-03 03- 04 04-05 05-06 06-07 07-08

April-Dec 07-08

April-Dec 08-09

1 Growth of exports - BOP (%)

9.0 21.1 -1.6

20.3 23.3 28.5 23.4 22.6 28.9 21.9 17.5

2 Growth of imports - BOP (%)

14.4 4.6 -2.8

14.5 24.1 48.6 32.1 21.4 35.2 28.3 30.6

3 Growth of Non-factor Ser-vice (credit)

7.2 3.6 5.4 21.1 29.4 61.0 33.3 28.0 22.1 25.9 16.3

4 Growth of Non-factor Ser-vice (debit)

1.4 25.2 -5.2

23.9 -2.3

66.4 24.0 28.5 18.5 10.7 9.7

5 Exports/imports - BOP (%) 66.2 78.5 79.4

83.4 82.9 71.7 67.0 67.6 64.5 62.1 55.9

6 Exports/imports of goods and services (%)

73.1 85.1 88.2 91.4 96.3 87.5 85.0 86.3 82.6 81.9 75.3

7 Import cover of FER (No. of months)

2.5 8.8 11.5 14.2 16.9 14.3 11.6 12.5 14.4 14.3 9.8

8 External assistance (net) /TC (%)

26.2 4.8 13.4 -29.4

-17.1

6.9 6.7 3.9 2.0 1.6 12.2

9 ECBs (net)/TC (%)5 26.8 50.6 -19.0

-15.9

-17.5

18.5. 9.8 35.6 21.0 21.2 46.5

10 NR deposits (net)/TC (%) 18.3 27.2 33.0 28.0 21.8 -3.4 11.0 9.6 0.2 -1.1 13.8 (As per cent of GDP mp) 11 Exports 5.8 9.9 9.4 10.6 11.1 12.2 13.0 14.1 14.1 13.5 15.2 12 Imports 8.8 12.6 11.8 12.7 13.3 16.9 19.4 20.9 21.9 21.8 27.1

13 Trade balance -3.0 -2.7

-2.4

-2.1 -2.3

-4.8 -6.4

-6.8

-7.8

-8.2 -12.0

14 Invisibles balance -0.1 2.1 3.1

3.4 4.6

4.5 5.2 5.7 6.3

6.4 7.8

15 Goods and services balance -2.7 -2.7

-1.7

-1.4 -0.6

-2.6 -3.6

-3.6

-4.6

-4.7 -7.7


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16 Current account balance -3.1 -0.6

0.7

1.3 2.3 -0.4 -1.2

-1.1

-1.5

-1.8 -4.1

17 ECBs 0.7 1.1 -0.3

-0.3 -0.5

0.7 0.3 1.8 1.9

2.1 0.8

18 Foreign Direct Investment (net)

0.0 0.8 1.0 0.6 0.4 0.5 0.4 0.8 1.3

0.8 1.7

19 Portfolio Investment 0.0 0.6 0.4 0.2 1.9 1.3 1.5 0.8 2.5

4.0 -1.3

20 Total capital Account (net) 2.7 2.1 1.7 2.1 2.9 4.1 3.1 5.1 9.3

9.8 1.8

21 External debt 28.7 23.3 21.2 20.3 17.8 18.5 17.2 17.9 18.9 24.5 26.2

Source: Economic survey 2008-09 and 2007-08 Notes: (i) TC: Total Capital flows (net). (ii) ECBs: External Commercial Borrowings. (iii) FER: Foreign exchange reserves,

including gold, SDRs and IMF reserve tranche. (iv) GDPmp: Gross Domestic Product at current market prices (iv) as total capital flows are netted after taking into account some capital outflows, the ratios against item No. 5, 6 and 7 may, in some years, add up to more than hundred percent. (V) Rupee equivalents of BOP components are used to arrive at GDP ratios. All other percentages shown in the upper panel of the table are based on US dollar values.

A widening of merchandise trade was one way to absorb foreign savings and the increase in exports and imports was a key component of the growth process. Table 2 shows that exports rose from 5.8 per cent of GDP in 1990-91 to 9.9 per cent of GDP in 2000-01 which further increased to 11.1 per cent of GDP in 2003-04 to 14.1 per cent in 2007-08 and 15.2 per cent during 2008-09 (April-December). On the other hand, imports rose from 8.8 per cent in 1990-91 to 12.6 per cent in 2000-01, which further increased to 13.3 per cent in 2003-04 and reached to 21.9 percent in 2007-08 percent of GDP. However, exports and imports as percentage of GDP increased by 15.2 per cent and 27.1 per cent in April-December 2008-09. As a result of which trade balance reached to -12.0 percent of GDP in April-December 2008-09, which was -7.8 per cent in 2007-08. The higher trade deficit could be attributed to a rise in imports of petroleum, oil and lubri-cants (POL) as well as non-POL imports.

It is pertinent to mention that the performance of Indian exports has not been satisfactory dur-ing the entire post reforms period. The average annual growth rate of exports during 1991-2006 has been 12.3 percent as against 11 percent rate of growth during 1970-1991. The reforms pro-cess does not seem to have generated any significant impetus to export growth. Thus, during both the phases, the rate of growth of imports has been higher than that of exports. Even in the last four-five years, exports grew at high rate but it was strongly outpaste by the imports leading to a sharp deterioration in the balance of trade (Singh, AES, India 2006-07).

DIRECTION AND COMPOSITION OF INDIAN TRADE WITH TOP 16 COUNTRIES The direction and composition of Indian trade with top 16 countries is presented in table 3. The

data reveals that trade with the top 16 trading partners increased by over 3.6 percentage points from 55.3 percent in 2003-04 to 58.9 percent share of total in 2007-08. The share of United States, the largest trading partner, declined from 10.1 percentages in 2007-08 to 8.2 percentages in 2008-09 (April-February). The same trend is visible in table 3 in regard to majority of the trad-ing partners. Though India has large trade deficits (overall), it had trade surplus with USA, UAE, UK, Hong Kong, Belgium and Italy in 2007-08. The exports and imports ratio for the year 2008-09 April-February declined in case of all trading partners from the level of 2007-08 except U.S.A, Singapore and France. However, India export-import ratio remained quite satisfactory for both the years with Brazil. The largest trade deficits were with Saudi Arabia and China as indi-cated by export-import ratio. However, the export-import ratio remained less than 1 for the years 2006-07, 2007-08 and 2008-09 (Apr-Feb) which implies that Indian imports remained greater than exports during this period.


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Table 3 India’s Trade and Export/Import Ratio with Major Trading Partners

Sl. No. Countries

Share in total trade (percent) Export/import ratio a 2003-04

2004-05

2005-06

2006-07

2007-08

2008-09 (Apr-Feb)

2006-07

2007-08

2008-09 (Apr-Feb)

1 China PRP 4.9 6.5 7.0 8.3 9.2 8.6 0.5 0.4 0.3 2 USA 11.6 10.6 10.6 9.8 10.1 8.2 1.6 1.0 1.2 3 UAE 5.1 6.1 5.1 6.6 7.0 8.1 1.4 1.2 1.0 4 Saudi Ara-

bia 1.3 1.4 1.4 5.1 5.6 5.6 0.2 0.2 0.2

5 Germany 3.8 3.5 3.8 3.7 3.6 3.6 0.5 0.5 0.6 6 Singapore 3.0

3.4 3.5 3.7 3.7 3.3 1.1 0.9 1.1

7 UK 4.4 3.7 3.6 3.1 2.8 2.6 1.3 1.4 1.0 8 Hong Kong 3.3

2.8 2.6 2.3 2.2 2.6 1.9 2.3 1.1

9 Korea RP 2.5 2.3 2.5 2.3 2.1 2.5 0.5 0.5 0.4

10 Japan 3.1 2.7 2.6 2.4 2.5 2.3 0.6 0.6 0.4 11 Belgium 4.1

3.6 3.0 2.4 2.1 2.2 0.8 1.0 0.8

12 Indonesia 2.3 2.0 1.7 2.0 1.7 2.0 0.5 0.4 0.4 13 Italy 2.0

1.9 1.7 2.0 1.9 1.8 1.3 1.0 0.9

14 South Afri-ca

1.7 1.6 1.6 1.5 1.5 1.6 0.9 0.7 0.3

15 France 1.7

1.8 2.5 2.0 2.1 1.3 0.5 0.4 0.9

16 Brazil 0.4 0.8 0.8 0.8 0.8 0.9 1.5 2.7 2.2

Total (1 to 16)

55.3 55.0 54.1 58.1 58.9 57.1 0.8 0.7 0.6

Source: Economic Survey, 2008-09 a The coefficient of exports and import ratio between 0 and 1 implies that India’s imports are greater than exports and if the

coefficient is greater than one, India exports more than what it imports.

The growth rate of major trading partners of India for the year 2008-09 is presented in table 4. The analysis of data reveals that all major trading partners of India have shown a negative growth rate in their imports for the Q1 January-March 2009. All the three major players, where Indian exports are to reach namely U.S.A., Japan, and China are showing deceleration in their imports by 29.9 percent, 29 percent and 30.8 percent respectively. So this trend clearly reveals that Indian exports are going to face a serious set back in the current year 2009-2010. The other countries like Hong Kong and Singapore are also showing a declining trend in their exports dur-ing the Q1 January-March 2009.

Table 4 Growth Rate of Major Trading Partners of India, 2008-09

Exports Imports Apr-Aug

08 Sept-Dec

08 Jan-March 09 Apr-Aug

08 Sept-Dec

08 Jan-March

09 World 16.5 -3.7 - 18.1 -2.2 - USA 19.8 -0.9 -22.3 14.9 -4.4 -29.9 Hong Kong 7.9 -0.1 -18.3 9.5 -1.5 -21.2 Singapore 16.9 -6.2 -40.2 23.5 0.5 -35.8 Japan 16.4 -5.1 -40.6 28.7 13.5 -29.0 China 23.0 8.6 -19.7 30.6 -1.6 -30.8 India 29.5 -3.6 -24.1 40.9 16.2 -25.3

Source: Economic Survey 2008-09


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Therefore, the analysis indicates that there is likely hood of widening trade deficits if global re-cession further persists.

CONCLUSION The following issues emerged from the foregoing analysis. The financial meltdown, which

sparks in U.S.A banking sector /financial sector, has spread in the entire world. It is clear from the in-depth analysis of the world economy by international organizations like World Bank, IMF, WTO and UNCTAD that global production and trade will further shrink. As a result of which flow of capital from developed world to developing and under develop economies will also fall. Furthermore, rate of unemployment will increase across the countries and global demand for goods and services will decline. As result of these developments, exports from the emerging and under developed economies will further shrink. The available statistics are more than sufficient to acknowledge that the current recession will continue which may take the shape of great de-pression of 1930, if effective measures are not taken to check the root cause of this recession.

‘The economic slowdown in U.S. in 2007 following the sub prime crisis in August 2007 which resulted in a fall in GDP growth from 2.8 per cent in 2006 to 2.0 per cent in 2007 and consequent fall in U.S. import growth had started affecting India’s exports to the U.S. in 2007. This simmer-ing crisis accelerated and turned into a full-blown global recession with the dramatic escalation of the global financial crisis in September 2008, which resulted in an unprecedented contraction of world growth to 3.2 per cent and trade to 3.3 per cent with the growth and imports of ad-vanced economies at 0.9 per cent and 0.4 per cent respectively. This situation worsened in 2009 with world output projected at -1.3 percent and world trade volume at -11.0 per cent. The fall in growth and imports of advanced economies was worse with projections at -3.8 per cent and -12.1 per cent respectively. This has severely affected the growth and trade of all the countries. India was no exception though it has weathered the crisis more confidently than many other countries including the developed countries’ (Economic Survey of India 2008-09).

According to the World Trade Organization (WTO) statistics, World merchandise trade growth at 2.0 per cent in real (i.e. constant price) terms in 2008 was lower than the 6.0 per cent growth in 2007. The growth of merchandise trade in 2006 was the second highest since 2000 and well above the average annual growth of the last decade (1996-2006).Growth of world demand for exports decelerated from 8.5 per cent in 2006 to 6.0 per cent in 2007, and further to 2.0 per cent in 2008 (Economic Survey 2008-09).

The researchers have identified number of factors, which have contributed to the present reces-sionary situation. The poor standards of lending, risky mortgage products, weak underwriter standards, unsound risk management practices and lack ness in government regulations are con-sidered important factors for the present global recession. The large and constantly growing U.S trade and current account deficits has also been identified as major contributory factors to the present state of affairs in the U.S economy. The increasing gap in wages and productivity has also been considered as the root cause of this crisis.

The sharp rise in the global finance capital as a result of the increased savings of private corpo-rate sectors across the world could also be considered responsible for the present crisis. It has been notice that action and role of international monopoly capital has changed in significant ways. One thing is not new: capital has always been, driven by the need to accumulate more cap-ital. With the rise of monopoly capital, the world capitalism has faced with a strange problem. They enjoy vast surpluses; but, as a long –term trend, they find less avenues to invest these sur-pluses profitably. If these surpluses used to increase productive capacity, they would need to re-duce prices in order for all that production to be absorbed; that would mean lower profit margins-


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which goes against the nature of monopoly capital. On the other hand, if they do not invest these surpluses, they cannot accumulate further. This peculiar disease of plenty gives rises to a long-term tendency toward stagnation (Aspects of Indian Economy, No.44).

According to Economist, perhaps the leading voice of international capital, reported in 2005 that for the past three years, while profits have surged around the globe, capital spending has re-mained relatively weak. As a result, companies in aggregate have become net savers on a huge scale. Their thrift may explain why bond yields are so low (i.e., interest rates are low because firms are flush with funds). Since 2000, the corporate sector in the developed countries have switched, as a group, from being big borrowers to being net savers: i.e. their profits exceed their capital spending. The total increase in companies’ net saving in the past four years has been more than $ 1triilion, three percent of annual global GDP and five times the increase in net sav-ing by emerging economies over the same period… if Company bosses recognize that the current consumer boom is built on shaky foundations- in particular rising house prices-they are likely to be reluctant to invest” (The Corporate Savings Glut, Economist, 9/7/05).

‘In the U.S., business expenditure stopped falling in 2004 and began rising again, but it re-mained weak compared to earlier recoveries. This reluctance to invest has inevitable conse-quences: America’s long-term potential rate of growth is falling, to perhaps its lowest pace in over a century’ (Slow Road Ahead, Economist, 28/10/06).

‘However, corporations must invest their savings somewhere to earn profit. As a result, inter-national capital is on a constant hunt for new investment opportunities. In the course of this hunt, international capital has been driven to rely increasingly on the growth of the financial-speculative activities, which have far outstripped the growth of the commodity-producing sector. The world’s financial markets of all types (stocks, debt, foreign exchange commodities, and complex financial instruments called ‘derivative’) have witnessed an extraordinary explosion of gambling. To take just one example the actual ‘use’ of foreign currency is the import of goods or services; in the entire year 2006, world trade in goods and services was $ 14.5 trillion. However, the buying and selling of foreign currency by international speculators in the same year averaged $2.7 trillion a day. In other words, trading in foreign currency was 68 times what would be re-quired for international trade in goods and services. Similar explosions have taken place in all other financial sector activity, with new instruments being added at a hectic pace’ (Aspects of Indian Economy, No.44).

In order for this financial activity to keep growing, it needs to create ever-increasing scope for itself. One way of doing so is by opening up economies hitherto closed or restricted for foreign speculative capital, and by removing restrictions on entering various sectors within those econo-mies. The financial sector worldwide sits like a giant parasitic creature atop the commodity-producing sector, demanding complete freedom to enter all arenas and bleed that sector (Aspects of Indian Economy, No.44).

These developments in the world economy had already affected the emerging and underdevel-oped economies of the world. The analysis of external sector of Indian economy reveals that the growth rate of Indian economy had already shown a declining trend. Further, more the global capital inflows to Indian economy has also declined due to the global financial crisis. The current account deficits have further widened following the slow down in external demand and decelera-tion in capital flows. The analysis further reveals that there is significant fall in the foreign ex-change reserves of India, which increased during the last three-four years. The shrinkage in the international demand because of economic slowdown has led to negative impact on exports. The analysis of the data relating to direction and compositions of Indian trade reveals that it had trade


73

surpluses with six countries namely, USA, UAE, UK, Hong Kong, Belgium, and Italy in 2007-08. The export/import ratio for the year 2008-09 (April-February) declined in case of all trading partners from the level of 2007-08 except USA, Singapore and France. However, the export-import ratio remained less than 1 for the years 2006-07, 2007-08 and 2008-09 (Apr-Feb) which implies that Indian imports remained greater than exports during this period.

The above-mentioned facts put a question mark about the optimism of foreign trade policy 2009-14, which states that, “The short term objective of our policy is to arrest and reverse the declining trend of exports and to provide additional support especially to those sectors which have been hit badly by recession in the developed world. We would like to set a policy objective of achieving an annual export growth of 15% with an annual export target of US $ 200 billion by March 2011. In the remaining three years of this Foreign Trade Policy i.e. up to 2014, the coun-try should be able to come back on the high export growth path of around 25% per annum. By 2014, we expect to double India’s exports of goods and services. The long-term policy objective for the Government is to double India’s share in global trade by 2020”.

Therefore, the study concludes that the Indian economy is under pressure of the global slow-down, which may lead to affects all the important economic parameters namely; foreign ex-change reserves, foreign capital, merchandised exports and imports, invisible trade, deceleration in the domestic demand and large-scale loss of jobs in the different sectors of the economy. The-se developments will seriously affect the social sector development of India. The decline in eco-nomic growth rate may lead to further exclusion of vast majority of the low-income population working in the unorganized sector.

Therefore, the study recommends that the Indian government must take concrete steps to re-duce the impact of global recession on the vulnerable sections of the society. This could be achieved through large-scale public spending in infrastructure development particularly in the public sector enterprises, small and medium enterprises as has already been done by China.

According to UNCTAD Report 2009, the countries that have resisted recessionary forces better than other are those where the domestic market place is more important-and increasingly grow-ing-role in total demand such as China, India and Indonesia. Moreover, the rebound in China in the second quarter 2009 proves the efficiency of government deficits spending, if applied quickly and forcefully (UN Trade and development Report, 2009 (Overview, UNCTAD Geneva). So it is an eye opening for those who ignore the role of deficit financing in developing countries in gen-eral and India in particular.

Another measure to tackle the impact of global recession according to UNCTAD report 2009 is to provide relief to the Heavily Indebted Poor Countries (HIPCs) who needs a temporary morato-rium on the official debt repayments to the international lending agencies. Despite the debt relief provided to them, a sustainability of their external debt situation remains highly vulnerable to shocks, and fall out global economic crisis is impairing their ability to serve external debt with-out compromising their imports. It would not only constitute an important element in efforts to attenuate the impact of global crisis on growth, poverty alleviation and investment in the debtor countries but it would also contribute to stabilizing to global demand. Compared to the size of stimulus package for developed countries, the total amount of such a temporary debt moratorium would be modest, amounting to about $ 26 billion for 49 low income countries for 2009 and 2010 combined.

Moreover, in pursuing its surveillance function, IMF should more actively encourage countries to use, whenever necessary, the introduction of capital control as provided for in its Articles of Agreements. It has also been noticed that the dominance of dollar as the main means of interna-


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tional payments also played an important role in the build-up of the global imbalances in run-up to the financial crisis. Thus, as long as there is no multilaterally agreed rule for countries to score each others’s economies through coordinating demand management and symmetric inter-vention in the foreign exchange markets, the system has a deflationary bias (ibid).

The UNCTAD report 2009 has further pointed out the excessive “financialization” of primary commodity market’ has led to commodity price volatility. This issue is of particular importance for food commodity, because, despite recent improvements, current grain and oilseed inventories remain very low. This means that any sudden increases in demand or major shortfall in produc-tion, or both, will rapidly triggered significant price increases. Hence, visible stocks of food commodity need to be rebuilt urgently to a level adequate enough to be able to moderate tempo-rary shortage and buffer sharp price movements. In 2009, food emergencies persists in 31 coun-tries, and it is estimated that between 109 million and 126 million people, most of them in Sub-Saharan Africa and south Asia may have fallen below the poverty line since 2006 due to higher food prices. Despite, plummeting international food prices in the second half of 2008, domestic food prices generally have remained very high, and in some cases at record highs. Therefore, the decline in the volume of trade across the countries may lead to starvation in the poor countries. REFERENCES Adamu, A. (2009), The Effects of Global Financial Crisis on Nigerian Economy, April 30, online published

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