RESEARCH AND ANALYSIS
Africa needs a deeper integration agenda
Trudi Hartzenberg, Trade Law Centre for Southern Africa (tralac)
Regional integration is an important component of the development strategies of most African countries. The enthusiasm of African governments is also reflected in the large number of regional integration arrangements (RIAs) that they have concluded in the post-independence era. The RIAs are generally ambitious schemes with unrealistic time frames; they are usually neighbourhood arrangements and overlapping membership is common.
Linear market integration, marked by integration of goods, labour and capital markets, and eventually monetary and fiscal integration, characterizes the African paradigm of regional integration. The starting point is usually a free trade area, followed by the determination of a common external tariff to establish a customs union. The establishment of a customs union is a key objective of the majority of African RIAs. Provisions to facilitate the movement of factors of production are then added to achieve a common market. The integration of monetary and fiscal affairs is then added to the common market to establish an economic union. The aim is to eventually establish a political union. This process is followed by the various regional economic communities (RECs) in Africa and at a Pan African level, eight of the RECs have been identified as the building blocks of the African Economic Community.
The predominant focus on a trade-in-goods agenda in African integration initiatives, also characterizes African countries’ extra-regional relations. There is a decided reluctance to engage for example a services agenda. The on-going negotiations with the European Union (EU) to conclude World Trade Organisation (WTO) compatible Economic Partnership Agreements (EPAs) are a good example of the strong adherence to a trade-in-goods agenda. The EPAs have made an unintended contribution to critical review of the African integration agenda. Historically, the European Union (EU) has been Africa’s most important trade, investment and development partner. Trade with the EU was governed by a series of Lomé Conventions, which granted African, Caribbean and Pacific (ACP) countries (excluding South Africa), preferential access to EU markets. The EU and ACP countries concluded the Cotonou Agreement in 2000, paving the way for the negotiation of WTO compatible EPAs. Various configurations of African countries constituted negotiating groups; many of which cut across existing neighbourhood regional integration arrangements, adding an additional layer of complexity to the regional integration process in Africa. The protracted and difficult EPA negotiations have, amongst other things, highlighted some of the challenges of African regional integration. The EPA negotiations revealed important gaps between political ambitions and economic reality in African regional integration. Debates about the African integration agenda and indeed Africa’s strategy for integration into the global economy are emerging from these negotiations.
It is important to keep in mind that the current geo-political configuration of the African continent reflects not so much the emergence of African nation states as the political choices of Africa’s former colonial powers. Sub-Saharan Africa (SSA) consists of 47 countries; the majority of which are small. Compounding the challenges of smallness is the fact that, according to UNCTAD’s definition, 34 are least developed countries (UNCTAD 2007). Small populations and low per capita incomes combine to produce small domestic markets. For 15 SSA countries, the challenges are exacerbated by landlockedness. The feasible set of economic diversification and broader development options is therefore severely circumscribed for these small and under-developed countries. The challenge of weak states, in the sense of having limited policy and institutional capacity, further compounds Africa’s development challenges.
Regional integration may, therefore, be viewed as a rational response to the challenge of small national markets and small marginalized economies. What is questionable is the specific paradigm of regional integration adopted by African countries. The linear textbook model, demonstrating a preoccupation with tariff liberalization, may not be the most effective means of addressing the challenges of smallness, marginalization and under-development.
A fundamental underlying problem is that of weak states. Weak states, in the sense of lacking institutional capacity are common in Africa; they lack the capacity to make and effectively implement policy and regulation. This also has an impact on regional integration in Africa. There is much evidence of strong political commitment to regional integration, but very poor performance on the implementation of commitments. It may be argued that a regional integration agenda which includes the establishment of strong supra-national institutions (to manage for example the affairs of a customs union) by taking decisions on behalf of the collective RIA membership, and monitoring compliance with regional commitments, could remedy some of the challenges of weak nation states. Experience indicates however that African states demonstrate a distinct reluctance to empower regional institutions, citing loss of sovereignty and policy space as key concerns. Regional institutions therefore remain weak, performing mainly administrative functions.
The structural challenges faced by African countries manifest in high costs of doing business generally, and specifically in high trade transaction costs. The sources of high costs of doing business can be traced to many factors including the small market constraint, poor infrastructure (road, rail, port, communications, energy, water), policy and regulatory mistakes or deficits, as well as geography. These factors have significant implications for the competitiveness of African business, trade performance, growth and development trajectories.
Africa’s integration agenda which still focuses predominantly on trade in goods liberalization (the establishment of free trade areas and customs unions, with a strong focus on a single trade policy instrument, the import tariff) does not address the issues that really matter for the promotion of Africa’s trade performance, either intra-African trade or trade with the rest of the world. Anecdotal evidence suggests that the tariff may be minor concern compared with other challenges such as border procedures, and that competition from producers in emerging markets such as China and India prove far more challenging to local producers. It may be argued that what Africa needs is a regional integration agenda that enhances the capacity to produce tradeables competitively, and contributes to intra-regional trade facilitation.
In addition to the infrastructure challenges that African countries face, lack of competitively-priced, good quality services and non-tariff barriers (including burdensome customs and administrative procedures, the use of technical standards to frustrate trade) are important. Africa’s regional integration agenda should have less emphasis on tariff liberalization, and include factors which will enhance the supply-side capacity of African economies. The development of transport, communications, energy and water infrastructure, through investment in infrastructure, and the development of sound policy and regulatory frameworks (including competition policy to guard against anti-competitive practices), as well as a trade facilitation agenda to harmonise and simply customs procedures, will not only enhance intra-regional trade, but also support the development of supply-side capacity. In short, Africa’s integration agenda should focus on behind-the-border issues (services, investment, competition policy), infrastructure development and trade facilitation.
Trudi Hartzenberg, Trade Law Centre for Southern Africa (tralac), [email protected]
Trudi Hartzenberg is the Executive Director of the Trade Law Centre for Southern Africa (TRALAC). She is an economist whose area of specialisation includes trade, industrial trade, industrial and competition policy, regional integration and industrial organisation. She has taught at the Universities of Natal, Cape Town, Western Cape and Copenhagen, as well as the Graduate School of Business at the University of Cape Town and the Copenhagen Business School. She has worked on assignment for a number of international institutions including the IMF, African Development Bank and the Commonwealth Secretariat.