15 Dec 2014

Regional integration is the key to Africa's prosperity

Written by  Dawn Nagar and Rosaline Daniel

No. 320: Regional integration is the key to Africa's prosperity / Dawn Nagar and Rosaline Daniel / Business Day
15 December 2014

World leaders met recently in Geneva at the World Investment Forum, which was hosted by the United Nations Conference on Trade and Development, to share policies and strategies for boosting investment and infrastructure to support sustainable development across the world.

The forum provided an important opportunity for African leaders to argue the case for Africa as a crucial destination for global investment. Africa has become the home of burgeoning frontier markets which promise higher returns as well as greater risks for investors.

Such markets have generally supported the expansion of developmental states. For example, SA's membership of the Brics (Brazil, Russia, India, China and SA) bloc has helped to connect high-risk investors and exchange-traded funds to the continent as well as supporting SA's regional leadership aspirations. Consequently the African Union (AU) has recognised the importance of African border markets in attracting investments from emerging economic powers.

Africa's leaders need to leverage such comparative economic advantages by promoting region-building and regional integration which are essential to sustainable development.

Most African economies remain weak and historical divisions have worked against effective regional integration while institutional capacity has been lacking for national, subregional, and continental bodies promoting regionalism.

For African regional bodies the high transactional costs of doing business caused by overlapping memberships in regional bodies and the failure to improve the continent's inadequate infrastructure as well as its trade and non-trade barriers have further impeded region-building efforts.

Africa has an infrastructure gap of about $35bn a year. In pursuit of greater integration, African policy makers need to advance their efforts to promote peace, security, and socioeconomic development. They also need to strengthen the capacities of institutional frameworks for intra-African trade, including through improved co-ordination between the AU and subregional bodies. The preoccupation of individual African governments with national problems has further slowed the progress of regional integration. Some governments have also failed to put in place efficient and effective domestic mechanisms for monitoring the consistency of national policies with regional frameworks.

A particular issue Africa's leaders need to address is the crucial role the private sector has to play in region-building that fosters inclusive development. Informal trading networks have promoted an increase in unrecorded regional trade but have often failed to create intra-African trade in place of foreign trade. SA, for example, should seek to regulate its private sector to be able to contribute more to inclusive development in southern Africa and Africa at large.

The success of Africa's region-building and regional integration efforts is generally linked to the potential leadership role of strategic countries in their respective sub-regions, such as SA in southern Africa; Nigeria in West Africa; Kenya in East Africa; the Democratic Republic of Congo in Central Africa; and Algeria in North Africa. Such countries could potentially lead future efforts to strengthen regional arrangements and promote stability and development through the integration of their subregions. For example, on the economic front within the Common Market for Eastern and Southern Africa (Comesa), subregional hegemons SA and Kenya could promote intra-regional trade that generates positive spillover effects and boosts national economies.

In the East African Community (EAC), intra-regional trade is higher than in any of Africa's four other subregions. Much of this trade, however, largely benefits Kenya and is driven by manufactured products. There have also been divisions between Rwanda, Kenya and Uganda on the one hand and Tanzania and Burundi on the other.

Over the past 20 years the broader East African subregion has been deeply divided despite the efforts of the Intergovernmental Authority on Development, with states either engaged in hostilities with one another or supporting insurgents in neighbouring countries.

In West Africa formal and informal intra-regional trade among the 15 member states of the Economic Community of West African States constituted a mere 10% and 15% respectively of the subregion's total trade last year. In Central Africa the failure of region-building efforts can be directly attributed to difficulties such as the inability of the Congo to play a leadership role due to it being a weakened state wracked by conflicts. In North Africa the countries of the Arab Maghreb Union (AMU), which has a combined gross domestic product of $414bn, share a cultural, linguistic, and religious heritage, but intra-regional trade was a paltry 5% of the Maghreb's commerce last year and the AMU has been moribund for 20 years.

To overcome subregional and continental barriers to economic development, the Southern African Development Community (Sadc), the EAC and Comesa concluded a tripartite agreement in 2008 involving a free-trade area for their 26 member states.

The initiative aims to boost intra-regional trade; attract investment for development; promote cross-regional infrastructure projects; and remove the costs of overlapping regional memberships by harmonising integration programmes. Progress, however, has been slow.

African governments should create dedicated ministries of economic integration vested with the authority to implement trade agreements. Both the African Action Plan of 2010-15 and the Programme for Infrastructure Development in Africa of 2011-40 need to be implemented urgently.

Building regional infrastructure must be done speedily to exploit regional growth for larger markets, particularly for Africa's 15 landlocked countries, while transport corridors need to be established for goods to reach markets and people. Africa is in dire need of better-managed water resources, electricity production for agriculture, industry and mining, and communications that will further intra-regional trade.

Some of the best practices to facilitate trade include the "one-stop border post", which can help expedite procedures at cross-border points on transport corridors across Africa's subregions. Development agencies and regional banks have promoted infrastructure development in Asia and institutions such as the African Development Bank, the Development Bank of Southern Africa and the Brics' New Development Bank should do the same in Africa. This role cannot be left to governments. Africa needs a developmental approach to market integration.

Finally, institutions must be established that are functional equivalents, rather than poor imitations, of their European counterparts. Rules to promote the harmonisation of domestic economic policies also need to be established in the critical area of monetary union.

Governments and regional bodies in Africa should strengthen their consultation mechanisms to give domestic interest groups such as civil society and the private sector a greater voice in, and enhance the transparency of, region-building efforts in Africa.

Nagar is a researcher and Daniel a senior project officer at the Centre for Conflict Resolution (CCR). This article is based on a longer CCR report, Region-Building and Regional Integration in Africa.

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