Linda Calabrese, Neil Balchin and Maximiliano Mendez-Parra (ODI)
15 June 2016
Africa’s regional economic communities (RECs) are looking to achieve deeper regional integration that goes beyond reducing tariffs. This has generated greater focus on trade facilitation to ease the movement of goods across borders and promote economic transformation. A recent paper prepared jointly by the African Center for Economic Transformation (ACET) and the Overseas Development Institute’s (ODI’s) Supporting Economic Transformation (SET) programme argues that, if implemented effectively, trade facilitation initiatives can help stimulate economic transformation in Africa by raising exports, supporting export diversification, reallocating resources to more productive activities, improving access to cheaper and better-quality imported inputs and enabling participation in value chains.
African RECs are also increasingly recognising the importance of promoting the free circulation of services, labour and capital in order to create truly integrated regional markets. For example, the East African Community (EAC) has made strides in harmonising academic and vocational qualifications in order to facilitate the circulation of professionals in the region.
There is also greater recognition that moving towards deeper integration requires regional solutions to development challenges. This is reflected in attempts to develop regional approaches to industrialisation in the EAC and in the Southern African Development Community (SADC).
But deeper regional integration comes with implementation challenges
Notwithstanding these intentions, progress in terms of implementation has been less impressive. Regional economic agreements are complex, and they often create both winners and losers, making them difficult to implement – especially if national governments fear that specific regional agreements will harm domestic sectors, firms or households. Competing national agendas (e.g. when regional commitments are not aligned with a country’s industrial policy requirements) often take priority for individual governments.
The way forward is a ‘smart’ integration agenda for Africa
A smart regional integration agenda is required to address these implementation challenges and facilitate deeper regional integration in Africa. We believe this agenda should be built around a 10-point charter, focused on the following actions:
1) Address productive capacity in Africa and eliminate barriers to regional exports. The industrial policies of African governments (especially the least developed countries on the continent) must focus on developing international competitiveness rather than trying to develop local industries behind protective barriers. Regional exporting offers opportunities for African exports to exploit scale effects and become more competitive, while also reducing their dependence on traditional trading partners and raising their resilience to external shocks. Encouragingly, a recent SET paper shows that intra-African manufacturing exports have grown considerably since 2005, and account for the bulk of manufacturing exports in several African countries.
2) Invest more in developing and upgrading regional infrastructure (roads, railways, ports) to facilitate regional integration. Options to raise funds for regional infrastructure could include spending a greater share of Aid for Trade on regional infrastructure and incentivising regional programmes by making funds more concessional.
3) Focus, in particular, on improving soft infrastructure, for example by eliminating barriers to the provision of (regional) trade logistics services, improving their efficiency and reducing their cost. This can be facilitated by identifying lead governments, encouraging private sector participation and allowing flexibility to work with RECs or small groups of countries. A recent ODI publication highlights the importance of regional infrastructure for trade facilitation and the complementarities between hard and soft infrastructure in supporting trade. Collaborative, cross-country approaches to developing regional hard and soft infrastructure can be more efficient than those taken unilaterally or at the country level. For example, creating a well-functioning trade corridor requires a good degree of regional planning.
4) Ensure trade in services is included in the broader regional integration agenda. It will be important to link services negotiations (both at the multilateral level and within African RECs) to regional infrastructure priorities and focus on regulatory issues in services, including those related to standards and investment.
5) Ensure the private sector is a key actor in driving the regional integration agenda. The private sector not only should benefit from regional integration (e.g. through access to larger, regional markets) but can also play a key role as an implementer in the regional integration process. For instance, the private sector can help identify and eliminate non-tariff barriers hampering regional trade, it can exert influence and lobby for national or regional regulatory environments that are more conducive to regional integration and it can help provide and maintain the physical infrastructure (roads, railways, ports) and services (telecommunications, financial, logistics) necessary to support regional integration.
6) Be pragmatic in the sequencing of regional integration processes. Identifying champions as first movers can pave the way for others and demonstrate the advantages of further regional integration involving more difficult reforms.
7) Monitor regional integration commitments effectively. Regional commitments need to be binding and enforced, and it is important to ensure they are acted upon, with consequences for non-compliance.
8) Generate more evidence on the impact of regional integration. This should include, for example, evidence on how regional integration affects the development of domestic manufacturing sectors, or the impacts it has on employment and poverty; and how these effects are distributed across sectors and populations. We need the tools to measure these impacts effectively. This requires better data that are collected specifically with the intention of isolating the effects of regional integration and are comparable across countries.
9) Identify and compensate those that lose out in the regional integration process. Regional integration raises national income but creates winners and losers. For example, a recent ODI research paper shows that small-scale traders may benefit from smoother borders through access to a larger market for their products. However, we also know that some vulnerable groups depend on inefficiencies at border crossings – for example workers who help load and unload trucks. In aggregate, an integrated, dynamic region can generate new employment opportunities that outweigh the loss of livelihoods that may accompany regional integration. Even so, this does not eliminate the need to effectively identify winners and losers at an early stage of the regional integration process and to implement appropriate policies that specifically address issues relevant to the poor and vulnerable.
10) Adopt an iterative, adaptive and flexible approach to the regional integration process. Governments and regional bodies should have the space to experiment with policy interventions and adapt them when needed.
The regional integration process in Africa is at an important juncture, with the ongoing negotiations around the Tripartite Free Trade Area (involving the Common Market for Eastern and Southern Africa, the EAC and SADC) and a proposed Continental Free Trade Area providing a platform to push for further integration. Cooperating around a smart integration agenda can help build larger, more integrated regional markets in Africa and promote shared growth and prosperity on the continent.
Acknowledgement
The authors are grateful for the input of participants at a roundtable on trade and regional integration in Africa (organised jointly by ODI and the Saana Institute on 18 April 2016), who contributed significantly to shaping the ideas put forward in this post. The roundtable included participants from the Commonwealth Secretariat, European Centre for Development Policy Management, the International Centre for Trade and Sustainable Development, ODI, the Organisation for Economic Co-operation and Development, Saana, Tralac, the UN Economic Commission for Africa, the University of Sussex and the World Bank.
Photo credit: Pete Lewis, Department for International Development