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Africa: African Regional Integration Efforts

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Original Post Date: 2011-01-01 Time: 09:00:05  Posted By: News Poster

By Modikai Kunyadza

Regional integration efforts in Africa pre-date independence.

The economic rationale of these endeavours has always been to exploit benefits associated with an increase in market size. Given the predominance of small and landlocked countries, integration is seen as the way to go.

Africa has always viewed integration in light of achieving modernisation, industrialisation and growth through securing economies of scale and market access. The success of similar arrangements in Europe and the Americas has provided sufficient evidence of the potential benefits which can accrue from integration.

African economies have made huge strides towards overcoming challenges posed by the small sizes of their domestic markets. Efforts have been done to avail producers the opportunities to realise economies of scale and benefit from the establishment of regional infrastructure. Regional policy changes have been formulated and presented for implementation in all areas that affect trade and that need to be harmonised. This includes aspects such as investment incentives and tax regimes, tariffs, legal and regulatory issues, financial sector and labour market reforms among others in order to enable countries to benefit from a common pool of regional institutional and human resources. This has also been done with the view to strengthen the economies’ bargaining power so as to survive economically against the threat of marginalisation in the globalisation process.

However, all these endeavours have not achieved much in terms of curbing the marginalisation of Africa in world trade. Why then has African trade continued to perform dismally? A myriad of factors are responsible for failure by African integration efforts to improve regional economic growth.

The success of the majority of efforts has mainly been hindered by lack of political commitment by member states. Integration is sometimes hindered by real or perceived losses among members which include loss of national sovereignty. Agreements are entered into and signed enthusiastically but this has not been followed by member economies’ governments fully committing themselves to implementation. Pacts have often been followed by half-hearted, inadequate policy implementation as well as policy reversals. This has been followed by retaliations resulting in other arrangements totally falling away. As a result, no significant trade expansion has occurred in Africa notwithstanding the existence of regional trade arrangements over several years.

High transaction costs are another obstacle to African trade. These mostly emanate from inadequate transport and transport networks, communication infrastructure as well as information. In addition, trade regimes in Africa are arguably the most restrictive in the world, being punctuated by high tariffs and high degrees of tariff escalation as well as inconsistent and unpredictable exemptions. It is also characterised by informal barriers like the rejection of certificates of origin and conflicting customs procedures.

Multiple affiliations to several trade arrangements have also limited the ability of African economies to meaningfully benefit from such arrangements. African countries are members of several groupings and/or sub-groupings. The objectives of these groups sometimes compete, clash or overlap amongst themselves rather than complementing each other. The costs of maintaining multiple membership thrusts a heavy financial strain on the economies. Added to this are the administrative costs related to the often complex rules of origin. This imposes unnecessary strain on harmonisation and coordination resulting in wasteful duplication given Africa’s limited resources.

From an economic standpoint, economic growth is positively correlated with accumulation of factors of production as well as an efficient technology mix. However, it is evident that African economies have not been able to attract sufficient inflow of development and foreign direct investment which is necessary for capital formation in spite of a fair economic climate that exists in some regions. Besides, African technology is inefficient therefore economies can neither increase nor diversify production. As a logical result, African economies do not have a diversified product mix and usually rely on primary products. This has led to integration results falling far short of aspirations.

A lot therefore needs to be done if integration in Africa has to achieve results similar to those obtained elsewhere.

Firstly, all participating members to any agreement should move from mere political rhetoric to timeous implementation of agreements. In order for this to happen, parties should conduct intense consultations with the private sector and civil society to enhance policy ownership rather than coming up with policy surprises to other stakeholders which oftentimes result in inconsistencies and inefficiencies in implementation as well as policy reversals.

Governments should avoid affiliating to multiple economic groupings as this only serves to put a financial and administrative strain on their resources. Although the decision to join an economic grouping in Africa is usually a political one, this should not be driven by mere political motives. Rather, it should be based on a careful analysis of the associated benefits and costs as well as comparative advantage.

There is also a need for a unified effort to effectively reduce costs associated with African trade. This, among other things, includes the integration of financial markets. This helps reduce risks of sharp differences in effects of monetary policy measures which are currently high due to the fragmentation of the markets. Financial markets integration also helps pool resources at a regional scale to help overcome cross-cutting regional challenges. Tariff and non-tariff barriers to trade also need to be revised with the view to encouraging easier movement of goods.

The success of African integration efforts also hinges on the availability of technical and financial resources. A conducive investment climate needs to be created across regions in order to attract resources through foreign direct investment and international support. It is also necessary to actively involve the private sector in the integration process in order to unlock resources in the hands of local investors.

Equally important is the need to have powerful implementation, monitoring and arbitration structures to oversee and enforce strict adherence to provisions of agreements as well as settling of disputes. Ideally, such structures should be independent of any member government in order for them to discharge their duties without fear or favour.

Modikai Kunyadza Dumbu is an independent economic commentator.

Original date published: 16 December 2010

Source: http://allafrica.com/stories/201012220105.html?viewall=1