REGIONAL ECONOMIC INTEGRATION IN AFRICA
By Geoffrey Kabakaki
Introduction
Regional economic blocs are expected to act as the nerve centres of the regional economic integration process in the African continent. In theory they are entrusted with unique responsibility for:
· Conceiving and monitoring the implementation of related policies and programmes
· Mobilizing necessary resources to support such policies and programmes and
· Improving governance in all aspect of socio-economic life in their respective areas.
Major issue is whether sub-regional groupings serve as building blocks or stumbling blocks to the continental wide integration process. Does the overlapping membership of African countries lead to a loss of efficiency and thus call for reconfiguring regional economic communities in order to ensure that they serve as building blocks? Should the economic communities be given supranational authority to enforce common decisions? These questions and others are worth exploring beyond theoretical expectations, to evaluate the prospects of realizing continental wide economic integration.
Classification of Regional Agreements on Trade and Economic Integration
Regional Trade Agreements (RTAs) involve member countries applying lower tariffs or lower non-tariff measures to import from member countries other than from the rest of the world. Agreements that accord more trade preferences to member countries than offered to other trading partners are commonly referred to as Preferential Trade Agreements. RTAs which accord zero tariffs to member countries are called Free Trade Agreements (FTA)
Bilateral Trade Agreement (BTA), involves two countries from the same or defferent regions.
Customs unions involve member countries of the RTA applying a common external tariff, whereas, in Common Market member, countries agree on free movement of goods (elimination of tariff and NTB), free movement of services, free movement of capital and free movement of persons.
In Economic and Monetary Union; member apply common currency and monetary policy including coordination of fiscal policy.
Traditionally these forms of economic integration were regarded to develop over time from PTA, FTA, Customs Union, Common Market and EMU. The major example of this integration process is the European Union, however the process varies from one region to another, for example the East Africa Community decided to implement FTA together with the Customs Union over a transition period of 5 years. In ASEAN, the external tariffs remain heterogeneous, AFTA is phased-in over many years and excludes some goods, but members introduce steps towards free movement of services and capital, as well as monetary coordination.
Regional Trade Agreements (RTAs) in African
Currently, Africa has 14 regional integration blocs, with two or more sub regions in almost all blocs. In West Africa there are West African Economic and Monetary Union (UEMOA) and the Mano River Union (MRU) coexist with the Economic Community of West African States (ECOWAS). Central Africa has three groupings: the Economic Community of Central African States (ECCAS), the Central African Economic and Monetary Community (CEMAC), and the Economic Community of Great Lakes Countries (CEPGL). East and Southern Africa intergrates in six regional economic communities: the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC), the Inter-Governmental Authority on Development (IGAD), the Indian Ocean Commission (IOC), the Southern African Development Community (SADC) and the Southern African Customs Union (SACU). North Africa hosts only the Arab Maghreb Union (UMA).
Many African countries are members of more than one regional economic bloc. In East and Southern Africa some countries are members of both SACU and SADC or COMESA and SADC or EAC and SADC. In West Africa many countries that belong to ECOWAS also belong to UEMOA.
The African continent is the most regionalized among regions in the world particularly RTAs concluded among African countries. Surge in concluding RTAs in most African regional took place since 1980s, whereby 14 RTAs are in existence in Africa with 184 regional trade agreements in force and notified to the World Trade Organization (WTO). In addition, the WTO Anticipates 70 additional RTAs to be in force however, this number is under negations.
Currently, Regional Trade Agreements (RTAs) have influenced the formulation of multilateral trade policy and trade under RTAs has increased substantially over the past decade.
The challenge of overlapping membership of large groups and the existence of smaller groups within large groups have sparked a debate over what is sometimes referred to as the “variable geometry approach”. Some argue that the overlapping membership contributes to progress. In similar manner, the concepts of variable geometry and subsidiary could also be useful in Southern Africa in relations to the PTA in COMESA, SADC and SACU. But others argue that multiple membership hinder regional integration by among other things, leading to duplication of effort. This line of thinking, premised on rationalizing membership, seems more consistent with the Abuja Treaty, which aims at continental wide integration. The overlapping membership extends to the country level. Out of 53 African countries, 26 are members of two regional economic communities, and 20 are members of three. One country, the Democratic Republic of Congo belongs to four. Only 6 countries maintain membership in just one regional economic community. It seems that African countries chose to belong to two or more regional economic communities to pursue integration on multiple tracks.
Many studies on African integration have pointed out difficulties posed by multiple regional economic communities and their overlapping membership. It has been identified that in all African sub regions several regional economic communities pursue essentially identical mandates and objectives, leading to wasteful duplication of efforts. The overlapping among regional economic communities also tends to dissipate collective efforts towards the common goal of the African Union. Moreover, it tends to muddy the goals of integration and lead to counterproductive competition among countries and institutions.
The overlapping regional economic communities also add to the burdens of member states. A country belonging to two or more regional economic communities not only faces multiple financial obligations, but must cope with different meetings, policy decisions, instruments, procedures, and schedules. Customs officials have to deal with different tariff reduction rates, rules of origin, trade documentation, and statistical nomenclatures. The range of requirements multiplies customs procures and paperwork, counter to trade liberalization’s goals of facilitating and simplifying trade.
The Abuja Treaty for establishing the African Economic Community embodies Africa’s will transform itself from a continent of individual least developed and developing economies to a strong, united bloc of nations. The Treaty calls for forming the African Economic Community in six phases over 34 years. The first phase focuses on strengthening the regional economic communities to become effective building blocks for the African Economic Community. The communities are expected to resolve into free trade areas, customs union, and eventually, a common market spanning the continent.
Coordination and harmonizing the activities of the regional economic communities have been among the key concerns of the African integration agenda. The African Economic Community Treaty devotes a chapter to the need for the communities to march in unison. The recent Constitutive Act of the African Union reiterates the importance of a harmonious approach to realizing the union. Forging this unity of the purpose and action requires a solid political consensus. With coordination and harmonization imperative for successful regional integration in Africa, bringing the regional economic communities together has become a key challenge.
Prevailing signs indicates that African economic communities have taken up this challenge and have stated consulting among them. For example, in West Africa the growing rapport between ECOWAS and UEMOA has borne fruit in a common programme of action on trade liberalization and macroeconomic policy convergence. ECOWAS and UEMOA have also agreed on common rules of origin to enhance trade, and ECOWAS has agreed to adopt UEMOA’s customs declaration forms and compensation mechanism.
In Central Africa ECCAS is adopting trade regimes that takes into account the dispensations in CEMAC, while in East and Southern Africa IGAD and IOC are applying most of the integration instruments adopted by COMESA, while the EAC and COMESA have concluded a memorandum of understanding to foster harmonization of their policies and programme. COMESA and SADC have set up task force to deal with common issues and to invite each other policy and technical meetings. At continental level, the protocol on the relationship between economic communities and the EAC provides for a coordination committee that meets at the level of chief executives.
These initiatives improve the prospects of narrowing discrepancies among the regional economic communities, overcoming the problems of overlapping membership, and accelerating progress towards the African Union. Even so, these self-driven efforts by the regional economic communities need the support of a strong continental coordinating mechanism. At the moment, coordination appears ineffective. Moreover, it is necessary to combine self-driven efforts with international bilateral partisanships, most notably the Cotonou Agreement and the establishment of economic partnership agreements, to complete the evolution of free trade areas into customs unions and deeper forms of economic integration.
Moreover, many regional economic communities have yet to align their treaties with the African Economic Treaty or to ensure that their activities and programmes conform with the requirements of continental wide integration. Several issues need to be addressed, namely
· More intensified exchange of information among the regional economic communities
· Greater efforts to coordinate sector policies and harmonize programmes (with a convener institution for each sector)
· More coordinated national policy making and African Economic Community provisions, to ensure consistency between government commitments with the African Economic Community and their commitments within the regional economic communities.
Most of the protocols, decisions, and agreements for economic integration are to be implemented at the national level. National mechanisms are needed to plan, organize, coordinate, and follow up on each country’s commitments. Some countries already established such a mechanism, including specific ministries to deal with integration issues. Others have yet to do so. In some cases the mechanism is too loosely defined or insufficiently equipped with human, material, and financial resources.
The design of institutions for economic integration directly affects the implementation of regional economic integration agreements. The weaknesses of national mechanisms explain several problems:
· The failure of governments to translate their commitments under regional treaties and arrangements into substantive changes in national policies, legislation, rules, and regulations.
· The unwillingness of governments to subordinate immediate national political interests to long term regional goals which would have much higher payoffs for long term national welfare or to cede essential elements of sovereignty to regional institutions.
· The absence of monitoring and enforcement mechanisms to ensure adherence to agreed timetable on such matters as reducing tariffs and non tariff barriers or achieving more difficult objectives, such as macroeconomic stabilization.
· The frequent failure of national policymakers to take into account the provisions of the African Economic Community and countries’ involvement with regional economic communities.
Financing Regional Integration in the African Continent
Inadequate financing is one of the main barriers to Africa’s integration processes. Financial resources to support the regional economic communities come mainly from assessed contributions, but external assistance has been the prime sources of financing their operations. Actual contributions have been declining over time and external contribution, in some cases, is no longer as forthcoming and sufficient to meet the needs of the regional economic communities. This disturbing trend needs to be considered against the backdrop of a major shift in the African integration landscape – that is the advert of the African Union and the ongoing global financial crisis.
The inevitable result has been an unhealthy financial situation. Consider for example the three regional economic communities – CEMAC, COMESA and SADC, there is evidence that in some years CEMAC and COMESA have received less than half of the assessed contributions from member states. For COMESA and SADC extra budgetary resources have outweighed member contributions. The gap between the needs of the regional economic communities and members contributions is large, and projections indicate that it will grow, as indicated in table 1 below. The assessment of the contribution trend also indicates that most of member countries do not achieve the targeted annual contribution objectives., this impedes the ability of the regional economic communities in fulfilling their provided objectives.
Table 1
Rate of Collection of Assessed Contribution by CEMAC, COMESA and SADC 1991 – 1998 (%)
| Year | CEMAC and COMESA | CEMAC, COMESA, and SADC |
| 1991 | 100.0 | 100.0 |
| 1992 | 55.0 | 77.5 |
| 1993 | 100.0 | 100.0 |
| 1994 | 80.0 | 90.0 |
| 1995 | 44.8 | 73.7 |
| 1996 | 47.4 | - |
| 1997 | 48.1 | - |
| 1998 | 51.9 | - |
- Not available
Source: Economic Commission for Africa
The situation of these regional economic communities is representative of that of most others
- The regional economic communities that require equal contributions from members have to use the capacity of the smallest contributor to set the standard. For these, the budgetary cannot match needs and may remain too small for a long time. The East Africa Community is the main user of this model.
- The regional economic communities that base contributions on equity determine members’ contributions according to their capacity to pay. While this approach is defensible in principle, over time the major contributors become reluctant to carry the main burden of financing the budget. This led to the collapse of the West African Economic Community (CEAO) when Ivory Coast and Senegal retained funds owed to the organization.
Many regional economic communities in Africa are in the process of establishing mechanisms for self financing their budgets. But these schemes must be carefully negotiated by countries to preserve their unique features:
- The autonomy of accrued resources from national budgets
- The automatic nature of the levy, to ensure a regular flow of resources
- The steady growth and sustainability of resources. The flow of resources should at least maintain the capacities of regional institutions and, ideally, support the expansion of integration activities through steady growth.
- The equity of contributions. Self financing mechanisms must be equitable to ensure long-term viability. Equity does not mean mathematical equality but relative equality based on countries’ capacity to contribute.
So far the question of financing regional integration in Africa has mainly confined to the functioning of the African Economic Community and the regional economic communities. With the African Union, the magnitude of the issue has changed. The spectrum of financing requirements goes beyond the operating g expenses of the regional economic communities to providing resources for the meetings of the Union Assembly of Heads of State and Government, the Pan-African Parliament, the Executive Council, and the Economic, Social and Cultural Council, and for running the Commission.
If the Union is to make a decisive difference to the African Economic Community, the financial institutions foreseen in the African Union Constitutive Act – the African Central Bank, the African Monetary Fund, and the African Investment Bank – must become effective, operational, and sustainable. It is imperative that a holistic financing strategy be put in place that takes into account the short, medium and long term financing needs of the African Union, the regional economic communities, and other ancillary entities and technical arms, including the Pan-African Postal Union, the Union of African Railways, river basin organizations, and the like. By virtue of their specialized functions, such entities must also be strongly supported because they have certain comparative advantages that can complement the activities of the regional economic communities, advancing the African Union and Africa’s integration
Trade covered by RTAs in Major regions is expected to grow.
Share of intra-RTA trade (Imports) in total trade by region
| | 2000 | 2005 estimate |
| Western Europe | 64.7 | 67.0 |
| North America (incl. Mexico) | 41.4 | 51.6 |
| Transition economies | 61.6 | 61.1 |
| Asia | 5.6 | 16.2 |
| Africa | Less than 1 | 1 |
| WORLD | 44.2 | 52.2 |
Source: WTO World Trade Report 2003
As can be noted from the table above, the share of trade covered by RTAs in African is small despite the fact that many RTAs exist. But not all intra RTA trade uses preferential rates because
· Not all trade fulfils rules of origin criteria of RTA
· Administrative costs for firms may be higher than benefits from preferential tariff rates
· MFN rate and preferential rate may be identical or almost equal to zero.
Furthermore Regional Trade Agreements concluded in African region vary considerably in style and design. This is means that:
· Some follow a positive list approach especially in the early period of establishing a regional trade agreement and take the form of country-by-country; item-by-item; or partial elimination of tariffs and other trade barriers.
· Other especially in those concluded in early 1980s follow negative list approach, that is across the border liberalization with exceptions, and
· Some agreements pursue deep liberalization and include steps towards a common market.
An example of agreements that adopted a positive list approach in concluding trade liberalization in Africa includes the East Africa Customs Union, SADC, COMESA and ECOWAS
An example of agreement for deep liberalization includes the EAC Community that contains provisions on issues such as competition policy, government procurement, trade remedies and the establishment the common market among them.
Recently countries have developed economic cooperations that are different from regional trade agreements; examples of these co operations include the APEC. Such economic cooperations are based on the concept of open regionalism, non discriminatory, non-binding trade arrangement and covers trade liberalization and facilitation of trade in goods and services including investments. They are geographically based cooperation and are private sector driven with underlying objectives of growth triangles. Such economic integration as absent in Africa and this call for the need to explore this model.
Despite the fast growing of RTAs in Africa, Bilateral Trade Agreements (BTA) have also substantially grown. Many concluded bilateral trade agreement contain wide range of measures relating to tariff liberalization, reduction of non tariff measures in goods and services, investment liberalization, private sector cooperation, liberalization of movement of persons, and exchange of experts. Recent trend has indicated that bilateral approach seems to be faster than multilateral or regional approach in liberalizing trade, but the inclusion of sensitive areas has complicated the growth of BTAs.
Several reasons have been put forward for the rise in BTAs, ranging from the defensive strategy following from fear of being excluded to political factors. The political factors relate to issues of combining security or other political interests with benefits of trade.
Economic Consequences of Regional Trade Agreements
The basic economic effects of RTAs are trade creation, trade diversion and liberalization of international trade. Trade creation occurs when a lowering of barriers to trade leads to an increase in imports from RTA partner countries, while trade creation is beneficial for the exporting partner country. The net effect of trade creation is beneficial for the importing country, as consumers gain more than producers may lose. But trade creation is not harmful for non members of the RTA.
The trade diversion occurs when imports from non-member countries are replaced by imports from a RTA members, the net effect indicates that the exporting RTA members gain, the previous non-RTA exporting countries lose and the net effect in the importing RTA members is negative. Consumers gain due to lower prices, but the loss of government revenues is higher. If the RTA removes non tariff barriers (NTBs) instead of tariffs, the importing member countries benefit.
Trade economists have identified direct and indirect implications of regional economic agreements. Direct implications occurs if the most efficient countries are part of RTA, implications effects are positive, but if the partner countries are less efficient, RTA may have negative effects. However, there are also important indirect effects taking place. That is through substitution effects, producers of goods not covered by the RTA are affected either positively or negatively or the rest of the world may gain from beneficial RTA through positive income effects.
Regional Trade Agreements (RTAs) and Foreign Direct Investments
Regional Trade Agreements (RTAs) have positive influence on the nature and type of FDI to be attracted in the region.
· Industries with horizontal FDI, intra-regional FDI might decline, but inter-regional FDI might increase
· In industries with vertical FDI, both intra-regional and inter-regional FDI may increase
· Economies of scale may increase the impact of RTA on investment flows
· In industries where investment in irreversible and long-lasting, RTA may influence the outcome and future prospects of multilateral agreements
Effects of Regional Trade Agreements (RTA) on Migration
· In general workers have an incentive to move to high wage region/countries
· Movement of capital may mitigate incentive for workers to migrate
· If RTAs lead to intra-regional specialization, mobility of specialized workers may increase
· Impact of RTA on average wages and on wage distribution is difficult to assess, impact depend on inter alia, on labour markets institutions, market structure and specialization pattern
Negotiations of agreements entails, substantial costs relating to participation in both RTA, BTA and multilateral agreements
Regional Economic Communities in Africa and Multilateral Commitments
Most African countries are partly to the multilateral trading system by virtue of their membership in the World Trade Organization (WTO) and thus subject to its core principles of open and liberal trade policies, because of the key principle of equal treatment to all WTO members, or non discrimination in granting trade preferences such as lower tariffs, embodied in the most favoured nation clause. But an exception to this principle is granted under Article XXIV of the General Agreement on Tariffs and Trade (GATT 1994) for WTO members forming regional trading arrangements – customs union, free trade areas and interim arrangements leading to these.
GATT Article XXIV allows the members of regional trading blocs to offer more favourable trade terms to other bloc members without extending them to other WTO members. But it also protect the trade interests of non member countries by insisting that the regional arrangements:
· Remove tariffs and non tariff barriers on nearly all trade among members
· Not result in higher barriers to trade with other WTO members than those in effects before the accord
· Remove tariffs and non tariff barriers to trade within 10 years or less
· Be promptly reported to the WTO for review by its members, which can make recommendations to ensure consistency with WTO rules.
· Be subject to dispute settlement provisions.
As long as a regional trading arrangement conforms to Article XXIV, no compensation need be paid to other WTO members even if imports into the trading bloc are displaced as a result of the trade preferences. The General Agreement on Trade in Services (GATS) provides disciplines for preferential agreements covering services similar to the discipline for those covering trade in goods. Regional trading arrangements covering trade in goods can be reported to the WTO under Article XXIV of the GATT. But those involving only developing countries can instead be reported under the less stringent provisions of Paragraph 2 (C) of the Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries – commonly known as the Enabling Clause. All preferential agreements covering trade in services are reported under Article V of the GATS regardless of membership. But agreements involving developing are allowed to cover fewer services.
Economic communities in Africa are viewed as regional trading arrangements and thus are subject to GATT Article XXIV and the less stringent Enabling Clause. Article V of the GATS is less relevant for the African regional economic communities because their trading arrangements generally focus on trade in goods. Many developing countries have reported regional trading arrangements under the Enabling Clause rather than under GATT Article XXIV. All four of the Africa regional economic communities that were reported to the WTO were reported under the Enabling Clause, namely COMESA on 29 June 1995, UEMOA on 3 February 2000, CEMAC on 29 September 2000 and the EAC on 11 October 2000. No WTO member requested specific examination of any of these regional trading arrangements for consistency with WTO rules or agreements.
Conclusion
Effective institutional mechanisms and capacities are the central ingredients for a successful integration process. The regional economic communities with their member states have a major role to play in developing and sustaining such effectiveness through appropriate policies and the provision of necessary political, material, and human resources.
This paper has raised some of the key institutional issues and challenges impinging the regional integration in Africa. These include the multiplicity of regional economic communities and overlapping membership, weak interface between national and regional policies manifested in the failure to enact or adjust national regulations in tune with the integration agreements, slow ratification and implementation of protocol, and poor compliance of regional arrangements with WTO requirements on regional trading blocs. Parallel to this backdrop is inadequate financial resources to implement an array of important integration programs and projects.
Furthermore, there are different views on the overlapping regional economic communities issue; some analysts believe that multiple integration groupings complicate the overall continental integration process and put enormous strains on governments’ ability and resources to cope with diverse agendas and exigencies. Others contend that the variety provided groups of countries the leeway to pursue fast track agendas or to maximize their benefits and minimize their losses by not banking their expectations in only one bloc. Many questions about overlapping membership require further analysis and research to consider the following:
· Do they require radical rationalization through the amalgamation of smaller regional economic communities into larger regional groupings?
· Should the status quo be maintained under mandatory, but not loose, mechanisms to enforce coordination and harmonization of regional economic communities’ policies, mandates, and programs?
· Are regulatory principles needed to govern country membership in more than one regional economic community at the same time? Are existing continental mechanisms adequate and effective to ensure coordination and harmonization between and among regional economic communities?
The regional economic communities would also need to align their policies and programmes with reference to continental objectives and the eventual convergence of sub-regional goals. To this end, they are required to form their positions under the leadership of the Africa Union. But to enhance this leverage and to position themselves effectively for the current negotiations with WTO as well as with the European Union under the Economic Partnership Agreements, the regional economic communities should work together, harmonize their positions and views, and share experiences. In all these endeavours, their efforts could be amply rewarded when they fully involve the private sector in designing the policies and indeed in sharpening the strategies for negotiations.
For example, Lyakurwa and others (1997, p. 196) contend that “in the African context, such an
approach of variable geometry could, for example, mean making genuine progress at
For example, Aryeeteyand Oduro (1996) quote McCarthy as arguing that “it is difficult to envisage how
SADC and COMESA, given their convergence to both sectoral cooperation and trade integration, can live and prosper with the overlapping membership of the Southern
African countries”
