Regional and Market Integration

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Regional and Market Integration

Presenter: H.E. Dr. Maxwell MkwezalambaPosition: Commissioner for Economic AffairsOrganisation: African Union Commission(AUC)

Fax: +251 11 551 02 49Email: [email protected]@yahoo.com

16th African Partnership ForumOECD HeadquartersParis, France: 21 Apri l 2011

UNION AFRICAINE AFRICAN UNION UNIÃO AFRICANA

mailto:[email protected]:[email protected]:[email protected]:[email protected]


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OUTLINEI. Introduction: The African integration Agenda

II. Overview on the Status of Regional and Continental Integrationin Africa

III. Prospects for Advancing Integration in the Continent

IV. Constraints to Regional and Market Integration in Africa

V. How Development Partners can Support Integration in Africa

VI. Conclusion

Background Paper: Regional and Market Integration2


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I. INTRODUCTION

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Definition: Economic integration can be defined as a process involving theelimination of economic frontiers between two or more economies in theexchange of goods and services (Balassa, 1961; AUC, 2010).

Deeper integration: Market integration

Cornerstones of market integration: the ‘Four freedoms’ Free Movement of Persons

Free Movement of Goods Free Movement of Services Free Movement of Capital

Economic and social benefits of integration for Afr ica: boost intra-Africantrade, promote sustainable growth and prosperity, address supply sideconstraints, diversification of the productive base, widen the economic space,provide economies of scale for production, improve competitiveness andeconomic efficiency, foster technology and knowledge transfer as well astechnological progress, boost investment, pool resources to address public

goods, promote regulatory and legislative reforms and increase the Continent’sbargaining power at the international level.

Background Paper: Regional and Market Integration


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I. INTRODUCTION

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History of Africa’s Integration Endevours Integration - a key component of Africa’s development and transformation strategy

to counter the negative effects of its small, balkanized and globally marginalized

economies: April 1980: Lagos Plan of Action and the Final Act of Lagos; June 1991: Treaty Establishing the African Economic Community (AEC)

commonly known as the “Abuja Treaty”;

September 1999: Sirte Declaration; July 2000: Constitutive Act of the African Union; and July 2001: New Partnership for Africa’s Development (NEPAD); 2007: the Accra Declaration of on the creation of a Union; and 2004-2007 and 2009-2012: African Union Commission (AUC) Strategic Plans.’

Current global context of Africa’s integration: Rapidly changing economic landscape;

Globalisation;

Formation of numerous regional blocs around the world; and The global financial and economic crises.



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I. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL

INTEGRATION IN AFRICA

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Stages ofthe AbujaTreaty

Stage one:1994-1999

Stage two:2000- 2007 Stage three: 2008-2017

Stage four :2018-2019

Stage five:2020-2023

Stage six: 2024-2028latest 2034

RECs Strengtheningexisting RECsand creationof new RECswhere they donot exist

Coordinationandharmonizationof activities

Gradualeliminationof tariff andnon tariffbarriers

Free Trade Area

CustomsUnion

ContinentalCustoms Union

Establishmentof an AfricanCommonMarket

Monetary andEconomic Union

IGAD study inprogress

in progress Not yet This stage willbe achievedwhen all RECshave achieveda CustomsUnion andharmonized

their respectiveCET, with aview of creatingone singleContinentalCET.

This stage willbe achievedwhen all RECshave achievedthe ContinentalCustomsUnion as well

as freemovement oflabour andcapital.

This stage will beachieved whenall RECs haveachieved AfricanCommon Marketat which timethere will be a

commoncurrency, issuedby the AfricanCentral Bank.

SADC 2011-

CENSAD inprogress

Not yet

ECOWAS 2011

COMESA

ECCAS 2011

EAC

Progress vis-à-vis the Abuja Treaty (Article 6: six stages of integration)


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I. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL


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Progress vis-à-vis the Abuja Treaty

Realization of the African

Economic Community (AEC)

Regional Free Trade Areas

Regional Customs Union

Continental CustomsUnion

Continental CommonMarket

Economic and Monetary

Union

Strengthening existingRECs

Coordination and

harmonization ofactivities

1994 2010

Abuja Treaty Stages

1999 2007 2017 2019 2023 2028-2034

COMESA

EAC

ECOWAS;ECCAS;SADC

IGAD

CEN-SAD

Stage 1

Stage 2

Stage 3

Stage 4

Stage 5

Stage 6

Strengtheningexisting RECs

Coordinationandharmonizationof activities

Regional Free Trade Areas and RegionalCustoms Union

ContinentalCustomsUnion

ContinentalCommonMarket

Economic andMonetary Union


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II. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL


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Key integration sectors: ProgressTrade

Low Intra-African trade :10-12%, small compared to other regions inthe world

Africa trades little amongst itself

European Union (EU) and the USA: accounting for over 60% of Africa’s

export market and an important source of its imports China and India : growing as important export destinations

Structure of African economies Global Share of African exports: 2.5 %, a net decline from 10% in the1950s

Global share of FDI inflows: only 2-3%

Share of world GDP: 1%



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Key integration sectors: ProgressInfrastructure - a precondition for facilitating trade and the movement

of goods and persons and therefore a tool for boosting national andregional trade



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Key integration sectors: ProgressInfrastructure - key trade faciliation mechanism


Mixed results on the Continent - Manyrailways and roads often lead to marineports rather than link countries

Insufficiency and low qualityinfrastructure on the one hand, and

expensive services on the other Road network

Poor coverage (2.3 million km = 20%paved. 7.6 km per 100 sq is the required

level for socio economic development), Lack of paved roads,

Poor maintenance

Numerous roadblocks and check points(impeding the movement of people

and goods)

Regional Distribution of Road Networks

Region

Length (km) % Change Density 2006(km/100 sq

km)2000 2006 2000-2006

Central 115667 186475 61.2 3.5

Eastern 445018 476558 7.1 6.5

Northern 292790 347451 18.7 3

Southern 801751 853676 6.5 13.5

Western 409377 434910 6.2 8

Total 2064603 2299070 11.4 7.6

Share of Afr ica’s Paved Road Network by Sub-Region


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Railway network Low coverage compared to other regions of the world - 89,000 km network for

an area of about 29.6 million sq. km, representing a density of 2.5 km per 1,000sq. km. Europe, has 40km per 1,000 sq. km.

14 mainland countries in Africa – do not have railway lines or

sections of international lines

Old and technically outdated railway network

Low share of rail freight in intra-African trade.



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Air transport Modest global share of air transport

Reliant on only three major hubs (Johannesburg, Nairobi and

Addis Ababa),

Only three major airlines (South African Airways, Kenya Airways andEthiopian Airlines)

Opportunities for: employment creation;

improve the competitiveness of goods,

especially high-value, time sensitive cargo(e.g. horticulture); and opening up of

Landlocked/landlinked countries.



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Marine ports Insufficiently utilized

Most poorly developed, small and very few incapable of handling large ships,

Capacity constraints and poor performance (in terms of port dwell time ofvehicles)

Lower than required level of container traffic

Poor exploitation of rivers and lakes as an alternative transport mode



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Information and Communication Technology (ICT) Africa has made some significant advances in the ICT sector:

Rapid growth in mobile cellular technology and internet

access

However: Africa still lags behind the rest of the world - particular ininvestment-intensive infrastructure, such as main or fixed telephonelines and fixed broadband.

The Continent has some of the highest costs for internet service inthe world - Average subscription prices can be as high 70 per

cent of per capita income. Urban rural divide in internet access

Unreliable power, low bandwidth

and limited exchange points

undermine internet usage



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Energy sector Africa has a rich pool of exploitable energy resources to meet

its needs (hydropower, coal, gas, oil, and uranium, both new

and renewable resources)

Yet a number of these resources are unexploited High cost of petroleum and gas importation from

non-Africa markets as intra-African trade in oil and

gas is limited

Underdeveloped electric power sector meanslow-generation capacity, low connection rates, high

tariff rates and poor reliability

20% of Africans have access to electricity

Urban rural divide in electricity access



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Key integration sectors: ProgressInfrastructure bottlenecks – USD 93 bil lion needed to plus

the gap



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World Bank Africa Infrastructure Country Diagnostic StudySummary of Main Findings

More than half of Africa’s recent improved growth performance has been to due to infrastructuredevelopments and it has the potential to contribute even more in the future;

Africa’s infrastructure networks are characterized by the absence of essential regional links andstagnant household access. As a result, the Continent’s infrastructure lags increasingly behindother developing countries;

Africa’s infrastructure services are twice as expensive as elsewhere, reflecting both diseconomiesof scale in production and high profit margins caused by lack of competition;

Power is by far Africa’s largest infrastructure challenge, with 30 countries facing regular power shortages;

The cost of addressing Africa’s infrastructure needs is around $93 billion a year, about one-thirdof which is for maintenance—more than twice the Commission for Africa’s (2005) estimate; The infrastructure challenge varies greatly by country type—fragile states face an impossible

burden and resource-rich countries lag despite their wealth; A large share of Africa’s infrastructure is domestically financed, with the central government

budget being the main driver of infrastructure investment; Even if major potential efficiency gains are captured, Africa would still face an infrastructure

funding gap of $31 billion a year, mainly in power; and Africa’s institutional, regulatory, and administrative reforms are only halfway along, but they are

already proving their effect on operational efficiency.


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Key integration sectors: Progress How is Africa addressing its infrastructure deficit?

Infrastructure development mainstreamed in the treaties of the RECs, and at aContinental level (Lagos Plan of Action (1980), the Abuja Treaty (1991) and the NEPADframework document (2001)

June 2009 and January 2010 AU Summits dedicated to the theme of infrastructuredevelopment.

A number of initiatives developed aimed at addressing project preparation difficulties,financing for project implementation and physical and financial needs:

NEPAD Short-Term Action Plan (STAP)

Infrastructure Consortium for Africa (ICA)

NEPAD Infrastructure Project Preparation facility (IPPF),

African Action Plan (AAP) Programme for Infrastructure Development in Africa

(PIDA),

Institutional Architecture for Infrastructure Development

in Africa (IADA) NEPAD Infrastructure Champion Initiative, chaired by the Republic of South Africa



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Key integration sectors: ProgressFree movement - cornerstone of market integration, with some efforts

by the RECs to promote free movement in their regions. Free movement of persons

A number of RECs have Protocols on free movement and right of establishment

Agreements on visa relaxation and regional passports e.g. ECOWAS and EAC

Regional motor vehicle insurance schemes (yellow and brown card schemes, e.g. COMESA

and ECOWAS, respectively)

Free movement of capital

Harmonization of business and financial laws by some Communities e.g. COMESA, EAC,ECOWAS and SADC

A number of successful home-grown telecommunications and banking institutions in Africa

(with a Continental and global reach) facilitating international transactions and intra-Africantrade e.g. MTNs, Zain, Standard Bank, Ecobank, UBA

Free movement of goods

Harmonization and simplification of customs procedures, documentation and nomenclaturee.g. COMESA, EAC, ECOWAS and SADC

Installation of one stop border posts (OSBP) at key border crossings e.g. EAC, SADC,COMESA

II. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTALINTEGRATION IN AFRICA

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Key integration sectors: ProgressFree movement - cornerstone of market integration, with some efforts

by the RECs to promote free movement in their regions. Free movement of services

Undertaking measures to facilitate trade in services, including the harmonizationof business laws

Successful market integration in financial services requires the coordination ofessential prudential rules, mutual recognition of a single license as well as homecountry control

However, free movement is hampered by: Poor implementation of legal instruments on free movement

Corruption and harassment at border points

Security concerns between Members States within the same REC

Persistent tariff barriers and NTB barriers



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Key integration sectors: Progress Macro-economic convergence

A perquisite for the creation of the African Economic Community (AEC)

Ancillary components of regional and market integrationand the evolvement of a monetary union

Macroeconomic stability and convergence involves someof the following stabilization measures and convergence

criteria: Adjusting exchange rates of Member countries to an equilibrium level Eventual liberalization of current and capital accounts transactions Adoption of harmonized exchange rate systems Harmonized ceiling on central bank lending to government to ensure Fiscal policy harmonization Stabilization of inflation and interest rates and levels of employment

RECs – some have in place monetary convergenceframeworks/programmes e.g. ECOWAS, COMESA and EAC

Association of Central Bank Governors (AACB) - established an African Monetary Cooperation Programme (AMCP) under the rubric of Article 44 of the 1991 Abuja Treaty in efforts to establish an African CentralBank (ACB).



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Prospects are posit ive and at regional and continental levels efforts include,amongst others, the following: Adoption of the Minimum Integration Programme (MIP) and elaboration and costing of

the MIP Action Plan;

Progress towards establishing the three (3) African financial institutions, which are keyto the establishment of the AEC, they include the African Investment Bank (AIB), the African Monetary Fund (AMF) and the African Central Bank (ACB);

Elaboration and adoption of the African Charter on Statistics to allow for evidencebased tracking on integration and development in Africa;

Adoption of the Programme for Infrastructure Development in Africa (PIDA), thePresidential Infrastructure Champion Initiative; The Comprehensive African Agriculture Development Programme (CAADP); Investigating alternative sources of financing the AU and its integration activities (away

from a dependence on Member State and development partner contributions; Finalization of a feasibility study on the establishment of a Pan-African Stock

Exchange; Working on the establishment of a Continental Integration Fund (CIF); The Tripartite Arrangement between EAC-COMESA and SADC on the creation of a

single FTA and single market between the three groupings; Rationalization of the RECs in the Central African region; and

Discussion between ECOWAS and ECCAS on the harmonization of their programmes

III. PROSPECTS FOR ADVANCING INTEGRATION IN

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Despite measures being applied to deepen Africa’s integration, theprocess continues to face numerous constraints. These include: Economic - persistence of tariff and non-tariff barriers, lack of adequate physical

infrastructure connecting the Continent and its internal markets, small and often un-diversified markets, and an undeveloped and under-invested agricultural sector.

Financial - scarce resources available to finance Africa’s integration agenda; AU andRECs dependent on the same Member States and development partners forresources, which can be fraught with difficulty

Institutional - differing progress amongst the RECs in attaining the integration stages

set out in the Abuja Treaty; overlapping membership of RECs leading to institutionalcacophony; absence in some cases of national coordination mechanisms; non-application of some protocols; inability to include integration objectives, plans andprogrammes into national development plans; weak institutional architecture; andsometimes lack of cohesion in the face of development partners; as well as a lack oflegislative powers to ensure decisions are binding and enforce their implementation

Partnerships - the existence of partnerships which could threaten to undermine Africa’s integration endeavors (e.g. the Economic Partnership Agreements [EPA] of theEuropean Union)

Statistics - statistical data collection in the Continent, with often poor, unreliable andunharmonized data produced at the level of Member States, which make difficultefforts to adequately track progress on integration and development.

IV. CONSTRAINTS TO REGIONAL AND MARKET


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The success of Africa’s integration will be determined by the redoubling ofefforts by all integration players

This redoubling must be within the spirit of cooperation, mutual learning,

exchange and commitment Due-dil igence must be accorded to:

Development of physical and institutional infrastructure

Peace and security

Prudent economic and financial reforms to improve the business environmentand improve the competitiveness of the Continent

Deepening of intra-African trade

Improving domestic resource mobilization, undertaking alternative and creativesources of financing

Comprehensively addressing the issue of rationalization and overlappingmembership of the RECs.

Efforts must be complemented by reciprocal market opening by partnercountries and a reduction of hidden protectionist measures

There must also be a corresponding injection of political will and momentumto agree on a specific t imetable for reaching an early, ambitious and balancedconclusion to the WTO Doha Development Round.

VI. CONCLUSION

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Background Paper: Regional and Market Integration23

Merci

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Regional and Market Integration