UNCTAD advocates stronger regional integration
The 2009 United Nations Conference on Trade and Development (UNCTAD) report - Economic Development in Africa - has presented a strong argument on the need for African countries to deepen regional integration to build stronger and more resilient economies, especially within the context of the current global economic meltdown, which is having its toll on the continent.
The report urges that previous regional initiatives in Africa, which mainly focused on political issues, were largely seen as not having delivered much to uplift the economic conditions of its members, nor ensured sustained growth, hence regional integration, when designed and implemented within a broader development strategy to promote economic diversification, could enhance its productive capacity and improve its competitiveness and serve as a lunching pad for an effective participation in the global economy.
Better links between countries, ranging from paved roads to banking cooperation, are needed to spur mutual economic growth. Indeed, weak physical and institutional infrastructure is the key obstacle to increasing intra-African trade and investment. This is why, at 9 per cent of recorded flows of total external trade, and 13 per cent of recorded flows of total inward foreign direct investment (FDI), Africa currently, has the world´s lowest shares of regional trade and investment, explains Economic Development in Africa 2009.
Launching the report in Accra, the Coordinator of Third World Network (TWN) Africa, Dr. Yao Graham, observed that the exporting of water from Ghana to Togo, and Nigeria supplying gas to Ghana, were clearly examples of regional integration.
He used the occasion to appeal to the government not to treat issue of the Economic Partnership Agreement (EPA) with the European Union (EU) as a sectoral issue for the Ministry of Trade and Industry to handle.
Subtitled “Strengthening Regional Economic Integration for Africa´s Development”, the 2009 edition of the UNCTAD annual report on Africa recognises that over the last two decades Africa has made progress in creating sub-regional institutions dedicated to economic integration. However, the establishment of sub-regional economic communities has not substantially increased intra-African trade, investment and mobility of people as expected. Hence, relative to other regions, Africa has by far the most fragmented market, the report finds.
To boost regional integration however, the report adds that countries need to strengthen their regional physical infrastructure such as roads, railways, telecommunications and regional airlines. Considering the high cost of infrastructure projects and in view of the limited financial capacities of individual African countries, planning at the supranational level and pooling resources to fund priority regional projects, is the most realistic strategy for advancing regional integration.
Physical infrastructure will need to be complemented by improvements in soft infrastructure, including policy harmonization at the regional level, trade facilitation, efficiency in border procedures and the adoption of national policies that help rather than hamper the process of integration, the report says.
The report noted that the creation of several institutions for economic integration in Africa in the last two decades was expected to boost intra-African trade in goods. Such trade increased from 2 per cent in the early 1980s to 9 per cent of total African exports in 2007, but these statistics underestimate the actual flows as they do not include unrecorded trade, which is thought to be very important.
According to the report, Africa´s poor performance hides the fact that the region could increase its intra-African trade substantially if some key constraints, particularly infrastructure, were addressed. An investment of $32 billion to improve the main intra-African road network could generate around $250 billion in trade over a period of 15 years. Regional trade within the West African Economic and Monetary Union (WAEMU) would increase threefold if all intrastate roads linking WAEMU countries were paved. The report also notes that paving the road linking Mali to Senegal would increase bilateral trade flows fourfold, while paving the road linking Côte d´Ivoire and Senegal would double bilateral trade flows.
Analysis of trade destinations reveals that despite the low aggregate level of intra-African trade, such trade is very important for many African countries. At least 25 per cent of exports from 20 countries are absorbed by the regional market. The importance of trading blocs is further highlighted by the fact that over three quarters of intra-African trade takes place within these regional groups. In every region, trade centres around a few influential countries, such as South Africa in the southern part of Africa, suggesting the existence of “trade poles” that could become development poles. Analysing trade composition, the report shows different patterns of trade within Africa and between Africa and the rest of the world. Whereas manufactured products dominate intra-African exports, the rest of the world imports mainly primary commodities from Africa. Also, intra-African trade is much more diversified than Africa´s exports to the rest of the world. In the light of these facts, the report suggests that increasing intra-African trade can be a major method of promoting diversification and developing Africa´s manufacturing base.