Making regional integration in Africa mean business [Opinion]
Mills, Greg and Spicer, Michael; The New Times (Kigali) 2008-09-23
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The past three decades have witnessed much talk about regional integration in Africa as a way of reducing onerous trade costs and sparking growth and development. According to Mills and Spicer, however, the reality lags some way behind the mere rhetoric.
Numerous studies have been conducted and international conferences held on the subject of regional integration. Yet few (if any) have delivered concrete results.
There are two divergent views on the purpose and method of integration, according to Mills and Spicer: firstly, there are those who prefer to see the process as being expedited through trade agreements and tariff-reduction initiatives such as the Free Trade Agreement of the Southern African Development Community (SADC) or though the Common Market for Eastern and Southern Africa (Comesa).
In terms of this perspective, integration is to be inter-continentally facilitated, for instance through the European Union’s (EU’s) regional economic community agreements. However, there has been little apparent benefit through the focus on trade. Today, countries within Africa exchange on average just 10 percent of their goods with each other.
This is partly the result of African products lacking complementarity – things to sell to each other that they don’t themselves make. Furthermore, over 98 percent of the world economy lies outside the continent. It is thus almost inevitable that Africa producers should first aim to penetrate the external market. Another reason is because of the high costs of doing business in Africa; greater competitiveness is crucial to lessening the costs to African producers and improving their returns.
What is ignored by this first perspective is that large gains come not in the removal of discriminatory tariffs barriers, but by the removal of barriers to internal as well as foreign trade and investment.
“Bilateral and regional trade agreements can often make things worse with all their discriminatory provisions”, write Mills and Spicer. Rules of origin, for example, can raise compliance costs, particularly for small and medium business, as well as present another obstacle to them getting a foothold on the trade ladder.
“This highlights the importance not of trade agreements in being the principal drivers of regional integration, but instead of emphasising the reduction of the costs of trade and other impediments to doing business”, they say.
This is the second view of integration, promoted by those who see it as a mechanism to reduce the costs of doing business and improve Africa’s competitiveness. There are three areas of focus: firstly, the need to promote trade and transport flows, not primarily through tariff structures but through trade facilitation.
Trade costs form a high percentage of the costs of African trade; the high cost of transport – which is around 30 to 40 percent higher in Africa than in other developing regions – undermines the continent’s growth prospects.
Close to half of the 48 countries in sub-Saharan Africa have transport payments absorbing over 20 percent of foreign earnings from exports. In some landlocked nations, these costs may absorb over 50 percent. What is particularly significant, however, is the negative impact of poor transport infrastructure on rural development, which makes it difficult for African farmers to specialise in high value crops for export, for example.
“These are not only transportation charges due to poor infrastructure, but trade costs caused by inefficient customs and clearance procedures, themselves the product of a closed mindset and an uncompetitive policy environment”, say Mills and Spicer, adding that “both of these categories of cost are compounded by often pervasive corruption which imposes significant additional costs”.
They nevertheless note that much can be done in the short-term to improve this situation in Africa. “Quick gains need to be centred on the things that are within the power of Africans to most easily change: policies and procedures – reducing delays, opening customs procedures 24 hours and standardising procedures, and by adopting a zero-tolerance policy and practice towards corruption.”
According to Mills and Spicer, “a second area is to develop regional strategies to address looming shortages in two key areas of day-to-day living and business: power and water”.
It is anticipated that by 2025, Malawi and South Africa will face absolute water scarcity while Lesotho, Mauritius, Tanzania and Zimbabwe will be water-stressed. Angola, Botswana, the DRC, Mozambique, Swaziland and Zambia are likely to experience problems with water quality and availability in the dry season.
Furthermore, at current rates of population and economic growth, another 44 000 megawatts of power will be needed within the region by 2025, at a projected cost of billions of dollars.
“Future challenges cannot be met within the confines of national borders”, they argue. For example, in practical terms, this demands that Eskom, as the primary regional power supplier, conceptualises its power strategies in regional terms both in supply and demand.
Cahora Bassa’s and Inga’s hydro-power and the Lesotho Highlands Water Project are cited as the type of projects that will drive closer cooperation. There are similar projects in Botswana, Namibia, and potentially, Zimbabwe. “Policy-makers should focus less on tariff changes than infrastructure projects and also need to consider the role of the private sector and the market in supporting public sector initiatives.”
A third area concerns people. There are around 220 million citizens in the SADC region today; by 2025, there will be 100 million more. This group will increasingly be young, connected via telephony with the world, will live in cities as opposed to rural areas, and will move across borders to hawk their skills. Mills and Spicer argue that a regional perspective must be taken on skills’ need and creation as well as the aspirations of young people, just as it should the means of delivery of food security.
“Trade reforms must be hitched to bread-and-butter domestic business climate improvements. And integration cannot be established by a declaration or a treaty. Indeed, it can only come about through actions to improve efficiencies and reduce costs, not the other way around”, they conclude. (www.tralac.org)
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