In­tra-Africa trade: Go­ing be­yond po­lit­i­cal com­mit­ments

Africa and Europe search for an elu­sive agree­ment

Africa Renewal - - Contents - By Masimba Tafirenyika

$40bn Amount per year Africa needs to spend on in­fra­struc­ture

Among Africa’s pol­icy wonks, un­der­per­form­ing trade across the con­ti­nent is a favoured sub­ject. To un­ravel the puzzle, they reel off facts and fig­ures at con­fer­ences and work­shops, pin­point trade hur­dles to over­come and point to the vast op­por­tu­ni­ties that lie ahead if only African coun­tries could in­te­grate their economies. It’s an in­ter­est­ing de­bate but with lit­tle to show for it un­til now.

The prob­lem is partly the mis­match between the high po­lit­i­cal am­bi­tions African lead­ers hold and the harsh economic re­al­i­ties they face. Case in point: they have set up no less than 14 trad­ing blocs to pur­sue re­gional in­te­gra­tion. Yet they have shown “a dis­tinct re­luc­tance to em­power th­ese in­sti­tu­tions, cit­ing loss of sovereignty and pol­icy space as key con­cerns,” says Trudi Hartzen­berg, ex­ec­u­tive direc­tor at the Trade Law Cen­tre (TRALAC) for South­ern Africa, an or­ga­ni­za­tion that trains peo­ple on trade is­sues. As a re­sult of this re­luc­tance, she says, “Re­gional in­sti­tu­tions re­main weak, per­form­ing mainly ad­min­is­tra­tive func­tions.”

Trade flour­ishes when coun­tries pro­duce what their trad­ing part­ners are ea­ger to buy. With a few ex­cep­tions, this is not yet the case with Africa. It pro­duces what it doesn’t con­sume and con­sumes what it doesn’t pro­duce. It’s a weak­ness that of­ten frus­trates pol­icy mak­ers; it com­pli­cates re­gional in­te­gra­tion and is a pri­mary rea­son for the low in­trare­gional trade, which is between 10% and 12% of Africa’s to­tal trade. Com­pa­ra­ble fig­ures are 40% in North Amer­ica and roughly 60% in Western Europe. Over 80% of Africa’s ex­ports are shipped over­seas, mainly to the Euro­pean Union ( EU), China and the US. If you throw into the mix com­plex and of­ten con­flict­ing trade rules, cross-bor­der re­stric­tions and poor trans­port net­works, it’s hardly sur­pris­ing that the level of in­tra-Africa trade has barely moved the nee­dle over the past few decades.

Not ev­ery­body agrees in­tra-Africa trade is that low. Some ex­perts ar­gue that a big chunk of the con­ti­nent’s trade is con­ducted in­for­mally and at times across por­ous bor­ders. Most bor­ders, they point out, are of­ten poorly man­aged or in­for­mal trade statis­tics are sim­ply not in­cluded in the of­fi­cial flows recorded by cus­toms of­fi­cials. “We don’t have a way of cap­tur­ing th­ese types of ac­tiv­i­ties be­cause they’re in­for­mal,” said Car­los Lopes, the head of the UN Economic Com­mis­sion for Africa, in an in­ter­view with Africa Re­newal. The ECA, he ex­plained, is plan­ning to plug this in­for­ma­tion gap with a more pre­cise pic­ture of economic ac­tiv­i­ties in Africa and give economic plan­ners a bet­ter data set with which to work.

Re­gional economic blocs

To ac­cel­er­ate re­gional in­te­gra­tion, the World Bank is ad­vis­ing African lead­ers to ex­pand ac­cess to trade fi­nance and re­duce be­hind-the-bor­der trade re­stric­tions such as ex­ces­sive reg­u­la­tions and weak le­gal sys­tems. Nev­er­the­less, sad­dled with weak economies, small do­mes­tic mar­kets and 16 land­locked coun­tries, gov­ern­ments be­lieve they can achieve economic in­te­gra­tion by start­ing at the re­gional level and work­ing their way up, merg­ing all the re­gional trad­ing blocs into an African Free Trade Area. But with 14 dif­fer­ent trad­ing blocs, crit­ics say that’s just too many. Some blocs have over­lap­ping mem­bers and many coun­tries be­long to mul­ti­ple blocs.

Yet, the chal­lenge is not sim­ply the num­ber of trad­ing blocs, ex­perts say, but their track record. Gov­ern­ments need to im­ple­ment their trade agree­ments. On this score, African coun­tries per­form poorly de­spite their strong po­lit­i­cal com­mit­ment to re­gional in­te­gra­tion, notes Ms. Hartzen­berg in her re­port, Re­gional In­te­gra­tion in Africa, pub­lished by

the World Trade Or­ga­ni­za­tion, a global body on trade rules.

“In some cases, the chal­lenge is that there may still not be a clear com­mit­ment to rules-based gover­nance in African in­te­gra­tion; [not] tak­ing obli­ga­tions that are un­der­taken in in­ter­na­tional agree­ments se­ri­ously,” says Hartzen­berg in an email re­spond­ing to ques­tions from

Africa Re­newal. “Some ar­gue that [African gov­ern­ments] need pol­icy space to ad­dress the devel­op­ment chal­lenges they face – but this does ap­pear in­con­sis­tent with the sign­ing of many re­gional agree­ments.” Lack of ca­pac­ity to im­ple­ment their obli­ga­tions, she adds, is also to blame.

The African Devel­op­ment Bank (AfDB) shares this view. Its anal­y­sis of re­gional in­te­gra­tion and in­tra-trade in Africa im­puted slow progress to “a com­plex ar­chi­tec­ture of re­gional economic com­mu­ni­ties.” While this ar­range­ment has yielded pos­i­tive steps to­wards com­mon re­gional tar­gets, says the bank, “progress has been dis­ap­point­ing.”

Ms. Hartzen­berg gave the ex­am­ple of the 15-mem­ber South­ern African Devel­op­ment Com­mu­nity (SADC), a re­gional economic group, which launched a Free Trade Area in 2008. De­spite SADC’s de­ci­sion to re­move trade re­stric­tions, she says, some coun­tries have not elim­i­nated tar­iffs as stip­u­lated by the agree­ment. Worse still, in some cases coun­tries that re­moved the tar­iffs have since re­in­stated them.

To be fair, the SADC Trade Pro­to­col has a pro­vi­sion that al­lows ex­emp­tions from phasing out tar­iffs. Some coun­tries have ap­plied for such ex­emp­tions, the TRALAC ex­ec­u­tive direc­tor said, but oth­ers have sim­ply rein­tro­duced the tar­iffs or al­ter­na­tive in­stru­ments such as do­mes­tic taxes. “This can be ar­gued to demon­strate a lack of po­lit­i­cal will to im­ple­ment agreed obli­ga­tions. It could well be that some mem­ber states recog­nise be­lat­edly the im­pli­ca­tions of the agree­ments they have signed and no longer want to be bound by th­ese obli­ga­tions.”

Poor in­fra­struc­ture

Lack of progress in im­ple­ment­ing agree­ments along with the ab­sence of re­li­able trans­port, en­ergy and in­for­ma­tion and tech­nol­ogy in­fra­struc­ture make the jour­ney to­wards re­gional in­te­gra­tion long and ar­du­ous. “Road freight moves in­cred­i­bly slowly, while ma­jor ports are choked for lack of ca­pac­ity,” ob­serves the AfDB.

Even with the cur­rent gains Africa is mak­ing in up­grad­ing re­gional in­fra­struc­ture, Ibrahim Mayaki, the head of the New Part­ner­ship for Africa’s Devel­op­ment (NEPAD), the African Union’s devel­op­ment arm, finds the con­ti­nent still faces se­ri­ous in­fra­struc­ture short­com­ings across all sec­tors, both in terms of ac­cess and qual­ity. NEPAD has just com­pleted a 30-year plan that fo­cuses on re­gional trans-bor­der pro­jects like the 4,500-km high­way from Algiers in Al­ge­ria to La­gos, Nige­ria.

Africa re­quires huge in­vest­ments to de­velop, up­grade and main­tain its in­fra­struc­ture. The AfDB es­ti­mates the re­gion would need to spend an ad­di­tional $40 bil­lion a year on in­fra­struc­ture to ad­dress not only cur­rent weak­nesses but also to keep pace with economic growth.

So­phis­ti­cated pro­tec­tion­ism ver­sus EPAs

Many of the trade deals Africa signs with its part­ners ig­nore the con­ti­nent’s ef­forts to pro­mote in­tra-Africa trade, ac­cord­ing to trade an­a­lysts. Nick Dear­den, a for­mer direc­tor of the Ju­bilee Debt Campaign and now with World Devel­op­ment Move­ment, a global ad­vo­cacy group on poverty, ac­cuses the West of push­ing for free trade mod­els that ben­e­fit their in­ter­ests, not Africa’s. He com­plains that many African coun­tries are “locked into trade agree­ments which keep them de­pen­dent on one or two com­modi­ties.” Writ­ing on his blog hosted by The

Guardian, Mr. Dear­den says the EU is at­tempt­ing to foist Economic Part­ner­ship Agree­ments [EPAs] on African coun­tries. EPAs re­quire EU trad­ing part­ners to lower their tar­iffs on im­ports and ex­ports on a re­cip­ro­cal ba­sis. Mr. Dear­den warns that EPAs thwart Africa’s in­te­gra­tion ef­forts and he in­stead ad­vises African lead­ers to fol­low South Korea’s ex­am­ple of us­ing a “range of gov­ern­ment in­ter­ven­tions” to boost trade. Th­ese in­clude, among oth­ers, pro­tect­ing in­dus­tries, con­trol­ling food pro­duc­tion and bank­ing, and pass­ing strong reg­u­la­tions to en­sure peo­ple ben­e­fit from trade and in­vest­ment.

Mr. Lopes of the ECA makes the same point. “Pro­tec­tion is not a bad word,” he as­serts. He favours what he calls “so­phis­ti­cated pro­tec­tion­ism” but cau­tions African lead­ers to “do it with so­phis­ti­ca­tion, which means you need to strike the right bal­ance.” The ECA boss views so­phis­ti­cated or smart pro­tec­tion­ism not as a choice between state and mar­ket as if they “were two op­po­sites.” His ar­gu­ment is that there can­not be in­dus­tri­al­iza­tion with­out some form of smart pro­tec­tion­ism; and with­out in­dus­tri­al­iza­tion, Africa’s ef­forts to in­te­grate its economies and in­crease in­tra-re­gional trade are less likely to suc­ceed. Free trade en­thu­si­asts, how­ever, ar­gue that pro­tec­tion­ist poli­cies could shrink the size of the global econ­omy, cre­ate few win­ners and leave ev­ery­body worse off.

Be­yond com­mit­ments

There is much that African coun­tries need to do to in­crease in­tra-re­gional trade. For in­stance, they need to re­duce de­pen­dence on com­modi­ties by ex­pand­ing the ser­vices sec­tor, in­clud­ing telecom­mu­ni­ca­tions, trans­port, ed­u­ca­tional and fi­nan­cial. They need to in­crease in­vest­ments in in­fra­struc­ture. And they need to elim­i­nate or sig­nif­i­cantly re­duce non-tar­iff bar­ri­ers that are ma­jor road­blocks to in­tra-African trade. The list of non-tar­iff bar­ri­ers is as long as it is com­pre­hen­sive, rang­ing from pro­hib­i­tive trans­ac­tion costs to com­plex immigration pro­ce­dures, limited ca­pac­ity of bor­der of­fi­cials and costly im­port and ex­port li­cens­ing pro­ce­dures. For this to hap­pen, it will take much more than po­lit­i­cal com­mit­ments; it will re­quire prac­ti­cal steps on the ground even if they come with some costs.

World Bank/Arne Hoel

Re­li­able road net­works are es­sen­tial to trade.

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