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What are the benefits of African Integration?

Courtsey of Africamedia.typepad.com

  • CEN-SAD: Community of Sahel-Saharan States
  • COMESA: Common Market for Eastern and Southern Africa
  • EAC: East African Community
  • ECCAS: Economic Community of Central African States
  • ECOWAS: Economic Community of West African States
  • IGAD: Intergovernmental Authority on Development
  • SADC: Southern African Development Community
  • UMA: Arab Maghreb Union

 

African Integration

Collaboration between Uganda and its neighbours, particularly the pending East African Common Market (EACM) is primarily based on geographic proximity (loosely referred to as regionalism hereafter) for political and economic reasons. But, it isn’t without obstacles.

Supporters of free trade, including some senior officials within the World Trade Organisation (WTO) and other international organisations disagree with such protectionism. They argue that regionalism breaches the most favoured nation clause in the General Agreement on Tariffs and Trade (GATT) rules, which states that ‘if one country is given preferential treatment, then other member countries of the WTO are entitled to similar treatment’.

The exemption to this was Article XXIV of 1947, which allowed regionalism that discriminates in favour of member countries. The main reason for its introduction was to activate post World War II Western Europe reconstruction.

Actually, one of America’s conditions for giving European aid under the ‘Marshall Plan’ was the requirement of the beneficiary countries to pursue economic recovery through self-help on a collaborative basis, of political as well as economic unification of Western Europe. America saw this approach as part of a strategy for the containment of Communism.

African countries, characterised with increasing debt and balance of payments problems, are in a perpetual economic crisis. Consequently, they deserve a similar treatment. In fact, Africa also requires a ‘Marshall Plan’.

Okurut (New Vision, 9th December 2009) highlighted the different types of regionalism and the potential benefits that member countries could accrue from the EACM. It is clear that political considerations mostly come into play in a Political Union, which is the last stage and highest level of regionalism.

Unfortunately, regionalism comprising African countries although still at lower level stages, has been established with major focus on political than economic considerations. This emphasis has created certain problems.

Political differences have occasionally triggered off misunderstandings that have led to de-integration, as was the case of the Colonial EACM (CEACM) in 1978. The CEACM was setup by Britain as a colonial mechanism to simplify governance of Kenya, Tanzania and Uganda, but was not significantly different from the other regional blocs.

Regionalism among developing countries can optimise economic benefits if its foundation is based more upon economic than political interests. Nonetheless, because it is often difficult to disentangle politics from economics, ‘political will’ is instrumental for the survival of any form of regionalism.

A major challenge for regionalism is to ensure that member countries benefit equally from the collaboration. When levels of economic development disparities exist among member countries, the more developed countries often get most of the benefits.

Even when member countries exhibit the same level of development, problems may arise from market failures. For instance, if there are no private entrepreneurs to take advantage of the new opportunities, the public sector must intervene to help set up new businesses.

Political agreement is required under such circumstances, about where the companies should be located. Each country will look after its own interests and obviously prefer to host as many projects as possible. Kenya for example monopolised projects during the CEACM. Serious political disagreements can result from such selfishness.

To make matters worse, the low share of intra-regional trade (an indicator for the capability of economic integration) in African blocs suggests that the potential to progress towards beneficial regionalism is small. Because of their poor economic performances, African countries have very low per capita incomes and, hence, small market sizes (purchasing power); low financial bases; low technological capacities and capabilities; poor infrastructure; and lack of a comprehensively skilled labour-force. Even the combined market may not achieve a critical mass in each of these attributes.

Most African countries have stronger Colonial- than Afro-links. That is why English speaking Africa has more allegiance to the Commonwealth, while French speaking Africa is more inclined to Francophone states. Even within the Commonwealth for instance, individual African countries have more Anglo- than Afro-economic links. This ‘white is better than black’ attitude must be reversed to enable African regionalism to thrive.

Africa tries to emulate regionalism in other continents without thorough exploration. The circumstances that propelled economic growth in certain regions for instance vary considerably from those of Africa. The Southeast Asian countries benefited from investment spillovers from Japan, the ‘lead goose’. Similarly, Central American countries, and Western European countries benefited from USA’s investment. Africa on the other hand has no lead goose to benefit from.

Conflicting priorities often short-circuit Africa’s efforts. For example, the Common Market of Eastern and Southern Africa (COMESA) is regionalism extending from Libya in the North to Swaziland in the South. But some COMESA’s member countries have commitments elsewhere.

For instance, Swaziland is strongly committed to the South African Customs Union (SACU); and Angola, Swaziland, Zimbabwe, Mauritius and Congo are strongly tied to the Southern African Development Community (SADC). Burundi, Kenya, Rwanda, Tanzania and Uganda have put aside their differences and revitalised the EACM.

This definitely implies that there is a difference in priority. It partly explains why for instance Angola, Lesotho, Namibia and Tanzania quit COMESA in favour of SADC.

One of Kenya’s ‘hidden’ reasons to pursue for the revival of the EACM is its rivalry with South Africa to whom it is losing particularly its Ugandan and Tanzanian market shares. Kenya expects a common external tariff on non-EACM members to improve its competitiveness vis-à-vis South Africa.

The following staged approach would eliminate conflicts of interest: (1) establish independent economic blocs, i.e. EACM, SACU and SADC without overlapping membership; (2) ensure that they operate effectively; (3) develop inter-bloc trade links; and (4) finally merge them into a single bloc, i.e. COMESA.

Given the above highlighted impediments, the short-run recommendation would be to discourage any attempts towards African regionalism.

However, Africa’s stakes and destiny don’t lie in the short-run. Therefore, Africa should be optimistic about its future and capitalise on its long-run. That is why it is worthwhile laying a regionalism foundation sooner than later. But, Africa must be aware of potential obstacles, and devise mechanisms to combat them.

 

2 responses to “What are the benefits of African Integration?

  1. tembjokeva

    November 24, 2012 at 3:58 pm

    It appears to me that this integration is based on calculations of gains pivoted on speculations. It is business as usual aimed at blocking members that would be seen or predicted as liabilties. But it is in business that also we see investments with a strategic view for future gains. Consider a country like Uganda; presently it does not have as much to present in the same measure as say Kenya that would want to see it continue purchasing its products but has by itself a great potential. Uganda could be helped out later to become even a bigger consumer but with a prior benefit of the club´s belonging . Or is a precondition for Uganda to tussle it out by its own volition thus paying the price ( fee ) ? Where is the fellow feeling spirit? I am sure when all is denied Uganda can still borrow on the little fat to weather it . In Europe it looks like hand outs welcoming more entrants from the Eastern block. Eventually the accounts square up !

     
    • bedsidereadings

      December 21, 2012 at 10:29 am

      Tembjokeva,

      The least developed countries significantly depend on hand-outs (aid) from the developed countries. Hand-outs and hence the public sector cannot sustain economic development. The private sector is the only other alternative – through employment, exports, taxes etc.

      The problem with the developing countries is that apart from a few multinational companies, the indigenous Small and Medium-sized Enterprises (SMEs) are mostly in their infantry stages of development and predominantly domestically oriented. One channel to their development is to look at the foreign market. But doing business across borders brings new additional challenges. A new entrant in the foreign market can get out of business if they make a single mistake.

      Tariffs are one of the many factors that make doing business beyond foreign borders challenging. They are implemented in many different forms including qualitative (wasting time to clear a product) to a physical qunatitative tax.

      One of the common factors at the different levels of integration is to exempt traders from the participating countries from tariffs – giving traders from the participating countries a competitive advantage vis-à-vis traders from elsewhere. Exempting them from tariffs puts them into the playing field – there is practically no chance for them to enter the playing field without tariff exemption.

      Let us take your Kenya – Uganda example where Kenya has more potential. If the two countries exempt tariffs from each other, then Ugandan exporters should be able to offer competitive prices to Kenyan consumers in those products that Uganda has a comparative advantage in their production. Competitive prices enable Ugandan firms to sell more and therefore grow. The same applies to Kenyan goods.

      Kenya’s higher potential can be accommodated by expanding the above scenario to several neighbouring countries, to in part minimise transport costs. If you apply the above scenario to a slightly bigger arrangement of say 5 countries (say East African countries), the potential for SME growth increases because of the economies of scale resulting from the larger market. Growth means more employment opportunities, more taxes etc in the home economy. With time, the SMEs develop strategic assets (eg capital, product brand and marketing skills) which can enable them enter other markets, including where there are tariffs.

      These SMEs can even perform better if say the East African countries as a trading bloc enter tariff free (or minimal tariff) arrangements with another neighbouring bloc.

      You notice that the key factor here is ‘neighbour’ – starting where there are common fairly compatible and comparable geo-social-political characteristics and progressing systematically aided by national-regional arrangements.

      The current problem is that politicians want to take the plunge – they want to run before they even crawl. Because the inexperienced SMEs are incapable of that, the whole concept fails to promote what it is aimed to do and remains a political white elephant!

       

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