Rethinking the (European) foundations of sub-Saharan African regional economic integration

Peter Draper, 1 March 2011

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Support for regional economic integration in Africa runs high among the continent’s international development partners and African elites. This is most loftily expressed in the African Union’s stated goal of achieving a continental economic integration scheme, the African Economic Community, by 2028.

As is often, however, the rhetoric does not match the reality. African economic integration suffers from a litany of problems, ranging from overlapping memberships, through unfulfilled commitments, to unrealistic goals (Dinka and Kennes 2007, Draper et al. 2007, UNECA 2006 and 2008).

The right tool for the wrong job

It is my contention that the dominant model pursued in Africa mimics European forms, and as such is not appropriate to regional capacities and may do more harm than good. In recent research (Draper 2010), I set out to reconceptualise the foundations of African economic integration through reviewing relevant debates within the international relations and economics literatures.

The political case for regional economic integration

The political case for building regional economic integration is centred primarily on security considerations. The reference point is principally European, specifically the origins of the European Community as a means to managing Franco-German relations in a bid to avoid a rerun of the World Wars. The role of strong states, France and Germany, was essential to the EU’s success. This gave rise to the theory of hegemonic stability (Gilpin 2000) which posits that a hegemon is central to maintaining adherence to liberal international economic regimes, and by extension liberal peace, through underwriting the costs of maintaining the regime (e.g. by providing access to its own market) rather than coercion.

However, the “liberal peace” paradigm is a very challenging proposition for African states (Clapham 2001). The current character of many post-colonial African states does not obviously lend itself to constructing a “liberal peace”; many are managed by former liberation movements or authoritarian, effectively single party governments1. And governance remains an abiding concern throughout the sub-continent, characterised in particular by institutional frailties. So building viable national states, nevermind intra or inter-regional organisations, is a challenging proposition.

Furthermore, in light of the relative “youth” of states in the region (de-colonisation being a very recent historical process) it is not surprising to find that leaders in many countries are reluctant to really yield their prerogatives to regional institutions. Instead, regional forums, particularly those comprising Heads of State, can provide both a refuge from domestic concerns and a source of external legitimacy. Therefore it is not surprising to find gaps emerging between pronouncements made at Heads of State level and translation of those pronouncements into practical implementation requiring actual surrender of sovereignty.

Nonetheless African states are increasingly concerned with security risks generated by their neighbours arising from poor governance that might cause cross-border instability. Therefore, regional security communities in Africa are increasingly willing to replace “hard sovereignty” whereby interference in other member states’ affairs is expressly forbidden, with regimes that allow for some foreign intervention under defined circumstances (Hammerstad 2005)2. Hence there is a case for regional security structures designed to manage complex security problems

These problems highlight that regional economic integration ought to be primarily inter-governmental with a minimum of supra-national aspirations. As the theory of hegemonic stability suggests, strong leadership is required to drive the construction of even a minimalist agenda. But what should be the content of that agenda? This brings the argument to the economics of African economic integration.

How regional integration could fail

Proponents of “new economic geography” advance strong arguments against promoting south-south economic integration (World Bank 2000). The theory predicts that while all countries in such schemes have a comparative disadvantage in manufacturing relative to the global economy, there will be one with less of a disadvantage than the other where industrial activity will tend to relocate. This effect will be aggravated by agglomeration economics, whereby industrial concentration in the relatively advantaged country (consider South Africa and Kenya) will be promoted at the expense of its neighbours.

Furthermore, as a result of preferential tariffs, countries will start importing relatively expensive goods from the growing industrial centre rather than more efficient global producers, thereby lowering their overall welfare. The favoured country will gain as regional industry relocates to its soil and real wages rise. These effects would surely generate substantial political tensions over time3 which in turn would undermine integration4.

Why regional integration remains a good idea

Still, there are economic problems associated with the fragmentation of states in Africa. For example, nobody knows how much informal and unrecorded trade takes place across national borders in Africa. Regional trade facilitation measures can help to increase the level of formality in such trade and increase the volume of trade at the same time (Lesser and Moisé-Leeman 2009).

Furthermore, regional provision of public goods (ODI 2008) notably in the spheres of regulatory coordination and network services infrastructure (energy, finance, telecommunications, transport) has an important role to play in addressing the development challenges.

In addition, Collier and Venables (2008) note that African markets are very small considered individually, whereas pooling markets through regional economic integration in principle affords greater economies of scale and the potential for regional production sharing, albeit it runs the twin risks of diverting trade and agglomeration5. And since small markets are vulnerable to monopoly/monopsony capture, which may discourage investment in them, widening the market may minimise this.

Dynamic comparative advantages

While regional economic integration in Africa could yield net benefits, it is not likely to drive economic development in the manner of East Asian economic growth. Rather, it must be buttressed with north-south economic integration – which plays to each region’s comparative advantages, it should promote income convergence, and, over time, it should also promote knowledge transfers from developed to developing countries.6 While this approach at first sight would seem to “condemn” African countries to the status of perennial suppliers of primary products to northern markets, this conclusion assumes that comparative advantage is static. Rather, it is arguably through trade and commercial contact with dynamic regions of the world that developing countries grow and diversify their economies (Bauer 2000).

Conclusions

From the discussion concerning the politics of regional economic integration in Africa I draw four conclusions:

  • There is a major disjuncture between the ideological character of states in sub-Saharan Africa and those in Europe which sharply curtails the possibilities for constructing a “liberal peace” agenda using economic integration.

  • Many states in sub-Saharan Africa do not have the capacities to manage development processes, never mind engage in complex institutional forms of economic integration along the lines of the EU model.

  • The role of regional leading states is critical. But, with the probable exception of South Africa, none would seem to have the capacity to underwrite relevant regional economic communities or the legitimacy to secure a ‘liberal peace’ agenda.

  • Nonetheless, there is some willingness to replace “hard” sovereignty with “soft” sovereignty, which lends itself to a “good governance agenda”. However, this should be on the basis of inter-governmentalism, not supranational structures that demand major sovereignty concessions.

From the discussion concerning the economics of regional economic integration I draw five conclusions:

  • Widening regional markets could promote economic development through increasing specialisation.

  • Similarly, pooling capacities to provide regional public goods offers substantial promise. This revolves around constructing network services (energy; finance; telecommunications; transport) and integrating them in regional markets.

  • That should be underpinned by a trade facilitation agenda, and a focus on regulations linked to network infrastructure. The current approach of integrating through formal arrangements, particularly customs unions and their common external tariffs, poses substantial policy coordination challenges to states with opposed industrial interests and very limited capacities to harmonise industrial policies.

  • The extent to which regional leaders can drive integration is sharply limited. Furthermore, given the agglomeration problem and prevalence of “economic realism” thinking, the question is whether such states will be seen as acting in the regional, rather than narrow national, interest. Therefore regional leaders need to show good faith by underwriting the regional economic community, notably through providing preferential access to their markets. Outside of Southern Africa the challenge this imperative confronts is that the regional leaders (eg Kenya; Nigeria) are also mired in poverty meaning their domestic lobbies may not buy into such an agenda.

  • These challenges again suggest that a different approach may be more appropriate (Gilpin 2000) rather than formal, EU-style, institutional integration. Regional economic integration is not a panacea for African states, therefore continued economic integration with northern partners in order to capture the dynamic gains from increased openness remains essential.

Bringing together the political and economic insights, it seems to me that there is a case for a limited regional economic integration agenda which steers clear of formal, institution-intensive arrangements that parrot European forms, as seems to be the norm in most sub-regional groupings in sub-Saharan Africa. Rather, a much more limited approach is required, one that prioritises trade facilitation and regulatory cooperation in areas related primarily to the conduct of business7; underpinned by a security regime emphasising the good governance agenda at the domestic level.

References

Bauer, P (2000), From Subsistence to Exchange – and other essays, Princeton University Press.

Brown, O, SR Kahn, and FH Shaheen (2009), “Introduction”, in SR Kahn (ed.) Regional Trade Integration and Conflict Resolution. Routledge.

Chabal, P and J Daloz (1999), Africa Works: Disorder as Political Instrument, James Currey.

Clapham, C (2001), “The Changing World of Regional Integration in Africa” in C Clapham, G Mills, A Morner, and E Sidiropoulos, Regional Integration in Southern Africa: Comparative International Perspectives, South African Institute of International Affairs.

Collier, P and T Venables (2008), “Trade and Economic Performance: does Africa’s fragmentation matter?”, Annual World Bank Conference on Development Economics, Cape Town, South Africa, June.

Draper, P, D Halleson, and P Alves (2007), “SACU, Regional Integration, and the Overlap Issue in Southern Africa: From Spaghetti to Cannelloni?”, South African Institute of International Affairs, SAIIA Trade Policy Report No 15.

Draper, P (2010), “Rethinking the (European) Foundations of African Economic Integration: A Political Economy Essay”, OECD Development Centre Working Paper, 293.

Gilpin, R. (2000) Global Political Economy: Understanding the International Economic Order. Princeton: Princeton University Press.

Hammerstad, A. (ed.) (2005) People, States, and Regions: Building a Collabourative Security Regime in Southern Africa. Johannesburg: South African Institute of International Affairs.

Herbst, J. (2000) States and Power in Africa: Comparative Lessons in Authority and Control, Princeton: Princeton University Press.

Kelly, D. (2005) “Trade, Security and Globalisation”, in Kelly, D. and Grant, W. The Politics of International Trade in the Twenty-First Century. Basingstoke: Palgrave macmillan.

Lesser, C. and Moisé-Leeman, E. (2009) “Informal Cross-Border Trade and Trade Facilitation Reform in Sub-Saharan Africa”, OECD Trade Policy Working Papers, No. 86, OECD Publishing.

Mkandawire, T. (2001) “Thinking about developmental states in Africa”, Cambridge Journal of Economics, 25, 289-313.

Overseas Development Institute (2008) “Regional Integration in African, Caribbean and Pacific Countries: A Review of the Literature”, September.

Ruggie, J (1982), “International regimes, transactions, and change: Embedded liberalism in the postwar economic order”, International Organization, 36(2).

Sally, R (1998), Classical Liberalism and International Economic Order: Studies in Theory and Intellectual History, Routledge.

UNECA (2006), Assessing Regional Integration in Africa II: Rationalising Regional Economic Communities, Addis Ababa: United Nations Economic Commission for Africa and African Union.

UNECA (2008), Assessing Regional Integration in Africa 2008: Towards Monetary and Financial Integration in Africa, Addis Ababa: United Nations Economic Commission for Africa. http://www.uneca.org/aria

UNCTAD (2009) Economic Development in Africa Report: Strengthening Regional Economic Integration for Africa’s Development. United Nations: Geneva.

World Bank (2000), Trade Blocs, Policy Research Report, Oxford University Press.

World Bank (2009), World Development Report.


 

1 In Southern Africa the only exceptions to this generalisation seem to be Lesotho, Malawi, and Zambia.

2 The Kenyan then Zimbabwean political deals reached in 2008 and 2009 respectively, imperfect as they are, attest to this new paradigm.

3 This process was a substantial factor behind the unravelling of the original East African Community, as Kenya attracted manufacturing investment and relocation at the expense of Uganda and Tanzania. It also partly explains why South Africa continues to “compensate” its customs union partners for their membership of SACU.

4 North-north integration schemes will not suffer from agglomeration since intra-industry trade is a strongly established feature of such arrangements; similarly in north-south schemes inter-industry trade is the basis.

5 Adherents to strategic trade theory would add that it also offers the potential to build regionally, and potentially globally, competitive industries. However, since this theory concerns industries that are global in nature, in my view it has very limited (if any) applicability to the African context.

6 The accession of relatively poor countries into the European Union in various waves provides strong evidence of such convergence effects.

7 A limited parallel here is the long-standing, if stalled, Asia-Pacific goal of “open regionalism”. According to Garnaut (1996, 27-28), this approach is based on three premises: (1) non-discriminatory reduction of protection in economies which have the capacity to expand trade as a result of high complementarities or low bilateral transactions costs; expanded provision by governments of regional public goods to lower transactions costs; and market integration driven by profit-seeking business supported by governments willing to reduce relevant market access barriers. Per my preceding analysis Sub-Saharan Africa falls short of conditions (1) and (3).

 

 

Topics: Development, International trade
Tags: Africa, regional cooperation, trade agreements

Peter Draper

Founder and Director, Tutwa Consulting

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