Economic integration

Reaping the benefits of African economic integration by Célestin Monga

Africa needs to industrialize to diversify away from natural resources and create jobs for its rapidly growing young population. And by boosting intra-continental trade, consumption and investment, regional integration can be a powerful vehicle for improving productivity, building manufacturing powerhouses and developing credible African brands.

ABIDJAN — When Kwame Nkrumah, under whose leadership Ghana became the first African country to claim independence in 1957, was overthrown in a military coup in 1966, few of his fellow citizens shed a tear for his rule. But one aspect of his legacy remains relevant to this day and deserves special attention.

Nkrumah was a visionary and charismatic leader whose goal was to modernize Ghana and campaign for political unity in Africa. His brightest idea was to integrate the continent and create the United States of Africa. But it has fostered the development of expensive, capital-intensive projects, which have led to unsustainable foreign debt and deficits while creating few job opportunities. The economic contraction led to widespread unrest and a loss of credibility for the idea of ​​African integration, as well as a fallout with its famous economic adviser, future Nobel laureate W. Arthur Lewis.

Nkrumah’s intuition about the potential benefits of Africa’s integration rested on a solid economic rationale, which he failed to articulate convincingly. With 16 landlocked countries, Africa is more fragmented than any other continent. The small size of many countries and the resulting fragmentation of domestic markets lead to various diseconomies of scale, hampering economic development. In 2017, more than three-quarters of African countries had populations under 30 million and about half had a GDP of less than $10 billion.

After Nkrumah fell from power, other African leaders took up his goal of building the United States of Africa, based on the Organization of African Unity. The OAU then adopted a series of treaties to make economic integration a reality. The African Economic Community was established in 1991, and after the dissolution of the OAU in 2002, leaders adopted the African Union’s Agenda 2063 in 2015. The continent’s leaders have also created a large number of institutions regions to make gradual progress towards Nkrumah’s goal.

Unfortunately, overlapping and often contradictory regional economic communities have constituted a mostly inefficient “spaghetti bowl” of institutions with little authority and weak analytical capacity. This has made African integration sound like an empty political promise used by leaders who have little will to deliver it.

Additionally, researchers have cast doubt on the goal of integration. All African economies combined still represent only about 3% of global GDP and purchasing power remains low. Why, then, devote limited financial resources to building costly infrastructure aimed at integrating the continent? While the creation of a single African market is a desirable goal, its pursuit should not divert the attention of national policymakers from the huge potential gains to be made from integration into the global economy.

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A new study of the African Development Bank proves that the two objectives are not mutually exclusive; in fact, they could be mutually reinforcing. The report also examines the potential gains of regional public goods, such as the synchronization of financial governance frameworks, the pooling of powers, the opening of the skies to competition and the opening of borders to the free movement of people, goods and services.

The study shows that a borderless continent that allows agricultural and industrial production across national borders is the foundation of a globally competitive African market, as it would provide economies of scale to investors, while creating much larger markets and providing new opportunities for small and large businesses. . This would also help eliminate monopolistic positions and strengthen cross-border spillovers between coastal and landlocked countries.

Moreover, integration can improve regional security, as the expansion of international trade is often correlated with a reduction in conflict. Further integration of markets for goods, infrastructure services and key factors of production (labour and capital) is particularly important – both economically and strategically – for Africa’s small, fragmented economies.

In a world where 60% of trade takes place through global value chains, Africa needs to industrialize to diversify away from natural resources and create jobs for its rapidly growing young population. By boosting intra-continental trade, consumption and investment, regional integration can be a powerful vehicle for improving productivity, building manufacturing powerhouses and developing credible African brands. Open regionalism could also boost connections between small and medium-sized enterprises and international value chains, allowing these firms to access global markets.

In particular, five trade measures could deliver total gains worth 4.5% of Africa’s GDP, or $134 billion a year, almost the amount of all official development assistance in 2017. The first is the elimination of all bilateral tariffs. Second, country of origin rules (necessary to determine the source of a product) should be kept simple, flexible and transparent. Third, all non-tariff barriers to trade in goods and services should be removed on a most favored nation basis. Fourth, the World Trade Organization’s Trade Facilitation Agreement should be implemented to reduce the time needed to cross borders and the transaction costs associated with non-tariff measures. Finally, tariff and non-tariff barriers applied to trade with other developing countries should be halved on a most favored nation basis.

The economic rationale for Nkrumah’s dream was stronger than previously thought. The adoption of the African Continental Free Trade Area by African leaders in 2018 gives it a new impetus. With the right balance between audacity and pragmatism, regional integration could bring important dividends to Africa and to the world.